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
Which is a hazard?
Select one: a. a collision b. a fire c. a slippery road d. a flood Feedback A hazard increases the likelihood of a peril occurring - the slippery road does that. The others are all perils which actually cause the loss.
The correct answer is: a slippery road
Payment based on the fact that the Insured owns the property involved is:
Select one: a. Insurable interest b. Indemnity c. Replacement cost d. Actual cash value Feedback Property ownership is evidence of an insurable interest. One must have an insurable interest to collect under a policy.
The correct answer is: Insurable interest
The proportionate distribution of the amount to be paid by insurance companies insuring the same loss is covered by:
Select one: a. other insurance/pro rata b. coinsurance c. risk d. deductible Feedback All policies contain an Other Insurance Clause to warn the insured that any claim will be prorated among multiple companies if the insured has more than one policy. This prevents the insured from "coming out ahead" and thus "upholds the principle of indemnification."
The correct answer is: other insurance/pro rata
To have an insurable interest, one must:
Select one:
a. have insurance.
b. have a monetary interest in the property.
Feedback
The correct answer is: have a monetary interest in the property
A written document providing evidence that coverage is in effect and which summarizes the coverage is known as:
Select one: a. a certificate of insurance b. an application Feedback The correct answer is: a certificate of insurance
A deductible does each of the following EXCEPT:
Select one:
a. increases the cost of insurance
b. improves the availability of insurance
c. lowers the premium cost
d. lowers the quantity of claims
Feedback
The addition of a deductible will lower the cost of the premium. Watch out for a question which asks about removing or lowering a deductible - that would increase the premium.The deductible lowers the number of claims by eliminating small claims, lowers the premium, and improves the availability of insurance by making it more profitable and efficient for Insurers to provide policies. The deductible does not increase the cost of the policy; the deductible lowers the cost of the policy.
The correct answer is: increases the cost of insurance
A clogged exhaust vent on the kitchen’s deep-fat fryer in a fried chicken restaurant is a?
Select one: a. physical hazard b. morale hazard c. moral hazard d. None of the above Feedback The correct answer is: physical hazard
A careless employee routinely leaves the rear door to the store unlocked. This is a?
Select one: a. physical hazard b. morale hazard c. moral hazard d. None of the above Feedback Carelessness is a morale hazard. Intentional acts are moral hazards.
The correct answer is: morale hazard
The portion of the claim not covered by the policy is specified in the?
Select one: a. deductible b. limit of liability Feedback The correct answer is: deductible
Nonrenewal involves:
Select one:
a. the insurer’s refusal to continue the coverage at the end of the policy term.
b. termination by either the insurer or insured during the policy term.
Feedback
The correct answer is: the insurer’s refusal to continue the coverage at the end of the policy term.
A shopping mall with only one exit is a?
Select one: a. physical hazard b. morale hazard c. moral hazard d. None of the above Feedback The correct answer is: physical hazard
If your client complains that your premiums are too high, suggest:
Select one: a. lowering the deductible. b. raising the deductible. Feedback Raising the deductible lowers the premium. Watch out, the question might ask about lowering the deductible which raises the premium.
The correct answer is: raising the deductible.
Fire wood stored next to a wood stove is a?
Select one: a. physical hazard b. morale hazard c. moral hazard d. None of the above Feedback The correct answer is: physical hazard
A policy may be voided due to each of these EXCEPT:
Select one: a. failure to file a proof of loss form b. failure to pay premiums c. increase in the hazards d. fraud Feedback An Insurer may cancel a policy due to a substantial increase in the risk. Thus, it could cancel due to an "increase in the hazards." However, an Insurer has no right to cancel a policy due to a mere failure to file a proof of loss form. The Insurer may refuse to pay that claim but can't cancel the policy.
The correct answer is: failure to file a proof of loss form
Deductibles:
Select one:
a. eliminate small claims and reduce administrative expenses.
b. eliminate large claims and increase administrative expenses.
Feedback
The correct answer is: eliminate small claims and reduce administrative expenses.
