Question 1

EquipLease Company pays a premium to Federated Insurance Inc. for fire insurance against the loss of EquipLease's offices, warehouse, and storage center. After EquipLease sells the facilities to Great State Trucking, Inc., the warehouse is lost in a fire. Under the policy, Federated must pay

Accepted Answer

The answer of EquipLease Company pays a premium to Federated...

Question 2

Bev is an employee of the accounting firm Catz & Douglas, which ob?tains key-person life in?surance on Bev in the amount of $1 million from Equity Insurance Company. Bev quits Catz & Douglas to join Financial Analysis, LLC. Bev dies. Under the principle of insurable interest, Equity Insurance must pay the $1 million to

Accepted Answer

Catz & Douglas had an insurable interest in Bev at the time the policy was taken out, and since the policy was in force when Bev died, they are entitled to the proceeds.

Question 3

Estelle, who owns and operates a commercial dairy farm, obtains a policy from Farm & Ranch Insurance Company, which agrees to pay $500,000 to Gabe, Estelle's son and beneficiary, on her death. This is

Accepted Answer

The policy obtained by Estelle from Farm & Ranch Insurance Company agrees to pay a sum of $500,000 to her son and beneficiary Gabe, on her death. This type of policy is called life insurance, which provides a death benefit to the designated beneficiary upon the death of the insured.

Question 4

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 a policy if the policyholder increases the risk assumed by the company. In this case, if Myles modifies or alters the car in a way that makes it more likely to be damaged or destroyed, Nova may cancel the policy.

Question 5

Root & Branch Lumber Company obtains a fire insurance policy from Security Insurance, Inc., on a $400,000 warehouse. The policy includes an 80-percent coinsurance clause. Root & Branch insures the property for $320,000. In a fire, the warehouse suffers $200,000 in damage. Root & Branch can recover

Accepted Answer

Root & Branch insured the property for $320,000, which is less than the required 80% of the $400,000 value, so they did not meet the coinsurance requirement. Therefore, Root & Branch is liable for a portion of the loss in proportion to the amount of underinsurance.

Calculation:

Coverage actually carried / Coverage required = Insurance carried ÷ (Value of the property x coinsurance percentage)

Coverage actually carried / Coverage required = $320,000 / ($400,000 x 0.8) = 1

This means the actual coverage carried is equal to the coverage required.

The insurer will pay out:

The amount of the loss x (Coverage actually carried / Coverage required)

= $200,000 x (1)

= $200,000

Therefore, Root & Branch can recover $200,000.

Question 6

Dental Clinic obtains an insurance policy that protects its members against negligence claims by their pa?tients. This is

Accepted Answer

Malpractice insurance is specifically designed for professionals who provide services in fields such as medicine, law, and dentistry, protecting them against claims of negligence or wrongdoing by their clients or patients.

Question 7

The Fish House, a seafood restaurant, obtains from Guaranty Insurance Company a policy that pro?vides if a dispute arises between the parties concerning the settle?ment of a claim, the dispute must be submitted to an impartial third party, not a court, for resolution. This is

Accepted Answer

The policy provision that requires the dispute to be submitted to an impartial third party for resolution is an arbitration clause.

Question 8

Durant obtains a life insurance policy with no cash surrender value or cash value, and names his daughter Elise as the beneficiary. This is

Accepted Answer

The policy with no cash surrender or cash value and a named beneficiary is term insurance.

Question 9

Grid Tool Company makes and sells tools and other hardware supplies. To cover injuries to consumers if the products prove de?fective, Grid Tool should obtain

Accepted Answer

Liability insurance is specifically designed to cover injuries or damages caused by the products or services of a business. Therefore, it would be the appropriate type of insurance for Grid Tool Company to obtain to cover any potential defects in their tools and hardware supplies. Disability, health, and life insurance would not provide coverage for product defects.

Question 10

Reno is the beneficiary of a life insurance policy on Sula's life obtained from Traditional Insurance Company. The underwriter of this policy is

Accepted Answer

The underwriter of a life insurance policy is the insurance company that assumes the risk and agrees to pay out the death benefit to the beneficiary in the event of the insured's death. In this case, Traditional Insurance Company is the underwriter of the policy on Sula's life, and therefore is responsible for paying out the death benefit to Reno as the beneficiary.

Question 11

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

Accepted Answer

In most states, insurance companies can only cancel a policy with advance written notice to the policyholder.

Question 12

Ollie obtains a health-insurance policy for his family from Protection Insurance Company. The policy includes an incontestability clause. Under such a clause, after a policy has been in force for a specified period or time, such as two or three years

Accepted Answer

An incontestability clause prevents the insurer from contesting the validity of the policy based on misstatements by the insured after the policy has been in force for a specified period, typically two or three years.

Question 13

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

The answer of Rafe obtains a fire insurance policy on...

Question 14

WeatherGuard Roofing Corporation obtains an insurance policy that protects WeatherGuard against liability in the event of injuries or losses sustained by its employees during the course of their employment that are not covered under workers' compensation insurance. This is

Accepted Answer

Employer's liability insurance is designed to protect employers against liability for work-related injuries and illnesses that are not covered by workers' compensation insurance. Casualty insurance covers losses resulting from unexpected events, such as fires or accidents, and is not specifically related to employee injuries. Key-person life insurance is a type of life insurance that provides coverage for the loss of a key employee, while term life insurance is a type of life insurance that provides coverage for a specified term or period of time. Neither of these types of insurance is directly related to employee injuries or losses.

Question 15

Ethel obtains a life insurance policy from Fidelity Insurance Company, naming her spouse Grover as the beneficiary. Ethel and Grover are di?vorced. There is no provision in the policy about divorce. On Ethel's death, Fidelity must pay

Accepted Answer

In the absence of a provision in the policy about divorce, the named beneficiary, Grover, remains entitled to the proceeds despite the divorce.

Question 16

Shipping Corporation applies to TransInsurance Company for a fire insurance pol?icy on Shipping's warehouse. On the application, Shipping understates the age of the property to obtain a lower premium. When a fire destroys the ware?house, TransInsurance can

Accepted Answer

TransInsurance can deny payment because of fraud on the application. When an insurance policy is issued based on incorrect or false information, it is considered a material misrepresentation and can be grounds for the insurer to deny the claim.

Question 17

Anna obtains a business liability insurance policy for her Brew & 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 of the case. This duty is known as the duty of cooperation, and it is essential for the insurance company to properly evaluate the claim and determine its liability. Therefore, option A is the best choice as it correctly identifies the duty of both parties involved in a claim under an insurance policy.

Question 18

Grace applies for a homeowners' insurance policy on her house with Heroic Insurance Company through Ian, a broker. In this transaction, Ian is

Accepted Answer

In this transaction, Ian, as a broker, acts as an agent for Grace, the applicant, and not for Heroic Insurance Company. Brokers typically represent the insured, not the insurer.

Question 19

Gwen applies for a homeowners' insurance policy on her house with Home & Life Insurance Company through Ivy, an agent who works for Home & Life. In this transaction, Ivy is

Accepted Answer

Ivy is an agent who works for Home & Life Insurance Company, which means she represents Home & Life in the transaction. Therefore, Ivy is Home & Life's agent, and not Gwen's agent.

Question 20

Lamont applies for a health insurance policy with MedInsure, Inc., an insurance company, through Netta, an agent who works for MedInsure. Lamont pays the initial premium. Netta writes a binder, which

Accepted Answer

A binder is a temporary insurance contract that provides coverage during the underwriting process. It indicates that a policy is pending and states its essential terms, such as the premium amount, coverage amount, and policy period. A binder does not attest to the truth of each statement in the application and does not promise to consider it. It does evidence receipt of the payment of the initial premium, but this is not its primary purpose.

Quiz 50: Insurance