Practice Exam #3

What is the maximum number of boarders per unit that would be allowed in the homeowners policy? a) 2 b) 3 c) 4 d) 5

a) 2 Homeowners policies may insure a property that has no more than 2 families or 2 roomers or boarders per unit.

All of the following are factors in rating workers compensation insurance EXCEPT a) Payroll. b) Loss experience. c) Job classification. d) Sales.

a) Payroll. The hazard of the work, the amount of payroll, and the employer's prior loss experience are all rating factors.

Shipbuilders and repairers are covered by the a) U.S. Longshore and Harbor Workers Compensation Act. b) Jones Act. c) States' workers compensation laws d) Federal Employers Liability Act.

a) U.S. Longshore and Harbor Workers Compensation Act. The U.S. Longshore and Harbor Workers Compensation Act is a federal law offering workers compensation benefits for workers who are injured on navigable water who are normally not covered by state workers compensation laws.

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? a) Consumer's guide b) SEC c) AM Best d) NAIC

c) AM Best AM Best & Company assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.

A home is insured under an HO-2 policy. The homeowner decides to replace the roof on the house. He wasn't able to complete the roof in one day and left a portion of it unfinished overnight. A heavy rainstorm caused $20,000 of damage to the interior of the house and some furniture. In this situation, the policy will pay a) Replacement cost of the damage. b) 80% of replacement cost. c) Nothing. d) The ACV of the damage.

c) Nothing. HO-2 is a named peril policy and rain is not a covered peril. It would pay for the damage caused by rain, if the hole was caused by a covered peril (wind or hail).

Losses that result from the freezing of a plumbing system while the dwelling is vacant would be EXCLUDED under a homeowners policy UNLESS a) The insured purchased special form coverage. b) The dwelling had been vacant for no more than 90 days. c) The insured purchased the water damage endorsement. d) The insured had drained the plumbing system.

d) The insured had drained the plumbing system. The insured would need to have made reasonable efforts to maintain heat in the insured building or have drained the plumbing system.

All of the following are special personal property limits under a homeowners policy EXCEPT a) $500 for business personal property on the insured premises. b) $1,500 for securities, accounts, deeds, and evidences of debt. c) $1,500 for trailers not used with watercraft. d) $2,500 for theft of firearms.

a) $500 for business personal property on the insured premises. HO forms place a $2,500 limit for business personal property that applies on premises only. A limit of $500 applies to loss of business personal property while away from the premises.

Which situation would NOT be covered by the basic causes of loss form under a commercial property policy? a) The Surf Side Club Waterfront Restaurant is damaged when flood waters rise and seep into the restaurant. b) Vandals throw rocks through the plate glass window of Piccolo Pete's Cafe. c) The automatic fire protective sprinkler system inside New Realities Book Shop leaks causing damage to the store. d) Gordon's Motorcycle Heaven is damaged by the sudden sinking of land created by the action of water on limestone.

a) The Surf Side Club Waterfront Restaurant is damaged when flood waters rise and seep into the restaurant. Damage caused by flood, surface water, mudslide, water that backs up from a sewer or drain, or ground surface water that seeps through foundations, basements, doors or windows is not covered.

All of the following are true regarding physical damage coverage, EXCEPT a) The limit of liability is the greater of the actual cash value of the vehicle at the time of loss or the amount necessary to repair or replace the vehicle. b) Losses to non-owned autos will be covered the same as the broadest coverage available for any covered auto, except non-owned trailers are limited to $500. c) The policy will pay up to $20 per day up to a maximum of $600 for rental transportation. d) The insurer will pay for direct and accidental loss to a covered auto minus any applicable deductible.

a) The limit of liability is the greater of the actual cash value of the vehicle at the time of loss or the amount necessary to repair or replace the vehicle. The limit of liability is the lesser of the actual cash value of the vehicle at the time of loss or the amount necessary to repair or replace the vehicle.

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? a) $20,000 b) $30,000 c) $40,000 d) $60,000

b) $30,000 For the total amount of a partial loss to be paid, a house must be insured for at least 80% of its value on the date of loss. In this case, because the house is insured for only $60,000 (75% of the minimum requirement), the policy will pay only 75% of the loss, or $30,000.

