Deck 7: Insurance As a Risk Management Technique: Policy Provisions

Question 1

An open-perils policy means that the policy covers all sources of loss to the insured's property.

Answer 1

False

Question 2

The only person covered under an insurance contract is the person named as the insured.

Answer 2

False

Question 3

Insurance contracts exclude certain perils only because they are uninsurable.

Answer 3

False

Question 4

Most policies of property-liability insurance cover property in any geographic location.

Question 5

In insurance, a franchise refers to the right to conduct an insurance agency.

Question 6

Apportionment clauses preserve the principle of indemnity.

Question 7

An insured is required to notify of loss, but not prove the amount of the loss because that is the job of the adjuster.

Question 8

The sue-and-labor clause has to do with the preservation of insured property.

Question 9

All insurance contracts may be canceled at the option of the insurer.

Question 10

The cancellation clause gives the insurer the right of post-selection of risks.

Question 11

Assignment of rights under insurance contracts is a common practice.

Question 12

A third party is not a direct party to the insurance contract, as a rule.

Question 13

Inflation could cause an insured to suffer coinsurance penalties.

Question 14

In property insurance, the purpose of coinsurance clauses is to prevent underinsurance.

Question 15

With coinsurance, the burden is placed on the insured to keep the amount of the insurance proportional to the sound value of the property.

Question 16

It is common to exclude war loss from insurance contracts.

Question 17

The problems of insuring business and personal risks are quite common and the same policies can be used for both purposes.

Question 18

Some policies restrict coverage to specific geographic areas.

Question 19

The contents of a building are included under the usual property insurance policy.

Question 20

It is necessary for insurance contracts to state that fraud will void the policy.

Question 21

In case of loss, the insured has the duty to notify the insurer as soon as possible.

Question 22

An insured usually must provide a formal proof of loss within 60 to 90 days to receive payment.

Question 23

Under an appraisal clause, an impartial umpire may be used to help settle a claim.

Question 24

An assignment is the transfer of the rights of one person to another.

Question 25

Match the descriptions with their terms:

-The clause that states what the insurer agrees to do and the major conditions under which it agrees is called the _________________.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 26

Match the descriptions with their terms:

-A/An _________________ contract lists the perils covered.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 27

Match the descriptions with their terms:

-A/An _________________ covers all losses except those excluded.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 28

Match the descriptions with their terms:

-The person whose name appears on the policy to receive the benefit of coverage is called the _________________.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 29

Match the descriptions with their terms:

-A/An _________________ is a deductible expressed as a percentage of value or a dollar amount under which the insurer has no liability unless the loss exceeds the amount stated.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 30

Match the descriptions with their terms:

-_________________ restrict payments to some maximum amount on any one definite item of property.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 31

Match the descriptions with their terms:

-_________________ restrict payments to some maximum amount of any one group of items of property.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 32

Match the descriptions with their terms:

-_________________ means replacement cost minus depreciation.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 33

Match the descriptions with their terms:

-Insurance that restores a loss without regard to depreciation is coverage on a/an _________________ basis.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 34

Match the descriptions with their terms:

-The _________________ protects the interest of the lending institution when a loan is made on a building.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 35

Match the descriptions with their terms:

-The part of the premium that is designed to cover the expected losses due to covered perils is the _____________________.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 36

Match the descriptions with their terms:

-The person or organization holding a mortgage is the _____________.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 37

Match the descriptions with their terms:

-When a/an _________________ is used, the size of the deductible decreases as the size of the loss increases.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 38

Match the descriptions with their terms:

-In health insurance, _________________ functions like a straight deductible, expressed as a percentage.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 39

Match the descriptions with their terms:

-In property insurance, the _________________ states that the policy will only pay a portion of the loss if more than one policy applies.

A) Actual cash value
B) Aggregate dollar limits
C) coinsurance
D) disappearing deductible
E) franchise deductible
F) insuring agreement
G) mortgagee
H) mortgagee clause
I) named insured
J) named peril
K) open-perils agreement
L) pro-rata clause
M) pure premium
N) replacement cost
O) Specific dollar limits

Question 40

An insured has a building with an actual cash value of $100,000 insured for $60,000 under an 80 percent coinsurance clause. If there is a loss of $10,000, the insured may recover

A) $10,000,
B) $7,500,
C) $8,000,
D) nothing,
E) none of these.

Question 41

In the case in the previous question, if it is determined that the loss is $80,000, the insured may recover

A) $64,000,
B) $80,000,
C) $60,000,
D) nothing,
E) none of these.

Question 42

Jane Smith insures her $30,000 house as follows: $10,000 in insurer A, $20,000 in insurer B, and $10,000 in insurer C. In the event of a loss of $10,000, each insurer must pay as follows:

A) A pays $10,000, B and C pay nothing,
B) each insurer pays one-third,
C) A pays one-fourth, B pays one-half, and C pays one-fourth,
D) nothing is payable because Jane violated the policy by overinsuring,
E) none of these.

Question 43

Under the mortgagee clause the actions of the insured

A) are held to the mortgagee,
B) have no effect on the policy,
C) are always disregarded with respect to the mortgagee,
D) are held to the mortgagee if the mortgagee is aware of such actions before the loss occurs,
E) none of these.

Question 44

Among the common conditions in an insurance policy, which of the following is really unnecessary?

A) notice of loss,
B) proof of loss,
C) preservation of property,
D) fraud,
E) all of these are essential.

Question 45

Of the following types of insurance, the one that is normally a third party contract is

A) property insurance,
B) marine insurance,
C) workers' compensation.

Question 46

If Vazques has a $50 straight deductible on his property insurance policy and has a $200 loss, he will receive

A) $200,
B) $50,
C) $150.

Question 47

If Davis has a 2 percent franchise deductible on goods worth $100,000 and has a $3,000 loss, he will receive

A) $100,000,
B) $3,000,
C) $1,000.

Question 48

Stoller has a building worth $100,000 and has $70,000 in property insurance with an 80 percent coinsurance clause. If she suffers a $10,000 loss, she will receive from her insurer

A) $1,250,
B) $10,000,
C) $8,750.

Question 49

Dr. Fleming owns a building worth $200,000 and has property insurance for $100,000 with a 90 percent coinsurance clause. If he suffers a loss of $150,000, he will receive

A) $83,333,
B) $150,000,
C) $50,000.

Question 50

If Claudia has a $500 disappearing deductible with a 5 percent recapture factor on her property policy and has a $1,000 covered loss, she will receive from her insurer

A) $525,
B) $450,
C) $400.

Question 51

Black has three policies from three companies as follows: Company X = $1,000, Company Y = $3,000, and Company Z = $6,000. If he has a $3,000 loss, he will receive from each policy on an equal shares basis

A) $1,000, $3,000, $6,000,
B) $1,000, $2,000, $3,000,
C) $1,000, $1,000, $1,000.

Question 52

If Company Z in the previous question became insolvent, Black would receive from each policy

A) $300, $900, $0,
B) $1,000, $2,000, $0,
C) $1,000, $3,000, $0.