Insurance Exam Pt 2
Which of the following is eligible for a businessowners policy (BOP)? a)A 5-story office building with less than 100,000 square feet in total area b)An 8-story office building c)A convenience store with gas pumps with 60% of gross sales from gasoline sales d)A retail business with gross sales of $10 million
a)A 5-story office building with less than 100,000 square feet in total area Maximum eligibility requirements for a BOP are office buildings up to 6 stories high and up to 100,000 square feet, retail or service businesses (mercantile) up to $6 million gross sales and up to 35,000 square feet, convenience stores with gas pumps with no more than 50% of gross sales from gasoline sales, and fast-food restaurants up to 7,500 square feet (beer and wine sales are permitted subject to 25% of gross sales).
What type of liability would a person who owns wild animals have? a)Absolute b)Vicarious c)Implied d)Direct
a)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.
A policy condition that stipulates how the amount of damaged or lost property will be determined if the insured and the principal do not agree on the value of a property loss is known as a)Appraisal. b)Coinsurance. c)Loss valuation. d)Third-party provision.
a)Appraisal. If there is a disagreement between the insured and the insurer on the value of any property loss, either party can make a written demand for an appraisal.
If an insured is in the process of moving to a new location, his personal property coverage under the dwelling policy will apply on a pro rata basis at both locations for a)60 days. b)90 days. c)5 days. d)30 days.
d)30 days. Personal property being moved to a new location can be covered for up to 30 days without notice to the insurer.
Multiple incidents of terrorism would be deemed one incident if they occurred within a)24 hours. b)36 hours. c)48 hours. d)72 hours.
d)72 hours. Multiple incidents of terrorism which occur within a 72-hour period and appear to be carried out in concert or to have a related purpose or common leadership will be deemed to be one incident.
The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay? a)Company A will pay $20,000; Company B will pay $4,000. b)Company A will pay $12,000; Company B will pay $12,000. c)Company A will pay $24,000; Company B will pay $0. d)Company A will pay $16,000; Company B will pay $8,000.
d)Company A will pay $16,000; Company B will pay $8,000. Each policy pays its pro rata share of the loss based upon each policy's share of the total amount of coverage.
All of the following are true of Coverage B - Other Structures in homeowners policies EXCEPT a)It must be added by endorsement to a homeowners policy. b)This coverage is not applicable on the HO-4 policy form. c)The amount of coverage provided by Coverage B is an amount equal to 10% of Coverage A. d)Land where the other structures are located is not covered.
a)It must be added by endorsement to a homeowners policy. Homeowners policies automatically provide an amount of insurance in Coverage B that is equal to 10% of the amount written as Coverage A. This amount may be increased by endorsement.
Which method of loss valuation is contrary to the basic concept of indemnity? a)Market value b)Agreed value c)Replacement cost d)Functional replacement cost
c)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.
A certificate proving that an applicant for a license has completed the required pre licensing education is valid for how long? a)3 months b)6 months c)9 months d)1 year
d)1 year Applicants must receive certificates of completion before taking their licensing exams. These certificates are valid for 1 year from the date of completion.
All of the following are correct about the summary disclosure form EXCEPT a)The summary disclosure form must include notice in bold faced letter, telling the policyholder to read the actual policy. b)Violation of the rules regarding summary disclosure forms may result in fines. c)Violation of the rules regarding summary disclosure forms may result in license suspension and/or revocation. d)The summary disclosure form discloses everything that is found in the policy.
d)The summary disclosure form discloses everything that is found in the policy. The summary disclosure form contains a simple explanation of major coverages and exclusions. It does not cover everything found in the policy. An insured should always read his or her entire policy.
All of the following statements describe the concept of strict liability EXCEPT a)It is imposed on defendants engaged in hazardous activities. b)Claimants may need to provide proof that a product defect caused an injury. c)It is imposed regardless of fault. d)It is applied in product liability cases.
a)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.
