Chapter 8

Question 1

The additional cost of continuing a business after a loss is covered by:

Select one:

a. Extra Expense
b. Business Income

Answer 1

The correct answer is: Extra Expense

Question 2

The Extended Business Income Period:

Select one:

a. Begins 24 hours after reopening
b. Extends the Period of Restoration for up to 30 days after reopening
c. Begins 72 hours after reopening
d. Pays for up to 30 days after reopening

Answer 2

When the business reopens the Period of Restoration ends and the Extended Business Income Period begins. Extended Business Income coverage continues for up to 30 days.

The correct answer is: Pays for up to 30 days after reopening

Question 3

A Business Income Coverage Form has a $100,000 limit of liability with a 25% monthly limit of indemnity. If the insured loses $47,000 in a particular month, the most the policy will pay for that month’s losses is:

Select one:

a. $0
b. $25,000
c. $47,000
d. $100,000

Answer 3

The correct answer is: $25,000

Question 4

Business Income covers losses:

Select one:

a. at any location.
b. only at the described location.

Answer 4

The correct answer is: only at the described location.

Question 5

Extra Expense covers:

Select one:

a. only the additional expenses necessary to continue the business after a loss.
b. all expenses necessary to continue the business after a loss.

Answer 5

The correct answer is: only the additional expenses necessary to continue the business after a loss.

Question 6

The Business Income form covers each of these EXCEPT:

Select one:

a. necessary continuing operating expenses
b. payroll
c. property replacement
d. lost profits

Answer 6

The replacement of the property will be covered by the BPP.

The correct answer is: property replacement

Question 7

A Business Income Form:

Select one:

a. provides coverage immediately after destruction.
b. covers only losses prior to restoration.
c. terminates when the building should have been restored.
d. covers the cost to restore the building or to tear it down if required by law.

Answer 7

The Business Income Form has a 3-day/72-hour waiting period after a loss occurs. It has a 30-day coverage period after the reopening, so it covers losses after restoration. It doesn’t cover Extra Expenses - those only apply to a business that continues operation. So, the correct answer is that coverage terminates when the building should have been restored.

The correct answer is: terminates when the building should have been restored.

Question 8

The period of restoration under a Business Interruption Form:

Select one:

a. does not begin to run until construction is completed.
b. terminates when the building should have been rebuilt.
c. is set at 12 months by the terms of the policy.
d. is specified in the policy’s declarations page.

Answer 8

Under Business Interruption (such as Business Income), the period of restoration ends either when the building is rebuilt or when the building should have been rebuilt with reasonable speed and quality.

The correct answer is: terminates when the building should have been rebuilt.

Question 9

Under a Business Income policy, the period of restoration ends when:

Select one:

a. the project should have been completed with reasonable speed and quality.
b. the policy expires.
c. the building permit expires.

Answer 9

The correct answer is: the project should have been completed with reasonable speed and quality.

Question 10

A Business Income policy has a $10,000 limit of liability with a 25% monthly limit of liability. The Business is destroyed by a covered peril. The actual loss of income was $2,000 for the first month and $3,000 for the second month. The Business Income policy will pay a total of how
much for the two months?

Select one:

a. $2,000
b. $2,500
c. $4,500
d. $5,000

Answer 10

The policy will pay $2,000 for the first month, and a maximum of 25% of the $10,000 for the second month. ($2,000 + $2,500 = $4,500)

The correct answer is: $4,500

Question 11

Extra Expense coverage may be provided with:

Select one:

a. Business Income
b. Liability insurance

Answer 11

Be careful, “Business Income with Extra Expense” is often referred to as simply “Business Income.” So, there could be an Extra Expense policy attached to the Business Income policy. I know, I know, why isn’t the language of insurance clearer????

The correct answer is: Business Income

Question 12

Extra Expense covers:

Select one:
a. a contractor’s unexpected expenses incurred in rebuilding a structure after a loss caused by a covered peril.

b. the additional expenses necessary to continue the business after a loss caused by a covered peril.

Answer 12

The correct answer is: the additional expenses necessary to continue the business after a loss caused by a covered peril.

Question 13

A business with net income per year of $400,000 should purchase a minimum of how much Business Income Coverage?

Select one:

a. $100,000
b. $200,000
c. $250,000
d. $400,000

Answer 13

The coinsurance clause under Business Income is 50%. Thus, $200,000 is the minimum we would recommend.

The correct answer is: $200,000

Question 14

For a business, Extra Expense would cover:

Select one:

a. payment of normal payroll
b. rebuilding the structure
c. rental of substitute space
d. lost business income

Answer 14

The correct answer is: rental of substitute space

Question 15

The Business Income coinsurance requirement to maintain the Coverage Extensions is:

Select one:

a. 20%
b. 50%
c. 80%
d. 90%

Answer 15

The correct answer is: 50%

Question 16

Under the Business Income Form, indemnity refers to:

Select one:

a. payment to the policy limits
b. payment for the actual income loss sustained

Answer 16

This is a bit of a cheap-shot question. If the Insured is indemnified (made whole), the “actual income loss sustained” will be paid. So, that is a “pretty good” answer. However, paying “the policy limit” may overpay or underpay, thus violating the concept of indemnity.

The correct answer is: payment for the actual income loss sustained

Question 17

The Extended Business Income is intended to provide 30 days coverage that begins:

Select one:

a. after the policy terminates.
b. after the reopening of the business following the loss restoration.
c. on the date the loss occurs.
d. on the date the policy is purchased.

Answer 17

The correct answer is: after the reopening of the business following the loss restoration.

Question 18

An egg distributor who must remain in business despite any potential losses to his property should purchase:

Select one:

a. Business Income
b. Extra Expense
c. Business Income From Dependent Properties
d. None of the above

Answer 18

If the business will stay open after a loss, it will get Extra Expense coverage. If it will close while rebuilding, it will likely buy Business Income coverage.

The correct answer is: Extra Expense

Question 19

Which form of Business Interruption coverage allows a business to continue partial or full operation after loss caused by a covered peril?

Select one:

a. Extra Expense coverage.
b. Direct loss coverage.

Answer 19

The correct answer is: Extra Expense coverage.

Question 20

The Commercial Package Policy’s (CPP’s) Business Income Form covers:

Select one:

a. increased profits
b. book value losses
c. loss of sales
d. loss of earnings

Answer 20

Business Income covers lost net income. “Earnings” is an insurance term used to refer to net income. Remember that the Business Income form also covers the cost of necessary continuing operating expenses.

The correct answer is: loss of earnings