Property Insurance Practice Test Questions

Sherry's home was hit by hail and had $2,000 damage. How much will her insurer pay for repairs if Sherry has a standard deductible? a. $1,750 b. $2,000 c. $1,500 d. $1,000

$1,750 The standard homeowners policy deductible is $250. Optional higher and lower amounts are available.

What is the minimum amount of liability coverage on an HO 00 03 (HO-3 Special form) policy? a. $50,000 b. $10,000 c. $25,000 d. $100,000

$100,000 Homeowner forms now have a minimum liability limit of $100,000.

The fee for reinstating a lapsed license is a. $180 b. $200 c. $100 d. $50

$180 The penalty fee for reinstating a lapsed license is $180.

The HO policy coverage for theft of firearms and related equipment is: a. $2,000 b. $3,000 c. $2,500 d. $1,500

$2,500 The HO policy offers $2,500 coverage for theft of firearms and related equipment.

An insurance producer or registered firm which brokers insurance with a company with which it does not have an agency contract, must maintain what bond amount? a. $2,500 or 5% of the premiums brokered in the previous year, whichever is greater. b. $5,000 or 5% of the premiums brokered in the previous year, whichever is greater. c. $10,000 d. $50,000

$2,500 or 5% of the premiums brokered in the previous year, whichever is greater. The bond must be at least $2,500 or 5% of the premiums brokered in the previous year, whichever is greater, not to exceed $50,000.

Pablo insured his home for $50,000. It was destroyed in a fire and the building was determined to have had an ACV of $100,000 at the time of loss. If the actual cost to rebuild the building was $80,000 and Pablo had a coinsurance clause in his policy, how much money will the insurer pay to rebuild the home? a. $50,000 b. $100,000 c. $40,000 d. $80,000

$40,000 The property insurance Coinsurance Clause requires that the building be insured to a specified amount of insurance, usually 80%, based on the actual value of the insured property at the time of loss. If the insured insures the property for less than this amount he/ she must share in a percentage of a loss to the same percent that the property is underinsured at the time of the loss. In this case, Pablo insured his home for only 50% of the ACV, so the insurer will only insure 50% of the cost to rebuild.

The insurer will provide up to what amount of coverage for a grave located away from the insured premises? a. $5,000 b. $500 c. $1,000 d. $2,500

$5,000 Graves and mausoleums are covered up to $5,000 whether on or away from the insured premises.

J had two trees fall during the last windstorm. One fell in his backyard; the other fell across his driveway. How much coverage is available under his HO policy for removal of the trees? a. $500 for removal of the tree across his driveway b. $1,000 for removal of both trees c. Up to $500 for each tree d. $500 for removal of the tree across his driveway and $250 for removal of the tree in J's backyard

$500 for removal of the tree across his driveway Debris removal for fallen trees is available for up to $1,000, with a $500 limit for any one tree. Coverage is available if the fallen tree damaged a covered structure or if it blocks a driveway preventing a motor vehicle from entering or leaving the residence premises, or if it blocks a ramp or other fixture designed to help a handicapped person to enter or leave the dwelling. The tree in J's backyard would not be covered under this definition.

W owns an Ocean Marine Cargo policy. He has held his merchandise, originally valued at $500,000, for three years. If Waldo ships the merchandise overseas by boat and the boat sinks at sea, destroying the merchandise, how much will the insurer pay W if the depreciation rate for his goods is 10%? a. $450,000 b. $ 0 c. $350,000 d. $500,000

$500,000 Cargo insurance protects the owner of the cargo from loss due to destruction. Ocean Marine policies are Valued Policies. In the event of a total loss the entire face amount is payable without regard for depreciation.

R owns a $200,000 building that is insured under two separate Special Form Causes of Loss forms. R has a $140,000 policy with Company A and a $60,000 policy with Company B. If one of R's trucks crashes into the building and causes a $10,000 loss, what is the maximum amount Company A will pay? a. $10,000 b. $ 0 c. $7,000 d. $5,000

$7,000 Company A's policy covers 70% of the damages; Company B's policy covers 30%. 7% of the damage is $7,000, the amount Company A will pay.

L has a BOP policy covering his business for $100,000. If a fire causes $100,000 in damages, how much will the insurer pay if L has a standard deductible? a. $99,750 b. $79,500 c. $90,000 d. $99,500

$99,500 The standard deductible on the BOP is $500. $100,000 (loss) - $500 (deductible) = $99,500.

How many hours of pre-licensing education are required to obtain a license for motor vehicle insurance? a. 7 1/2 hours b. 10 hours c. 5 hours d. 12 1/2 hours

12 1/2 hours 12 1/2 hours of pre-license study are required to obtain a license for Motor Vehicle insurance, 5 of which must be a classroom course.

BJI is a surplus lines insurer offering coverage to bungee jumpers. When MITU Insurance decides it wants to offer a similar coverage policy, charging a premium that is three times that of BJI's, and BJI must subsequently stop offering coverage, what type of insurer is MITU? a. Private b. Admitted c. Acknowledged d. Excess Lines

Admitted If BJI must stop offering coverage for bungee jumpers as a result of MITU Insurance's decision, MITU is an admitted insurer and BJI is a surplus or excess lines insurer.

An insurer authorized by a state's insurance department to transact business in that state is called a what? a. Surplus Insurer b. Domestic Insurer c. Excess Lines Insurer d. Admitted Insurer

Admitted Insurer An admitted insurer is an insurer authorized by a state's insurance department to transact business in that state.

