Question 1

In case of loss, the insured has the duty to notify the insurer as soon as possible.

Accepted Answer

This is because prompt notification allows the insurer to investigate the claim efficiently and take necessary steps to mitigate further losses.

Question 2

An insured usually must provide a formal proof of loss within 60 to 90 days to receive payment.

Accepted Answer

Most insurance policies require the insured to submit a formal proof of loss within a specified time frame, typically 60 to 90 days after the incident, to receive payment for a claim.

Question 3

Under an appraisal clause, an impartial umpire may be used to help settle a claim.

Accepted Answer

An appraisal clause in an insurance policy allows for the use of an impartial umpire to help settle disputes between the insurer and the insured over the value of a claim, if the two appraisers initially appointed by each party cannot agree on a value.

Question 4

An assignment is the transfer of the rights of one person to another.

Accepted Answer

An assignment involves transferring the rights and benefits of a contract or agreement from one party (the assignor) to another (the assignee).

Question 5

Match the descriptions with their terms:
-The clause that states what the insurer agrees to do and the major conditions under which it agrees is called the _________________.

Accepted Answer

The insuring agreement is a fundamental part of an insurance policy, outlining the insurer's promise to pay and the conditions under which this promise applies.

Question 6

Match the descriptions with their terms:
-A/An _________________ contract lists the perils covered.

Accepted Answer

A named peril contract specifies the perils or risks that are covered, as opposed to an open-perils agreement which covers all perils except those specifically excluded.

Question 7

Match the descriptions with their terms:
-A/An _________________ covers all losses except those excluded.

Accepted Answer

An open-perils agreement in insurance policies covers all losses except those specifically excluded. This type of coverage is broader than a named peril policy, which only covers the perils listed in the policy.

Question 8

Match the descriptions with their terms:
-The person whose name appears on the policy to receive the benefit of coverage is called the _________________.

Accepted Answer

The named insured is the individual or entity whose name appears on the policy and who is protected under the insurance coverage.

Question 9

Match the descriptions with their terms:
-A/An _________________ is a deductible expressed as a percentage of value or a dollar amount under which the insurer has no liability unless the loss exceeds the amount stated.

Accepted Answer

A franchise deductible is a type of deductible that specifies a value or dollar amount under which the insurer has no liability unless the loss exceeds the stated amount.

Question 10

Match the descriptions with their terms:
-_________________ restrict payments to some maximum amount on any one definite item of property.

Accepted Answer

Specific dollar limits restrict payments to a maximum amount on any one definite item of property, ensuring that the insurance coverage has a clear cap on the payout for individual items.

Question 11

Match the descriptions with their terms:
-_________________ restrict payments to some maximum amount of any one group of items of property.

Accepted Answer

Aggregate dollar limits are used in insurance policies to restrict payments to a maximum amount for a group of items, rather than on a per item basis.

Question 12

Match the descriptions with their terms:
-_________________ means replacement cost minus depreciation.

Accepted Answer

Actual cash value is defined as the replacement cost of an item minus depreciation, reflecting the item's current value.

Question 13

Match the descriptions with their terms:
-Insurance that restores a loss without regard to depreciation is coverage on a/an _________________ basis.

Accepted Answer

Replacement cost insurance covers the cost of repairing or replacing damaged property without deduction for depreciation, allowing the policyholder to replace the lost or damaged item with one of similar type and quality.

Question 14

Match the descriptions with their terms:
-The _________________ protects the interest of the lending institution when a loan is made on a building.

Accepted Answer

The mortgagee clause is specifically designed to protect the interest of the lending institution (mortgagee) in the event a loan is made on a building, ensuring that the lender is paid first from any insurance claim payouts.

Question 15

Match the descriptions with their terms:
-The part of the premium that is designed to cover the expected losses due to covered perils is the _____________________.

Accepted Answer

The pure premium is the portion of the insurance premium that is used to pay for losses and the costs associated with handling claims. It is essentially the cost of the expected losses.

