Question 1

Kate is covered under her employer's group health plan.She is also covered as a dependent under her husband's group health plan.Under the usual coordination-of-benefits provision,how will each company respond to a claim filed by Kate?
A)Kate's plan is primary,and her husband's plan is excess.
B)Her husband's plan is primary,and Kate's plan is excess.
C)The plan of the person with the birthday earliest in the year pays first,and the other plan is excess.
D)Each plan will pay 50 percent of the claim.

Accepted Answer

Kate's employer's group health plan is considered primary because it is her own coverage, while her husband's plan, under which she is covered as a dependent, is considered secondary or excess. This is a common practice in coordination of benefits to determine which plan pays first.

Question 2

The purpose of other-insurance provisions is to
A)eliminate the need for deductibles.
B)penalize those insureds who carry inadequate amounts of insurance.
C)specify who will pay losses if the insurer is bankrupt.
D)preserve the principle of indemnity.

Accepted Answer

Other-insurance provisions are designed to preserve the principle of indemnity by preventing the insured from collecting more than the actual loss from multiple policies.

Question 3

Helen and John both own automobiles on which they carry liability insurance.If Helen is negligent and has an accident while driving John's car,how will each insurer respond to any liability judgment against Helen?
A)The insurers will pay the judgment on a pro rata basis.
B)John's insurer will pay on an excess basis if Helen's insurance is insufficient to cover the judgment.
C)Helen's insurance will pay on an excess basis if John's insurance is insufficient to cover the judgment.
D)The policies will pay the judgment on the basis of contribution by equal shares.

Accepted Answer

Helen's insurance will act as excess coverage, meaning it will only pay if John's insurance is insufficient to cover the liability judgment.

Question 4

Laura's major medical insurance policy includes a $500 deductible and an 80-20 coinsurance clause.Laura was hospitalized and her covered medical expenses were $10,500.How much of the $10,500 will be paid by the insurer under Laura's major medical policy?
A)$7,500
B)$7,900
C)$8,000
D)$10,000

Accepted Answer

The answer of Laura's major medical insurance policy includes a...

Question 5

Lisa has three fire insurance policies on her office building.The policy from company A is for $400,000,and the policies from companies B and C are for $100,000 each.If Lisa has a $360,000 loss,how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the insurers?
A)each policy: $120,000
B)policy A: $160,000;policies B and C: $100,000 each
C)policy A: $240,000;policies B and C: $60,000 each
D)policy A: $360,000;policies B and C: nothing

Accepted Answer

The total coverage is $600,000 ($400,000 from A and $200,000 from B and C combined). The loss is $360,000. On a pro rata basis, each policy covers a portion of the loss proportional to its share of the total coverage. Company A's policy is 2/3 of the total coverage ($400,000 of $600,000), so it covers 2/3 of the loss, which is $240,000. Companies B and C each provide 1/6 of the total coverage ($100,000 of $600,000 each), so each covers 1/6 of the loss, which is $60,000 each.

Question 6

Mark owns a building that he insured for $90,000.The replacement cost of the building is $100,000.Mark's property insurance policy has an 80 percent coinsurance clause and no deductible.If Mark's building is destroyed by a covered peril,how much will Mark receive from his insurer?
A)$80,000
B)$90,000
C)$101,250
D)$112,500

Accepted Answer

The answer of Mark owns a building that he insured...

Question 7

Mark reviewed his homeowners policy.He learned that his personal property was insured on an actual cash value basis.He would like replacement cost coverage on the property.He contacted his agent who said,"I'll simply add an amendment to your contract that changes the basis of recovery to replacement cost." The written provision the agent was referring to is called a(n)
A)endorsement.
B)coinsurance clause.
C)binder.
D)deductible.

Accepted Answer

An endorsement is a written provision added to an insurance contract that modifies or changes the terms of the policy. In this case, the endorsement would change the basis of recovery from actual cash value to replacement cost coverage.

Question 8

Shauna hurt her back and was unable to work.She filed a claim under her disability income insurance policy.Under terms of the policy,60 days must pass between the date of the injury and when the insurer begins to replace lost earnings.This 60-day period is called a(n)
A)grace period.
B)enrollment period.
C)probationary period.
D)elimination (waiting)period.

Accepted Answer

The 60-day period between the date of the injury and when the insurer begins to replace lost earnings is called an elimination (waiting) period. This is a common provision in disability income insurance policies to ensure that the claim is legitimate and to prevent fraudulent claims. During this period, the insured is responsible for covering their own lost wages.