An agreement in some property insurance policies that a certain value will meet coinsurance amounts is called the: a. Agreed value. b. Market value. c. Coinsurance Condition. d. Stated amount.

Agreed value. The agreed value is the amount that the insurer agrees meets the coinsurance requirement of the property policy. As long as the policy limit meets or exceeds this agreed amount, there will not be a coinsurance penalty in the event of a claim.

Which of the following would be considered discrimination? a. A life insurance company charges obese people a higher premium when it can prove actuarially that obese people have a greater risk for heart disease and will therefore die sooner than others. b. An insurance company charges women lower premiums than men because women generally live longer. c. A person who works as a race car driver has a higher life insurance premium than that of his neighbor who is an insurance agent. d. An insurance company decides to increase the premium charge on life insurance policies issued to non-Catholics because of difference in beliefs.

An insurance company decides to increase the premium charge on life insurance policies issued to non-Catholics because of difference in beliefs. Discrimination is considered as the charging of different rates for the same exposure based on non- actuarial data, or on reasons not founded on actual statistics.

What is NOT included in the definition of an insured in a homeowners policy? a. Other members of the insured household who are under 21 b. Any occupant within the home at the time of accident or injury c. A child or parent living with the insured, regardless of age d. Any member of the insured household who is a relative or is under 21 years of age

Any occupant within the home at the time of accident or injury An insured is defined as any family member living in the insured household, and other members of the insured household under the age of 21.

Which commercial rating method finalizes premiums at the end of the term after a review of actual losses and collected premiums? a. Individuals b. Schedule c. Audit d. Merit

Audit With the audit method, probable premiums are used at the beginning of the policy term, and then finalized at the end of the term after a review of actual losses and collected premiums. An insured may owe more money, or get money back, based on the review.

A property insurance policy that covers either more than one type of property at one location or one or more types of property at several locations is called (a): a. Multi-line coverage. b. Monoline Policy. c. Blanket Insurance. d. Commercial Package Policy.

Blanket Insurance. Blanket insurance covers either more than one type of property at one location or one or more types of property at several locations. Multi-line policies offer more than one type of coverage, such as buildings, personal property and liability in one package policy.

All of the following are excluded from coverage on a homeowner's policy except loss due to: a. Bodily injury to another person in a pick-up basketball game. b. An intentional act of the insured. c. Slander. d. Business activities of the insured

Bodily injury to another person in a pick-up basketball game. Homeowner liability exclusions include intentional acts or business activities of an insured, slander, loss caused by acts of war, personal injuries to an insured, auto or boat or aircraft liability, and contractual loss. Accidental bodily injury to another is covered.

Charlotte has a whole life policy with a cash value of $100,000. Her agent told her that if she withdraws $35,000 of the cash value of her current policy and uses it to pay premium for another policy, she will have better coverage. This is an example of what? a. Twisting b. Churning c. Intimidation d. Rebating

Churning Churning is the taking of 25% or more of the cash value from one policy to pay the premium on a new policy, a practice that is often not in the insured's best interests.

Which is NOT a situation in which supplementary payments or additional coverage would cause the insurer to pay over and beyond the policy's liability limits? a. Claims settlements b. Legal fees for defending the insured if a lawsuit goes to trial c. Loss assessment coverage d. Damage to property of others when not legally liable

Claims settlements

Which of the following is NOT considered to be a duty of the insured after a loss? a. Provide the insurer with a list of legal claims against the property involved in the loss. b. Collect three bids on repairing or replacing the lost or damaged property. c. Give the insurer a complete inventory of property that was lost, including quantity, description, and value. d. Notify the police if criminal activity is suspected.

Collect three bids on repairing or replacing the lost or damaged property. The insured can choose who will do the repair or replacement work and does not need to collect any bids. The insurer may not pay the entire amount the repairer charges, or the insurer may give the insured several options or companies that will do the work or service, but the insured himself does not need to seek out bids.

If Carol opens a bakery in the bottom floor of her home, what type of coverage will she need? a. Homeowner Plus coverage b. Commercial coverage c. Personal consumer coverage d. Dwelling coverage

Commercial coverage Because there are generally many more potential risks and hazards in businesses than in homes, insurance companies separate coverage between Personal lines and Commercial coverage lines. While similar in basic coverage (buildings, personal property, autos), more variations and the need for additional coverages make commercial policies more detailed than personal policies. Homeowner policies may cover incidental businesses such as accountant offices or a hairstylist, but would exclude such a broad business as a bakery.

The obligations of an insured in the event of a loss can be found in a policy's: a. Conditions b. Exclusions/ Endorsements c. Declarations d. Insuring Agreement

Conditions An insurance policy's Conditions section lists the insured's responsibilities both at the time of application (truthful representations in the application and payment of premium) and at time of loss (notice of and proof of loss).

In which part of a policy is the premium found? a. Endorsements b. Insuring agreement c. Declarations d. Conditions

Declarations

If an insured wants to verify that a resident relative is automatically covered under an HO-3 form, the insured should consult which of the following sections in the policy? a. Liberalization clause b. Conditions section c. Definition of Insured d. Endorsements

Definition of Insured The Definition of Insured section of the policy explains who the various people or entities (such as lien or mortgage holders) are that the insurance company recognizes as an insured.

Which is NOT true of the NAIC? a. It investigates consumer complaints against insurers and agents. b. All state insurance directors belong to the NAIC. c. It determines the types of insurance policies that can be sold. d. Directors are responsible for passing legislation regarding insurance in their states.

