Question 1

The exclusions in a named-perils policy are more definitive of coverage than in an open-perils policy.

Accepted Answer

In a named-perils policy, coverage is provided for only those perils specifically listed in the policy, making its coverage scope more limited and defined. In contrast, an open-perils policy covers all risks of loss that are not specifically excluded, making the exclusions more definitive of coverage since they outline what is not covered.

Question 2

Insuring clauses do not vary greatly from policy to policy.

Accepted Answer

Insuring clauses can vary significantly from policy to policy as they define the scope of coverage, including what is covered and under what circumstances, and insurers tailor these clauses to different types of risks and customer needs.

Question 3

Personal injury is the physical injury to a person, including the pain and suffering that may result.

Accepted Answer

False

Question 4

When an insurance policy is suspended, the effect is only temporary.

Accepted Answer

When an insurance policy is suspended, it means the coverage is temporarily paused or put on hold, rather than being permanently terminated. This suspension can be lifted, and the policy can be reinstated under certain conditions.

Question 5

The function of the agent is to induce a potential insured to make an offer.

Accepted Answer

The primary function of an insurance agent is to act as an intermediary between the insurance company and the client, helping to facilitate the process of the client making an offer for insurance coverage by providing information, answering questions, and assisting in the completion of the necessary paperwork.

Question 6

An open-perils policy provides broader coverage than a named-perils policy.

Accepted Answer

An open-perils policy covers all risks of loss that are not specifically excluded in the policy, offering broader coverage than a named-perils policy, which only covers the risks that are explicitly listed.

Question 7

Suspension of an insurance contract negates coverage as long as some condition exists.Once the condition is eliminated, protection reverts after a new agreement between the parties.

Accepted Answer

Suspension of an insurance contract temporarily pauses coverage, but once the condition causing the suspension is resolved, coverage typically resumes under the original terms of the contract without requiring a new agreement.

Question 8

Exclusions exist to limit coverage of nonfortuitous events.

Accepted Answer

Exclusions in insurance policies are designed to limit coverage for events that are not accidental or unforeseen (nonfortuitous), ensuring that the insurance only covers risks that are unexpected.

Question 9

A named-perils policy usually requires a higher premium than an open-perils policy.

Accepted Answer

A named-perils policy typically requires a lower premium than an open-perils policy because it covers only the risks specifically listed in the policy, whereas an open-perils policy covers all risks except those explicitly excluded, offering broader coverage.

Question 10

Losses due to wear and tear are excluded because they are accidental rather than inevitable.

Accepted Answer

Losses due to wear and tear are excluded because they are considered inevitable and a part of normal usage, not accidental.

Question 11

Losses that are accidental make prediction difficult, cause coverage to be expensive, and represent circumstances in which coverage would be contrary to public policy.

Accepted Answer

Losses that are accidental make prediction easier through statistical analysis, which is fundamental for insurance companies to set premiums. Coverage for accidental losses is common and not contrary to public policy, as it helps spread financial risks.

Question 12

Riders are used with life/health policies, whereas endorsements are used with property/casualty policies.

Accepted Answer

Riders and endorsements both serve to modify the terms of an insurance policy, but riders are typically associated with life and health insurance policies, while endorsements are used with property and casualty insurance policies.

Question 13

More insurance is bought rather than sold.

Accepted Answer

Insurance is typically sold by insurance companies or agents to consumers who purchase it.

Question 14

Liability policies usually cover damage to or loss of others' property in the care, custody, or control of the insured because these properties are considered as the insured's properties.

Accepted Answer

Liability policies typically exclude damage to or loss of property in the care, custody, or control of the insured, as these situations are often covered under different types of insurance policies, such as bailee's customer insurance.

Question 15

The earthquake peril requires separate rating and is excluded from homeowners' policies.

Accepted Answer

Earthquake damage is typically excluded from standard homeowners' policies, requiring a separate policy or endorsement for coverage, due to its distinct risk profile and the need for specialized rating.

Question 16

Actual cash value and replacement cost are the most common means of valuing property loss.

Accepted Answer

Actual cash value typically accounts for depreciation of the property, while replacement cost covers the expense of replacing the lost or damaged item with a new one, making them the most common methods for valuing property loss in insurance claims.

Question 17

Inherent vice is excluded in insurance coverage.

Accepted Answer

Inherent vice refers to a quality within a property that causes it to deteriorate due to the fundamental nature of the property itself, without any external force acting upon it. Insurance policies typically exclude coverage for damage resulting from inherent vice because it is considered a predictable and unavoidable risk inherent to the property.

Question 18

Health insurance policies often are written on an open-perils basis.

Accepted Answer

Open-perils policies cover all risks except those explicitly excluded, and many health insurance policies are designed to cover a wide range of potential health issues, making them similar to open-perils coverage.

Question 19

All insurance policies specify the period of coverage.

Accepted Answer

Insurance policies always specify the period of coverage to define the timeframe during which the policy is effective and provides protection.

Question 20

A binder cannot be oral because it becomes very difficulty to prove its existence in case of a dispute.

Accepted Answer

A binder can be oral or written; its form does not invalidate its existence, but proving an oral binder's terms can indeed be more challenging in case of a dispute.

Quiz 10: Structure and Analysis of Insurance Contracts