Question 1

Which of the following statements is true about open-perils policy and named-perils policy?
A)Open-perils policies cover many perils not covered by named-perils policies.
B)An open-perils policy covers only losses caused by the perils listed in the policy.
C)A named-perils policy is also known as the "all risk" policy.
D)The exclusions in a named-perils policy are more definitive of coverage than in an open-perils policy.
E)A named-perils policy provides broader coverage than an open-perils policy.

Accepted Answer

Open-perils policies offer broader coverage by covering all perils except those specifically excluded, whereas named-perils policies only cover the perils that are listed in the policy.

Question 2

In property/casualty insurance, an agent who has this authority can create a contract between the insurance company and the insured.Two factors influence the granting of such authority.First, some companies prefer to have underwriting decisions made by specialists in the underwriting department, so they do not this binding authority to the agent.Second, some policies are cancelable; others are not.The underwriting errors of an agent with this authority may be corrected by cancellation if the policy is cancelable.Identify this authority.
A)Waiver authority
B)Binding authority
C)Facultative authority
D)Estoppel authority
E)Duress authority

Accepted Answer

Binding authority allows an agent to create a contract between the insurance company and the insured, directly impacting underwriting decisions and policy cancellations.

Question 3

Perpetual insurance policies remain in force:
A)until canceled by the insured or the insurer.
B)for the entire life of the insured.
C)for a three-month or six-month period, but most are for a year.
D)as long as premiums are paid.
E)as long as there is no dispute between the insurer and the insured.

Accepted Answer

Perpetual insurance policies remain in force until canceled by either the insured or the insurer, as they do not have a fixed expiration date.

Question 4

In an insurance policy, it states that the "insurer promises to pay…." This general description of the insurer's promises is the essence of:
A)an insuring clause.
B)the conditions of a policy.
C)the exclusions of a policy.
D)an endorsement.
E)a rider.

Accepted Answer

The insuring clause is a fundamental part of an insurance policy that outlines the insurer's promise to pay and under what circumstances. It defines the scope of coverage provided by the policy.

Question 5

If a peril is not listed in the insurance contract, loss resulting from it is not covered.Identify this policy.
A)Open-perils policy
B)Flexible-perils policy
C)Closed-perils policy
D)Named-perils policy
E)All risk perils policy

Accepted Answer

A Named-perils policy specifies exactly what perils are covered, meaning if a peril is not listed, coverage for loss resulting from it is not provided.

Question 6

Which of the following sections is generally the first part of the insurance policy?
A)Conditions
B)Endorsements and riders
C)Exclusions
D)Declarations
E)Insuring agreement

Accepted Answer

The Declarations section is typically the first part of an insurance policy. It provides the who, what, when, and where of the coverage, including details about the insured, the insurer, the policy term, and the coverage limits.

Question 7

These are statements that identify the person(s) or organization(s) covered by the contract, give information about the loss exposure, and provide the basis upon which the contract is issued and the premium determined.This information may be obtained orally or in a written application.This section also includes the period of coverage and limitations of liability.Identify this section in an insurance contract.
A)Exclusions
B)Insuring agreement
C)Endorsements and riders
D)Conditions
E)Declarations

Accepted Answer

The section described is the Declarations section of an insurance contract. This section identifies the parties to the contract, the coverage periods, the premium, and the specific details of the insured risk, serving as a summary of the insurance provided.

Question 8

With cancelable policies, the insurer is responsible under a binder for losses that:
A)occur due to pure risk exposures.
B)the underwriter thinks are insurable.
C)occur due to idiosyncratic risk exposures.
D)occur throughout the term of the policy.
E)occur prior to cancellation.

Accepted Answer

Cancelable policies cover losses that occur before the policy is canceled, meaning the insurer is responsible for any claims made prior to the cancellation date.

Question 9

Identify the policy that covers losses caused by all perils except those excluded.
A)No risk perils policy
B)Flexible-perils policy
C)Open-perils policy
D)Named-perils policy
E)Closed-perils policy

Accepted Answer

An open-perils policy covers losses caused by all perils except those specifically excluded in the policy, offering broader protection than a named-perils policy, which only covers the perils listed.

Question 10

Identify the element of the insurance contract that is a general statement of the promises the insurer makes to the insured.
A)Conditions
B)Endorsements and riders
C)Exclusions
D)Declarations
E)Insuring clauses

Accepted Answer

The insuring clauses in an insurance contract are the elements that provide a general statement of the promises the insurer makes to the insured. These clauses outline the scope of coverage provided by the insurer, including what risks are covered and under what circumstances the insurer will pay out a claim.

Question 11

The insuring agreement provides a general description of the circumstances under which the policy becomes applicable.The circumstances include the covered loss-causing events, called:
A)exposures.
B)perils
C)moral hazard.
D)adverse selection.
E)morale hazard.

Accepted Answer

Perils are the specific events or circumstances that can cause a loss, such as fire, theft, or natural disasters, and are typically outlined in the insuring agreement of an insurance policy.

Question 12

Some forms of automobile insurance may be written on a continuous basis, with premiums payable at specified intervals, such as every six months.Such policies remain in force:
A)as long as there is no dispute between the insurer and the insured.
B)for a three-month or six-month period, but mostly for a year.
C)as long as premiums are paid.
D)for the entire life of the insured.
E)as long as the insured is insurable.

Accepted Answer

Continuous automobile insurance policies remain in force as long as premiums are paid by the insured, regardless of any specific term length.

