Personal Lines Flashcards
A ______________ insurance company is owned by its policyholders.
a. Stock
b. Reciprocal
c. Fraternal Benefits Society
d. Mutual
d. Mutual
If an insurance company wants to transfer all or part of the risk it has accepted, it
would buy which of the following types of insurance?
a. Residual
b. Reinsurance
c. Reciprocal
d. Insurer
b. Reinsurance
Domestic Insurer
An insurer organized under
the laws of this state, whether
or not it is admitted to do
business in this state.
Foreign Insurer
An insurer not organized under the laws of this state, but in one of the other states or jurisdictions within the United States, whether or not it is admitted to do business in the state or jurisdiction.
Alien Insurer
An insurer organized under the laws of any jurisdiction outside of the United States, whether or not it is admitted to do business in this state.
Domicile
jurisdiction (i.e., state or country) where an insurer is formed or
incorporated.
Admitted (Authorized)
is authorized by this State’s Commissioner of Insurance
to do business in this State. It has received a Certificate of Authority to do business in this
State.
Non-admitted (Unauthorized)
insurer has either applied for authorization to do
business in this state and was declined or they have not applied. They are not authorized
to transact insurance in this state.
Which of the following is an insurance company that is organized under the laws of another state within the United States? a. Domestic b. Alien c. Foreign d. Authorized
c. Foreign
Exclusive or Captive Agency System
a. Agent represents solely one company or group of companies having common ownership.
b. Insurer retains ownership rights to the business written by the agent.
c. The agent is an employee or a commissioned independent contractor.
d. Insurer may or may not provide office and agency support services
Direct Writing System
a. Producer or Agent is an employee of the insurer.
b. Insurer owns the accounts.
c. The agent may be paid a salary, salary plus bonus, or commission.
Independent Agency
a. An agent or agency that enters into agency agreements with more than one insurer. It
may represent an unlimited number of insurers.
b. Agency retains ownership of the business written.
c. An independent contractor that is paid a commission and covers the cost of agency
Career Agency System
Agents are recruited, trained and supervised by either a managing
employee or General Agent who is contracted with the insurance company.
Personal Producing General Agent
a. Does not recruit career agents.
b. Sells insurance for carriers it is contracted with and maintains its own office and staff.
Direct Mail or Direct Response Company
a. Sells insurance policies directly to the public with licensed employees or contractors.
b. A marketing system utilizing direct mail, newspapers, magazines, radio, television,
internet, web sites, call centers and vending machines.
Mass Marketing
a. Mass marketing is used to target a specific type of insurance to a large group of
individuals, such as the American Association of Retired People (AARP).
b. Insurer reduces marketing and underwriting expenses.
Which insurance company department accepts the insurance risk?
a. Executive
b. Actuarial
c. Claims
d. Underwriting
d. Underwriting
Law of Agency
a. A relationship between two or more parties where one party (the agent or producer) acts
on behalf of the other party, known as the principal or insurer.
b. The agent or producer binds the actions and words of the principal.
Insurer (Principal)
a. Insurer is the source of authority from which the producer must abide.
b. Insurer is responsible for all acts of a producer, when producer is acting within the scope
of its authority.
c. Producer may be personally liable when his/her actions exceed the authority of the
agency’s contract.
Producer (Agent)
A person or agency appointed by an insurance company to represent it and to present
policies on its behalf.
Express – Authority
Authority that is written into the producer’s agency contract. It details
specific activity regarding the producer’s ability to transact business on behalf of the
principal. An example would be the producer’s authority to solicit, negotiate, and sell
insurance contracts on behalf of the principal. The agent may also have the express
authority to bind coverage.
Implied – Authority
Authority that is not specifically stated in the contract, but is necessary,
reasonable, and usual for the producer to perform stated duties. Since not all duties
can be spelled out in the contract, incidental duties are assumed by the agent as
appropriate to carry out the express authority granted by the principal. An example
would be the use of the company logo on business cards or letterhead, implying the
agent has authority to represent the principal when finding new clients in the process
of soliciting and selling insurance. This also includes accepting applications and
collecting premiums.
