Review Questions Part One

The insured purchased a car for $40,000 and added $5,000 in insured modifications. Four years later it was worth $24,000 when it was totaled in a crash. According to the principle of indemnity, how much should the insured receive from the insurance proceeds?

$24,000

Dionne has insured her $100,000 commercial building for $40,000 despite a coinsurance requirement of 80%. when she sustains a $10,000 covered loss, how much will the company pay?

$5,000

Ned purchases his business insurance on a calendar year basis. Even though his $10,000 premium is pre-paid through December 31, he decides to cancel on July 1, because he is selling his business. If he is due a pro rata refund, what should he receive?

$5,000

Dave's building has a replacement cost value of $100,000. He insures the building for $70,000 using the standard deductible. the building sustains a covered loss valued at $8,000 ACV and at $12,000 replacement cost. How much does Dave's company pay?

$7,500

Mandy insures a commercial building worth $500,000 for $300,000 even though there is a coinsurance requirement of 80%. If she sustains a $100,000 loss, how much will she be paid?

$75,000

John owns a collectors set of Three Stooges mugs. Each of the three mugs depicts one of the stooges and is worth $1,000. The set of three is worth $10,000. If the Curley mug is destroyed by a covered peril, the Pair and Set Clause would dictate what settlement amount to John, disregarding the deductible?

$8,000

trey has insured his $100,000 commercial building for $90,000 in order to meet the coinsurance requirement of 80%. when he sustains a total loss by a covered peril, how much will the company pay?

$90,000

broad perils

(BIGAFFECT) Buglary, Ice, Glass, accidental release of water, freezing pipes, falling objects, Electrical current, collapse, Tearing asunder

Basic Perils

(FLEW RVVVSSS) Fire, Lightning, Explosion, Windstorm/Hail, Riot or Civil Commotion, Vandalism, Volcanic Action, Vehicles/Aircraft, Smoke, Sprinkler Leakage, Sinkhole Collapse

Under the fair credit reporting act, a licensee must give notice to the consumer no later than how many days after a report is requested?

3 days

Under the national flood insurance program, coverage becomes effective on which calendar day after the application is completed and the premium is paid?

30th

coinsurance requires the insured to carry minimum amount of insurance. the coinsurance requirement is normally what percentage of the replacement cost?

80%

Non-concurrency

A situation under which at least 2 policies cover an insured's property against damage or destruction, but since the limits of coverage, kinds of property, and perils covered are not the same under all policies, the insured may not be full covered in the event of a loss. (Example: A building is covered for a total of $500,000. Company A provides $250,000 of the total and provides theft coverage, Company B provides $250,000 of the total and does not cover theft, and the building sustains a $100,000 theft loss. Company A would pay $50,000 of the loss, and Company B would pay nothing.)

Who may bring a civil action in the appropriate United States district court against any person engaging in conduct constituting an offense under Section 1033?

Attorney general

Smith insures his commercial building with Company A for $100,000 under a Basic Cause of Loss form and with Company B for $200,000 under a Broad Cause of Loss form. His building sustains a $30,000 loss due to the weight of ice and snow. How is Smith's loss covered?

Company A pays $0 and Company B pays $30,000

indirect loss

Loss that is a result or consequence of a direct loss

insurance policies are aleatory contracts because one party....

MAY benefit far more than the other.

valued policy

Provides for payment of the full policy amount in the event of a total loss without regard to actual value or depreciation

Who regulates investigative consumer reports?

