practice exam Flashcards
Which of the following is a cancellation procedure in which the premium returned to the insured is NOT in direct proportion to the number of days remaining in the policy period?
Short Rate
Flat Rate
Dividend
Pro Rata
Short Rate.
(Short rate cancellation is a cancellation procedure in which the premium returned to the insured is not in direct proportion to the number of days remaining in the policy period)
Which of the following is NOT one of the independent rating services that publishes guies to insurance companies’ financial integrity?
NAIC
Moody’s
AM Best
Fitch
NAIC
(The various independent rating services are AM Best, Fitch, Standard and Poor’s, Moody’s, and Weiss. NAIC is a regulatory organization composed on insurance commissioners.)
After an automobile accident, an individual decided he would not drive or ride in a car ever again. Which method of risk management does this describe?
Retention
Avoidance
Sharing
Reduction
Avoidance.
What is the purpose of the coinsurance clause in property insurance policies?
Prevent insureds from profiting from a loss.
Set higher standards of care by requiring the insured to pay a portion of every loss.
Prevent overinsurance of the property.
Encourage insurance to value.
Encourage insurance to value.
(In return for the insured’s promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full)
An ocean marine loss that occurs through the voluntary sacrifice of a part of the vessel or cargo to save the ship, crew, or other cargo is known as
A salvage loss
A general average
A particular average
Sue and labor
A general average.
(Average in ocean marine language means loss or damage. If one piece of cargo is sacrificed to save the rest, it is a general average – all benefit, and all associated with the voyage help pay)
The extended discovery period in the crime general provisions for the Loss Sustained Form is
90 days
60 days
3 years
1 year
1 year.
One year is a standard provision of the loss sustained form
An insurance policy is a legal contract, and as such, it must include all of the following elements EXCEPT
Legal purpose
Offer and acceptance
Conditions
Consideration
Conditions.
Conditions are part of the policy structure. Consideration is an essential part of a contract
All of the following are other coverages under the dwelling policy EXCEPT
Other structures
Improvements, alterations, and additions
Earth movement
Debris removal
Earth movement.
Earth movement is not included in the other coverages of the dwelling policy
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
Warranty
Representation
Indemnity
Concealment
Warranty.
An insurer neglects to pay a legitimate claim covered under the terms of the policy. Which element on the contract has the insurer violated?
Representation
Good faith
Consideration
Adhesion
Consideration.
(The binding force in any contract is consideration. Consideration on the part of the insurer is the promise to pay in the event of loss)
The homeowners policy form that covers condominium unit owners is
HO-3
HO-4
HO-2
HO-6
HO-6.
HO-6 is designed specifically to cover the exposure of a condominium unit owner
The process an insurer uses to evaluate risks and determine if a policy should be insured and on what terms, conditions, and rates is known as
Rating
Underwriting
Acceptance
Adverse selection
Underwriting.
A policy that insures all property at multiple locations for a single amount is referred to as
Special
Limited
Comprehensive
Blanket
Blanket.
(Blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss)
The primary purpose of a surety bond is to
Pay employer losses
Secure a line of credit of a contractor
Make sure obligations are fulfilled
Eliminate the possibility of loss.
Make sure obligations are fulfilled.
A surety bond guarantees the performance of the principal
Which HO form provides open peril coverage for Coverage A - Dwelling and Coverage C - Contents
HO-5.
(HO-2 form is named peril (broad form perils) coverage for both dwelling and contents. HO-3 is open perils for dwelling and named peril for contents. HO-5 is open peril for both dwelling and contents. HO-8 is named peril (basic perils) coverage for both.
Who is responsible for paying producer appointment fees?
The appointing insurer
The Commissioner’s office
The Department of Insurance
The producer
The appointing insurer
(Insurers pay agent appointment feeds. They also must notify the Department of all agent appointments and appointment terminations)
A special type of insurance that guarantees the faithful performance of a trustee of employee benefit plan is called
Directors and officers insurance
Fiduciary liability insurance
Error and omissions
Surety bond.
Fiduciary liability insurance.
Fiduciary liability insurance insures an employee benefit plan against bad acts of the plan’s fiduciaries or trustees
A liability policy that covers all claims arising out of incidents occurring during the policy period, regardless of whether the policy is still in effect at the time of the claim, is known as
An occurrence policy
A limited liability policy
A claims-made policy
An aggregate policy
An occurence policy.
In auto insurance, what is the term that defines parts that are used in the repair of an insured vehicle by other than the original manufacturer?