Apparent – Authority
Authority created when the producer exceeds the authority expressed in
the agency contract. It is authority the public (or a third-party) is falsely led to believe
the agent has and the principal does nothing to counter the public impression that
such authority exists. An example would be the producer’s acceptance of premiums
on a lapsed policy.
Broker
a. A licensed individual who negotiates insurance contracts with insurers, on behalf of the
applicant.
b. Represents the applicant or insured’s interests, not the insurer, and thus does not have
legal authority to bind the insurer.
c. A broker’s license is not applicable in all states.
Which of the following individuals represents the insurance company when selling an insurance policy? a. Producer b. Broker c. Adjuster d. Insurer
a. Producer
Which of the following types of authority does the public assume an agent has when quoting insurance? a. Authorized b. Express c. Implied d. Apparent
c. Implied
A producer has each of the following responsibilities to the Insurer, except:
a. A fiduciary duty
b. Forwarding premiums to the insurer on a timely basis
c. Reporting material facts that may affect underwriting
d. A duty to recommend only high rate policies
d. A duty to recommend only high rate policies
A federal regulation called the ___________ protects consumer privacy.
a. Consolidated Omnibus Budget Reconciliation Act
b. Fraudulent Insurance Act
c. Privacy Protection Act
d. Fair Credit Reporting Act
d. Fair Credit Reporting Act
Risk
a. A condition where the chance, likelihood, probability or potential for a loss exists.
b. Uncertainty concerning a loss.
Speculative Risk
Situations where there is a chance for loss, gain, or neither loss nor gain to occur. An
example of speculative risk is gambling. Speculative risk cannot be insured.
Pure Risk
Situations where there is no chance for gain; the only outcome is for nothing to occur
or for a loss to occur.
Loss
Reduction, decrease, or disappearance of value. The basis of a claim for damages
under the terms of an insurance policy.
Peril
The cause of a loss.
Hazard
A specific condition that increases the probability, likelihood, or severity of a loss
from a peril.
Physical Hazard
A physical condition that
increases the probability of loss;
use, condition, or occupancy of
property.
Moral Hazard
Dishonest tendencies that
increase the probability of a
loss; certain characteristics and
behaviors of people.
Morale Hazard
Attitude that increases the
probability of a loss.
S T A R R Risk Management
Sharing Transfer Avoidance Reduction Retention
Dishonest tendencies that increase the probability of loss are what types of hazard?
a. Physical
b. Moral
c. Emotional
d. Legal
b. Moral
Each of the following must be included in an insurable risk, except:
a. Calculable chance of loss
b. Excluded catastrophic perils
c. Large group with dissimilar members
d. Accidental losses
c. Large group with dissimilar members
Which principle of insurance restores the insured to the same economic condition that existed before the loss? a. Indemnity b. Insurability c. Adhesion d. Underwriting
a. Indemnity
Contract of Adhesion
One party writes the contract, without input from the other party. One
party (insurer) prepares the contract and presents it to the other party (applicant) on a “take-it-orleave-
it” basis, without negotiation.
Aleatory Contract
The exchange of value is unequal. Insured’s premium payment is less than
the potential benefit to be received in the event of a loss.
Valued Contract
A contract that pays a stated amount in the event of a loss. (Most insurance
policies are NOT valued contracts unless they are endorsed.)
Indemnity Contract
An agreement to pay on behalf of another party under specified
circumstances, such as when a loss occurs.
Unilateral Contract
Only one party is legally bound to the contractual obligations after the
premium is paid to the insurer. Only the insurer makes a promise of future performance, and
only the insurer can be charged with breach of contract.
Conditional Contract
Both parties must perform certain duties and follow rules of conduct to
make the contract enforceable. The insurer must pay claims if the insured has complied with all
the policy’s terms and conditions.
