Property and Casualty Insurance Guide

What fundamental principle in property insurance holds that when there is an unbroken connection between an occurrence and damage that grows out of the occurrence, then the resultant damage is all a part of the occurrence? a)Common cause b)Proximate cause c)Concurrent causation d)Indemnity

Proximate cause

What amount is available under Virginia Workers Compensation in the event of work-related death of an employee? a)$1,000 b)$2,500, plus $250 for transportation of the body c)$5,000 d)$10,000, plus $1,000 for transportation of the body

$10,000, plus $1,000 for transportation of the body

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? a)Revocation of license b)$2,500 c)$1,000 d)$100 per violation

$2,500

An insured has a personal auto policy with both comprehensive (other-than-collision) and collision coverage. His car is stolen and recovered five days later. If the insured claims transportation expenses of $20 per day, how much will his policy pay? a)$60 b)$80 c)$100 d)$120

$60

Margaret applies for an insurance license, but the Commission decides not to issue the license because her tarnished reputation. She notifies the Commission that she wants to dispute this judgment in a hearing. The Commission must give her at least how many days' notice of the date of the hearing? a)0 b)10 c)30 d)60

10

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? a)10 days b)3 days c)5 days d)7 days

5 days

Which of the following statements is true regarding the premium computation for workers compensation insurance? a)The premium basis for workers compensation insurance varies by the type of industry in which the insured is involved. b)The insured pays a guaranteed premium based on an estimated value of the annual income received. c)The premium is set at the beginning of the policy period and will not change. d)A premium auditor has the right to examine the insured's compensation records at the end of the policy period to determine the actual premium basis.

A premium auditor has the right to examine the insured's compensation records at the end of the policy period to determine the actual premium basis.

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

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

What is reinsurance? A).An agreement between an insurer and an insured B).An agreement between a ceding insurer an assuming insurer C).An agreement between an originating insurer and a ceding insurer D).An agreement between a domestic insurer and a foreign insurer

An agreement between a ceding insurer an assuming insurer

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called a).Avoidance. b).Transfer. c).Reduction. d).Sharing.

Avoidance.

For insurance purposes, when an insured loses property to another because the person used violence or threat of violence to gain the property, this is defined as: A. A burglary. B. False pretense. C. Robbery D. A theft.

C. Robbery

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an A).Independent producer. B).Captive agent. C).Solicitor. D).Broker.

Captive agent.

A liability policy that provides coverage for a claim for injury or damage if the claim is first reported or filed against the insured during the policy period is called a)Premises coverage. b)Claims-made form. c)Bodily injury/property damage form. d)Occurrence form.

Claims-made form.

Which of the following authorities determines whether an insurer's appointment of an agent is valid? a)Federal Association of Insurers b)NAIC c)Commission d)Guaranty Association

Commission

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

Concealment.

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

Consideration

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).Legal purpose B).Contract of adhesion C).Acceptance D).Consideration

Consideration

Which of the following is licensed solely to advise insureds about their policies? a)Agent b)Broker c)Actuary d)Consultant

Consultant

ABC insurance company receives an incomplete application and issues the policy anyway. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policyowner to answer further questions? A).Adhesion B).Unilateral C).Consideration D).Estoppel

Estoppel

The authority granted to an agent through the agent's contract is referred to as A).Apparent authority. B).Implied authority. C).Absolute authority. D).Express authority.

Express authority.

An insurance company assures its new policyholders that their premium costs will not increase for a period of at least five years. However, due to increasing financial strain, they plan to raise premium costs for all insureds by 10% over the next two years. What term best describes this act? a)Defamation b)Unfair discrimination c)Errors and omissions d)Fraud

Fraud

A BOP (businessowners policy) is most similar to a)Auto. b)Umbrella. c)Cargo. d)Homeowners.

Homeowners.

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become A).More active. B).Larger. C).Smaller. D).Older.

