Insurance Practice Questions

A $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage; the owner has a policy with $60,000 coverage. How much can the owner collect for his loss?

$30,000

An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?

$30,000

An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices. If the roof has been depreciating at $200 per year and the insured's policy is written on the actual cash value (ACV), how much will the policy pay toward the insured's new roof?

$5,000

If a liability policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person?

$50,000

If a liablity policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person?

$50,000

In the split limit coverage in personal auto policies, which limit indicates the maximum amount the policy will pay for bodily injury per person ?

1st limit

What type of liability would a person who owns wild animals have?

Absolute

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

Additional insured

Which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur?

Aggregate limit of liability

In which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation?

Agreed Value

Which of the following types of valuation works best for property whose value does not fluctuate much?

Agreed value

A beauty parlor burns to the ground. What type of loss is this to the owner?

Direct

Which of the following provisions requires that the insured protects the damaged property from further damage?

Duties after loss

An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?

Fair Credit Reporting Act

Who is responsible for filling out a notice of claim form?

Insured

Persons covered under an insurance policy, whether named or not, are known as the

Insureds

Which of the following is the basis for a claim against an insurance policy?

Loss

Duties of the insurer found in property policy conditions include all of the following EXCEPT

Notify the insured in the event of financial difficulty

A tornado that destroys property would be an example of which of the following?

Peril

The policy that pays first in the event of a covered loss is known as the

Primary Policy

The party to a surety or fidelity bond who promises to fulfill the obligations is the

Principal

Which method of loss valuation is contrary to the basic concept of indemnity?

Replacement cost

The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called.

Subrogation

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?

The Fair Credit Reporting Act

Negligence is defined as

The failure to do what a reasonable prudent person would do under given circumstances

Negligence may be defined as

The failure to use reasonable and prudent care.

When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be

The proximate cause

Liability imposed on one party as a result of the actions of another person is known as

Vicarious Liability

Split Limits

are separately stated limits of liability for different coverages. The limits may be stated on a per person, per occurrence, or per policy period basis, or can be split between bodily injury and property damage. Many auto liability policies are written with split limits.

Insurable interest in a property policy must be proven

at the time of loss

The proof of loss statement must be

in writing

When an insurance policy does not offer a continuation or replacement at its expiration date, it considered a

nonrenewal

A sworn written statement that must be furnished by the the insured to the insurer before any loss under policy can be paid is called

proof of loss

In return for premium, an insurance company must

Be fair in underwriting and pay covered losses.

What is the purpose of the coinsurance clause found in property insurance policies?

Encourage the insured to insure the property closer to its full value

Which of the following would be named the declarations page of a property or liability policy?

First named insured

Replacement cost is defined as

Full replacement of property at its current cost, new and without reduction for depreciation.

The NFIP emergency program

Goes into effect after the community has received a Flood Hazard Boundary Map and ends when the normal program begins. It also provides limited amounts of coverage at subsidized rates.

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

All of the following statements describe the concept of strict liability EXCEPT

It is imposed on defendants engaged in hazardous activities

An insured attends an auction at an estate sale. She bids on an original painting by Picasso and acquires it. Under the personal articles floater of her homeowners policy, what coverage is offered on her new painting?

It will be covered for its actual cash value or 25% of the scheduled limit for up to 90 days.

Adam is injured in a car accident caused by john. What kind of insurance would cover John's obligation to pay for Adam's injuries?

Liability Insurance

Which of the following coverages' in dwelling and homeowners policies is for indirect losses?

Loss of use

The insured's house is located one mile from the country's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?

Market Value

The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was 80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?

Market Value

Why don't commercial auto coverage forms automatically include medical payment coverage?

Often, any person occupying a commercial vehicle would be covered under a workers compensation policy.

Before an insurer will pay any loss under a policy, what is usually required from the insured?

Proof of loss

In case of a loss, the indemnity provision in insurance policies

Restores an insured person to the same financial state as before the loss

The transfer of an insured's right to seek damages from a negligent party to the insurer is found in which of the following clauses?

Subrogation

For the purpose of insurance, risk is defined as

The uncertainty of chance of loss

Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as

cancellation