Each of the following is an element of a legal contract, except:
a. Consideration
b. Legal Purpose
c. Agreement
d. Indemnity
d. Indemnity
A warranty is defined as which of the following?
a. Intentional misrepresentation on the application
b. Statement in the application that is guaranteed to be true
c. A false statement in the application
d. What a reasonable and prudent buyer can expect
b. Statement in the application that is guaranteed to be true
Each of the following is a factor considered by an underwriter, except:
a. Hazards
b. Marital status
c. Claims history
d. Outside factors
b. Marital status
Which of the following calculations equals a company’s loss ratio?
a. All losses + expenses
b. Paid losses + loss reserves ÷ total earned premium
c. Losses + total operating expenses ÷ total written premium
d. Paid losses + paid expenses ÷ total earned premium
b. Paid losses + loss reserves ÷ total earned premium
Pro Rata
Cancellation
A proportionate cancellation of insurance that refunds premium to the insured based
on the precise number of days coverage was in effect. The earned premium is the
premium charged and retained by the insurer for the number of days coverage was in
place; the unearned premium is the premium refunded to the insured for the number of
days coverage was not in place.
Short Rate
Cancellation
A cancellation of insurance that incurs a financial penalty. Sometimes when the insured
cancels the policy before its expiration date, a short-rate cancellation is issued. The
insurer retains a portion of the unearned premium to cover costs.
Flat Cancellation
A cancellation of insurance that is retroactive to the effective date of the policy. No
coverage is provided and the insurer must refund the policy premium paid by the insured.
Which of the following is attached to the policy to alter or add to the policy provisions?
a. Binder
b. Endorsement
c. Definitions
d. Excess insurance
b. Endorsement
A person who takes possession of another person’s property in order to repair it is called? a. Assignee b. Bailor c. Subrogee d. Bailee
d. Bailee
If the insured does not agree with the insurer’s decision regarding a claim, what process helps decide the outcome? a. Insurance company conference b. Arbitration c. Inspection d. Consequential hearing
b. Arbitration
Each of the following is a direct loss, except:
a. Loss of income
b. Fire damage
c. Cracked windshield
d. Broken pipe water damage
a. Loss of income
_____________ is the method of loss valuation that values damaged property at the
cost to replace with property of like kind and quality, at current prices, and without
deduction for depreciation.
a. Functional replacement cost
b. Actual Cash Value
c. Replacement Value
d. Market Value
c. Replacement Value
What calculation is used to determine the actual cash value (ACV) of a loss?
a. Market value – depreciation = ACV
b. Replacement cost – depreciation = ACV
c. Market value – original purchase price = ACV
d. Replacement cost – market value = ACV
b. Replacement cost – depreciation = ACV
Policy Structure D I C E
D Declarations
I Insuring Agreement
C Conditions
E Exclusions
Which of the following BEST describes a scheduled limit of insurance on a property policy?
a. Insures multiple items of property on multiple policies
b. Insures multiple items of property on a single policy
c. Insures a single item of property on a single policy for a specific limit
d. Insures a single item of property at a blanket limit
b. Insures multiple items of property on a single policy
The duties and obligations of the insured are found under what part of the insurance policy? a. Declarations b. Insuring Agreement c. Additional Coverages d. Conditions
d. Conditions
A Liberalization Clause serves which of the following purposes?
a. At each annual renewal, the policy limit automatically increases in value
b. The insurer has the right to recover from any party causing a loss
c. The insured is given permission to bring suit against the insurer
d. Broadened coverage applies automatically to all policies without a premium charge
d. Broadened coverage applies automatically to all policies without a premium charge
Each of the following is a typical property insurance policy exclusion, except:
a. Ordinance or Law
b. Flood
c. Fire
d. Neglect
c. Fire
Which of the following has the broadest coverage under the insurance policy?
a. Named Insured
b. Insured
c. First Named Insured
d. Additional Insured
a. Named Insured
Which of the following is not true of coinsurance?
a. It is a common policy provision
b. It encourages the insured to maintain insurance to value
c. It applies in the event of a total loss
d. The higher the coinsurance percentage purchased, the lower the rate the insured
pays
c. It applies in the event of a total loss
Loss of
Consortium
Compensation to a husband or wife for the loss of companionship of a spouse
A(n) ____________ is a civil wrong committed by one person against another.
a. Tort
b. Accident
c. Breach
d. Punitive damage
a. Tort
Which of the following damages is awarded to the injured party for the actual medical expenses incurred? a. General b. Punitive c. Special d. Consortium
c. Special
Which of the following documents informs an insurer that a loss has occurred?
a. Certificate of insurance
b. Notice of loss
c. Proof of loss
d. Occurrence notice
b. Notice of loss
Payment of necessary medical expenses without regard to negligence is covered by
which of the following insurance coverages?
