Property and Casualty Insurance Terms and Related Concepts

A tornado that destroys property would be an example of which of the following? A. A peril B. A pure risk C. A loss D. A physical hazard

A. A peril A peril is the cause of loss insured against in an insurance policy.

Which of the following definitions best defines the term "accident"? A. A sudden, unplanned, and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended B. Injury to the character of another person caused by libel, slander, false arrest, invasion of privacy and other acts C. Physical damage to tangible property of others caused by the negligence of an insured D. The negligent or purposeful act or omission by an insured that results in physical trauma or death to a person

A. A sudden, unplanned, and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended An accident is best defined as a sudden, unplanned, and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended

The crime of forced entry into the premises of another by a person or persons with felonious intent is defined as a A. Burglary B. Breaking and entering C. Theft D. Robbery

A. Burglary Insurance policies covering the peril of burglary require that there are visible signs of forced entry or exit from the premises following the loss

What type of compensatory damages will pay for pain and suffering and disfigurement? A. General B. Special (Specific) C. Tort D. Normal

A. General General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? A. Indemnity B. Stop-loss C. Consideration D. Reasonable expectations

A. Indemnity The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits

All of the following statements describe the concept of strict liability EXCEPT A. It is imposed on defendants engaged in hazardous activities B. Claimants may need to provide proof that a product defect caused an injury C. It is imposed regardless of fault D. It is applied in product liability cases

A. It is imposed on defendants engaged in hazardous activities Strict liability is commonly applied in product cases. The business is then liable for defective products, regardless of fault or negligence

Which of the following coverages in dwelling and homeowners policies is for indirect losses? A. Loss of use B. Dwelling C. Structures D. Contents

A. Loss of use Loss of use coverage applies only after a direct loss caused by a covered peril has occurred.

The process of determining the premium charged and how much insurance is required for a particular loss is called A. Loss valuation B. Agreed value C. Loss payment D. Coinsurance

A. Loss valuation Loss valuation is the process of determining appropriate monetary value to a particular loss and its resulting repair or replacement.

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as A . Loss. B. Exposure. C. Hazard. D. Risk.

A. Loss. Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.

The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tries to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property? A. Market value B. Actual cost value C. Replacement cost D. Functional replacement cost

A. Market value when insured for market value, it is insured for what a willing buyer would pay prior to a loss. This is different from actual cash value or replacement cost

Losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected is the definition of which of the following terms? A. Occurrence B. Peril C. Hazard D. Accident

A. Occurrence An occurrence includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.

The risk of loss may be classified as A. Pure risk and speculative risk. B. Certain risk and uncertain risk. C. Named risk and un-named risk. D. High risk and low risk.

A. Pure risk and speculative risk. Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

For insurance purposes, when an insured loses property to another because the person used violence or threat of violence to gain the property, this is defined as A. Robbery. B. A theft. C. A burglary. D. False pretense.

A. Robbery. Robbery coverage requires that the insured property was taken by the use of violence or threat of violence.

What are the two types of compensatory damages A. Special and general B. Pure and speculative C. Tort and general D. Normal and punitive

A. Special and general Compensatory damages are intended to compensate someone for both tangible and intangible elements of a loss. Special damages are for the actual measurable losses, such as value of property or medical bills. General damages cannot be specifically measured in dollars, such as pain and suffering

AN insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some furniture and clothes in the house. From an insurance standpoint, the insured's house is considered A. Unoccupied B. Condemned C. Under repair D. Vacant

A. Unoccupied Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but the structure contains contents

If a liability policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person? A. $30,000 B. $50,000 C. $100,000 D. $180,000

B. $50,000 The first limit shown is the most the policy will pay for bodily injury to any one person

In which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation? A. Market value B. Agreed value C. Replacement cost D .Stated amount

B. Agreed value Agreed value is a property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation.

With respect to the business of insurance, a hazard is A. The basic reason for an insured to purchase insurance B. Any condition of exposure that increases the possibility of loss C. The risk taken when performing something dangerous D. The tendency of poorer risks to seek insurance more often than better risks

B. Any condition of exposure that increases the possibility of loss A hazard is any condition of exposure that increases the possibility of loss occurring. Hazards are generally classified as either physical, moral, or morale

A policy that insures all property at multiple locations for a single amount is referred to as A. Specific. B. Blanket. C. Reporting. D. Special.