Insurers must complete claims investigations a)Promptly. b)Within 15 days. c)Within 30 days. d)Within 45 days.
a)Promptly. Claims investigations must be completed promptly.
A company has a businessowners policy on a building with an estimated replacement cost of $300,000. The company carries $150,000 of insurance. If a loss occurs, how much will the insured company be paid? a)The coinsurance formula would apply b)Nothing, because the company failed to carry the required insurance amount c)Up to $300,000 for the loss d)Up to $150,000 for the loss
a)The coinsurance formula would apply If the property is not insured to 80% of the full replacement value, the policy will pay the greater of actual cash value (ACV) or the coinsurance formula: amount carried ÷ amount that should be carried × amount of loss = amount paid.
Which of the following is NOT found in a commercial package policy? a)Common policy declarations b)Interline endorsements c)Certificate of authority d)Common policy conditions
c)Certificate of authority Regardless of how the policy is written, it will be comprised of the following essential elements: common policy declarations page, common policy conditions, interline endorsements, and coverage parts.
Producers will be deemed to be using their license primarily to write controlled business if, during any 12-month period a)The total premium on controlled business equals 15% or more of the total of all premiums on business written. b)The total premiums on controlled business exceed the total premiums on all other business written. c)The licensees write more than 5 policies classified as controlled business. d)The licensees write more than two policies on themselves or their property.
b)The total premiums on controlled business exceed the total premiums on all other business written. Producers will be deemed to be using their license primarily to write controlled business if, during any 12-month period, the total premiums on controlled business exceed the total premiums on all other business written
Coverage under the builders risk form will end in all of the following situations EXCEPT a)60 days after the building became occupied. b)The insured has sold the property. c)60 days after the construction has ended. d)Construction has been abandoned.
c)60 days after the construction has ended. Coverage under the builders risk form ends if it is abandoned without any plans to complete it or if the insured's interest in the property ceases, or 60 days after the building is occupied, or 90 days after construction is completed.
An insurance contract must contain all of the following to be considered legally binding EXCEPT a)Consideration. b)Competent parties. c)Beneficiary's consent. d)Offer and acceptance.
c)Beneficiary's consent. The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose
What is the purpose of the coinsurance clause found in property insurance policies? a)Ensure that insureds do not over insure their property b)Prevent insureds from profiting from a loss c)Encourage the insured to insure the property closer to its full value d)Encourage higher standards of care by requiring the insured to pay a portion of every loss
c)Encourage the insured to insure the property closer to its full value In return for the insured's promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full.
Which of the following is NOT a penalty for violating provisions of the Insurance Code? a)License revocation b)Payment of a contractual obligation c)Imprisonment d)Monetary fine
c)Imprisonment In addition to suspension of an insurance producer license, any person who violates any provision of the Insurance Code may be subject to a civil penalty (monetary fine), or an order to pay for contractual obligations (for example, when the violation caused the failure to pay the claim).
Which of the following would be covered under the Broad Form (DP-2) policy's falling object peril? a)Damage to outdoor television antennas if there is no interior damage b)Exterior pavement and patio damage c)Interior building damage if the exterior was damaged first d)Damage to the building's awnings
c)Interior building damage if the exterior was damaged first In DP-1 and DP-2 policy forms, loss or damage resulting from falling objects is covered, except for damage to awnings, fences, outdoor equipment, outdoor radio and television antennas or aerials, masts, or towers. Damage to the interior of the building is covered only if the exterior has been damaged first.
How much is the premium for the dwelling under construction endorsement under the dwelling policy? a)50% of the actual value premium b)The average amount of insurance during construction c)75% of the gross premium d)The full value of the house
b)The average amount of insurance during construction The premium is based on the average value of the house and building materials from the first day of construction until completion.
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.
a)An applicant submits an application to the insurer. In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
Which of the following dwelling policy forms primarily insures a structure on an actual cash value basis? a)DP-1 b)DP-2 c)DP-3 d)All DP forms
a)DP-1 DP-1 insures the structure on an actual cash value basis. DP-2 and DP-3 insure the structure on a replacement cost basis.
