Exam Fx Mock License Exam (Texas)
The pro rata liability clause is designed to protect the principle of a)Indemnity. b)Subrogation. c)Insurable interest. d)Waiver and estoppel.
a)Indemnity. Explanation: If more than one policy is in force on the same property at the same time covering the same perils, this is concurrent coverage. The intent of insurance is that after a loss, the insured is restored to the condition he or she was in before the loss (indemnified). Each policy pays a percentage of a loss directly related to the amount of insurance it provides compared to the total amount of coverage.
What type of damages may be awarded by the court to create disincentives that discourage behavior that is deemed highly undesirable by society? a)Compensatory b)Specific c)Punitive d)General
c)Punitive Explanation: Punitive damages are a form of punishment, intended to serve as an example to others to discourage undesirable behavior.
What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy? A)Binder policy B)Named peril policy C)Open peril policy D)Specified peril policy
C)Open peril policy
In Texas, how is the Commissioner of Insurance placed in office? a)Appointed by the Governor for a term of 2 years. b)Appointed by the Governor for a term of 4 years. c)Appointed by the Senate for a term of 2 years. d)By election, at the same election when other state officials are chosen.
a) Appointed by the Governor for a term of 2 years. Explanation: As established by the Insurance Code, the Commissioner is appointed by the Governor for a term of 2 years.
Which of the following examples of losses paid under an HO-3 also would be paid under an HO-2 homeowners policy? a) Damage to the dwelling caused by ash or dust from a volcanic eruption b) Damage to the dwelling caused by the insured when moving furniture c) Accidental scorching caused when a hot iron is placed upon a built-in counter top d) Interior damage caused by water seeping under the shingles on the roof
a) Damage to the dwelling caused by ash or dust from a volcanic eruption Explanation: An HO-3 covers losses on an open peril basis. An HO-2 covers losses on a named peril basis. Both forms cover damage to the dwelling caused by ash or dust from a volcanic eruption.
How does the mobilehome endorsement affect the other coverage of law or ordinance in a homeowners policy? a)It removes the coverage. b)It broadens the coverage. c)It limits the coverage. d)It has no effect on this coverage
a) It removes the coverage. Explanation: The mobilehome endorsement makes the other coverage of law or ordinance inapplicable to the policy.
Which of the following is NOT considered a residual market? a)State Property and Casualty Guaranty Association b)Joint underwriting association c)FAIR plan d)Assigned risk auto plan
a) State Property and Casualty Guaranty Association Explanation: FAIR plans, assigned risk plans, and a joint underwriting association are all considered residual markets. The state Guaranty Association is a mechanism for assisting the policyholders of bankrupt insurers and would not be called a residual market.
Which of the following would NOT be considered a source of insurability information by an insurer? a)The applicant's marital status b)Interviews with the applicant's neighbors and friends c)Motor vehicle records d)Insurance history
a) The applicant's marital status Explanation: An insurer may inspect, with the applicant's written permission, the following: application form, motor vehicle records, interviews with neighbors, friends and employers, inspection of property, and inspection of insurance history.
An agent receives an Emergency Cease and Desist Order for chronically misrepresenting his insurance policies. The agent knows that he did not commit the violations stated in the Emergency Cease and Desist Order. He wants to contest the charges in a court hearing. Which of the following is true? a)The hearing must be held within 10 days of receiving a request, unless both parties agree to a later date. b)The judge will determine when the hearing will be held. c)The hearing date can be set for any time within the next year, unless both parties agree to a later date. d)The hearing must be set for exactly 10 days after the request is made.
a) The hearing must be held within 10 days of receiving a request, unless both parties agree to a later date. Explanation: The hearing to show cause why the cease and desist order should not be affirmed or modified shall be held not later than the 10th day after the date of Commissioner receives the request for a hearing unless the parties mutually agree to a later date. (The cease and desist order remains in effect until the hearing is held.)
An insured owns a large dog. The first day he has to leave the dog home alone to go to work, the insured comes back to find his $400 couch torn apart, his $100 coffee table chewed up, his $50 window curtain shredded, and a $200 window pane shattered where his dog jumped through. The insured has personal property coverage under a special form dwelling policy. How much of this loss will the policy cover? a)$0 b)$200 c)$250 d)$750
a)$0 Explanation: Damage that results from domestic animals is excluded under the special form dwelling policy.
