Insurance Flashcards (All Chapters)
If 3 volcanic eruptions happen within 48 hours, and each contributes to property damage, how many deductibles will apply in the dwelling policy?
1 deductible (all instances of volcanic eruptions that occur within 72-hours are considered 1 occurrence)
When a dwelling policy is cancelled for nonpayment of premium, the insurer must give notice within how many days of cancellation?
10 days
In dwelling policies, within how many years of a loss may an insured bring a lawsuit against the insurer?
2 years
If an auto policy has split limits of 30/50/25, how much will the policy pay for property damage in a single accident?
25,000
Coverage for medical payments under a Personal Auto Policy applies to expenses following a covered accident that are incurred and services rendered within what time period?
3 years
An insured with a Homeowners policy has removed property from the insured location to protect it from loss that could be caused by a covered peril. The removal coverage applies for how many days?
30 days
If an auto policy has split limits of 30/50/25, how much will the policy pay for property damage in a single accident?
30,000
Assuming the insurer and the insured agree on the amount payable for a loss covered under a dwelling policy, how soon after receiving the proof of loss must the insurer pay the claim?
60 days
Losses caused by vandalism and malicious mischief are excluded from coverage if a dwelling has been vacant for how many days?
60 days
In dwelling policies, any volcanic activity will be considered part of one occurrence if it all happens within how many hours?
72
In order for forms HO-2, HO-3, and HO-5 to provide coverage, a dwelling must be insured for at least what percentage of replacement cost?
80%
If an auto policy has liability limits of 40/60/20, what would be the equivalent combined single limit?
80,000
What are the most common penalties of violations of insurance statutes?
A cease and desist order, a fine, and license suspension or revocation
Certificate of Insurance
A legal document that indicates that an insurance policy has been issued, and that states both the amounts and types of insurance provided.
Who is an insurance agent?
A person authorized to sell, solicit and negotiate insurance contracts
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 a deductible in an insurance policy?
A specified dollar amount that the insured must pay before the insurer will pay the policy benefits
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 goes in effect prior to the policy issue
What does the term unilateral contract mean?
A unilateral contract is a one-sided contract. This means only one party makes an enforceable promise
What would be considered a newly acquired auto?
A vehicle acquired by the insured during the policy period
What is a covered auto?
A vehicle shown in the policy declarations
In property and casualty policies, what is required for an assignment to be valid?
A written consent of the insurer
Persons who are not named on the declaration page of a policy but who are protected by the policy are known as what type of insured?
Additional insured
What type of licensee represents the insurance company?
Agent
What are the four elements of an insurance contract?
Agreement, consideration, competent parties and legal purpose
DP-3 is an open-peril form. What does that mean?
All perils are insured unless specifically excluded
How many owner-occupied residences per covered home are allowed by Homeowners policies?
An HO policy may insurer a property that has 1-to4- family owner-occupied residences.
What is a warranty in an insurance contract?
An absolutely true statement upon which the validity of the policy depends
Who is considered a nonresident agent?
An agent who resides and is licensed in another state, but who is authorized to transact insurance in this state
Stated Amount
An amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.
What is subrogation?
An insurers legal right to seek damages from the third parties after reimbursing insureds for a loss
In Personal Auto policy, to what geographical region does the out-of-state coverage apply?
Any US state or territory, as well as Canada
What type of property can be covered under Inland Marine insurance?
Any type of property that is portable on land, as well as means of transportation and communication
Who is an insured in property and casualty insurance?
Anyone covered under the policy, even if not specifically named
An insured insists that the insurer owes him $10,000 for liability damages, while the insurer asserts that they owe no more than $7,000. Which of the following would most likely describe the type of claim settlement that the insured and the insurer might pursue?
Appraisal hearing
What process is used to settle a casualty claim when the insured and the insurer cannot agree?
Arbitration
Under Coverage C of an HO-3 policy, what is the amount of insurance provided for personal property?
At least 50% of the coverage A limit (this applies to all policies except for HO-4 and HO-6)
In property insurance, when must insurable interest exist?
At the time of loss
If an insurer holds a Certificate of Authority, it is known as what type of insurer?
Authorized or admitted
If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?
Authorized or admitted
What are the 3 types of coverage available in dwelling policies?
Basic, broad, special.
What type of policy insures all property at multiple locations for a single amount?
Blanket policy
What types of losses are indicated by the split limits in an auto insurance policy?
Bodily injury per person, bodily injury per accident, and property damage per accident.
