Property Insurance Terms and Related Concepts

Events or conditions that increase the chances of an insured loss occurring are referred to as..? A) hazards B) exposures C) risks D) perils

A) hazards

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

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 his policy is ACV, how much will it pay toward the insured's new roof? A) $1000 B) $4000 C) $5000 D) $6000

C) $5000

For the purpose of insurance, risk is defined as..? A) An event that increases the amount of loss B) The uncertainty or chance of loss C) The certainty of loss D) The cause of loss

B) The uncertainty or chance of loss.

The causes of loss insured against in an insurance policy are known as..? A) Risks B) Hazards C) Perils D) Losses

C) Perils

What type of liability would a person who owns wild animals have? A) Vicarious B) Implied C) Direct D) Absolute

D) Absolute

When a parent is required to pay for damages caused by his or her children, this is an example of..? A) Strict liability B) Intervening Cause C) Assumption of risk D) Vicarious liability

D) Vicarious liability

Which of the following definitions best defines the term "accident"? A) A sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended B) Injury to the character of another person caused by libel, slander, false arrest, invasion of privacy, and other acts C) Physical damage to tangible property of others caused by the negligence of an insured D) The negligent or purposeful act or omission by an insured that results in physical trauma or death to a person.

A) A sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended

In which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation? A) Agreed value B) Replacement Cost C) Stated Amount D) Market Value

A) Agreed Value

A policy that insures all property at multiple locations for a single amount is referred to as..? A) Blanket B) Reporting C) Special D) Specific

A) Blanket

An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this? A) Consequential B) Direct C) Special D) Additional

A) Consequential

The process of determining the premium charged and how much insurance is required for a particular loss is called? A) Loss valuation B) Agreed value C) Loss Payment D) Coinsurance

A) Loss Valuation

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

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) $32,000 B) 80% of the property's replacement cost or more C) 100% of the market value D) $400,000

B) 80% of the property's replacement cost or more

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

B) Agreed value

What term included damage where the insured peril was the proximate cause of loss? A) Negligent loss B) Direct loss C) Indirect loss D) Consequential loss

B) Direct loss

All of the following are factors in the determination of actual cash value EXCEPT? A) Replacement cost B) Insurance Premium paid C) Type and Quality of Property D) Age of the Property

B) Insurance Premium Paid

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) Functional Replacement Cost B) Market Value C) Actual Cost Value D) Replacement Cost

B) Market Value

Which method of loss valuation is contrary to the basic concept of indemnity? A) Agreed value B) Replacement cost C) Functional replacement cost D) Market value

B) Replacement cost

Which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur? A) Per occurrence limit of liability B) Split limit of liability C) Aggregate limit of liability D) Combined single limit of liability

C) Aggregate limit of liability

In property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit? A) Coinsurance B) Premium C) Deductible D) Self-insured retention

C) Deductible

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

C) Subrogation

When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be..? A) Strict liability B) An intervening cause C) Proximate Clause D) The direct clause

C) The proximate clause

A tornado that destroys property would be an example of which of the following? A) A loss B) A physical hazard C) A peril D) A pure risk

C) a peril

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

D) Any condition or exposure that increases the possibility of loss.

Insurable interest in a property policy must be proven... A) When a policyowner is changed B) When a claim is paid C) At the time of application D) At the time of loss

D) At the time of loss.

A beauty parlor burns to the ground. What type of loss is this to the owner? A) Consequential B) Specific C) Consecutive D) Direct

D) Direct

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

D) The coinsurance formula will also be applied to total losses

An insured's 9-year-old son threw a ball, accidentally breaking a neighbor's plate glass window. The insured was found legally liable for the cost of replacing the window. This is an example of..? A) Intervening Cause B) Juvenile delinquency C) Absolute liability D) Vicarious liability

D) Vicarious liability

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) Smaller B) Older C) More active D) larger

D) larger

Negligence is defined as A) An unbroken chain of events that results in bodily injury or property damage to another person B) Conduct that is so hazardous that the individual engaging in it will be held fully responsible for any resulting injury or damage C) An intentional act that results in bodily injury or property damage to another person D) The failure to do what a reasonable prudent person would do under given circumstances

D) The failure to do what a reasonable prudent person would do under given circumstances.

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

B) Negligence that leads to an injury

When the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as..? A) Replacement Cost B) Actual Cash Value C) Specific Insurance D) Stated Amount

D) Stated Amount

Which of the following is used in the formula for calculating the actual cash value of a property? A) Replacement Cost B) Stated value C) Fair market value D) Agreed value

A) Replacement Cost

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

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) Schedule B) Blanket C) Special D) Specific

D) Specific

The transfer of an insured's right to seek damages from a negligent party to the insurer is found in which of the following clauses? A) Subrogation B) Arbitration C) Salvage D) Appraisal

A) Subrogation

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 of furniture and clothes in the house. From an insurance standpoint, the insured's house is considered..? A) Unoccupied B) Condemned C) Under repair D) Vacant

A) Unoccupied

Liability imposed on one party as a result of the actions of another person is known as..? A) Vicarious liability B) Comparative negligence C) Strict liability D) Absolute liability

A) Vicarious liability

Events in which a person has both the chance of winning or losing are classified as..? A) Retained risk B) Speculative risk C) Insurable D) Pure risk

B) Speculative risk

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would us what loss valuation method? A) Reproduction Cost B) Stated Amount C) Actual Cash Value D) Replacement Cost

B) Stated Amount

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

B) Subrogation

Which of the following best expresses the purpose of a stated value contract? A) To establish the value of property subject to loss by theft or robbery B) To provide a maximum limit for which the insurance company may become liable in casualty losses C) To pre-establish the amount of coverage available for property items that are difficult to value D) To ensure that the principle of indemnification applies

C) To pre-establish the amount of coverage available for property items that are difficult to value

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

What is the purpose of the coinsurance clause found in property insurance policies? A) Encourage higher standards of care by requiring the insured to pay a portion of every loss B) Ensure that insureds do not over insure their property C) Prevent insured from profiting from a loss D) Encourage the insured to insure the property closer to its full value

D) Encourage the insured to insure the property closer to its full value

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.

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

D) It is imposed on defendants engaged in hazardous activities

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

C) Pure risk

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) Split B) Per occurrence C) Per person D) Aggregate

B) Per occurrence

In case of a loss, the indemnity provision in insurance policies..? A) Pays the insured as much as 95% of the loss B) Restores an insured person to the same financial state as before the loss C) Allows the insured to collect 20% more than the actual loss D) Pays the insured a percentage of the loss above and beyond the loss

B) Restores an insured person to the same financial state as before the loss

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

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

Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called..? A) Blanket coverage B) Described coverage C) Specific coverage D) Schedule coverage

C) Specific coverage

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

D) Law of large numbers

Which of the following coverages in dwelling and homeowners policies is for indirect losses? A) Loss of use B) Dwelling C) Structures D) Contents

A) Loss of use

Losses caused by continuous or repeated exposure to conditions resulting in injury 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

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

A) Pure risk and speculative risk

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

D) The cause of loss insured against