The amount an insured may recover under an airplane policy is restricted by the:
Select one: a. limit of liability b. subrogation provision Feedback I know that we don't cover airplane policies, but the theory is the same. Under any policy, the amount the Insured may recover is restricted by the Limit of Liability stated in the policy's declarations.
The correct answer is: limit of liability
The earthquake deductible is:
Select one: a. percentage b. a flat dollar amount c. $250 d. $500 Feedback The typical earthquake deductible varies from 5%-25% in California, 5% in the rest of the U.S.
The correct answer is: percentage
The liberalization clause applies when:
Select one:
a. the premium is increased but the coverage is not.
b. the coverage is increased but the premium is not.
c. the coverage is decreased but the premium is not.
d. both the coverage and the premium are increased.
Feedback
The correct answer is: the coverage is increased but the premium is not.
Any condition increasing the chance of loss is a:
Select one: a. risk b. hazard Feedback The correct answer is: hazard
The other insurance clause upholds the principle of:
Select one: a. risk b. indemnification Feedback The correct answer is: indemnification
Under the Other Insurance Clause, if the Insured is covered by two policies, what will happen if a loss occurs?
Select one:
a. Each policy must pay in full.
b. Each policy will pay a part of the loss.
Feedback
The correct answer is: Each policy will pay a part of the loss.
Q sold a building but did not cancel the policy. The building was later destroyed by a covered peril. Q will not collect under the policy
Select one: a. the coinsurance clause. b. lack of insurable interest. Feedback The correct answer is: lack of insurable interest.
Deductibles are used to:
Select one:
a. prevent the insured from receiving excessive payment.
b. encourage the insured to be careful.
Feedback
The correct answer is: encourage the insured to be careful.
The limit of liability is the maximum amount that:
Select one:
a. the insurer will pay for all losses in a particular state in a given year.
b. the insured can collect for any one loss.
c. can be charged for a deductible.
d. can be charged for a policy premium.
Feedback
The correct answer is: the insured can collect for any one loss.
A’s homeowner policy is valid for one year. During the year, A sold the home to B. A’s lender is willing to allow A to transfer the homeowner policy to B. A must first obtain written permission from:
Select one: a. the insurer. b. the lender. Feedback Assignment of a policy requires written consent of all three parties; the Insurer, the old Insured (the assignor), and the new policy owner (the assignee).
The correct answer is: the insurer.
The deductible:
Select one:
a. increases the Insurer’s administrative expenses.
b. decreases the insurer’s losses.
Feedback
The correct answer is: decreases the insurer’s losses.
T has insured his $400,000 home for $250,000 under a replacement cost policy. In the event of a total loss, he will recover:
Select one: a. $250,000 b. $400,000 Feedback Don't show this question to your boss! This is the way we will answer this on the exam. I know that some policies have super fine print which will obligate the Insurer to replace the structure regardless of the cost. But not so with the typical policy - it will only pay for replacement costs up to the policy's limit of liability.
The correct answer is: $250,000
An insured who cancels a Commercial Property Form will receive a:
Select one: a. short-rate refund b. pro rata refund Feedback The Insured is the "little guy" who gets a short-rate refund if the Insured cancels. But, if the pro (the Insurer) cancels, the Insured gets a pro rata (proportional) refund.
The correct answer is: short-rate refund
The deductible does each of these EXCEPT:
Select one: a. reduce loss costs. b. lower premium costs. c. excludes payment for small claims. d. indemnify the insured. Feedback The deductible does not make the Insured whole, thus it does not indemnify the insured. Another way of saying this is that the deductible does not uphold the principle of indemnification.
The correct answer is: indemnify the insured.
The limit of liability in a policy refers to the extent of the:
Select one: a. deductible. b. insurer's liability. Feedback The correct answer is: insurer's liability.
The Other Insurance Clause:
Select one:
a. prohibits other insurance on the same property.
b. upholds the principle of indemnity.
c. allows more than one person to be insured under the policy.
d. allows coverage for catastrophic losses.
Feedback
The “Other Insurance Clause” prohibits stacking by the Insured who might try to collect in full under multiple policies. This prevents the Insured from coming out ahead. So, we can then say that the “Other Insurance Clause” upholds the principle of indemnity by preventing the double recovery.
