Ch. 50 Insurance

Question 1

How do individuals and businesses typically protect their personal and financial interests?

Answer 1

Obtaining insurance

Question 2

What is insurance?

Answer 2

• A contract in which the insurance co (the insurer)
• promises to pay or otherwise compensate another (either the insured or the beneficiary)
• for a particular loss

Question 3

Insurance may provide for compensation in the event of what?

Answer 3

1) Injury or death of insured
2) Damaged to insured’s property
3) Other types of losses (e.g. from lawsuits)

Question 4

True or false.

Insurance is an arrangement for transferring and allocating risk.

Answer 4

True

Question 5

What is an insurance contract called in insurance jargon?

Answer 5

Policy

Question 6

What is the consideration paid to the insurer called?

Answer 6

Premium

Question 7

What is the insurance co. sometimes called in insurance jargon?

Answer 7

Underwriter

Question 8

What are the parties to an insurance policy called?

Answer 8

• Insurer (insurance company)

- Insured (person covered by its provisions)

Question 9

Insurance contracts are usually obtained through whom?

Answer 9

• Agent (who normally works for the insurance company)

- Broker (who is ordinarily an independent contractor)

Question 10

What is the difference b/w an agent and a broker?

Answer 10

• Agent = agent of insurance co

- Broker = agent of applicant

Question 11

How is insurance typically classified?

Answer 11

• According to the nature of the risk involved (e.g. fire insurance, casualty insurance, life insurance, title insurance, etc)

Question 12

A person must have what in something in order to insure it?

Answer 12

Insurable interest

Question 13

Is there an enforceable contract without an insurable interest?

Answer 13

NO (a transaction to purchase insurance coverage would have to be treated as a wager)

Question 14

What type of insurance covers expenses, losses, and suffering incurred by the insured b/c of accidents causing physical injury or any consequent disability (sometimes includes a specific payment to heirs of insured if death results)?

Answer 14

Accident insurance

Question 15

What type of insurance covers all losses that the insured may incur except those that are specially excluded (e.g. any losses due to war, pollution, earthquakes, and floods)?

Answer 15

All-Risk insurance

Question 16

What type of insurance may cover damage to automobiles resulting from vandalism?

Answer 16

Automobile insurance

Question 17

What does casualty insurance protect against?

Answer 17

Protects against losses incurred by the insured as a result of being held liable for personal injuries or property damage sustained by others

Question 18

What type of insurance provides life insurance for a specified term with no cash surrender value (usually is renewable)?

Answer 18

Term Life insurance

Question 19

What type of insurance protects against liability imposed on the insured as a result of injuries to the person or property of another?

Answer 19

Liability insurance

Question 20

What type of insurance covers the death of the policyholder?

Answer 20

Life insurance

Question 21

Do close family relationships give a person an insurable interest in the life of another?

Answer 21

YES

Question 22

Key-person insurance is insurance obtained by an organization on the life of whom?

Answer 22

A person who is important to that organization

Question 23

For property insurance, does the insurable interest need to exist when the policy is purchased?

Answer 23

• NO

- Must exist at time the loss occurs though

Question 24

An insurance contract is governed by the general principles of what type of law?

Answer 24

Contract law (although insurance industry is heavily regulated by each state)

Question 25

Can misstatements or misrepresentations in an application for insurance void a policy?

Answer 25

YES

Question 26

Is the applicant normally insured if they hire a broker to obtain insurance and the broker fails to procure a policy?

Answer 26

NO

Question 27

A binder provides temporary coverage until a formal policy is accepted or denied. What is a binder?

Answer 27

- Insurance agent writes a memo called a binder indicating that a policy is pending and stating its essential terms

Question 28

If a statute requires that any limitations regarding coverage be stated in the contract, will a court allow an insurer (insurance co) to avoid liability for a claim through reliance on an unexpressed restriction?