The Fair Credit Reporting Act

what document provides interim insurance coverage?

a binder

an indirect loss is known as

a consequential loss

a house is on fire and ignites the neighbor's house. Damage to the neighbor's house would be considered..

a direct loss

material fact

a fact that caused the insurer to decline the risk or rate it differently

special damages

a form of compensatory damages for tangible expenses such as medical bills, property damage, and loss of earnings

what forms the basis of a loss under an insurance policy?

a loss

insurers can generally cancel a policy for any reason if it is

a new policy and within 60 days of issuance, a material misrepresentation by the insured, or a substantial change in the risk or for non-payment of premium

assume that oily rags start a fire in a storage building. the oily rags are

a physical hazard

short rate refund

a refund with a penatly

what is a binder?

a temporary insuring agreement to provide insurance coverage until the formal written policy is issued

who receives benefits paid by liability policies?

a third party

casualty is what type of contract?

a third-party contract (you, your company and the unknown injured third party)

property is a what type of contract?

a two-party contract (you and your insurance company)

what is an applicant's statement that the property to be insured has an operable sprinkler system that is never turned off considered to be?

a warranty

all of the following are true regarding torts EXCEPT: a. a tort is always unintentional b. another term for tort is negligence c. torts involve private relationships d. a tort is a civil wrong that violates the rights of another

a. a tort is always unintentional

which method of property valuation would include depreciation as a variable? a. actual cash value b. replacement cost c. functional replacement cost d. agreed value

a. actual cash value

which does NOT create legal obligation to pay? a. assumption of risk b. pre-trial settlement c. judgment of a court d. jury decision

a. assumption of risk

which is NOT a basic peril? a. collapse b. vandalism c. smoke d. explosion

a. collapse

regarding misrepresentation on an application for insurance, which statement is TRUE? a. if it material, the insurance company may contest the policy b. if it is intentional, it is a felony c. it is the same as a concealment d. after two years, it cannot be used to void coverage

a. if it is material, the insurance company may contest the polciy

all the following are considered special damages EXCEPT: a. mental anguish b. medical expenses c. cost to repair damaged property d. lost wages

a. mental anguish

in an insurance contract, consideration may be any of the following EXCEPT: a. money is paid as a claim b. conditional promises c. statements on the application d. the initial premium

a. money paid as a claim

which of the following explains market value in determining loss valuation? a. property is evaluated for the price a willing buyer would pay b. assessment of the accumulated cash value is considered before the loss c. depreciation gets deducted from the replacement cost for the property at the time of loss d. reimbursement is assessed from the repair costs less the actual value of the item after the loss

a. property is evaluated for the price a willing buyer would pay

which of the following is TRUE for stated value? a. the insured chooses the value of property b. a realtor chooses the value of property c. an adjuster chooses the value of the property d. the insurer chooses the value of property

a. the insured chooses the value of property

a car full of partygoers is hit by a train, how is this event best described?

accident

which valuation method uses the concept of depreciation?

actual cash value

which of the following describes an insurer that meets the insurance department's standards and is authorized to do business in the state?

admitted

how is a company chartered in New York doing business in California described?

admitted, foreign

which method of valuation is best for property that is practically impossible to replace such as art or antiques?

agreed value

which valuation method is used by the insurer and the insured to specify value of a particular property before the policy is issued?

agreed value

Mr. Robert Johnson paid premiums for property insurnce on his hardware store for 40 years without a claim. Bob Jr. bought the store from his Dad last month, paid his first property insurance premium, had a fire and collected $783,000. The inequality of values exchanged in the two contracts is why insurance policies are said to ve which kind of contracts?

aleatory

for which kind of contracts do both parties realize that one party may derive greater value form the contract than the other?

aleatory

means "chance." There is a chance of loss or no loss on any insurance policy.

aleatory

some insureds pay insurance premiums and never have a covered loss, while others may have a catastrophic event that pays much more than a lifetime of premiums. As a result, insurance contracts are considered to be..

aleatory

theft

an act of stealing (burglary, robbery, shoplifting even pickpocketing)

a participating company headquartered in Guam authorized to do business in your state would be described as which company?

an admitted, foreign mutuual company

which term refers to continuous or repeated exposure to conditions that may result in bodily injury or property damage which is neither expected nor intended?

an occurrence

what does an application for insurance contractually represent for the insured?

an offer

which type of authority holds that a producer may have whatever authority a reasonable person would assume the producer has?

apparent

the public assumes a producing agent has what kind of authority?