Larger

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? A).Law of masses B).Law of averages C).Law of group evaluation D).Law of large numbers

Law of large numbers

Which of the following personal auto coverages would pay for the insured's travel expenses and loss of earnings while involved in the settlement process of a covered loss? a)Liability coverage b)Medical payments c)Comprehensive coverage d)Collision coverage

Liability coverage

Which of the following statements is INCORRECT with regard to surplus lines insurance? a)Before coverage is placed with a surplus lines company, diligent effort must be made to place the risk with admitted insurers. b)Business placed with a surplus lines insurer is subject to a premium tax that must be collected by the broker. c)Policies written by a surplus lines insurer typically contain standard coverages and forms. d)To sell surplus lines insurance, the licensee must obtain a surplus lines broker's license.

Policies written by a surplus lines insurer typically contain standard coverages and forms.

The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called a)Appraisal b)Subrogation. c)Consent to settle loss. d)Right of salvage.

Subrogation.

A nonadmitted insurer who provides insurance coverages that are not available from an admitted insurer is called A).Capitol stock insurer. B).Reciprocal insurer. C).Surplus lines insurer. D).Assessment mutual insurer.

Surplus lines insurer.

What is the deductible of a personal liability umbrella policy called? a)The CPP b)The SIR c)The PIL d)The CGL

The SIR

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT A).The loss may be intentional. B).The loss must not be catastrophic. C).There must be a sufficient number of homogeneous exposure units to make losses reasonably predictable. D).The loss produced by the risk must be definite.

The loss may be intentional.

Which of the following would NOT be covered by medical payments to others in Section II of your HO policy? a)You are walking your neighbor's dog and it bites someone. b)You allow the neighborhood kids to play flag football in your yard; one is injured. c)You cut your leg while whacking weeds in your backyard with your neighbor's weed whacker. d)Your child's nanny falls while walking down your steps.

You cut your leg while whacking weeds in your backyard with your neighbor's weed whacker

In the split limit coverage in personal auto policies, which limit indicates the maximum amount the policy will pay for bodily injury per person? a)1st limit b)2nd limit c)3rd limit d)Combined limit

1st limit

An individual just purchased a new auto insurance policy. His policy limits are higher than those required by the state - even though it does not include uninsured motorist coverage equal to the amount of liability. This individual's premium charge will increase if he does not notify his agent of his desire to reduce this coverage within a)30 days. b)31 days. c)7 days. d)20 days.

20 days

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? a)3 days b)5 days c)10 days d)14 days

3 days

Under the workers compensation insurance, what is the maximum premium discount for an employee that establishes and maintains a drug-free workplace program? a)3% b)5% c)10% d)20%

5%

An automobile that is owned by multiple individuals who are not spouses or otherwise in the same household may be insured under a personal auto policy if a)A miscellaneous-type vehicle endorsement is added. b)An extended ownership endorsement is added. c)Separate policies are written for each individual involved. d)A joint ownership coverage endorsement is added.

A joint ownership coverage endorsement is added.

What is a captive producer? A).A person who sells only one type of policy for more than one insurance company B).A person who sells many types of policies for only one insurance company C).A person who is involved in replacement with more than one insurance company D).A person who sells many types of policies for more than one insurance company

A person who sells many types of policies for only one insurance company

In addition to the common policy conditions, all of the following conditions apply to liability coverage EXCEPT a)Bankruptcy. b)Employers liability. c)Separation of insured. d)Legal action against insurer.

Employers liability

In insurance transactions, fiduciary responsibility means A).Handling insurer funds in a trust capacity. B).Maintaining a good credit record. C).Being liable with respect to payment of claims. D).Commingling premiums with agent's personal funds.

Handling insurer funds in a trust capacity.

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.

It is imposed on defendants engaged in hazardous activities

Within his or her fiduciary capacity, what must an agent do with funds held in the separate account? a)Report quarterly to insurer b)Issue annual statements to the insured and the insurer c)Index earnings with other separate accounts d)Keep accurate and detailed records

Keep accurate and detailed records

Which of the following would NOT be considered causes for flood conditions covered by the National Flood Insurance Program? a)Unusual and rapid accumulation or runoff of surface waters from any source b)Mudflow and collapse c)Landslides d)Overflow of inland or tidal waters

Landslides

Which bonds guarantee that the recipients of permits will comply with the ordinances associated with the use of such permits? a)Judicial bonds b)Injunction bonds c)Nature of fidelity bonds d)License and permit bonds

License and permit bonds

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as A).Loss. B).Exposure. C).Hazard. D).Risk.

