2 - Property & Casualty Basics

Question 1

Explain the point of a stated value contract

Answer 1

To pre-establish the amount of coverage available for property items that are difficult to value

Question 2

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

Answer 2

Punitive

Question 3

The process an insurer uses to evaluate applications and determine if a policy should be issued and on what terms, conditions and rates is known as…

Answer 3

Underwriting

Question 4

Bob’s home is insured for $100,000 under a dwelling policy. Yesterday his home suffered $20,000 in damage from a fire. Today the home was struck with lightening resulting in another fire that completely destroyed the structure. Bob’s policy will pay how much and why?

Answer 4

The full $100,000. If it had been repaired and then the lightening struck at a later time, it would be a total of $120,000 paid but, because of the original damages not being fixed yet, it would be the $100,000 (the face amount of the policy)

Question 5

Which of the following would NOT be classified as personal property on an insurance policy?
A - Furniture
B- House
C- Vehicle
D- Equipment

Answer 5

B - A House

**Personal property is property that is moveable, real property is property that is nonmoveable

Question 6

The declarations page of a homeowner policy would provide all of the following information EXCEPT
A- The amount of the premium charged for all of the coverage
B- The insured’s address
C- What deductible amount applies to each loss
D- The statement that earthquake damage is not covered

Answer 6

D - Earthquake

Question 7

What type of information would be found in the policy's insuring agreement?
A- Policy Limits
B- Insurers address
C- Renewal Date
D- Location of premises

Answer 7

C - The renewal date

Question 8

The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the….

Answer 8

Conditions

Question 9

Duties of the insurer found in the property policy conditions include all of the following EXCEPT
A- Notify the insured in the case of financial difficulty
B- Pay covered losses
C- Provide advanced notice of cancellation
D- Return any premiums to the insured

Answer 9

A- Notify the insured in the case of financial difficulty

Question 10

What provision in a property policy applies when the insurer broadens coverage but does not increase the premium?

Answer 10

Liberalization

Question 11

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

Answer 11

$50,000

Question 12

What is a written untrue statement?

Answer 12

Libel

Question 13

What is a spoken/oral untrue statement?

Answer 13

Slander

Question 14

The policy conditions define.....
A- The amount of coverage
B- How parties to a contract must act following a loss
C- The basic underwriting information
D- The excluded perils

Answer 14

B- How parties to a contract must act following a loss

Question 15

What will happen if a house covered by a standard mortgage clause is a total loss?

Answer 15

The insurer pays the mortgagee according to the mortgagee’s interest in the property

Question 16

Rates that are established based on the simularities of the risk with other risks is known as…

Answer 16

Manual Rates

Question 17

The part of the insurance contract that describes the perils and nature of coverage of the contractual agreement between the insurer and the insured is called the…

Answer 17

Insuring agreement

Question 18

ABC corporation has $100,000 of coverage on it’s building through Insurance Company A and $50,000 of identical coverage on the same building through Insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro-rata method is used, how much will each insurer pay?

Answer 18

Company A = $16,000
Company B = $8,000

**Each policy pays it’s pro-rata share of loss based on each policies total amount of coverage.

Question 19

Which part of an insurance policy covers claims related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss or defence expenses?
a- exclusions
b- declarations
c- insuring agreement
d- additional coverage

Answer 19

d - additional coverage

*

Question 20

What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy?
a-  binder policy
b-  named peril policy
c-  open peril policy
d-  specified peril policy

Answer 20

c- open peril policy

*Open peril policies cover everything except when they say they don’t. Named peril policies cover only perils named in them.

Question 21

All of the following are conditions commonly found in an insurance policy EXCEPT

a- Appraisals
b- Insuring agreement
c- cancellation and non-renewall
d- subrogation

Answer 21

b- Insuring agreement

**The insuring agreement provides information on the policy’s coverages

Question 22

The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as….

Answer 22

Exclusions

Question 23

What insurance policy provision defines how the policy will respond if there is more then one insurance policy written on the same risk?

Answer 23

Other Insurance

Question 24

Explain combined single limit of liability

Answer 24

A dollar limit of liability applying to the total damages for property damage and bodily injury combined resulting from one accident or occurance.

