Risk Management & Insurance Exam 3 Review

Which of the following states has a pure no-fault system with respect to automobile insurance: a. Iowa b. Nebraska c. Michigan d. Virginia e. No state has a pure no-fault system

e. No state has a pure no-fault system

A term insurance policy is considered to be a. The same as a whole life policy b. Not a good deal for elderly because it is so expensive c. A policy that will cover you until you die d. A policy that all people under the age of 30 should buy because it is so cheap e. Pure death protection

e. Pure death protection

Malcolm was involved in an auto accident. He was judged to be 20 percent at fault in the accident, and the other party was judged to be 80 percent at fault. Malcolm's actual damages were $40,000. Under a pure comparative negligence rule, how much will Malcolm receive for his injuries? a. $8,000 b. $24,000 c. $32,000 d. $40,000

c. $32,000

Under a disability insurance policy, the waiting period is analogous to a. A premium b. An open-peril arrangement c. A deductible d. A named-perils arrangement e. An insuring agreement

c. A deductible

Your friend Fiona owns a beautiful Mini Cooper. She has exactly the same insurance coverage as you. One day she allows you to drive you to her Mini. You have never driven a Mini before and accidentally crash Fiona's car into a tree. Which of the following is/are sources of compensation for the damage to Fiona's Mini? a. Part A "Liability Coverage" of your policy b. Both Part A "Liability Coverage" of your and Part D "Physical Damage" of Fiona's policy. In this case your policy will not be excess and Fiona's will be primary. c. Both Part D "Physical Damage" of your and Part D "Physical Damage" of Fiona's policy. In this case your policy will be excess and Fiona's will be primary d. Both Part D "Physical Damage" of your and Part D "Physical Damage" of Fiona's policy. In this case your policy will be primary and Fiona's will be excess.

c. Both Part D "Physical Damage" of your and Part D "Physical Damage" of Fiona's policy. In this case your policy will be excess and Fiona's will be primary

Which of the following acronyms are not a type of managed care a. HMO b. PPO c. KGB d. POS

c. KGB

Which of the following is an example of a personal injury a. Assault b. Legal expenses incurred c. Libel d. Damage to real property e. Damage to personal property

c. Libel

Assume you have a personal auto policy (PAP) from Iowa that provides the following coverage: -- 30k/60k/20k liability coverage with no deductible -- $10,000 medical payments coverage with no deductible -- $30,000 uninsured motorist coverage with no deductible -- $500 deductible for a collision loss, with a $50,0000 limit -- $200 deductible for an other-than-collision loss, $50,000 limit -- Towing and Labor Cost Coverage: $25 each disablement Assume that you were at fault in an accident. There were two people in the other vehicle. Person A sustained bodily injuries of $40,000 and Person B sustained bodily injuries of $10,000. How much would your insurance company pay, under the liability section of your contract, to Person A and Person B? a. Person A: $40,000; Person B: $10,000 b. Person A: $30,000; Person B: $20,000 c. Person A: $30,000; Person B: $10,000 d. Person A: $30,000; Person B: $30,000 e. Nothing, it was your fault

c. Person A: $30,000; Person B: $10,000

To what extent does Social Security provide a remedy for the risk of premature death (for those in the Social Security system)? a. Social security provides only some income for children under the age of 18 and spouses at retirement age or older b. Social security provides only a small death benefit c. Social security provides a small death benefit, as well as income for children d. Social security provides no remedy for the risk of premature death e. Social security provides some benefits to the dependents of those who die after the age of 65

c. Social security provides a small death benefit, as well as income for children

John occasionally borrows the car of his friend, Sophie. Sophie has a Personal Auto Policy with liability limits of 100/300/50. John also has a Personal Auto Policy, and his liability limits 250/500/50. John had an accident while using Sophie's car and was found to be legally liable for $300,000 in bodily injury liability for injuries suffered by one person. How much will be paid by each policy? a. Sophie's policy will pay $150,000, John's policy will pay $150,000. b. Sophie's policy will pay $50,000, John's policy will pay $250,000. c. Sophie's policy will pay $100,000, John's policy will pay $200,000. d. John's policy will pay the entire amount.

c. Sophie's policy will pay $100,000, John's policy will pay $200,000.

