Unit 1-6

Someone who has taken temporary custody of another person's property for a special purpose.

A Bailee is: Ref:5.7.13

Indirect loss

A business loses money because it was forced to close after a fire on the premises. This loss is described as a (an): Ref:5.5.3

Risk

A chance, possibility, or uncertainty of loss is known as a: Ref:1.3

Exposure

A condition or situation that presents a possibility of loss is a (an) Ref:1.3

Reinsurance

A contract in which one insurer cedes all or part of a risk to another insurer is known as: Ref:3.4.5

Reciprocal Exchange

A group of individuals who agree to share each others' losses is known as a: Ref:3.2.2

Subrogate against the parking valet.

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: Ref:5.7.13

Assumption of risk.

A person becomes seriously ill after eating unrefrigerated raw oysters from a street vendor. When the vendor is sued for negligence, what defense might best be used? Ref: 6.4

Fiduciary

A person who stands in a special relationship of trust to another person is a: Ref:3.5.3.2

Endorsement

A policy may be amended only with an: Ref:2.4.1

An agreed upon value policy

A policy under which the insurer and the insured agree on the property value and list the value in the policy is known as: Ref: 5.4.4

Special, general, and punitive damages are covered unless excluded.

A repairperson knowingly uses faulty parts when he repairs a boiler. The court awards special, general, and punitive damages amounting to several million dollars. How will the repairman's comprehensive general liability policy respond? Ref:6.7.2

A warranty must refer to a material fact.

A warranty is a statement made by the applicant regarding the risk to be insured. Which of the following statements is NOT true about warranties? -A policy can be cancelled if the warranty is false. -A warranty is part of the contract. -A warranty must refer to a material fact. -A warranty is guaranteed to be true. Ref: 4.8

Knowledge of the principal is knowledge of the agent.

According to the law of agency, which of the following statements is NOT correct? -A contract completed by the agent on behalf of the principal is a contract of the principal. -Payments made to an agent intended for the principal are payments made to the principal. -The acts of an agent are the acts of the principal. -Knowledge of the principal is knowledge of the agent. Ref:3.4.2.2

Collecting the commission from the applicant.

Agents have certain responsibilities when dealing with applicants and insureds. All of the following are agent responsibilities EXCEPT: -periodically reviewing the insured's coverage. -explaining coverages. -collecting the commission from the applicant. -field underwriting each risk. Ref:3.4.2.1

Binders

All of the following are basic parts of an insurance policy EXCEPT: -declarations. -exclusions. -binders. -conditions. Ref:2.4

They are insurance companies.

All of the following are characteristics of Lloyd's Associations EXCEPT: -The group of individuals involved agree to share in insurance contracts. -Each individual is individually responsible for the amounts of insurance they agree to write. -They are voluntary associations. -They are insurance companies. Ref:3.2.2

Occupation

All of the following consumer characteristics are considered in a consumer report regulated by the Fair Credit Reporting Act EXCEPT: Creditworthiness, Character, Credit Standing, Occupation. Ref:4.4.1

Property damages the insured is found legally liable for.

All of the following coverages are typically included in the supplementary payments of a liability policy EXCEPT: -first aid to others at the time of the accident. -property damages the insured is found legally liable for. -loss of earnings. -defense costs. Ref: 6.7.4.4

Apparent

An agent in the XYZ Insurance Company, equipped with business cards, sample XYZ policies, and an XYZ rate book, informs a prospect that XYZ has given him unlimited binding authority. The prospect assumes this is true. Given the prospect's assumption, which of the following correctly defines the agent's authority in this case? -Implied. -Binding. -Express. -Apparent. Ref: 3.4.2.2

Insurance company

An auto is sold for salvage value following payment of a loss. Who receives the proceeds? -Insurance company. -Claimant. -Lien holder. -Insured. Ref:5.7.7

Vicarious Liability

An employee is delivering packages for her employer but is using her own vehicle. The employee hits a pedestrian. The employer may be held liable because of the doctrine of: Ref:6.6

Temporary, short-term evidence of coverage.

