Chapter 1 - Property

Question 1

A situation in which a person can experience only a loss and no gain presents what type of risk?

Answer 1

Pure RIsk

Question 2

If an insured peril was the proximate cause of loss, what type of loss is it?

Answer 2

A Direct Loss

Question 3

What term defines an exact, direct, and uninterrupted cause of loss?

Answer 3

Proximate Cause.

This refers to the primary event or series of events that directly leads to the insured loss, without any intervening, unexpected, or unforeseen events breaking the chain of causation

Question 4

What do individuals use to transfer their risk of loss to a larger group?

Answer 4

Insurance

Question 5

Insurance is a contract that protects the insured from what?

Answer 5

Loss

Question 6

What is the difference between vacancy and unoccupancy?

Answer 6

Vacancy refers to a property being completely empty of both people and personal belongings, while unoccupancy means the property is empty of people but may still contain furniture and belongings. Think of a vacant house as being fully vacated, while an unoccupied house is ready for someone to move back in at any time

Question 7

What are the three types of Hazards?

Answer 7

Physical, Moral, Morale

These hazards increase the likelihood of a loss due to a peril (potential adverse event).

Physical Hazards:
These are tangible characteristics of property, people, or activities that increase the probability of loss. Examples include poor building construction, inadequate fire protection, or a location prone to flooding.

Moral Hazards:
These involve the intentional or negligent actions of the insured that increase the risk of loss. Examples include arson, misrepresentation of information on an application, or deliberately neglecting property maintenance.

Morale Hazards:
These are related to a lack of concern or indifference on the part of the insured, leading to increased risk of loss. This could involve a disregard for safety precautions or a lack of maintenance on a property, even if it’s not deliberate.

Question 8

If a manufactured product is unsafe, what type of liability applies to the manufacturer?

Answer 8

Strict Liability

Question 9

What type of limits of liability has the limits stated separately for different coverages?

Answer 9

Split limits

Question 10

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Answer 10

Loss

Question 11

Both robbery and burglary can be considered what?

Answer 11

Theft

Question 12

What does indemnify mean in insurance?

Answer 12

To restore an insured to the same financial status as before a loss

Question 13

What provision found in property policies prevents an insured from collecting twice for the same loss: once from the insurer and again from a third party?

Answer 13

Subrogation

Question 14

What type of policy insures all property at multiple locations for a single amount?

Answer 14

Blanket Policy

Question 15

How are direct and indirect losses related?

Answer 15

Direct losses can cause indirect losses. Loss of your vehicle (direct) results in lost wages (indirect)

Question 16

What law protects consumers from the circulation of inaccurate or obsolete information?

Answer 16

The Fair Credit Reporting Act

Question 17

What is the term for the causes of loss insured against in an insurance policy?

Answer 17

Perils

Question 18

What is subrogation (as a right of the insurer)?

Answer 18

An insurer’s legal right to seek damages from third parties after reimbursing insureds for a loss

Question 19

What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?

Answer 19

Indemnity

Question 20

How is the actual cash value of a property calculated?

Answer 20

Current replacement cost minus depreciation

Question 21

In property insurance, what is the purpose of a coinsurance clause?

Answer 21

A coinsurance clause in property insurance is a requirement that the insured property be insured for at least a specified percentage of its value (usually 80%, 90%, or 100%). If the insured property is underinsured, the insurance company will reduce the claim payment proportionally, effectively penalizing the policyholder for not meeting the minimum coverage requirement.

Question 22

What is burglary?

Answer 22

Forced entry into another’s premisis with felonious intent

Question 23

An insurer discovers that an applicant for a policy has submitted a fraudulent insurance claim in the past. What type of hazard does this represent?

Answer 23

Moral.

Moral Hazards:
These involve the intentional or negligent actions of the insured that increase the risk of loss. Examples include arson, misrepresentation of information on an application, or deliberately neglecting property maintenance.

Question 24

Conditions that increase the chance of a loss are known as what?

Answer 24

Hazards

Question 25

In property insurance, when must insurable interest exist?

Answer 25

At the time of a loss

Question 26

A policy that covers all causes of loss except for those specifically excluded is known as what type of policy?

Answer 26

Open Peril (Or, Special) form

Question 27

What type of hazard does a person represent if they show an indifferent attitude to loss?

Answer 27

Morale. These are related to a lack of concern or indifference on the part of the insured, leading to increased risk of loss. This could involve a disregard for safety precautions or a lack of maintenance on a property, even if it's not deliberate.

Question 28

What is negligence?

Answer 28

Failure to act as a reasonable, prudent person under given circumstances

Question 29

Under absolute liability, does an injured party need to prove negligence?

Answer 29

No. Absolute liability exists when a condition or conduct is inherently dangerous, so proof of negligence is not required.

Question 30

An insured’s business is damaged by a fire, and temporarily shut down for repairs. As a result, the insured suffers loss of income. What type of loss is the loss of income?

Answer 30

Indirect Loss (also can be referred to as 'consequential')

Question 31

What are the two types of compensatory damages?

Answer 31

Special & General. Special damages (also known as economic damages) and general damages (also known as non-economic damages). Special damages cover quantifiable financial losses like property damage and medical expenses, while general damages compensate for intangible losses like pain and suffering.

Question 32

A tornado that destorys property is an example of what?

Answer 32

Peril.

Question 33

In property insurance, what is actual cash value?

Answer 33

Replacement cost at the time of loss, minus depreciation

Question 34

What sublimit in a liability policy puts a ceiling on the payment for all claims that arise from a single accident?

Answer 34

Per occurrence. The per-occurrence limit (also known as the per-accident limit) sets a ceiling on the payment for all claims arising from a single accident. This limit defines the maximum amount an insurer will pay for damages or losses resulting from one specific incident. It's a crucial element in managing risk and ensuring policyholders understand their coverage for accidents.

Question 35

What term describes a loss caused by continuous exposure to a condition?

Answer 35

Occurrence: While not always synonymous with continuous exposure, the term "occurrence" in insurance can encompass both sudden events and continuous or repeated exposure to harmful conditions. Many policies define an occurrence as an accident or continuous exposure to substantially the same conditions.

Question 36

(Insurance Carried ÷ Insurance Required) x Loss Amount =

Answer 36

Loss payment

Question 37

What is a risk?

Answer 37

Uncertainty of loss

Question 38

Wagering on a sporting event is known as what type of risk?

Answer 38

Speculative

Question 39

What is a Deposit Premium Audit?

Answer 39

A condition of an insurance policy where the insurance company can check your books at the end of the year to determine if they are charging enough premium for the amount of risk they are assuming

Question 40

All of the following are considered parts of the policy structure EXCEPT A. Insuring clause. B. Conditions. C. Exclusions. D. Provisions.

Answer 40

Provisions. Provisions is a broad term used to refer to the sections or clauses of an insurance policy that communicate the policy's benefits, conditions, etc. The essential parts of the policy are declarations, insuring clause, conditions and exclusions.

Question 41

All of the following are found in the declarations section of a policy EXCEPT the: A. Limits of insurance. B. Name of the insured. C. Exclusions. D. Policy premiums.

Answer 41

C. EXCLUSIONS Declarations state who is insured, what is insured, where the property is located, when the policy begins and ends, how much insurance and how much premium. The exclusions tell what is NOT covered.

Question 42

What is the act of withholding material information that would be crucial to an Underwriting decision?

Answer 42

Concealment.

Question 43

Which of the following is NOT the 'consideration' in a policy? A. Something of value exchanged between parties B. The application given to a prospective insured C. The promise to pay covered losses D. The premium amount paid at the time of application

Answer 43

B. The application given to a prospective insured is NOT the 'consideration' Consideration is something of value that is transferred between the two parties to form a legal contract.

Question 44

In terms of parties to a contract, which of the following does NOT describe a competent party? A. The person must not be under the influence of drugs or alcohol. B. The person must have at least completed secondary education. C. The person must be mentally competent to understand the contract. D. The person must be of legal age.

Answer 44

B. The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

Question 45

Anyone covered under an insurance policy, whether named or not, is known as the: A. Named Insured. B. Insureds. C. First Named Insured. D. Additional Insured.

Answer 45

The "insureds" are anyone that covered under a policy, whether named or not.

Question 46

A Certificate of Insurance is a written document that: A. Obligates the insurer to the person to whom the insurance was issued. B. Allows the insurer to inspect the insured's books. C. Shows the types and amounts of insurance issued to the insured. D. Names the insured's beneficiary.

Answer 46

C. A Certificate of Insurance is a written document showing the types and amounts of insurance purchased by the insured; it does not obligate the insurer to the person to which the certificate was issued.

Question 47

Property insurance that provides $100,000 coverage for a building and $50,000 coverage or personal property at a single location is called: A. Described coverage. B. Specific coverage. C. Schedule coverage. D. Blanket coverage.

Answer 47

B. Specific Coverage One location is insured for a specific amount of insurance on the structure and contents.

Question 48

What is an Abandonment Clause?

Answer 48

The abandonment clause prohibits abandoning the property to the insurer in order to claim a total loss.

Question 49

When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy, A. The loss reimbursement is not awarded if damages arose from the insured's negligence. B. The mortgagee is prohibited from bringing a suit against the insurer. C. The loss reimbursement is paid to the mortgagee. D. The loss reimbursement is paid to the insured.

Answer 49

C. The loss reimbursement is paid to the mortgagee. When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy, the loss reimbursement will be paid to the mortgagee. The mortgagee's rights of recovery will not be defeated by any act or negligence on the part of the insured. The mortgagee is also given other rights, such as bringing a suit in their own name to recover damages.

Question 50

A Certificate of Insurance is a written document that A. Obligates the insurer to the person to whom the insurance was issued. B. Allows the insurer to inspect the insured's books. C. Shows the types and amounts of insurance issued to the insured. D. Names the insured's beneficiary.

Answer 50

C. A Certificate of Insurance is a written document showing the types and amounts of insurance purchased by the insured; it does not obligate the insurer to the person to which the certificate was issued.

Question 51

An insurance contract must contain all of the following to be considered legally binding EXCEPT A. Beneficiary's consent. B. Offer and acceptance. C. Consideration. D. Competent parties.

Answer 51

A. The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

Question 52

In property insurance, what is 'consideration'?

Answer 52

Consideration refers to the mutual exchange of value between the insurer and the policyholder that makes the insurance contract legally binding. It's an essential element for any valid contract.

Question 53

Which of the following is a mandatory part of an insurance policy that varies with each individual policy? A. Declarations B. Exclusions C. Conditions D. Insuring agreement

Answer 53

A. Declarations Because the declarations tell who, what, when and where, this information is different in each contract.

Question 54

In property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit? A. Deductible B. Premium C. Coinsurance D. Self-insured retention

Answer 54

A. Deductible In property insurance, the amount of loss retained by the insured is called the deductible; in liability insurance, it is called retention. Most property coverages include a deductible; most liability policies do not include retention.

Question 55

Which of the following lists all the required elements for establishing a charge of negligence? A. Legal duty owed, deliberate attempt to cause harm, damages B. Legal duty owed, standard of care, proximate cause, damages C. Breach of reasonable person rule and proximate degree of care D. Legal duty owed, proximate cause, intervening cause, damages

Answer 55

B. Negligence is failure to do what a reasonable and prudent person would do under the same circumstances. FOUR elements must be present for negligent liability to exist.

Question 56

What method do insurers use to protect themselves against catastrophic losses? A. Risk management B. Reinsurance C. Pro rata liability D. Indemnity

Answer 56

B. Insurers use reinsurance to protect themselves from catastrophic losses. This is a method where the reinsurer indemnifies the ceding insurer for part or all of the losses it sustains related to a policy issued previously.

Question 57

Which of the following types of reinsurance is a predetermined, blanket arrangement? A. Facultative B. Catastrophic C. Retroactive D. Treaty

Answer 57

D. Treaty There are two types of reinsurance agreements: facultative and automatic or treaty. When reinsurers use facultative reinsurance, they underwrite each application separately. Treaty reinsurance is a predetermined, blanket arrangement.

Question 58

The declarations page of the homeowners policy provides all of the following information EXCEPT A. What deductible amount applies to each loss covered by the policy. B. The insured's address. C. The amount of premium charged for each coverage. D. A statement that earthquake damage is not covered.

Answer 58

D. The declarations section provides information as to who is insured, where they are located, when the policy provides coverage, how much coverage and the amount of deductible applied to a loss. The statement that earthquake damage is not covered is found in the policy form.

Question 59

For a contract to be enforceable by law, the purpose of the contract must be A. Of pure intent. B. For financial gain. C. