Chapter Quiz - Policy Provisions and Contract Law

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements:

1) Agreement--Offer and Acceptance 2) Consideration 3) Competent Parties 4) Legal Purpose

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?

Additional Coverage The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium

The declarations page of the homeowners policy provides all of the following information: -The amount of premium charged for each coverage -The insured's address -What deductible amount applies to each loss covered by the policy -A statement that earthquake damage is not covered Except:

Answer: -A statement that earthquake damage is not covered. The declarations section provides information as to who is insured, where they are located, when the policy provides coverage, how much coverage and the amount of deductible applied to the loss. The statement that earthquake damage is not covered is found in the policy form.

Which of the following clauses establishes the procedure for determining the amount of a loss when the insurer and the insured cannot agree on the value of property or amount of loss?

Appraisal Clause

In return for premium, an insurance company must

Be fair in underwriting and pay covered losses In return for premium, an insurance company must be fair and impartial in underwriting of risks and must pay claims made for all covered losses

Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as

Cancellation Cancellation is the termination of an in-force insurance policy by either the insured or the insurer prior to the expiration date shown in the policy. Termination may be voluntary, involuntary, or in mutual accordance with provisions contained in the policy.

The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the

Conditions The conditions is the part of an insurance policy that sets forth the obligations and duties of the insurer and the insured

When an insured makes truthful statements on the application for insurance and pays the premium, it is known as which of the following?

Consideration

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

Representations are written or oral statements made by the applicant that are

Considered to be true to the best of the applicant's knowledge Representations are statements made by an applicant that they believe to be true

Which of the following is NOT an essential element of an insurance contract: Legal Purpose Counteroffer Consideration Agreement ?

Counteroffer In order for Insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

Which of the following is a mandatory part of an insurance policy that varies with each individual policy?

Declarations Because the Declarations tell who, what, when and where, this information is different in each contract

The part of a property policy that shows the amount of insurance, premium, and policy term is the

Declarations Who, what, when, where, and how much insurance and premium all are stated in the policy Declarations

The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the

Exclusions

Which of the following would be named on the declarations page of a property or liability policy?

First Named Insured

The policy conditions define

How parties to the contract must act following a loss.

The proof of loss statement must be

In writing

Who is responsible for filling out a notice of claim form?

Insured Notice of claim is a form or statement from an insured to an insurer, informing the insurer that events leading to possible claim have occurred

The part of the insurance contract that describes the covered perils and the nature of coverage of the contractual agreement between the insurer and the insured is called the

Insuring Agreement The Insuring Agreement is the part of the policy structure that describes the insured perils and the method of indemnification

What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk?

Other Insurance Other insurance is a provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk

The other insurance provision that limits the liability of the insurer to a portion of the loss no greater than the amount the insurer bears to all the insurance covering the property is called

Pro Rata Liability

Before an insurer will pay any loss under a policy, what is usually required from the insured?

Proof of Loss

A sworn written statement that must be furnished by the insured to the insurer before any loss under a policy can be paid is called

Proof of Loss Proof of Loss must be in writing

Which of the following is NOT the consideration in a policy? The premium amount paid at the time of application The promise to pay covered losses The application given to a prospective insured Something of value exchanged between parties

The application given to a prospective insured Consideration is something value that is transferred between the two parties to form a legal contract

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage

Binder

a temporary agreement issued, usually in writing, but may be oral, by a producer or insurer providing temporary coverage until a policy can be issued

Which of the following provisions requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof of loss within a specified period of time?

Duties after a loss Duties after a loss provision requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof of loss within a specified period of time.

The pro rata liability clause is designed to protect the principle of

Indemnity If more than one policy is in force on the same property at the same time covering the same perils, this is concurrent coverage. The intent of insurance is that after a loss, the insured is restored to the condition he or she was in before the loss (indemnified). Each policy pays a percentage of a loss directly related to the amount of insurance it provides compared to the total amount of coverage

What type of information would be found in a policy's insuring agreement?

Renewal Dates An Insuring Agreement establishes the obligation of the insurance company to provide the insurance coverage as stated in the policy. The insuring agreement lists the parties to the contract, effective and renewal dates, the description of coverage provided , and perils. Location of premises, policy limits, supplemental representations, and insurer's name ands address can all be found in the declarations

The Gramm-Leach-Bliley Act was passed to

Protect private customer information filed with a financial institution. The Gramm-Leach-Bliley Act was passed to protect private customer information that is filed with a financial institution. Customers must be given two disclosure notices (one at the onset of business and one before information is disclosed), as well as a yearly updated disclosure notice

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty A Warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.

What term best describes the act of withholding material information that would be crucial to an underwriting decision?

Concealment Concealment occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be important for making underwriting decisions