An insurance binder is best described as:

Contract of Adhesion

An insurance company issued a homeowners policy that included ambiguous language regarding how a loss was settled. The insured sued the insurance company and won. The judge stated that due to the ambiguous language in the contract the decision must be made in favor of the insured. The judge was basing this decision on which of the following types of insurance contract? -Contract of Adhesion -Aleatory Contract -Unilateral Contract -Conditional Contract Ref:2.3.4

Foreign Company

An insurance company organized in Pennsylvania, with its home office in Philadelphia, is licensed to conduct business in New York. In New York, this company is classified as a(n) Ref:3.5.2.2

Salvage

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: Ref:5.7.7

Fraternal

An insurance company that sells insurance only to people who meet specific membership requirements is known as what kind of insurance company? Ref: 3.2.3

Blanket Policy

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? -Value Reporting policy. -Scheduled policy. -Blanket policy. -Specific policy. Ref:5.4.2

Absolute Liability

An insured owns a pet lion that is caged on the homeowner's property. The owner takes great care to warn neighbors of the possible danger by posting signs, fencing the yard, and locking the cage at all times. When a neighbor's child manages to open the cage and is bitten, what type of liability would apply to lion the owner? Ref: 6.5

Not legally liable

An insured owns a small neighborhood grocery store. During a storm, a piece of the roof falls on the sidewalk. Several people are in the store at the time, but no one is injured. Under the insurance definition of negligence, such an insured would be held: -legally liable. -strictly liable. -not legally liable. -negligent. Ref:6.3.1

$160,000

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? $200,000.00 $192,000.00 $160,000.00 $80,000.00 Ref:5.7.3

Not legally liable

An insured speeds through a residential neighborhood, almost striking several children. Under the insurance definition of negligence, such an insured would be held: -negligent. -legally liable. -strictly liable. -not legally liable. Ref:6.3.1

Prior Approval

An insurer wants to increase its rates, but the Department of Insurance requires that all rates be filled and approved before they can be used. This best describes which kind of rate regulation? Ref: 3.5.4.1

May take place over time

An occurrence is best described as something that: Ref: 6.7.4.5

When Ann wrote the premium check.

Ann and her agent meet to discuss automobile insurance. The agent completes an application for coverage, takes Ann's check for $200, and mails the application to the insurance company. Two weeks later Ann receives the policy in the mail. When did the consideration take place? Ref:2.2.4

$100,000

Bob has a liability policy in the amount of 300/500/100. How much coverage does he have per occurrence for property damage liability? $300,000.00 $500,000.00 $100,000.00 $50,000.00 Ref:6.7.4.5

Contract of utmost good faith

Both parties rely on statements made to each other when writing a contract. This contract is known as a: Ref:2.3.6

$5,000

Bryce owns a $50,000 lake cabin that he has insured for $40,000. He sustains a $5,000 covered loss. According to the principle of indemnity, how much will his insurer pay? -$50,000.00 -$5,000.00 -$4,000.00 -$40,000.00 Ref: 2.3.1

Injuries or damages caused unintentionally by the insured.

Common exclusions with a liability policy would typically include all of the following EXCEPT: -injuries or damages caused intentionally by the insured. -damage to property in the insured's care, custody, or control. -damage to property owned by the insured. -injuries or damages caused unintentionally by the insured. Ref:6.7.5

A moral hazard

Dishonesty on the part of an insured is an example of: Ref:1.8.2.1

Moral Hazard

Dishonesty on the part of an insured is an example of: Ref:1.8.2.1

Morale hazard

Driving too fast and not wearing a seat belt are examples of: Ref: 1.8.2.1

Morale Hazard

Driving too fast and not wearing a seat belt are examples of: Ref:1.8.2.1

The policyholders must be involved in diverse businesses or activities.

Each of the following is a characteristic of a risk retention group EXCEPT: -it is owned by its policyholders. -the policyholders must be involved in diverse businesses or activities. -the group provides only liability insurance. -the group must be licensed by at least 1 state. Ref:3.2.4

Peril

Fire would be an example of a: Ref:1.8.1

John can buy insurance because he has an insurable interest.

If John's father transfers ownership of a house to John, which one of the following statements regarding insurance on the house is CORRECT? Ref:1.7.2

Domestic.

