CH 2 QUIZ
Duties of the insurer found in property policy conditions include all of the following EXCEPT A. Provide advance notice of cancellation. B. Return any premiums to the insured. C. Notify the insured in the event of financial difficulty. D. Pay covered losses.
ASNWER C. Notify the insured in the event of financial difficulty. The insurance department monitors the financial conditions of insurers. The insurers report to the state, not to policyholders
The part of a policy that clarifies terms in the policy is the A. Exclusions. B. Definitions. C. Insuring agreement. D. Conditions.
ASNWER B. Definitions. The component of a policy that clarifies terms is the definitions
A policy condition that stipulates how the amount of damaged or lost property will be determined if the insured and the principal do not agree on the value of a property loss is known as A. Appraisal. B. Coinsurance. C. Loss valuation. D. Third-party provision.
ANSWER A. Appraisal. If there is a disagreement between the insured and the insurer on the value of any property loss, either party can make a written demand for an appraisal.
All of the following are conditions commonly found in the insurance policy EXCEPT A. Subrogation. B. Appraisal. C. Insuring agreement. D. Cancellation and nonrenewal.
ANSWER C. Insuring agreement. The insuring agreement provides information on the policy's coverages. Conditions state the legal obligations and duties of the parties to the contract.
Persons covered under an insurance policy, whether named or not, are known as the A. First named insureds. B. Additional insureds. C. Insureds. D. Named insureds.
ASNWER C. Insureds. The insureds are persons covered under a policy, whether named or not.
The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the A. Conditions. B. Exclusions. C. Declarations. D. Insuring clause.
ASNWER A. Conditions The conditions is the part of an insurance policy that sets forth the obligations and duties of the insurer and the insured
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT A. Legal Purpose B. Offer and Acceptance C. Conditions D. Consideration
ANSWER C. Conditions Conditions are part of the policy structure. Consideration is an essential part of a contract
The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the... A. Declarations B. Endorsements C. Conditions D. Exclusions
ANSWER D. Exclusions Exclusions details what perils are not insured against and what persons are not insured
In return for premium, an insurance company must A. Give the insurer valuable consideration. B. Be fair in underwriting and pay covered losses. C. Provide the insured with coverage adequate for all potential losses. D. Use standardized tables of coverage for specific risks to be excluded from coverage.
ASNWER B. 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.
Which of the following is a mandatory part of an insurance policy that varies with each individual policy? A. Insuring agreement B. Declarations C. Conditions D. Exclusions
ASNWER B. Declarations Because the declarations tell who, what, when and where, this information is different in each contract.
Which of the following is NOT the consideration in a policy? A. The promise to pay covered losses B. The application given to a prospective insured C. Something of value exchanged between parties D. The premium amount paid at the time of application
ASNWER B. The application given to a prospective insured Consideration is something of value that is transferred between the two parties to form a legal contract.
When an insurance policy does not offer a continuation or replacement at its expiration date, it is considered a A. Cancellation. B. Nonrenewal. C. Suspension. D. Cessation.
ASNWER B. Nonrenewal. When an insurance policy does not offer a continuation or replacement at its expiration date, it is considered a nonrenewal.
A person who is not named an an insured on the declaration page of a policy but is protected by the police is known as the... A. First Named Insured B. Additional Insured C. Policy Owner D. Named Insured
ANSWER B. Additional Insured An additional insured is usually added by endorsement and is not named on the declarations page but is protected by the policy
Which term best describes the act of withholding information that would be crucial to an underwriting decision ? A.Breach of Warranty B. Concealment C. Withholding D. Leading
ANSWER B. Concealment Concealment occurs when a person withholds a material fact that is crucial to making a decision
What is a material misrepresentation? A. Any misstatement made by an applicant for insurance B. Any misstatement by the producer C. Concealment D. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company
ASNWER D. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.
What type of information would be found in a policy's insuring agreement? A. Location of premises B. Policy limits C. Insurer's address D. Renewal dates
ASNWER D. Renewal dates An Insuring Agreement establishes the obligation of the insurance company to provide the insurance coverages 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 (among other things). Location of premises, policy limits, supplemental representations, and insurer's name and address can all be found in the Declarations.
