Quiz Questions of P & C exam
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
$30,000 - 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 total 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)
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
$5,000 - ACV is calculated as replacement cost less depreciation 6,000 - 1,000 (200x5) = 5,000
If a liability policy has split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person?
$50,000
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 the insured's policy is written on the actual cash value (ACV), how much will the policy pay toward the insured's new roof
5,000 - ACV is calculated as replacement cost less depreciation -6,000 - 1,000 (200x5) = 5,000
One driver makes a left turn on a red light and is hit by another driver who is speeding through the intersection. The driver who was making an illegal turn is found to be 80% guilty of the accident, while the speeding driver is 20% at fault. According to the principle of comparative negligence that is applied in auto claims, how much will the speeding driver be able to collect on the claim?
80% - insurance adjusters apply the comparative negligence rule to determine each party's liability, or the degree of negligence, based on the percentage each person is found to be at fault
What type of liability would a person who owns wild animals have
Absolute - any conduct that is inherently dangerous, such as using explosives or keeping wild animals, imposes absolute liability. The claimant does not have to prove anything
What are the various methods of loss valuation?
Actual cash value, replacement cost, market value, agreed value, stated value, and salvage value
Which of the following valuation works best for property whose values does not fluctuate much
Agreed value - works best for items whose value does not fluctuate much. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured item's appreciation or depreciation
With respect to the business of insurance, a hazard is
Any condition or exposure that increased the possibility of loss occurring. Hazards are generally classified as either physical, moral, or morale
With respect to the business of insurance, a hazard is
Any condition or exposure that increases the possibility of loss - a hazard is any condition or exposure that increases the possibility of loss occurring. Hazards are generally classified as either physical, moral, or morale
Which of the following describes contributory negligence
Any degree of negligence by the injured party may bar recovery - in states that have contributory negligence laws, the defendant must have been 100% at fault for an accident and the claimant free of fault if the claimant is to be successful in collecting damages
A policy that insures all property at multiple locations for a single amount is referred to as
Blanket - blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss. No single item is assigned to a specific amount of insurance. However, different amounts of insurance may be shown for buildings in general and contents in general
what type of policy insures all property at multiple locations for a single amount?
Blanket policy
What is the legal defense that can be used in most states in which proportionate damages may be awarded when both plaintiff and defendant were negligent
Comparative negligence - is the apportionment of damages when both plaintiff and the defendant are at fault. Recovery by the plaintiff is lessened or increased depending upon the degree of each party's negligence
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
Consideration - the binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss
Which of the following is NOT an essential element of an insurance contract?
Counteroffer - in order for insurance contracts to be legally binding they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose.
A beauty parlor burns to the ground. What type of loss is this to the owner
Direct - caused by a peril that is insured against is classified as direct loss
What term includes damage where the insured peril was the proximate cause of loss
Direct loss - is direct, physical damage to buildings and/or personal property. Direct loss also includes other damage where the insured peril was the proximate cause of loss
Replacement cost is defined as
Full replacement of property at its current cost, new and without reduction for depreciation - replacement cost policies do not consider depreciation if the property 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
What type of compensatory will pay for pain and suffering and disfigurement
General - general compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars
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
Indemnity -The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits
An additional loss that results from a direct loss of a property is called a
Indirect loss -Indirect losses, also known as consequential losses, come about as a result of a direct loss
To purchase insurance, the policy owner must have financial interest in the property being insured. This is known as:
Insurable interest - 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
All of the following are factors in the determination of actual cash value except:
Insurance premium paid - actual cash value (ACV) is a valuation method in which the value of property is determine using the replacement cost for property of like kind and quality, minus depreciation. The original cost is not a factor
what type of information would be found in a policy's insuring agreement?
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 be found in the declarations
All of the following are true regarding deposit premium except
It is 50% of the actual premium What is true: 1. It could be adjusted by the audit 2. It must be paid in advance 3. It is an estimated premium paid at the policy issue 4. It is an estimated premium paid in advance at the time the policy is issues that may be adjusted by the audit based on actual exposures
All of the following statements describe the concept of strict liability except:
It is imposed on defendants engaged in hazardous activities -Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence
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
Larger - according to the law of large numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums
Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called
Material misrepresentations - a material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company
Which of the following does the term proximate cause refer to?
