Question 1

Explain the right of subrogation.

Accepted Answer

If an insurer is required to pay for the loss of property under an insurance contract, he/she may exercise a right of subrogation. Under the right of subrogation, the insurer obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the property. A general release of the third party from liability by the insured will release the insurer from liability to the insured.

Question 2

A contestability clause bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time (usually ten years).

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following statements is true about health insurance contracts?

Accepted Answer

A)  Health insurance contracts traditionally do not provide coverage for medical expenses resulting from preexisting conditions. 
B)  Most people receive their insurance coverage from individual policies that are provided by employers. 
C)  The Consolidated Omnibus Budget Reconciliation Act prevents companies that do not provide portable health insurance contracts from issuing group policies. 
D)  Portable health insurance contracts allow insurance companies to stop covering people who change their jobs. 
A)  Health insurance contracts traditionally do not provide coverage for medical expenses resulting from preexisting conditions. 
B)  Most people receive their insurance coverage from individual policies that are provided by employers. 
C)  The Consolidated Omnibus Budget Reconciliation Act prevents companies that do not provide portable health insurance contracts from issuing group policies. 
D)  Portable health insurance contracts allow insurance companies to stop covering people who change their jobs. A

Question 4

Term life insurance develops a cash surrender value that the insured can recover if the policy is terminated.

Accepted Answer

A) True 
 B)False

Question 5

Insurance companies need not wait until litigation has been concluded to satisfy their duty to pay.

Accepted Answer

A) True 
 B)False

Question 6

Whole life insurance contracts:

Accepted Answer

A)  require the insured to pay the specified premium for the duration of his/her life. 
B)  have a convertibility feature that allows the insured to convert the policy to a term life policy. 
C)  have no cash surrender value if the policy is terminated. 
D)  bind the insurer to pay an amount only if the insured dies and not when the policy is terminated. 
A)  require the insured to pay the specified premium for the duration of his/her life. 
B)  have a convertibility feature that allows the insured to convert the policy to a term life policy. 
C)  have no cash surrender value if the policy is terminated. 
D)  bind the insurer to pay an amount only if the insured dies and not when the policy is terminated.

Question 7

Douglas obtained a $100,000 insurance policy on his warehouse. The policy contained an 80 percent coinsurance clause. An accidental fire totally damaged the building that had a fair market value of $250,000 at the time of the loss. How much will Douglas recover from his insurance company?

Accepted Answer

A)  $80,000 
B)  $100,000 
C)  $200,000 
D)  $250,000 
A)  $80,000 
B)  $100,000 
C)  $200,000 
D)  $250,000

Question 8

For the insurance to be valid, the required insurable interest in life insurance contracts must exist:

Accepted Answer

A)  before the loss occurs. 
B)  at the time the loss occurs. 
C)  at the time the policy was issued. 
D)  throughout the term of the policy. 
A)  before the loss occurs. 
B)  at the time the loss occurs. 
C)  at the time the policy was issued. 
D)  throughout the term of the policy.

Question 9

If Geoff makes a fraudulent statement about his medical history and fails to disclose relevant facts about his medical history in his application for insurance, the insurance company _____.

Accepted Answer

A)  has a right to cancel Geoff's policy 
B)  cannot consider the contract voidable 
C)  has to adjust the benefits payable at Geoff's discretion 
D)  cannot cancel the policy unless Geoff misrepresented his age as well 
A)  has a right to cancel Geoff's policy 
B)  cannot consider the contract voidable 
C)  has to adjust the benefits payable at Geoff's discretion 
D)  cannot cancel the policy unless Geoff misrepresented his age as well

Question 10

In insurance policies with an incontestability clause where the insured has misstated his or her age, the _____.

