Chapter 2 Quiz

Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called A Material misrepresentations. B Fraudulent statements. C Warranties. D Common errors.

Correct! A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

Before an insurer will pay any loss under a policy, what is usually required from the insured? A A claims-made form B Proof of loss C Notice of claim D A binder

Correct! 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.

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 Additional coverage B Exclusions C Declarations D Insuring agreement

A Additional coverage Incorrect! 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 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

A Arbitration Correct! 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.

All of the following are conditions commonly found in the insurance policy EXCEPT A Appraisal. B Insuring agreement. C Cancellation and nonrenewal. D Subrogation.

B Insuring agreement. Correct! The insuring agreement provides information on the policy's coverages. Conditions state the legal obligations and duties of the parties to the contract.

The Gramm-Leach-Bliley Act was passed to A Allow insurance companies access to medical information for underwriting purposes. B Protect private customer information filed with a financial institution. C Define insurance as interstate commerce. D Allow consumers access to credit and private consumer reports.

B Protect private customer information filed with a financial institution. Correct! 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.

Which of the following would qualify as a competent party in an insurance contract? A The applicant is under the influence of a mind-impairing medication at the time of application. B The applicant has a prior felony conviction. C The applicant is intoxicated at the time of application. D The applicant is a 12-year-old student.

B The applicant has a prior felony conviction. Correct! 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.

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

A Endorsements Correct! 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.

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.

C Insureds. Correct! The insureds are persons covered under a policy, whether named or not.

The proof of loss statement must be A An oral statement. B In writing. C Both oral and in writing. D In a videotape format.

B In writing. Correct! The proof of loss statement must be in writing.

Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as A Cancellation. B Rescission. C Nonrenewal. D Cessation.

A Cancellation. Correct! 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.

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of A Concealment. B Waiver. C Fraud. D Breach of warranty.

A Concealment. Correct! In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision.

All of the following are considered parts of the policy structure EXCEPT A Provisions. B Exclusions. C Insuring clause. D Conditions.

A Provisions. Correct! 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.

A person who is not named as an insured on the declarations page of a policy but is protected by the policy is known as the A First named insured. B Additional insured. C Policyowner. D Named insured.

B Additional insured. Correct! An additional insured is usually added by endorsement and is not named on the declarations page but is protected by the policy.

The part of a policy that clarifies terms in the policy is the A Exclusions. B Definitions. C Insuring agreement. D Conditions.

B Definitions. Correct! The component of a policy that clarifies terms is the definitions.

In insurance, an offer is usually made when A The agent hands the policy to the policyholder. B An agent explains a policy to a potential applicant. C An applicant submits an application to the insurer. D The insurer approves the application and receives the initial premium.

C An applicant submits an application to the insurer. Correct! 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.

In return for premium, an insurance company must A Use standardized tables of coverage for specific risks to be excluded from coverage. B Give the insurer valuable consideration. C Be fair in underwriting and pay covered losses. D Provide the insured with coverage adequate for all potential losses.

C Be fair in underwriting and pay covered losses. Correct! 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.

For a contract to be enforceable by law, the purpose of the contract must be A For the benefit of the general public. B Of pure intent. C Legal and not against public policy. D For financial gain.

C Legal and not against public policy. Correct! The purpose of a contract must be legal and not against public policy for the contract itself to be enforceable by law (or legal).

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

B The application given to a prospective insured Correct! Consideration is something of value that is transferred between the two parties to form a legal contract.

An applicant is purchasing a homeowners policy. A producer comes to her home, fills out the paperwork, and tells the applicant that her home will be covered as soon she signs all of the paperwork, and that she will receive a new policy in the mail in 5 business days. Even though the policy is not issued, the applicant's home is temporarily covered until then. Which of the following makes that possible? A Mortgagee clause B Notice of claim C Binder D Loss settlement provision

C Binder Correct! A binder is a temporary agreement issued, usually in writing, but may be oral, by a producer or insurer providing temporary coverage until a policy can be issued.

