Ch. Two Quiz

Which of the following provides broader coverage for something not normally covered by a property insurance policy? A. Appraisal B. Depreciation C. Extension of coverage D. Hazard

C. Extension of coverage

A condition that may increase or heighten the chance that a loss may occur is known as: A. Peril B. Risk C. Hazard D. Concealment

C. Hazard

Which of the following insurance principles makes an insured whole again following a covered loss? A. Subrogation B. Insurable interest C. Indemnity D. Replacement

C. Indemnity

Which of the following involves the full cost to repair or replace destroyed property? A. Actual cash value B. Market value C. Replacement cost D. Current cost

C. Replacement cost

The principle of indemnity is best supported by which of the following? A. Nonrenewal provision B. Cancellation C. Right of salvage D. Actual cash value

D. Actual cash value

Which of the following types of loss is considered to be an indirect loss? A. Loss of use B. Loss of income C. Additional living expenses D. All of the above

D. All of the above

A process utilized when an insurer and insured cannot agree upon the extent of a loss best describes? A. Arbitration B. Subrogation C. Indemnification D. Appraisal

D. Appraisal

An individual who refuses to invest in the securities or bond market is engaging in what type of risk management? A. Retention B. Reduction C. Transfer D. Avoidance

D. Avoidance

Ted owns a commercial building located within city limits. If this building is currently unfurnished it may also be described as: A. Unoccupied B. Vacant C. Proximately occupied D. Indemnified

B. Vacant

Which of the following losses cannot be covered by an insurance policy since it does not involve a covered peril? A. The insured's dog mauls a passerby B. A mechanic damages a customer's car C. A gambling loss D. Windstorm damages a silo

C. A gambling loss

Which of the following supports the theory of indemnity? A. Liberalization clause B. Abandonment C. Market value D. Depreciation

D. Depreciation

Several cans of gasoline stored in an insured's basement is an illustration of a: A. Peril B. Loss C. Risk D. Hazard

D. Hazard

Which of the following best describes the total losses suffered by an insurer during the year divided by the earned premiums collected? A. Reserve ratio B. Current ratio C. Profit ratio D. Loss ratio

D. Loss Ratio

The probability or possibility of loss best identifies which of the following? A. Assignment B. Right of salvage C. Replacement cost D. Risk

D. Risk

Which of the following best describes the concept of insurance? A. The transfer of rights of recovery B. The transfer of rights and duties C. The uncertainty concerning loss D. The transfer of risk from one party to another

D. The transfer of risk from one party to another

What is the primary obligation or responsibility of an insurance company? A. To collect premiums B. To make a profit C. To return all unearned premium due an insured D. To pay valid claims

D. To pay valid claims

A temporary insurance contract that may be oral or written and generally lasts for no more than thirty days best describes a(n): A. Binder B. Endorsement C. Proposal D. Warranty

A. Binder

Which of the following supports and is influenced by the theory of indemnity? A. Insurable Interest B. Transfer of rights of recovery C. Consequential loss D. A covered peril

A. Insurable Interest

Which of the following provisions would prevent an insured from collecting damages twice from the same loss? A. Subrogation provision B. Duties in the event of loss provision C. Assignment provision D. Vacancy provision

A. Subrogation provision

An insurer who pays a fire claim in an amount greater than the actual value of the damaged building has violated: A. The principle of indemnity B. The law of averages C. Subrogation D. Actual cash value law

A. The principle of indemnity

Jim Gerber pays an annual premium of $8,000. The policy period is 1/1/13 to 1/1/14. The insurer cancels the policy providing written notice to Jim as of 6/30/13. What will Jim receive? A. A pro rata premium return of $800 B. A pro rata premium return of $400 C. A pro rata premium return of $300 D. A short rate premium return of $400

B. A pro rata premium return of $400

The cost of repairing or replacing damaged property less a deduction for depreciation best describes? A. Subrogation B. Actual cash value C. Market value D. Insurance to value

B. Actual cash value

John works for a construction company which guts out old buildings prior to reconstruction. Many of the old buildings are insulated with a hazardous material and several years later John suffers from a physical disorder related to this exposure. The injury that John has suffered is an example of: A. An accident B. An occurence C. A hazard D. A peril

B. An occurence

Risk is a central concept to the insurance field. It may be defined as the: A. Transfer of loss B. Chance of loss C. Probability of gain D. Possibility of gain

B. Chance of loss

Which of the following types of reinsurance functions on a case by case basis? A. Automatic B. Facultative C. Treaty D. Concurrent

B. Facultative

Which of the following policies pays a third party on behalf of an insured? A. Property insurance policy B. Liability insurance policy C. Valued policy D. Equipment breakdown insurance

B. Liability insurance policy

When an airport uses de-icing on a plane ready for takeout, it has engaged in risk: A. Transfer B. Prevention C. Sharing D. Avoidance

B. Prevention

If an insured cancels his or her insurance policy during the term of the contract, what type of premium refund will be received? A. Pro rata B. Short rate C. Prohibited D. Arbitrated

B. Short rate

Property insurance is a personal contract. What concept allows the insurer the legal right to seek reimbursement from at-fault third parties after paying a claim to the insured? A. Indemnity B. Subrogation C. Transfer of rights and duties D. Assignment

B. Subrogation

The difference between an accident and an occurrence depends upon which of the following? A. The time of the accident B. The duration of the loss C. The coverage limits stated in the policy D. The frequency of claim payments

B. The duration of the loss

Thelma is having a cookout for her relatives on a Saturday afternoon. To be able to run in and out of the house quicker, she leaves the screen door open. A hail storm begins dropping golf ball sized stones on the property and a gust of wind slams the screen door shut, as Thelma is entering the home. The door pushes her into the stove, which is lit, and the collision causes the curtains to catch fire, which requires the fire department to put out the blaze. Which of the following is the proximate cause of the fire damage? A. The hail B. The wind C. The collision D. The screen door

B. The wind