Directors are responsible for passing legislation regarding insurance in their states. The NAIC is made up of the state insurance directors or commissioner from across the USA. They work to standardize insurance legislation across the country, but none of the state directors have authority to actually make legislation. These state directors are responsible for regulating and enforcing their respective state's insurance laws; licensing and supervising agents, brokers, and insurers in their state; determining the amount of surplus insurers must maintain; supervising the marketing practices of agents and insurers; determining the types of policies that can be sold; and investigating complaints.

Which of the following types of business would need to use the Bailee's Customer Commercial Inland Marine Form? a. Yacht Club b. Bail/Bond company c. Dry Cleaners d. Attorney

Dry Cleaners The Bailee's Customer Form covers damage to or loss of a customer's goods regardless of the bailee's (insured's) liability. Businesses such as laundries or dry cleaners would have need of Bailee's customer coverage.

All but which of the following is covered by a Boat Owner policy's Physical Damage coverage? a. The hull of the boat b. Equipment used with the boat, such as anchors and oars c. Trailers d. An outboard motor

Equipment used with the boat, such as anchors and oars Physical Damage Coverage pays for damage to the boat itself as well as to motors and trailers. Equipment used with the boat is covered by the Equipment and Accessories Coverage.

If an investigative consumer report is made on an insurance applicant, which of the following laws gives the applicant the right to request a personal interview? a. Consumer Protection Act b. Fair Credit Reporting Act c. Federal Insurance Act of 1976 d. Freedom of information Act

Fair Credit Reporting Act The Fair Credit Reporting Act gives the insurance applicant the right to request a personal interview if an investigative consumer report is done.

Exclusions from a Dwelling Special Form policy include all of the following EXCEPT... a. Damage caused by birds, vermin, and insects b. Damage by wear & tear, rot, and deterioration c. Agricultural or industrial smudging d. Freezing of or discharge from a plumbing, heating, or cooling system

Freezing of or discharge from a plumbing, heating, or cooling system Perils not specifically excluded are covered by Dwelling Special Form policies. Excluded perils in addition to those listed above include, the 8 general policy exclusions, VM&M if the building is vacant for 30 days, settling & cracking, or mechanical breakdown.

18. Eligible risks under the Business Owner (BOP) policy include all of the following except: a. Grocery stores. b. Bakeries with baking on premises. c. Meat, fish, poultry, and seafood distributors. d. Janitorial supply wholesalers.

Grocery stores. Grocery wholesalers and distributors are eligible for the BOP, but not grocery stores (retailers).

Which homeowners policy offers the least insurance coverage but still covers damage caused by burglars? a. HO-8 b. HO-3 c. HO-5 d. HO-2

HO-3 The HO-2 Broad form policy is a named peril policy, and damage caused by burglars is not named. The HO-3 policy is the first open risk policy (and therefore the least coverage), and while such damage is not named, it is covered because it is not excluded.

A condition that increases the chance of a loss occurring is a(n): a. Occurrence b. Peril. c. Accident. d. Hazard.

Hazard.

Marian is of Albanian descent and applies for insurance. Which of the following is true? a. If her insurance company charges Marian a higher rate because she is not American it is twisting. b. If her insurance company charges Marian a higher rate because of her ancestry it is discrimination. c. If her insurance company refuses to insure Marian because she is not American it is discrimination. d. If her insurance company charges her a higher rate because Marian lives in the ghetto, it is churning.

If her insurance company charges Marian a higher rate because of her ancestry it is discrimination. Discrimination is the charging of different rates for the same exposure based on non-actuarial data such as race, color, religion, or national origin. An insurance company may choose not to insure an individual who is not American if they will not insure any individuals who are not American, but it may not charge a different rate based on an applicant's ancestry (national origin).

The Fair Credit Reporting Act provides for all of the following EXCEPT: a. Applicants have the right to file their opinion on the issue with the reporting credit company if a policy is rated or rejected as a result of the report. b. Insurance companies must send medical information directly to the insured. c. Consumer reports cannot contain information about bankruptcies over 14 years old. d. Consumer reports cannot contain information about an arrest that is 7 years old.

Insurance companies must send medical information directly to the insured. This Act provides that an applicant has the right to have medical information sent to his/her own physician, not directly to the insured. It may well be in the applicant's best interest to have the report given to their physician so the physician can interpret the results and determine the best medical course of action for the patient - the applicant. Do not get distracted by the answer choice that says information on bankruptcies cannot be reported after 14 years. Bankruptcies generally cannot be reported after 10 years. It then follows that this information cannot be reported after 11, 12, 13, or 14 years. Think of it like a driver's license - if the license expires after 10 years, it is still expired after 14 years (4 years past the expiration date). Similarly, since bankruptcies generally cannot be reported after 10 years, they also cannot be reported after 14 years.

25. If Jon has a Broad Form DP -2 coverage policy, under which of the following circumstances would he NOT be covered? a. A snow pile-up on the tree by his house causes a limb of the tree to crash through the roof of his house causing extensive damage to the roof and to the rooms on the top floor. b. Jon goes down to his basement and discovers that his plumbing system is leaking into the house. The walls of the basement are stained, and much of the furniture is destroyed. c. Jon comes home to find his house and belongings trashed. Lamps, tables, couches, etc have been overturned and destroyed, as well as a big hole in the wall where the safe was. d. It rains for three days and when Jon wakes one morning he finds the creek behind his house has overflowed and there are 2 inches of water in his living room and kitchen. The kitchen's wood floor and the carpeting in the living room are destroyed, and there are water stains at the base of all his furniture.

