Introduction to Property Insurance

A business loses money because it was forced to close after a fire on the premises. This loss is described as a (an): A) indirect loss. B) proximate cause. C) direct loss. D) named peril.

a

A parking valet at a hotel uses a guest's car to do a personal errand and damages the car in a collision. The guest has a personal auto policy (PAP). The insurance company will pay the claim and: A) subrogate against the parking valet. B) recover any additional loss from the lienholder. C) subrogate against the named insured. D) relieve the parking valet of legal liability for the loss.

a

A policy under which the insured and insurer agree on the property value and list the value in the policy is known as: A) an agreed value policy. B) a floater policy. C) an actual cash value policy. D) a block policy.

a

The conditions section of an insurance contract sets forth: A) the duties of the insured and insurance company. B) the coverages provided by the contract. C) the exclusions of coverage under the contract. D) the limits of liability under the contract.

a

The insured has a building with a replacement cost of $200,000 but has insured it for only $100,000. An 80% coinsurance provision is present in the policy. When a $80,000 loss occurs, the policy will pay: A) $50,000.00 B) $40,000.00 C) $80,000.00 D) $100,000.00

a

The insured has a named peril policy that covers hail, fire, wind, and lightning. Which one of the following events would be covered? A) The roof is damaged in an electrical storm. B) A rain storm causes the insured's basement to flood. C) The roof collapses from heavy snow. D) A window is broken in a riot.

a

When a policy is written on a reporting basis, a premium is paid at the beginning of the policy period that is based on an estimate of what the final premium will be. This is called a (an): A) deposit premium. B) final premium. C) total premium. D) audited premium.

a

When a small restaurant is damaged by a tornado, the owners are forced to close for 1 month while the property is repaired. The building suffers damages of $20,000. The owners estimate they will lose $50,000 in business receipts. In order to keep their staff, the owners must continue to pay salaries totaling $5,000. Ignoring any deductible, how much of the direct loss will the business owners policy pay? A) $20,000.00 B) $50,000.00 C) $55,000.00 D) $75,000.00

a

Which of the following amounts is the maximum that an insurer will pay in case of a loss? A) Limit of liability. B) Actual cash value. C) Loss reserve. D) Condition.

a

Which one of the following describes the concept of subrogation? A) The insurer claims the right to collect from a negligent third party. B) The insurer claims the right to collect damages from the insured. C) The insured claims the right to sue a third party. D) The insurer claims the right to send the disputed claim into arbitration.

a

Why do insurance policies usually define who is considered an insured under the policy? A) To specify who is covered in addition to the named insured. B) To specify who is not insured. C) To specify who is a named insured. D) To specify that the named insured is the only person covered by the policy.

a

A bailee is: A) a bond posted to free someone from jail. B) someone who has taken temporary custody of another person's property for a special purpose. C) a temporary reprieve from liability. D) someone who escorts litigants into a court room.

b

An all-risk or open-perils policy protects against: A) any peril. B) any peril except those that are specifically excluded. C) only stated perils. D) named perils unless otherwise excluded.

b

The liberalization provision will do which of the following? A) Protect the insured against a cancellation of the policy. B) Automatically broaden coverage without additional premium if there is a revision to the policy. C) Require the insurer to liberalize the conditions of the policies. D) Allow the insurer to set the property values.

b

The purpose of the conditions section of an insurance policy is to A) cover unique insurable exposures of the insured. B) list the obligations of the insured and the insurance company. C) eliminate uninsurable perils. D) alter the general provisions of the insuring agreement.

b

Which one of the following situations describes an indirect loss? A) Water damage caused by firefighters extinguishing a fire. B) Lost profits when business is suspended. C) Destruction of a car in a collision. D) Damage to a roof from a hailstorm.

b

An insurance company takes possession of a damaged auto it has covered. When the company becomes the legal owner of the auto, it is exercising the right of: A) leasing. B) liability. C) salvage. D) condemnation.

