Question 1

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 2

At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss?

Accepted Answer

A)  only at the time of loss 
B)  only at the time when the policy is issued 
C)  only at the time of policy application 
D)  both at the time when the policy is issued and at the time of loss

Question 3

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 4

The primary purpose of coinsurance in property insurance is to

Accepted Answer

A)  reduce moral hazard. 
B)  achieve equity in rating. 
C)  minimize problems in settling claims. 
D)  eliminate small losses.

Question 5

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

Accepted Answer

A)  graded rates. 
B)  agreed value coverage. 
C)  retrospective rating. 
D)  manual rating.

Question 6

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.

Question 7

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?

Accepted Answer

A)  unconditional coverage 
B)  named-perils coverage 
C)  extended-perils coverage 
D)  "open-perils" coverage

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

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?

Accepted Answer

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

Question 10

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

Accepted Answer

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

Question 11

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.

Question 12

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 13

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

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

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.

Question 16

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 17

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 18

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 19

Which of the following statements about a calendar-year deductible is (are) true?
I.It requires the insured to pay a specified amount of each claim regardless of when the claim occurs during the year and regardless of any previous claims during the year.
II.It is used only in policies which cover direct property losses.

Accepted Answer