apparent authority

strict liability

applies to the Manfacturing of products. There is an implied warranty that the product is safe. If a product causes injury and can be shown to be defective, liability is imposed regardless of negligence

vicarious liability

applies when one person can be held responsible for the actions of another. It is based on the relationship between the two parties such as a parent and a child or an employer and an employee

moral hazard

arises from an individual's character and include dishonest tendencies that increase the probability of a loss

the national football league is being sued by a number of former players for head injuries. What is one defense available to the NFL?

assumption of risk

to be paid a claim under a Property and Casualty contract, when must insurable interest exist?

at the time of loss

which method of handling risk represents an insured's attempt to refrain from risk?

avoidance

which method of risk management is used when a person chooses NOT to drive because of the risk of having an automobile accident?

avoidance

punitive damages

awarded to punish wrongdoing and prevent the defendant from committing similar behavior

which is NOT necessary to establish negligence? a. duty b. admission of guilt c. proximate cause d. damages

b admission of guilt

All of the following are examples of direct loss EXCEPT: a. a fire destroys your personal property in your rental apartment b. after a car crash you have to rent a replacement vehicle c. a truck throws a stone and cracks your windshield d. a thief takes your computer from your locker

b. after a car crash you have to rent a replacement vehicle

punitive damages are intended to do all of the following EXCEPT: a. discourage others from doing wrong b. compensate for actual financial losses c. make an example of bad behavior d. discipline the insured

b. compensate for actual financial losses

a binder can expire on all of the following EXCEPT the a. day following notification of binder cancellation. b. date of application c. day the binder expires. d. day policy goes into effect

b. date of application

in insurance, which is NOT an example of risk? a. fire damage b. decline in stock value c. drought d. injury to a customer

b. decline of stock value

which is an example of a peril? a. icy roads b. hail c. faulty wiring d. fog

b. hail

all of the following activities are subject to strict liability EXCEPT: a. chemical processing b. in home child care c. staging fireworks displays d. manufacturing ladders

b. in home child care

which of the following gives a mortgagee rights at the time of loss? a. money to lend for restoration b. insurable interest in the property c. may pay the premium for insured d. may file a proof of loss for insured

b. insurable interest in the property

which of the following presents a basis for holding an insured responsible due to vicarious liability? a. repair person causes a fire fixing the insured's furnace b. insured's child injures a friend in a sports accident c. neighbors lawn mower throws a rock damaging insured's car d. store employee damages insured's vehicle while loading cargo

b. insured's child injures a friend in a sports accident

all of the following demonstrate insurable interest EXCEPT: a. adding collision coverage on auto due to a new loan b. insuring an engagement ring given to fiancée c. deciding to insure an inherited firearm collection d. purchasing fire insurance on a newly acquired cottage

b. insuring an engagement ring given to fiancée

Which of the following methods are losses settled on an actual cash value (ACV) basis? a. replacement cost b. less depreciation c. repair cost d. market value

b. less depreciation

when comparing Property coverages to liability coverages, which statement is TRUE? a. they are both two party contracts b. property is a third party contract, and liability is a two party contract c. property is a two party contract, and liability is a third party contract d. they are both third party contracts

b. property is a two party contract, and liability is a third party contract

all of the following are a producer's responsibility to the insured EXEPT: a. analyzing coverage needs b. settling and paying claims c. serving the best interest of the insured d. forwarding premiums to the insurer on a timely basis

b. settling and paying claims

calculable loss

based on the statistical expectation of loss and is used to determine the amount of premium charged

property coverage that does not require a specific limit of insurance for each item to be insured is called

blanket

all of the following establish a defense against negligence EXCEPT: a. contributory negligence b. the last clear change doctrine c. a denial of the validity of the claim in a court of law d. expiration of the statue of limitations

c. a denial of the validity of the claim in a court of law

car #1 hits car#2 which in turn hits car #3. the loss to car #3 is all of the following EXCEPT: a. an occurrence b. an accident c. an indirect loss d. a direct loss

c. an indirect loss

which of the following is an example of cost valuation? a. fair market value of item at time of loss b. actual cash value of item at time of loss c. cost new without depreciation at the time of loss d. cost of functional value of item at time of loss

