Deck 37: Insurance

Question 1

In life insurance contracts, the required insurable interest must exist at the time of the insured's death.

Answer 1

False

Question 2

An important distinction between valid insurance contracts and wagering contracts is that:

A) insurance contracts create a new risk that did not previously exist, while wagering contracts don't.
B) wagering contracts are not contrary to public policy, while insurance contracts are.
C) insurance contracts transfer existing risks, while wagering contracts create new ones.
D) unlike insurance contracts, wagering contracts are indemnity contracts.

Answer 2

C
Explanation: A distinction is made between valid insurance contracts and wagering contracts. A wagering contract creates a new risk that did not previously exist and is illegal as contrary to public policy. Insurance contracts, on the other hand, transfer existing risks.

Question 3

A term life insurance contract obligates the insurer to pay only the face amount of the policy if the insured dies within a specified period of time-the term of the policy.

Answer 3

True

Question 4

A whole life policy develops a loan value that increases with the age of the policy and enables the insured to borrow money from the insurer at relatively low interest rates.

Question 5

A contestability clause bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time (usually ten years).

Question 6

Insurance companies need not wait until litigation has been concluded to satisfy their duty to pay.

Question 7

Each liability insurance provider has a duty to defend the insured when a third party files a legal claim against the insured that falls within the coverage terms of the policy.

Question 8

Those who have an insurable interest in property must have that interest at the time the loss occurs.

Question 9

Under federal law, businesses that provide group health insurance plans must offer self-paid, continued group coverage to qualified employees for at least two years after termination of employment.

Question 10

In an insurance contract, the payment of consideration is called a(n) _____.

A) issue
B) negotiable instrument
C) premium
D) valued policy

Question 11

Whole life insurance contracts:

A) require the insured to pay the specified premium for the duration of his/her life.
B) have a convertibility feature that allows the insured to convert the policy to a term life policy.
C) have no cash surrender value if the policy is terminated.
D) bind the insurer to pay an amount only if the insured dies and not when the policy is terminated.

Question 12

In whole life insurance contracts, the _____.

A) rate of the premiums to be paid decreases if the face value increases
B) loan value decreases as the age of the policy increases
C) insurer pays the face value of the policy on the death of the insured
D) loan value developed by the contract enables the insurer to borrow money from the insured

Question 13

A term life insurance contract:

A) obligates the insured to pay the specified premium for the duration of his or her life.
B) obligates the insurer to pay the face amount of the policy if the insured dies within a specified period of time.
C) develops a loan value that the insured can recover if the policy is terminated.
D) develops a cash surrender value that the insured can recover if the policy is terminated.

Question 14

An addendum is an agreement for temporary insurance pending the insurer's decision to accept or reject the risk.

Question 15

Term life insurance develops a cash surrender value that the insured can recover if the policy is terminated.

Question 16

The extent of a person's insurable interest in property is limited to the value of his or her interest in the property.

Question 17

It is common for life insurance policies to contain a misstatement of age clause.

Question 18

In life insurance contracts, the required insurable interest must exist at the time the policy was issued.

Question 19

Health insurance policies generally require the insured to pay up to a certain amount each year before the insurer's payment obligation begins. This specific amount, which is a set amount established by federal law, is known as the deductible.

Question 20

A policy for term life insurance is also called ordinary or straight life insurance.

Question 21

If Geoff makes a fraudulent statement about his medical history and fails to disclose relevant facts about his medical history in his application for insurance, the insurance company _____.

A) has a right to cancel Geoff's policy
B) cannot consider the contract voidable
C) has to adjust the benefits payable at Geoff's discretion
D) cannot cancel the policy unless Geoff misrepresented his age as well

Question 22

_____ insurance policies generally require that the insured pay a deductible each year before the insurer's payment obligation begins.

A) Property
B) Life
C) Liability
D) Health

Question 23

Serena purchased a home for $220,000, insuring it for $120,000 with Falcon Insurance. She later purchased a $60,000 policy from Devon Life. The home was totally destroyed by fire six months later. Under these circumstances, which of the following statements is true?

A) Serena can claim the entire damages, $220,000, only from Falcon Insurance as its policy amount is greater.
B) She cannot claim insurance from either as policies with pro rata clauses cover only partial losses.
C) Serena cannot recover $180,000-the total of both policies.
D) Serena cannot claim more than $60,000 from Devon Life.

Question 24

Douglas obtained a $100,000 insurance policy on his warehouse. The policy contained an 80 percent coinsurance clause. An accidental fire totally damaged the building that had a fair market value of $250,000 at the time of the loss. How much will Douglas recover from his insurance company?

A) $80,000
B) $100,000
C) $200,000
D) $250,000

Question 25

Which of the following insurance contracts is enforceable?

A) An insurance policy taken out on a minor by an adult
B) A life insurance contract in which the insured misrepresents his or her health or age
C) An insurance contract where only one party to a contract has the capacity to contract
D) A contract whose warranty is breached by the insured

Question 26

Flood-related damage to property is an example of a(n) _____ peril.

A) excluded
B) covered
C) conditional
D) open

Question 27

Which of the following is most likely to be non-claimable under property insurance contracts?

A) Overflows from burst pipes
B) Loss from vandalism
C) Loss from hostile fire
D) Nuclear contamination

Question 28

The coinsurance clause in a fire insurance policy:

A) requires the insured to insure the property to a specified percentage of its fair market value in order to fully recover the value of partial losses.
B) allows the insured to recover the difference between the limits stated in the policy and the fair market value of the property.
C) allows the insured to recover more than the face value of the policy if the loss is total.
D) requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.

