Review Exam-Day 1 Flashcards by Randi Skelton

Which of the following is not a method of handling risk?

a. risk speculation
b. risk control
c. risk retention
d. risk transfer

a. risk speculation

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The principle that an insured should be restored to approximately the same financial position they enjoyed immediately prior to a loss is known as the principal of:

a. insurable interest
b. indemnity
c. merit rating
d. subrogation

b. indemnity

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Insurance is an example of what kind of risk management?

a. loss control
b. retention
c. transfer
d. indemnity

c. transfer

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An insurance company that is capitalized by investors who own the company and share in its profits and losses is:

a. a reciprocal
b. a form of self-insurance
c. class rating
d. a stock company

d. a stock company

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Many government insurance programs, insurance pools and assigned risk plans used to place risks that cannot be written through private insurance carriers are known as

a. residual markets
b. reinsurers
c. reciprocals
d. alien insurers

a. residual markets

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Since most insurance contracts are written by the insurer, with little or no control by the insured, they are said to be:

a. unilateral contracts
b. contracts of adhesion
c. express contracts
d. non-assignable

b. contracts of adhesion

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Which of the following is not an essential element of a legal contract?

a. offer and acceptance
b. legal purpose
c. signature of parties
d. consideration

c. signature of parties

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A policy may be modified by attaching

a. a binder
b. a waiver of estoppel
c. a reinsurance treaty
d. an endorsement

a. an endorsement

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Insurance agents have fiduciary responsibility because:

a. they may hold monies for both the insured and the insurer
b. they may sell fiduciary bonds to financial institutions
c. they work for profit-making organizations
d. all of the above

a. they may hold monies for both the insured and the insurer

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A binder means the same thing as:

a. a beneficiary clause
b. an agreement giving temporary coverage
c. the outside jacket into which the policy is inserted for safekeeping
d. an agreement the insured makes with the company which “binds” the insured to at least one year’s premium payments on a newly issued policy

b. an agreement giving temporary coverage

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Which of the following is not a duty of the Commissioner of Insurance?

a. examinations of insurance agents
b. issuance of agents’ licenses
c. setting of property and casualty insurance rates
d. approval or review of policies issued in Alabama

c. setting of property and casualty insurance rates

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Which of the following statements is true regarding the Department of Insurance?

a. The chief function is the execution and enforcement of insurance laws
b. the commissioner is the chief officer and is appointed by the governor
c. the records of the Department are open to the public
d. all of the above

d. all of the above

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Which of the following policy elements are not part of the policy declarations?

a. policy number
b. conditions
c. named insured
d. policy period

b. conditions

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Actual Cash Value (ACV) means:

a. replacement cost of an object
b. market value of an object
c. replacement cost of an object minus depreciation
d. agreed value of an object

c. replacement cost of an object minus depreciation

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Which of the following might be used by an underwriter to assist in underwriting a risk?

a. Governmental bureaus
b. Financial information services
c. previous insurers
d. all of the above

d. all of the above

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The voluntary giving up or surrender of any known right, privilege or advantage by one party to a contract is called:

a. waiver
b. estopppel
c. subrogation
d. warranty

c. waiver

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The insurance an insurance company buys to cover a portion of its own exposure to loss is known as:

a. counter insurance
b. reinsurance
c. assurance
d. post insurance

b. reinsurance

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Which of the following expressed the principle of indemnity?

a. both parties to the insurance contract rely on the promises of the other’s party
b. one party to the contract draws up the provisions without the participation of the other party
c. an insured should be restored to the same financial position after a loss as existed before the loss
d. equal value is not given by both parties to the contract

c. an insured should be restored to the same financial position after a loss as existed before the loss

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An insurance premium represents which characteristic of a legal contract?

a. offer and acceptance
b. competent parties
c. legal purpose
d. consideration

d. consideration

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Purposely planning a loss to collect on the insurance is an example of:

a. a moral hazard
b. a morale hazard
c. a physical hazard
d. all of the above

a. a moral hazard

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Property and casualty agents must notify the commissioner in writing of an address change within:

a. 30 days
b. 10 days
c. one week
d. one month

a. 30 days

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The Homeowners Form Four (HO-4) is basically intended to cover which of the following types of risks:

a. apartment buildings
b. an apartment dweller’s personal property
c. a single-family detached dwelling
d. a mobile home

b. an apartment dweller’s personal property

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The body of civil law that provides remedies for wrongful acts other than crimes, statutory violations and breaches of contracts is known as:

a. workers compensation
b. proximate cause
c. strict liability
d. tort

d. tort

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A method used to minimize small nuisance claims, lower premiums, and make the insured more loss conscious is known as:

a. subrogation
b. a deductible
c. coinsurance
d. an other insurance clause

b. a deductible

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All of the following are Extended Coverage (EC) perils except: a. explosion b. aircraft c. tornado d. vandalism

d. vandalism

The penalty for failure to satisfy a coinsurance requirement is: a. only a portion of the policy limit will be paid in the event of a total loss b. only a portion of partial losses will be paid c. there will be no coverage for partial losses d. there will be no coverage for total losses

b. only a portion of partial losses will be paid

On Homeowners policies, the term "insured location" is a broad term describing where certain liability coverages apply. It includes each of the following except: a. family cemetery plots b. any newly acquired premises c. a non-owned premises used as a temporary residence by an insure d. vacant farm land owned by an insured

d. vacant farm land owned by an insured

Coverage B of a Homeowners policy will apply to which of the following losses? a. damage to the kitchen of the main residence b. damage to a detached garage c. damage to lumber intended for a new front porch on the residence d. damage to a freezer in the attached garage

b. damage to a detached garage

On a Homeowners policy, "insured" does not include: a. all residents who are related to the named insured b. the person named int he declarations page c. an unrelated minor being cared for by the named insured's family d. an unrelated tenanyt living in the main residence

d. an unrelated tenant living in the main residence

Unless higher limits of coverage are purchased, a Homeowners policy will not cover losses of money by theft in excess of: a. $1000 b. $200 c. $2000 d. $2500

b. $200

Which dwelling forms provide coverage for loss of rental income? a. the Special Form only b. the Broad and and Special forms only c. the Basic and Special forms only d. the Basic, Broad, and Special forms

d. the Basic, Broad, and Special forms

The Dwelling Policy coverage which will pay the insured for lost rents on the dwelling or other structure is known as: a. additional living expenses b. fair rental value c. business interruption d. time element

a. additional living expenses

A $500 deductible on a Homeowner's policy helps to reduce: a. I only b. II only c. Neither I nor II d. Both I and II

d. both I and II

Automobile limits of liability expressed as 25/50/10 mean: a. $25,000 BI, $50,000 PD, $10,000 medical payments per accident b. $25,000 BI, $50,000 BI per accident, $10,000 PD per accident c. $25,000 PD per accident, $50,000 BI per accident, $10,000 BI per person d. none of the above

b. $25,000 BI per person, $50,000 BI per accident, $10,000 PD per accident

An insured has a Personal Auto Policy with split limits liability coverage of 25/50/10. The insured causes an accident which results in bodily injury to the other car's driver of $7,000, the other car's passenger of $30,000, and $12,000 property damage to the other car. How much will his policy pay for these losses? a. $49,000 b. $44,000 c. $42,000 d. $37,000

c. $42,000

Which automobile coverage listed below reimburses the policyholder without regard to fault? a. property damage liability b. medical payments coverage c. uninsured motorists d. bodily injury liability

b. medical payments coverage

"Comprehensive" (Other Than Collision) coverage includes which of the following? a. Theft of a covered vehicle b. Damage to the vehicle when broadsiding a hog c. both a. and b. d. Hitting a large rock in the road

c. both a. and b.

Which overage or coverages are mandatory to be a commercial package policy? a. commercial property and crime b. any two lines of insurance c. commercial liability and auto d. commercial property and liability

b. any two lines of insurance

Which of the following coverages is not available under a commercial package policy? a. boiler and machinery b. crime c. ocean marine d. inland marine

c. ocean marine

Under the Commercial Property Conditions, the "coverage territory" includes all the following except: a. The United States b. Mexico c. Puerto Rico d. Canada

b. Mexico

A Commercial Building valued at $300,000 is insured for $120,000. If the policy is written with an 80% coinsurance percentage and a $250 deductible, how much would be paid for a $60,000 loss? a. $59,750 b. $47,750 c. $29,750 d. nothing, since the insured failed to meet the coinsurance requirements

c. $29,750

An optional commercial property coverage which automatically increases the limit of insurance by an annual percentage shown in the Declarations is called: a. a coverage extension b. inflation guard coverage c. a coinsurance clause d. agreed value coverage