c. cost new without depreciation at the time of loss

which of the following does a binder of coverage guarantee? a. a policy will be issued b. the application need not be completed c. coverage is in place immediately d. previous losses will be covered

c. coverage is in place immediately

underwriters are permitted to use all of the following when underwriting an application for insurance EXCEPT: a. credit reports b. inspection services c. disability d. claim history

c. disability

All the following are more likely to be insured by state or federal government programs EXCEPT: a. war risk insurance b. flood insurance c. employers' liability insurance d. unemployment insurance

c. employers liability insurance

which is NOT required to establish negligence? a. duty b. breach of duty c. intentional act d. damages

c. intentional act

which of the following describes market value? a. it represents cost to repair b. it is the same as value agreed to c. it is what property can be sold for d. it is what property is listed for by realtor

c. it is what property can be sold for

which is NOT legal defense to negligence? a. comparative fault b. assumption of risk c. lack of motive d. statute of limitations

c. lack of motive

all of the following are found on a declarations page EXCEPT: a. limits of insurance b. address of insured c. policy exclusions d. costs for coverage

c. policy exclusions

all of the following activities would warrant absolute liability EXCEPT: a. hazardous operations b. dangerous materials c. risky transportation d. dangerous animals

c. risky transportation

one of the criteria to determine an insurable risk is

calculable loss

absolute liability

can be imposed when an activity is deemed to be especially hazardous. It imposes a high degree of care and does not require negligence on the part of the party performing the activity

producers can or cannot bind coverage on a flood policy?

cannot

peril

cause of loss

which document would a lender ask an insured for as evidence that a policy has been written?

certificate of insurance

how is risk best defined?

chance of loss

which is NOT part of the consideration offered by either of the parties to an insurance contract? a. premium b. commissions c. promises d. statements on the application

commissions

If a covered loss occurs, the insured must provide proof of loss, and the insurer must respond within a specified time period following the loss. This is because insurance contracts are which type of contract?

conditional

where are the Rules of Conduct which govern the actions of the parties to an insurance contract found?

conditions

if someone's automobile is stolen, what is the cost of a rental vehicle considered to be?

consequential loss

another word for payment

consideration

what part of a legal contract refers to an exchange of value?

consideration

elements of a contract

consideration, legal purpose, offer, acceptance, competent parties

when one party of a contract has greater power over the other party in drafting the contract, what type of contract is it?

contract of adhesion

which characteristic of an insurance contract states that when a loss occurs the insured should be restored to the financial condition he was in before the loss?

contract of indemnity

Any ambiguities in a P&C policy will be resolved in favor of the policyowner because the policy is a

contracts of adhesion

since the insurance company is the only party that controls the policy language, any ambiguities are resolved in favor of the policy owner. This principle makes insurance policies...

contracts of adhesion

defense against negligence includes....

contributory negligence, comparative negligence, assumption of risk, intervening cause, statues of limitations, and clear chance

which is NOT necessary to form a legal contract? a. offer b. counter-offer c. acceptance d. consideration

counter-offer

which of the following hazards is an example of a physical hazard? a. backing into the garage door because you want insurance to pay for a new one b. leaving the keys in the car and doors unlocked c. leaving the shed unlocked at night because contents are insured d. burning debris near he building on a calm sunny day

d. burning debris near the building on a calm sunny day

all of the following are methods of limiting liability EXCEPT: a. split limit b. combined single limit c. per person limit d. collective limit

d. collective limit

all of the following are used to establish negligence EXCEPT: a. proximate cause b. legal duty owed c. breach of legal duty d. cost of damages

d. cost of damages

which of the following is an example of a financial loss caused by a home being damaged in a windstorm? a. inconsequential loss b. indirect loss c. excluded loss d. direct loss

d. direct loss

all of the following are examples of insurable interest EXCEPT: a. insuring business property you own b. insuring your home c. insuring expensive jewelry d. insuring your friend's automobile