An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for? a)80% of the property's replacement cost or more b)100% of the market value c)$400,000 d)$32,000
a)80% of the property's replacement cost or more Explanation: The coinsurance clause states that in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. In the event of a covered loss, insurance is designed to pay replacement cost minus depreciation.
An insured owns and operates a ranch. The insured has several vehicles that are used in the ranching operation and for personal use. Which of the following could NOT be insured under a personal auto policy? a)A two-ton grain truck with a 6,500-pound capacity b)A two-wheeled trailer designed to be towed by the station wagon c)A farm pickup with 1,000-pound capacity d)A station wagon that is used personally
a)A two-ton grain truck with a 6,500-pound capacity Explanation: A two-ton truck weighs 4,000 pounds. With its cargo weight of 6,500 pounds, it exceeds the 10,000-pound gross vehicle weight (GVW) limit and would not be eligible. The GVW is the maximum recommended weight, including the weight of the vehicle, fuel and fluids, passengers, and all cargo.
Which of the following would be considered an uninsured vehicle? a)A vehicle fleeing a hit-and-run accident b)A vehicle owned by a self-insurer c)A government owned vehicle d)A vehicle operated by an insured's family member
a)A vehicle fleeing a hit-and-run accident Explanation: A vehicle that does not carry the required liability insurance coverage is considered an uninsured vehicle. This definition includes vehicles which flee a hit-and-run accident. Vehicles owned by government agencies, self-insurers, or the insured and/or the insured's family members are excluded from the definition.
A policy condition that stipulates how the amount of damaged or lost property will be determined if the insured and the principal do not agree on the value of a property loss is known as a)Appraisal. b)Coinsurance. c)Loss valuation. d)Third-party provision.
a)Appraisal. Explanation: If there is a disagreement between the insured and the insurer on the value of any property loss, either party can make a written demand for an appraisal.
All of the following are found in the declarations section of a policy EXCEPT the a)Exclusions. b)Policy premiums. c)Name of the insured. d)Limits of insurance.
a)Exclusions. Explanation: Declarations state who is insured, what is insured, where the property is located, when the policy begins and ends, how much insurance and how much premium. The exclusions tell what is not covered.
What type of compensatory damages will pay for pain and suffering and disfigurement? a)General b)Special (specific) c)Tort d)Normal
a)General Explanation: General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.
The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property? a)Market value b)Actual cost value c)Replacement cost d)Functional replacement cost
a)Market value Explanation: When insured for market value, it is insured for what a willing buyer would pay prior to a loss. This is different from actual cash value or replacement cost.
Which of the following coverages is included in an unendorsed homeowners policy? a)Medical payment to others b)Personal property replacement coverage c)Fungi, wet or dry rot, or bacteria d)Earthquake
a)Medical payment to others Explanation: Medical payment to others is automatically included in Section II of all HO policies.
Losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected is the definition of which of the following terms? a)Occurrence b)Peril c)Hazard d)Accident
a)Occurrence Explanation: An occurrence includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.
The mobilehome endorsement alters the homeowners policy to cover a mobilehome and other structures on land a)Owned or leased by the resident of the mobilehome. b)Owned or leased by a landlord who does not reside on the premises. c)Owned by a landlord who does not use the mobilehome located on it. d)Leased by the owner of the land.
a)Owned or leased by the resident of the mobilehome. Explanation: The mobilehome endorsement alters the homeowners policy to cover a mobilehome and other structures on land owned or leased by the resident of the mobilehome.
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 this insured's policy have? a)Per occurrence b)Per person c)Aggregate d)Split
a)Per occurrence Explanation: Per occurrence sets the amount for all claims that arise from a single incident at a certain number.
The Gramm-Leach-Bliley Act was passed to a)Protect private customer information filed with a financial institution. b)Define insurance as interstate commerce. c)Allow consumers access to credit and private consumer reports. d)Allow insurance companies access to medical information for underwriting purposes.
a)Protect private customer information filed with a financial institution. Explanation: The Gramm-Leach-Bliley Act was passed to protect private customer information that is filed with a financial institution. Customers must be given two disclosure notices (one at the onset of business and one before information is disclosed), as well as a yearly updated disclosure notice.