It rains for three days and when Jon wakes one morning he finds the creek behind his house has overflowed and there are 2 inches of water in his living room and kitchen. The kitchen's wood floor and the carpeting in the living room are destroyed, and there are water stains at the base of all his furniture. Water damage due to flooding is one of the 8 General policy exclusions so it is not covered. All of the other perils are covered, including weight of ice, snow, and sleet, damage caused by burglars, and freezing or discharge from a plumbing, heating, or cooling system.

Which commercial policy form covers property while in the care, custody, or control of the insured? a. Legal Liability b. Hosteler's Risk c. Personal Effects of Others d. Commercial Inland Marine

Legal Liability The Commercial Legal Liability Form covers damage to property of others in the insured's care, custody, and control.

The Illinois Director of Insurance can do all of the following EXCEPT: a. Make necessary laws to cover the regulation of insurance business within the state. b. Enforce state insurance regulations with the assistance of the state attorney general. c. Conduct unannounced agency audits. d. Investigate claims complaints against an insurance company.

Make necessary laws to cover the regulation of insurance business within the state. The Director makes necessary rules and regulations to make the state's insurance laws effective, but does not have authority to make laws.

Property policies offer coverage in all but which of the following places? a. The state of Utah b. Puerto Rico c. U.S. Virgin Islands d. Mexico

Mexico

Which of the following terms best defines the frequency of premium payments? a. Mode of premium payments b. Graded premium plan c. Premium determination d. Premium rate

Mode of premium payments The frequency and method of premium payment is called the premium payment mode. This can be annual, semi-annual, quarterly, monthly, or monthly bank check plan. The premium payment modes with the best persistency (the policy stays on the book longest) are the annual and bank check plan modes.

What is the difference between monoline and package policies? a. Monoline policies offer reduced rates. b. Monoline policies cover only one type of insurance unless otherwise stated. c. Monoline policies cover a combination of coverages common to all or most insureds in one policy. d. Monoline policies provide coverage over fewer number of perils.

Monoline policies cover only one type of insurance unless otherwise stated. Policies that are monoline cover one line or type of insurance only, unless otherwise stated. Other coverages are included only if added as endorsements. Package policies offer a combination of coverages common to all or most insureds in one policy.

Which of the following is NOT one of the Commercial Inland Marine forms? a. Signs b. Electronic Data Processing c. Musical and Instrumental Performance d. Valuable Papers and Records

Musical and Instrumental Performance There is a Camera and Musical Instrument Dealers form, but NOT a Musical and Instrumental Performance form.

An insurance company owned by policyholders who can attend and vote at company meetings is known as a: a. Mutual company b. Stock company c. Syndicate insurer d. Reciprocal company

Mutual company Mutual companies are owned by policyholders who can attend and vote at company meetings.

For which of the following reasons would a producer's license be voluntarily terminated? a. Handling claims in an inappropriate manner. b. Violation of a cease and desist order c. Not meeting sales production requirements d. Not meeting continuing education requirements

Not meeting continuing education requirements An involuntary termination would be the result of the Commissioner finding wrongdoing on the agent's part and then terminating the license. Not meeting CE requirements is an omission on the producer's part that would result in the license being terminated - voluntarily.

Up to how much coverage is standard for Water Backup and Sump Pump Overflow? a. $5,000 b. $3,000 c. $2,500 d. Nothing

Nothing Sump pump and water backup is a standard exclusion on Homeowner policies. The Water Backup and Sump Pump Overflow endorsement covers up to $5,000 for direct physical loss caused by water backing up through a sewer or drain or which overflows a sump pump. A $250 deductible is applied for this loss.

Which is not a filing method that an insurance company could use to file its rates with the Illinois Department of Insurance? a. Prior Approval Rating b. File and Use Rating c. Mandatory Rating d. Open Approval Rating

Open Approval Rating Open Competition Rating is one of the basic methods of filing insurance rates, but Open Approval is not.

What coverage does the HO 05 policy offer as standard coverage that none of the other Homeowner policy forms offers? a. Replacement cost coverage for the building b. Open-peril/Special-peril/All-risk coverage for personal property c. Stated Appraised Value coverage for personal property covered under the policy's inland marine section d. Modified replacement cost for the building

Open-peril/Special-peril/All-risk coverage for personal property While the HO 03 policy provides open peril coverage for buildings and named peril coverage for personal property, the HO 05 Comprehensive form provides special-peril/all-risk or open peril coverage for both building and personal property.

Each of the following are optional coverages on the Business Owner Policy (BOP) EXCEPT: a. Outdoor signs b. Mechanical Breakdown c. Money and Securities d. Ordinance or law

Ordinance or law BOP optional coverages include all of the following as long as particulars are noted in the Declarations page and extra premium paid: Outdoor Signs, Exterior Glass, Interior Glass, Employee Dishonesty, Mechanical Breakdown, Burglary and Robbery, and Money and Securities. Ordinance or law is specifically excluded from coverage.

In a homeowners policy, which of the following coverages would NOT be subject to a deductible? a. Additional Living Expense b. Dwelling c. Personal Property d. Personal Liability

Personal Liability Liability is not subject to a deductible; other losses are

Coverage C under the DP - 1 insures what? a. Structures other than the building on an ACV without additional premium b. Structures other than the building on an ACV for additional premium c. Personal property on an ACV basis without additional premium d. Personal property on an ACV basis for additional premium

Personal property on an ACV basis for additional premium Coverage C is an optional coverage, insuring personal property on an ACV basis for additional premium. Coverage B is for separate structures or appurtenant structures for 10% of the Coverage A (building) amount.