a. Medical Payments
b. Bodily Injury
c. Property Damage
d. Personal Injury Liability
a. Medical Payments
Each of the following is an element of negligence, except:
a. A duty is owed
b. The duty is violated
c. There is a foreseeable consequence
d. There is an intervening cause
d. There is an intervening cause
Which of the following is a common law defense used by the defendant when the
injured party is partially responsible for his own injuries?
a. Proximate cause
b. Contributory negligence
c. Absolute liability
d. Comparative negligence
b. Contributory negligence
A party injured in an auto accident is not allowed to sue the negligent party who
caused the accident under which of the following laws?
a. No-fault
b. Civil
c. Pure
d. Tort
a. No-fault
Which of the following is designed to prevent the insured from collecting more than the actual extent of a loss? a. Excess insurance b. Primary coverage c. Pro rata liability d. Contribution by equal shares
c. Pro rata liability
The \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ is the most the policy will pay for the sum of all the losses occurring within a policy period. a. Contribution b. Excess c. Combined d. Aggregate
d. Aggregate
The _______ Limit of liability applies to bodily injury, property damages, or both.
a. Contribution limit
b. Excess limit
c. Combined Single
d. Limit
c. Combined Single
DP–1 (Basic Form)
The perils insured against are fire, lightning, and internal explosion.
DP–2 (Broad Form)
The perils insured against are the DP–1 perils, the EC perils, VMM
DP–3 (Special Form)
Coverage for the dwelling and other structures is provided on an open perils basis, meaning
coverage is provided for all causes of loss except for those perils specifically excluded.
Which of the following is not eligible under the Dwelling Program?
a. Dwelling has 5 roomers
b. Dwelling has 4 apartment units
c. Dwelling includes a piano school
d. Dwelling is located on farm property
d. Dwelling is located on farm property
Which of the following dwelling program forms covers the building on an open peril basis? a. DP–1 Basic Form b. DP–2 Broad Form c. DP–3 Special Form d. DP–4 Liability Form
b. DP–2 Broad Form
Which of the following dwelling forms pays for losses to the dwelling on an actual cash value basis? a. DP–1 Basic Form b. DP–2 Broad Form c. DP–3 Special Form d. DP–4 Liability Form
a. DP–1 Basic Form
An attached carport is covered under which of the following coverages?
a. Coverage A - Dwelling
b. Coverage B - Other Structures
c. Coverage C - Personal Property
d. Coverage D - Fair Rental Value
a. Coverage A - Dwelling
All of the following are covered under Coverage B – Other Structures, except:
a. Swimming pool
b. Construction materials
c. Shed
d. Storage building
b. Construction materials
Which coverage pays for the loss of rents due to direct loss to the dwelling from a
covered peril?
a. Coverage B - Other Structures
b. Coverage C - Personal Property
c. Coverage D - Fair Rental Value
d. Coverage E - Additional Living Expense
c. Coverage D - Fair Rental Value
All of the following are types of property NOT covered under Coverage C – Personal Property, except: a. A dog b. Canoe c. Motor vehicles d. Credit cards or fund transfer cards
b. Canoe
The limit of insurance for the Other Coverage Trees, Shrubs, and Other Plants is
provided at which percentage of the Coverage A limit?
a. 5%
b. 10%
c. 50%
d. 100%
a. 5%
Which of the following is NOT true about coverage for Property Removed?
a. Property is covered while being removed from the premises to avoid a covered loss
b. Coverage applies under the DP–3 form for 30 days while the property is removed
c. Coverage does not increase the limit of insurance that applies to the property
removed
d. Property coverage applies under the DP–1 policy for 30 days while the property is
removed
d. Property coverage applies under the DP–1 policy for 30 days while the property is
removed
Which of the following does not apply to the Other Coverage Glass or Safety Glazing
Material?
a. Covers glass that is part of a covered structure
b. Applies to all dwelling forms
c. No coverage applies if a dwelling is vacant for 60 consecutive days before the loss
d. May be settled on a replacement cost basis
b. Applies to all dwelling forms
The Earth Movement exclusion contains all of the following perils, except:
a. Mudflow
b. Explosion
c. Landslide
d. Earthquake
b. Explosion
What type of power failure is excluded under all of the dwelling forms?