Negligence that leads to an injury -Proximate cause is the reasonably foreseeable act or event that results in an injury or damage. Negligence may often be the proximate cause of the damage; without it, the accident would not have happened. This is also called direct liability
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?
Occurrence
What type of insurance policy insures against risks of loss that are nit specifically excluded by the policy
Open peril policy - open peril (special) policies cover everything except what they say they don't. Named peril policies cover only peril named in them
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?
Per occurrence - sets the amount for all claims that arise from a single incident at a certain number
A situation in which a person can only lose or have no change represents
Pure risk - refers to situations that can only result in a loss or no change. Pure risk is the only type of insurance companies are willing to accept
Which method of loss valuation is contrary to the basic concept of indemnity
Replacement cost - the replacement cost method of loss valuation is contrary to the basic concept of indemnity because following a loss it may provide the insured with a settlement in excess of the property's actual cash value
In property insurance, actual cash value is defined as which of the following?
Replacement cost at the time of the loss -A loss valuation method used in many property forms is determined by today's replacement cost minus depreciation for age and obsolescence
In the case of a loss, the indemnity provision in insurance policies
Restores an insured person to the same financial state as before the loss - indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.
Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called
Specific coverage - one location is insured for a specific amount of insurance on the structure and contents
Events in which a person has both the chance of winning or losing are classified as
Speculative risk - involves the chance of gain or loss and is not insurable
The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called
Subrogation -When insured accept loss payment from the insurance company, they must transfer their rights to recovery to the insurer. This prevents the insured from collecting twice for the same loss and allows the insurer to indemnify the insurance company
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?
Subrogation - after an insured accepts payments from the insurer, they have been indemnified. Insurance policies require the insured to transfer any right to recovery to the insurer so that it may seek recovery up to the amount paid as loss
Peril is most easily defined as
The cause of loss insured against in an insurance policy
All of the following statements concerning coinsurance are true except:
The coinsurance formula will also be applied to total losses -In the event of a total loss, the coinsurance clause does not operate and the face amount of the policy is paid
What is insurable interest and when must it exist?
The insured would incur a financial loss if the insured property is damaged or lost. It must exist at the time of the loss
For the purpose of insurance, risk is defined as:
The uncertainty or chance of loss - is the basic reason for buying insurance
A building is insured, but no one has lived or worked in it for 10 years. The building is completely empty of any furniture or personal belongings. From an insurance standpoint, the building is considered
Vacant - an insured structure in which no one has been living or working and no contents have been stored for the period of time required as stated in the policy (usually 60 days) constitutes vacancy)
When a parent is required to pay for damages caused by their children, this is an example of
Vicarious liability - when one party is held liable for the act of another party, it is called vicarious liability. Employers are responsible for employees acting within the scope of their employment. Parents sometimes are held responsible for the acts of their children
what is consideration on the part of the insurer?
a promise to pay in the event of a loss
what is additional coverage in an insurance policy?
a provision that adds more coverage for a specific loss at no additional premium
what is proof of loss?
a sworn statement from an insured notifying the insurer about a loss
what is a binder?
a temporary insurance contract that does in effect prior to the policy issue
in property and casualty policies, what is required for an assignment to be valid?
a written consent of the insurer
What are the two types of property losses?
a. Direct and indirect
When the amount of insurance written in a 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. Stated amount - the value of the insured property is determined at the time the policy is written. In the event of a loss, that amount is paid without regard to any coinsurance provision. However, if the loss is less than total, the insurer has salvage rights with the insured having first right of refusal of the salvage
persons who are not named on the declarations page but who are protected by the policy are known as what type of insured?
additional insured
what are the four elements of an insurance contract?
agreement (offer and acceptance), consideration, competent parties, and legal purpose
what is a warranty in an insurance contract?
an absolutely true statement upon which the validity of the policy depends
what is subrogation
an insurer's legal right to seek damages from third parties after reimbursing insureds for a loss
who is an insured in property and casualty insurance?
anyone covered under the policy, even if not specifically named
what are some of the sources of information that may be used by property/casualty insurance insurers in the underwriting process?
application form, motor vehicle records, interviews with neighbors, friends and employers of the applicant, inspection of property, and the applicant's insurance history
what is the difference between cancellation and nonrenewal
cancellation is the termination of an insurance policy by either party prior to the policy's expiration date. Nonrenewal is the termination of a policy at its expiration date by not offering a continuation of the existing policy
What term best describes the act of withholding material information that would be crucial to an underwriting decision?
concealment - occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be important for making underwriting decisions
what part of an insurance policy indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy
conditions
what is consideration in an insurance contract?
consideration is something of value that each party gives to the other. Consideration on the part of the insurer is binding
Representations are written or oral statements made by the applicant that are
considered true to the best of the applicant's knowledge - representations are statements made by an applicant that they believe to be true
part of a policy shows the amount of insurance, premium, and policy terms?
declarations
what section personalizes an insurance policy?
declarations
if an insured peril was the proximate cause of loss, what type of loss is it?
direct
in commercial property policies, who has control of the policy, and who can cancel it?
first name insured
which of the following would be named on the declarations page of property or liability policy?
first name insured - is the individual whose name appears first on the policy's declaration
when is an appraisal needed and how can it be requested?
if an insured and an insurer disagree about the value of a property loss, either party can make a written demand for an appraisal
what insurance principle does pro rata liability protect ?
indemnity
an insured's business is damaged by a fire, and temporarily shut down for repairs. As a result, the insured suffers loss of income. what type of loss is the loss of income
indirect or consequential
what part of an insurance policy contains the insurer's promise to pay a claim?
insuring agreement
what does an endorsement do to an insurance contract?
it modifies the policy's original terms
what determines an insurer's responsibility for payment, as statement in an insurance policy?
limits of liability
the reduction, decrease or disappearance of value of the person or property insured in a policy is known as what?
loss
(Insurance Carried / Insurance Required) x Loss Amount =
loss payment
what term describes a loss caused by continuous exposure to a condition
occurrence
where is the policy period stated in an insurance policy?
on the declarations page
a policy that covers all causes of loss except for those specifically excluded is known as what type of policy?
open peril (or special) form
what provision defines how a policy will respond if there is more than one insurance policy written on the same risk?
other insurance
what sublimit in a liability policy puts a ceiling on the payment for all claims that arise from a single accident
per occurrence
a tornado that destroys a property would be an example of what?
peril
what are an insured's duties after loss?
protect the damaged property from further damage, prepare an inventory of damaged property, cooperate with the insurer in settling a loss, notify police in case of theft; and submit proof of loss
What term defines an exact, direct, and uninterrupted cause of loss
proximate cause
which method of loss valuation is contrary to the principle of indemnity?
replacement cost
what are the two types of compensatory damages?
special and general
if a manufactured product is unsafe, what type of liability applies to the manufacturer?
strict liability
what provision found in property policies prevents an insured from collecting twice for the same loss: once from the insurer and again from a third party
subrogation
what law protects consumers form the circulation of inaccurate or obsolete information
the fair credit reporting act
who is the name insured?
the name insured is the individual whose name appears on the policy's declarations
in property insurance, what is the purpose of a coinsurance clause?
to encourage insureds to insure property close to its value
what does the exclusions section of a policy specify?
what perils are not insured against, or what persons are not covered in a policy
when does pro rata liability apply?
when an insured has more than one policy covering a loss
according to the Gramm-Leach-Billey Act, when must insurers give the 2 required disclosures to customers
when the customer relationship is established (i.e., a policy is purchased), and before disclosing protected information
in insurance contracts, when is the offer usually made?
when the insurance application is submitted
in insurance contracts, when does acceptance usually occur?
when the insurer approves a prepaid application