Under the commercial crime coverage inside the premises - robbery or safe burglary of other property, what is the special per occurrence limit that applies to loss or damage to precious metals, precious and semiprecious stones, pearls, furs, manuscripts, drawings, or records? a) $1,000 b) $5,000 c) $10,000 d) $25,000

b) $5,000 A special limit of $5,000 per occurrence applies to loss or damage to precious metals, precious and semiprecious stones, pearls, furs, manuscripts, drawings or records.

Vandalism and malicious mischief would be covered if the insured's premises have been vacant for no more than how many days? a) 30 b) 60 c) 100 d) 365

b) 60 Vandalism and malicious mischief will not be covered if the insured's premises have been vacant for more than 60 days immediately prior to the loss.

In addition to the common policy conditions, all of the following conditions apply to liability coverage EXCEPT a) Bankruptcy. b) Employers liability. c) Separation of insured. d) Legal action against insurer.

b) Employers liability. The following conditions apply to the liability coverage in addition to the common policy conditions: bankruptcy, duties in event of occurrence, claim or suit, legal action against the insurer, and separation of insured. Employers liability is an exclusion.

What is the purpose of the coinsurance clause found in property insurance policies? a) Prevent insureds from profiting from a loss b) Encourage the insured to insure the property closer to its full value c) Encourage higher standards of care by requiring the insured to pay a portion of every loss d) Ensure that insureds do not overinsure their property

b) Encourage the insured to insure the property closer to its full value In return for the insured's promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full.

Which of the following types of property will NOT be covered by business liability insurance? a) Nonowned watercraft 50 feet long used for transporting personal property of the insured b) Owned watercraft 30 feet long used for carrying passengers for a fee c) An auto parked at the insured's premises d) Watercraft while on shore at a premises owned by the insured

b) Owned watercraft 30 feet long used for carrying passengers for a fee Watercraft while on shore at a premises owned by the insured, and nonowned watercraft less than 51 feet long not being used to carry persons or property for a fee will be covered.

Which one of the following is NOT an element of insurability? a) Loss must be expected b) Risk of loss is speculative c) Loss is calculable d) Risk of loss must represent a financial hardship

b) Risk of loss is speculative A speculative risk has a chance of gain, as well as a chance of loss. For the insured, insurance should not be about making gains; it's about taking care of losses.

All of the following people would be considered insureds under the liability section of a homeowners policy EXCEPT a) The legal representative of a deceased insured. b) The 22-year-old niece of the insured who is visiting. c) A 15-year-old foster child residing in the premises. d) The mother of the insured who is residing in the household.

b) The 22-year-old niece of the insured who is visiting. Relatives of the insured of any age are considered insureds only if they are residents of the household.

A specific coverage part is listed on the commercial package policy declarations page, but there is no premium shown. What does that mean? a) Coverage is automatic. b) There is no coverage. c) Coverage applies without premium. d) This must be a misprint on the form.

b) There is no coverage. If no premium amount is shown, there is no coverage for that coverage part.

What is the maximum amount an insurer will pay under the equipment dealers pollution cleanup and removal extension of an inland marine policy? a) $20,000 all expenses incurred during a 12-month period b) $5,000 for all expenses incurred during a 12-month period c) $10,000 for all expenses incurred during a 12-month period d) $15,000 all expenses incurred during a 12-month period

c) $10,000 for all expenses incurred during a 12-month period The maximum the insurer will pay under this extension is $10,000 for all expenses incurred during a 12-month period.

Which of the following is an additional coverage that is covered by the broad causes of loss form? a) Ordinance or law b) Settling c) Collapse d) Lightning

c) Collapse Collapse is an additional coverage found in the broad causes of loss form. Collapse does not include settling. Lightening is a named peril and ordinance or law is an exclusion.

Compared with other drivers in his age group, a driver has had more minor accidents and traffic violations. Which of the following rating types would most accurately reflect the driver's true insurance risk? a) Special b) Schedule c) Experience d) Class

c) Experience In experience rating, the insured's own past loss experience enters into the determination of the final premium. Experience rating is superimposed on a class-rating system and adjusts the insured's premium either up or down, depending on the extent to which his experience has deviated from the average experience of the class.

Expenses that an organization would not have incurred if business interruption had not existed are known as a) Additional expenses. b) All inclusive expenses. c) Extra expenses. d) Continuing expenses.

c) Extra expenses. Extra expenses are expenses that an organization would not have incurred if the business interruption had not occurred. Examples include additional overtime labor costs, or renting a similar building to continue operations as opposed to waiting until the existing building is rebuilt.