Someone breaks into your car and steals a camera and golf clubs locked in the car. It will cost $200 to get the window fixed. The stolen property is valued at $1,000. Is each of the losses covered? a. The camera, golf clubs and the damage to the window are covered under part D) "other-than-collision" of the PAP; the insurer will pay the loss amount minus the applicable deductible. b. The camera and golf clubs are covered under part D) "other-than-collision" minus the applicable deductible. The broken window is considered to be a part D) "collision" loss and covered minus the separate collision deductible. c. The camera and golf clubs are not covered. The broken window is considered to be a part D) "other-than-collision" loss and covered minus the other-than-collision deductible. d. The camera and golf clubs are not covered. The broken window is considered to be a part D) "collision" loss and covered minus the collision deductible.

c. The camera and golf clubs are not covered. The broken window is considered to be a part D) "other-than-collision" loss and covered minus the other-than-collision deductible.

Which of the following is considered to be a collision loss under Part D (coverage for damage to your auto) of the Personal Auto Policy? a. The covered auto was damaged on a public road when the car hit a deer. b. The covered auto is vandalized by a thief after it is stolen. c. The covered auto is damaged when it slid off an icy road and hit a fence. d. The covered auto is damaged by a fire after the engine overheated.

c. The covered auto is damaged when it slid off an icy road and hit a fence.

Which of the following is not an exclusion under Part A Liability Coverage of the PAP policy? a. An intentionally causes loss b. Property owned or being transported by an insured c. Vehicles driven for business use (such as a salesman or for pizza delivery) d. A vehicle used as a taxi

c. Vehicles driven for business use (such as a salesman or for pizza delivery)

Assume you have a personal auto policy (PAP) from Iowa that provides the following coverage: -- 30k/60k/20k liability coverage with no deductible -- $10,000 medical payments coverage with no deductible -- $30,000 uninsured motorist coverage with no deductible -- $500 deductible for a collision loss, with a $50,0000 limit -- $200 deductible for an other-than-collision loss, $50,000 limit -- Towing and Labor Cost Coverage: $25 each disablement Assume that you left $5,000 worth of golf clubs, CD's, and other valuables in your car. A thief breaks into your car (but does not damage it) and steals all of your belongings. How much will your insurance company pay? a. $0 b. $5,000 c. $4,500 d. $4,800 e. $5,000 plus any emotional distress you may have

a. $0

Assume you have a personal auto policy (PAP) from Iowa that provides the following coverage: -- 30k/60k/20k liability coverage with no deductible -- $10,000 medical payments coverage with no deductible -- $30,000 uninsured motorist coverage with no deductible -- $500 deductible for a collision loss, with a $50,0000 limit -- $200 deductible for an other-than-collision loss, $50,000 limit -- Towing and Labor Cost Coverage: $25 each disablement Assume your car is vandalized with spray paint. You have no idea who vandalized the vehicle. The total damages are $2000. How much money will you collect from the insurance company, and under which section would you be covered? a. $1,800; property damage coverage b. $1,500; property damage coverage c. $1,800; uninsured motorist coverage d. $1,500; uninsured motorist coverage e. $2,000; uninsured motorist coverage

a. $1,800; property damage coverage

Sarah purchased a Personal Auto Policy with liability limits of 50/100/25. Sarah ran a stop sign and hit a van. The van sustained $15,000 in damages. The following bodily injuries were suffered by passengers in the van: Passenger #1, $15,000; Passenger #2, $60,000; and Passenger #3, $10,000. Sarah sustained $5,000 in medical expenses, and Sarah's car sustained $10,000 in damages. How much will Sarah's insurer pay under Part A: Liability Coverage? a. $90,000 b. $100,000 c. $115,000 d. $125,000