All of the following must be provided to an insured in a policy summary disclosure EXCEPT a)A list of general factors considered by the insurer in cancellation, nonrenewal and premium increases. b)A list of additional coverages an insured may purchase. c)An explanation of the policy's major coverages. d)An explanation of the policy's exclusions.
b)A list of additional coverages an insured may purchase. Failure to have the appropriate disclosure form on file is considered by the Division of Insurance to be an unfair or deceptive act or practice. The summary disclosure form must contain a simple explanation of the policies' major coverages and exclusions and a list of general factors considered in cancellation, nonrenewal and premium increases.
How much is covered for debris removal under the HO property additional coverages? a)Nothing, unless added by an endorsement b)All reasonable costs c)90% of the total cost of clean-up d)Everything after a $200 deductible
b)All reasonable costs If the debris was caused by a peril that is insured against, the reasonable cost of debris removal is paid by the insurer.
Which of the following describes contributory negligence? a)The voluntary assumption of exposure to risk b)Any degree of negligence by the injured party may bar recovery. c)The time period in which a claim must be filed d)Negligence is apportioned between both parties in an accident.
b)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 a)Specific. b)Blanket. c)Reporting. d)Special.
b)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 a specific amount of insurance. However, different amounts of insurance may be shown for buildings in general and contents in general.
Which of the following provisions requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof of loss within a specified period of time? a)Proof of loss b)Duties after loss c)Legal action d)Loss settlement
b)Duties after loss Duties after loss provision requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof of loss within a specified period of time.
How often will the Commissioner examine domestic insurers in this state? a)Every 3 years b)Every 5 years c)Biennially d)Annually
b)Every 5 years The Commissioner may conduct an examination or investigation of any company or person as often as deemed appropriate, but at least once every 5 years.
Which of the following would be named on the declarations page of a property or liability policy a)Additional insureds b)First named insured c)Beneficiaries d)All insureds
b)First named insured First named insured is the individual whose name appears first on the policy's declaration.
The homeowners policy covers collapse caused by all of the following EXCEPT a)Weight of too many people attending an event hosted in the house. b)Foundation cracks. c)Weight of snow. d)Hidden insect or vermin damage.
b)Foundation cracks. Collapse must be caused by some sudden, unexpected reason. The foundation cracks would take years to cause collapse, meaning there would be plenty of time to find and repair them.
Replacement cost is defined as a)Payment of the full policy limits in the event of a total loss. b)Full replacement of property at its current cost, new and without reduction for depreciation. c)The market value of property of like kind and quality. d)Full replacement of property with like kind and quality, less an allowance for physical deterioration and depreciation.
b)Full replacement of property at its current cost, new and without reduction for depreciation. Replacement cost policies do not consider depreciation if the proper 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.
The policy conditions define a)The amount of coverage. b)How parties to the contract must act following a loss. c)The basic underwriting information. d)The excluded perils.
b)How parties to the contract must act following a loss. Conditions is an essential part of a policy structure. Conditions define what each party to the policy is required to do contractually in the event of a loss.
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. When insureds 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.
All of the following are regulations for producers using an assumed name EXCEPT a)The name must not be misleading to the public. b)The name may be similar to another name currently on file. c)The name may not be identical to the name of a producer whose license has been revoked. d)The name must be registered with the Commissioner.
b)The name may be similar to another name currently on file. The Commissioner must not accept registration of any name that is similar to another currently on file, that would tend to be misleading to the public, or that is identical or similar to the name of any producer whose license has been revoked or suspended.
In case of a loss, the indemnity provision in insurance policies a)Pays the insured a percentage of the loss above and beyond the loss. b)Pays the insured as much as 95% of the loss. c)Restores an insured person to the same financial state as before the loss. d)Allows the insured to collect 20% more than the actual loss.
c)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.