If an insurance company is organized in Detroit, where it maintains its home office, the company is classified in Michigan as what kind of company? Ref: 3.5.2.2

Insurer

In an insurance transaction, who does a licensed agent legally represent? Ref:3.4.2.1

Waiver

In legal terms, voluntary relinquishment of a known right is called: Ref:4.9

Implied Authority

In the past, XYZ Insurance Company has allowed agents to bind coverage for auto insurance applicants. The authority given to the agents by XYZ can be called: Implied authority. Apparent authority. Express authority. Traditional authority. Ref:3.4.2.2

Utmost good faith

Jennifer and David signed a homeowners insurance application for coverage on their home. They did not divulge that last year their garage burned down after their 16-year-old son left a cigarette burning. The agent sent in the application and a policy was issued. When another fire occurred 2 months after the policy was issued, the company voided the policy because the agent would not have sent in the application if he had known of the prior loss. Which contract principle does this situation describe? Ref:2.3.6

Yes. Though not fraudulent, the misstatement was material.

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. The ABC agent asked Joan and Steven if their resident 18-year-old son, Henry, has had any moving traffic violations in the past 2 years. Both answer no. The fact is, Henry had 4 speeding tickets, but never told his parents. Once the company found out about Henry's record, they voided the policy citing misrepresentation as the reason. Did Joan and Steve misrepresent Henry's driving record? Ref:4.8

Representation

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. The ABC agent asked Joan and Steven if their resident 18-year-old son, Henry, has had any moving traffic violations in the past 2 years. Both answer no. The fact is, Henry had 4 speeding tickets, but never told his parents. What legal concept does this scenario describe? -Warranty. -Fraud. -Representation. -Misrepresentation. Ref: 4.8

Concealment

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. They do not tell the agent that their neighbor, George, who lost his drivers license due to drunk driving, uses one of their cars on a regular basis to drive to work. Once the company found out about George after he had an accident, they denied the claim, citing what legal concept as the reason? Ref:4.7

Fraud

Joan and Steven have applied for automobile insurance with ABC Auto Insurers. When the agent asks if anyone else drives the car, they do not tell him that their neighbor, George, who lost his drivers license due to drunk driving, uses one of their cars on a regular basis to drive to work. Once the company found out about George after he had an accident, they denied the claim, citing what legal concept as the reason? Ref:4.7

Fraud

Knowingly lying on an application in order to obtain coverage would be an example of: Ref:4.8

Paid in addition to the policy's regular limit of liability.

Liability policies provide certain supplementary payments that are: Ref:6.7.4.4

Reasonable Expectation

Ralph asks his insurance agent to explain how the homeowners policy covers stolen jewelry. The agent spends some time explaining how, when, where, and what jewelry theft coverage exists in the policy. As a result, Ralph believes that his $5,000 watch is covered in full under the basic policy. After the watch is stolen, Ralph is surprised to learn that he has only limited coverage. What legal doctrine might Ralph rely upon to get full coverage for his loss? Ref:2.3.4

Avoidance

Robert and Carolyn live in a busy city and decide that not owning a car is the solution to not experiencing having a car stolen. Which of the following methods describes this philosophy? Ref: 1.4

Retention

Self-insurance is what kind of risk treatment? Ref:1.4

Strict Lability

Several unsupervised young children wander about your neighborhood. Although you have fenced your yard and pool, they climb both fences and swim in your pool. You've called their parents to complain and tell them that you will not be responsible if one of the children is injured or killed. When a child drowns in the pool, what type of liability would apply to you? Ref: 6.5

Warranties

Statements made on an application that are guaranteed to be true are: Ref:4.8

The larger the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incurred.

The Law of Large numbers states that: Ref:1.6

Coinsurance Penalty

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: Ref:5.7.3

Indemnification

The attempt to restore an insured to his preloss condition is known as: Ref:2.3.1

The duties of the insured and insurance company.

The conditions section of an insurance contract sets forth: Ref:5.7

Insuring agreement

The coverages offered by an insurance policy are described in the: Ref: 5.5.1

Replacement cost minus depreciation.

The definition of Actual Cash Value is: Ref:5.7.2.1

$7,000

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? -$5,000.00 -$3,000.00 -$9,000.00 -$7,000.00 Ref:5.7.2.1

$50,000

The insured has a building with a replacement 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: $50,000/ $80,000/ $100,000/ $40,000 Ref: 5.7.3

The roof is damaged in an electrical storm.

The insured has a named peril policy that covers hail, fire, wind, and lightning. Which one of the following events would be covered? -A window is broken in a riot. -A rain storm causes the insured's basement to flood. -The roof collapses from heavy snow. -The roof is damaged in an electrical storm. Ref:5.5.2

Failing to stop at a stop sign

The insured is in a hurry to get to work, fails to stop at a stop sign, speeds through an intersection, and strikes another vehicle. That vehicle hits another car that then jumps a curb and injures a pedestrian. What is the proximate cause of the accident? Ref:6.3.2

Declarations

The insured is looking for the amount of coverage in a property and casualty policy. This information would be found in the: Ref:2.4.1.2

Perils insured against.