Answer 28

No

Question 29

True or false. Statutes commonly require that a policy for life or health insurance include an incontestability clause.

Answer 29

True

Question 30

What does an incontestability clause provide?

Answer 30

Provides that after the policy has been in force for a specified length of time (i.e. two or three years), the insurer cannot contest statements made in the application

Question 31

To encourage owners to insure their property for an amount as close to full value as possible, fire insurance policies generally include what sort of clause?

Answer 31

Coinsurance clause

Question 32

What does a coinsurance clause provide?

Answer 32

- Provides that if owner insures the property up to a specified percentage (usually 80 percent) of its value - he will recover any loss up to the face amount of the policy

Question 33

Coinsurance applies only in instances of partial loss. The amount of the recovery is calculated by using what formula?

Answer 33

Loss * (Amount of insurance coverage / (coinsurance % * property value)) = Amount of recovery

Question 34

Ordinarily under an antilapse provision, the insured has a grace period of how many days within which to pay an overdue premium?

Answer 34

30 or 31 days

Question 35

If the insured fails to pay a premium altogether, what are three alternatives to cancellation?

Answer 35

1) Insurer may be required to extend the insurance for a period of time 2) Insurer may issue a policy with less coverage to reflect the amount of the payments made 3) Insurer may pay to the insured the policy's cash surrender value

Question 36

Define cash surrender value

Answer 36

Amount of the insurer has agreed to pay on the policy's cancellation before the insured's death

Question 37

When there is ambiguity in an insurance policy, the provision generally is interpreted against whom?

Answer 37

Against insurance company

Question 38

Disputes over insurance often focus on applications of what?

Answer 38

Exclusions in the policy

Question 39

Both parties to an insurance contract have a implied duty to do what?

Answer 39

Act in good faith

Question 40

Good faith requires the insured to reveal what?

Answer 40

Everything necessary for insurer to evaluate the risk

Question 41

Once an insurance policy is issued, what are the three basic duties under the contract for the insured?

Answer 41

1) Pay the premiums as stated in the contract 2) Notify insurer w/i reasonable time if an event occurs that gives rise to a claim 3) Cooperate with the insurer during any investigation or litigation

Question 42

What are the three duties of the insurer?

Answer 42

1) Duty to investigate 2) Duty to defend 3) Duty to pay

Question 43

What are the five basic types of life insurance?

Answer 43

1) Whole life 2) Limited PMT life 3) Term insurance 4) Endowment insurance 5) Universal life

Question 44

What are the four general types of insurance coverage?

Answer 44

1) Life insurance 2) Fire and homeowners' insurance 3) Automobile insurance 4) Business liability insurance

Question 45

May an insurer adjust the premium payments and/or benefits of a policy due to discovery of misstatement of age?

Answer 45

Yes

Question 46

Can the termination of a life insurance policy take place if the terms of the policy expire?

Answer 46

YES

Question 47

What are the two basic types of insurance policies for a home?

Answer 47

1) Standard fire insurance policies | 2) Homeowners' policies

Question 48

Under standard fire insurance policies, is a friendly fire covered?

Answer 48

NO

Question 49

Most standard fire insurance policies have an occupancy clause that require what?

Answer 49

That premises be occupied at time of the loss

Question 50

What are the two basic types of homeowners' coverage?

Answer 50

1) Property coverage | 2) Liability coverage

Question 51

What does property coverage include?

Answer 51

Includes garage, house, and other private buildings on policyholder's lot

Question 52

What are some perils insured under property coverage?

Answer 52

- Fire, lightning, wind, hail | - Vandalism, theft (of personal property)

Question 53

Does standard homeowners' insurance typically cover flood damage?

Answer 53

No

Question 54

Homeowners' insurance. What is liability coverage for?

Answer 54

For personal liability in the event that someone is injured on the insured's property

Question 55

What are the two basic kinds of automobile insurance?

Answer 55

1) Liability insurance | 2) Collision and comprehensive insurance