Louie Z, an agent for JFK Insurance, offers Maya a discount on her insurance policy if she will teach his daughter Leah how to play the piano. This is an example of what? a. Rebating b. Redlining c. Barter d. Misrepresentation

Rebating Rebating is commonly accepted as an unfair trade practice and includes accepting something of material value in exchange for a lower premium. It is a method of allowing one individual to purchase insurance at a lower cost than another with no actuarial purpose. Barter would be a correct choice, but rebating is the best option.

An insurer believes that citizens of downtown Burntville are dangerous and decides to increase rates to an unreasonable amount to discourage applicants from Burntville. This is an example of: a. Twisting b. Rebating c. Redlining d. Churning

Redlining Redlining is a form of discrimination involving certain geographic areas and the refusal of an insurer to underwrite or the insurer's choice to increase the rates for those areas without actuarial reasons for doing so.

Personal Yacht Insurance policies include all but which of the following coverages? a. Replacement cost coverage for all covered hull damage losses. b. Protection and Indemnity insurance. c. Medical Payments insurance. d. Federal Longshore and Harbor workers Compensation insurance

Replacement cost coverage for all covered hull damage losses. Hull insurance pays replacement cost basis for partial losses, but only on a stated value basis for total losses.

Self-insuring is also known as what? a. Risk transfer b. Risk reduction c. Risk sharing d. Risk retention

Risk retention

If Joseph breaks his leg falling down the stairs while playing at Sarah's house, what coverage would be the first to pay for emergency medical treatment he receives? a. Joseph's family's Homeowner policy - Coverage E (liability) b. Sarah's family's Homeowner policy - Coverage E (liability) c. Joseph's family's Homeowner policy - Coverage F (medical payments) d. Sarah's family's Homeowner policy - Coverage F (medical payments)

Sarah's family's Homeowner policy - Coverage F (medical payments) Homeowner policy - Coverage F covers emergency medical treatment of those other than the insured for injuries suffered on the insured premises or caused by an insured. Because the injury happened on their property Sarah's family is liable. Coverage E-Liability would pay for costs over and above the medical limit amount, to the liability limits of the policy.

Which of the following constitutes misrepresentation? a. Promoting a competitor's company b. Presenting the audited financial statements to gain the trust of a client c. Making disparaging remarks about another agent or policy d. Stating that the state or federal government guarantees funds in any way

Stating that the state or federal government guarantees funds in any way State governments require that all insurers doing business in the state belong to the state guarantee associations. Policies are not guaranteed by the government, but by the association: the insurance companies. To infer that the government backs the policy is a misrepresentation.

An insured's responsibilities include all but which of the following in the event of a loss? a. Take reasonable steps to protect the property from further damage. b. Notify the insurer of other insurance which may also cover the claim. c. Allow the insurer to inspect undamaged property as well as the damaged property. d. Sue the insurer for failure to settle the claim if the claim is not settled within 18 months.

Sue the insurer for failure to settle the claim if the claim is not settled within 18 months. If there is a problem with the insurer not doing what is necessary to settle a claim, the insured must enter a lawsuit within one year of the claim. If there is other insurance that could also cover the claim, the insurance company must be notified because there could be a pro-rata settlement between the various insurers involved.

Legal fees for defending the insured if a lawsuit goes to trial, damage to property of others when not legally liable, and first aid expense for others are all examples of: a. Indemnity b. Excluded perils c. Supplementary payments d. Extended coverage perils

Supplementary payments

Each of the following is covered by the mold endorsement EXCEPT: a. Removal of the mold b. Tearing out and replacing boards around the entire home to prevent the spread of mold from one area to another c. Testing air in the home to confirm the absence, presence or level of fungi, but only if there is a reason to believe there is the presence of fungi d. Liability arising from health problems caused by the mold to visitors to the home

Tearing out and replacing boards around the entire home to prevent the spread of mold from one area to another Subject to the limits the insured chooses and for additional premium, the Limited Fungi, Wet or Dry Rot, or Bacteria Endorsement covers the cost to 1) Remove the fungi, 2) Tear out and replace any part of the building as needed to gain access to the fungi, and 3) Test air or property to confirm the absence, presence or level of fungi, but only if there is a reason to believe there is the presence of fungi, wet or dry rot or bacteria. Coverage E-Liability caused as the result of this build-up is also covered. Prevention from future potential problems is not covered.

What may the Director do if an insurance producer writes more insurance on his own family and business than for other people? a. The Director may non-renew the producer's license. b. The Director may suspend the producer's ability to write more insurance for himself until the amount written on others exceeds that written on himself. c. The Director will do nothing as long as the producer has paid the required licensing fees. d. The Director may fine the producer up to $500.

The Director may non-renew the producer's license. An insurance producer license will not be renewed if during the previous 2-year period the premiums on insurance represented by controlled business exceeds that of other business, or if during the next 12 months it is likely to do so.

61. All of the following are correct about the Illinois FAIR Plan EXCEPT: a. The Plan makes basic property insurance available to educational institutions. b. The Plan makes basic property insurance available in high risk urban areas c. The Plan is administered by the Illinois Department of Insurance. d. All insurers that offer property insurance in the state are required to participate in proportion to their market share of gross premium written in the state.

The Plan is administered by the Illinois Department of Insurance.

