Deck 49: Insurance

Question 1

The consideration paid to an insurer to obtain an insurance policy is the binder.

Answer 1

False

Question 2

All-risk insurance is property insurance that covers damage resulting from all risks except those specifically excluded.

Answer 2

True

Question 3

A business firm may have an insurable interest in the life of a key employee.

Answer 3

True

Question 4

A party must own property to have an insurable interest in it.

Question 5

A person has an insurable interest in property if he or she would sustain a financial loss from damage to the property.

Question 6

Under a coinsur?ance clause, a homeowner who insures a home for 80 percent of its value can recover only 80 percent of the cost for damage to it.

Question 7

A loss sustained between the time of application and the delivery of an insurance policy may not be covered

Question 8

A sibling may have an insurable interest in his or her sibling's life.

Question 9

State law may mandate that a certain provision be included in an insur?ance policy.

Question 10

Arbitration of disputes over insurance claims is often provided for in policies.

Question 11

A coinsurance clause provides that two or more people will be covered by the same life insurance policy.

Question 12

An insurance application is usually not part of the insurance contract.

Question 13

If a life insurance applicant pays a premium but dies before the physical exam, there is obviously no coverage.

Question 14

Normally, a fire insurance policy provides for an appraisal if the parties do not agree on the amount of a covered loss.

Question 15

An insurable interest in property must exist when a policy is purchased.

Question 16

Insurance is classified according to the nature of the risk involved.

Question 17

Insurance companies are prohibited from prac?ticing risk management.

Question 18

Misstatements or misrepresentations in an application for insurance can void a policy.

Question 19

Insurance coverage is never effective until a formal written policy is issued.

Question 20

A person can insure anything in which he or she has an insurable interest.

Question 21

An insured's lack of an insurable interest is an absolute defense against payment.

Question 22

Because insurance law follows contract law, bad faith tort actions against insurers are not allowed.

Question 23

An insurance company may cancel an insured's policy if the insured ap?pears as a witness in a case against the company.

Question 24

Term life insurance provides life insurance for a specified term with no cash surrender value.

Question 25

A homeowners' policy covers an owner's home but not its contents.

Question 26

A fire insurance policy is assignable without the insurer's consent because the policy "runs" with the insured property.

Question 27

An insurance policy cannot be canceled only for nonpayment of a premium.

Question 28

If a provision in an insurance policy is ambiguous, the provision will be interpreted against the insurance company.

Question 29

Misrepresentation on an insurance application is a ground for canceling the policy.

Question 30

Cash surrender value is the amount an insured must pay to cancel a policy.

Question 31

When insurance provides coverage against third party claims, an in?surer has a duty to defend any suit based on such a claim against the insured.

Question 32

To avoid payment on a claim, an insurance company may raise any de?fense that would be valid in any action for breach of contract.

Question 33

Unless insurance proceeds are exempt under state law, a life insurance policy is an asset that is subject to the rights of judgment creditors.

Question 34

Under an antilapse clause, an insurance policy will lapse only if no pre?mium is paid on the date due.

Question 35

An insurer has a duty to avoid the payment of claims.

Question 36

Under an antilapse clause, an insurance policy will not lapse even if no payment is made on the date due.

Question 37

Automobile liability insurance covers liability for bodily injury but not property damage.

Question 38

A fire insurance policy covers losses to the insured as a re?sult of fire and lightning, but not damage from smoke and water.

Question 39

Whole life insurance provides protection with a cumulated cash surrender value that can be used as collateral for a loan.

Question 40

An applicant for insurance has a duty to disclose only what the insurer asks for.

Question 41

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

A) not pay Don because he and Beth divorced.
B) not pay Don because he has no insurable in?terest in Beth's life.
C) pay Don.
D) pay Beth's estate.

Question 42

Peg obtains from QT Insurance Company a policy that provides that af?ter it has been in force for a certain time, QT cannot question state?ments made in the application. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 43

Mena applies for a homeowners' insurance policy on her house with Neighbors Insurance Company through Obie, an agent who works for Neighbors. In this transaction, Obie is

A) an agent for both parties.
B) Mena's agent, and not Neighbors's agent.
C) Neighbors's agent, and not Mena's agent.
D) not an agent.

Question 44

Grover is an accountant with the firm of Hall & Associates, which ob?tains insurance from Interstate Insurance, Inc, on Grover's life. Grover dies. The proceeds of the policy belong to

A) Grover's heirs.
B) Hall & Associates.
C) Interstate Insurance.
D) the state.

Question 45

Investors Commercial Property Corporation obtains an insur?ance policy that protects against any losses incurred as a result of existing claims against or liens on certain property at the time of its purchase. This is

A) casualty insurance.
B) fire insurance.
C) life insurance.
D) title insurance.