All of the following are considered parts of the policy structure EXCEPT a)Provisions. b)Exclusions. c)Insuring clause. d)Conditions.
a)Provisions. Explanation: Provisions is a broad term used to refer to the sections or clauses of an insurance policy that communicate the policy's benefits, conditions, etc. The essential parts of the policy are declarations, insuring clause, conditions and exclusions.
For which of the following actions can an agent's license be suspended or revoked? a)Rebates of premiums b)Misdemeanors c)Unintentional violations of state laws d)Misstatements on the application
a)Rebates of premiums Explanation: The Commissioner will suspend or revoke an existing license, or deny a new license for any of the following reasons: willful violations of state insurance laws, intentional material misstatements in the license application, and rebates of insurance premiums, among other offenses.
An insured owns several buildings, each at a different location and insured on a separate policy. What type of coverage does the insured have? a)Specific b)Schedule c)Blanket d)Special
a)Specific Explanation: Specific insurance provides a specific amount of coverage for each property. A blanket insurance policy provides coverage for more than one property with a single limit of coverage.
Words or terms that appear in an insurance policy in bold face print include a)Specific definitions as to their meaning as used in the policy. b)Dual definitions. c)Standard definitions. d)All of the above.
a)Specific definitions as to their meaning as used in the policy. Explanation: Insurance companies define words used in the policy by printing them in bold face and including a specific definition as to their meaning in the contract.
A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely? a)The homeowner will need to get written consent from the insurer before the policy can be reassigned. b)The policy will have to be cancelled. c)The homeowner should let the friend take over the premium payments. d)The friend will have to apply for coinsurance from another insurance company.
a)The homeowner will need to get written consent from the insurer before the policy can be reassigned. Explanation: In property and casualty insurance, assignments of policies are usually valid only with the prior written consent of the insurer.
When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be a)The proximate cause. b)The direct cause. c)Strict liability. d)An intervening cause.
a)The proximate cause. Explanation: The proximate cause of a chain of events resulting in injury is one that is sufficiently related to an injury that the courts determine it is in fact the cause of that injury.
The part of a policy that clarifies terms in the policy is the a)Exclusions. b)Definitions. c)Insuring agreement. d)Conditions.
b) Definitions. Explanation: The component of a policy that clarifies terms is the definitions.
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 Explanation: 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 Explanation: This insured only carried 75% of the amount of 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.
If a liability policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person? a)$30,000 b)$50,000 c)$100,000 d)$180,000
b)$50,000 Explanation: The first limit shown ($50,000 in this case) is the most the policy will pay for bodily injury to any one person.
How long is a waiting period upon purchase of flood coverage through NFIP? a)10 days b)30 days c)60 days d)There is no waiting period.
b)30 days Explanation: Upon purchase of a flood policy, a 30-day waiting period is in place beginning from the time of application and premium payment.
An insured with a homeowners policy has removed property from the insured location to protect it from loss that could be caused by a covered peril. The removal coverage applies for a)5 days. b)30 days. c)60 days. d)90 days.
b)30 days. Explanation: Removal coverage applies for 30 days when the property has been removed to be protected.
An insured insists that the insurer owes him $10,000 for liability damages, while the insurer asserts that they owe no more than $7,000. Which of the following would most likely describe the type of claim settlement that the insured and the insurer might pursue? a)Appraisal hearing b)Arbitration c)Small claims court d)Independent audit
b)Arbitration Explanation: When an insured and insurer cannot agree on how to settle a claim, arbitration is often used. The settlement is submitted to an arbitrator(s) whose decision may or may not be binding on both parties dependent on state law.
An insured was involved in an automobile accident for which the insured was at fault. Which of the following coverages would pay for damage to the insured's automobile? a)Comprehensive coverage b)Collision c)Other-than-collision d)Property damage liability coverage
b)Collision Explanation: The policy defines collision as the upset or impact of a covered vehicle with another vehicle or object.
In Texas, the state's continuing education requirement a)Applies to life, annuity, and accident and health licensees only. b)Consists of completing 24 hours of CE each biennium. c)Must be completed by all licensed resident and nonresident agents. d)Cannot be extended or waived under any circumstances.
b)Consists of completing 24 hours of CE each biennium. Explanation: An agent's license must be renewed every 2 years on their birthday in either even or odd numbered years depending on when the license was issued. Agents must complete 24 hours of continuing education every renewal period, unless otherwise exempt.