Loss

Pertaining to insurance, which of the following is an example of a producer's fiduciary responsibility? A).Helping insureds to file claims B).Performing reviews of insured's coverage C).Offering additional coverage to insureds D).Promptly forwarding premiums to the insurance company

Promptly forwarding premiums to the insurance company

A situation in which a person can only lose or have no change represents A).Pure risk. B).Speculative risk. C).Adverse selection. D).Hazard.

Pure risk.

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept? a). Indemnity b). Reasonable expectations c). Cease and desist d)Nonforfeiture

Reasonable expectations

An agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. The agent is guilty of a)Rebating. b)Coercion. c)Twisting. d)Controlled business.

Rebating

What method do insurers use to protect themselves against catastrophic losses? A).Pro rata liability B).Risk management C).Reinsurance D).Indemnity

Reinsurance

All of the following are marketing arrangements used by insurers EXCEPT A).Direct Response Marketing System. B).Independent Agency System. C).Reinsurance System. D).General Agency System.

Reinsurance System.

Adverse selection is a concept best described as A).Underwriters slanting the odds in favor of the company. B).Poor choices of applicants to be covered. C).Only offering coverage to good risks. D).Risks with higher probability of loss seeking insurance more often than other risks.

Risks with higher probability of loss seeking insurance more often than other risks.

Workers compensation statutes require employers to meet capital reserves requirements sufficient to pay any claims that might arise. Employers can meet such obligations through all of the following EXCEPT a)Self-insurance plans b)Assigned risk plans. c)Competitive state funds. d)Second injury funds programs.

Second injury funds programs.

In order to be covered by the U.S. Longshore and Harbor Workers Compensation Act, a worker must meet the requirements of the a)Situs and status test. b)Maritime and navigable waters test. c)Wharf and pier test. d)Loading and unloading test.

Situs and status test.

Hazard is best defined as A). The uncertainty of loss. B). Neglect to communicate a material fact. C). A deliberate attempt to deceive. D). Something that increases the risk of loss.

Something that increases the risk of loss.

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 valuation method? a)Reproduction cost b)Stated amount c)Actual cash value d)Replacement cost

Stated amount

Which of the following insurers are owned by stockholders? A).Reciprocal B).Fraternal C).Stock D).Mutual

Stock

A parking garage owner completed major renovations to a parking garage just prior to selling it to another company. Three months later, overhead concrete fell onto cars in the second floor level. Under the garage coverage policy conditions, which of the following is true? a)The damage occurred when the renovations were done. b)The damage occurred when the concrete fell. c)The renovation contractor is liable. d)The first owner is responsible for the damage.

The damage occurred when the concrete fell.

The contents coverage on a homeowners policy would pay how much after the loss of one of a pair of golden candlesticks? a)The actual cash value of the pair b)Nothing c)The difference in the actual cash value as a pair and as a single d)The replacement cost of the pair

The difference in the actual cash value as a pair and as a single

Which of the following is true regarding rejection of higher uninsured/underinsured motorist limits? a)The rejection of higher limits is only binding upon the named insured. b)The insurer may reject higher limits within 10 days from the date the policy is issued. c)Limits established by the insurer cannot be rejected by the insured. d)The insured has 20 days from the receipt of a notice of raised limits to reject them.

The insured has 20 days from the receipt of a notice of raised limits to reject them

In which of the following situations would off-premises coverage in a broad theft endorsement of the insured's dwelling policy apply? a)The insured's live-in maid's quarters are burglarized. b)The insured's china set is stolen from her home while she's traveling on business. c)The insured's vacuum cleaner is stolen from her apartment. d)The insured's camera is stolen from his suitcase while he is on vacation.

The insured's camera is stolen from his suitcase while he is on vacation.

According to businessowners policy Section I, which of the following is NOT a condition to be met for the terms of the policy to apply to mortgageholders? a)If the insurer denies the claim, the mortgageholder may still take steps to receive loss payment. b)The mortgageholder has the right to receive loss payment. c)The insurer will pay covered losses or damage to each mortgageholder shown in the declarations. d)The mortgageholder must petition the state department of insurance for named status.

The mortgageholder must petition the state department of insurance for named status.