The insuring agreement section of a policy describes: Ref: 2.4

Automatically broaden coverage without additional premium if there is a revision to the policy.

The liberalization provision will: Ref: 5.7.11

Declarations

The limits of liability are found in which of the following sections of a casualty policy? Ref:2.4

Insuring Agreement

The list of perils covered under a policy is found in which part of the policy? Ref: 5.5.2

Indemnity

The principle that restores someone to the condition he enjoyed before a loss is: Ref:2.3.1

Conditions

The procedure for resolving a disagreement between an insured and an insurance company about a loss is described in which part of the insurance policy? Ref:2.4

Transfer Risk

The purpose of insurance is to: Ref: 1.5

List the obligations of the insured and the insurance company.

The purpose of the conditions section of the insurance policy is to: Ref:5.7

Speculative Risk

The risk that involves the chance of both loss and gain is:1.7.1

Purchasing Risk

Transferring is a method of handling risk. Which of the following best describes the concept of transfer? -Increasing a deductible to share the loss with the insurance company. -Purchasing insurance. -Buying a car with a friend to share the risk. -Signing a hold harmless agreement to share the liability. Ref: 1.4

Purchasing insurance

Transferring is a method of handling risk. which of the following best describes the concept of transfer? Ref:1.4

Transfer

Treating risk by purchasing insurance is an example of what type of Risk Management? Ref: 1.4

Misrepresentation

Twisting is a form of: 3.5.3.2

$6,000

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? -$4,500.00 -$9,000.00 -$6,000.00 -$3,000.00 Ref:5.7.10.2

Broadens coverage.

What does the liberalization clause do to a property policy? Ref:5.7.11

Reinsurer

What is an insurer of an insurer known as a: Ref:3.4.5

The maximum amount the policy will pay per policy period regardless of the number of claims.

What is meant by aggregate limit of liability? Ref: 6.7.4.5

Peril

What is the actual cause of a loss? Ref:1.8.1

A person in a position of trust and confidence who handles the affairs and funds of others.

What is the definition of a fiduciary? Ref:3.5.3.2

Fiduciary

What is the term for an individual who occupies a position of trust when handling the financial affairs of another? Ref:3.5.3.2

Mtutal

What kind of insurance company is owned by its policyowners? Ref:3.2.1

Deposit Premium

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): -deposit premium. -audited premium. -final premium. -total premium. Ref:5.7.17

$20,000

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? $55,000.00 $50,000.00 $20,000.00 $75,000.00 Ref:5.5.3

Pro Rata

When an insurance company cancels a policy, what is the method used to determine the premium due? Pro rata. Short rate. Premature. Flat. Ref:4.10

Five

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? Ref:5.7.9

Limit of liability

Which of the following amounts is the maximum that an insurer will pay in case of a loss? Ref:5.4.4

The contract protects the individual who owns the property.

Which of the following describes a personal contract? Ref:2.3.2

Wearing out clothing

Which of the following events is NOT considered an occurrence for insurance purposes? -being struck by a falling object -slipping and falling on icy pavement -wearing out clothing Ref:6.7.4.5 -long-term exposure to chemicals

Surplus Lines

Which of the following insurance carriers is a typical nonadmitted insurance company? Ref:3.5.2.1

The loss must be accidental from the insured's perspective.

Which of the following is NOT an element of an insurable risk? -The loss must be catastrophic. -The loss must be accidental from the insured's perspective. -The loss must be due to chance. -The loss must have a determinable value. Ref: 1.7.3

Person's interest in property she hopes that her uncle will leave to her in his will.

Which of the following is NOT an example of insurable interest? -Person's interest in the home she owns. -Dry cleaner's interest in his customers' clothing in his custody, care, or control. -Person's interest in the improvements he has added to his leased apartment. -Person's interest in property she hopes that her uncle will leave to her in his will. Ref: 1.7.2

An individual with a terminal illness purchases health insurance.