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 existing policy.
If the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice, what order will be issued?
Cease and desist order
A state-issued document empowering an insurance company to become an admitted insurer is called what?
Certificate of Authority
What document is required for an insurance company to transact insurance?
Certificate of Authority
What are producers required to do in order to renew their license?
Complete continuing education hours and pay a renewal fee
Information about changes to the policy or return of premium can be found in what section of a policy?
Conditions
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.
What is consideration in an insurance policy?
Consideration is something of value that each party gives to the other. Consideration on the part of the insurer is binding.
What are the major coverages included in a Homeowners policy?
Cover A: Dwelling, Coverage B: Other structures, C: Personal Property and Coverage D: Loss of use
What are the coverages of dwelling policies?
Coverage A- Dwelling, Coverage B- Other structures, Coverage C- personal property, Coverage D- Fair rental value, and Coverage E- Additional
Which dwelling policy coverage will insure a garage not attached to the primary insured dwelling?
Coverage B- Other structures
Which dwelling policy coverage will provide protection for contents damaged by fire in an insured dwelling?
Coverage C: personal property
What coverage for loss of income income would an insured rental dwelling used when it is rendered uninhabitable because of a covered loss?
Coverage D
An insured's house becomes uninhabitable due to damage by a fire. As a result, the insured has to rent an apartment until repairs are made. Which type of coverage under the dwelling policy will pay for the expense of renting the apartment?
Coverage E- Additional Living Expenses
What are the 2 liability coverages included in Homeowners policy forms?
Coverage E: Personal Liability and Coverage F: Medical payments to others
How is the actual cash value of a property calculated?
Current replacement cost minus depreciation
Which of the 3 DP forms provides the most limited coverage?
DP-1
Which dwelling form is called the broad form?
DP-2
Which dwelling coverage form(s) will pay for the replacement cost of a dwelling?
DP-2 and DP-3
Which dwelling form provides open peril coverage on the building?
DP-3
What are additional coverages available in Homeowners policies without additional premiums?
Debris removal, lawns/plants/trees, removal, reasonable repairs, and fire department service charge
What part of a policy shows the amount of insurance, premium, and policy terms?
Declarations
What section 'personalizes' an insurance policy?
Declarations
If a producer makes maliciously critical statements about another insurer, what is this illegal practice called?
Defamation
If an insured peril was the proximate cause of loss, what type of loss is it?
Direct
How are direct and indirect losses related?
Direct losses can cause indirect losses.
Two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. What is this called?
Discrimination
What do dwelling policies insure?
Dwelling only, contents only, or both dwelling and contents
In general, what do homeowners policies cover?
Dwellings used primarily as private residences
What are some of the exclusions found in all 3 dwelling forms?
Earth movement, water damage, power failure, neglect, war, nuclear hazard, intentional loss, freezing of plumbing, ordinance or law, and government action
An agent's client needs additional insurance which the agent's own insurer cannot provide. The agent has to solicit additional coverage from another authorized insurer. This coverage is known as?
Excess
What is negligence?
Failure to act as a reasonable, prudent person under given circumstances
What law protects consumers from the circulation of inaccurate or obsolete information?
Fair Credit Report Act
The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility?
Fiduciary
What exclusions does not apply to all three types of Dwelling policies?
Fire or lightning
A basic dwelling policy automatically provides coverage against what?
Fire, lightning, and internal explosion.
In commercial property policies, who has control of the policy, and who can cancel it?
First named insured
How is the coverage usually written for HO-8 forms?
For the market value of the property
What type of insurer is formed under the laws of another state?
Foreign
Insurers are classified according to their domicile. What are three types of insurers?
Foreign, domestic, and alien.
What Homeowners policy form is known as a special form?
HO-3
What Homeowners policy form is known as contents broad form?
HO-4
What HO form insures a tenant living in an apartment?
HO-4 (tenant broad form)
Why does the HO-4 form not provide dwelling coverage?
HO-4 is written for a tenant residing in a rented dwelling; the tenant does not own the dwelling.
What HO form covers condominium unit owners?
HO-6 (condominium unit owners)
What HO form covers a historic home with replacement cost more than the market value?
HO-8
Conditions that increase the chance of loss are known as what?
Hazards
When is an appraisal needed and how can it be requested?
If an insured and an insurer disagree about the value of property loss, either party can make a written demand for an appraisal.
Under what conditions can broad theft coverage be added to a dwelling policy?
