Question 1

Reasons why a peril may be considered uninsurable and therefore excluded from insurance contracts include which of the following?
I.The losses from the occurrence of the peril may be due to a predictable decline in value.
II.The losses from the occurrence of the peril may be incalculable and catastrophic.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II C

Question 2

Homeowners insurance policies usually cover resident relatives of the named insured who are under age 24 and who are full-time students away from home.Under the homeowners policy,these full-time students are considered

Accepted Answer

A)  first named insureds.
B)  second named insureds.
C)  other insureds.
D)  additional insureds. C

Question 3

The policy provision requiring the filing of proof of loss with the insurer is an example of a(n)

Accepted Answer

A)  declaration.
B)  condition.
C)  insuring agreement.
D)  miscellaneous provision. B

Question 4

An insurance policy provision that specifies how a property loss will be settled if more than one property insurance policy covers the loss is the

Accepted Answer

A)  insuring agreement provision.
B)  loss settlement provision.
C)  other insurance provision.
D)  coinsurance provision.

Question 5

The purpose of other-insurance provisions is to

Accepted Answer

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.

Question 6

Deductibles are not used in which of the following type of insurance?

Accepted Answer

A)  life insurance
B)  health insurance
C)  property insurance
D)  disability income insurance

Question 7

An elimination (waiting)period is an example of a(n)

Accepted Answer

A)  exclusion.
B)  deductible.
C)  other-insurance provision.
D)  coinsurance provision.

Question 8

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?

Accepted Answer

A)  $42,500
B)  $45,000
C)  $50,000
D)  $56,250

Question 9

Maria's home was damaged by an earthquake.As Maria has open-perils coverage on her home,she was surprised to learn that her loss was not covered.Which section of a property insurance policy specifies which perils,property,and types of losses are not covered?

Accepted Answer

A)  the declarations
B)  the exclusions
C)  the conditions
D)  the insuring agreement

Question 10

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?

Accepted Answer

A)  $33,333
B)  $35,000
C)  $36,000
D)  $40,000

Question 11

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.Ignoring any deductible,if Mark's building is destroyed by a covered peril,how much will Mark receive from his insurer?

Accepted Answer

A)  $80,000
B)  $90,000
C)  $101,250
D)  $112,500

Question 12

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 his personal 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)

Accepted Answer

A)  endorsement.
B)  coinsurance clause.
C)  binder.
D)  deductible.

Question 13

Maggie purchased a life insurance policy.She was concerned that if she became disabled,she would no longer be able to pay the premiums.Her agent added an amendment of the policy stating that if she became disabled,future premium payments would be waived.Such an amendment to a life insurance policy is called a(n)

Accepted Answer

A)  binder.
B)  rider.
C)  warranty.
D)  schedule.

Question 14

What information is contained in the insuring agreement of an insurance policy?

Accepted Answer

A)  a description of the property or life to be insured
B)  a summary of the major promises of the insurer
C)  a summary of the obligations of the insured
D)  a list of the property,losses,and perils that are not covered

Question 15

Laura's medical insurance policy includes a $500 deductible.Laura is required to pay 20 percent of covered expenses in excess of the deductible,and her insurer will pay 80 percent of covered expenses in excess of the deductible.Laura was hospitalized and her covered medical expenses were $10,500.How much of the $10,500 will be paid by the insurer?

Accepted Answer

A)  $7,500
B)  $7,900
C)  $8,000
D)  $10,000

Question 16

Which of the following statements about "open-perils" coverage is (are)true?
I.All losses are covered except those losses specifically excluded.
II.The burden of proof is on the insured to prove that a loss is covered.

Accepted Answer

A)  I only
B)  II only
C)  both I and II
D)  neither I nor II

Question 17

A special coverage policy is a policy that

Accepted Answer

A)  has no exclusions.
B)  provides open-perils coverage.
C)  provides coverage under special conditions.
D)  has coverage for multiple lines of insurance.

Question 18

Ann Parks and Robert Evans jointly own a grocery store.Ann and Robert are both named insureds on the property insurance covering the store,but Ann is the first named insured.Which of the following statements is true with regard to Ann's status as the first named insured?

Accepted Answer

A)  Any loss settlement is paid to Ann only.
B)  Ann is responsible for making sure that the premium has been paid.
C)  Ann can assign the policy without the consent of the insurer.
D)  Ann can waive policy conditions.

Question 19

The exclusion of flood in a homeowners policy is an example of an

Accepted Answer

A)  excluded activity.
B)  excluded condition.
C)  excluded property.
D)  excluded peril.

Question 20

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

Accepted Answer

A)  grace period.
B)  enrollment period.
C)  probationary period.
D)  elimination (waiting) period.

Exam 10: Analysis of Insurance Contracts