Question 1

Clark obtains from Delta Insurance, Inc., a policy that provides if a dispute arises between the parties concerning the settlement of a claim, the dispute must be submitted to an impartial third party, not a court, for resolution. This is

Accepted Answer

The provision described in the scenario is an arbitration clause, which requires that any disputes between the parties be resolved by an impartial third party rather than through litigation in court. This is a common provision in insurance contracts and is intended to streamline the dispute resolution process while avoiding the costs and delays associated with going to court. Options A, C, and D are not applicable in this scenario.

Question 2

Cooks Delight LLC makes and sells kitchen appliances. To cover injuries to consumers if the appliances prove defective, Cooks should obtain

Accepted Answer

Liability insurance is designed to protect businesses from legal costs and damages resulting from injuries caused by their products. This would be the most appropriate choice for Cooks Delight LLC to obtain in order to cover potential injuries to consumers caused by their kitchen appliances. Group insurance, health insurance, and life insurance would not provide coverage for these types of claims.

Question 3

U-Rents Company wants to insure the equipment that it rents to consumers. To obtain insurance, U-Rents must have an insurable interest in the property

Accepted Answer

An insurable interest must exist at the time of the loss, not necessarily continuously. Therefore, U-Rents must have an insurable interest at the time a loss occurs in order to receive insurance coverage.

Question 4

Orin is a doctor with Physicians Health Clinic, which obtains insurance from Quotient Insurance, Inc., on Orin's life. Orin dies. The proceeds of the policy belong to

Accepted Answer

The proceeds of the policy belong to Physicians Health Clinic because they are the policyholder and beneficiary of the insurance taken on Orin's life.

Question 5

Country Club, Inc. applies for, and obtains, casualty insurance coverage from Business Insurance Company. The effective date of the policy is the date

Accepted Answer

The effective date of an insurance policy is typically the date specified in the application as the effective date, assuming the insurer accepts the application and issues the policy accordingly.

Question 6

Kailyn obtains an insurance policy that protects her against liability for property damage resulting from the operation of her vehicle. This is

Accepted Answer

The policy obtained by Kailyn is specifically related to protection against liability for property damage resulting from the operation of her vehicle, which is commonly referred to as automobile insurance.

Question 7

Hernando obtains an insurance policy that protects him against some risks of loss to the contents of his residence. This is

Accepted Answer

Homeowners' insurance typically covers property damage to a person's residence and its contents, including loss or damage to personal belongings such as furniture, electronics, and other items. Term life insurance, malpractice insurance, and liability insurance would not offer coverage for loss of personal property within the insured person's residence.

Question 8

Dan applies for a life insurance policy with Equity Insurance Company through Fletch, an agent who works for Equity. Dan pays the initial premium. Fletch writes a binder, which

Accepted Answer

A binder is a temporary agreement indicating that a policy is pending and stating its essential terms such as the amount of coverage, premium, and duration of the policy. The binder does not attest to the truth of the statements in the application nor does it promise to consider it. The payment of the initial premium is acknowledged separately from the binder.

Question 9

Organic Produce Company obtains an insurance policy to protect against losses incurred by the firm as a result of being held liable for personal injuries or property damage sustained by others. This is

Accepted Answer

Casualty insurance typically covers liability for personal injury or property damage. Fire insurance only covers losses from a fire. Life insurance covers death. Malpractice insurance covers liability for professional errors or negligence.

Question 10

Commerce Insurance, Inc., has a valid reason to cancel a policy issued to DIY Auto Parts Company. In most states, Commerce could cancel the policy on

Accepted Answer

In most states, Commerce Insurance, Inc., would be required to provide advance written notice if they need to cancel a policy issued to DIY Auto Parts Company. This notice would need to be given in writing rather than orally.

Question 11

Ben obtains a fire insurance policy on his house with Constant Insurance Company. Like all insurance, this policy is an arrangement for

Accepted Answer

Fire insurance policy is a form of transferring and allocating the risk of potential loss due to the fire from the policyholder to the insurer. The insurer takes the responsibility of compensating for the loss in exchange for the premium paid by the policyholder. It helps the policyholder to avoid the burden of financial liability in case of any loss due to the fire.