Which of the following describes the transfer of a legal right or interest in an insurance policy? A. Abandonment B. Obligation C. Legal purpose D. Assignment
ASNWER D. Assignment Assignment is the transfer of a legal right or interest in an insurance policy. In property and casualty insurance, assignments of policies are usually valid only with the prior written consent of the insurer
All of the following are considered parts of the policy structure EXCEPT A. Conditions. B. Provisions. C. Exclusions. D. Insuring clause.
ASNWER B. Provisions. Provisions is a broad term used to refer to the sections or clauses of an insurance policy that communicate the policy's benefits, conditions, etc. The essential parts of the policy are declarations, insuring clause, conditions and exclusions.
Which of the following is NOT an essential element of an insurance contract? A. Consideration B. Agreement C. Legal purpose D. Counteroffer.
ASNWER D. 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
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Consideration B. Legal purpose C. Contract of adhesion D. Acceptance
ANSWER A. Consideration Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.
Who is responsible for filling out a notice of claim form? A. Insured B. Adjuster C. Agent D. Insurer
ASNWER A. Insured Notice of claim is a form or statement from an insured to an insurer, informing the insurer that events leading to a possible claim have occurred.
What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk? A. Primary and excess B. Other insurance C. Valid insurance D. Nonconcurrency
ASNWER B. 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 part of a property policy that shows the amount of insurance, premium, and policy term is the A. Endorsements. B. Declarations. C. Insuring clause. D. Conditions.
ASNWER B. Declarations. Who, what, when, where, and how much insurance and premium all are stated in the policy Declarations.
Duties of the insurer found in property policy conditions include all of the following EXCEPT A. Notify the insured in the event of financial difficulty. B. Pay covered losses. C. Provide advance notice of cancellation. D. Return any premiums to the insured.
ANSWER A. Notify the insured in the event of financial difficulty. The insurance department monitors the financial conditions of insurers. The insurers report to the state, not to policyholders.
The declarations page of the homeowners policy provides all of the following information EXCEPT A. A statement that earthquake damage is not covered. B. The amount of premium charged for each coverage. C. The insured's address. D. What deductible amount applies to each loss covered by the policy.
ANSWER A. 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 a loss. The statement that earthquake damage is not covered is found in the policy form.
An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied? A. Estoppel B. Material misrepresentation C. Waiver D. Utmost Good Faith
ANSWER B. Material misrepresentation A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.
In terms of parties to a contract, which of the following does NOT describe a competent party? A. The person must be mentally competent to understand the contract. B. The person must have at least completed secondary education. C. The person must not be under the influence of drugs or alcohol. D. The person must be of legal age.
ANSWER B. The person must have at least completed secondary education. The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.
What term best describes the act of withholding material information that would be crucial to an underwriting decision? A. Breach of warranty B. Concealment C. Withholding D. Leading
ASNWER B. 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.
In forming an insurance contract, when does acceptance usually occur? A. When an insured submits an application B. When an insurer's underwriter approves coverage C. When an insurer delivers the policy D. When an insurer receives an application
ANSWER B. When an insurer's underwriter approves coverage In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of A. Concealment. B. Misrepresentation. C. Fraud. D. Warranty.
ASNWER A. 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 crucial to underwriting decisions.
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 A. Insuring agreement. B. Conditions. C. Exclusions. D. Declarations.
ASNWER A. Insuring agreement. The insuring agreement is the part of the policy structure that describes the insured perils and the method of indemnification.
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A. Concealment B. Indemnity C. Representation D. Warranty
ANSWER D. 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.
Before an insurer will pay any loss under a policy, what is usually required from the insured? A. A binder B. A claims-made form C. Proof of loss D. Notice of claim
ASNWER C. Proof of loss A sworn statement, called proof of loss, must usually be furnished by the insured to an insurer before any loss under a policy can be paid.
What is a material misrepresentation? A. Any misstatement by the producer B. Concealment C. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company D. Any misstatement made by an applicant for insurance A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.