B. Blanket. Blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss. No single item is assigned a specific amount of insurance. However, different amounts of insurance may be shown for buildings in general and contents in general.

An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this? A. Additional B. Consequential C. Direct D. Special

B. Consequential Consequential loss, also known as indirect loss, is a second financial loss caused by a covered direct loss

All of the following are factors in the determination of actual cash value EXCEPT A. Replacement cost B. Insurance premium paid C. Type and quality of property D. Age of the property

B. Insurance premium paid Actual cash value (ACV is a valuation method in which the value of property is determined using the replacement cost for property of like kind and quality minus depreciation. The original cost is not a factor

All of the following describe the concept of strict liability EXCEPT A. It is applied in product liability cases B. It is imposed on defendants engaged in hazardous activities C. Claimants may need to provide proof that a product defect caused an injury D. It is imposed regardless of fault

B. It is imposed on defendants engaged in hazardous activities Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? A. Law of group evaluation B. Law of large numbers C. Law of masses D. Law of averages

B. Law of large numbers The law of large numbers states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, and is the basis for statistical prediction of loss upon which rates for insurance are calculated

Which of the following is the basis for a claim against an insurance policy? A. Misrepresentation B. Loss C. Material change D. Hazard

B. Loss Claims result from losses by a peril insured against in an insurance policy

Most insurance policies exclude losses by A. Robbery. B. Mysterious disappearance. C. Theft. D. Burglary.

B. Mysterious disappearance. Losses by mysterious disappearance are excluded by most insurance policies.

An insured has a liability policy that sets the amount for all claims that arise from a single incident at $50,000. Which type of limit of liability does this insured's policy have? A. Split B. Per occurrence C. Per person D. Aggregate.

B. Per occurrence Per occurrence sets the amount for all claims that arise from a single incident at a certain number.

Which method of loss valuation is contrary to the basic concept of indemnity? A. Agreed value B. Replacement cost C. Functional replacement cost D. Market value

B. Replacement cost The replacement cost method of loss valuation is contrary to the basic concept of indemnity because following a loss it may provide the insured with a settlement in excess of the property's actual cash value.

Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages? A. General B. Special C. Tort D. Normal

B. Special The two classes of compensatory damages that may be awarded are special and general damages. Special damages are tangible damages that can be specifically measured in dollar amounts (such as out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages).

Property insurance that provides $100,000 coverage for abuilding and $50,000 coverage for personal property at a single location is called A. Described coverage B. Specific coverage C. Schedule coverage D. Blanket coverage

B. Specific coverage One location is insured for a specific amount of insurance on the structure and contents

The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called A. Appraisal B. Subrogation C. Consent to settle loss D. Right of salvage

B. Subrogation When insureds accept loss payment from the insurance company, they must transfer their rights to recovery to the insurer. This prevents the insured from collecting twice for the same loss and allows the insurer to indemnify the insurance company

Peril is most easily defined as A. Something that increases the chance of loss. B. The cause of loss insured against. C. An unhealthy attitude about safety. D. The chance of a loss occurring.

B. The cause of loss insured against. Perils are the cause of loss insured against in an insurance policy

Which of the following best describes negligence? A. The inability to meet the burden of proof B. The failure to use reasonable and prudent care C. A situation that creates a probability of loss D. A latent defect or faulty in property

B. The failure to use reasonable and prudent care Negligence is defined as the failure to use care that a reasonable and prudent person would have in a similar situation or circumstance

Which of the following is most likely to occur if it is determined by the audit that the deposit premium was too high? A. Nothing; the premium cannot be adjusted B. The insured will receive a return premium C. Additional benefits will be added D. The insurer will have to pay a fine

B. The insured will receive a return premium If the audit shows that the initial (deposit) premium to the insured was too high(the exposures were over-estimated), the insured will receive a return premium

When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be A. An intervening cause. B. The proximate cause. C. The direct cause. D. Strict liability.