Replacement parts
After-market parts
Used parts
Second-hand parts
After-market parts.
In HO policies, all of the following are duties of the insured after a loss occurs EXCEPT
Arrange for an appraisal by an unbiased third party
Protect the property from further damage
Notify the policy if the loss is caused by theft
Provide prompt notice of the loss to the insurer.
Arrange for an appraisal by an unbaised third party.
In a commercial package policy, (CPP), the business owner may select from all of the following types of coverage EXCEPT
General liability coverage
Crime
Workers’ Compensation
Equipment breakdown
Workers’ Compensation
Worker’s Comp is not available through the Commerical Package Policy (CPP)
Which of the following would be covered under a Building and Personal Property coverage form?
Building foundations
Outdoor sign
Personal property while airborne
Underground pipes
Ourdoor sign
There is a $2,500 per sign limitation for loss or damage to outdoors signs attached to the building
Which of the following would NOT be eligible for coverage under a Personal Auto policy?
A vehicle listed on the Dec Page
A vehicle purchased 90 days ago
A trailer owned by the insured
A non-owned temp substitute vehicle
A vehicle purchased 90 days ago.
(A covered auto includes automobiles listed in the dec, owned trailers, newly acquired autos (for 30 days), nonowned temp sub vehicles, and additional temporary vehicles due to repair, servicing, breakdown, or loss)
All of the following are Other Coverages included in both the broad and special form dwelling policy EXCEPT
theft of personal property
lawns, trees, shrubs, and plants
breakage of storm door glass
collapse
theft of personal property
can only be included by endorsement
FAIR plans are provided by
The Guaranty Association
The State
Private Insurers
The federal government
Private insurers.
Cargo is damaged short of its destination. An agent at an immediate port sells the damaged cargo at the best price. Settlement is based on the difference between insured value and the net sales proceeds. This is considered
A particular average
A general average
Sue and labor
A salvage loss
A salvage loss.
Which of the following agencies administers the National Flood Insurance Program?
FIA
FEMA
FERC
NAIC
FIA
Federal Insurance Administration FIA created the National Flood Insurance Program
Two individuals are in the same risk and age class; yet they are charged different rates for their insurance policies due to an insignificant factor. What is this called?
Underwriting
Adverse Selection
Unfair discrimination
Law of Large Numbers
Unfair discrimination
When would uninsured motorist coverage apply?
Only when the insured is legally liable
Any time the insured is involved in an accident with an uninsured driver
Only when the insured driver drives an uninsured car
Only when the other party is legally liable but has no insurance.
Only when the other party is legally liable but has no insurance.
Under a dwelling policy, which of the following is NOT a factor in determining a loss?
The amount negotiated by the insured
The amount necessary to repair or replace the property
The policy limit
The amount of the insured’s interest in the property at the time of loss
The amount negotiated by the insured.
(The value of a loss is decided according to the actual cash value of the property, the policy limit, the amount needed to repair or replace the property, or the amount reflective of the insured’s interest in the property)
An insurer who transacts insurance in this state, but whose articles of incorporation are registered in Canada, would be considered what type of insurer?
Alien
Surplus lines
Foreign
Unauthorized
Alien.
Which of the following would NOT be covered by HO liability insurance?
Property damage
first aid expenses
intentional tort
bodily injury
intentional tort
Employers liability coverage under a workers’ compensation policy includes
third-party liability claims
punitive damages
intentionally caused injuries
claims from a spouse injured by an employee
third party liability claims
(employers liability coverage protects the employer against suits arising out of an employee’s injuries that are brought by third parties)
All of the following are supplemental payments found in liability policies EXCEPT
limited amounts of bonds related to a claim
reasonable expenses incurred by the insured
all expenses and defense costs incurred by the insurer
costs the insured incurred in hiring an attorney
Costs the insured incurred in hiring an attorney.
(Supplemental payments pay the insurance company’s expenses and will not pay expenses incurred by the insured unless incurred at the insurer’s request.)
Under the Personal Auto Policy, liability for bodily injury resulting from the insured’s use of a nonowned automobile is
not covered
provided by the insured’s policy on a primary basis
provided by the insured’s policy on an excess basis
shared on a pro rata basis
provided by the insured’s policy on an excess basis.
(automobile insurance follows the insured auto, os the coverage written on the auto is primary. automobile insurance also follows the insured as excess over other collectible insurance)
With respect to commercial auto policies, the Garage Coverage Form provides liability protection for all of the following EXCEPT
the insured’s business autos
the insured’s business premises
the insured’s business income losses due to personal injury
the insured’s business products and work performed
The insured’s business income losses due to personal injury.