a. $90,000

Which of the following is not true regarding an indirect loss? a. A direct loss always results in an indirect loss b. An indirect loss is always a result of a direct loss c. An increase in expenses is an example of an indirect loss d. An entity (individual or corporation) can suffer an indirect loss without suffering a direct loss itself e. A decrease in revenues is an example of an indirect loss

a. A direct loss always results in an indirect loss

If a state has a verbal threshold for automobile accidents, the legal system in that state would be best characterized as"? a. A modified no-fault system b. A tort system c. An add-on system d. A choice no-fault system e. A first-party system

a. A modified no-fault system

What is "Gap insurance"? a. An endorsement to the PAP that will pay off a car loan if the car is totaled, even if the value of the car is less than the loan amount. b. An endorsement to the PAP that will pay any losses you have that is not covered by some other insurance. c. An endorsement to the PAP that is exactly the same as "under-insured motorist" coverage d. An endorsement to the PAP that provides coverage to your vehicle while in England e. An endorsement to the PAP that provides coverage to your vehicle if you travel to a state that has higher minimum limits than your home state.

a. An endorsement to the PAP that will pay off a car loan if the car is totaled, even if the value of the car is less than the loan amount.

Which of the following risk management tools can be used to transfer risk? a. Insurance b. Risk retention c. Risk retention d. Risk retention e. Risk retention

a. Insurance

Which of the following would not be classified as a direct or indirect "health risk" a. Risk that you die b. Risk that you have an accident and incur medical bills c. Risk that you suffer an illness and incur medical bills d. Risk that you have an accident and cannot work e. Risk that you suffer an illness and cannot work

a. Risk that you die

Which of the following does not need to be shown to prove negligence? a. The defendant assumed the risk b. The defendant breached his duty of care c. The defendant's beach was the proximate cause of the injury d. The plaintiff suffered an injury e. The defendant had a legal duty of care

a. The defendant assumed the risk

The doctrine of res ipsa loquitor is used when: a. The defendant had exclusive control over the process that causes a loss b. The defendant is proving he was not negligent c. The plaintiff was negligent, but is shifting the burden to the defendant d. The plaintiff was the proximate cause of a loss e. The plaintiff sues more than one party

a. The defendant had exclusive control over the process that causes a loss

Which of the following policies allows an individual to choose where his premiums are invested: a. Universal life insurance b. Term life insurance c. Variable life insurance d. Whole life insurance e. Endowment life insurance

a. Universal life insurance

How would you classify a disability from which you will eventually recover, but you will be able to do absolutely no work while you recover? a. A temporary, partial disability b. A temporary, total disability c. A permanent, total disability d. A permanent, partial disability

b. A temporary, total disability

If you were to buy the same one year term insurance policy every year, why does the price of the policy increase every year? a. Your probability of dying increases ever year, so the expected loss, and therefore the premium increases b. Actually, using this strategy, does not make sense because you only buy a term policy once, it covers you for the rest of your life, so you have no reason to buy other policies later c. Actually, the premiums would decrease because the probability of you surviving a year decreases, so the premiums would also decrease d. The price increases because the amount you are saving within the policy increases every year e. The insurer punishes you for buying the policy one year at a time, and thus increases your premiums significantly

a. Your probability of dying increases ever year, so the expected loss, and therefore the premium increases

Which of the following is an insured person under the liability coverage of the Personal Auto Policy? a. a family member of the named insured texting while driving and hitting another vehicle b. a pedestrian struck by the named insured's auto c. the named insured while she is operating her car as a taxi d. a carjacker who is involved in an accident after stealing the insured's car

a. a family member of the named insured texting while driving and hitting another vehicle

All of the following are covered autos under the liability section of the Personal Auto Policy EXCEPT a. a nonowned van which is driven by the insured on a regular basis. b. a trailer owned by the named insured. c. a borrowed auto used by the insured as a substitute for a stolen covered auto. d. a newly acquired auto which replaces a vehicle previously described in the policy.

a. a nonowned van which is driven by the insured on a regular basis.