Which of the following is NOT true about earthquake coverage? a)Coverage may be written in a Difference of Conditions policy. b)Coverage is commonly provided through a federally-funded program. c)Coverage is excluded by most property forms. d)Coverage may be added to property policies by endorsements.
b)Coverage is commonly provided through a federally-funded program. Explanation: It is a peril excluded by most standard property forms. Coverage for the peril of earthquake may be added by endorsement to most property policies, or coverage may be written in a Difference in Conditions policy.
Which of the following is a mandatory part of an insurance policy that varies with each individual policy? a)Insuring agreement b)Declarations c)Conditions d)Exclusions
b)Declarations Explanation: Because the declarations tell who, what, when and where, this information is different in each contract.
What type of compensatory damages will pay for pain and suffering and disfigurement? a)Normal b)General c)Special (specific) d)Tort
b)General Explanation: General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.
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. Explanation: Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence.
Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called a)Common errors. b)Material misrepresentations. c)Fraudulent statements. d)Warranties.
b)Material misrepresentations. Explanation: A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.
All of the following would be considered an insurance transaction EXCEPT a)Negotiating coverage. b)Obtaining an insurance license. c)Soliciting a policy. d)Advising a policyholder regarding a claim.
b)Obtaining an insurance license. Explanation: An insurance transaction means the carrying on of business in insurance, which could include the solicitation of a policy, advising, negotiation, or inducement related to coverage or claims. Obtaining an insurance license is a prerequisite to transacting insurance.
Who would participate in a Write Your Own (WYO) flood insurance program? a)Businesses requiring National Flood Insurance policies b)Private insurers that wish to write and service National Flood Insurance policies on a no risk-bearing basis c)Lloyd's associations d)Government insurance companies that write and service National Flood Insurance policies
b)Private insurers that wish to write and service National Flood Insurance policies on a no risk-bearing basis Explanation: A WYO program is made up of private insurers that write and service National Flood Insurance policies on a no risk-bearing basis through a special arrangement with the Federal Insurance Administration. WYO programs retain part of the flood insurance premium to pay for commissions and administrative costs. The remaining premiums, plus investment, are used to cover losses.
The Federal Fair Credit Reporting Act a)Prevents money laundering. b)Regulates consumer reports. c)Protects customer privacy. d)Regulates telemarketing.
b)Regulates consumer reports. Explanation: The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.
A Certificate of Insurance is a written document that a)Allows the insurer to inspect the insured's books. b)Shows the types and amounts of insurance issued to the insured. c)Obligates the insurer to the person to whom the insurance was issued. d)Names the insured's beneficiary.
b)Shows the types and amounts of insurance issued to the insured. Explanation: A Certificate of Insurance is a written document showing the types and amounts of insurance purchased by the insured; it does not obligate the insurer to the person to which the certificate was issued.
Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages? a)General b)Special c)Tort d)Normal
b)Special Explanation: The two classes of compensatory damages that may be awarded are special and general damages. Special damages are tangible damages that can be specifically measured in dollar amounts (such as out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages).
An insured owns several buildings, each at a different location and insured on a separate policy. What type of coverage does the insured have? a)Special b)Specific c)Schedule d)Blanket
b)Specific Explanation: Specific insurance provides a specific amount of coverage for each property. A blanket insurance policy provides coverage for more than one property with a single limit of coverage.
Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called a)Described coverage. b)Specific coverage. c)Schedule coverage. d)Blanket coverage.
b)Specific coverage. Explanation: One location is insured for a specific amount of insurance on the structure and contents.
#83. Which of the following statements would be correct if an insured failed to maintain the underlying limits as required by a personal umbrella policy? a)The insured would have to pay the self-insured retention limit. b)The insured would be responsible for the amount required as underlying limits in the event of a claim. c)It would have no effect on the umbrella policy. d)The policy will be cancelled.
b)The insured would be responsible for the amount required as underlying limits in the event of a claim. Explanation: The amount of insurance required as underlying limits in other policies is treated as a deductible amount to the umbrella for that particular exposure, so if underlying limits are not maintained, it is the insured's responsibility.