Which of the following is an example of adverse selection? -An individual with a new car purchases collision coverage. -An individual buys a new house and the mortgage company requires homeowner insurance. -An individual, who has a new, healthy baby, purchases medical insurance. -An individual with a terminal illness purchases health insurance. Ref:4.4.2

Installing a burglar alarm

Which of the following is an example of reduction as a method of handling risk? Ref: 1.4

Trash

Which of the following is considered a hazard? -Trash. -Lightning. -Explosion. -Fire. Ref:1.8.2

Subrogation.

Which of the following legal principles allows insurance companies to collect from a negligent third party damages it paid to an insured? Assignment. Risk transfer. Indemnity. Subrogation. Ref: 5.7.8

Short Rate

Which of the following methods of canceling a policy is used when a policyholder cancels her policy before it reaches its natural expiration? -Pro rata. -Short rate. -Flat. -Long rate. Ref:4.10

Exclusions

Which of the following policy provisions restricts certain risks from coverage? Ref:5.6

Pure Risk

Which of the following risks is insurable? Ref:1.7.1

Nothing the insured does can prevent the mortgagee from collecting under the policy.

Which of the following statements about the standard mortgage clause is CORRECT? Ref: 5.7. 14

The primary purpose of a stock company is to earn a profit for its stockholders.

Which of the following statements pertaining to insurance companies is CORRECT? Ref: 3.2.1

Unoccupied

Which of the following terms describes a building in which no one is present but to which the occupants intend to return? Occupied. Vacant. Uninhabited. Unoccupied. Ref:5.7.16

Warranty

Which of the following terms describes an insured's oral or written statement that becomes part of an insurance contract and can void a policy if they are breached? Ref: 4.8

Vacant

Which of the following terms is used to describe an empty building that is not being used? Ref: 5.7.16

FAIR Plans

Which of the following types of insurance plans does a private insurance company NOT insure? -FAIR plans. -Industrial policies. -Blanket policies. -Group policies.

Upon cancellation, the insurer keeps all earned premium plus overhead expenses incurred.

Which one of the following best describes a short rate cancellation? Ref:4.10

Declarations Page

Which one of the following components of an insurance contract contains information about the risk, the effective date of coverage, deductible, premium amounts, coinsurance percentage, and location of the insured property? Insuring agreement. Definitions. Declarations page. Conditions. Ref:2.4

The insurer claims the right to collect from a negligent third party.

Which one of the following describes the concept of subrogation? -The insured claims the right to sue a third party. -The insurer claims the right to collect from a negligent third party. -The insurer claims the right to send the disputed claim into arbitration. -The insurer claims the right to collect damages from the insured. Ref:5.7.8

Morale

Which one of the following hazards can be described as a careless attitude or general indifference on the part of the insured toward the occurrence of loss? -Legal. -Moral. -Physical. -Morale. Ref:1.8.2.1

Prepaying the initial premium.

Which one of the following is NOT an agent responsibility? -Explaining the coverage. -Delivering the policy. -Collecting the initial premium. -Prepaying the initial premium. Ref:3.4.2.1

Intent

Which one of the following is NOT an element of a valid contract? Intent. Legal purpose. Consideration. Competent parties. Ref:2.2

Earthquake

Which one of the following is an example of a peril? -Illness. -Gasoline stored on the premises. -Earthquake. -Indifference. Ref:1.8.1

Fair Credit Reporting Act

Which one of the following requires that insurance applicants be advised that a consumer report may be requested on them and the scope of any investigation resulting from the application? Ref:4.4.1

Pure

Which one of the following risks is insurable? -Speculative. -Whole. -Partial. -Pure. Ref:1.7.1

Lost profits when business is suspended.

Which one of the following situations describes an indirect loss? -Damage to a roof from a hailstorm. -Destruction of a car in a collision. -Water damage caused by firefighters extinguishing a fire. -Lost profits when business is suspended. Ref:5.5.3

A stock market venture is an example of a pure risk.

Which one of the following statements pertaining to risk is NOT correct? Ref: 1.7.1

Unilateral

Which one of the following terms indicates that an insurance contract contains the enforceable promises of only one party? Ref:2.3.5

Pain and Suffering

Which one of the following would be classified as a general damage? Ref:6.7.2

Condition that increases the chance of a loss.

Which one of these best defines a hazard? Ref: 1.8.2

To specify who is covered in addition to the named insured.

Why do insurance policies usually define who is considered an insured under the policy? Ref:5.4.1

Uncertainty regarding loss

With regard to insurance, risk can be defined as: Ref:1.4