Accepted Answer

A)  insurer cannot contest its liability on the basis of the insured's misrepresentations 
B)  insured can take advantage of a misstatement of age clause if the misrepresentation changes the premium by below 50 percent 
C)  insurer cannot cancel the policy unless it discovers the misrepresentation within a specified time period 
D)  insured can object on the basis of absence of insurable interest 
A)  insurer cannot contest its liability on the basis of the insured's misrepresentations 
B)  insured can take advantage of a misstatement of age clause if the misrepresentation changes the premium by below 50 percent 
C)  insurer cannot cancel the policy unless it discovers the misrepresentation within a specified time period 
D)  insured can object on the basis of absence of insurable interest

Question 11

If property covered by a valued policy is totally destroyed, the _____.

Accepted Answer

A)  insured can recover the face amount of the policy only if it does not exceed the fair market value of the property 
B)  insured can recover only the fair market value of the property 
C)  insured can recover the face amount of the policy regardless of the fair market value of the property 
D)  insured can recover the fair market value of the property at the time it was destroyed, up to the limits stated in the policy 
A)  insured can recover the face amount of the policy only if it does not exceed the fair market value of the property 
B)  insured can recover only the fair market value of the property 
C)  insured can recover the face amount of the policy regardless of the fair market value of the property 
D)  insured can recover the fair market value of the property at the time it was destroyed, up to the limits stated in the policy

Question 12

To be able to claim loss, those who have an insurable interest in property must have that interest:

Accepted Answer

A)  before the loss occurs. 
B)  at the time the loss occurs. 
C)  at the time the policy was issued. 
D)  throughout the term of the policy. 
A)  before the loss occurs. 
B)  at the time the loss occurs. 
C)  at the time the policy was issued. 
D)  throughout the term of the policy.

Question 13

Under the right of subrogation, the insurer _____.

Accepted Answer

A)  is obliged to pay only the face amount of the policy if the insured dies within a specified period of time; which is the term of the policy 
B)  obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the insured property 
C)  obtains all of the insured's rights to pursue legal remedies only against those persons who have intentionally damaged the insured property 
D)  is obliged to pay the face value of the policy on the death of the insured and the specified premium for the duration of his/her life 
A)  is obliged to pay only the face amount of the policy if the insured dies within a specified period of time; which is the term of the policy 
B)  obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the insured property 
C)  obtains all of the insured's rights to pursue legal remedies only against those persons who have intentionally damaged the insured property 
D)  is obliged to pay the face value of the policy on the death of the insured and the specified premium for the duration of his/her life

Question 14

A whole life policy develops a loan value that increases with the age of the policy and enables the insured to borrow money from the insurer at relatively low interest rates.

Accepted Answer

A) True 
 B)False

Question 15

A(n) _____ clause bars an insurer from challenging its liability on a policy on the basis of an insured's misrepresentations if the policy has been in force for a specified period of time.

Accepted Answer

A)  reinstatement clause 
B)  pro rata clause 
C)  incontestability clause 
D)  coinsurance clause 
A)  reinstatement clause 
B)  pro rata clause 
C)  incontestability clause 
D)  coinsurance clause

Question 16

Homeowners' insurance policies:

Accepted Answer

A)  often provide coverage under their comprehensive and collision sections for car damages resulting from vandalism. 
B)  insure both the insured's dwelling and the personal property located on the real property. 
C)  do not cover personal property that was temporarily removed from the dwelling at the time it was damaged. 
D)  do not allow property owners to purchase specialized policies to make up for gaps in a standard insurance contract. 
A)  often provide coverage under their comprehensive and collision sections for car damages resulting from vandalism. 
B)  insure both the insured's dwelling and the personal property located on the real property. 
C)  do not cover personal property that was temporarily removed from the dwelling at the time it was damaged. 
D)  do not allow property owners to purchase specialized policies to make up for gaps in a standard insurance contract.

Question 17

Which of the following insurance contracts is enforceable?

Accepted Answer

A)  An insurance policy taken out on a minor by an adult 
B)  A life insurance contract in which the insured misrepresents his or her health or age 
C)  An insurance contract where only one party to a contract has the capacity to contract 
D)  A contract whose warranty is breached by the insured 
A)  An insurance policy taken out on a minor by an adult 
B)  A life insurance contract in which the insured misrepresents his or her health or age 
C)  An insurance contract where only one party to a contract has the capacity to contract 
D)  A contract whose warranty is breached by the insured

Question 18

In life insurance contracts, the required insurable interest must exist at the time the policy was issued.