a. Power failure that occurs on the insured premises
b. Power failure that causes a fire to a neighboring property
c. Power failure that occurs off the insured premises
d. Power failure that causes a fire on the described location
c. Power failure that occurs off the insured premises
All of the following statements are TRUE about the Broad Theft Coverage
endorsement, except:
a. It does not apply to the DP–1
b. Both on- and off-premises coverage is available
c. Theft and attempted theft are covered
d. Resulting damage caused by malicious mischief and vandalism is covered
a. It does not apply to the DP–1
The Personal Liability endorsement includes each of the following additional coverages, except: a. First aid expenses b. Damage to the property of others c. Claims expenses d. Debris removal
d. Debris removal
The Automatic Increase in Insurance endorsement typically increases Coverages A
and B by which of the following?
a. A flat amount
b. A percentage designated on the endorsement
c. $10,000
d. $25,000
b. A percentage designated on the endorsement
An owner of a condominium unit would purchase which Homeowner form?
a. HO–2, Broad Form
b. HO–4, Contents Broad Form
c. HO–6, Unit-owners Form
d. HO–8, Modified Coverage Form
c. HO–6, Unit-owners Form
In what way is the HO–5, Comprehensive Form, different from the HO–3, Special
Form?
a. Personal property is valued at actual cash value
b. Personal property is insured on an open perils basis
c. The dwelling is valued at replacement cost
d. The dwelling is insured on an open perils basis
b. Personal property is insured on an open perils basis
A related, full-time student away at school and under what age is considered an insured on the Homeowner policy? a. 18 b. 19 c. 20 d. 24
d. 24
Coverage A – Dwelling does not cover vandalism and malicious mischief if the
dwelling has been vacant for how many days?
a. 20
b. 30
c. 60
d. 90
c. 60
The amount of insurance provided for Coverage C is what percentage of Coverage A on a HO–3, Special Form? a. 15% b. 25% c. 35% d. 50%
d. 50%
All of the following special limits of Coverage C are correct, except:
a. $200 for money
b. $2,500 for theft of firearms
c. $1,500 for a trailer not used with watercraft
d. $2,500 for business property away from premises
d. $2,500 for business property away from premises
The automatic limit for Coverage D – Fair Rental Value is what percentage of Coverage A under an HO–3, Special Form? a. 10 b. 20 c. 30 d. 50
c. 30
The Landlord’s Furnishings endorsement provides up to $ _______ of coverage.
a. 500
b. 1,000
c. 2,000
d. 2,500
d. 2,500
Which of the following is a Section I exclusion in the Homeowner policy?
a. Governmental action
b. Property removed
c. Loss assessment
d. Debris removal
a. Governmental action
The Water Back Up and Sump Discharge or Overflow endorsement provides how much coverage for damaged property? a. $2,500 b. $5,000 c. $7,500 d. $10,000
b. $5,000
Section II Additional Coverages includes Damage to Property of Others for what limit of insurance? a. $15,000 b. $12,500 c. $1,000 d. $500
c. $1,000
All of the following are covered by Coverage F – Medical Payments to Others,
except:
a. An injury to the insured while mowing the lawn
b. A neighbor’s injury caused by an insured’s activity
c. An injury to another person caused by a residence employee while mowing the
lawn
d. A guest is injured while visiting the insured at home
a. An injury to the insured while mowing the lawn
Which of the following is excluded under the Section II exclusions?
a. Vehicle in dead storage
b. Motorized golf cart approved for use while golfing
c. Non-owned vehicle used off public roads
d. Vehicle used to assist the handicapped and parked in a public lot
d. Vehicle used to assist the handicapped and parked in a public lot
The duties required of an injured person seeking coverage under Medical Payments
to Others include all of the following, except:
a. Promptly notify the insurer of any notice or demand
b. Submit to a physical exam by the insurer’s physician
c. Cooperate with the insurer
d. Help the insurer in settling the claim
d. Help the insurer in settling the claim
Which of the following boats is covered under the Watercraft Liability endorsement?
a. A watercraft rented to another person
b. A 20-foot sail boat
c. A jet boat
d. A boat used to practice for a race
b. A 20-foot sail boat