d. insuring your friend's automobile

all of the following are examples of an insured's negligence EXCEPT: a. not barricading a freshly dug hole b. loaning a ladder with broken treads c. permitting a helper to use an extension cord with bare wires d. intentional destruction of property of another

d. intentional destruction of property of another

which statement about a binder is FALSE? a. it may be verbal b. it serves as an interim insurance agreement c. it may be written d. it assures that a policy will be issued

d. it assures that a policy will be issued

which of the following describes why the insuring agreement is the heart of an insurance policy ? a. it states the ground rules for the policy b. it describes the losses for which the insured is not covered c. it lists the amount of coverage provided d. it describes property covered and perils insured

d. it describes property covered and perils insured

which best describes a representation in an insurance application? a. it can be accepted as the absolute truth b. it is a promise made by the insured that certain conditions will continue to exist throughout the policy term c. it explains the promises of the insurance company d. it is a statement made by the insured that certain conditions exist at the time of application

d. it is a statement made by the insured that certain conditions exist at the time of application

all of the following operations fall under the liability rules for strict liability EXCEPT: a. chainsaw manufacturers b. fireworks producers c. ladder manufacturers d. livestock ranchers

d. livestock ranchers

all of the following types of construction are subject to functional replacement cost basis EXCEPT: a. antique b. ornate c. custom d. modern

d. modern

all of the following are used by the courts to establish negligence EXCEPT: a. legal duty owed b. breech of legal duty owed c. proximate cause d. policy exclusions

d. policy exclusions

deductibles serve all of the following purposes EXCEPT to a. eliminate small claims b. reduce the price of the coverage c. control overuse of the policy d. serve as an incentive to insure to value

d. serve as an incentive to insure value

all of the following are considered to be incompetent to enter into a contract EXCEPT a. someone who is under the influence of alcohol b. an insane person c. a minor d. someone who is incarcerated

d. someone who is incarcerated

concerning the cancellation of a commercial lines policy, which statement is TRUE?: a. the insured ma cancel for any reason without notice b. the insurance company may cancel for any reason without notice c. the named insured may cancel for any reason without notice d. the insurance may cancel for specified reasons with proper notice

d. the insurance company may cancel for specified reasons with proper notice

which situation is an example of vicarious liability? a. the insured injures a friend in a hunting accident b. the insured loans a defective ladder to neighbor that results in an injury c. the insured damages a neighbors building while trying to enter d. the insured's employee causes injury while on the job

d. the insured's employee causes injury while on the job

the limits of liability are found in which part of a casualty policy?

declarations

the six limits of liability on a commercial general liability policy are listed where?

declarations page

in an insurance policy, where are the terms and phrases clearly describing the extent of coverage located?

definitions

insurance advisory organizations

develop loss cost information by using either class or individual rating methodologies to analyze and categorize insureds

a fire spreads from Joe's house to Mike's house to Pat's house. The fire at Pat's house is what kind of loss?

direct loss

when the courts resolve any ambiguity in policy wording in favor of the insured, it is because of the

doctrine of reasonable expectations

regarding insurance contracts, which doctrine states that each party has a responsibility to the other?

doctrine of utmost good faith

what is a required element to legally establish negligence?

duty

Four elements of negligence

duty owed, breach of the duty, proximate cause, and resulting damages

to establish negligence, there must be....

duty, breach of duty, proximate cause and damages

which of the following is attached to and used to modify or change the original policy in some way?

endorsement

what are written changes to property and casualty policies called?

endorsements

which part of an insurance contract describes a loss for which the insured will not be indemnified?

exclusions

insurable interest

exists when someone can suffer a financial or economic hardship in the event of a loss

which event is more likely to be covered under a Property and Casualty policy?

expensive loss

being subject to a loss is called

exposure

what is another word for risk?

exposure

what type of authority is in writing and allows a producer to act on behalf of the insurer?

express

in a commercial line policy, the individuals allowed to alter coverage, settle claims, and pay premiums are known as the

first named insureds

compensatory damages are award

for actual loss suffered

which insurer operates within the United States, but outside of the state in which it is incorporated?

