Chapter 2 Flashcards
The minimum property deductible for Commercial Property Forms is usually:
Select one: a. $0 b. $100 c. $250 d. $1,000 Feedback The key here is to focus on the "deductible" part of the question. Some companies are demanding a minimum of a $500 deductible, but most have a minimum $250 deductible.
The correct answer is: $250
Nonrenewal requires the Insurer to:
Select one:
a. mail notice to the insured in advance.
b. provide 90 days notice to the state insurance department.
Feedback
The state’s Insurance Department prefers not to hear about such trivial matters.
The correct answer is: mail notice to the insured in advance.
Property ownership is evidence of:
Select one: a. taxation b. an insurable interest Feedback The correct answer is: an insurable interest
A peril is:
Select one:
a. any factor which increases the likelihood of a loss.
b. the proximate cause of the loss.
Feedback
The correct answer is: the proximate cause of the loss.
A deductible:
Select one: a. reduces moral hazards b. increases the cost of insurance Feedback The deductible reduces both moral and morale hazards.
The correct answer is: reduces moral hazards
Which covers only listed perils?
Select one: a. Open Perils (All-Risk) b. Specified (Named) Perils Feedback The correct answer is: Specified (Named) Perils
Molly has been driving a car which has tires that are severely worn and should be replaced. The tires are an example of a:
Select one: a. peril b. hazard c. catastrophe d. loss Feedback The worn tires are hazards because they increase the likelihood that a peril will occur. The worn tires are merely hazards because they have not yet resulted in a loss - the cause of a loss is a peril but we don't yet have a loss.
The correct answer is: hazard
The insurer’s exposure under a policy is restricted by:
Select one: a. reserve requirements. b. the Limit of Liability. Feedback The correct answer is: the Limit of Liability.
Each of the following can have an insurable interest EXCEPT:
Select one:
a. a mortgagee
b. a tenant
c. an ex-owner carrying the mortgage
d. an ex-owner who didn’t cancel the policy
Feedback
The ex-owner who neglected to cancel the policy has no financial interest in the property and thus no longer has an insurable interest.
Brenda is no longer covered by her insurance policy. Which of the following methods of policy termination would have resulted in a premium refund to Brenda?
Select one: a. Cancellation b. Nonrenewal Feedback The correct answer is: Cancellation
The insured cancels a policy half way through its term yet receives less than a 50% refund. This is:
Select one: a. a short-rate refund b. fraud Feedback The correct answer is: a short-rate refund
A loose handrail on a staircase is a:
Select one: a. peril b. hazard Feedback The correct answer is: hazard
Property ownership represents:
Select one: a. a peril. b. an insurable interest. Feedback The correct answer is: an insurable interest.
A lender financing a boat purchase may require the insured to name the lender as an insured party. The lender has:
Select one: a. an insurable interest b. a right of subrogation Feedback The correct answer is: an insurable interest
A property policy which lists the perils covered is:
Select one: a. Named Peril b. Open Peril (All-Risk) Feedback The correct answer is: Named Peril
Which CANNOT be an Insurer’s reason for cancellation?
Select one: a. claims filed b. substantial increase in the risk c. nonpayment of premiums d. misrepresentation Feedback Although an Insurer may nonrenew at will, the Insurer may only cancel a policy mid-term for one of these reasons:
- Nonpayment of premium
- Concealment or misrepresentation
- Substantial increase in the risk, and (in some states)
- Financial impairment of the Insurer.
Be sure that you note the difference between cancellation (mid-term) and nonrenewal (at the end of the policy term).
The correct answer is: claims filed
To prevent recovery beyond the amount of the insured’s actual loss, the policy will contain:
Select one: a. an Other Insurance Clause b. a Coinsurance Clause Feedback The correct answer is: an Other Insurance Clause
A document outlining the coverage with evidence that coverage is in effect is known as a/an?
Select one: a. certificate of insurance b. endorsement Feedback The correct answer is: certificate of insurance
The cause of the loss is:
Select one: a. risk b. peril Feedback The correct answer is: peril
The limit of liability is the most the policy will pay:
Select one: a. per Insured b. per loss Feedback The correct answer is: per loss
A brush fire which spreads to a garage is an example of a:
Select one: a. risk b. peril Feedback The correct answer is: peril
The maximum the insured can collect under the policy is the:
Select one: a. limit of liability b. coinsurance Feedback The correct answer is: limit of liability
An assignment must be:
Select one:
a. agreed to prior to a property loss.
b. agreed to in writing by the insurer.
c. notarized.
d. approved by the state insurance commissioner.
Feedback
An assignment is an agreement to transfer coverage or benefits under a policy. The assignment must be written and agreed to by all parties.
The correct answer is: agreed to in writing by the insurer.
Josephine wants to insure her home. Her fear is that a fire will damage her stained glass window (which she just purchased for $17,000). The value of the home is $100,000 and the policy has an 80% coinsurance requirement. Josephine should purchase a minimum of how much insurance so that the window will be fully insured?
Select one: a. $17,000 b. $20,000 c. $80,000 d. $100,000 Feedback Under the coinsurance requirement, Josephine must insure the home to 80% of the home's value to be fully insured on a partial loss. Thus, $80,000 coverage is required to fully cover a $17,000 loss.
The correct answer is: $80,000
Mary has an agreement stating that if she wrecks her car, the insurer will make the payments to Mary’s banker. This is:
Select one: a. coinsurance b. an assignment Feedback The correct answer is: an assignment
Tim owes Visa $800 on a credit card bill. Visa purchased a fire insurance policy covering Tim’s home. If Tim’s home is destroyed by fire, how much will Visa be able to collect from the Insurer?
Select one: a. $0 b. $800 Feedback Visa has no insurable interest because Visa doesn't have a lien on a debtor's assets. Credit card companies are "unsecured creditors," meaning they have no lien on any specific asset and thus have no insurable interest.
The correct answer is: $0
A certificate of insurance:
Select one:
a. guarantees that the insurer complies with all state laws.
b. is issued only to government agencies.
c. changes the policy to which it is attached.
d. summarizes the policy’s coverage.
Feedback
A certificate of insurance gives evidence that a policy is in effect by providing a summary of the policy. Third parties often demand a certificate of insurance as proof of insurance before dealing with an insured.
The correct answer is: summarizes the policy’s coverage.
An insurer’s discontinuation of a policy after expiration is:
Select one: a. cancellation b. nonrenewal Feedback Termination at the end of the term (usually a year) is nonrenewal. Termination during the term is cancellation. Cancellation is a big deal if done by the Insurer - must have a reason and give prior written notice.
The correct answer is: nonrenewal
The policy specifies the amount of the loss the insured must pay for through the:
Select one: a. limit of liability b. deductible Feedback The correct answer is: deductible
With regard to cancellation:
Select one:
a. The insured may cancel without reason or prior notice to the insurer.
b. Cancellation entitles the Insured to a pro rata refund if the Insured instigates the cancellation.
False - the Insured is entitled to a pro rata refund only if the Insurer instigates the cancellation.
Feedback
The correct answer is: The insured may cancel without reason or prior notice to the insurer.
Which CANNOT have an insurable interest?
Select one: a. insurer b. tenant c. insured d. lienholder Feedback The correct answer is: insurer
