Deck 9: Basic Property and Liability Insurance Contracts

Question 1

Which clause provides that if two parties cannot agree on a loss settlement each may select a competent and disinterested party to determine the loss?

A)proof of loss
B)apportionment
C)subrogation
D)appraisal

Answer 1

D

Question 2

Which of these is not a condition precedent or subsequent under the "duties after loss" provisions?

A)duty to give immediate notice
B)duty to commence suits within one year of a loss
C)duty to cooperate with the insurer at trials
D)duty to hire an attorney to represent you if you challenge denial of your claim

Answer 2

D

Question 3

Which of the following are not likely to be found on a declarations page?

A)duties following a loss
B)identity of the named insured
C)list of coverages provided by the contract
D)name of the insurer

Answer 3

A

Question 4

If an insured cancels her property?liability insurance and asks for a refund,the premium is:

A)returned on a short rate basis
B)returned on a pro rata basis
C)not returned
D)returned 100% if the cancellation occurs during the first 10 days of the contract

Question 5

All the following are rights extended to mortgagees under the mortgage clause in the standard fire policy except:

A)to sue under the policy in its own name
B)to change the policy provisions without the insured's consent
C)to submit proof of loss if the insured does not
D)to have an additional 5 days over the insured for notice of cancellation

Question 6

Which of the following questions is not important to the insured after a loss has occurred?

A)Is the property covered
B)Is the loss caused by a covered peril
C)Were premiums received by the insurer in a timely fashion
D)Is the selling agent still an agent for the insurance company

Question 7

Which of the following items is NOT a benefit of standard insurance policies?

A)smaller insurers can offer cheaper insurance than larger companies if standard policies are used
B)litigation should be reduced as policy meaning becomes understood
C)consumers are more likely to learn the meaning of standard policies
D)data collection and loss rate computation are easier and more accurate

Question 8

In property insurance,coinsurance is:

A)an agreement between two or more insurance companies to jointly cover a large risk
B)a contractual agreement to make the insured bear a portion (usually small)of every loss
C)a contractual agreement to help equalize total claims to reinsurance premiums
D)a contractual agreement to discourage under insurance

Question 9

Exclusions are contained in insurance policies for all the following reasons except:

A)to eliminate catastrophic perils
B)to eliminate coverage of property or perils for which the insurer wants an extra premium
C)to control moral hazard
D)to exclude the influence of reinsurance arrangements

Question 10

Under the provisions of the Standard Fire Policy,assignment is:

A)specifically prohibited
B)permitted, but requires an additional premium
C)not mentioned
D)valid only with the written consent of the company

Question 11

If Marcell has a $250,000 home and two $200,000 fire insurance policies,how much can he collect in total from both policies following a $100,000 loss?

A)$100,000
B)$200,000
C)$250,000
D)none of the above

Question 12

A painting that has been in Chandlers family for years is damaged by an insured peril.The insurer offers Chandler the cost to replace the painting with a new one of similar quality,which is $5,000. Chandler prefers to keep the painting so he can attempt to repair it himself. Which of the following is a true statement about this scenario?

A)The insurer will not let him keep the painting, and he must take the $5,000 settlement.
B)Chandler may keep the painting, but will most likely have to accept an amount for the loss that equals $5,000 less the salvage value of the painting
C)Chandler may keep the painting, but will forfeit any cash settlement he may have otherwise been entitled to receive from his insurer.
D)Chandler may keep the painting, plus receive the $5,000 settlement from his insurer.

Question 13

The fire insurance contract suspends coverage in all the following instances except:

A)when there is a material increase in hazard
B)when the premises is vacant for more than 60 consecutive days
C)when the premises is unoccupied for 30 consecutive days
D)as a result of an explosion unless a fire ensues

Question 14

If there were a $200,000 loss and a $500 straight deductible,the insured would pay:

A)$500
B)$199,500
C)$200,000
D)$200,500

Question 15

To determine if a loss is covered by a property insurance contract,you should look at all of the following except:

A)all applicable exclusions
B)the subrogation clause
C)what property is covered
D)the dollar limitations for recovery

Question 16

The purpose of the insuring agreement of an insurance policy is to:

A)specify the perils covered
B)list reasons allowing the insurer to cancel the policy
C)present the language giving force to the contract
D)indicate who can collect for a covered loss

Question 17

Property insurance policies are standardized for all the following reasons except:

A)to improve the accuracy of insurance rates
B)to help reduce costs to consumers
C)to eliminate competition between insurers
D)to reduce litigation over policy meaning

Question 18

The appraisal provision does all the following except:

A)provides a mechanism for determining how much will be paid for the loss
B)outlines who will pay for the expense of the procedure
C)sets time limits for picking appraisers
D)provides a mechanism for determining whether a loss should be paid or denied

Question 19

After any loss the insured must do all of the following except:

A)call the police
B)file an immediate notice of loss
C)complete an inventory
D)state the cause of the loss to the best of his knowledge

Question 20

Which of the following is not a reason for using deductibles in property insurance?