B. The proximate cause. The proximate cause of a chain of events resulting in injury is one that is sufficiently related to an injury that the courts determine it is in fact the cause of that injury.

An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices. If the roof has been depreciating at $200 per year and his policy is ACV, how much will it pay toward the insured's new roof? A. $1,000 B. $4,000 C. $5,000 D. $6,000

C. $5,000 ACV=replacement cost - depreciation $5,000= $6,000-($200 * 5 years)

What type of liability would a person who owns wild animals have? A. Implied B. Direct C. Absolute D. Vicarious

C. Absolute Any conduct that is inherently dangerous, such as using explosives or keeping wild animals, imposes absolute liability. The claimant does not have to prove anything.

Which of these is defined as the maximum limit of coverage available under a liability policy year, regardless of the number of claims that may be made or the number of accidents that may occur A. Per occurrence limit B. Split limit C. Aggregate limit D. Per person limit

C. Aggregate limit Aggregate limit is the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur

Which of the following types of valuation works best for property whose value does not fluctuate much? A. Stated amount B. Inflation guard C. Agreed value D. Market value

C. Agreed value Agreed value works best for items whose value does not fluctuate much. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured item's appreciation or depreciation.

An insured is driving her car through a residential area when she loses control and crashes into a neighbor's front porch. The neighbor, who was sitting on the porch, is injured. The insured's liability policy has a limit of $500,000. This amount applies to the total of damages for any bodily injury and property damage resulting from one accident. Which type of limit of liability does the insured have? A. Aggregate B. Per occurrence C. Combined single D. Split

C. Combined single Combined single is a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined resulting from one accident or occurrence.

What is the purpose of the coinsurance clause found in property insurance policies? A. Ensure that insureds do not overinsure their property B. Prevent insureds from profiting from a loss C. Encourage the insured to insure the property closer to its full value D. Encourage higher standards of care by requiring the insured to pay a portion of every loss

C. Encourage the insured to insure the property closer to its full value In return for the insured's promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full.

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become A. Older. B. More active. C. Larger. D. Smaller.

C. Larger. According to the law of large numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums.

Which of the following does the term proximate cause refer to? A. Duty of the defendant to act B. Reason for filing a lawsuit C. Negligence that leads to an injury D. Injury that leads to monetary compensation

C. Negligence that leads to an injury Proximate cause is the reasonably foreseeable act or event that results in an injury or damage. Negligence may often be the proximate cause of the damage; without it, the accident would not have happened. This is also called direct liability.

What type of damages may be awarded by the court to create disincentives that discourage behavior that is deemed highly undesirable by society? A. Compensatory B. Specific C. Punitive D. General

C. Punitive Punitive damages are a form of punishment, intended to serve as an example to others to discourage undesirable behavior.

Which of the following is used in the formula for calculating the actual cash value of a property? A. Fair market value B. Agreed value C. Replacement cost D. Stated Value

C. Replacement cost The actual cash value (ACV) method of valuation reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages. To calculate ACV, depreciation is subtracted from the current replacement cost

In case of a loss, the indemnity provision in insurance policies A. Pays the insured a percentage of the loss above and beyond the loss. B. Pays the insured as much as 95% of the loss C. Restores an insured person to the same financial state as before the loss. D. Allows the insured to collect 20% more than the actual loss

C. Restores an insured person to the same financial state as before the loss. Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.

Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages? A. Normal B. General C. Special D. Tort

C. Special The two classes of compensatory damages that may be awarded are special and general damages. Special damages are tangible damages that can be specifically measured in dollar amounts (such as out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages).