The correct answer is: upholds the principle of indemnity.
Special covers:
Select one: a. all risks b. all risks except those excluded Feedback The correct answer is: all risks except those excluded
When must an insurable interest exist under a liability policy?
Select one: a. at the time of application b. at the time of the loss Feedback If you have taken a Life/Health course, the answer was different there. Under Property or Casualty policies, the insurable interest doesn't need to exist up front - it need only exist at the time of the loss. I sometimes zone out and mess up answers to questions like this - if I do, please send me an email. Thank you, thank you.
The correct answer is: at the time of the loss
An Insurer may cancel a property policy due to:
Select one: a. failure to provide notice of a claim b. claims filed c. failure to make adequate repairs d. fraudulent property valuation Feedback The correct answer is: fraudulent property valuation
Increasing the deductible:
Select one: a. raises the premium b. lowers the premium Feedback The correct answer is: lowers the premium
Which component of the policy requires the insured to assume a stated amount of the loss?
Select one:
a. Deductible
b. Risk
Feedback
The correct answer is: Deductible
Faulty wiring is an example of a:
Select one: a. moral hazard b. morale hazard c. uninsurable hazard d. physical hazard Feedback A hazard is any factor that increases the likelihood of a peril occurring. A physical hazard is one that can be seen and touched. Thus, faulty wiring is an example of a physical hazard.
The correct answer is: physical hazard
Cindy and Hal own a commercial building. Cindy asks the Insurer to increase the coverage but Hal objects. What should the Insurer do?
Select one:
a. Refer the matter to the state Insurance Commissioner.
b. Comply with the desire of whichever Insured is named last in the policy’s declarations.
c. Comply with the desire of whichever Insured is named first in the policy’s declarations.
d. Reject the request until both parties agree on the issue.
Feedback
The first-named Insured controls the policy.
The correct answer is: Comply with the desire of whichever Insured is named first in the policy’s declarations.
The deductible:
Select one:
a. specifies the amount of the claim that won’t be paid by the policy.
b. Is always $100 under property and casualty policies.
Feedback
The correct answer is: specifies the amount of the claim that won’t be paid by the policy.
Cancellation involves:
Select one:
a. the insurer’s refusal to continue the coverage at the end of the policy term.
b. termination by either the insurer or insured during the policy term.
Feedback
The correct answer is: termination by either the insurer or insured during the policy term.
Complete the coinsurance formula: (Did carry/divided by what????) X Loss = Amount of recovery.
Select one: a. Required coverage b. Replacement cost c. Requested coverage d. Actual cash value Feedback The correct answer is: Required coverage
One who can lose financially in the event of a loss has:
Select one: a. a moral hazard b. an insurable interest Feedback The correct answer is: an insurable interest
The maximum the policy will pay for any one loss is the:
Select one: a. risk b. limit of liability Feedback The correct answer is: limit of liability
If there is duplicate property insurance, the parties will utilize which provision?
Select one: a. coinsurance b. pro rata Feedback Remember that the coinsurance clause deals with cheapskates. So, the "other insurance clause" will pay on a pro rata basis in a property policy.
The correct answer is: pro rata
Assume that a property is insured by two policies. Each policy has an equal amount of coverage. If the property is damaged by a covered peril:
Select one:
a. only the first policy issued will pay on the claim.
b. both insurers will share equally in the loss.
Feedback
Insurance policies contain an “Other Insurance Clause” specifying what will happen if there are two or more policies covering the same claim. It is easy to remember that with a property policy, the insurers share the loss proportionally, that is, pro rata.
The correct answer is: both insurers will share equally in the loss.
Policy provisions designed to cover property not covered under the policy are known as:
Select one: a. extensions b. assignments Feedback An extension may also be called a rider or an endorsement.
The correct answer is: extensions
With the consent of the insurer, Albert assigned his warehouse insurance policy to Benson. Benson is the:
Select one: a. assignor. b. assignee. Feedback The new person is the assignee, the old person is the assignor.
The correct answer is: assignee.
