Quiz: insurance terms and related concepts

With respect to the business of insurance, a hazard is: a) any condition or exposure that increases the probability of loss b) the risk taken when performing something dangerous c) the tendency of poorer risks to seek insurance more often than better risks d) the basic reason for an insured to purchase insurance

a) any condition or exposure that increases the possibility of loss

Insurable interest in a property policy must be proven: a) at the time of loss b) when a policyowner is changed c) when a claim is paid d) at the time of application

a) at the time of loss Between the time a policy is issued and when a loss occurs, ownership may have changed, mortgages may have been put into place, etc. Therefore, in property and casualty insurance, insurable interest must exist at the time of loss.

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.

The causes of loss insured against in an insurance policy are known as: a) perils b) losses c) risks d) hazards

a) perils

A situation in which a person can only lose or have no change represents: a) pure risk b) speculative risk c) adverse selection d) hazard

a) pure risk

An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for? a) $32,000 b) 80% of the property's replacement cost or more c) 100% of the market value d) $400,000

b) 80% of the property's replacement cost or more The coinsurance clause states that in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. In the event of a covered loss, insurance is designed to pay replacement cost minus depreciation.

In which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation? a) market value b) agreed value c) replacement vost d) stated amount

b) agreed value Agreed value is a property policy with a provision agreed upon by the insurer and the insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation.

Which of the following is the basis for a claim against an insurance policy? a) misrepresentation b) loss c) material change d) hazard

b) loss Claims result from losses by a peril insured against in an insurance policy

Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages. a) general b) special c) tort d) normal

b) special The two classes of compensatory damages that may be awarded are special and general damages. Special damages are tangible damages that can be specifically measured in dollar amounts (such as out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages).

Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called: a) described coverage b) specific coverage c) schedule coverage d) blanket coverage

b) specific coverage one location is insured for a specific amount of insurance on the structure and contents

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 his policy is ACV, how much will it pay toward the insured's new roof? a) $1,000 b) $4,000 c) $5,000 d) $6,000

c) $5,000 ACV is calculated as replacement cost minus depreciation ($200 x 5 = 1000)

Which of the following types of valuation works best for property whose values does not fluctuate much? a) stated amount b) inflation guard c) agreed value d) market value

c) agreed value Agreed value works best for items whose value does not fluctuate much. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured item's appreciation or depreciation.

What term includes damage where the insured peril was the proximate cause of loss? a) consequential loss b) negligent loss c) direct loss d) indirect loss

c) direct loss Direct loss is direct, physical damage to buildings and/or personal property. Direct loss also includes other damage where the insured peril was the proximate cause of loss.

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become a) smaller b) older c) more active d) larger

d) larger

Which of the following coverages in dwelling and homeowners policies is for indirect losses? a) dwelling b) structures c) contents d) loss of use

d) loss of use Loss of use coverage applies only after a direct loss caused by a covered peril has occurred.

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method? a) actual cash value b) replacement cost c) reproduction cost d) stated amount

d) stated amount A stated amount is an amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.