Under the liability section of the Personal Auto Policy, all of the following are considered persons insured, EXCEPT a) The insured's neighbor who temporarily borrows the insured's car. b) A co-worker who borrowed the insured's car to run an errand for the insured's employer. c) The insured's employer, if the insured used the employer's vehicle to run an errand for his employer. d) The daughter of the insured while driving her boyfriend's car.

c) The insured's employer, if the insured used the employer's vehicle to run an errand for his employer. The employer's policy would provide the coverage. The PAP would provide coverage as excess for family members driving nonowned autos. Other individuals are covered while operating an auto, with permission, insured under a PAP.

Which of the following losses would most likely NOT be covered under Coverage A in the dwelling policy? a) Outdoor personal property of the insured b) Supplies used for repair of the dwelling c) Theft of a renter's lawnmower used to service the premises d) Fire damage to building material on the premises

c) Theft of a renter's lawnmower used to service the premises Coverage A on the dwelling includes all attached structures and outdoor personal property or equipment used to maintain or service the premises if not covered elsewhere. The lawnmower most likely would not be covered because the dwelling insured is rented to others without content coverage. If the landlord furnishes lawnmowers or other equipment to service the premises, there is no need to schedule a small amount of content coverage.

Farm policy Coverage B - Structures would pay how much for loss of an outside antenna, tower, or satellite dish? a) Full replacement cost b) Not more than $250 c) Up to $1,000 d) ACV on date of loss

c) Up to $1,000 A special limit of $1,000 per occurrence applies to such items.

Under Coverage C of a homeowners policy, the amount of insurance provided to cover personal property of the insured is a) Equal to the amount provided as Coverage B. b) Equal to the amount provided as Coverage A. c) 50% of the amount provided as Coverage B. d) 50% of the amount provided as Coverage A.

d) 50% of the amount provided as Coverage A. Under the HO forms, Coverage C is automatically provided as equal to 50% of the amount provided in Coverage A.

Which of the following would NOT be covered under the liability section of a personal auto policy? a) A trailer the insured vehicle is towing accidentally comes loose and causes injury to another person. b) A friend of your son is using the insured vehicle with the named insured's permission and causes an accident. c) After a party, the insured causes an accident and is charged with driving under the influence of alcohol. d) Bodily injury is caused by the insured's negligence while driving a three-wheel all-terrain vehicle.

d) Bodily injury is caused by the insured's negligence while driving a three-wheel all-terrain vehicle. Vehicles with fewer than four wheels are not eligible for coverage under a PAP.

Homeowners policies provide coverage for a) Losses caused by off-premises power failure. b) The land under the residence. c) Property of tenants, roomers, or boarders not related to any insured. d) Business property while on the residence premises.

d) Business property while on the residence premises. Your contents coverage will cover up to a $2,500 for loss of business property on premises.

Professional liability coverage protects the insured against legal liability resulting from a) Liability assumed under a contract. b) Dishonest acts. c) The unprofessional conduct of an employee. d) Errors and omissions.

d) Errors and omissions. Professional liability in fields other than medical is classified as errors and omissions insurance. It covers liability arising out of the failure to use due care and the degree of skill expected of a person in a particular profession.

A participating insurance policy may do which of the following? a) Provide group coverage b) Pay dividends to the stockholder c) Require 80% participation d) Pay dividends to the policyowner

d) Pay dividends to the policyowner A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

All of the following are characteristics of the dwelling policy EXCEPT a) Coverage includes the dwelling only, contents only, or both. b) Incidental occupancy of limited service-type exposure is permitted. c) Dwellings up to four family units are eligible. d) The dwelling must be owner-occupied.

d) The dwelling must be owner-occupied. Dwelling policies insure residential exposures with only limited service-type business exposures allowed. The dwelling can be completed or under construction, and can be owner- or tenant-occupied. The dwelling policy can insure the dwelling only, contents only, or both.

The members of a limited liability company are insureds under a businessowners policy (BOP) if a) Each individual is listed as a named insured on the policy. b) A single individual member of the limited liability company is listed as the named insured. c) Members of a limited liability company cannot be insureds under a BOP. d) The limited liability company is designated as the named insured.

d) The limited liability company is designated as the named insured. If the named insured is designated as a limited liability company, the named insured and members also are insureds, but only with respect to the conduct of the business. Managers are insureds, but only with respect to their duties as managers.