A contingent beneficiary in a life insurance policy has the right to: a. receive the policy proceeds if the primary beneficiary dies before the insured. b. share the policy proceeds with the primary beneficiary. c. change the beneficiary designation under specified circumstances. d. exercise policy rights if the insured is incapacitated.

a. receive the policy proceeds if the primary beneficiary dies before the insured.

David owns a commercial building with a replacement cost of $4 million. The building is insured on a replacement cost basis for $2.4 million under a fire insurance policy that has an 80 percent coinsurance clause. How much will David collect if the building sustains a covered fire loss with a replacement cost of $80,000? a. $50,000 b. $60,000 c. $66,667 d. $80,000

b. $60,000

Which of the following describes why insurance may be cheaper in a state with no-fault insurance versus a state with a tort system? a. If no one is ever at fault, the insurance never pays, so no one ever buys insurance, so the premiums paid are zero b. Because your insurance will pay for only your claims, regardless of who is at fault, you have an incentive to keep your claims low so as to keep your premiums low c. Premiums are actually higher in no-fault states, this is why not every state has a no-fault system d. With the no-fault system, insurance companies do not have to spend money on insurance cards, because everyone is automatically covered e. The use of no-fault insurance shifts the cost of providing fault from the insurance company to the state legal system

b. Because your insurance will pay for only your claims, regardless of who is at fault, you have an incentive to keep your claims low so as to keep your premiums low

True or False: In general, the PAP coverages apply when your car is driven in the US, Canada, and Mexico. a. True b. False

b. False

Which of the following coverages are not found under a traditional fee-for-service health insurance plan: a. Hospitalization insurance b. Income replacement insurance c. Surgical expense insurance d. Physicians expense insurance e. Major medical insurance

b. Income replacement insurance

How does the Human Life Value Approach calculate the loss associated with someone's death? a. It calculates the present value of the needs of the individuals dependent on the individual who dies b. It calculates the present value of the income stream of the individual who dies c. It calculates the present value of the amount the individual who dies would have consumed d. It calculates the present value of the amount of life insurance purchased e. It calculates the present value of the burial expenses for the individual who dies

b. It calculates the present value of the income stream of the individual who dies

All of the following requirements must be met to satisfy the doctrine of res ipsa loquitur EXCEPT a. The injured party has not contributed to the accident in any way. b. The injured party must prove negligence on the part of the defendant. c. The event is one that normally does not occur in the absence of negligence. d. The defendant has exclusive control over the instrumentality causing the accident.

b. The injured party must prove negligence on the part of the defendant.

You are driving under the influence of alcohol and are involved in an accident. Another motorist is seriously injured. Will your policy pay for his or her injuries? a. No, accidents caused by a named insured while being intoxicated are explicitly excluded under part A) "Liability" of the PAP. b. Yes, there is coverage.

b. Yes, there is coverage.

You are walking across the street in a crosswalk where you have the right-of-way, and are struck by a motorist who failed to stop. The motorist continued to drive after striking you without you having a chance to gather any information on the driver. You have bodily injuries of $15,000. What is the maximum amount if any that is covered under your PAP? a. You can collect under part B) "medical payments" of your policy up to your limit of $5000. b. You can collect under part C) "uninsured motorist" of your policy which has a limit of $25,000 and will cover the full $15,000. c. You can collect under part D) "collision". Your insurance company will pay the $15,000 minus the applicable collision deductible. d. You can collect under part A) "liability". The $15,000 bodily injuries are under the bodily injury limit per person of your policy. So, the insurance company will pay the full $15,000.

b. You can collect under part C) "uninsured motorist" of your policy which has a limit of $25,000 and will cover the full $15,000.

