Review Questions

D. Insurance Premium Paid Actual cash value(ACV) is a valuation method in which the value of property is determined using the replacement cost for property of like kind and quality, minus depreciation. The original cost is not a factor

All of the following are factors in the determination of actual cash value EXCEPT A. Type and quality of property B. Age of the property C. Replacement cost D. Insurance premium paid

B. Per Occurrence Per occurrence sets the amount for all claims that arise from a single incident at a certain number

An insurance 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's policy have? A. Split B. Per Occurrence C. Per Person D. Aggregate

A. Larger According to the law of large numbers, the larger a group becomes, the wasier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, insured group must become A. Larger B. Smaller C. Older D. More active

D. Pure Risk Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type of insurance company will accept.

A situation in which a person can only lose or have no change represents A. Speculative Risk B. Adverse Selection C. Hazard D. Pure Risk

C. Vicarious Liability under vicarious liability, an insured may be held responsible for the acts of other family members or independent contractors engaged by the insured to perform work

An insured's 9-year-old son threw a ball, accidentally breaking a neighbor's plate galss window. The insured was found legally liable for the cost of replacing the window. This is an example of A. Juvenile delinquency B. Absolute liability C. Vicarious liability D. Intervening cause

A. Replacement cost at the time of the loss, less depreciation

In property insurance, actural cash value is defined as which of the following? A. Replacement cost at the time of the loss, less depreciation B. Market value of the property at the time of the loss C. Stated value of the property as shown on the declaration D. The actural amount of a loss payable, less the policy deductible

C. Full replacement of property at its current cost, new and without reduction for depreciation replacement cost policies do not consider depreciationof the proper amount of insurance is maintained. Policies that provide replacement cost coverage require that the amount of insurance written be 80% or more of the replacement cost of the property at the time of loss.

Replacement cost is defined as A. Full replacement of property with like kind and quality less an allowance for physical deterioration and depreciation B. Payment of the full policy limits in the event of total loss C. Full replacement of property at its current cost, new and without decudtion for depreciation D. The marker value of property of like kind and quality

A. Indemnity The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits

Which insurance principle states that is a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? A. Indemnity B. Stop-Loss C. Consideration D. Reasonable Expectations

A. Stated amount in stated amount coverage, the value of the insured property is determined at the time the policy is written. In the event of a loss, that amount is paid without regard to any coinsurance provision. However, if the loss is less than total, the insurer has salvage rights with the insured having first right of refusal ofthe salvage

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 A. Stated amount B. Replacement cost C. Actual cash value D. Specific insurance

B. Market Value When insured for market value, it is insured for what a willing buyer would pay prior to a loss

The insured's house is located one mile from the country's new landfill and across the road from the entrance of a rock quarry. It would cost $150,00 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property? A. Functional replacement cost B. Market Value C. Actual Cost Value D. Replacement Cost

B. Pure Risk Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type of insurance companies are willing to accept.

Situation in which a person can only lose or have no change represents A. Hazard B. Pure Risk C. Speculative Risk D. Adverse Selection

C. Vicarious Liability When one party is held liable for the act of another party, it is called vicarious liability. Employers are responsible for employees acting within the scope of theri employment. Parents sometimes are held responsible for the acts of their childres

When a parent is required to pay damages caused by his or her children, this is an example of A. Intervening cause B. Assumption of risk C. Vicarious liability D. Strict liability

D. Aggregate Limit of Liability Aggregate limit is 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 occur

Which of these is defined as the maximum limit of coverage available under a liability policy during a policy regardless of the number of claims that may be made or the number of accidents that may occur A. Combined single limit of liability B. Per occurrence limit of liability C. Split limit of liability D. Aggregate Limit of Liability