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method? A. Replacement cost B. Reproduction cost C. Stated amount D. Actual cash value

C. Stated amount A stated amount is an amount of insurance scheduled in a property policy which is not subject to ay coinsurance requirements in the event of a covered loss

All of the following statements concerning coinsurance are true EXCEPT A. The insured agrees to maintain insurance equal to some specified percentage of the value of the property. B. If the insurance carried is less than required, the insurance may not cover the whole loss. C. The coinsurance formula will also be applied to total losses. D. It is used to help adequacy and equity in rates.

C. The coinsurance formula will also be applied to total losses. In the event of total loss, the coinsurance clause does not operate and the face amount of the policy is paid.

Liability imposed on one party as a result of the actions of another person is known as A. Strict liability B. Absolute liability C. Vicarious liability D. Comparative negligence

C. Vicarious liability Vicarious liability is liability imposed on one party as a result of the actions of another person; i.e., parent/child or employer/employee

An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for? A. 100% of the market value B. $400,000 C. $32,000 D. 80% of the property's replacement cost or more

D. 80% of the property's replacement cost or more The coinsurance clause states that in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. In the event of a covered loss, insurance is designed to pay replacement cost minus depreciation.

Insurable interest in a property policy must be proven A. When a policyowner is changed B. When a claim is paid C. At the time of application D. At the time of loss

D. At the time of loss Between the time a policy is issued and when a loss occurs. ownership may have changed, mortgages may have been put into place, etc. Therefore, in property and casualty insurance, insurable interest must exist at the time of loss.

An insured is applying for a casualty insurance policy. One of the conditions of the policy allows the insurance company to inspect the insured's books at the end of the policy term to make sure sufficient premium has been collected for the exposure she plans to insure. Which condition is part of the insured's policy? A. Excess liability coverage B. Contract Bond C. Errors and Omissions insurance D. Deposit premium audit

D. Deposit premium audit Deposit premium audit is a condition that allows an insurer to inspect the insured's books at the end of the policy term to make sure sufficient payment has been collected for the exposure.

A beauty parlor burns to the ground. What type of loss is this to the owner? A. Consequential B. Specific C. Consecutive D. Direct

D. Direct Damage caused by a peril that is insured against is classified as direct loss.

To purchase insurance, the policyowner must have financial interest in the property being insured. This is known as A. Pure loss B. Loss valuation C. Indemnity D. Insurable interest

D. Insurable interest The insured must have insurable interest in the person or property covered by an insurance policy. In property insurance, this means the insured would incur a financial loss if the insured property was damaged.

All of the following are true regarding deposit premium EXCEPT A. It could be adjusted by the audit B. It must be paid in advance C. It is an estimated premium paid at the policy issue D. It is 50% of the actual premium

D. It is 50% of the actual premium Deposit premium is an estimated premium paid in advance at the time the policy is issued that may be adjusted by the audit based on actual exposures

The causes of loss insured against in an insurance policy are known as A. Losses B. Risks C. Hazards D. Perils

D. Perils Perils are the causes of loss insured against in an insurance policy

Negligence is defined as A. An unbroken chain of events that results in bodily injury or property damage to another person B. Conduct that is so hazardous that the individual engaging in it will be help fully responsible for any resulting injury or damage C. An intentional act that results in bodily injury or property damage to another person D. The failure to do what a reasonable prudent person would do under given circumstances

D. The failure to do what a reasonable prudent person would do under given circumstances Negligence is defined as the failure to do what a reasonable prudent person would do under given circumstances

For the purpose of insurance, risk is defined as A. The certainty of loss B. The cause of loss C. An event that increases the amount of loss D. The uncertainty or chance of loss

D. The uncertainty or chance of loss Risk is the chance of loss occurring and is the basic reason for buying insurance.

An insured's 9-year-old son threw a ball, accidentally breaking a neighbor's plate glass window. The insured was found legally liable for the cost of replacing the window. This is an example of A. Intervening cause B. Juvenile delinquency C. Absolute liability D. Vicarious liability

D. Vicarious liability Under vicarious liability, an insured may be held responsible for the acts of other family members or independent contractors engaged by the insured to perform work