What term best describes the act of withholding material information that would be crucial to an underwriting decision? A Leading B Breach of warranty C Concealment D Withholding

C Concealment Correct! 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.

Representations are written or oral statements made by the applicant that are A Found to be false after further investigation. B Immaterial to the actual acceptability of the insurance contract. C Considered true to the best of the applicant's knowledge. D Guaranteed to be true.

C Considered true to the best of the applicant's knowledge. Correct! Representations are statements made by an applicant that they believe to be true.

Which of the following is a mandatory part of an insurance policy that varies with each individual policy? A Exclusions B Insuring agreement C Declarations D Conditions

C Declarations (not insuring agreement) Incorrect! Because the declarations tell who, what, when and where, this information is different in each contract.

The part of a property policy that shows the amount of insurance, premium, and policy term is the A Conditions. B Endorsements. C Declarations. D Insuring clause.

C Declarations. Incorrect! Who, what, when, where, and how much insurance and premium all are stated in the policy Declarations.

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.

D Exclusions. Correct! The exclusions section of an insurance policy details what perils are not insured against and what persons are not insured.

The Federal Fair Credit Reporting Act A Regulates consumer reports. B Protects customer privacy. C Regulates telemarketing. D Prevents money laundering.

A Regulates consumer reports. Incorrect! The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

An insurance contract must contain all of the following to be considered legally binding EXCEPT A Offer and acceptance. B Consideration. C Competent parties. D Beneficiary's consent.

D Beneficiary's consent. Correct! The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

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 homeowner will need to get written consent from the insurer before the policy can be reassigned. B The policy will have to be cancelled. C The homeowner should let the friend take over the premium payments. D The friend will have to apply for coinsurance from another insurance company.

A The homeowner will need to get written consent from the insurer before the policy can be reassigned. Correct! In property and casualty insurance, assignments of policies are usually valid only with the prior written consent of the insurer.

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 Adhesion B Consideration C Good faith D Representation

B Consideration Correct! 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.

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

B Duties after loss Incorrect! 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.

The policy conditions define A The amount of coverage. B How parties to the contract must act following a loss. C The basic underwriting information. D The excluded perils.

B How parties to the contract must act following a loss. Correct! 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.

Duties of the insurer found in property policy conditions include all of the following EXCEPT A Return any premiums to the insured. B Notify the insured in the event of financial difficulty. C Pay covered losses. D Provide advance notice of cancellation.

B Notify the insured in the event of financial difficulty. Incorrect! The insurance department monitors the financial conditions of insurers. The insurers report to the state, not to policyholders.

Which of the following would NOT be considered a source of insurability information by an insurer? A Insurance history B The applicant's marital status C Interviews with the applicant's neighbors and friends D Motor vehicle records

B The applicant's marital status Correct! 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.

What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk? A Nonconcurrency B Primary and excess C Other insurance D Valid insurance

C Other insurance Correct! 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 Proportionate. B Excess. C Pro rata liability. D Contributing.

C Pro rata liability. Correct! 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.

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? A The Guaranty Association B Consumer Privacy Act C The Fair Credit Reporting Act D Unfair Trade Practices Law

C The Fair Credit Reporting Act Correct! 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.

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.

D All of the above are true.Correct! 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.

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 Loss payment clause B Valuation clause C Loss settlement clause D Appraisal clause

D Appraisal clause Correct! 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.

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.

D Each policy will pay $25,000 of the loss. Correct! 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 be named on the declarations page of a property or liability policy? A Beneficiaries B All insureds C Additional insureds D First named insured

D First named insured Correct! First named insured is the individual whose name appears first on the policy's declaration.

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

D If it is intentional and material Correct! A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.

Who is responsible for filling out a notice of claim form? A Adjuster B Agent C Insurer D Insured

D Insured Correct! 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.

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 Conditions. B Exclusions. C Declarations. D Insuring agreement.

D Insuring agreement. Incorrect! 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 Indemnity B Representation C Warranty D Concealmentv

Incorrect! 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.