Insurance terms and related concepts - Ch. 1 Quiz

An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this?

Consequential

All of the following statements describe the concept of strict liability EXCEPT

It is imposed on defendants engaged in hazardous activities.

For the reported loses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become

Larger

Which of the following does the term proximate cause refer to?

Negligence that leads to an injury

Which of the following is used in the formula for calculating the actual cash value of a property?

Replacement cost (Replacement - depreciation = ACV)

Negligence is defined as

the failure to do what a reasonable prudent person would do under given circumstances

An insured's roof cost $4,000 when installed 5 years ago. IT has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices . If the roof has been depreciating at $200 per year and the insured policy is written on the actual cash value, how much will the policy pay towards the insured's new roof?

$5,000 (ACV is calculated as replacement cost less depreciation)

An insured's building has an actual cash value of $200,000 and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?

$30,000 (Insurer only paid 75% of coinsurance so insurance will only cover 75% of damage)

If a liability policy had split limits of 50/100/30,f what is the maximum amount that would be payable tin the event of injury to a single person?

$50,000 (The first limit show is the most the policy will pay for bodily injury to any one person)

Which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur?

Aggregate limit of liability

Which of the following types of valuation works best for property whose value does not fluctuate much?

Agreed Value

What is the purpose of the coinsurance clause found in property insurance policies?

Encourage the insured to insure the property closer to its full value

Replacement cost is defined as

Full replacement of property at its current cost, new and without reduction for depreciation

What type of compensatory damages will pay for pain and suffering and disfigurement

General

Which insurance principle states that if a policy allows for greater compensation that the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

An additional loss that results from a direct loss of property is called a/an

Indirect loss

To purchase insurance, the policy owner must have financial interest in the property being insured. This is known as

Insurance interest

All of the following are true regarding deposit premium EXCEPT

It is 50% of the actual premium

All of the following statements describe the concept of strict liability EXCEPT

It is imposed on defendants engaged in hazardous activities

The reduction, decrees, or disappearance of value of the person or property insured in a policy by a peril insured against is known as

Loss

The process of determining the premium charged and how much insurance is required for a particular loss is called

Loss valuation

The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. IT would cost $150,000 to rebuild the house is something happened to it, but when the inured tired to sell it, the best offer he received was $80,000. The insurance company will insure the house for $80,000. what method is used to insure this property?

Market Value

An insured has a liability policy that sets the amount for all claims that arise from a single incident at $50,000. Which type of limit of liability does this insured policy have?

Per occurrence

What type of damages may be awarded by the court to creat disincentives that discourage behavior that is deemed highly undesirable by society?

Punitive

Which method of loss valuation is contrary to the basic concept of indemnity

Replacement cost

In case of loss, the indemnity provision in insurance policies

Restores an insured person to the age financial state as before the loss.

Events in which a person has both the chance of winning or losing are classified as

Speculative risk =

When the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as

Stated amount

The legal process that gives the insurer, after payment of a loss, the right to seek recorders from a third party that was responsible for the loss is known as

Subrogation

Peril is most easily defined as

The cause of loss insured against

All of the following statements concerning coinsurance are true except

The coinsurance formula sill also be applied to goal losses.

Which of the following is most likely to occur if it is determined by the audit that the deposit premium is too high?

The insured will receive a return premium

An insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some furniture and clothes in the house. From an insurance standpoint, the insured house is considered

Unoccupied

A building is insured, but no one has lived or worked in it for 10 years. The building is completely empty of any furniture or personal belongings. From an insurance standpoint, the building is considered

Vacant

When a parent is required to pay damages caused by his or her children, this is an example of

Vicarious liability