In order to facilitate responses to inquiries from the Division of Insurance, companies must maintain all records for at least a)4 years from the date on the document. b)52 weeks from the time the document was last accessed. c)The current calendar year, plus the 2 prior calendar years. d)12 months from any date on the document.
c)The current calendar year, plus the 2 prior calendar years. Insurance companies must maintain all books, documents, and other business records for the current calendar year plus 2 prior calendar years unless a longer time period is specified by other laws.
Under the provisions of the business income coverage form, all of the following are true EXCEPT a)The insured agrees to resume all or part of operations as quickly as possible. b)The insured is reimbursed for payroll that continues after the loss begins. c)The insured is reimbursed for the loss from the date of loss to the date of restoration or policy expiration date, whichever comes first. d)If the insured and insurer are unable to come to agreement as to the value of the loss, either party may make a written demand for an appraisal.
c)The insured is reimbursed for the loss from the date of loss to the date of restoration or policy expiration date, whichever comes first. Business income will pay beyond the expiration date of a policy. It will pay until the business is restored or the limits of coverage are exhausted.
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 The value of the insured items is determined at the time the policy is written, not at the time of loss.
A producer enrolls in a continuing education (CE) course that is taught by his immediate supervisor. The course is worth a total of 10 credit hours. How many hours will the producer be able to count towards his total of 24 required CE hours? a)10 b)5 c)3 d)0
d)0 Courses taught by the producer's immediate supervisor or employee cannot be counted as part of the 24 hours required for CE.
When a producer was reviewing a potential customer's coverage written by another company, the producer made several remarks that were maliciously critical of that other insurer. The producer could be found guilty of a)Misrepresentation. b)Discrimination. c)Nothing, unless the remarks were in writing d)Defamation.
d)Defamation. A producer or broker who makes oral or written statements intended to injure another producer or insurer is guilty of the unfair trade practice of defamation.
An insured has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay? a)Each policy will pay the total policy limits of $100,000. b)The first policy written will pay $75,000, and the other three policies will contribute proportionately to pay for the remaining $25,000. c)The policy with the earliest effective date will pay the entire loss, and the other policies will pay nothing. d)Each policy will pay $25,000 of the loss.
d)Each policy will pay $25,000 of the loss. Each policy will pay its pro rata share of the loss, but not more than the amount of loss in total.
Which of the following is true regarding the fire department service charge under the builders risk form? a)It is an automatic coverage for $500. b)It is not available in this form. c)It is a high-deductible endorsement. d)It is an additional coverage.
d)It is an additional coverage. The fire department service charge is considered an additional amount of insurance. Up to $1,000 coverage is included.
Which of the following would be covered under the Utility Services - Time Element endorsement? a)Extra expense incurred to remain open for business following the loss of utility service caused by an unnamed peril b)Injuries to employees resulting from a utility service disruption c)Damage to the insured's property caused by utility service disruption d)Loss of business income arising from loss of utility service caused by an insured peril
d)Loss of business income arising from loss of utility service caused by an insured peril Utility services is a time element which covers business income or additional expense losses arising from disruption of service caused by a covered peril.
In property insurance, actual cash value is defined as which of the following? a)Market value of the property at the time of the loss b)Stated value of the property as shown on the declaration c)The actual amount of a loss payable, less the policy deductible d)Replacement cost at the time of the loss, less depreciation
d)Replacement cost at the time of the loss, less depreciation A loss valuation method used in many property forms is determined by today's replacement cost minus depreciation for age and obsolescence.
When a loan is secured using real property as collateral, the lender is prohibited from requiring the debtor to insure the property for an amount greater than a)The actual cash value of the property. b)The amount of the loan plus interest. c)The market value of the property. d)The replacement cost of the property.
d)The replacement cost of the property. A lender is prohibited from requiring insurance that exceeds the replacement cost of collateral property. In the event of a loss, the lender's interest in the insurance proceeds is the lesser of the outstanding balance of the loan or the limit of insurance.