(The Garage Coverage Form does not cover personal injury and loss of wages from those injuries. Such coverage would be provided by a CGL policy)
An insured has a DP-3 policy written for $100,000. The dwelling replacement cost is $115,000. Fire causes $75,000 in damage to the dwelling, $15,000 to a separate garage, and kills 10 trees valued at $600 each. How much will the policy pay for the trees?
$5,000.
$500 is the max for each tree and should not exceed 5% of Coverage A in total
Which of the following perils is covered by the HO-2 and HO-3 policies?
flood
sudden and accidental rupture of a heating system
loss due to power interruption that occurs off the premises
war or military action
sudden and accidental rupture of a heating system.
off-premises power failure, flood, and war are excluded from all DP and HO policies
Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?
declarations
insuring agreement
additional coverage
exclusions
additional coverage
(the additional coverage portion of a policy provides an additional amount of coverage for specific loss expense at no additional premium)
The legal concept that requires that workers compensation coverage benefits be accepted by injured employee as the only recourse an employee has in the settlement of injury claims is called
the executive authority provision
the exclusive remedy provision
the unilateral recourse provision
the omnibus resolution provision
The exclusive remedy Provision
workers comp is the exclusive remedy for all injury claims against employers
Which of the following protects consumers against the circulation of inaccurate or absolute information?
the guaranty association
unfair trade practices law
consumer privacy act
the fair credit reporting act
The Fair Credit Reporting Act
CGL Coverage B (Personal Injury and Advertising Injury) will cover
An offense committed by an insured whose business is advertising
Inadvertent injury to others caused by the advertising of the insured’s product
Publication of material the insured knows is false
Failure of goods to conform to advertised quality or performance.
Inadvertent injury to others caused by the advertising of the insured’s product.
(Personal Injury and Advertising Injury do not cover professional advertisers, do not cover intentional injury, and do not guarantee the product will perform as advertised)
In a dwelling policy, other structures would be covered if used
by the insured’s neighbor as a private garage
as a farming operation
by the insured to house a manufacturing operation
by the insured to operate a retail business
by the insured’s neighbor as a private garage.
(under coverage b - other structures, structures may not be rented to anyone except a tenant of the main dweling. however, a garage that is used for a private garage does not come under this exclusion of rented property and is covered even if it is rented to someone other than the occupant of the dwelling)
A dwelling policy has a standard deductible that applies to all property coverage, with some exceptions. How much is this deductible?
1,000
100
500
250
250.
(A standard deductible of $250 applies to all property coverage, except fair rental value, additional living expense, and the fire department service charge)
Which policy consists of the declaration, conditions, endorsements, and other attachments applicable to a single coverage part?
casualty
businessowners
monoline
commercial package
monoline.
a monoline policy is a policy that contains only one coverage part
Which of the following reports includes information regarding an applicant’s credit, character, reputation, and habits?
consumer report
agent’s report
any federal report
credit report
consumer report
(consumer reports include information regarding a consumer’s credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources)
The members of a Limited Liability Company (LLC) are insureds under a BOP if
each individual is listed as a named insured
members of a LLC cannot be insured under a BOC
the LLC is designated as the named insured
a single individual member of the LLC is listed as the named insured
the LLC is designated as the named insured.
To have insurable interest, what risk must the policyowner face?
speculative risk
physical injury
financial loss
property damage
Financial Loss.
If an insurer meets the state’s financial requirements and is approved to transact business in the state, it is considered to be
resident
admitted
qualified
certified
Admitted.
(Insurers who meet the state’s financial requirements and are approved to transact business in the state are considered authorized or admitted)
When do binders expire?
when an original policy is replaced
after 10 days of issue
no later than 30 days of issue
as soon as the policy is issued
as soon as the policy is issued.
binders expire when the policy is issued. the period of time for a binder can vary from insurer to insurer
Which of the following does a producer NOT have the authority to do?
negotiate contracts of insurance
solicit insurance contract
deliver policies
write regulations of the insurance code
write regulations of the insurance code
an insurance producer sells, solicits, or negotiates contracts of insurance
The Declarations section of a PAP identifies all of the following EXCEPT
definition of covered auto
mailing address
named insured
loss payees
definition of covered auto
(the PAP declarations section identifies the following: named insured, mailing address, policy period, applicable coverages and their limits, and loss payees)
What is the maximum number of families per covered home that are allowed by Homeowners policies?
4.