A)they reduce the morale hazard
B)they eliminate payment for frequent small losses
C)they allow consumers to customize contracts based on financial considerations
D)to split large losses in excess of the policy limits equitably between the insured and the insurer

Question 21

Dane Cook has a $50,000 property loss. His insurance policy's coverage limit is $35,000,and has a $500 deductible applied to the loss. How much will Dane collect?

A)$50,000
B)$49,500
C)$35,000
D)$34,500

Question 22

Endorsements may add to or delete coverage in the fire contract.

Question 23

Alley Katz cancels her six-month auto policy exactly four months into the policy period. If her six month premium was $900,how much will she receive as a refund of unused premium from her insurer?

A)$300
B)$450
C)An amount less than $300, to reflect the short-rate cancellation penalty the insurer will impose
D)None of the above

Question 24

Bundling several insurance coverages into one package policy may reduce:

A)adverse selection
B)moral hazard
C)morale hazard
D)competitiveness

Question 25

If there were a $22,000 loss and a $700 straight deductible,the insurer would pay

A)$700
B)$21,300
C)$22,000
D)$0

Question 26

The term "salvage" as it relates to insurance means the:

A)cost of cleaning up after a natural disaster
B)remaining insurance premium not needed after a peril destroys one's property
C)amount of the claim the insured is responsible for paying
D)amount received by the insurance company when damaged property is sold

Question 27

Deductibles serve three major purposes,and two of those are:

A)reduce moral hazards; save on claims handling expenses
B)reveal moral hazards; eliminate morale hazards
C)reduce morale hazards; save on claims handling expenses
D)reveal morale hazards, eliminate moral hazards
E)reduce claims handling expenses; encourage avoidance

Question 28

Gerald Tee has a $50,000 property loss. His insurance policy's coverage limit is $35,000,and has a $500 deductible applied to the policy. How much will Gerald collect?

A)$50,000
B)$49,500
C)$35,000
D)$34,500

Question 29

The appraisal procedure is used only when the amount of the loss,not the cause of the loss,is in dispute.

Question 30

Policies contain cancellation provisions for all the following reasons except:

A)the company wants control of the risk after the policy is written in the property liability area
B)the life insurance company must be able to eliminate the risk in the event the insured accepts a very hazardous job
C)the insured may no longer need the coverage
D)a legal method of canceling the contract is needed by both parties in the property liability area

Question 31

Under the fire contract,you must file a proof of loss statement within 15 days of the loss.

Question 32

Which part of the insurance contract personalizes the coverage to the individual's exposure?

A)exclusions
B)insuring agreements
C)declaration page
D)conditions

Question 33

Eva's house is damaged by fire. She submits to her insurer a sworn proof of loss claiming that she suffered $70,000 in dwelling damage,and $45,000 in damaged contents. Included in her list of contents was a $5,000 set of china that the insurer discovered was nonexistent. What does the law require the insurer to pay for this claim?

A)$115,000
B)$110,000
C)$70,000
D)$0

Question 34

Preston,Alex and George recently purchased a house together,and each person bought their own insurance policy on the house. Preston bought $200,000 of coverage,Alex bought $200,000 of coverage,and George bought $100,000 of coverage. The day after they purchased their insurance policies,George's electric guitar stereo shorted out and started a fire. The resulting damage totaled $40,000. How much of the loss did George's insurance company pay,assuming that all three policies contained pro?rata clauses?

A)$8,000
B)$16,000
C)$24,000
D)none of the above

Question 35

The appraisal clause gives the insured the right to get a second appraisal at the insurer's expense.

Question 36

The appraisal procedure can only be invoked by the insured.

Question 37

After Hurricane Andrew,many insurers began using:

A)complete hurricane exclusions
B)percentage deductibles
C)high dollar straight deductibles
D)franchise deductibles

Question 38

"Other insurance clauses" typically forbid the existence of other insurance on the same property.

Question 39

The insured gets a greater refund if he cancels his insurance policy than he would if the insurer canceled the policy.

Question 40

In the course of a claims investigation,the insurer discovers that the warehouse it covers has been used for dynamite storage for the last year. When the policy was first issued four years ago,the insurer agreed to cover it for clothing storage. What does the law typically allow the insurer to do in this situation?

A)Pay the claim in full.
B)Pay only a proportion of the claim
C)Deny the claim
D)Prosecute the insured for intentional misrepresentation

Question 41

Explain the importance of the appraisal clause in property insurance.

Question 42

Explain the purpose of the declaration page found in insurance contracts.

Question 43

What is the purpose of the recovered property clause in dealing with salvage?

Question 44

Describe the purposes of deductibles.

Question 45

Concealment or fraud before,during,or after a loss generally allows an insurer to contest property insurance contracts.

Question 46

A substantial increase of hazard voids the Standard Fire insurance policy,but the company will generally issue a new policy if conditions improve.

Question 47

Standardized insurance policies make it easier to calculate an insurance rate than do non?standardized policies.

Question 48

What are some of the reasons exclusions are found in insurance contracts?

Question 49

Explain what is meant by short?rate and pro?rata cancellation. In what cases are each used?