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen? A).Because the insured is currently not a drug user, his policy will not be affected. B).The policy will not be affected. C).The policy will be voided. D).The insurer will sue the insured for committing fraud.

The policy will not be affected.

Which of the following is NOT a goal of risk retention? A).To increase control of claim reserving and claims settlements B).To fund losses that cannot be insured C).To minimize the insured's level of liability in the event of loss D).To reduce expenses and improve cash flow

To minimize the insured's level of liability in the event of loss

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

Warranty

A tornado that destroys property would be an example of which of the following? a).A peril b).A pure risk c).A loss d).A physical hazard

A peril

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as A).Contracts of adhesion. B).Unilateral contracts. C).Aleatory contracts. D).Binding contracts.

Contracts of adhesion.

Farm fences (except field and pasture fences) are covered by which farm coverage form? a)Coverage A b)Coverage B c)Coverage E d)Coverage G

Coverage G

Events or conditions that increase the chances of an insured loss occurring are referred to as A).Hazards. B).Exposures. C).Risks. D).Perils.

Hazards

Which of the following may NOT be included in an insurance company's advertisement? a)An identification of a limited policy as a limited policy b)That its policies are covered by a state Guaranty Association c)The policies' limitations or exclusions d)The name of a specific agent

That its policies are covered by a state Guaranty Association

Which of the following is NOT a characteristic of an insurable risk? A).The loss must be catastrophic. B).The loss must be due to chance. C).The loss must be measurable. D).The loss exposure must be large.

The loss must be catastrophic.

All of the following would be eligible for coverage under the dwelling policy EXCEPT: a)A house that has 5 residential units b)A tenant-occupied dwelling. c)A dwelling in the course of construction. d)A duplex with one primary owner.

A house that has 5 residential units

Which type of insurance is based on mutual agreements among subscribers? A).Mutual insurance B).Limited liability C).Reinsurance D).Reciprocal insurance

Reciprocal insurance

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

When an insurer's underwriter approves coverage

Within the first 60 days of coverage under a dwelling policy, how much notice is required for the cancellation of a policy? a)5 days b)10 days c)15 days d)20 days

10 days

Any licensed person whose activities affect interstate commerce and who knowingly makes false material statements related to the business of insurance may be imprisoned for up to a)3 years. b)5 years. c)10 years. d)12 years.

10 years

An insured has $5,000 of medical coverage on a personal auto policy at the time of a covered accident. The insured and two passengers are injured. Medical treatment costs $7,000 for the insured, $4,000 for the first passenger, and $8,000 for the second passenger. How much will the policy pay under medical payments coverage? a)$5,000 minus the policy deductible b)$14,000 c)$15,000 d)$5,000 maximum for the accident

14,000

All of the following statements concerning coinsurance are true EXCEPT) A.The coinsurance formula will also be applied to total losses. B. It is used to help adequacy and equity in rates. C. The insured agrees to maintain insurance equal to some specified percentage of the value of the property. D. If the insurance carried is less than required, the insurance may not cover the whole loss.

A. The coinsurance formula will also be applied to total losses.

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? A).AM Best B).NAIC C).Consumer's guide D).SEC

AM Best

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? A).Unilateral B).Conditional C).Personal D).Adhesion

Adhesion

In insurance, an offer is usually made when A).An applicant submits an application to the insurer. B).The insurer approves the application and receives the initial premium. C).The agent hands the policy to the policyholder. D).An agent explains a policy to a potential applicant.

An applicant submits an application to the insurer.

What is a foreign insurer? A).An insurer with a home office in another country B).An insurer with licensed agents doing business in other countries C).An insurer with licensed agents who are citizens in more than one country D).An insurer with a home office in another state

An insurer with a home office in another state

An insured's house is damaged by a fire and is uninhabitable. As a result, the insured has to rent an apartment until repairs are made. A dwelling insurance policy will pay for the expense of renting the apartment. Which type of broad or special form coverage does the insured have? a)Coverage B - Other Structures b)Coverage D - Fair Rental Value c)Coverage E - Additional Living Expense d)Coverage A - Dwelling

Coverage E - Additional Living Expense

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? A).Independent agency marketing B).Illegal C).Insurance telemarketing D).Direct response marketing

Direct response marketing

Which of the following best describes an insurance company that has been formed under the laws of this state? A).Alien B).Foreign C).Domestic D).Sovereign

Domestic

Under the examinations of books and records condition, the insurance company has the right to examine and audit the insured's books and records related to the policy a)During the policy period and for up to 3 years after the termination of the policy. b)Only during the policy period. c)During the policy period and for up to 5 years after the termination of the policy. d)Only after the policy period.