Question 25

What term includes damage where the insured peril was the proximate cause of loss?

Answer 25

Direct Loss

Question 26

The transfer of an insured’s right to seek damages from a negligent party to the insurer is found in which of the following clauses?

Answer 26

Subrogation

Question 27

Which of the following terms refers to other insurance that is written on the same risk, but not on the same coverage basis?

Noncurrency
Pro Rata
Contribution by equal shares
Primary and Excess

Answer 27

Noncurrency

Question 28

What fundemental principle in property insurance holds that when there is an unbroken connection between an occurance and damage that grows out of the occurance, then the resultant damage is all a part of the occurance?

Common Cause
Proximate Cause
Concurrant Causation
Indemnity

Answer 28

Proximate Cause

**An example of proximate cause: a property insurance policy covers the peril of fire, and further damage is caused by: smoke from fire, water used to extinguish the fire, and the process of moving property out of the path of the fire. Fire would be considered the proximate cause of all of the damage.

Question 29

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 and depriciation?

Market Value
Replacement Cost
Agreed Value
Stated Amount

Answer 29

Agreed Value

Question 30

Using an air-cooled engine, a proposed insured has developed a new, experimental aircraft. If the inventor applies for liability insurance, what rating type will the insurer most likely use?

Answer 30

Judgement rating

*Because there are few similar aircrafts, it is not possible to rate the risk based upon history or experience. For those reasons, a judgement rating is the most likely system.

Question 31

A $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage. The owner has a policy with $60,000 coverage. How much can the owner collect for his loss?

Answer 31

$30,000

**For the total amount of partial loss to be paid, a house must be insured for at least 80% of its value on the date of loss. In this case, because the insured only has the house covered for $60,000 (75% of the minimum requirement) the policy will only pay 75% of the loss, or $30,000

Question 32

All of the following are considered parts of the policy structure EXCEPT

Conditions
Insuring Clause
Exclusions
Provisions

Answer 32

Provisions

Question 33

Define Provisions

Answer 33

a broad term used to refer to the sections of clauses of an insurance policy that communicates the policy’s benefits, conditions, etc.

Question 34

What are the essential parts of a policy?

Answer 34

The essential parts of the policy are declarations, insuring clause, conditions and exclusions.

Question 35

Which of the following is a mandatory part of an insurance policy that varies with each individual policy?

Exclusions
Declarations
Insuring Agreement
Conditions

Answer 35

Declarations

**Declarations tell who, what, when and where and this information changes with each policy

Question 36

Declarations tells what in a policy?

Answer 36

Who, what, when and where

Question 37

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?

Answer 37

$30,000

*The insured only carried 75% of the amount of insurance he had agreed to carry ($120,000 of the agreed $160,000), so the insurer will pay only 75% of the loss, or $30,000. If the insured had carried the required amount of the insurance, partial losses would be paid in full.

Question 38

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?

Actual Cash Value
Replacement cost
Reproduction cost
Stated Amount

Answer 38

Stated Amount

Question 39

What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk?

Noncurrency
Other Insurance
Primary and Excess
Valid Insurance

Answer 39

Other Insurance

**Other insurance is a provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk.

Question 40

A homeowner sells his house to his friend. The friend wants to keep the homeowners current policy in effect. Under the assignment provision, what would be most likely to happen?

Answer 40

The homeowner would need to get written consent from the insurer before the policy can be reassigned.

Question 41

Rates that are established based onthe similarities of the risk with other risks are known as….

Answer 41

Manual Rates

Question 42

The property condition that precludes the insured from simply turning over damaged property to the insurer and claiming a total loss is called…..

Answer 42

Abandonment

Question 43

Persons covered under an insurance policy, wether named or not, are known as the…..

Additional Insureds
Insureds
Named Insureds
First named insureds

Answer 43

Insureds

Question 44

An insured owns several buildings, each at a different location and insured on a seperate policy. What type of coverage does the insured have?

Schedule
Blanket
Special
Specific

Answer 44

Specific

**Specific insurance provides a specific amount of coverage for each property.