Question 1

Christopher purchases an insurance contract with the following warranty attached: "the burglar alarm system will be in good working order." What type of warranty is this?

Accepted Answer

A)  The statement is not a warranty 
B)  Implied affirmative 
C)  Express affirmative 
D)  Express promissory 
A)  The statement is not a warranty 
B)  Implied affirmative 
C)  Express affirmative 
D)  Express promissory

Question 2

Dana loans her brother, Marcus, $500,000 with which to start a movie production company. The business assets are shown in the loan agreement as collateral for the loan. Dana can insure Marcus's life because:

Accepted Answer

A)  the principle of insurable interest exists in this situation 
B)  the principle of utmost good faith exists in this situation 
C)  she and Marcus are brother and sister 
D)  This is a trick question; she cannot insure his life, but she can insure the business assets. 
A)  the principle of insurable interest exists in this situation 
B)  the principle of utmost good faith exists in this situation 
C)  she and Marcus are brother and sister 
D)  This is a trick question; she cannot insure his life, but she can insure the business assets.

Question 3

A binder must meet all the requirements of a valid contract.

Accepted Answer

A) True 
 B)False

Question 4

Willy Dye goes applies for life insurance. The agent takes Willy's application and his first premium payment, and issues Willy a conditional receipt for the payment. The next day Willy is run over by a sewage truck and killed. An autopsy shows that Willy was in excellent physical condition, and would thus have been issued an insurance policy had he lived. What will the insurer do?

Accepted Answer

A)  Pay Willy's beneficiary the full death benefit because coverage existed from the date the receipt was issued 
B)  Not pay Willy's beneficiary because he died before the policy could actually be issued 
C)  Not pay Willy's beneficiary because a conditional receipt does not take effect until after the underwriting process is completed 
D)  Pay the beneficiary an amount equal to the premiums Willy paid for the policy 
A)  Pay Willy's beneficiary the full death benefit because coverage existed from the date the receipt was issued 
B)  Not pay Willy's beneficiary because he died before the policy could actually be issued 
C)  Not pay Willy's beneficiary because a conditional receipt does not take effect until after the underwriting process is completed 
D)  Pay the beneficiary an amount equal to the premiums Willy paid for the policy

Question 5

A statement of opinion by the insured on a life insurance application:

Accepted Answer

A)  is a sufficient reason to allow an insurer to later void the contract 
B)  is illegal, and insurers must not request such information 
C)  is not a sufficient reason for an insurer to later void the contract 
D)  provides reliable information to the underwriter 
A)  is a sufficient reason to allow an insurer to later void the contract 
B)  is illegal, and insurers must not request such information 
C)  is not a sufficient reason for an insurer to later void the contract 
D)  provides reliable information to the underwriter

Question 6

The principle of indemnity:

Accepted Answer

A)  is illegal in many countries 
B)  reduces the occurrence of overstating claims 
C)  only applies in life and health insurance 
D)  eliminates insurance fraud 
A)  is illegal in many countries 
B)  reduces the occurrence of overstating claims 
C)  only applies in life and health insurance 
D)  eliminates insurance fraud

Question 7

Which one of the following is false concerning subrogation?

Accepted Answer

A)  It reinforces the principle of indemnity. 
B)  It holds rates below what they would otherwise be. 
C)  It places the burden of loss on one or more responsible parties. 
D)  The insured can never receive any money collected through subrogation. 
A)  It reinforces the principle of indemnity. 
B)  It holds rates below what they would otherwise be. 
C)  It places the burden of loss on one or more responsible parties. 
D)  The insured can never receive any money collected through subrogation.

Question 8

Which one of the following is false concerning the standardization of insurance policies?

Accepted Answer

A)  It reduces the risk for the insurance companies resulting from the principle of adhesion. 
B)  It holds rates below what they would otherwise be. 
C)  It reduces adverse selection. 
D)  It increases flexibility. 
A)  It reduces the risk for the insurance companies resulting from the principle of adhesion. 
B)  It holds rates below what they would otherwise be. 
C)  It reduces adverse selection. 
D)  It increases flexibility.

Question 9

A misrepresentation:

Accepted Answer

A)  always voids a contract 
B)  makes a contract voidable if it is material 
C)  is sometimes referred to as a "concealment" 
D)  is legally treated the same way as a breach of warranty 
A)  always voids a contract 
B)  makes a contract voidable if it is material 
C)  is sometimes referred to as a "concealment" 
D)  is legally treated the same way as a breach of warranty

Question 10

While driving home from work, Bailey's car is struck from behind by a van full of drunken college students. Asimov is the driver of the van. The resulting damage to Bailey's car totals $7,000. Bailey files a claim under his own auto insurance policy to have his car repaired, but his insurance policy only covers $6,000 of the $7,000 loss. Bailey pays the remaining $1,000 of the loss out of his pocket. Which of the following is a true statement?

Accepted Answer

A)  Bailey has no legal right of subrogation against Asimov for the $1,000 that he had to pay out of his pocket. 
B)  Bailey's insurer has no legal right of subrogation against Asimov for the $6,000 of damages it had to pay to Bailey. 
C)  Bailey has the right under the principle of indemnity to now sue Asimov personally for the $7,000 damages to his car. 
D)  Both Bailey and his insurer have subrogation RIGHTS against Asimov for the damages he (Asimov) caused. 
A)  Bailey has no legal right of subrogation against Asimov for the $1,000 that he had to pay out of his pocket. 
B)  Bailey's insurer has no legal right of subrogation against Asimov for the $6,000 of damages it had to pay to Bailey. 
C)  Bailey has the right under the principle of indemnity to now sue Asimov personally for the $7,000 damages to his car. 
D)  Both Bailey and his insurer have subrogation RIGHTS against Asimov for the damages he (Asimov) caused.