If the insured is the owner-occupant of the dwelling
What insurance principle does pro rata liability protect?
Indemnity
What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount of loss?
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
What do individuals use to transfer their risk of loss to a larger group?
Insurance
In general, who can be excluded from producer licensing and examination requirements?
Insurance company officers, or any other employees who do not transact insurance and who do not receive commissions for their services.
What is controlled business?
Insurance on the producer's own life or property, or the lives or property of the producer's family or business associates
What part of an insurance policy contains the insurer's promise to pay a claim?
Insuring agreement
What losses are excluded from coverage in the liability section of the Personal Auto Policy?
Intentional injury or damage, damage to property owned or transported by the insured, use of vehicle as public conveyance, or use of a vehicle without permission.
What does an endorsement do to an insurance contract?
It modifies the policy's original terms
How does the mobilehome endorsement affect the other coverage of law or ordinance in a homeowners policy?
It removes the coverage
What are some of the exclusions from coverage in all of the Homeowners forms?
Land, structures used for business purposes, animals/birds/fish, aircraft, rented property, electronic data, and motor vehicles.
What type of coverage is included in Homeowners policies but is not available in dwelling policies?
Liability coverage
What determines an insurer's responsibility for payment, as stated in an insurance policy?
Limits of Liability
Insurance is a contract that protects the insured from what?
Loss
The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?
Loss
Insurance Carried divided by Insurance required x Loss amount =
Loss payment
What is mysterious disappearance?
Misplacement or loss of property without knowledge as to the location, time and cause of the loss
On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. What is the company guilty of?
Misrepresentation
What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is?
Misrepresentation
An insurer discovers that an applicant for a policy has submitted a fraudulent insurance claim in the past. What type of hazard does this represent?
Moral
A person who does not lock the doors to his or her house shows an indifferent attitude. What type of hazard does this represent?
Morale
Under absolute liability, does an injured party need to prove negligence?
No
What are the 4 categories of uninsured motor vehicles?
No insurance or liability bond, insurance is less than what's required by the financial responsibility laws, a hit and run accident where the driver cannot be identified, and the insurer denies coverage becomes insolvent.
What term describes a loss caused by continuous exposure to a condition?
Occurrence
How are the dwelling and other structures covered in an HO-3 policy form?
On an open-peril basis
Where is the policy period stated in an insurance policy?
On the declarations page
When will damage to the interior of the building be covered under the falling objects peril in the broad form of the dwelling policy?
Only if the interior damage is a direct result of exterior damage from a falling object
Where can National Flood Insurance be issued?
Only in participating, flood-prone areas
Who may share in the commission from the sale of an insurance policy?
Only producers properly licensed for the type of insurance transaction
Under Coverage C - Personal Property in the dwelling policy, when will a guest's property be covered?
Only when the property is at the insured location
When would theft of property of guests and residence employees be covered under the HO-8 form?
Only while on insured premises
A policy that covers all causes of loss except for those specifically excluded is known as what type of policy?
Open peril
What provision defines how a policy will respond if there is more than one insurance policy written on the same risk?
Other insurance
What Personal Auto coverage would pay for damages to a covered auto caused by a collision with a deer?
Other than Collison
Rental reimbursement endorsement is available only if an auto policy has what type of coverage?
Other than Collison coverage
What Personal Auto Coverage would pay for the insured's travel expenses and loss of earnings while the insured is involved in the settlement process of a covered loss?
Part A: Liability
If an insured is injured while driving his own car, what coverage in his personal auto policy will pay for the loss?
Part B: Medical Payments
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 is the term for the causes of loss insured against in an insurance policy?
Peril
Exclusions
Perils that are NOT covered by the policy.
What are the three types of hazards?
Physical, Moral, Morale
What are an insured's duties after loss?
Protect the damaged property from further damage, cooperate with the insurer in settling a loss, and submit proof of loss
What term defines an exact, direct, and uninterrupted cause of loss?
Proximate cause
A situation in which a person can experience only a loss and no gain presents what type of risk?
Pure
An agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. What is the agent guilty of?
Rebating
Which method of loss valuation is contrary to the principle of indemnity?
Replacement cost
What is the deductible of a personal liability umbrella policy called?
Self-insured rentention (SIR)
Wagering on a sporting event is known as what type of risk?
Speculative
What type of limits of liability has the limits separately stated for different coverages?
Split limits
What type of private flood insurance provides coverage equivalent to that provided by the National Flood Insurance Program?