Which of the following statements would be correct if an insured failed to maintain the underlying limits as required by a personal umbrella policy? a)The insured would have to pay the self-insured retention limit. b)The insured would be responsible for the amount required as underlying limits in the event of a claim. c)It would have no effect on the umbrella policy. d)The policy will be cancelled.
b)The insured would be responsible for the amount required as underlying limits in the event of a claim. Explanation: The amount of insurance required as underlying limits in other policies is treated as a deductible amount to the umbrella for that particular exposure, so if underlying limits are not maintained, it is the insured's responsibility.
After filing a claim, an insured tells the insurer that there is more than one insurance policy in force. That insurer sets aside the claim until it hears what the other company will pay. The insurer's action will be classified as a)Proactive. b)Unfair. c)Prudent. d)Coordinated.
b)Unfair. Explanation: Unfair settlement practices include refusing or delaying a settlement solely because there is other insurance available to partially or entirely satisfy the claim loss. The claimant who has a right to recover from more than one insurer has the right to choose the coverage from which to recover and the order in which payment is to be made.
An insured's roof cost $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 per year and the insured's policy is written on the actual cash value(ACV), how much will the policy pay toward the insured's new roof? a)$1,000 b)$4,000 c)$5,000 d)$6,000
c) $5,000 Explanation: ACV is calculated as replacement cost less depreciation.
How long is the policy period for NFIP flood insurance? a)6 months b)10 months c)1 year d)2 years
c) 1 year Explanation: NFIP flood insurance has a policy term of 1 year.
An agent's license will terminate within how many days from the due date of obligatory fees and continuing education requirements? a)30 b)180 c)90 d)60
c) 90 Explanation: If an agent does not fulfill his or her continuing education requirements or pay the necessary fees then their license will expire within 90 days of the due date.
What type of liability would a person who owns wild animals have? a) Implied b) Direct c) Absolute d) Vicarious
c) Absolute
In return for premium, an insurance company must a)Use standardized tables of coverage for specific risks to be excluded from coverage. b)Give the insurer valuable consideration. c)Be fair in underwriting and pay covered losses. d)Provide the insured with coverage adequate for all potential losses.
c) Be fair in underwriting and pay covered losses. Explanation: In return for premium, an insurance company must be fair and impartial in underwriting of risks and must pay claims made for all covered losses.
All of the following are exclusions that apply in all three types of Dwelling Policies EXCEPT a)Water damage b)Earth movement c)Fire or lightning d)Government action
c) Fire or lightning Explanation: Fire and lightning is covered in all policy forms. All the other answer choices are exclusions.
A Mobile Homeowners Policy is structured the same as a a)Dwelling Policy. b)Commercial Package Policy. c)Homeowners Policy. d)Personal Auto Policy.
c) Homeowners Policy. Explanation: The coverage structure of the Mobile Homeowners Policy follows the structure of the Homeowners policy.
Duties of the insurer found in property policy conditions include all of the following EXCEPT a)Provide advance notice of cancellation. b)Return any premiums to the insured. c)Notify the insured in the event of financial difficulty. d)Pay covered losses.
c) Notify the insured in the event of financial difficulty. Explanation: The insurance department monitors the financial conditions of insurers. The insurers report to the state, not to policyholders.
Liability imposed on one party as a result of the actions of another person is known as a)Strict liability. b)Absolute liability. c)Vicarious liability. d)Comparative negligence.
c) Vicarious liability. Explanation: Vicarious liability is liability imposed on one party as a result of the actions of another person; i.e., parent/child or employer/employee.
Which of the following would be required to be licensed as an insurance producer? a)A salaried full-time employee who furnishes information for group insurance b)An insurance company director who performs executive, administrative and managerial duties c)A salaried employee who advertises and solicits insurance d)A person whose activities are limited to producing insurance advertisements
c)A salaried employee who advertises and solicits insurance Explanation: A person does not require an insurance producer license if he or she only advertises without intent to solicit insurance. However, once there is solicitation, a license is required.