During the policy period and for up to 3 years after the termination of the policy.

A participating insurance policy may do which of the following? A).Require 80% participation B).Pay dividends to the policyowner C).Provide group coverage D).Pay dividends to the stockholder

Pay dividends to the policyowner

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A).Implied B).Apparent C).Assumed D).Express

Implied

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? a)Reasonable expectations b)Indemnity c)Stop-loss d)Consideration

Indemnity

Which statement regarding insurable risks is NOT correct? A).An insurable risk must involve a loss that is definite as to cause, time, place and amount. B).Insureds cannot be randomly selected. C).Insurance cannot be mandatory. D).The insurable risk needs to be statistically predictable.

Insureds cannot be randomly selected.

A loss has occurred before the first report has been filed on a value reporting coverage form. Which is NOT true? a)Full amount of loss up to the policy limit is paid if the loss occurs before the first report due date. b)75% of the loss is paid if the loss occurred after the first report due date. c)Never more than 75% of the loss is paid. d)Provisional premium is based on 75% of the full amount of coverage.

Never more than 75% of the loss is paid.

Why don't commercial auto coverage forms automatically include medical payment coverage? a)Often, any person occupying a commercial vehicle would be covered under a workers compensation policy. b)The business that owns the vehicles must be self-insured for medical payment coverage. c)Commercial auto coverage is for damage to vehicles only. d)Any person occupying a commercial vehicle must have a personal auto policy to cover any medical payments that result from an accident.

Often, any person occupying a commercial vehicle would be covered under a workers compensation policy.

What is the major difference between a stock company and a mutual company? A).Types of policies issued B).Ownership C).Amount of benefits D).Number of producers

Ownership

Which of the following homeowners endorsements covers liability exposures arising from an incidental business conducted within a building on the residence premises? a)Special limit of liability b)Professional liability c)Business income - report of values d)Permitted incidental occupancies

Permitted incidental occupancies

What type of coverage is Coverage E in homeowners policies? a)Personal liability b)Additional coverage c)Loss of use d)Personal property

Personal liability

What are the disclosure requirements if an insurance producer wishes to charge a fee? a)Issuing a conditional premium fee receipt, giving written notice of the premium, obtaining a signature of the insurer b)Obtaining a signature on a schedule of fees, issuing premium fee receipts to the client, providing copies of deposit statements to client. c)Posting a schedule of fees in the producer's office, disclosing the fees to the client in writing, and obtaining a signature on the disclosure from the client d)At least verbally disclosing the fees to the client, issuing a fee receipt to the client

Posting a schedule of fees in the producer's office, disclosing the fees to the client in writing, and obtaining a signature on the disclosure from the client

The risk of loss may be classified as A).Named risk and un-named risk. B).High risk and low risk. C).Pure risk and speculative risk. D).Certain risk and uncertain risk.

Pure risk and speculative risk.

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

The applicant has a prior felony conviction.

Peril is most easily defined as A).Something that increases the chance of loss. B).The cause of loss insured against. C).An unhealthy attitude about safety. D).The chance of a loss occurring.

The cause of loss insured against.

Which of the following is a characteristic of a Reciprocal Insurance Exchange? A).The chief administrator of the insurer is called an "attorney-in-fact". B).Normally write all lines of insurance C).Stock holders share in any profits D).Issues nonassessable policies

The chief administrator of the insurer is called an "attorney-in-fact".

Which of the following is an example of a producer's fiduciary duty? A).A duty to base all transactions upon the principle of Utmost Good Faith. B).The obligation to tell the truth to the best of one's knowledge C).The trust that a client places in the producer in regard to handling premiums. D).An obligation to state every known fact about the policy the producer is selling.

The trust that a client places in the producer in regard to handling premiums.