Nancy was injured when she drove her car through a stop sign and was struck by Philip's car. Philip saw Nancy and could have stopped. However, he failed to do so since he had the right-of-way. Nancy can recover damages from Philip under which of the following legal doctrines? a. vicarious liability b. the last clear chance rule c. contributory negligence d. the assumption of risk doctrine

b. the last clear chance rule

While you are in the grocery store here in Iowa City, someone hits your car in the parking lot. The individual does not leave a note. There is $500 damage to the car. Is the loss covered? a. No, damages to "not moving vehicles" are not considered accidents and therefore not covered. b. Yes, there is coverage under part C) "Uninsured Motorist" because a hit-and-run driver is considered to be an uninsured motorist. c. Yes, there is coverage under part D) "Collision" minus the applicable deductible. d. Yes, you can simultaneously file a part D) "Collision" claim for the damage minus the applicable deductible and a C) "Uninsured Motorist" claim to recover the deductible

c. Yes, there is coverage under part D) "Collision" minus the applicable deductible.

Assume you have a personal auto policy (PAP) from Iowa that provides the following coverage: -- 30k/60k/20k liability coverage with no deductible -- $10,000 medical payments coverage with no deductible -- $30,000 uninsured motorist coverage with no deductible -- $500 deductible for a collision loss, with a $50,0000 limit -- $200 deductible for an other-than-collision loss, $50,000 limit -- Towing and Labor Cost Coverage: $25 each disablement Assume that you were in an accident that was your fault. You and your passenger each sustain $20,000 in medical bills. How much will your insurance company pay you and your passenger? a. You: $10,000; Passenger: $10,000 b. You: $20,000; Passenger: $20,000 c. You: $10,000; Passenger: $20,000 d. You: $20,000; Passenger: $10,000 e. You: $0; Passenger: $10,000

c. You: $10,000; Passenger: $20,000

For the purposes of the uninsured motorists provision in the PAP, which of the following is not considered to be an uninsured motorist? a. Someone with insurance, but whose insurance company is bankrupt b. Someone who hits your car, but leaves the scene and cannot be identified c. Your brother who does not have any insurance d. Someone who has insurance, but his insurance will pay because he violated the terms of the insurance policy

c. Your brother who does not have any insurance

Which of the following cannot be considered as a rating factor when an insurer is determining your auto insurance premiums: a. Your age b. Your gender c. Your race d. Your marital status

c. Your race

Which of the following types of families is likely to have the least need for a large amount of life insurance? a. a family with one child and two incomes b. a traditional family with two children c. a single person family d. a single-parent family with two children e. a sandwiched family with grandparents who need care

c. a single person family

Lisa has three fire insurance policies on her office building. The policy from company A is for $400,000, and the policies from companies B and C are for $100,000 each. If Lisa has a $360,000 loss, how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the insurers? a. each policy: $120,000 b. policy A: $160,000; policies B and C: $100,000 each c. policy A: $240,000; policies B and C: $60,000 each d. policy A: $360,000; policies B and C: nothing

c. policy A: $240,000; policies B and C: $60,000 each

Assume you have a personal auto policy (PAP) from Iowa that provides the following coverage: -- 30k/60k/20k liability coverage with no deductible -- $10,000 medical payments coverage with no deductible -- $30,000 uninsured motorist coverage with no deductible -- $500 deductible for a collision loss, with a $50,0000 limit -- $200 deductible for an other-than-collision loss, $50,000 limit -- Towing and Labor Cost Coverage: $25 each disablement Under your liability coverage, what is the most your insurance company will pay for each accident? a. $110,000 b. $120,000 c. $50,000 d. $80,000 e. $150,000

d. $80,000

Which of the following $100,000 life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium? a. 10-year term life b. continuous premium (ordinary) whole life insurance policy c. whole life paid-up at age 65 d. 10-payment whole life e. 20-payment whole life