Question 12

Myles obtains a property insurance policy from Nova Insurance Company for Myles's restored 1957 Chevy. Nova can cancel the policy

Accepted Answer

Insurance companies have the right to cancel policies if the risk assumed by the company increases. For example, if Myles modifies the car so that it becomes more dangerous to insure, Nova can cancel the policy.

Question 13

Frank applies to GuardDog Insurance Company for homeowners' insurance. The company issues a policy, but later discovers that Frank's application includes several misstatements. Most likely, these misstatements can

Accepted Answer

Misstatements in the application can be considered misrepresentation, which is a material breach of contract that can void the policy. GuardDog Insurance Company may rescind the policy if they can prove that Frank intentionally or mistakenly provided false information that influenced the underwriting decision or premium calculation.

Question 14

Global Reach, Inc., insures its real and personal property, as well as the lives of its key employees, to protect its financial interest should some event undermine its security. This is

Accepted Answer

Global Reach, Inc. is engaging in risk management by insuring its property and key employee lives to safeguard against potential loss or damage. Universal life and coinsurance are specific insurance products that may be utilized in risk management strategies, but they are not comprehensive risk management themselves. Underwriting is the process of evaluating and pricing insurance policies, which is a component of risk management but not the overall strategy.

Question 15

Rafe obtains a fire insurance policy on his vacation cabin near Smoky Mountain from Torchlight Insurance Company. The cabin is lost in a fire, but the parties dispute the amount of Torchlight's liability under an ambiguous clause in the policy. A court would most likely

Accepted Answer

Courts typically interpret ambiguous insurance policy clauses against the insurer, as they are the party that drafted the contract.

Question 16

Alain and Bette are partners who own and operate Cakes n' Pies, a chain of dessert restaurants. Their partnership obtains insurance on Alain and Bette's lives. This is

Accepted Answer

Key-person insurance is designed to protect a business from financial losses that may arise from the death or incapacitation of a key employee or owner. In this case, Alain and Bette are owners of Cakes n' Pies, and their lives are insured by the partnership, making it a key-person insurance policy rather than disability, all-risk, or liability insurance.

Question 17

Ricky obtains an insurance policy from Security Insurance, Inc. The policy provides that on Ricky's death Security will pay $500,000 to Tori, Ricky's spouse and beneficiary. This is

Accepted Answer

The policy provides a death benefit to Ricky's beneficiary, Tori. This is characteristic of life insurance policies. Health insurance provides coverage for medical expenses, key-person insurance provides benefits payable to a business in the event of the death of a key employee, and disability insurance provides income replacement in the event of an injury or illness that prevents the insured from working. None of these accurately describe the policy obtained by Ricky from Security Insurance, Inc.

Question 18

Anna obtains a business liability insurance policy for her Bagels & Coffee Shop from ChoiceFirst Insurance Company. When an event occurs that gives rise to a claim, each party has a duty to

Accepted Answer

When an event occurs that gives rise to a claim, both the insured and the insurance company have a duty to cooperate in an investigation to determine the facts. This helps to ensure that the claim is handled fairly and that the insurance company can make an informed decision about whether to accept or deny the claim. Option B and C are incorrect because filing a suit against each other or finding a third party to impose liability does not address the immediate claim issue. Option D is unrelated to the duty of both parties in handling a claim.

Question 19

Bret obtains a fire insurance policy on his rental house with Continental Insurance Company. Like all insurance, this policy is an arrangement for

Accepted Answer

Insurance policies are a way of transferring and allocating risk. By obtaining fire insurance on his rental house, Bret is transferring the risk of a potential loss due to fire to the insurance company, which will then allocate that risk among all of its policyholders.

Question 20

Energy Industries, Inc., obtains insurance policies with Fidelity Insurance, Inc., and Goodworth Insurance Company against the risk of loss of Energy's property. Each policy includes a multiple insurance clause. A fire partially destroys one of Energy's buildings. Energy can collect from Fidelity

Accepted Answer

The multiple insurance clause means that when there is more than one insurance policy covering the same property, each insurer is responsible only for a proportional share of the loss. Therefore, Energy can collect only its proportionate share of the loss, which is determined by dividing the amount of insurance provided by Fidelity by the total amount of insurance provided by Fidelity and Goodworth.

Quiz 50: Insurance