Which of the following is determined by the value of an insurer's policy reserves? a. Insurer investments b. Insurer operating expenses c. The amount of premium that must be charged for insurance policies d. The amount of insurance that can be issued

The amount of insurance that can be issued An insurer's surplus or policy reserves consist of the liquid reserves the company must maintain in order to meet expected claims. A certain amount of each premium dollar goes into this fund. The amount of insurance that can be issued by the insurer depends on the value of these reserves.

The Entire Contract provision of an insurance policy refers to which of the following elements? a. Rights of the policy-owner and beneficiaries. b. The application, the policy, and the producer's signed affidavit to any changes that were made. c. The policy itself, rider and endorsements, and signed understandings of the policy-owner. d. The application, the policy itself, and any riders and endorsements.

The application, the policy itself, and any riders and endorsements. The entire contract of a life insurance policy refers to the policy itself and the attached copy of the application.

While conducting an agency audit, which of the following does the Director or his designees NOT have authority to do? a. Administer oaths and examine anyone under oath relating to the business of the agent being examined. b. Require the individual to indefinitely suspend operating the agency on the date of the audit as the result of improprieties found in the examination. c. Require the agent to assist the Director in the examination as much as possible. d. Require the agent being audited to provide the Director convenient and free access to all books, records, documents and other papers relating to their insurance business affairs.

The correct answer is: Require the individual to indefinitely suspend operating the agency on the date of the audit as the result of improprieties found in the examination. An agent may request a hearing within 14 days of receiving the results of an agency audit. Only after the hearing can the Director impose the restrictions, including the possible suspension of the agent's license. If a hearing is not requested, the Director's findings will automatically go into affect.

Which of the following is NOT a reason an insurer may cancel a property insurance policy mid-term? a. The insurer discovers several steps in the insured's porch have rotted through. b. The insured has been indicted of a crime that increases the hazard insured against. c. The insurer discovers that the insured has filed a fraudulent claim on the policy with the insurer. d. The insured has knocked out a portion of the outside wall of the house for renovation work and has left it open for several weeks.

The insured has been indicted of a crime that increases the hazard insured against. The insurer may cancel the policy if the insured has been CONVICTED of a crime that increases the hazard insured against, not if they have only been indicted. Also, if the insured does not maintain the property in good physical condition or deals fraudulently with the insurer, the insurer may cancel the policy with 31 days written notice.

Probate is a term used to describe: a. The situation in which someone dies without a will and in which the state laws determine the disposition of property. b. The process of determining the validity of a will in court and carrying out its provisions. c. The laws regulating insurance companies and agents which vary between states. d. An individual who holds a position of public trust and confidence.

The process of determining the validity of a will in court and carrying out its provisions. If a will is challenged in court it goes into probate. A judicial authority determines the will's validity and legality and may decide the disposition of all the deceased person's assets (including life insurance policies owned by the insured). Probate cases can be tied up for years. Insurance on the insured's life not owned by the insured bypasses probate- the death benefit can go directly to the beneficiary.

Which is a requirement of a Homeowner policy? a. There may be only incidental business occupancy. b. The Homeowner policy is a monoline policy. c. The insured must live in the home for one year before beginning a homeowner policy. d. There can be no more than four-family occupancy.

There can be no more than four-family occupancy. Homeowner policies are package policies and require owner occupancy with no more than four family occupancy. One additional family or two roomers or boarders per family are allowed. Incidental businesses such as an accountant's office or a chair in the basement where the owner cuts hair may be allowed, but not larger business enterprises.

How long after the event can negative information remain on a person's consumer report if the individual is purchasing life insurance? a. 7 years b. There is no limit. c. 14 years d. 21 years

There is no limit. Because of the Fair Credit Reporting Act of 1970, consumer reports can contain negative information indefinitely if the report is to be used in connection with 1) the application for a job that pays more than $75,0000/year, or 2) the application for $150,000 of credit or life insurance.

All the following statements about insurance rates are true EXCEPT: a. They must allow for the insurer to have a profit. b. They must cover the cost of conducting business. c. They must be discriminatory. d. They must be high enough to cover the cost of claims.

They must be discriminatory. Insurance rates cannot be discriminatory- an insurer cannot charge different rates for the same class of insureds. Rates do need to allow for the insurer to have a profit, but cannot be so excessive that the insurer makes a windfall profit.

Which of the following must be communicated to applicants in order to comply with insurance privacy acts? a. Insurance privacy acts do not concern applicants, only insurers. b. All of the different options, riders, etc., must be made known to the applicant. c. They must be told whether any information will be used for marketing purposes. d. Applicants must be notified of changes made to their pending policy.

They must be told whether any information will be used for marketing purposes. An insurer gains much information from an insurance application, and may want to use the information in trying to sell other policies or products. Insurance privacy acts require that companies inform applicants before trying to market other products to them, and the applicant has the right to request that no such marketing take place.

Under a Homeowner policy, within what time period must an insured bring legal action against an insurer on a disputed claim? a. Three years b. Five years c. Two years d. One year

Two years Legal Action must be brought against an insurer within two years of the loss.

If G disagrees with the insurer on a BOP property claim, how long from the date of loss does G have to begin legal action against the insurer? a. 90 days b. Two years c. Three years d. One year

Two years The Legal Action Against the Insurer Provision limits to two years the insured's right to bring action against the insurer for damages if the insured has complied with policy conditions and the insurer has not indemnified the insured for direct physical loss.