In insurance, an offer is usually made when a)The agent hands the policy to the policyholder. b)An agent explains a policy to a potential applicant. c)An applicant submits an application to the insurer. d)The insurer approves the application and receives the initial premium.
c)An applicant submits an application to the insurer. Explanation: In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
An insured insists that the insurer owes him $10,000 for liability damages, while the insurer asserts that they owe no more than $7,000. Which of the following would most likely describe the type of claim settlement that the insured and the insurer might pursue? a)Independent audit b)Appraisal hearing c)Arbitration d)Small claims court
c)Arbitration Explanation: When an insured and insurer cannot agree on how to settle a claim, arbitration is often used. The settlement is submitted to an arbitrator(s) whose decision may or may not be binding on both parties dependent on state law.
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT a)Legal purpose. b)Offer and acceptance. c)Conditions. d)Consideration.
c)Conditions. Explanation: Conditions are part of the policy structure. Consideration is an essential part of a contract.
The at-fault driver in an insured's auto crash had the state required minimums for auto liability coverage, but not enough to pay for all the damage done to the insured. This driver is a)Required to post a bond for the amount of damages above his limits. b)Considered uninsured. c)Considered underinsured. d)Not liable for the damages in excess of his limits.
c)Considered underinsured. Explanation: An underinsured driver has at least the minimums required by law but not enough to cover the damages caused someone else. Underinsured motorists coverage is an optional coverage that can be added to an auto policy.
All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT a)Stocks, securities, or bonds. b)An offer to share in commissions generated by the sale. c)Dividends from a mutual insurer. d)An offer of employment.
c)Dividends from a mutual insurer. Explanation: Dividends paid to policyholders of a mutual insurer are not considered to be a rebate because the policy specifies that they might be paid.
Events or conditions that increase the chances of an insured loss occurring are referred to as a)Risks. b)Perils. c)Hazards. d)Exposures.
c)Hazards. Explanation: Hazards are conditions or situations that increase the probability of an insured loss occurring.
When would a misrepresentation on the insurance application be considered fraud? a)When the application is incomplete b)Any misrepresentation is considered fraud. c)If it is intentional and material d)Never: statements by the applicant are only representations.
c)If it is intentional and material Explanation: A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.
The part of the insurance contract that describes the covered perils and the nature of coverage of the contractual agreement between the insurer and the insured is called the a)Exclusions. b)Declarations. c)Insuring agreement. d)Conditions.
c)Insuring agreement. Explanation: The insuring agreement is the part of the policy structure that describes the insured perils and the method of indemnification.
All of the following are conditions commonly found in the insurance policy EXCEPT a)Subrogation. b)Appraisal. c)Insuring agreement. d)Cancellation and nonrenewal.
c)Insuring agreement. Explanation: The insuring agreement provides information on the policy's coverages. Conditions state the legal obligations and duties of the parties to the contract.
What type of information would be found in a policy's insuring agreement? a)Policy limits b)Insurer's address c)Renewal dates d)Location of premises
c)Renewal dates Explanation: An Insuring Agreement establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy. The insuring agreement lists the parties to the contract, effective and renewal dates, the description of coverage provided, and perils (among other things). Location of premises, policy limits, supplemental representations, and insurer's name and address can all be found in the Declarations.
Which of the following is included under the physical damage coverage of a personal auto policy? a)A cellular phone located in a locked vehicle b)Custom furnishings or equipment in a pickup or van c)Sound reproduction equipment permanently installed in the covered auto d)A covered auto that is seized and destroyed by a government authority
c)Sound reproduction equipment permanently installed in the covered auto Explanation: Sound reproduction equipment is covered if installed by the manufacturer or installed later where the manufacturer would have installed the equipment.
Which of the following perils is covered by the HO-2 and HO-3? a)Flood b)War c)Sudden and accidental rupture of a heating system d)Loss due to power interruption that occurs off the premises
c)Sudden and accidental rupture of a heating system Explanation: Off-premises power failure, flood, and war are excluded from all DP and HO policies.
An insurer can cancel a personal auto policy by giving the named insured 10 days prior written notice for any of the following reasons EXCEPT if a)The name insured submits a fraudulent claim. b)The board finds that continuing the policy would violate the insurance laws of Texas. c)The cancellation is to take effect on the 12-month anniversary of the policy. d)The named insured does not pay a premium when due.
c)The cancellation is to take effect on the 12-month anniversary of the policy. Explanation: Cancellation to take effect on the 12-month anniversary of the policy requires the insurer to give prior written notice of at least 30 days.