Question 9

Under the terms of Jenny's auto insurance policy,she must pay the first $500 of any physical damage loss to her vehicle before her insurer will pay anything.What type of deductible is included in Jenny's auto insurance policy?
A)calendar-year deductible
B)corridor deductible
C)straight deductible
D)aggregate deductible

Accepted Answer

A straight deductible is a fixed dollar amount that the policyholder is responsible for paying before their insurance coverage starts paying out. In this case, Jenny must pay the first $500 of any physical damage loss to her vehicle before her insurer will pay anything, which is a straight deductible.

Question 10

Eric's property was damaged in an accident.He phoned his agent to see if the loss was covered under his property insurance policy.The agent said,"As long as the cause of loss is not specifically excluded in the policy,the loss is covered." Based on the agent's answer,what type of insuring agreement appears in the policy?
A)unconditional coverage
B)named-perils coverage
C)extended-perils coverage
D)"all-risks" coverage

Accepted Answer

The agent's statement indicates that Eric's policy is an "all-risks" coverage, which means that all risks are covered unless they are specifically excluded in the policy.

Question 11

Janet hit a wall causing a large dent in the fender of her car.She was busy at work and delayed reporting the damage to her insurer for 9 months.The insurer denied the claim,stating,"Although such a loss is usually covered,you are required under the terms of the contract to provide prompt notification in case of loss." The prompt notification requirement is an example of a(n)
A)declaration.
B)definition.
C)insuring agreement.
D)condition.

Accepted Answer

The prompt notification requirement is an example of a condition, which is a provision in an insurance contract that requires the policyholder to do or not do something in order for coverage to apply. In this case, the condition is prompt notification of a loss, and since Janet failed to fulfill it, the insurer denied her claim.

Question 12

James purchased liability insurance with a $100,000 limit from Insurer A.When Insurer A denied a claim that James thought should be covered,he bought a second liability insurance policy with a $150,000 limit from Insurer B.Before he cancelled the policy with Insurer A,a $60,000 loss occurred.If this loss is settled on a pro rata basis,how much must each insurer pay?
A)Insurer A will pay $10,000 and Insurer B will pay $50,000.
B)Insurer A will pay $20,000 and Insurer B will pay $40,000.
C)Insurer A will pay $24,000 and Insurer B will pay $36,000.
D)Insurer A will pay $40,000 and Insurer B will pay $20,000.

Accepted Answer

The pro rata formula is:
Insurer A’s pro rata portion = (Policy limit of Insurer A) / (Policy limit of Insurer A + Policy limit of Insurer B) = 100,000 / (100,000 + 150,000) = 0.4
Insurer B’s pro rata portion = (Policy limit of Insurer B) / (Policy limit of Insurer A + Policy limit of Insurer B) = 150,000 / (100,000 + 150,000) = 0.6

Therefore, Insurer A’s share of the loss = Loss x Insurer A’s pro rata portion = 60,000 x 0.4 = 24,000
Insurer B’s share of the loss = Loss x Insurer B’s pro rata portion = 60,000 x 0.6 = 36,000

So, Insurer A will pay $24,000, and Insurer B will pay $36,000.

Question 13

The purpose of a coordination-of-benefits provision in group health insurance plans is to
A)determine which plan pays first if more than one plan covers a loss.
B)determine which health care provider an insured may use for his or her care.
C)determine if the calendar-year deductible has been satisfied by the insured.
D)determine if the employee is eligible for coverage under the group health plan.

Accepted Answer

The coordination-of-benefits provision is designed to determine which plan pays first when there is more than one plan covering a loss. This helps prevent overpayment by insurance companies and ensures that the insured receives the appropriate benefits without duplication of coverage. Other choices are not related to the coordination-of-benefits provision.

Question 14

XYZ Company insured its building on a replacement cost basis for $450,000 under a property insurance policy that included an 80 percent coinsurance clause.The building had a replacement cost of $500,000 when it sustained a $50,000 loss.How much will XYZ Company receive from its insurer,assuming no deductible applies?
A)$42,500
B)$45,000
C)$50,000
D)$56,250

Accepted Answer

The answer of XYZ Company insured its building on a...

Question 15

Jane purchased a $50,000 liability insurance policy from Insurer A.Fearing that she did not have enough liability insurance,she purchased an additional $100,000 of liability coverage from Insurer B.As a result of her negligence,Jane was ordered to pay $75,000 in damages.Assuming the coverage from Insurer A is primary and the coverage from Insurer B is excess,how will this claim be settled?
A)Insurer A will pay $50,000 and Insurer B will pay $25,000.
B)Insurer A will pay $37,500 and Insurer B will pay $37,500.
C)Insurer A will pay $25,000 and Insurer B will pay $50,000.
D)Insurer A will pay nothing and Insurer B will pay $75,000.