Question 16

Match the descriptions with their terms:
-The person or organization holding a mortgage is the _____________.

Accepted Answer

The mortgagee is the entity that lends money to a borrower for the purpose of purchasing real estate and holds the mortgage as security for the repayment of the loan.

Question 17

Match the descriptions with their terms:
-When a/an _________________ is used, the size of the deductible decreases as the size of the loss increases.

Accepted Answer

The disappearing deductible is a feature in some insurance policies where the deductible amount decreases as the size of the insured loss increases. This means that for larger losses, the policyholder may have a smaller deductible or none at all.

Question 18

Match the descriptions with their terms:
-In health insurance, _________________ functions like a straight deductible, expressed as a percentage.

Accepted Answer

Coinsurance in health insurance is the amount, usually expressed as a fixed percentage, that an insured must pay against a claim after the deductible is satisfied.

Question 19

Match the descriptions with their terms:
-In property insurance, the _________________ states that the policy will only pay a portion of the loss if more than one policy applies.

Accepted Answer

The pro-rata clause in property insurance specifies that the insurance policy will only cover a proportion of the loss if more than one policy applies to the same claim. This is to prevent the insured from profiting from the insurance by receiving more than the actual loss.

Question 20

An insured has a building with an actual cash value of $100,000 insured for $60,000 under an 80 percent coinsurance clause. If there is a loss of $10,000, the insured may recover

Accepted Answer

The insured may recover $7,500. This is calculated using the coinsurance formula: (Amount of Insurance Carried / Amount of Insurance Required) x Loss = Claim Payment. Here, Amount of Insurance Required is 80% of $100,000 (actual cash value) = $80,000. The Amount of Insurance Carried is $60,000. So, ($60,000 / $80,000) x $10,000 = $7,500.

Quiz 7: Insurance As a Risk Management Technique: Policy Provisions

In case of loss, the insured has the duty to notify the insurer as soon as possible.

An insured usually must provide a formal proof of loss within 60 to 90 days to receive payment.

Under an appraisal clause, an impartial umpire may be used to help settle a claim.

An assignment is the transfer of the rights of one person to another.

Match the descriptions with their terms: -The clause that states what the insurer agrees to do and the major conditions under which it agrees is called the _________________.

Match the descriptions with their terms: -A/An _________________ contract lists the perils covered.

Match the descriptions with their terms: -A/An _________________ covers all losses except those excluded.

Match the descriptions with their terms: -The person whose name appears on the policy to receive the benefit of coverage is called the _________________.

Match the descriptions with their terms: -A/An _________________ is a deductible expressed as a percentage of value or a dollar amount under which the insurer has no liability unless the loss exceeds the amount stated.

Match the descriptions with their terms: -_________________ restrict payments to some maximum amount on any one definite item of property.

Match the descriptions with their terms: -_________________ restrict payments to some maximum amount of any one group of items of property.

Match the descriptions with their terms: -_________________ means replacement cost minus depreciation.

Match the descriptions with their terms: -Insurance that restores a loss without regard to depreciation is coverage on a/an _________________ basis.

Match the descriptions with their terms: -The _________________ protects the interest of the lending institution when a loan is made on a building.

Match the descriptions with their terms: -The part of the premium that is designed to cover the expected losses due to covered perils is the _____________________.

Match the descriptions with their terms: -The person or organization holding a mortgage is the _____________.

Match the descriptions with their terms: -When a/an _________________ is used, the size of the deductible decreases as the size of the loss increases.

Match the descriptions with their terms: -In health insurance, _________________ functions like a straight deductible, expressed as a percentage.

Match the descriptions with their terms: -In property insurance, the _________________ states that the policy will only pay a portion of the loss if more than one policy applies.

An insured has a building with an actual cash value of $100,000 insured for $60,000 under an 80 percent coinsurance clause. If there is a loss of $10,000, the insured may recover