foreign

which word describes an insurer incorporated outside of the state in which it is doing business?

foreign

which principle holds that the insurer relies on the truthfulness of the applicant and in return promises and has the ability to pay claims?

good faith

accident

happened at a known place and time

plugging too many electrical cords into a single outlet can be best described as a

hazard

what increase the loss potential of an unforeseen event that causes injury to an insured or damage to property?

hazard

while Fred is shopping, store security guard, Barney, thinks he is shoplifting. Barney tackles Fred, breaking his arms and cell phone. Fred cannot return to work for two weeks. Which of Fred's losses are considered general damages?

humiliation

what authority is NOT written and allows a producer to conduct the business of the insurer?

implied

which term means the attempt to restore an insured to the financial position he enjoyed before loss?

indemnification

when an insurance company promises to "make you whole" following a loss, they are promising to do what to you?

indemnify

when an individual with a pre-existing condition is in an automobile accident and the insurance covers rehabilitation only to the level of the condition prior to the accident, this is because of what principle?

indemnity

which characteristics of an insurance contract express the principle the policy holder is returned to the approximate financial condition as before the loss?

indemnity

certificate of insurance

indicates a policy is in place and provides certain limits

a morale hazard is considered

indifference to loss

which of the following defines a loss which is consequential and comes as a result of an original loss?

indirect loss

personal injury

injury to a person's good name or positive mental state. Never bodily injury

in developing rates to determine premiums, insurers use loss cost information from which one of the following sources?

insurance advisory organizations

within the policy, where is the insurance company's promise to pay benefits found?

insurance agreement

the purpose of coinsurance is to motivate the insured to do what?

insure to value

determining adequate indemnification after a loss is a principle duty of the....

insured

an insured is involved in an automobile accident. the adjuster declares the insured's car to be a total loss and authorizes payment to the insured for the actual cash value of the care. The salvage belongs to....

insurer

what is NOT necessary to establish negligence?

intent

negligence is any of the following EXCEPT: a. failure to do what a responsible person would do in the same or similar circumstances b. failure to not do what a reasonable person would not do in the same or similar circumstances c. neglect d. intentional

intentional

morale hazard

involve the attitude of an insured, such as carelessness, that increases the probability of a loss

warranty

is a guarantee

misrepresentation may void an insurance policy only under which of the following circumstances?

it involves a material fact

a wheel falls off a commercial aircraft and through the roof of a home. what best describes the event?

it is both an accident and an occurrence

the fact that losses are predictable within big groups of similar risks is known as the

law of large numbers

a contract that is against public policy is NOT enforceable according to which contract characteristic?

legal purpose

which term means a legal obligation for injury caused by the failure to perform a duty?

liability

the policy exclusions

list the perils, property, people, hazards, or losses that are not covered by the policy

in a pure risk situation you can only....

lose

with property and casualty insurance, insurable interest is the extent of your financial interest at the time of

loss

what policy condition states the terms under which covered property losses are settled?

loss settlement

while Fred was shopping, store Secuity guard Barney thinks he is shoplifting. Barney tackles Fred, breaking both his arm and cell phone. Fred cannot return two work for two weeks. Which of Fred's losses are considered an indirect loss?

lost income

P&C companies tend to exclude losses that are any of the following EXCEPT: a. catastrophic b. covered elsewhere c. predictable d. manageable

manageable

what is the difference between misrepresentation and fraud?

misrepresentation is a representation that is actually false, but fraud is an intentional act designed to deceive

a person who intentionally defrauds an insurer to gain from a claim is an example of which type of hazard?

moral hazard

a person with a history of insurance fraud could be classified as which type of hazard?

moral hazard

leaving your car door unlocked and the keys in the ignition while parked in a high crime area is an example of which kind of hazard?

morale

a client refuses to lock the doors and windows to his home. What kind of hazard is he?

morale hazard

which type of hazard is an example of a person who increases the chance of loss through carelessness or by irresponsible actions?