d. 10-payment whole life

In the accident described in Question No. 17, you are seriously injured, and, hence, you have to stay in the hospital for one week. Which of the following is/are sources of compensation for your medical expenses? a. Part C "Uninsured Motorist" of your policy b. Both part C "Uninsured Motorist" of your policy and Part B "Medical Payments" of Fiona's policy. In this case your policy will be excess and Fiona's policy will be primary. c. Both Part B "Medical Payments" of your own policy and Part B "Medical Payments" of Fiona's policy. In this case your policy will be primary and Fiona's policy will be excess. d. Both Part B "Medical Payments" of your own policy and Part B "Medical Payments" of Fiona's policy. In this case your policy will be excess and Fiona's policy will be primary.

d. Both Part B "Medical Payments" of your own policy and Part B "Medical Payments" of Fiona's policy. In this case your policy will be excess and Fiona's policy will be primary.

The duty to "warn dangers and to not cause deliberate harm" describes the duty owed to: a. Trespassers b. Employees c. Invitees d. Licensees

d. Licensees

Which of the following vehicles are not automatically covered under a traditional PAP policy? a. Minivans b. Sports cars c. SUVS d. Motorcycles e. Hybrids

d. Motorcycles

Your car will not start because of a defective battery. A wrecker tows the car to a service station where the battery is replaced. Towing charges are $60. The cost of replacing the battery is $100 including parts and labor. Is each of the losses covered? a. Both the defective battery as well as the towing charges are covered under part D) other-than-collision minus the applicable deductible. b. The defective battery is covered under part D) other-than-collision minus the applicable deductible; the towing charges are not covered unless you have a specific endorsement. c. The towing charges are covered as additional benefits of the part D) other-than-collision coverage; the defective battery is not because "mechanical or electrical breakdown" is explicitly excluded. d. The defective battery is not covered because "mechanical or electrical breakdown" is explicitly excluded; the towing charges are not covered unless you have a specific endorsement.

d. The defective battery is not covered because "mechanical or electrical breakdown" is explicitly excluded; the towing charges are not covered unless you have a specific endorsement.

If you were calculating how much you need to leave your dependents upon your death, which of the following would not be considered if you constructed a Needs Analysis: a. The dependency period of your children b. The dependency period of your spouse c. Your burial expenses d. Your income e. Your family's lifestyle

d. Your income

Which of the following is not an example of real property: a. Crops b. A house c. A carport d. A garage (a building not attached to the house) e. A car stereo permanently installed in a car

e. A car stereo permanently installed in a car

For the purposes of the physical damage provision in the PAP, which of the following is not considered to be an other "other than collision" loss? a. Glass breakage b. Colliding with a deer c. Car theft d. Damage to car due to a falling tree e. All of the above are other than collision losses

e. All of the above are other than collision losses

Which of the following most accurately describes the strategy involved in a "do it yourself" whole life insurance policy? a. Buy a whole life policy and save some money b. Buy a variable life insurance policy and save some money c. Buy term life insurance policy and a whole life insurance policy d. Buy no insurance and save some money e. Buy a term life insurance policy and save some money

e. Buy a term life insurance policy and save some money

The notion that a defendant can completely escape liability for a loss by proving that the plaintiff was at least partially responsible for the loss is referred to as: a. Comparative negligence b. Assumption of risk c. Last clear chance rule d. Joint-and-several liability e. Contributory negligence

e. Contributory negligence

Assume that I buy a whole life insurance policy on my life. The death benefit is $500,000. At random, I choose two students in class to be my beneficiaries. I have no other connection to these students (i.e., we are not related, business partners, etc.). Upon my death, how much will these students collect? a. $0, the students have no insurable interest in my life b. $500,000 each c. They will split the cash value that has accumulated d. They will each receive the value of the cash value that has accumulated e. The amount given to each student will depend on the portions I chose in the policy, but at the end of the day the students will somehow split $500,000

e. The amount given to each student will depend on the portions I chose in the policy, but at the end of the day the students will somehow split $500,000