Accepted Answer

Insurer A, as the primary insurer, will pay up to its policy limit of $50,000. Insurer B, as the excess insurer, will cover the remaining $25,000 of the $75,000 damages.

Question 16

One method of providing group health insurance is a basic medical expense plan supplemented with major medical insurance.The insured is required to pay a deductible between where the basic coverage ends and where the major medical coverage begins.This deductible is called a(n)
A)corridor deductible.
B)waiting period.
C)aggregate deductible.
D)straight deductible.

Accepted Answer

A corridor deductible is a specific type of deductible that is used in this situation where a basic medical expense plan is supplemented with major medical insurance. It is defined as the portion of the medical expenses that must be paid by the insured between the basic coverage limit and the major medical coverage limit.

Question 17

ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause.The building had a replacement cost of $1 million when it sustained a $40,000 loss.How much will ABC Company receive from its insurer,assuming no deductible applies?
A)$33,333
B)$35,000
C)$36,000
D)$40,000

Accepted Answer

The answer of ABC Company insured its building on a...

Question 18

Kevin has three liability policies which provide for contribution by equal shares if other insurance applies to a loss.How much will each policy pay for a $3,000,000 liability judgment if policy A provides $500,000 of coverage,policy B provides $1,000,000 of coverage,and policy C provides $3,000,000 of coverage?
A)Each policy will pay $500,000,and Kevin must pay the remaining $1,500,000.
B)Policy A will pay $500,000,policies B and C will each pay $1,000,000,and Kevin must pay the remaining $500,000.
C)Policy A will pay nothing,policy B will pay $1,000,000,and policy C will pay $2,000,000.
D)Policy A will pay $500,000,policy B will pay $1,000,000,and policy C will pay $1,500,000.

Accepted Answer

Since the policies provide for contribution by equal shares, each policy will pay an equal share of the $3,000,000 judgment. Therefore, each policy will pay $1,000,000. However, Policy A only provides $500,000 of coverage, so it will pay its full limit of $500,000. Policy B provides $1,000,000 of coverage, so it will also pay $1,000,000. Policy C provides $3,000,000 of coverage, but it is only liable for $1,000,000, since each policy pays an equal share. Therefore, it will pay $1,000,000.

In summary: 
Policy A: $500,000 
Policy B: $1,000,000 
Policy C: $1,000,000

The total amount paid by the policies is $2,500,000. Kevin will need to pay the remaining $500,000.

Question 19

As an alternative to coinsurance,rate discounts can be given as the amount of insurance to value increases.This alternative is called
A)graded rates.
B)agreed value coverage.
C)retrospective rating.
D)manual rating.

Accepted Answer

Graded rates adjust the premium rate based on the amount of insurance relative to the value of the property insured, offering lower rates for higher amounts of coverage relative to value, which is an alternative to coinsurance.

Quiz 10: Analysis of Insurance Contracts

Kate is covered under her employer's group health plan.She is also covered as a dependent under her husband's group health plan.Under the usual coordination-of-benefits provision,how will each company respond to a claim filed by Kate?

The purpose of other-insurance provisions is to

Helen and John both own automobiles on which they carry liability insurance.If Helen is negligent and has an accident while driving John's car,how will each insurer respond to any liability judgment against Helen?

Laura's major medical insurance policy includes a $500 deductible and an 80-20 coinsurance clause.Laura was hospitalized and her covered medical expenses were $10,500.How much of the $10,500 will be paid by the insurer under Laura's major medical policy?

Mark owns a building that he insured for $90,000.The replacement cost of the building is $100,000.Mark's property insurance policy has an 80 percent coinsurance clause and no deductible.If Mark's building is destroyed by a covered peril,how much will Mark receive from his insurer?

Shauna hurt her back and was unable to work.She filed a claim under her disability income insurance policy.Under terms of the policy,60 days must pass between the date of the injury and when the insurer begins to replace lost earnings.This 60-day period is called a(n)

Under the terms of Jenny's auto insurance policy,she must pay the first $500 of any physical damage loss to her vehicle before her insurer will pay anything.What type of deductible is included in Jenny's auto insurance policy?

The purpose of a coordination-of-benefits provision in group health insurance plans is to

One method of providing group health insurance is a basic medical expense plan supplemented with major medical insurance.The insured is required to pay a deductible between where the basic coverage ends and where the major medical coverage begins.This deductible is called a(n)

As an alternative to coinsurance,rate discounts can be given as the amount of insurance to value increases.This alternative is called