Question 1

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

Accepted Answer

The answer of Dane Cook has a $50,000 property loss....

Question 2

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

Accepted Answer

Endorsements are additional provisions that can be added to a contract to modify or expand coverage. They can also be used to exclude certain risks or limit the scope of coverage. Therefore, endorsements may add to or delete coverage in a fire contract.

Question 3

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

Accepted Answer

Since Alley Katz cancels her policy before the end of the policy period, the insurer will impose a short-rate cancellation penalty. This means that she will receive a refund of her unused premium that is less than half of the pro-rated amount. Therefore, her refund will be less than $450 and the correct answer is C.

Question 4

Bundling several insurance coverages into one package policy may reduce:
A)adverse selection
B)moral hazard
C)morale hazard
D)competitiveness

Accepted Answer

Bundling insurance coverages into a package policy can reduce adverse selection as it encourages consumers to purchase multiple coverages from the same insurer. This reduces the likelihood of consumers with higher-risk profiles only purchasing certain coverages, which can lead to adverse selection for the insurer offering those coverages. Bundling can also increase customer loyalty and retention as customers are more likely to stay with one insurer if they have multiple coverages with them.

Question 5

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

Accepted Answer

The insurer would pay the total loss minus the deductible, which is $22,000 - $700 = $21,300.

Question 6

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

Accepted Answer

The term "salvage" as it relates to insurance refers to the amount received by the insurance company when damaged property is sold. This is the value that the insurance company receives for any damaged property that they may take over as part of the insurance claim settlement process.

Question 7

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

Accepted Answer

Deductibles help to reduce moral hazards, meaning that policyholders are less likely to engage in risky behavior or make unnecessary claims knowing that they will have to pay a portion of the expenses themselves. This helps insurers save on claims handling expenses as they do not have to process as many claims.

Question 8

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

Accepted Answer

Since the coverage limit of the policy is only $35,000, Gerald can receive a maximum of $35,000 from the insurance company. However, he also has to pay the $500 deductible before receiving any payment. Therefore, the amount he will collect is $35,000 - $500 = $34,500.

Question 9

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

Accepted Answer

The appraisal procedure is a method of resolving disputes between the insured and insurance company over the value of property damage or loss. It is not used to determine the cause of the loss, only to determine the amount of loss.

Question 10

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

Accepted Answer

Policies contain cancellation provisions for many reasons, including the ones listed in choices A, C, and D. However, the ability to cancel a life insurance policy due to a change in the insured's occupation is typically not included in cancellation provisions. Instead, this would be addressed by an exclusion in the policy or a change in premium.

Question 11

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

Accepted Answer

The statement is false. While specific timelines may vary depending on the terms of the insurance contract and local laws, there is generally a requirement to file a proof of loss within a reasonable time period after a loss occurs. However, it is typically not as short as 15 days. It is important to review the terms of your specific insurance contract and consult with your insurance provider or legal counsel if you are unsure of your obligations.

Question 12

Which part of the insurance contract personalizes the coverage to the individual's exposure?
A)exclusions
B)insuring agreements
C)declaration page
D)conditions

Accepted Answer

The declaration page lists important information about the specific policyholder, including their name, address, policy number, coverage limits, and premiums. This information personalizes the coverage to the individual's exposure.

Question 13

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

Accepted Answer

The insurer is not required to pay anything for this claim because the sworn proof of loss contained a material misrepresentation.

Question 14

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

Accepted Answer

George's insurance company would pay a pro-rata share of the loss based on the total coverage. George's coverage is $100,000 out of a total of $500,000 ($200,000 + $200,000 + $100,000), which is 1/5 of the total coverage. Therefore, George's insurance company would pay 1/5 of the $40,000 loss, which is $8,000.

Question 15

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

Accepted Answer

The appraisal clause allows either the insured or the insurer to demand an appraisal to determine the value of the loss, but it does not specify that the insurer must pay for a second appraisal.

Question 16

The appraisal procedure can only be invoked by the insured.

Accepted Answer

The appraisal procedure can be invoked by either the insured or the insurer.

Question 17

After Hurricane Andrew,many insurers began using:
A)complete hurricane exclusions
B)percentage deductibles
C)high dollar straight deductibles
D)franchise deductibles

Accepted Answer

After Hurricane Andrew, many insurers began using percentage deductibles to manage the risk associated with large-scale hurricane damage. This approach allows the deductible to be a percentage of the insured value, rather than a fixed dollar amount, which can help insurers better handle the financial impact of such events.

Question 18

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

Accepted Answer

"Other insurance clauses" typically allow for the existence of other insurance but specify how losses will be shared among the insurers.

Question 19

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

Accepted Answer

The refund amount typically depends on the terms of the policy and the timing of the cancellation, not on who initiates the cancellation.

Question 20

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

Accepted Answer

The insurer can deny the claim as the policy was issued for clothing storage and not for storing dynamite. This is a misrepresentation by the insured and the insurance company is not obligated to pay for such a risk. It is important for the insured to provide truthful information while taking up an insurance policy.

Quiz 9: Basic Property and Liability Insurance Contracts

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?

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

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?

Bundling several insurance coverages into one package policy may reduce:

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

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

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

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?

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

Policies contain cancellation provisions for all the following reasons except:

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

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

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

The appraisal procedure can only be invoked by the insured.

After Hurricane Andrew,many insurers began using:

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

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