Texas Property & Casualty Insurance

Consuela's homeowners policy has an 80% coinsurance condition. Her home's value is $125,000. What is the minimum amount of coverage she must carry to be indemnified for losses up to the policy limits?

$100,000

When a small restaurant is damaged by a tornado, the owners are forced to close for 1 month while the property is repaired. The building suffers damages of $20,000. The owners estimate they will lose $50,000 in business receipts. In order to keep their staff, the owners must continue to pay salaries totaling $5,000. Ignoring any deductible, how much of the direct loss will the business owners policy pay?

$20,000

Linda's sofa, television set, and entertainment center were destroyed in a fire. The total amount of the loss is $5,000; the actual cash value of the items is $3,000. If this loss is valued on a replacement cost basis, how much will Linda's insurance policy pay? Assume the loss is within the policy limit.

$5,000

Bryce owns a $50,000 lake cabin that he has insured for $40,000. He sustains a $5,000 covered loss. According to the principle of indemnity, how much will his insurer pay?

$5000

Ben bought an automobile four years ago for $15,000. Today it is worth $6,000. According to the principle of indemnity, how much should Ben receive if the car is totally demolished?

$6,000

Two insurance policies apply to Monica's home. The limit for Policy A is $100,000, and the limit for Policy B is $50,000. Both policies have a pro rata other insurance clause. If she suffers a $9,000 covered loss to her home, how much will Policy A pay?

$6,000.00

It will cost Gary $10,000 to put a new roof on his home after the old one was destroyed in a tornado. Assume the roof depreciated $300 per year and the roof was 10 years old when the loss occurred. If this loss is valued on an actual cash value basis, how much will Gary's insurer pay for the loss? Assume the loss is within the policy limit.

$7,000

The furniture Harold purchased 10 years ago was destroyed in a fire. The furniture cost $9,000 when new and has depreciated by $5,000. It would cost $12,000 to replace this furniture today. What is the actual cash value of Harold's destroyed furniture?

$7000

Harry Arne and his cousin each own 50% of a $160,000 duplex. Suppose Harry purchases $160,000 of insurance on the home. If it burns to the ground, how much would Harry collect?

$80,000

When the insurer and the insured cannot agree on the value of a loss, the matter is submitted to disinterested parties for resolution. Under a standard appraisal clause, how many parties are involved in determining the value of the loss?

3

________ is when people with a greater than average exposure to loss to purchase insurance.

Adverse selection

Byron sells his car to his friend Annette but does not notify his insurance company. Assuming that Byron's policy will transfer to her automatically, Annette doesn't buy insurance for the car. When the car is stolen, Annette files a claim with Byron's former insurer. The insurer denies the claim. This is an example of the application of what policy condition?

Assignment

In a re-insurance transaction there is a ceding carrier that is the primary insurer and _____ that is the re-insurer that assumes part of the risk.

Assuming carrier

What does the liberalization clause do to a property policy?

Broadens coverage.

The procedure for resolving a disagreement between an insured and an insurance company about a loss is described in which of the following parts of an insurance policy?

Conditions

Which part of an insurance policy describes the responsibilities and obligations of both the insurance company and the insured under the policy?

Conditions

The parts of a contract are competent parties, legal purpose, offer, acceptance, and ________.

Consideration (CLOAC)

A contract that must be accepted exactly as written, no changes is a _____.

Contract of adhesion

An insurance company issued a homeowners policy that included ambiguous language regarding how a loss was settled. The insured sued the insurance company and won. The judge stated that due to the ambiguous language in the contract the decision must be made in favor of the insured. The judge was basing this decision on which of the following types of insurance contract?

Contract of adhesion

The _____ page in an insurance contract contains information about the risk, the effective date of coverage, deductible, premium amounts, coinsurance percentage, and location of the insured property.

Declarations

The limits of liability are found in which of the following sections of a casualty policy?

Declarations

A heavy snowfall causes the roof over Amaya's living room to collapse. The insurance company asks her to move her belongings out of the living room to protect them from further damage and put a tarp over the roof until it can be repaired. It also asks her to complete a proof of loss form listing the items that were damaged. This is an example of the application of what policy condition?

Duties after loss

The Conditions in a policy consist of the ______ of each party.

Duties and responsibilities

Myron, who is 16, signs a contract to lease a car. This would probably not be considered a valid contract under the law because _____.

He is not competent at 16.

What is an example of reduction as a method of handling risk?

Installing a burglar alarm

Under a unilateral contract, which parties are legally bound to perform under the contract?

Insurer only

The list of perils covered under a policy is found in which part of the policy?

Insuring agreement

Walt and Joanna are co-owners of a bagel shop. Both Walt and Joanna are listed in the declarations of the policy that insures the business, with Joanna's name appearing first. The declarations also lists First State Bank, which has an outstanding loan on the business. Who is the first named insured on this policy?

Joanna

Split limits, aggregate limits and single limits are what types of policies?

Liability

Elements of insurable risk are calculable, affordable, non-catastrophic, homogenous, accidental and _____.

Measurable (CANHAM)

A ___ policy lists the specific perils or causes of loss insured against under the contract.

Named peril

The elements of a valid contract are legal purpose, consideration, competent parties, and _____.

Offer and acceptance

An Insurance company is the_____.

Principle

What is Actual Cash Value?

Replacement cost less depreciation.

Self-insurance is an example of what kind of risk treatment?

Retention

Methods of handling risk are avoidance, reduction, retention, transfer and _____.

Sharing (ARRTS)

Renata's home is demolished in a fire that started when a neighbor misdirected the fireworks he set off to celebrate the 4th of July. Renata's insurance company pays her for the damage, then files suit against the neighbor to recover the amount it paid for the loss. This is an example of the application of what policy condition?

Subrogation

The transfer to the insurance company of the insured's right of recovery against others is called ____.

Subrogation

Who does a personal contract protect?

The individual who owns the property.

Which one of the following terms indicates that an insurance contract contains the enforceable promises of only one party?

Unilateral

Which of the following terms describes a building in which no one is present but to which the occupants intend to return?

Unoccupied

Both parties rely on statements made to each other when writing a contract. This is known as?

Utmost good faith

Jennifer and David signed a homeowners insurance application for coverage on their home. They did not divulge that last year their garage burned down after their 16-year-old son left a cigarette burning. The agent sent in the application and a policy was issued. When another fire occurred 2 months after the policy was issued, the company voided the policy because the agent would not have sent in the application if he had known of the prior loss. Which contract principle does this situation describe?

Utmost good faith

Which of the following terms is used to describe an empty building that is not being used?

Vacant

A _____ policy is a good option when insuring artwork.

Values or Agreed Value

If John's father transfers ownership of a house to John, can John buy insurance?

Yes because he has an insurable interest.

Dishonesty on the part of an insured is an example of what?

a moral hazard

Losses that are paid on the basis of the cost to replace the property, without an allowance for depreciation, are paid on _____.

a replacement cost basis

A policy under which the insured and insurer agree on the property value and list the value in the policy is known as ________.

an agreed value policy

Unequal exchanges between two parties is called _____.

an aleatory contract

A type of loss that results from a direct loss is called___.

an indirect loss

3 types of authority are expressed (what you can do per the contract), implied and _____.

apparent

Robert and Carolyn live in a busy city and decide that not owning a car is the solution to not experience having a car stolen. What method describes this philosophy?

avoidance

A person or organization that has temporary possession of someone else's personal property. (like a dry cleaner with people's clothes) is called a ___.

bailee

An insured owns 4 stores. As inventory is sold, the insured transfers new inventory from the other locations to the store making the sales. Which type of policy would best fit this insured's needs?

blanket policy

Blanket coverage covers all property at a _____.

certain location

The amount of payment that comes into play when an insured fails to carry the sufficient amount of insurance is sometimes referred to as the _____ penalty.

coinsurance

Replacement cost uses the ____ value for a damaged item.

current

The insured is looking for the amount of coverage in a property and casualty policy. This information would be found in the ______.

declarations

When a policy is written on a reporting basis, a premium is paid at the beginning of the policy period that is based on an estimate of what the final premium will be. This is called a (an) ____.

deposit premium

The conditions section of an insurance contract sets forth the ____ of the insured and the insurance company.

duties

A policy may be amended only with a(n):

endorsement

To add, modify or take away coverage (perils not covered, property not covered) you need ____.

endorsements

What prevents the re-insertion of a right originally waived?

estoppel

An all-risk or open-perils policy protects against any peril except those specifically ____.

excluded

Which of the following policy provisions restricts certain risks from coverage?

exclusions

A condition or situation that presents a possibility of loss is a (an):

exposure

Examples of perils are_____?

fire, wind and lightning

A ____ is a condition that increases the chance of loss.

hazard

Faulty wiring causes a fire that destroys a building. The faulty wiring is considered to be a(n):

hazard

The attempt to restore an insured to his pre-loss condition is known as _____.

indemnification

The principle that restores someone to the condition he enjoyed before a loss is_____?

indemnity

An auto is sold for salvage value following payment of a loss. Who receives the proceeds?

insurance company

The coverages offered by an insurance policy are described in the ____.

insuring agreement

The types of hazards are_____?

moral, morale, and physical

Which hazard can be described as a careless attitude or general indifference on the part of the insured toward the occurrence of loss?

morale

Driving too fast and not wearing a seat belt are examples of?

morale hazard

An insured fails to pay their homeowners insurance premium. The mortgagee becomes aware of this fact and remits the premium to the insurance company. Shortly thereafter the insured sets fire to their home in an attempt to receive payment for the loss. Any loss payment settlement would be made to the____.

mortgagee

The purpose of the conditions section of an insurance policy is to list the ____ of the insured and the insurance company.

obligations

Fire would be an example of a what?

peril

What is the actual cause of a loss?

peril

An open ____ covers any loss that is not specifically excluded by the policy.

peril policy

The Insuring agreement describes coverage provided and which ____ are covered.

perils

The insuring agreement section of a policy describes the ____ you are insured against.

perils

The Declarations page consists of 5 P's. Person or property, policy number, policy term, policy limit and ____.

premium

Which risk is insurable?

pure

Which of the following is an example of property that might be insured on a valued basis?

rare painting

Indemnity insurance will _____?

restores insured to pre-loss condition

A chance, possibility, or uncertainty of loss is known as?

risk

The risk that involves the chance of both loss and gain is?

speculative risk

What kind of risk is the stock market?

speculative risk

A parking valet at a hotel uses a guest's car to do a personal errand and damages the car in a collision. The guest has a personal auto policy (PAP). The insurance company will pay the claim and ____ against the valet.

subrogate

Which of the following legal principles allows insurance companies to collect from a negligent third party damages it paid to an insured?

subrogation

What is the maximum that an insurer will pay in case of a loss?

the limit of liability

Treating risk by purchasing insurance is an example of what type of risk management?

transfer

The purpose of insurance is to:

transfer risk

With regard to insurance, risk can be defined as:

uncertainty regarding loss

Scheduled coverage covers property and structure with ____ listed out for each item.

value

The voluntary relinquishment of a known right is a ___.

waiver

A Statement considered to be guaranteed true is a ____.

warranty