Unit 3 (Basics of P&C Insurance)
the federal government is not obligated under the TRIA to make payments for any portion of losses that exceed how much annually?
$100 billion
Todd and Mary have insurance protection for their home with a policy deductible of $500. One night, a thunderstorm knocks a tree onto their roof and causes $2,500 in damage. How much money will the insurance company pay to Todd and Mary to fix their roof?
$2,000
Under the Fair credit reporting act, the maximum penalty for obtaining consumer information reports under false pretenses is:
$5,000 imprisonment for one year, or both
Two insurance policies apply to Monica's home. The limit for Policy A is $100,000, and the limit for Policy B is $50,000. Both policies have a pro rata other insurance clause. If she suffers a $9,000 covered loss to her home, how much will Policy A pay?
$6,000 ($9K X (2/3) )
Imprisonment may be ordered for up to how many years if false statements made jeopardized the safety and soundness of an insurer and were a significant cause of the insurer being placed in conservation, rehabilitation, or liquidation by the court
15
Ace Insurance Company and Acme Insurance Company each insure the same building for the same amount. Both policies contain a pro rata other insurance clause. In the event of a partial loss, how much of the loss will Acme pay?
50% - each insurer will pay half the amount of the loss
Under the Terrorism Risk insurance program reauthorization act (TRIPRA) the federal governments share of compensation that exceeds the insurers TRIPRA deductible is
80%
the TRIA removes the exclusion of coverage for which of the following causes of loss?
Acts of terrorism
all of the following are basic ways in which underwriters assign rates EXCEPT -judgement -application -manual -experience
Application Rating
Which provision specifies that an insurance policy may not be transferred to anyone else without the written consent of the insurer unless the named insured dies?
Assignment Provision
Nathan and Allison have two insurance policies on their home. Policy A has coverage limit of $100,000. Policy B has a coverage limit of $200,000. When Nathan and Allison have a house fire and have a $100,000 claim, Policy A paid $50,000 and Policy B paid $50,000. This is an example of which other insurance provision?
Contribution by equal shares
Which of the following is NOT a ratio that the insurer uses to evaluate performance? -loss ratio -expense ratio -combined ratio -cost ratio
Cost ratio
the declarations section of a policy contains all of the following information EXCEPT -policy deductibles -name of the insured -current address -covered perils
Covered Perils
Which of the following is NOT a basic way in which underwriters assign rates? -judgement rating -expense rating -manual rating -experience rating
Expense rating
Which of the following is not a part of the structure of a property or casualty insurance policy? -endorsements -declarations -explanations -conditions
Explanations
Which of the following terms describes the person listed first on the declarations page of a policy when there is more than one named insured?
First named insured
Which of the following acts requires financial institutions; companies that offer financial products or services like loans, financial investment, and insurance companies, to explain their information sharing practices to their customers and to safeguard sensitive data?
GLBA (Gramm-Leach-Bailey-Act)
if johns father transfers ownership of a house to john,, which one of the following statements regarding insurance on the house is correct?
John can buy insurance because he has an insurable interest
An insurance company may measure its underwriting profitability by using which of the following ratios?
Loss Ratio
Which of the following is NOT a type of merit rating that modifies the manual premium on the basis of the insureds loss experience? -experience -retrospective -schedule -manual
Manual Rating
What type of insurance policy protects the insured from loss caused by damage to covered property by a covered peril?
Property Insurance policy
Which of the following premium rating methods is determined by considering the individual risk and using careful judgement and the experience of the underwriter?
The judgement Rating
An act of terrorism must be certified by the Secretary of Treasury in consultation with the Secretary of Homeland Security, and the
U.S. Attorney General
Which of the following terms is an oral written statement made by the agent that gives the insured immediate coverage for a specified time?
a Binder
a written statement that gives an insured immediate coverage for a specified time is known as
a binder
According to Gram-Leach Bailey Act, anyone who has an ongoing relationship with a financial institution is considered to be
a customer
The duties following a loss condition lists the insureds responsibilities after a loss. one of these duties requires that the insured completes an official inventory of the damages. This is also known as
a detailed proof of loss
Which of the following is NOT an example of an insurable interest? -a dogs groomer interests in the pets that are in his building for service -a persons interest in the home she owns - a persons interest in the home that his parents own - a persons interest in the home improvements he has made to a rental property he owns
a persons interest in the home that his parents own
Brady and his wife Julie had an insurance policy that was cancelled by the insurer before the expiration date. They will receive a portion of their premium back on
a prorated basis
When an insured decides to cancel an insurance policy before the expiration date, the unearned premium is returned to
a short rate basis
The penalty for early cancellation of an insurance policy by the insured applied on
a short rated basis
Which of the following is a prime example of a non insurable interest?
a woman's interest in property that she hopes her uncle will leave her in his will
a policy may be amended only with
an endorsement
All of the following are the insureds duties EXCEPT -assisting the investigator during the claim investigation procedure -protecting the property from further damage -completing a detailed proof of loss -giving prompt notice of claim to the agent or insurer
assisting the investigator during the claim investigation procedue
the liberalization provision will do which of the following?