Standard flood insurance
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
Who must be notified of a producer's change of address?
The Department of Insurance
According to the liberalization condition, if an insurer makes a change to broaden coverage in newly issues dwelling policies, how will that change affect policies already in force?
The change will apply automatically.
What does form HO-5 cover?
The dwelling and other structures, as well as contents and personal property
What is burglary?
The forced entry into another's premises with felonious intent.
Underinsured motorist coverage will pay the difference between which 2 limits?
The insured's UIM limits and the at fault driver's insurance bodily injury limits
Who is responsible for the costs associated with the examination of insurers?
The insurer who is being examined
What is the limit of liability in Part D: Coverage for Damage to Your Auto?
The lesser of the actual cash value of the vehicle or the amount needed to repair or replace vehicle
What is a combined limit in an auto insurance policy?
The maximum amount the insurer will pay on a covered loss
What does the term "you" refer to in a personal auto policy?
The named insured shown in the declarations, and the insured's spouse (if resident of the same household)
Assignment
The transfer of a legal right or interest in an insurance policy. In property and casualty insurance, assignments of policies are usually valid only with the prior written consent of the insurer.
Who is considered insured under Part A: Liability of a personal auto policy?
The vehicle owner or his/her family member, or any person using the covered auto with permission.
To whom may a certificate of authority be issued?
To an insurer authorized to transact business in this state
In property insurance, what is the purpose of a coinsurance clause?
To encourage insureds to insure property close to its value
What is the purpose of the National Flood Insurance Program (NFIP)?
To fill the gap in flood coverage left by private insurers
In dwelling policies, what is the purpose of the automatic increase in insurance endorsement that increases the amount of insurance by an annual percentage?
To offset the effect of inflation
What is the purpose of a cease and desist order?
To prevent a producer or insurer from further violating laws for transacting insurance
What does indemnify mean in insurance?
To restore an insured to the same financial status as before a loss
Which type of misrepresentation persuades an insured, to his or detriment, to cancel, lapse, or switch policies from one to another?
Twisting
What is a risk?
Uncertainty regarding loss
What type of auto coverage will apply in a hit-and-run accident where the driver cannot be identified?
Uninsured Motorist
What is the maximum number of units in residential dwellings by a dwelling policy?
Up to 4 units
What is the difference between vacancy and unoccupancy?
Vacancy refers to an insured structure in which no people have been living or working and no property has been stored for the specified period of time. Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but property is stored.
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
When would a misrepresentation on an insurance application be considered fraud?
When it is intentional and material
When is controlled business legal?
When the commissions from controlled business do not exceed the aggregate commissions on all the other business (specific limits may vary from state to state)
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
When does the Underinsured Motorist coverage apply?
When the motorist is at fault in an accident, but the limits his/her auto insurance are not sufficient to cover the bodily injury to another motorist
When does Uninsured Motorist coverage apply?
When the other party is legally liable but has no insurance
When can the Commissioner or Director examine insurers?
Whenever deemed necessary, but at least once every few years
What are extended covered perils on a basic Dwelling policy?
Windstorm or hail, explosion, smoke, aircraft and vehicles, riot or civil commotion, volcanic eruption, and vandalism and malicious mischief.
Insuring Agreement
establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy
Deposit Premium
estimated premium paid in advance at the time the policy is issued that may be adjusted based on actual exposures.
Mortgagee
financial institution that is the lender in a mortgage, holding financial interest in the property
Conditions
indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy
Deposit Premium Audit
insurer may audit insured's books and records to determine adequate premium
Policy Limits
maximum amounts an insured may collect or is protected under the terms of the policy
Arbitration
method of casualty claim settlement used when the insured and insurer cannot agree on how to settle a claim.
Agreement
offer and acceptance
What is excess business?
portion of a risk above the limits of that which the agent's own insurer will accept.
Consideration
premiums and representations on the part of the insured; payment of claims on the part of the insurer.
Additional Coverage
provides an additional amount of coverage for specific loss expense, at no additional premium
In property insurance, what is actual cash value?
replacement cost minus depreciation
Declarations
section containing the basic underwriting information, such as the insured's name, address, amount of coverage, premiums and a description of insured locations
What are the two types of compensatory damages?
special and general
Who owns stock companies?
stockholders
Both robbery and burglary can be considered what?
theft
What is absolute liability?
when a condition or conduct is inherently dangerous and no proof of negligence is required