The Insurance Commissioner may examine the affairs of any insurer as often as necessary, but not less frequently than once every a)Year. b)2 years. c)3 years. d)5 years.
d) 5 years. Explanation: The Insurance Commissioner must examine each insurer at least once every 5 years.
An insured is driving her car through a residential area when she loses control and crashes into a neighbor's front porch. The neighbor, who was sitting on the porch, is injured. The insured's liability policy has a limit of $500,000. This amount applies to the total of damages for any bodily injury and property damage resulting from one accident. Which type of limit of liability does the insured have? a)Split b)Aggregate c)Per occurrence d)Combined single
d) Combined single Explanation: Combined single is a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined resulting from one accident or occurrence.
Which of the following provisions requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof of loss within a specified period of time? a)Legal action b)Loss settlement c)Proof of loss d)Duties after loss
d) Duties after loss Explanation: Duties after loss provision requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof of loss within a specified period of time.
Which of the following statements is NOT true regarding a personal umbrella liability policy? a)It may cover certain exposures not provided under the primary layer. b)It may require the payment of a self-insured retention. c)It provides excess liability coverage over underlying personal liability. d)It provides errors and omissions coverage for an agency.
d) It provides errors and omissions coverage for an agency. Explanation: Personal umbrella policies cover the personal exposure of the insured. Errors and omissions coverage is provided only in a professional liability policy.
An insurer may cancel a personal auto policy if the policy has been in effect for at least how many days? a)10 days b)20 days c)30 days d)60 days
d)60 days Explanation: An auto policy may be cancelled for various reasons after it has been in effect for at least 60 days.
According to the Insured Duties after a Loss provision in homeowners policies, if the insurer requires a signed, sworn proof of loss, the insured must provide within how many days? a)10 days b)20 days c)30 days d)60 days
d)60 days Explanation: If a loss occurs, the insured is required to send a signed, sworn proof of loss within 60 days of the insurer's request.
In a personal auto policy, the medical payments coverage is similar to a)Accident insurance, because it has the same limits. b)Bodily injury coverage, because it pays the insured's doctor bills. c)Bodily injury coverage, because it provides legal protection if the insured causes injuries to others. d)Accident insurance, because it pays medical expenses regardless of fault.
d)Accident insurance, because it pays medical expenses regardless of fault. Explanation: Medical payments will pay for accidental bodily injury of an insured, regardless of fault or auto. It will pay medical expenses of others occupying the insured auto.
Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses? a)Exclusions b)Declarations c)Insuring agreement d)Additional coverage
d)Additional coverage Explanation: The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium.
Which of the following would modify the original insurance contract by either adding or removing coverage? a)Additional coverage form b)Conditions c)Flexible policy d)Endorsements
d)Endorsements Explanation: Endorsements change the policy's original terms, conditions, or coverages. Endorsements can add or delete coverage, or merely correct items such as the insured's name, address, etc.
Replacement cost is defined as a)The market value of property of like kind and quality. b)Full replacement of property with like kind and quality, less an allowance for physical deterioration and depreciation. c)Payment of the full policy limits in the event of a total loss. d)Full replacement of property at its current cost, new and without reduction for depreciation.
d)Full replacement of property at its current cost, new and without reduction for depreciation. Explanation: Replacement cost policies do not consider depreciation if the proper amount of insurance is maintained. Policies that provide replacement cost coverage require that the amount of insurance written be 80% or more of the replacement cost of the property at the time of loss.
In insurance transactions, fiduciary responsibility means a)Maintaining a good credit record. b)Being liable with respect to payment of claims. c)Commingling premiums with agent's personal funds. d)Handling insurer funds in a trust capacity.
d)Handling insurer funds in a trust capacity. Explanation: An agent's fiduciary responsibility includes handling insurer funds in a trust capacity.
When would a misrepresentation on the insurance application be considered fraud? a)Never: statements by the applicant are only representations. b)When the application is incomplete c)Any misrepresentation is considered fraud. d)If it is intentional and material
d)If it is intentional and material Explanation: A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.
To purchase insurance, the policyowner must have financial interest in the property being insured. This is known as a)Pure loss. b)Loss valuation. c)Indemnity. d)Insurable interest.
d)Insurable interest. Explanation: The insured must have an insurable interest in the person or property covered by an insurance policy. In property insurance, this means the insured would incur a financial loss if the insured property was damaged.