morale hazard

what type of insurer is owned by its policyholders?

mutual companies

in which of the following types of insurance organizations are profits returned to the insureds in the form of dividends?

mutuals

in a personal lines policy, the individuals allowed to alter coverage, settle claims, and pay the premium are known as the.....

named insureds

absolute liability can be imposed by law and exist in the absence of

negligence

which of the following is not authorized to transact insurance in a state?

non-admitted insurer

smith insurances his commercial building with Company A for $100,000 under a basic cause of loss form and with Company B for $200,000 under a broad cause of loss form. His building sustains a $30,000 loss due to the weight of ice and snow. What is this situation known as?

non-concurrency

an insurer's right to cancel a policy is often limited by state law but is generally permitted under which of the following conditions?

non-payment of premium

A producer may bind coverage on a flood policy after receiving which of the following? a. the application b. the application and payment c. the application, payment and NFIP acceptance d. none of the above

none of the above

general damages

noneconomic damages

which provision applies when the policy term ends and either the insured or the insurer wants to discontinue coverage?

nonrenewal

how would damage be attributable to dry rot be classified?

occurrence

what is the term for a proposal made by one of the potential parties to a contract?

offer

under the national flood insurance program deductibles are applied..

once for building and again for the contents

adhesion

one author

unilateral

one promiser

what is the principle of indemnity designed to prevent?

overpayment of a claim

what is another way of describing the structure of a mutual insurance company?

participating

with regard to property insurance, consideration is the....

payment of premium by the insured in return for the promise to pay covered claims

the most a policy will pay for all losses arising out of any one occurrence, regardless of other policy limits is called the..

per occurence limit

how is defamation of character best described?

personal injury

physical hazards

physical conditions that increase the chance of a loss

direct loss

physical losses to property by perils that result in damage.

what term applies to a policy that pays first when two policies cover the same property?

primary

proximate cause

primary or immediate cause of loss from an unbroken chain of events

under the Laws of Agency, the Producer is an agent, and the insurance company is the

principal

Policy A is written covering a building with a $500,000 limit. Policy B is written covering the same building with a $100,000 limit. A $9,000 covered loss occurs. Company A will pay $3,000 of the loss; Company B will pay $6,000 of the loss. This is an example of which principle of indemnity?

pro rata

if a company cancels a policy mid-term, how will the refund be made?

pro rata basis

a Company has liability insurance from two policies written for different amounts. If the company sustains a covered loss, how will the loss be paid?

pro rata benefits equal to the proportion

all of the following are elements of a valid contract EXCEPT: a. consideration b. provisions c. legal purpose d. competent parties

provisions

Which factor establishes negligence by connecting a person's negligent actions to the damage caused?

proximate cause

what types of damages does a court award to punish a wrongdoer?

punitive

insurance addresses what kind of risk?

pure risk

insurance deals with which kind of risk

pure risk

only chance for loss (customer injury, drought, fire)

pure risk

which type of insurer is an unincorporated group of people agreeing to insure each other's losses under a contract?

reciprocal

what is it called when an insurance company transfer part of the risk and part of the premium to another insurance company?

reinsurance

what type of insurance do insurers use to transfer risk among themselves?

reinsurance

If Fred gets a new roof when his 10-year-old roof is destroyed by hail, the loss was settled on what basis?

replacement cost

actual cash value (ACV)

replacement cost minus depreciation

the policy conditions as well as state laws permit the insurer to cancel or rescind a policy when any of the following exist EXCEPT: a. misrepresentation b. representations c. fraud d. concealment

representations

which of the following is the type of insurance the government may step in to provide that is NOT ordinarily available from private insurers?

residual market

federal crop insurance is a type of insurance sometimes called....

residual market insurance

choosing a substantial deductible is a method of

retaining risk

which method of risk management is used when an insured elects to self insure?

retention

what is the chance or uncertainty of loss?

risk

what involves a group of people agreeing to pay a portion of any loss sustained by a member of the group

risk sharing

which characterizes a policy requiring a deductible for a loss?

