Texas Insurance License Ch.1 Quiz

Which of the following is the basis for a claim against a insurance policy? A. Loss B. Material Change C. Hazard D. Misrepresentation

A. Loss - Claims result from losses by peril insured against an insurance policy.

The legal process that gives the insurer, after payment of a loss, the right to seek recovery from a third party that was responsible for the loss is known as... A. Subrogation B. Adverse selection C. Right of recession D. Principle of indemnity

A. Subrogation - Subrogation is a provision found in most insurance policies that gives an insurer, after payment of a loss caused by a third party, the insured's rights to recovery against a third party. The insurer's rights are only to the extent of loss payment.

Robbery is... A. Taking property by use of force, violence, or fear. B. Taking of property without causing property damage or bodily harm. C. Any act of stealing. D. Taking of property from within the premises leaving visible signs of forced entry.

A. Taking of property by use of force, violence, or fear.

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.

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? A. $0 B. $30,000 C. $32,000 D. $40,000

B. $30,000 - This insured only carried 75% of the amount of the insurance he had agreed to carry($120,000 of the agreed $160,000), so the insurer will pay only 75% of the loss, or $30,000. If the insured had carried the required amount of insurance, partial losses would be paid in full. In the event of a total loss, the face of the policy would be paid. If the full amount is not carried, divide the actual amount carried by the amount that should be carried (the coinsurance amount), and multiply it by the loss.

With respect to the business of insurance, a hazard is... A. The basic reason for an insured to purchase insurance B. Any condition or exposure that increases a possibility of loss C. The risk taken when preforming something dangerous D. The tendency of poorer risks to seek insurance more often than better risks

B. Any condition or exposure that increases a possibility of loss - A hazard is any condition or exposure that increases the probability of loss occurring. Hazards are generally classified as either physical, moral, or morale.

All of the following statements describe the concept of strict liability EXCEPT A. It is applied in product liability cases B. It is imposed on defendants engaged in hazardous activities C. Claimants may need to provide proof that a product defect caused an injury D. It is imposed regardless of fault

B. It is imposed on defendants engaged in hazardous activities - Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence.

An insured has a liability policy that sets the amount for all claims that arise from a single incident at $50,000. Which type of limit of liability does that insured's policy have? A. Split B. Per Occurrence C. Per Person D. Aggregate

B. Per Occurrence

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss validation method? A. Reproduction cost B. Stated amount C. Actual cash value D. Replacement cost

B. Stated amount - A stated amount is an amount of insurance scheduled in a property policy which is not subjected to any coinsurance requirements in the event of a covered loss.

An insured's roof costs $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 a year and the insured's policy is written on the actual cash value (ACV), how much will the policy pay towards the insured's new roof? A. $1,000 B. $4,000 C. $5,000 D. $6,000

C. $5,000 - ACV is calculated as replacement cost less depreciation

In property insurance, actual cash value is defined as which of the following? A. Stated value of the property as shown on the declaration. B. The actual amount of a loss payable, less the policy deductible. C. Replacement cost at the time of the loss, less depreciation. D. Market Value of the property at the time of loss.

C. Replacement cost at the time of the loss, less depreciation.

Which of the following types of valuation works best for property whose value does not fluctuate much? A. Market value B. Stated amount C. Inflation guard D. Agreed Value

D. Agreed Value - Agreed value works best for items whose value does not fluctuate much. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured item's appreciation or depreciation.

An insured is applying for a casualty insurance policy. One of the conditions of the policy allows the insurance company to inspect the insured's books at the end of the policy term to make sure sufficient premium has been collected for the exposure she plans to insure. Which condition is part of the insured's policy? A. Excess liability coverage B. Contract bond C. Errors and omissions insurance D. Deposit premium aduit

D. Deposit premium audit - Deposit premium audit is a condition that allows an insurer to inspect the insured's books at the end of the policy term to make sure sufficient payment has been collected for the exposure.

What type of compensatory damages will pay for pain and suffering and disfigurement? A. Special(specific) B. Tort C. Normal D. General

D. General -General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.

Which of the following does the term proximate cause refer to? A. Injury that leads to a monetary compensation B. Duty to a defendant to act C. Reason for filling a lawsuit D. Negligence that leads to an injury

D. Negligence that leads to an injury - Proximate cause is the reasonably foreseeable act or event that results in an injury or damage. Negligence may often be the proximate cause of the damage; without it, the accident would have not happened. This is also called direct liability.