Question 46

International Foods Corporation 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

A) risk management.
B) risk pooling.
C) risky.
D) risqué.

Question 47

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

A) avoiding the assumption of responsibility.
B) predicting a potential loss based on unknown factors.
C) shifting the imposition of liability.
D) transferring and allocating risk.

Question 48

Erte applies for, and obtains, casualty insurance coverage from Friendly Insurance Company for his business, Golf Club, Inc. The effective date of the policy is the date

A) Erte submits the application.
B) Friendly Insurance accepts the first premium.
C) Friendly Insurance issues the policy.
D) the application specifies as the effective date.

Question 49

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

A) Reno.
B) Sula.
C) Thayer.
D) the agent or broker through whom the policy was obtained.

Question 50

Dale and Ernie are partners who own and operate Cluck'n Hut, a chain of fast food restaurants. Their partnership obtains insurance on the owners' lives. This is

A) casualty insurance.
B) fidelity insurance.
C) key-person insurance.
D) liability insurance.

Question 51

Mila, who captains a commercial fishing boat, obtains a policy from North Coast Insurance Company, which agrees to pay $500,000 to Mila's beneficiary on Mila's death. This is

A) floater insurance.
B) life insurance.
C) major medical insurance.
D) marine insurance.

Question 52

For Diana to obtain an insurance policy on Eden Farm, including its crops, equipment, and livestock, she must have an insurable interest in the property that exists

A) at any time.
B) at the time a policy is obtained.
C) at the time a loss occurs.
D) continuously from the time a policy is obtained to the time a loss occurs.

Question 53

Feta is a partner in the software design firm GR8 Games, Inc., which ob?tains key-person in?surance on Feta's life in the amount of $1 million from Halo Insurance Company. Feta quits GR8 Games to join Icy Applications, Inc. Feta dies. Halo must pay the $1 million to

A) Feta's spouse Jo because she had an insurable interest in Feta's life.
B) GR8 Games because it had an in?sur?able interest in Feta's life when it ob?tained the policy.
C) Icy Applications because it had an in?sur?able interest in Feta's life when he died.
D) no one because Feta was not working for GR8 Games when he died.

Question 54

EZ Rentals Company wants to insure the equipment that it rents to the public. To obtain insurance, EZ must have an insurable inter?est in the property

A) at any time.
B) at the time a loss occurs.
C) at the time a policy is obtained.
D) continuously from the time a policy is obtained to the time a loss occurs.

Question 55

Infinite Sales Corporation obtains an insurance policy that covers losses to Infinite Sales caused by fire. This is

A) casualty insurance.
B) fire insurance.
C) life insurance.
D) title insurance.

Question 56

Chocolate Gourmet Company obtains an insurance policy to pro?tect against losses incurred by the firm as a result of being held liable for per?sonal injuries or property damage sustained by others. This is

A) casualty insurance.
B) fire insurance.
C) life insurance.
D) title insurance.

Question 57

Regular Business, Inc. (RBI), obtains a fire insurance policy from Statistical Insurance Company on a $400,000 warehouse. The policy includes an 80-percent coinsurance clause. RBI insures the property for $320,000. In a fire, the warehouse suffers $200,000 in damage. RBI can recover

A) $400,000.
B) $320,000.
C) $200,000.
D) $80,000.

Question 58

Dhani is the beneficiary of a life insurance policy on Elmo's life obtained from Famed Insurance Company. The insured under this policy is

A) Dhani.
B) Elmo.
C) Famed.
D) the agent or broker through whom the policy was obtained.

Question 59

Felicity Cookware Company makes and sells kitchen products. To cover injuries to consumers if the products prove de?fective, Felicity should obtain

A) group insurance.
B) health insurance.
C) liability insurance.
D) life insurance.

Question 60

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

A) an agent for both parties.
B) Grace's agent, and not Heroic's agent.
C) Heroic's agent, and not Grace's agent.
D) not an agent.

Question 61

Isabel obtains a fire insurance policy on her home from Justice Insurance Company. The home is lost in a fire, but the parties dispute the amount of Justice's liability under an ambiguous clause in the policy. A court would most likely

A) interpret the clause against Isabel.
B) interpret the clause against Justice.
C) rewrite the clause and apply it as rewritten.
D) strike the clause from the policy.

Question 62

Ginny obtains a health insurance policy for her family from Hope Insurance Company. The policy includes an incontestability clause. Under such a clause, after a policy has been in force for two or three years

A) Ginny cannot contest Hope's insurable interest.
B) Ginny cannot contest Hope's refusal to pay a claim under the policy.
C) Hope cannot contest Ginny's eligibility for continued coverage.
D) Hope cannot contest Ginny's statements in the application.