c

An insured owns 4 stores. As inventory is sold, the insured transfers new inventory from the other locations to the store making the sales. Which type of policy would best fit this insured's needs? A) Scheduled policy. B) Specific policy. C) Blanket policy. D) Value Reporting policy.

c

The amount of payment that comes into play when an insured fails to carry the sufficient amount of insurance is sometimes referred to as the: A) agreed value. B) stated payment. C) coinsurance penalty. D) claims penalty.

c

The coverages offered by an insurance policy are described in the: A) conditions section. B) definition section. C) insuring agreement. D) declarations page.

c

The definition of actual cash value is: A) the cost of replacing damaged or destroyed property at the time of a loss. B) replacing damaged property with similar property that performs the same function as the damaged or destroyed property. C) replacement cost minus depreciation. D) replacement cost plus depreciation.

c

The list of perils covered under a policy is found in which part of the policy? A) Exclusions section. B) Declarations page. C) Insuring agreement. D) Conditions section.

c

What does the liberalization clause do to a property policy? A) Waives the premium in some situations. B) Gives the insurer subrogation rights. C) Broadens coverage. D) Eases the criteria for concealment or fraud.

c

Which of the following phrases best describes actual cash value? A) Original cost less depreciation. B) Replacement cost plus appreciation. C) Replacement cost less depreciation. D) Original cost less appreciation.

c

Which of the following terms is used to describe an empty building that is not being used? A) Unoccupied. B) Absent. C) Vacant. D) Vacated.

c

Which one of the following statements about the standard mortgage clause is CORRECT? A) The mortgagee has no rights under the policy. B) The mortgagee is the only party that can submit claims under the policy. C) Nothing the insured does can prevent the mortgagee from collecting under the policy. D) The mortgagee can only collect from the policy with the prior written consent of the policyowner.

c

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? A) One-third, because the insured is the third party to the contract and must bear a proportionate share of the loss. B) None, because second-named insurers always provide excess coverage. C) 100%, although Acme will have the right to subrogate the claim against Ace Insurance Company. D) 0.5.

d

An auto is sold for salvage value following payment of a loss. Who receives the proceeds? A) Lien holder. B) Claimant. C) Insured. D) Insurance company.

d

An insured fails to pay their homeowners insurance premium. The mortgagee becomes aware of this fact and remits the premium to the insurance company. Shortly thereafter the insured sets fire to their home in an attempt to receive payment for the loss. Any loss payment settlement would be made to the: A) the insured and the mortgagee. B) neither the insured or the mortgagee. C) the insured. D) the mortgagee.

d

An insured owns an office building valued at $200,000. He carries a deductible of $1,000. The building sustains a loss of $40,000. If the insurance policy carries an 80% coinsurance clause, how much coverage must the insured carry to ensure that the loss is paid in full? A) $80,000.00 B) $192,000.00 C) $200,000.00 D) $160,000.00

d

The furniture Harold purchased 10 years ago was destroyed in a fire. The furniture cost $9,000 when new and has depreciated by $5,000. It would cost $12,000 to replace this furniture today. What is the actual cash value of Harold's destroyed furniture? A) $5,000.00 B) $9,000.00 C) $3,000.00 D) $7,000.00

d

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? A) $4,500.00 B) $3,000.00 C) $9,000.00 D) $6,000.00

d

When the insurer and the insured cannot agree on the value of a loss, the matter is submitted to disinterested parties for resolution. Under a standard appraisal clause, how many parties are involved in determining the value of the loss? A) Two. B) One. C) Five. D) Three.

d

Which of the following is an example of property that might be insured on a valued basis? A) Coin collection. B) Golf equipment. C) Jewelry. D) Rare painting.

d

Which of the following legal principles allows insurance companies to collect from a negligent third party damages it paid to an insured? A) Risk transfer. B) Assignment. C) Indemnity. D) Subrogation.

d

Which of the following policy provisions restricts certain risks from coverage? A) Declarations. B) Conditions. C) Insuring agreement. D) Exclusions.

d

Which of the following terms describes a building in which no one is present but to which the occupants intend to return? A) Vacant. B) Uninhabited. C) Occupied. D) Unoccupied.

d