Unit 3 - Basics of Property and Casualty Insurance Quiz Q's

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 courts? A. 15 B. 10 C. 5 D. 1

A. 15

An act of terrorism must be certified by the Secretary of Treasury in consultation with the Secretary of Homeland Security, and the A. U.S. Attorney General B. POTUS C. state senator D. governor

A. U.S. Attorney General

Which of the following terms is an oral or written statement made by the agent that gives the insured immediate coverage for a specified time? A. a binder B. an application C. an insurable interest D. a contract

A. a binder

The duties following a loss condition lists the insured's 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. a detailed proof of loss B. a notice of claim C. valuation D. subrogation

A. a detailed proof of loss

All of the following statements regarding the rights and responsibilities of an insurer or insured when an insurance contract is cancelled or non-renewed are true EXCEPT A. both the insurance company and insured can cancel a contract at any time B. when a policy is cancelled on the effective date, by either the insurer or insured, it's called a flat cancellation C. it is common that a policy is extended at the end of its term or policy period D. 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

A. both the insurance company and insured can cancel a contract at any time

Factors that determine premium rates set by insurance companies include loss costs, operating expenses, claims handling costs, and A. profits B. losses C. cost of living D. location of insured

A. profits (insurance companies employ actuaries to calculate premium rates based on loss costs, claims handling costs, operating expenses, and profit)

What type of insurance policy protects the insured from loss caused by damage to covered property by a covered peril? A. property insurance policy B. casualty insurance policy C. accident and health insurance policy D. life insurance policy

A. property insurance policy (property and casualty insurance policies cover different types of risk. a casualty policy usually pays another party to which the insured is legally liable)

What is the primary source of underwriting information? A. the application B. the binder C. the insurer D. the expense ratio

A. the application

The heart of the insurance policy that states what will be covered is called A. the insuring agreement B. the conditions C. the declarations D. the definitions

A. the insuring agreement

Which of the following premium rating methods is determined by considering the individual risk and using careful judgment and the experience of the underwriter? A. the judgment rating B. the manual rating C. the class rating D. the experience rating

A. the judgment rating

Greg's policy states that a loss will not be covered unless is occurs within the US or Canada. What is the name of this provision in his policy? A. the policy territory provision B. the policy period provision C. the location of loss provision D. the other insurance provision

A. the policy territory provision (the territory may vary but typically includes the US, Puerto Rico, and Canada)

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? A. $500 B. $2,000 C. $2,500 D. $3,000

B. $2,000 (the deductible is specified in the declarations and is the portion of the loss that the insured pays. choosing a higher deductible will lower the premium that the insured pays)

When an insured decides to cancel an insurance policy before the expiration date, the unearned premium is returned on A. a flat basis B. a short rate basis C. an unearned basis D. a pro rata basis

B. a short rate basis (when the insured cancels before the expiration date, the company not only keeps that premium for insurance already provided but also keeps an allowance for expenses such as the cost of issuing the policy. when the insurance company cancels the policy, the unearned premium is returned to the insured on a pro rata basis with no allowance witheld)

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? A. named insured provision B. assignment provision C. abandonment provision D. salvage provision

B. assignment provision (if the insured dies, the rights and duties are transferred to the insureds legal representative. this is sometimes called the transfer of rights or duties under this policy provision)

Nancy purchases an auto policy on her new car. There are no other insureds listed on the declaration page. Nancy is considered A. the additional insured B. the named insured C. the first named insured D. the insurer

B. the named insured

Under the Fair Credit Reporting Act, the maximum penalty for obtaining consumer information reports under false pretenses is: A. $1,000, imprisonment for 5 years, or both B. $10,000, imprisonment for one year, or both C. $5,000, imprisonment for one year, or both D. $500, imprisonment for one year, or both

C. $5,000, imprisonment for one year, or both

Which of the following acts requires financial institutions; companies that offer consumers financial products or services like loans, financial, or investment advice; and insurance companies, to explain their information-sharing practices to their customers and to safeguard sensitive date? A. TRIPRA B. FCRA C. GLBA D. fraud and false statements

C. GLBA

Which of the following is NOT an example of an insurable interest? A. a dog groomer's interest in the pets that are in his building for service B. a person's interest in the home she owns C. a person's interest in the home that his parents own D. a person's interest in the home improvements he has made to a rental property he owns

C. a person's interest in the home that his parents own

Which of the following is NOT part of the structure of a property or casualty insurance policy? A. endorsements B. declarations C. explanations D. conditions

C. explanations (most policies contain five parts: declarations, insured agreements, conditions, endorsements, and exclusions (DICEE). policies can also include additional supplementary coverages)

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 A. excess insurance B. pro rata insurance C. primary insurance D. other insurance

C. primary insurance (some policies under the other insurance provision provide that when other insurance exists, they will only pay the excess beyond what the other insurance pays for a loss. in this example, Company B's policy is excess insurance. this prevents the insured from profiting from the loss)

All of the following are ways to assign rates EXCEPT A. judgment B. manual C. pro rata D. experience rating

C. pro rata

Which of the following is NOT a ratio that the insurer uses to evaluate performance? A. loss ratio B. expense ratio C. combined ratio D. cost ratio

D. cost ratio

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? A. additional insured B. named insured C. policyholder D. first-named insured

D. first-named insured (the policy may assign a higher level of duties or rights to the first-named insured. an additional insured is usually added by endorsement)

Which of the following is NOT a type of merit rating that modifies the manual premium on the basis of the insured's loss experience? A. experience rating B. retrospective rating C. schedule rating D. manual rating

D. manual rating (manual or class rating uses company rates that they find in a manual. the underwriter classifies the risk according to defined criteria then looks up the appropriate rate to apply to it. the other three options are a form of merit rating)

Which of the following would NOT be included on the declarations page of the policy? A. the name of the insured B. the amount of coverage provided C. the description of the policy D. the exclusions in the policy

D. the exclusions in the policy

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? A. the loss ratio B. the cost ratio C. the combined ratio D. the expense ratio

D. the expense ratio