Accepted Answer

A) True 
 B)False

Question 19

_____ insurance policies generally require that the insured pay a deductible each year before the insurer's payment obligation begins.

Accepted Answer

A)  Property 
B)  Life 
C)  Liability 
D)  Health 
A)  Property 
B)  Life 
C)  Liability 
D)  Health

Question 20

Open policies allow the insured to recover the:

Accepted Answer

A)  fair market value of the property at the time it was destroyed, up to the limits stated in the policy. 
B)  difference between the limits stated in the policy and the fair market value of the property. 
C)  face amount of the policy regardless of the fair market value of the property. 
D)  fair market value of the property at the time it was purchased. 
A)  fair market value of the property at the time it was destroyed, up to the limits stated in the policy. 
B)  difference between the limits stated in the policy and the fair market value of the property. 
C)  face amount of the policy regardless of the fair market value of the property. 
D)  fair market value of the property at the time it was purchased.

Exam 37: Insurance

Explain the right of subrogation.

A contestability clause bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time (usually ten years).

Which of the following statements is true about health insurance contracts?

Term life insurance develops a cash surrender value that the insured can recover if the policy is terminated.

Insurance companies need not wait until litigation has been concluded to satisfy their duty to pay.

Whole life insurance contracts:

Douglas obtained a $100,000 insurance policy on his warehouse. The policy contained an 80 percent coinsurance clause. An accidental fire totally damaged the building that had a fair market value of $250,000 at the time of the loss. How much will Douglas recover from his insurance company?

For the insurance to be valid, the required insurable interest in life insurance contracts must exist:

If Geoff makes a fraudulent statement about his medical history and fails to disclose relevant facts about his medical history in his application for insurance, the insurance company _____.

In insurance policies with an incontestability clause where the insured has misstated his or her age, the _____.

If property covered by a valued policy is totally destroyed, the _____.

To be able to claim loss, those who have an insurable interest in property must have that interest:

Under the right of subrogation, the insurer _____.

A whole life policy develops a loan value that increases with the age of the policy and enables the insured to borrow money from the insurer at relatively low interest rates.

A(n) _____ clause bars an insurer from challenging its liability on a policy on the basis of an insured's misrepresentations if the policy has been in force for a specified period of time.

Homeowners' insurance policies:

Which of the following insurance contracts is enforceable?

In life insurance contracts, the required insurable interest must exist at the time the policy was issued.

_____ insurance policies generally require that the insured pay a deductible each year before the insurer's payment obligation begins.

Open policies allow the insured to recover the:

Law, Legal Reasoning, and the Legal Profession

Dispute Settlement

Business Ethics and Corporate Social Responsibility

Business and the Constitution

Crimes

Intentional Torts

Negligence and Strict Liability

Licensing and Intellectual Property

The Nature and Origins of Contracts

Creating a Contract: Offers

Creating a Contract: Acceptances

Consideration

Capacity to Contract

Voluntary Consent

Illegality

The Form and Meaning of Contracts

Third Parties Contract Rights

Performance and Remedies

Formation and Terms of Sales Contracts

Warranties and Product Liability

Performance of Sales Contracts

Remedies for Breach of Sales Contracts

The Agency Relationship-Creation, Duties, and Termination

Liability of Principals and Agents to Third Parties

Employment Laws

Which Form of Business Organization

Partnerships

Formation and Termination of Corporations

Management of the Corporate Business

Financing the Corporation and the Role of the Shareholders

Securities Regulation

Legal Liability of Accountants

Personal Property and Bailments

Real Property

Landlord and Tenant

Estates and Trusts

Negotiable Instruments

Negotiation and Holder in Due Course

Liability of Parties

Checks and Electronic Fund Transfers

Introduction to Security

Security Interests in Personal Property

Bankruptcy

The Antitrust Laws

Consumer Protection Laws

Environmental Regulation

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