Question 63

Lila obtains a life insurance policy with no cash surrender value and names her son Maurice as the beneficiary. This is

A) casualty insurance.
B) decreasing-term life insurance.
C) health insurance.
D) term life insurance.

Question 64

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

A) acknowledges the application and promises to consider it.
B) attests to the truth of each statement in the application
C) evidences receipt of the payment of the initial premium.
D) indicates that a policy is pending and states its essential terms.

Question 65

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

A) deny payment, because a fire destroyed Speedy's warehouse.
B) deny payment, because of Speedy's fraud in the application.
C) not deny payment, because a fire destroyed Speedy's warehouse.
D) not deny payment, because the application is not part of the policy.

Question 66

Kerin obtains a property insurance policy for her art collection from Lawton Insurance Company. Lawton can cancel the policy

A) at any time.
B) only at the end of a period for which a premium has been paid.
C) only if Lawton no longer has an insurable interest in the property.
D) only on advance written notice.

Question 67

Fred misstates his age in applying for a life insurance policy with Gamma Insurance Company. Due to this "error," Gamma can

A) adjust the amount of the premium or the benefits.
B) cancel the policy.
C) file criminal charges against Fred for fraud.
D) "misstate" the amount payable to the policy's beneficiary.

Question 68

Cathy obtains from Depend Insurance Company a policy that pro?vides that 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

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 69

Holly obtains an insurance policy from Inviolable Insurance Corporation (IIC). IIC may cancel, or refuse to renew, the policy because of

A) Holly's appearance as a witness against IIC.
B) Holly's national origin.
C) Holly's race.
D) none of the choices.

Question 70

Trina pays a premium to United Insurance Corporation for fire insurance against the loss of her Viewpoint Office Building. After Trina sells the building to Wade, it burns down. Under the policy, United must pay

A) neither Trina nor Wade.
B) Trina and Wade.
C) Trina only.
D) Wade only.

Question 71

Trustworthy Insurance, Inc., has a valid reason to cancel a policy issued to USA Sales Company. In most states, Trustworthy could cancel the policy on

A) oral notice.
B) oral or written notice.
C) without notice.
D) written notice.

Question 72

Boyce obtains from Capital Insurance Company a policy that provides that if the parties cannot agree on the amount of a loss covered by the policy, an estimate of the value by an impartial third party can be de?manded. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 73

Dag obtains from Excel Insurance Company a policy that provides that Dag has thirty days after a premium's due date to pay it before the policy will be canceled. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 74

Edy obtains a homeowners' insurance policy with First Source Insurance Company. First State can cancel the policy

A) if Edy appears as a witness in a case against First Source.
B) if Edy fails to pay the premiums.
C) if Edy makes changes that add to the home's value.
D) under no circumstances.

Question 75

Bob applies to City Insurance Company for insurance. City issues a pol?icy, but later discovers that Bob's application includes several misstate?ments. Most likely, these misstatements can

A) affect the coverage under the policy but cannot void the policy.
B) bind Bob but cannot affect the coverage.
C) not bind Bob or affect the policy.
D) void the policy.

Question 76

General Allied Company obtains insurance policies with Hy-Rate Insurance, Inc., and Ideal InsurCo against the risk of loss of General's of?fice building in a fire. Each policy includes a multiple-insurance clause. A fire partially destroys the building. General can collect from Hy-Rate

A) all of the loss.
B) half of the loss.
C) its proportionate share of the loss to the total amount of insurance.
D) none of the loss.

Question 77

Kelsy obtains a business liability insurance policy from Luminous Insurance Company for Kelsy's Framing & Art Supplies store. When an event occurs that gives rise to a claim, each party has a duty to

A) cooperate in an investigation to determine the facts.
B) file a suit against the other so that a court can settle the claim.
C) find a third party on whom to impose liability.
D) pay any outstanding premium or refund any unearned amount.

Question 78

Rolling Transport & Storage Corporation wants to insure its warehouse to obtain the maximum possible recovery for the lowest possible pre?mium. To obtain the maximum recovery under a coinsurance clause, the percentage of the value of the property that should be insured is

A) 80 percent.
B) 90 percent.
C) 100 percent.
D) 120 percent.

Question 79

Doctors Medical Associates obtains an insurance policy that protects its members against malpractice claims by their pa?tients. This is

A) casualty insurance.
B) fidelity insurance.
C) liability insurance.
D) life insurance.

Question 80

Sheila obtains a life insurance policy with no cash surrender value and names her son Theo as the beneficiary. This is

A) endowment insurance.
B) limited-payment life insurance.
C) term insurance.
D) whole life insurance.