Policy Provisions and Contract Law

The part of the policy that clarifies terms in the policy is the..? A) Definitions B) Insuring Agreement C) Conditions D) Exclusions

A) Definitions

The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay? A) Company A will pay $24,000; Company B will pay $0 B) Company A will pay $16,000; Company B will pay $8000 C) Company A will pay $20,000; Company B will pay $4000 D) Company A will pay $12,000; Company B will pay $12,000

B) Company A will pay $16,000; Company B will pay $8000

What term best describes the act of withholding material information that would be crucial to an underwriting decision? A) Breach of warranty B) Concealment C) Withholding D) Leading

B) Concealment

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of..? A) Warranty B) Concealment C) Misrepresentation D) Fraud

B) Concealment

Representations are written or oral statements made by the applicant that are..? A) Immaterial to the actual acceptability of the insurance contract B) Considered true to the best of the applicant's knowledge C) Guaranteed to be true D) Found to be false after further investigation

B) Considered true to the best of the applicant's knowledge

All of the following are found in the declarations section of a policy EXCEPT the..? A) Limits of insurance B) Exclusions C) Policy premiums D) Name of the insured

B) Exclusions

The proof of loss statement must be..? A) An oral statement B) In writing C) Both oral and in writing D) In a videotape format

B) In writing

All of the following are conditions commonly found in the insurance policy EXCEPT..? A) Appraisal B) Insuring Agreement C) Cancellation and nonrenewal D) Subrogation

B) Insuring Agreement

Who is responsible for filling out a notice of claim form? A) Agent B) Insurer C) Insured D) Adjuster

C) Insured

Which of the following would qualify as a competent party in an insurance contract? A) The applicant is a 12 year old B) The applicant is under the influence at the time of application C) The applicant has a prior felony conviction D) The applicant is intoxicated at the time of application

C) The applicant has a prior felony conviction

Persons covered under an insurance policy, whether named or not, are known as..? A) Named insureds B) First name insureds C) Additional insureds D) Insureds

D) Insureds

The part of an 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) Conditions B) Exclusions C) Declarations D) Insuring Agreement

D) Insuring Agreement

In forming an insurance contract, when does acceptance usually occur? A) When an insured submits an application B) When an insurer's underwriter approves coverage C) When an insurer delivers the policy D) When an insurer receives an application

B) When an insurer's underwriter approves coverage

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

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

The declarations page of the homeowners policy provides all of the following information EXCEPT..? A) A statement that earthquake damage is not covered B) The amount of premium charged for each coverage C) The insured's address D) What deductible amount applies to each loss covered by the policy

A) A statement that earthquake damage is not covered

A person who is not named as an insured on the declarations page of a policy but is protected by the policy is known as..? A) Additional insured B) Policyowner C) Named insured D) First name insured

A) Additional Insured

An insured has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay? A) Each policy will pay $25,000 of the loss B) Each policy will pay the total policy limits of $100,000 C) The first policy written will pay $75,000, and the other three policies will contribute proportionately to pay for the remaining $25,000. D) The policy with the earliest effective date will pay the entire loss, and the other policies will pay nothing.

A) Each policy will pay $25,000 of the loss.

The declarations page of the homeowners policy provides all of the following information EXCEPT..? A) What deductible amount applies to each loss covered by the policy B) A statement that earthquake damage is not covered C) The amount of premium charged for each coverage D) The insured's address

B) A statement that earthquake damage is not covered.

In return for premium, an insurance company must..? A) Give the insurer valuable consideration B) Be fair in underwriting and pay covered losses C) Provide the insured with coverage adequate for all potential losses D) Use standardized tables of coverage for specific risks to be excluded from coverage

B) Be fair in underwriting and pay covered losses

For a contract to be enforceable by law, the purpose of the contract must be..? A) For financial gain B) For the benefit of the general public C) Of pure intent D) Legal and not against public policy

D) Legal and not against public policy

An applicant is purchasing a homeowners policy. A producer comes to her home, fills out the paperwork, and tells the applicant that her home will be covered as soon as she signs all of the paperwork, and that she will receive a new policy in the mail in 5 business days. Even though the policy is not issued, the applicant's home is temporarily covered until then. Which of the following makes that possible? A) Notice of claim B) Binder C) Loss settlement provision D) Mortgagee clause

B) Binder

Which of the following clauses establishes the procedure for determining the amount of a loss when the insurer and insured cannot agree on the value of property or amount of loss? A) Valuation clause B) Loss settlement clause C) Appraisal clause D) Loss payment clause