J is found to be representing herself as a licensed insurance producer, when in fact she is not. Which of the following is not one of the penalties that might be assessed? a. Up to a $25,000 fine b. Up to one year in jail c. Up to five years in jail d. Up to a $1,000 fine

Up to five years in jail An unlicensed individual or one acting outside the accepted boundaries is guilty of a Class A misdemeanor (up to a $1,000 fine and one year in jail), or a Class 4 felony (up to a $25,000 fine and three years in jail) if any monies collected along with the violation are misappropriated or converted to personal or some other purpose.

With the Windstorm or Hail endorsement, the deductible is: a. a special $500 deductible, separate from the policy deductible. b. a percentage deductible and is applied to the total loss caused by windstorm or hail. c. a special $250 deductible, separate from the policy deductible. d. the same as the policy deductible.

a percentage deductible and is applied to the total loss caused by windstorm or hail. In the Windstorm or Hail endorsement a percentage deductible is applied to the total loss caused by windstorm or hail, separate from the policy deductible. Windstorm or hail damage may be totally excluded from coverage for a premium credit, or may be endorsed to be covered by Actual Cash Value for such losses.

The Assignment Clause of a property insurance policy: a. allows only the agent to transfer a policy. b. allows an insured to transfer ownership rights in a property policy to a bank or other loan company as collateral on a loan. c. allows the transfer of a policy from one insured to another by written authorization and signature of an officer of the insurance company. d. allows the insurer the right to reassign policies when deemed necessary.

allows the transfer of a policy from one insured to another by written authorization and signature of an officer of the insurance company.

Which of the following is excluded from coverage under a homeowners policy: a. personal liability. b. appurtenant structures. c. personal property. d. damage caused by an auto.

damage caused by an auto. Auto property and liability insurance is explicitly excluded from coverage under a homeowners policy.

What is it called when an insurance producer commits libel or slander against another producer or insurer? a. defamation b. lying c. fase advertising d. misrepresentation

defamation If a producer commits libel or slander against another producer or insurer, it is called defamation.

None of the following properties would likely be covered by a BOP policy EXCEPT a(n)... a. automobile dealership. b. hospital. c. bank. d. drugstore.

drugstore. Hospitals, auto dealerships, and banks are among those types of properties that may NOT be covered by a Business Owner policy.

A(n) _______ policy pays after the limits of the primary policy have been reached. a. excess b. surfeit c. arbitration d. exclusion

exclusion

An insurance company may cancel a policy by written notice delivered to the insured for any of the following reasons except for: a. failure to comply with all obligations of the policy. The insured must receive at least 45 day's notice of cancellation. b. non-payment of premium. The insured must receive at least a 10-day cancellation notice. c. if the policy has been in effect for more than 30 days, the policy may be cancelled on its anniversary date with a 31 day written notice. d. any reason within 60 days of application.

failure to comply with all obligations of the policy. The insured must receive at least 45 day's notice of cancellation.

Ocean Marine Freight insurance: a. protects the owner of the cargo from loss due to destruction. b. is payable on an ACV basis in the event of a total loss. c. indemnifies a ship owner from loss of income that would have been earned had the ship completed its voyage. d. protects the ship owner against damage to the ship itself and is written on a modified all-risk/open-peril basis.

indemnifies a ship owner from loss of income that would have been earned had the ship completed its voyage. Ocean Marine Freight insurance indemnifies a ship owner from loss of income that would have been earned had the ship completed its voyage.

Identity Fraud Expense Coverage covers all of the following expenses EXCEPT: a. lost income up to $500 per day when the insured is required to appear in court or work with law enforcement officials to settle the fraud problem. b. loan application fees for reapplication for loans rejected as the result of incorrect information. c. the first $250 of a loss under this coverage. d. certified mail to law enforcement officials.

lost income up to $500 per day when the insured is required to appear in court or work with law enforcement officials to settle the fraud problem. Identity Fraud Expense Coverage covers expenses up to $15,000 incurred by the insured if a "means of identification" of the insured (such as a driver's license or passport) is unlawfully taken with the intent to commit any unlawful activity. Expenses include notarized affidavits, certified mail to law enforcement officials, lost income up to $200 per day, loan application fees for reapplication for loans rejected as the result of incorrect information, reasonable attorney fees to defend lawsuits brought against the insured because of the identity theft. This endorsement has a special $250 deductible.

An insurance broker who pays the insurer the customer premium and then allows the customer to pay the premium to the broker up to five months later: a. may charge the customer up to an additional 1% per month on any unpaid premium balance after 30 days. b. may charge the customer up to an additional 1.5% per month on any unpaid premium balance after 90 days. c. is guilty of rebating. d. is guilty of a class A misdemeanor.

may charge the customer up to an additional 1.5% per month on any unpaid premium balance after 90 days. An insurance producer may charge up to an additional 1.5% per month on any unpaid premium balance after 90 days to encourage premium payment.

To be considered insurable, a risk must be: a. measurable. b. indemnified. c. unpredictable d. speculative.

measurable. To be considered insurable, a risk must be due to chance, measurable, and predictable. If a risk is not measurable it is not possible to calculate how much has been lost, and an insurer cannot compensate appropriately for the loss.

The Standard Fire Policy: a. solely covers damage due to fire started from within the property. b. was initially drafted in 1943. c. must be accompanied by other forms in order to make it a complete modern policy. d. covers fire damage caused only by fire or lightning.

must be accompanied by other forms in order to make it a complete modern policy. The Standard Fire policy was initially drafted in 1918, amended in 1943, and generally replaced by simplified language policies in the 1980's. When used it must be accompanied by other forms in order to make it a complete modern policy. Covered perils include, fire, lightning, and removal of property after a fire to protect it from further damage.