Question 29

Open policies allow the insured to recover the:

A) fair market value of the property at the time it was destroyed, up to the limits stated in the policy.
B) difference between the limits stated in the policy and the fair market value of the property.
C) face amount of the policy regardless of the fair market value of the property.
D) fair market value of the property at the time it was purchased.

Question 30

In insurance policies with an incontestability clause where the insured has misstated his or her age, the _____.

A) insurer cannot contest its liability on the basis of the insured's misrepresentations
B) insured can take advantage of a misstatement of age clause if the misrepresentation changes the premium by below 50 percent
C) insurer cannot cancel the policy unless it discovers the misrepresentation within a specified time period
D) insured can object on the basis of absence of insurable interest

Question 31

The fire insurance policy on Dullard's home contained a 50 percent coinsurance clause. Dullard's home had a fair market value of $100,000. The face amount of the policy covering the home was $30,000. A hostile fire caused $30,000 worth of damage to the home. To what amount is Dullard entitled?

A) $100,000
B) $9,000
C) $30,000
D) $18,000

Question 32

Which of the following statements is true about health insurance contracts?

A) Health insurance contracts traditionally do not provide coverage for medical expenses resulting from preexisting conditions.
B) Most people receive their insurance coverage from individual policies that are provided by employers.
C) The Consolidated Omnibus Budget Reconciliation Act prevents companies that do not provide portable health insurance contracts from issuing group policies.
D) Portable health insurance contracts allow insurance companies to stop covering people who change their jobs.

Question 33

Homeowners' insurance policies:

A) often provide coverage under their comprehensive and collision sections for car damages resulting from vandalism.
B) insure both the insured's dwelling and the personal property located on the real property.
C) do not cover personal property that was temporarily removed from the dwelling at the time it was damaged.
D) do not allow property owners to purchase specialized policies to make up for gaps in a standard insurance contract.

Question 34

If property covered by a valued policy is totally destroyed, the _____.

A) insured can recover the face amount of the policy only if it does not exceed the fair market value of the property
B) insured can recover only the fair market value of the property
C) insured can recover the face amount of the policy regardless of the fair market value of the property
D) insured can recover the fair market value of the property at the time it was destroyed, up to the limits stated in the policy

Question 35

As a general rule, contracts are assignable:

A) even if the policy's terms limit assignability.
B) if they are not life insurance policies.
C) even without a designated beneficiary's consent.
D) if they are not property insurance policies.

Question 36

According to the _____ clause, when the insured has purchased insurance policies from more than one insurer, the loss will be apportioned among the insurance companies.

A) coinsurance
B) pro rata
C) exculpatory
D) valued

Question 37

As a general rule, if an applicant suffers a loss after applying but before the insurer formally accepts the application, the:

A) insurer must cover the loss.
B) applicant and the insured must bear the loss equally.
C) applicant must bear the loss.
D) insurer must cover the loss only if there is no binder.

Question 38

The "incontestability clause" found in life insurance policies:

A) bars the insurer from objecting on the basis of the purchase of the policy with the intent to murder the insured.
B) allows the insurer to contest its liability on the policy only if the policy has been in force for a specified period of time.
C) bars an insured from reinstating a lapsed policy that has not been surrendered for its cash surrender value.
D) allows the insurer to object on the basis of absence of insurable interest.

Question 39

A(n) _____ clause bars an insurer from challenging its liability on a policy on the basis of an insured's misrepresentations if the policy has been in force for a specified period of time.

A) reinstatement clause
B) pro rata clause
C) incontestability clause
D) coinsurance clause

Question 40

Malpractice insurance is similar to business liability coverage in that it:

A) requires the insured to insure the property to a specified percentage of its fair market value in order to fully recover the value of partial losses.
B) provides an alternative to prohibitively expensive individual health care insurance policies.
C) provides protection for professionals whose negligent professional conduct causes injuries to third persons.
D) requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.

Question 41

What are an insurer's obligations in a liability insurance contract?

Question 42

Which of the following statements is true about cancellation of an insurance policy?

A) Insurers can cancel insurance contracts by surrendering the policy to the insured.
B) Insurance contracts contain a reinstatement clause that allows an insured to reinstate a cancelled policy.
C) Insureds who terminate a contract are entitled to a return of the premium on a short-rate basis.
D) Insurers that cancel a contract need not return the unearned portion of any premiums paid by the insured.

Question 43

Describe the insurable interests required in life and property insurance.

Question 44

Describe portable health insurance.

Question 45

For the insurance to be valid, the required insurable interest in life insurance contracts must exist:

A) before the loss occurs.
B) at the time the loss occurs.
C) at the time the policy was issued.
D) throughout the term of the policy.

Question 46

To be able to claim loss, those who have an insurable interest in property must have that interest:

A) before the loss occurs.
B) at the time the loss occurs.
C) at the time the policy was issued.
D) throughout the term of the policy.

Question 47

Explain what a misstatement of age clause is.

Question 48

A person who seeks to recover benefits under a life insurance policy:

A) must notify the insured before a loss is likely to happen.
B) needs to furnish a sworn statement of loss.
C) needs to furnish proof of third party witness to the loss.
D) must notify the insurer of the loss and furnish proof of loss.

Question 49

Under the right of subrogation, the insurer _____.

A) is obliged to pay only the face amount of the policy if the insured dies within a specified period of time; which is the term of the policy
B) obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the insured property
C) obtains all of the insured's rights to pursue legal remedies only against those persons who have intentionally damaged the insured property
D) is obliged to pay the face value of the policy on the death of the insured and the specified premium for the duration of his/her life

Question 50

Explain the right of subrogation.