C) Appraisal Clause

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of..? A) Fraud B) Breach of warranty C) Concealment D) Waiver

C) Concealment

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

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following principles has the insurer violated? A) Representation B) Adhesion C) Consideration D) Good faith

C) Consideration

A sworn written statement that must be furnished by the insured to the insurer before any loss under a policy can be paid is called..? A) Notice of claim B) Claim report C) Binder D) Proof of loss

D) Proof of loss

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

What is a material misrepresentation? A) Any misstatement made by an applicant for insurance B) Any misstatement by the producer C) Concealment D) A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

D) A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy..? A) The loss reimbursement will be paid to the mortgagee as their interest may appear. B) The mortgagee's rights of recovery will not be defeated by any act or neglect of the insured. C) The mortgagee may bring a suit in their own name to recover damages to covered property D) All of the above are true

D) All of the above are true

An insurance contract must contain all of the following to be considered legally binding EXCEPT..? A) Offer and acceptance B) Consideration C) Competent parties D) Beneficiary's consent

D) Beneficiary's consent

Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as..? A) Rescission B) Nonrenewal C) Cessation D) Cancellation

D) Cancellation

The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the..? A) Exclusions B) Declarations C) Insuring Clause D) Conditions

D) Conditions

The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the..? A) Exclusions B) Declarations C) Endorsements D) Conditions

A) Exclusions

Which of the following would be named on the declarations page of a property or liability policy? A) First name insured B) Beneficiaries C) All insureds D) Additional insureds

A) First name insured

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

Duties of the insurer found in property policy conditions include all of the following EXCEPT..? A) Notify the insured in the event of financial difficulty B) Pay covered losses C) Provide advance notice of cancellation D) Return any premiums to the insured

A) Notify the insured in the event of financial difficulty

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

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied? A) Estoppel B) Material Misrepresenation C) Waiver D) Utmost Good Faith

B) Material Misrepresentation

Which of the following is a mandatory part of an insurance policy that varies with each individual policy? A) Exclusions B) Insuring agreement C) Declarations D) Conditions

C) Declarations

The Federal Fair Credit Reporting Act..? A) Regulates telemarketing B) Prevents money laundering C) Regulates consumer reports D) Protects customer privacy

C) Regulates consumer reports

All of the following are considered parts of the policy structure EXCEPT..? A) Provisions B) Exclusions C) Insuring Clause D) Conditions

A) Provisions

The policy conditions define..? A) The excluded perils B) The amount of coverage C) How parties to the contract must act following a loss D) The basic underwriting information

C) How parties to the contract must act following a loss

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

Which of the following is NOT the consideration in a policy? A) The application given to a prospective insured B) Something of value exchanged between parties C) The premium amount paid at the time of application D) The promise to pay covered losses

A) The application given to a prospective insured

Which of the following is NOT an essential element of an insurance contract? A) Legal purpose B) Counteroffer C) Consideration D) Agreement

B) Counteroffer

When an insurance policy does not offer a continuation or replacement at its expiration date, it is considered a..? A) Cancellation B) Nonrenewal C) Suspension D) Cessation

B) Nonrenewal

What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk? A) Primary and excess B) Other insurance C) Valid insurance D) Noncurrency

B) Other insurance

Before an insurer will pay any loss under a policy, what is usually required from the insured? A) A claims-made form B) Proof of loss C) Notice of claim D) A binder

B) Proof of loss

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? A) Consumer Privacy Act B) The Fair Credit Reporting Act C) Unfair Trade Practices Law D) The Guaranty Association

B) The Fair Credit Reporting Act

Which of the following is NOT the consideration in a policy? A) The promise to pay covered losses B) The application given to a prospective insured C) Something of value exchanged between parties D) The premium amount paid at the time of application

B) The application given to a prospective insured

In terms of parties to a contract, which of the following does NOT describe a competent party? A) The person must be mentally competent to understand the contract B) The person must have at least completed secondary education C) The person must not be under the influence of drugs or alcohol D) The person must be of legal age

B) The person must have completed secondary education

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A) Representation B) Warranty C) Concealment D) Indemnity

B) Warranty

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A) Contract of adhesion B) Acceptance C) Consideration D) Legal Purpose

C) Consideration

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

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) Proportionate B) Excess C) Pro rata liability D) Contributing

C) Pro rata liability