ANSWER C. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.
In insurance, an offer is usually made when A.The insurer approves the application and receives the initial premium. B. The agent hands the policy to the policyholder. C. An agent explains a policy to a potential applicant. D. An applicant submits an application to the insurer.
ASNWER D. An applicant submits an application to the insurer In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
An insured has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay? A. Each policy will pay the total policy limits of $100,000. B. The first policy written will pay $75,000, and the other three policies will contribute proportionately to pay for the remaining $25,000. C. The policy with the earliest effective date will pay the entire loss, and the other policies will pay nothing. D. Each policy will pay $25,000 of the loss.
ASNWER D. Each policy will pay $25,000 of the loss. Each policy will pay its pro rata share of the loss, but not more than the amount of loss in total.
Which of the following would NOT be considered a source of insurability information by an insurer? A. The applicant's marital status B. Interviews with the applicant's neighbors and friends C. Motor vehicle records D. Insurance history
ASNWER A. The applicant's marital status An insurer may inspect, with the applicant's written permission, the following: application form, motor vehicle records, interviews with neighbors, friends and employers, inspection of property, and inspection of insurance history
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? A. Insuring agreement B. Additional coverage C. Exclusions D. Declarations The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium.
ASNWER B. Additional coverage The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium.
Which of the following would be named on the declarations page of a property or liability policy? A. Beneficiaries B. All insureds C. Additional insureds D. First named insured
ANSWER D. First named insured First named insured is the individual whose name appears first on the policy's declaration.
Which of the following is a method of claim settlement used in casualty insurance when the insured and insurer cannot agree on how to settle a claim? A. Arbitration B. Proof of loss C. Restoration D. Appraisal
ANSWER A. Arbitration Arbitration is a method of casualty claim settlement used when the insured and insurer cannot agree on how to settle a claim. The arbitrator's decision is binding to both parties.
An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of A. Breach of warranty. B. Concealment. C. Waiver. D. Fraud.
ANSWER B. Concealment. In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision.
For a contract to be enforceable by law, the purpose of the contract must be A. For financial gain. B. For the benefit of the general public. C. Of pure intent. D. Legal and not against public policy.
ASNWER D. Legal and not against public policy. The purpose of a contract must be legal and not against public policy for the contract itself to be enforceable by law (or legal).
The Federal Fair Credit Reporting Act A. Regulates telemarketing. B. Prevents money laundering. C. Regulates consumer reports. D. Protects customer privacy.
ANSWER C. Regulates consumer reports. The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.
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? A. Representation B. Adhesion C. Consideration D. Good faith
ANSWER C. 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.
The policy conditions define A. The excluded perils B. The amount of coverage C. How parties to the Contract must act following a loss D. The Basic Underwriting Information
ANSWER C. How parties to the Contract must act following a loss Conditions is an essential part of a policy structure. Conditions define what each party to the policy is required to do contractually in the event of a loss
Which of the following would modify the original insurance contract by either adding or removing coverage ? A. Additional Coverage Form B. Conditions C. Flexible Policy D. Endorsements
ANSWER D. Endorsements Endorsements change the policy's original terms, conditions, or coverages. They can add or delete coverage, or merely correct items such as the insured's name, addresses, etc.
All of the following are found in the declarations section of a policy EXCEPT the A. Limits of Insurance B. Exclusions C. Policy Premiums D. Name of the insured
ANSWER B. Exclusions Declarations state who is insured, where the property is located, when the policy begins and ends, how much insurance and how much premium EXCLUSIONS tell what is NOT covered
A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely? A.The friend will have to apply for coinsurance from another insurance company. B.The homeowner will need to get written consent from the insurer before the policy can be reassigned. C.The policy will have to be cancelled. D.The homeowner should let the friend take over the premium payments.
ANSWER B.The homeowner will need to get written consent from the insurer before the policy can be reassigned. In property and casualty insurance, assignments of policies are usually valid only with the prior written consent of the insurer.
