Insurance Fundamentals - Part C

Clause that is designed to prevent the violation of the principle of indemnity

"The other insurance" provision

Chris is insured through Binders Keepers Insurance Company and his policy period ends in 12 months. However, Chris has decided that he wants to cancel his policy in order to purchase another one from a company that advertises with cute commercials on television. Chris calls his agent to cancel the policy and is informed that the unearned premium (UEP) on the cancelled policy will be returned to him by mail in a couple of weeks. When Chris receives the check, he is surprised to find that it's made out for less than the amount of unearned premium he should have received. What is the most likely reason for this?

Chris' policy had a provision stating that UEP must be returned on a short-rate basis

After paying a claim submitted by an insured, an insurance company may have the right to pursue legal action against the negligent party that caused the insured's loss. This is knowns as:

Subrogation

Gena purchased a policy to cover her home for personal use. Recently, she has been conducting business from the home and has hired several employees. She also has several clients per day coming to the home for business purposes. When Gena's insurer finds out about the additional exposures she has introduced into her home, they decide to take action. Which of the following actions is Gena's insurer most likely going to take?

Suspend her policy until she moves the business out of her home

A document that temporarily obligates an insurance company to provide coverage while the issuance of a policy is pending is known as:

a binder

A written modification of an insurance policy is known as

an endorsement form

Which of these statements best describes the "law of agency" a) the duties of a professional who is trained and licensed to prepare legal documents b) the activities of any party who receives a percentage of the profits from a business transaction c) a relationship in which someone is authorized by contract to represent another party d) The activities of any licensed insurance professional

c) a relationship in which someone is authorized by contract to represent another party

Which of the following is a general summary of a policy? a) the insurance contract b) a coverage form c) certificate of insurance d) Binder

c) certificate of insurance

Willie's Widgets is covered by a policy that includes a franchise deductible of $50,000 and a policy limit of $400,000. A fire rips through Willie's warehouse, and he sustains $342,000 in damage. How much of the claim will Willie's Widgets be responsible for paying?

$0

Leland has two insurance policies covering his home. Indemnify Insurance carries a $120,000 limit of liability on the home, while Binders Keepers, Inc. carries a limit of $80,000. A fire breaks out in Leland's kitchen and causes $40,000 in damage. Remember, when there are two or more policies covering the same risk, the "other insurance clause", determines the method used to calculate each company's share of the claim. Leland's policy states that the pro-rata share method will be used. Which of the following is the correct amount that will be paid by Indemnify Insurance?

24000 (120000/200000)(*40000)

When can an insured assign his or her insurance policy over to another party?

Only with the written consent of the insurer

An "other insurance" clause is included in the insurance policies to deal with the problem of

Overinsurance

A insurance binder is best described as:

Temporary, short-term evidence of coverage

Insurance companies often outsource a significant percentage of their duties to Third Party Administrators (TPAs). All of the following statements about TPAs are true, EXCEPT: a) TPAs assume the risk on the policies they handle b) TPAs can collect premiums from insureds c) TPAs can adjust and process claims d) TPAs must be licensed and renew their licenses annually

a) TPAs assume the risk on the policies they handle

Which of the following sentences best describes the term "fiduciary"? a) A person who has been bonded as honest and trustworthy b) A person who holds a fiduciary's license c) A person who is entrusted with the assets of others d) A person who submits a claim to their insurance company

c) a person who is entrusted with the assets of others

Subrogation may follow which of the following events? a) an insured clauses damage to her own property b) Nature damages the insured's property c) Firefighters damage the insured property while fighting a fire d) An insured collects from her insurance company for damages caused by a third party

d) an insured collects from her insurance company for damages caused by a third party

Where in the insurance contract can an insured find the terms used throughout the policy and an explanation as to what they mean in the context of the policy?

definitions

A written modification or addition to a policy of insurance is called an ______.

endorsement

Helena has not paid her insurance premium for a significant amount of time. Which of the following is likely to happen in this scenario?

her policy will be cancelled

The time period after the policy inception and before the policy expiration is known as

the policy period