Before an insurer will pay any loss under a policy, what is usually required from the insured?
a binder
notice of claim
a claims-made form
proof of loss
proof of loss.
(a sworn statement, called proof of loss, must usually be furnished by the insured to an insurer before any loss under a policy can be paid)
Under a dwelling policy, within how many years of a loss many an insured bring a lawsuit against an insurer?
1 year
3 years
4 years
2 years
2 years.
(if an insured wants to bring a suit against an insurer, the insured must comply with all policy conditions and start action against the insurer within 2 years of the loss.)
All of these types of property may be covered on a farm property coverage form EXCEPT
barns
silos
farm machinery
growing crops
growing crops.
(the only way to insure growing crops is with a crop insurance policy, the crop insurance is separate from the farm coverage program.)
All of the following are essential parts of the property insurance contract EXCEPT
provisions
exclusions
insuring clause
conditions
provisions
(provisions is a braod term used to refer to the sections or clauses of an insurance policy that communicates the policy’s benefits, conditions, etc. Policy parts are declarations, insuring clause, conditions and exclusions.)
A basic dwelling policy automatically provides coverage against fire, lightning, and
riots
windstorm
smoke
internal explosion
internal explosion.
All of the following are conditions commonly found in the insurance policy EXCEPT
subrogation
cancellation and nonrenewal
appraisal
insuring agreement
insuring agreement
(insuring agreement provides information on the policy’s coverages. conditions state the legal obligations and duties of the parties to the contract)
If the actual values exceed the limit of insurance, the BOP contains a seasonal increase provision that automatically increases the limit of insurance for business personal property by
10%
50%
25%
30%
25%
(the BOP contains a seasonal increase provision that automatically increases the limit of insurance for business personal property by 25% if the actual values exceed the limit of insurance)
The requirement that agents not commingle insurance monies with their own funds is known as
fiduciary responsibility
accepting accounting principle
premium accountability
express authority
fiduciary responsibility
money collected with respect to an insurance transaction must be held in a position by the agent or broker
Under a dwelling policy, which of the following clauses applies if an insured has lost one of two matching silver candlesticks?
fractional loss
recovered property
pair or set
sets coverage
Pair or set.
(pair or set is a clause that if only item of a set has been lost, the insurer is not obligated to pay the total value of the set)
Which of the following are the authorities that an agent can hold?
authorized and admitted
apparent and allowed
express and implied
primary and secondary
Express and Implied.
(the powers and authorities that an agent holds are express and implied. apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created)
Which of the following symbols used in business auto coverage is corrected described?
symbol 7 - hired autos only
symbol 2 - owned autos subject to no-fault
symbol 9 - nonowned autos only
symbol 1 - owned auto only
symbol 9 - nonowned autos only
symbol 1 is used for any auto, 2 is used for owned autos only, 7 is used for specifically describes autos only
If an insured purchases an insurance policy with a large deductible, what risk management technique is the insured exercising?
reduction
avoidance
sharing
retention
Retention
(when an insured purchased a policy with a large deductible, he or she received a lower premium rate. in return for the lower premium rate, the insured was required to retain a larger amount of the loss, should it occur)
Which of the following is a statutory defense?
contributory negligence
intervening cause
assumption of risk
comparative negligence
Comparative Negligence
(many states, by state, require that damages be apportioned based upon the degree of negligence of each party in an accident)
A covered watercraft was damaged in an accident. The actual cash value was assessed at $10,000; the cost of repairs - $5,000. The insured’s watercraft policy has a $25,000 limit. How much will the insurer pay?
$5,000.
(the limit of liability for part D will be the lesser of the amount shown in the Declarations, the actual cash value of the stolen or damaged property, or amount necessary to repair or replace the property)
An insured purchased an insurance policy 5 years ago. Last year, she received a nontaxable dividend from the insurer. This year, she did not receive any dividends. What type of insurer is it?
Mutual.
(mutual companies are owned and controlled by their policyholders. any surplus money is returned to the policyholders as dividends)
What policy would a business owner whose business fills scuba tanks most likely need to insure unfired pressure vessels and compressors?
inland marine scuba floater
equipment breakdown
contractors equipment floater
cgl
Equipment breakdown.
Equipment breakdown coverage is for high-pressure systems
An owner of a parking lot wants liability coverage for damage to vehicles while in their custody. The owner needs
garage liability overage
business auto coverage
garagekeeprs coverage
motor carrier coverage
Garagekeepers coverage
provides physical damage coverage on customers’ autos while in the care, custody, and control of the garage operation
Which of the following could be insured with replacement cost coverage under the flood insurance program?
a single-family home
a garage
an apartment building
a shed
A single-family home.