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? A. Appraisal clause B. Loss payment clause C. Valuation clause D. Loss settlement clause
ASNWER A. Appraisal clause Either an insured or insurer can request an appraisal. Each hires an appraiser. The appraisers then select a disinterested third party (umpire). Disagreements between the appraisers are settled by the umpire whose decisions are usually binding on both parties.
Bob insists that the insurer owes him $10,000 for liability damages, while his insurer asserts that they owe him no more than $7,000. Which of the following would most likely describe the type of claim settlement that they might pursue? A. Independent audit B. Appraisal hearing C. Arbitration D. Small claims court
ASNWER C. Arbitration When an insured and insurer cannot agree on how to settle a claim, arbitration is often used. The settlement is submitted to an arbitrator(s) whose decision may or may not be binding on both parties dependent on state law.
What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk? A. Valid insurance B. Nonconcurrency C. Primary and excess D. Other insurance
ASNWER D. 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 A. Contributing. B. Proportionate. C. Excess. D. Pro rata liability.
ASNWER D. Pro rata liability. To preserve the principle of indemnity, each policy pays a pro rata share based upon the share of the coverage. The insured cannot collect the full amount of loss from each policy.
The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay? A. Company A will pay $16,000; Company B will pay $8,000. B. Company A will pay $20,000; Company B will pay $4,000. C. Company A will pay $12,000; Company B will pay $12,000. D. Company A will pay $24,000; Company B will pay $0.
ASNWER A. Company A will pay $16,000; Company B will pay $8,000. Each policy pays its pro rata share of the loss based upon each policy's share of the total amount of coverage.
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? A. Proof of loss B. Duties after loss C. Legal action D. Loss settlement Duties after 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.
ASNWER B. Duties after loss Duties after 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.
Which of the following would modify the original insurance contract by either adding or removing coverage? A. Endorsements B. Additional coverage form C. Conditions D. Flexible policy
ASNWER A. Endorsements Endorsements change the policy's original terms, conditions, or coverages. Endorsements can add or delete coverage, or merely correct items such as the insured's name, address, etc.
Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as A. Cessation. B. Cancellation. C. Rescission. D. Nonrenewal.
ASNWER B. 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 pro rata liability clause is designed to protect the principle of A. Insurable interest. B. Waiver and estoppel. C. Indemnity. D. Subrogation.
ASNWER C. 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.
The Gramm-Leach-Bliley Act was passed to A. Protect private customer information filed with a financial institution. B. Define insurance as interstate commerce. C. Allow consumers access to credit and private consumer reports. D. Allow insurance companies access to medical information for underwriting purposes.
ANSWER A. 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.
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 A. Claim report. B. Binder. C. Proof of loss. D. Notice of claim.
ANSWER C. Proof of loss. Proof of loss is a sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid. Proof of loss must be in writing.
When would a misrepresentation on the insurance application be considered fraud? A. Never: statements by the applicant are only representations. B. When the application is incomplete C. Any misrepresentation is considered fraud. D. If it is intentional and material
ANSWER D. If it is intentional and material A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information A. Consumer Privacy Act B. The Fair Credit Reporting Act C. Unfair Trade Practices Law D. The Guaranty Association
ANSWER B. The Fair Credit Reporting Act The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.
Which of the following would qualify as a competent party in an insurance contract? A. The applicant is a 12-year-old student. B. The applicant is under the influence of a mind-impairing medication at the time of application. C. The applicant has a prior felony conviction. D. The applicant is intoxicated at the time of application.
ASNWER C. The applicant has a prior felony conviction. When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.
When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy A. The loss reimbursement will be paid to the mortgagee as their interest may appear. B. The mortgagee's rights of recovery will not be defeated by any act or neglect of the insured. C. The mortgagee may bring a suit in their own name to recover damages to covered property. D. All of the above are true.
ASNWER D. All of the above are true. When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy, the loss reimbursement will be paid to the mortgagee as their interest may appear; and, the mortgagee's rights of recovery will not be defeated by any act or neglect of the insured. The mortgagee is also given other rights, such as bringing a suit in their own name to recover damages.