risk sharing

what type of insurance is used when a business sets aside reserve funds to cover losses in advance?

self-insurance

coinsurance

serves as incentive for the inured to insure in an amount reasonably close to the true value of the property

which method of handling risk involves two or more individuals agreeing to pay a portion of any loss incurred by any member of the group?

sharing

Ned purchases his business insurance on a calendar ear basis. Even though his $10,000 premium is pre-paid through December 31, he decides to cancel on July 1, because he is selling his business. If he is due a short rate refund, what should he receive?

somewhat less than $5,000

open perils coverage is also called

special peril coverage

declarations page

specific details about the policy including the insureds name, location of the property, the limits of coverage provided, and the premium

betting on a horse to win the fifth race at a track is what kind of risk?

speculative risk

chance for gain or loss (value of the company stock)

speculative risk

when a business has a specialized risk that no authorized insurer will cover, the coverage may be obtained from

surplus line carriers

purchasing insurance that is unavailable in your state from a non-admitted company would be what kind of transaction?

surplus lines

how is an insurance binder best described?

temporary short term evidence of coverage

Who created the national flood insurance program?

the United States Congress

warranty

the absolute truth today, tomorrow, forever'; absolute truth

Stephen's house is hit by lightning and catches fire. Soon, the fire spreads to the Anderson's house next door. Though fire fighters save the Anderson's house, they do significant damage with their axes and fire hoses. The Andersons must live in a motel for 60 days while their house is renovated. Which of the Anderson's losses is an indirect loss?

the additional cost of living in a motel

risk

the chance or uncertainty of loss

what is defined by the policy conditions section of a property and casualty policy?

the duties of the insured

negligence

the failure to perform

a woman slips on icy steps and breaks her leg. what is the peril in this situation?

the fall

John has two identical policies covering his warehouse; one in the amount of $100,000 and the other in the amount of $200,000. If he suffers a $30,000 loss due to fire, how will the two companies pay the claim disregarding any deductibles?

the first pays $10,000 and the other $20,000

personal insurance contract

the insurance contract is designed to transfer risk from the insured to the insurer

stated value policy

the insured chooses the limit of insurance for the property however, at the time of loss, the insurer will pay the lesser of the amount stated on the declarations page or actual cash value

the law of large numbers states

the larger the group, the more accurately losses can be predicted

liability

the obligation created by that negligence

market value

the price a willing buyer would pay to a willing seller for the property prior to loss

which of the following best describes the policy conditions? a. the responsibilities and obligations of insured and insurer b. who is insured, location of risk, and what is insured c. the meaning of terms used in the policy d. the losses for which the insured is not covered

the responsibilities of insurance and insurer

representation

the truth as i know it today, truth to the best of your knowledge

If a man enters a building through an unlocked window and takes insured property, how is the loss best described?

theft

compensatory damages

they are reimbursed to the injured part for actual loss sustained; actual expenses

what is the purpose of coinsurance?

to serve as an incentive to insure to value

there can be no coinsurance penalty on which kind of loss?

total

Purchasing boatowners insurance is an example of which method of handling risk?

transfer

which method of risk management is used when a person purchases insurance?

transfer

what best describes the purpose of insurance?

transfer of risk

aleatory

unequal exchange of values

if an insured stops paying premiums, the insurer can cancel coverage, but the insurer cannot take the insured to court for breaking the contract. This is because contracts are what type of contracts?

unilateral

of the two parties to an insurance contract, only the insurance company makes a legally enforceable promise. For this reason, insurance policies are considered to be what?

unilateral contracts

the property valuation method paying the full policy amount listed on the declarations page in the event of a total loss, regardless of the actual cash value is called

valued policy

if an employer is found negligent for a customer's bodily injury caused by an employee acting within the normal course of his employment, the employer's liability can best be described as

vicarious liability

statements which must be absolutely true in every respect are

warranties

which of the following are defined as part of the policy and can void the policy if they are breached, whether the breach was intentional or unintentional?

warranties