(a single-family home will be insured with replacement cost coverage if it is insured to at least 80% of its replacement value. All other buildings will be insured on an actual cash value basis)
Which of the following is the federal body that regulates truckers who travel across state lines?
federal motor carrier safety administration
motor carriers commerce agency
federal trade commission
truckers and trade commission
federal motor carrier safety administration
The equipment breakdown coverage form provides coverage for all of the following EXCEPT
bodily injury and property damage
damage to the insured’s property
damage to property of others in the insured’s care and custody
expediting expenses following a covered loss
Bodily injury and property damage
equipment breakdown is a property form; it does not cover liability exposures
The policy conditions define
the amount of coverage
the excluded perils
how parties to the contract must act following a loss
the basic underwriting information
How parties to the contract must act following a loss.
Which of the following would NOT be classified as personal property for insurance purposes?
furniture
a car
a house
a mobile home
A house
personal property is property that is moveable; real property is not moveable
Which of the following describes the insurer’s responsibility for payment under a policy, as stated in the common policy provisions?
utmost good faith
consideration
limits of liability
premiums
Limits of Liability
limits of liability are the insurer’s liability for payment as stated in an insurance policy
The reduction of value of the property insured in a policy by a peril insured against is known as
hazard
risk
loss
exposure
Loss.
(loss is the reduction, decrease, or disappearance of value of the personal or property in a policy, by a peril insured against)
For business income coverage, the waiting period that must occur before the period of restoration may begin is
48 hours
24 hours
120 hours
72 hours
72 hours.
Homeowners policies permit all of the following incidental occupancies EXCEPT
a bookkeeping service with one accountant
knitting lessons taught to 3 students on premises
a retail sales operation run by the insured from his garage
a two-chair barbershop
A retail sales operation run by the insured from his garage
(HO policies allow incidental office or professional service-type occupancy as long as no more than 2 people work there at a time. Retail sales are not allowed)
The insured is not legally bound to any particular action under the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract characteristic does this describe?
Adhesion
Unilateral
Aleatory
Conditional
Unilateral
in a unilateral contract, only one of the parties to the contract is legally bound to do anything
For which of the following reasons can a temporary license be issued?
to provide temporary help to a licensed producer
to solicit new business
to service existing business
the negotiate new insurance contracts
To service existing business.
(temp licenses may be issued to the surviving spouse, next of kind or court-appointed personal representative of an agent who dies, or becomes mentally or physically disabled. temp licenses may not solicit new business)
The loss ratio compares
losses to interest rates
premiums to interest rates
premiums to company expenses
earned premiums to losses
Earned premiums to losses.
When an insured was towing a utility trailer with his auto, the trailer came loose and ran into a store front. What part of the insured’s auto policy would pay for. the damage to the store?
other than collision
collision coverage
no coverage
property damage liability
property damage liability
the auto policy provides liability coverage for a trailer being towed by a covered auto
All of the following are found in the declarations section of a policy EXCEPT
limits of insurance
exclusions
policy premiums
name of the insured
Exclusions.
(states who is insured, what is insured, where the property is located, when the policy begins and ends, how much the insurance and how much premium. the exclusions tell what is not covered)
What type of coverage do umbrella policies provide?
property coverage for those who do not qualify for HO insurance
primary coverage for risks that are difficult to insure
property coverage for the basic perils of fire, wind, and hail
excess coverage over an underlying policy
Excess coverage over an underlying policy.
(umbrella policies, sometimes called catastrophe insurance, provides excess over the underlying or primary liability policy)
Which of the following is the amount of loss assessment coverage included under an HO Liability coverage section?
up to $1,000 per occurrence
up to $10,000 aggregate for the policy period
up to $2,500 per occurrence
up to $5,000 aggregate for the policy period
up to $1,000 per occurence.
What type of ocean marine insurance provides physical damage coverage for the ship while it is in transit?
cargo
freight
hull
protection and indemnity
Hull.
physical damage or loss of the ship itself is covered by the hull policy
Which of the following other coverage is NOT included in the basic form dwelling policy?
removal coverage
tenant’s alterations and additions
personal property temporarily away from the insured premises
breakage of glass
Breakage of Glass.
breakage of glass is included in the DP-2 and DP-3 only
Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as
nonrenewal
forfeiture
stop-loss
cancellation
Cancellation
According to the law of agency, the agent always represents the
insurance company
public
client
state department of insurance
insurance company