An Aleatory Contract is one in which: a. the parties exchange something of equal value. b. one party may receive benefits greatly in excess of the benefits received by the other party. c. one party to the contract draws up the contract, the other party can only accept or reject the terms. d. there is both an offer and acceptance.

one party may receive benefits greatly in excess of the benefits received by the other party. Insurance contracts are aleatory contracts because the value to either or both parties depends on chance or future events, or where the monetary values of the parties' performances are unequal. The policy owner pays the premiums, a fixed amount, and in return the insurer promises to pay benefits if the event insured against, an uncertain event, occurs.

A DP-2 Broad form policy would cover all of the following perils EXCEPT: a. pollution. b. damage caused by burglars. c. discharge from a plumbing or heating system. d. glass breakage.

pollution. Pollution is one of the specifically excluded perils in a DP-2 policy, along with the 8 general policy exclusions and Vandalism & Malicious Mischief once the building has been vacant for 30 consecutive days.

In order for a life insurance agent to sell Variable Life contracts, the agent must also hold a: a. limited financial services license b. Chartered Financial Consultant (ChFC) diploma c. Fidelity Bond d. registration with the National Association of Securities Dealers (NASD)

registration with the National Association of Securities Dealers (NASD) In order for a life insurance agent to sell Variable Life contracts, the agent must also be licensed with the National Association of Securities Dealers (NASD).

Coverage E of the Farm Property policy covers: a. dwellings. b. household personal property. c. unscheduled farm personal property. d. scheduled farm personal property.

scheduled farm personal property. The Farm Property policy's Coverage E covers Scheduled farm personal property. Coverage A is Dwelling. Coverage B is Separate Structures. Coverage C covers household personal property. Coverage D is Loss of Use. Coverage F is Unscheduled farm personal property. Coverages E and F cover farm machinery whether on or away from the described premises and also include coverage for mules, swine and sheep but do not cover poultry. Coverage G covers other farm structures.

The Arbitration / Appraisal Clause comes into play when: a. the insurer suspects foul play on the part of the insured. b. no agreement can be reached with the umpire appraiser. c. the true property value is appraised as being less then the amount of the policy. d. the insured and the insurer disagree on the settlement amount.

the insured and the insurer disagree on the settlement amount.

A property insurance policy that requires 80% coinsurance means that: a. the insured must find another insurer that will insure 20% of the building's value. b. the insurer will pay 20% of a claim and the insured or another insurer must pay the other 80%. c. the insurer will pay 80% of a claim and the insured must pay the other 20%. d. the insured must insure the building to at least 80% of its replacement cost.

the insured must insure the building to at least 80% of its replacement cost. In property insurance, the term "coinsurance" is the concept that a property insurance policy requires a specified amount of insurance based on the value of the insured property. If the insured insures the property for less than this amount he/ she must share in a percentage of a loss to the same percent that the property is underinsured at the time of the loss.

An insured causes a fire in the insured's apartment that also damages other apartments in the building, destroys some of the insured's personal property, and severely burns both the insured and two other tenants. The insured's HO-4 form will provide coverage for all of the following expenses EXCEPT: a. repair of damage to the insured's personal property b. the other tenants' medical expenses c. the insured's medical expenses d. repair of damage to the other apartments

the insured's medical expenses The HO-4 form is the Renter's form. As with other homeowner-type policies, liability coverage will not cover the insured but will cover others injured by actions of the insured, so the insured's personal medical expenses would not be covered. The insured's personal property, on the other hand is not a liability issue, but it is the main coverage under the policy.

In property insurance, all of the following are characteristics of a binder EXCEPT that: a. it acknowledges that insurance has been applied for. b. coverage is in force from the time the premium is paid. c. the policy will be issued as applied for. d. the actual premium may differ from that originally paid.

the policy will be issued as applied for. A binder, or binding receipt, acknowledges that premium has been paid, but the premium may change due to underwriting factors unknown at the time of application, or the policy may eventually be turned down by underwriting. Insurance is in force from the time the binder is issued, but will end if the company rejects the risk.

S owns a property policy with a stated value provision. This means that: a. the insurer must pay the full amount stated in the policy as the amount insured regardless of the property's actual cash value at the time of loss if property is totally lost or destroyed. b. a certain value will satisfy policy coinsurance requirements. c. damaged property will be repaired or replaced with less expensive but functionally equivalent materials. d. there is an agreed upon policy amount which is paid in the event of a total loss, regardless of the property's actual value.

there is an agreed upon policy amount which is paid in the event of a total loss, regardless of the property's actual value. Stated Value refers to an agreed upon policy amount which is paid in the event of a total loss, regardless of the property's actual value.

Extended coverage perils include: a. wind, hail, aircraft, and riot. b. wind, hail, lightning, and earth movement. c. aircraft, riot, vehicles, and power failure. d. wind, hail, lightning, and smoke.

wind, hail, aircraft, and riot. The 8 extended coverage perils are: 1) wind, 2) hail, 3) aircraft, 4) riot, 5) vehicles, 6) explosion, 7) smoke, and 8) above ground damage from volcanic eruption.

A Contract of Adhesion is: a. made between competent parties. b. a contract which must be adhered to by both parties. c. made when the insurer issues a policy. d. written and the terms are decided by only one party.

written and the terms are decided by only one party. A Contract of Adhesion is written and the terms are decided by one party only-the insurer. The insured can only accept or reject the terms of the policy. If there is a legal dispute due to ambiguity the courts usually decide against the preparer of the contract, in this case, the insurer.