Insurance is a contract by which one seeks to protect another from a)Exposure. b)Uncertainty. c)Hazards. d)Loss.
d)Loss. Explanation: Insurance will protect a person, business or entity from loss.
Losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected is the definition of which of the following terms? a)Peril b)Hazard c)Accident d)Occurrence
d)Occurrence Explanation: An occurrence includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.
The insured's car was hit and damaged by a deer. Under which of the following coverages in a personal auto policy would this loss be paid? a)Liability b)Uninsured motorist c)Collision d)Other-than-collision
d)Other-than-collision Explanation: Damage caused by contact with animals or birds, or by a falling object would be covered under other-than-collision.
The other insurance provision that limits the liability of the insurer to a portion of the loss no greater than the amount the insurer bears to all the insurance covering the property is called a)Contributing. b)Proportionate. c)Excess. d)Pro rata liability.
d)Pro rata liability. Explanation: To preserve the principle of indemnity, each policy pays a pro rata share based upon the share of the coverage. The insured cannot collect the full amount of loss from each policy.
Any inducement offered to the insured in the sale of an insurance policy that is not specified in the policy is an unlawful practice known as a)Twisting. b)False advertising. c)Coercion. d)Rebating.
d)Rebating. Explanation: Rebating is defined as any inducement offered to the insured in the sale of insurance products that is not specified in the policy. Both the offer and acceptance of a rebate are illegal.
What type of information would be found in a policy's insuring agreement? a)Location of premises b)Policy limits c)Insurer's address d)Renewal dates
d)Renewal dates Explanation: An Insuring Agreement establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy. The insuring agreement lists the parties to the contract, effective and renewal dates, the description of coverage provided, and perils (among other things). Location of premises, policy limits, supplemental representations, and insurer's name and address can all be found in the Declarations.
Which of the following is used in the formula for calculating the actual cash value of a property? a)Stated value b)Fair market value c)Agreed value d)Replacement cost
d)Replacement cost Explanation: The actual cash value (ACV) method of valuation reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages. To calculate ACV, depreciation is subtracted from the current replacement cost.
Robbery is a)Taking of property without causing property damage or bodily harm. b)Any act of stealing. c)Taking of property from within the premises leaving visible signs of forced entry. d)Taking of property by use of force, violence, or fear.
d)Taking of property by use of force, violence, or fear. Explanation: When one's property is taken by another by use of force, violence, or fear, it is robbery.
Bob's insurer declared bankruptcy. It has not yet paid his $1,000 claim. Which of the following is true? a)Bob will have to sue the insurer in order to collect his money. b)Bob can collect this money through the NAIC Insolvency Fund. c)Bob will not be able to recover his $1,000. d)The Property and Casualty Insurance Guaranty Association will cover his claim.
d)The Property and Casualty Insurance Guaranty Association will cover his claim. Explanation: The purpose of the Property and Casualty Insurance Guaranty Association is to pay claims due to insureds when their insurance companies become insolvent.
Which of the following is an example of a producer's fiduciary duty? a)An obligation to state every known fact about the policy the producer is selling. b)A duty to base all transactions upon the principle of Utmost Good Faith. c)The obligation to tell the truth to the best of one's knowledge d)The trust that a client places in the producer in regard to handling premiums.
d)The trust that a client places in the producer in regard to handling premiums. Explanation: An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums.
An insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some furniture and clothes in the house. From an insurance standpoint, the insured's house is considered a)Condemned. b)Under repair. c)Vacant. d)Unoccupied.
d)Unoccupied. Explanation: Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but the structure contains contents.
All of the following are supplemental payments included in the liability section of a personal auto policy EXCEPT a)Up to $200 a day for loss of earnings due to attendance at hearings or trials. b)Premiums on appeal bonds in any suit the insurer defends. c)Up to $250 for bail bonds required because of a covered accident. d)Up to $100 for the cost to secure the release of a vehicle from an impoundment lot following a covered accident.
d)Up to $100 for the cost to secure the release of a vehicle from an impoundment lot following a covered accident. Explanation: A personal auto policy does not pay the cost of the release of a vehicle impounded by a law enforcement agency.