automatically broaden coverage without additional premium if there is a revision to the policy
For a loss to be covered under the TRIA, the cause of the loss must
be certified as an act of terrorism
All of the following are basic parts of an insurance contract EXCEPT -exclusions -binders -conditions -declarations
binders
All of the following statements regarding the rights and responsibilities of an insurer or insured when an insurance contract is canceled or nonrenewed are true EXCEPT -both the insurance company and insured can cancel a contract at any time -when a policy is canceled on the effective date, by either the insurer or insured, its called a flat cancellation -it is common that a policy is extended at the end of its term or policy period -if the insured had paid premiums in advance for future months, any unused premium (unearned premium) must be returned to the insured upon cancellation of a policy
both the insurance company and insured can cancel a contract at any time
What does liberalization clause do to a property policy?
broadens coverage
in describing the concept of subrogation, the insurer claims the right to
collect from a negligent third party
the provisions of the terrorism risk insurance act of 2002 apply to which of the following lines of insurance?
commercial property
the procedure for resolving a disagreement between an insured and an insurance company about a loss is described in which of the following parts of an insurance policy?
conditions
the amounts of coverage and limits of liability are found in which of the following sections of a policy
declarations
the insured is looking for the amount of coverage in a property and casualty policy. This information would be found in the
declarations
Which one of the following components of an insurance contract contains information about the risk, the effective date of coverage, deductible, premium amounts, coinsurance percentage, and location of the insured property?
declarations page
Which of the following is NOT a source of information important to an underwriter? -consumer reports -gov. bureaus -employer reference -agent or producer comments
employer reference
What is NOT part of the underwriting process
evaluating premium expense loads
Which of the following policy provisions restricts certain risks from coverage?
exclusions
Which of the following would NOT be included on the declarations page of the policy -name of the insured -amount of coverage provided -description of the policy -exclusions in the policy
exclusions of the policy
Natalie has an insurance policy that specifically does NOT cover flood damage. This information can be found in which of the following sections of the policy?
exclusions section
Which one of the following requires that insurance applicants be advised that a consumer report may be requested on them and the scope of any investigation resulting from the application
fair credit reporting act
Glenns insurance policy was cancelled by the insurer on the effective date. This is called
flat cancellation
an auto is sold for salvage value following payment of a loss. Who receives the proceeds?
insurance company
The coverages offered by an insurance policy are described in the
insuring agreement
The list of perils covered under a policy is found in which part of the policy?
insuring agreement
The terrorism risk insurance act of 2002 addresses only a defined category of terrorism losses. To come within the new federal program, an act of terrorism must be certified as such by the secretary of the treasury and must have the following characteristics EXCEPT
it must produce property and casualty insurance losses in excess of $30 million
The purpose of the conditions section of an insurance policy is to
list the obligations of the insured and the insurance company
The insuring agreement section of a policy describes
perils insured against
What is an example of a non insurable interest
persons interest in property she sold
Marcus has two policies that will cover his $20,000 loss. Company A will pay the first $15,000, and Company B pays the remainder. In this example, Company A's policy is considered
primary insurance
All of the following are way to assign rates EXCEPT -judgement -manual -pro rata -experience rating
pro rata
When an insurance company cancels a policy, what is the method used to determine the premium due
pro rata
Factors that determine premium rates set by insurance companies include los costs, operating expenses, claims handling costs, and
profits
Casualty Insurance
protects an insured from legal liability arising from injury or damage to the property of others
An insurance company takes possessions of a damaged auto it has covered. When the company becomes the legal owner of the auto, it is exercising the right of
salvage
all of the following are included in the duties after loss provision EXCEPT -provide detailed proof of loss -notify insurer or agent of loss -salvage damaged property -make property available for inspection
salvage damaged property
Which of the following methods of cancelling a policy is used when a policyholder cancels her policy before it reaches its natural expiration?
short rate
Which type of return premium computation is used when the policyholder cancels a policy?
short rate
Which of the following legal principles allows insurance companies to collect from negligent third party damages it paid to an insured?
subrogation
an insurance binder is best described as
temporary short-term evidence of coverage
What is the primary source of underwriting information?
the application
Which of the following states that a policy may not be transferred to anyone else without the written consent of the insurer?
the assignment condition
Which part of the policy states the rules of conduct, duties, and obligations that are required for coverage?
the conditions section
the amount of money that the insurance company makes by providing insurance for a designated period is called
the earned premium
Which of the following is calculated by dividing the underwriting expenses by the written premium and is a good indicator of the cost of doing business?
the expense ratio
Which of the following is NOT a factor that determines premium rates? -the insurers credit -loss reserves -operating expenses -cost of handling claims
the insurers credit
The heart of the insurance policy that states what will be covered is called
the insuring agreement
a promise to pay and perils covered is described in
the insuring agreement
Which of the following statements about the deductible in an insurance policy is CORRECT?
the lower the deductible, the higher the premium
Nancy purchases an auto policy on her new car. There are no other insureds listed on the declaration policy. Nancy is considered
the named insured
all of the following statements about the notice to applicant in the fair credit reporting act are true except
the notice must be given to the consumer no later than ten days after a report is first requested
Randall has an insurnace policy that states that his policy began at 10:00 AM EST on January 17th of the current year and ends at 12:01 AM EST on January 17th of the following year. These details are known as
the policy period
Gregs policy states that a loss will not be covered unless it occurs within the United States or Canada. What is the name of this provision in this policy?
the policy territory provision
the provision that states where a loss must occur for it to be covered is known as
the policy territory provision
Why do insurance policies usually define who is considered an insured under the policy?
to specify who is covered in addition to the named insured
Which of the following terms is the process of evaluating the risk and exposures to potential clients?
underwriting
Which one of the following best describes a short-rate cancellation?
upon cancellation, the insurer keeps all earned premium plus overhead expenses incurred