Question 11

Conditional receipts are associated with life insurance rather than non-life insurance.

Accepted Answer

A) True 
 B)False

Question 12

Standardization increases the possibility that some insurance needs go unmet.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a reason for using deductibles in property insurance?

Accepted Answer

A)  They reduce the morale hazard 
B)  They eliminate payment for frequent small losses 
C)  They allow consumers to customize contracts based on financial considerations 
D)  To split large losses in excess of the policy limits equitably between the insured and the insurer 
A)  They reduce the morale hazard 
B)  They eliminate payment for frequent small losses 
C)  They allow consumers to customize contracts based on financial considerations 
D)  To split large losses in excess of the policy limits equitably between the insured and the insurer

Question 14

Gerald Tee has a $50,000 property loss. His insurance policy's coverage limit is $35,000, and has a $500 deductible applied to the policy. How much will Gerald collect?

Accepted Answer

A)  $50,000 
B)  $49,500 
C)  $35,000 
D)  $34,500 
A)  $50,000 
B)  $49,500 
C)  $35,000 
D)  $34,500

Question 15

If a property insurance agent goes to Maria's door, convinces her to apply for insurance and write a check for the policy premium, which of the following has occurred?

Accepted Answer

A)  Offer, acceptance 
B)  Soliciting an offer, offer, acceptance, consideration 
C)  Offer, counter offer, acceptance, consideration 
D)  Offer, consideration 
A)  Offer, acceptance 
B)  Soliciting an offer, offer, acceptance, consideration 
C)  Offer, counter offer, acceptance, consideration 
D)  Offer, consideration

Question 16

The functional replacement provision in some property insurance policies is used when:

Accepted Answer

A)  replacing a lost item is impossible 
B)  replacing a lost item is much cheaper than expected 
C)  replacing a building will cost much more than its market value 
D)  an insured set of objects is collectively worth more than the sum of its individual components 
A)  replacing a lost item is impossible 
B)  replacing a lost item is much cheaper than expected 
C)  replacing a building will cost much more than its market value 
D)  an insured set of objects is collectively worth more than the sum of its individual components

Question 17

The principle of insurable interest is important because it:

Accepted Answer

A)  makes insurance companies more profitable 
B)  supports the principle of indemnity 
C)  prevents insurers from unfairly denying insurance claims 
D)  prevents an insurer from subrogating against a negligent third party 
A)  makes insurance companies more profitable 
B)  supports the principle of indemnity 
C)  prevents insurers from unfairly denying insurance claims 
D)  prevents an insurer from subrogating against a negligent third party

Question 18

Under a contract of adhesion:

Accepted Answer

A)  subrogation is not allowed 
B)  ambiguous features are interpreted against the writer of the contract 
C)  ambiguous features are interpreted always against the insurer 
D)  ambiguous features are decided based upon the intent of the parties when the contract was entered 
A)  subrogation is not allowed 
B)  ambiguous features are interpreted against the writer of the contract 
C)  ambiguous features are interpreted always against the insurer 
D)  ambiguous features are decided based upon the intent of the parties when the contract was entered

Question 19

Building has been in use 15 years.

Accepted Answer

A)  $70,000 
B)  $45,000 
C)  $30,000 
D)  $15,000 
A)  $70,000 
B)  $45,000 
C)  $30,000 
D)  $15,000

Question 20

A binder is:

Accepted Answer

A)  part of most property insurance contracts 
B)  a release of any additional claims against the insurer 
C)  a legal response when the insurer informs the insured a claim is denied 
D)  a temporary contract 
A)  part of most property insurance contracts 
B)  a release of any additional claims against the insurer 
C)  a legal response when the insurer informs the insured a claim is denied 
D)  a temporary contract

Exam 11: Insurance Contracts

Christopher purchases an insurance contract with the following warranty attached: "the burglar alarm system will be in good working order." What type of warranty is this?

Dana loans her brother, Marcus, $500,000 with which to start a movie production company. The business assets are shown in the loan agreement as collateral for the loan. Dana can insure Marcus's life because:

A binder must meet all the requirements of a valid contract.

A statement of opinion by the insured on a life insurance application:

The principle of indemnity:

Which one of the following is false concerning subrogation?

Which one of the following is false concerning the standardization of insurance policies?

A misrepresentation:

Conditional receipts are associated with life insurance rather than non-life insurance.

Standardization increases the possibility that some insurance needs go unmet.

Which of the following is not a reason for using deductibles in property insurance?

Gerald Tee has a $50,000 property loss. His insurance policy's coverage limit is $35,000, and has a $500 deductible applied to the policy. How much will Gerald collect?

If a property insurance agent goes to Maria's door, convinces her to apply for insurance and write a check for the policy premium, which of the following has occurred?

The functional replacement provision in some property insurance policies is used when:

The principle of insurable interest is important because it:

Under a contract of adhesion:

Building has been in use 15 years.

A binder is:

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

Filters