b. inflation guard coverage

The name of a liability insurance policy which generally provides high limits of coverage and may fill a number of insurance gaps is: a. a comprehensive general liability policy b. an errors & omissions policy c. an umbrella policy d. a difference in conditions policy

c. an umbrella policy

All of the following statements regarding Bailees Customers policies are correct except: a. They cover property in the control of the bailee at the insured's premises b. Coverage applies only when the insured is legally liable c. they cover customer's property accepted for processing d. they are written primarily on service and repair type risks

b. coverage applies only when the insured is legally liable

Flood insurance: a. is a covered peril under the special causes form. b. is available from most private insurance companies c. becomes effective thirty days after the date of application d. none of the above is true

c. becomes effective thirty days after the date of application

Which of the following losses would be excluded under the liability section of a Personal Auto Policy? a. The insured turns a corner too sharply and hits a sign b. the insured backs out of his garage and runs over his son's tricycle c. the insured got out of her car and did not put the car in park. It rolled out into the street and hit a car that was parked. d. The insured runs a red light and hits a pedestrian

b. the insured backs out of his garage and runs over his son's tricyle

Which of the following statements best describes a collision? a. the impact of two or more vehicles b. the impact of an automobile with any other object c. the impact of an automobile with another object or vehicle, or the upset of the vehicle d. the impact of an automobile with any moving vehicle

c. the impact of an automobile with any moving vehicle, or the upset of the vehicle

With one exception, all of the following are properties that are NOT covered under the Building and Personal Property coverage form. Which item IS covered by this form? a. Property being illegally traded b. Paper stock on a loading dock at the insured's premises awaiting pickup c. Cash contained in a cash register inside the insured's place of business d. The insured's pet myna bird, which occupies a cage in the insured's office

b. Paper stock on a loading dock at the insured's premises awaiting pick up

Allen has a Personal Auto policy with $50,000 bodily injury liability and $25,000 property damage liability limits. He borrows Ken's car and strikes a pedestrian. Ken has a $100,000 limit of bodily injury liability. How much will Allen's insurer pay if a $125,000 judgement is rendered against Allen? a. $125,000 b. $50,000 c. $25,000 d. $62,000

c. $25,000

Under the Builders Risk coverage form, for what amount is the building under construction originally insured? a. The cost to replace any investment the builder had in the property at the time the policy goes into effect b. The anticipated completed value of the building under construction c. An agreed amount which then increases gradually at a mutually agreeable rate during the period of construction d. The cost of the basement or foundation, followed by varying amounts that keep pace with the increasing value as construction continues

b. The anticipated completed value of the building under construction.

Which Causes of Loss form covers the greatest number of perils? a. Basic form b. Broad form c. Special form d. Earthquake form

c. Special form

The Commercial General liability part can be used to insure against all of the following exposures except: a. Auto Liability b. Premises Liability c. Product Liability d. Completed Operations Liability

a. Auto Liability

Which of the following is not true about the claims-made liability form? a. It provides the same coverage as the occurrence form. b. It has the same exclusions as the occurrence form. c. There is "long tail exposures" from claims. d. The only significant difference between a claims-made and occurrence form is the restriction for loss payment to only one policy term for the claims made form.

c. There is "long tail exposures" from claims.

The primary purpose of the insurance guaranty associations is to: a. Protect the public from insurance company insolvencies and impairments b. Protect insurance agents from insurance company insolvencies c. Review insurance company rate filings for adequacy d. Collect and invest premium taxes

a. protect the public from insurance company insolvencies and impairments

Personal injury is all of the following except: a. slander b. malicious prosecution c. bodily injury d. libel

c. bodily injury

Which of the following coverages are included in an unendorsed Business Auto Policy? a. Liability coverage, Physical Damage coverage b. Physical Dmage Coverage, Uninsured Motorists Coverage c. Liability coverage, Medical Payments d. All of the above

a. Liability coverage, physical damage coverage

Specified perils coverage is available under the Business Auto Policy as an alternative to: a. collision coverage b. theft coverage c. comprehensive coverage d. property damage coverage

c. comprehensive coverage

"Garage Liability" is broader than business auto liability because: a. It essentially combines business auto and general liability coverages b. It does not use aggregate limits c. It provides coverage for damage to customers' autos d. It includes pollution liability coverages

a. It essentially combines business auto and general liability coverages

In Ocean Marine insurance "jettison" means: a. a loss where the cost to salvage the ship exceeds its value b. An illegal act of sabotaging the ship or cargo c. A voluntary action to rid the ship of cargo in order to avoid further peril d. a nickname for Elroy Jetson

c. a voluntary action to rid the ship of cargo in order to avoid further peril

Which of the Commercial Inland marine transportation floaters protects the carrier, rather than the shipper, against loss to domestic shipments in transit? a. Motor truck cargo policy b. trip transit policy c. mail coverage form d. annual transit policy

a. motor truck cargo policy

Security and proof of financial responsibility are required from the owner or driver of the insured motor vehicle in any accident causing any bodily injury or property damage of: a. $500 or more b. $100 or more c. $250 or more d. $350 or more

c. $250 or more

In Alabama, proof of financial responsibility is required to satisfy any claim under auto insurance in the limits of: a. $25,000/$50,000/$25,000 b. $10,000/$20,000/$10,000 c. $20,000/$40,000/$15,000 d. $50,000/$100,000/$25,000

a. $25,000/$50,000/$25,000

Under a Business Auto Policy (BAP), which of the following types of physical damage losses will not be covered? a. Collision with an animal b. Transportation expenses following theft of an auto c. A portable cellular telephone d. Glass breakage caused by vandals

c. A portable cellular telephone

Inland Marine policies used to provide very broad coverage to jewelers and furriers are: a. Block policies b. Valued policies c. Personal Property policies d. all of the above

a. block policies

A definition of barratry is: a. The voluntary action to rid a ship of cargo in order to prevent further peril b. A lawyer admitted to plead at the bar and undertake the public trial of causes. c. An illegal act committed willfully by a ship's master or crew for the purpose of damaging the ship or cargo d. A condition when the cost to salvage the property or repair would exceed the value of the property

c. An illegal act committed willfully by a ship's master or crew for the purpose of damaging the ship or cargo

Which of the businesses below would not be eligible for the Business Auto Policy? a. Niemier's Garage b. Spokes and Folks Bicycle Shop c. Academy of Dance Design d. Pick and Run Grocery Store

a. Niemier's Garage

Another name for an "honesty" bond is: a. Fidelity b. Surety c. Obligee d. Principal

a. Fidelity

Which of the following terms provides the broadest definition of a criminal activity? a. Theft b. Robbery c. Burglary d. Mysterious disappearance

a. Theft

By definition, which of the following is NOT considered a worker or employee? a. a person who has entered into an employment contract b. an independent contractor c. an apprenticeship d. a person who works under either an express or implied contract of service

b. an independent contractor

When a principal applies for a Surety bond, he or she agrees: a. that the principal has a good credit rating. b. to indemnify the surety for any loss sustained c. that the principal has had no losses in the last five years d. to contribute to the payment of the loss on a coinsurance basis

b. to indemnify the surety for any loss sustained

Benefits for work-related injuries under Part One of the workers compensation policy are paid: a. If there has been no assumption of risk by the employee b. Only when the employer has been negligent c. Without regard to fault or negligence of the employer, so long as the employee's injury or disease arises from a work-related injury d. if the employee was not partially responsible for the injury

c. Without regard to fault or negligence of the employer, so long as the employee's injury or disease arises from a work-related injury

Which of the following defenses could an employer use prior to the passage of the Workers Compensation laws? a. Assumption of risk b. contributory negligence c. fellow servant rule d. all of the above

d. all of the above

Bonds required by state law or local ordinance before engaging in a specified business or activity are called: a. license and permit bonds b. injunctive bonds c. replevin d. bail

a. license and permit bonds

Under a Commercial Crime policy the discovery period is for: a. 1 year b. 3 years c. 7 years d. indefinite as bonds are continuous

a. 1 year

Workers Compensation may not be allowed for an injury caused by: a. self-inflicted wounds b. drug or alcohol related injuries c. actions of a third party against an employee for reasons personal to the employee d. any of the above

d. any of the above

All of the following are ways of funding workers compensation benefits except: a. private insurance b. deductions from an employees paycheck c. monopolistic or competitive state funds d. self-insurance

b. deductions from an employee paycheck

The standard policy limit for Employers Liability coverage is: a. $300,000 b. $100,000 c. $200,000 d. none of the above

b. $100,000

The party that joins with the principal in guaranteeing the fulfillments of the principal's obligation is called the: a. Principal b. Obligee c. Surety d. Obligor

c. Surety

The bond that guarantees should a bidder be accepted, he or she will enter into a contract and provide a performance bond is called a: a. completion bond b. labor and materials bond c. bid bond d. supply bond

c. bid bond