Question 13

A claim for the death benefit under this receipt will be paid if death occurs while one's application for life insurance is being processed even if the deceased is found not to be insurable.Identify this receipt.
A)Conditional receipt
B)Binding receipt
C)Estoppel
D)Facultative receipt
E)Waiver receipt

Accepted Answer

A binding receipt guarantees coverage from the moment the receipt is issued, even if the applicant is later found to be uninsurable, as long as the premium is paid.

Question 14

The estate tax repeal rider, which exemplifies the need to modify policies as tax laws change, was created in response to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001).

Accepted Answer

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001) included provisions that gradually reduced the estate tax, leading to its full repeal in 2010, which necessitated adjustments in estate planning and policies to adapt to these changes.

Question 15

This receipt does not bind the coverage of life insurance at the time it is issued, but it does put the coverage into effect retroactive to the time of application if one meets all the requirements for insurability as of the date of the application.A claim for benefits because of death prior to issuance of the policy generally will be honored, but only if you were insurable when you applied.Identify this receipt.
A)Conditional receipt
B)Binding receipt
C)Estoppel
D)Facultative receipt
E)Waiver receipt

Accepted Answer

A Conditional receipt is given to policy applicants when they pay a premium at the time of application. It provides that coverage will be effective from the date of the application or medical exam (whichever is later), provided that the policy is eventually issued as applied for. This means if the applicant meets the insurer's underwriting requirements, the coverage can be retroactively effective, even if the applicant dies before the policy is formally issued.

Question 16

It is important to understand the nature of such a policy because the insured has to look for what is not covered rather than what is covered.Identify this perils policy.
A)Named-perils policy
B)Open-perils policy
C)Flexible-perils policy
D)No risk perils policy
E)Closed-perils policy

Accepted Answer

An open-perils policy covers all risks except those explicitly excluded, so the insured must focus on what is not covered.

Question 17

Which of the following benefits the insured when losses are predictable and manageable?
A)Loss avoidance
B)Loss forecasting
C)Loss retention
D)Loss transfer
E)Loss backcasting

Accepted Answer

Loss retention benefits the insured when losses are predictable and manageable because it involves setting aside funds to cover potential losses, which can be a cost-effective strategy when losses are not severe and can be anticipated.

Question 18

Which of the following statements is true about periods of coverage and limitations of liability?
A)Life insurance policies promise to pay a specified amount for total expenses during one's lifetime.
B)Health policies typically limit payment to the face amount of the policy.
C)Term life policies often provide coverage for the entire life of the insured.
D)Perpetual policies remain in force until canceled by the insured or the insurer.
E)Liability policies provide coverage up until a specified age.

Accepted Answer

Perpetual policies, unlike term policies, do not have a predetermined end date and remain in force until canceled by either the insured or the insurer. This makes them distinct from other types of insurance policies that may have specific terms or conditions limiting their duration or coverage.

Question 19

One form of the homeowner's policy, HO-2, insures for direct loss to the dwelling, other structures, and personal property caused by eighteen different perils.Only losses caused by these perils are covered.Riot or civil commotion is listed, so a loss caused by either is covered.On the other hand, earthquake is not listed, so a loss caused by earthquake is not covered.Identify the perils policy of HO-2.
A)Closed-perils policy
B)Flexible-perils policy
C)Open-perils policy
D)All risk perils policy
E)Named-perils policy

Accepted Answer

HO-2 is a named-perils policy because it only covers losses caused by specific perils that are listed in the policy.

Question 20

In most states, an oral binder is as legal as a written one, but in case of a dispute:
A)written binders are given more weightage.
B)one requires both written and oral binder to prove the existence of a contract.
C)it is difficult to prove its terms.
D)the court does not rule in favor of individuals who only have oral binder as evidence.
E)written binders do not require oral binder as evidence, but oral binders have to be backed by written binders.

Accepted Answer

C) Oral binders can be legally binding, but the challenge lies in proving the specific terms of the agreement without written documentation, making disputes more complicated.

Quiz 10: Structure and Analysis of Insurance Contracts

Which of the following statements is true about open-perils policy and named-perils policy?

Perpetual insurance policies remain in force:

In an insurance policy, it states that the "insurer promises to pay…." This general description of the insurer's promises is the essence of:

If a peril is not listed in the insurance contract, loss resulting from it is not covered.Identify this policy.

Which of the following sections is generally the first part of the insurance policy?

With cancelable policies, the insurer is responsible under a binder for losses that:

Identify the policy that covers losses caused by all perils except those excluded.

Identify the element of the insurance contract that is a general statement of the promises the insurer makes to the insured.

The insuring agreement provides a general description of the circumstances under which the policy becomes applicable.The circumstances include the covered loss-causing events, called:

Some forms of automobile insurance may be written on a continuous basis, with premiums payable at specified intervals, such as every six months.Such policies remain in force:

A claim for the death benefit under this receipt will be paid if death occurs while one's application for life insurance is being processed even if the deceased is found not to be insurable.Identify this receipt.

The estate tax repeal rider, which exemplifies the need to modify policies as tax laws change, was created in response to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001).

It is important to understand the nature of such a policy because the insured has to look for what is not covered rather than what is covered.Identify this perils policy.

Which of the following benefits the insured when losses are predictable and manageable?

Which of the following statements is true about periods of coverage and limitations of liability?

In most states, an oral binder is as legal as a written one, but in case of a dispute: