Chapter 1-B: Characteristics of Insurance Contracts

In which section of the policy might you find the following statement? "Property Address: 246 Rosemead Drive." A. Declarations B. Definitions C. Exclusions D. Conditions

A. Declarations

Janelle wants to change her coverage for personal property in her Homeowners policy from ACV to Replacement Cost. She visits her local insurance agent and asks him to make this change to her policy while keeping all the other details the same. Which section of her policy would the agent use to make this change? A. Endorsements B. Conditions C. Insuring Agreement D. Exclusions

A. Endorsements

Mark wants to add "towing and labor costs" coverage to his auto insurance policy. Under which part of the policy would he add this coverage? A. Endorsements B. Exclusions C. Declarations D. Conditions

A. Endorsements

Which of the following is true? A. Kevin's insurance policy covers him for losses to his new car, even though he sold his truck, which was previously covered under his policy, to Bill. B. Kevin's auto insurance policy protects his car from damage. C. Kevin's auto insurance policy now covers Bill, who bought Kevin's truck. D. When Kevin sold his truck to Bill, he lost his auto insurance coverage.

A. Kevin's insurance policy covers him for losses to his new car, even though he sold his truck, which was previously covered under his policy, to Bill.

An insurance applicant revealing his convictions for drunk driving to an insurer is an example of: A. utmost good faith. B. an aleatory contract. C. a contract of adhesion. D. a unilateral contract.

A. utmost good faith

Matt offers to lend Shawn his truck so he can pick up some stones for his landscaping project. Matt tells Shawn, "Don't worry, my truck is insured." What is Matt really saying? A. Matt's truck is protected from damage. B. Matt's financial interest in the truck is protected, should a covered loss occur. C. Shawn's financial interest in the truck is protected, should a covered loss occur. D. Shawn is protected from damage while driving Matt's truck.

B. Matt's financial interest in the truck is protected, should a covered loss occur.

Which of the following describes a contract in which only one party makes a promise to perform? A. Aleatory Contract B. Unilateral Contract C. Utmost Good Faith Contract D. Personal Contract

B. Unilateral Contract

Utmost Good Faith

Both parties must act honestly and openly in order for the contract to be valid.

What is the primary distinguishing characteristic of a contract of adhesion? A. A contract of adhesion takes precedence over a contract of utmost good faith. B. The amounts exchanged over the course of the contract are unequal. C. A contract of adhesion implies an unequal balance of power in the creation of the contract. D. A contract of adhesion benefits only one party to the contract.

C. A contract of adhesion implies an unequal balance of power in the creation of the contract.

Which of the following statements is NOT true about an insurance policy? A. Ambiguities in contracts of adhesion often favor the insured. B. The insurer holds the balance of power in the creation of an insurance policy. C. The concept of utmost good faith only applies to the insured. D. An insurance policy actually protects the policyholder's financial interests in the insured item, not the insured item itself.

C. The concept of utmost good faith only applies to the insured.

Exclusions

Causes of loss or items of property that are not covered by the policy.

Josephine's gas station suffered severe damage when one of the fuel tanks caught fire and exploded. After completing his inspection, the adjuster determines that Josephine's claim is not covered because she did not have automatic shut-offs for the fuel tanks. If this safety measure was in fact required in order for coverage to apply, where might Josephine find it in the policy? A. Declarations B. Endorsements C. Exclusions D. Conditions

D. Conditions

Charlotte's son just turned 16 and got his driver's license. She wants him to be covered, so she adds him to her auto insurance policy. Where would this addition be found in Charlotte's policy? A. Conditions B. Exclusions C. Insuring agreement D. Endorsements

D. Endorsements

Tom decides to purchase an insurance policy to protect his home. According to the definition of a personal contract, which of the following most accurately describes what Tom's insurance actually protects? A. The house itself B. Tom's house and the entire property C. Tom's entire family D. Tom's financial interest in the home

D. Tom's financial interest in the home

Bill purchased a policy from ABC Insurance. Several months later, he filed a claim which was denied. While reviewing his policy, he found several ambiguities in the policy and decided to challenge the insurer's decision. When the dispute went to trial, the court ruled in Bill's favor. This is because insurance policies are: A. personal contracts. B. contracts of utmost good faith. C. aleatory contracts. D. contracts of adhesion.

D. contracts of adhesion.

Declarations

Information that makes the policy unique to a specific insured.

Adhesion

One party sets the term of the contract; the other may simply agree or not agree.

Unilateral

Only the insurer makes a promise to act; the insured can void contract at any time.

Insuring Agreement

The essence of the contract. Often only a single sentence.

Aleatory

The execution of the contracts depends on an unknown future event.

Personal

The insured person is protected from losses, not the covered property.

Conditional

The insurer must only honor the contract if the insured meets certain conditions.

Endorsements

add, reduce, or change the coverage of the policy in some way.

Definitions

explains exactly what specific words mean in the context of the policy.

Conditions

lists requirements that the insured must meet for coverage to apply.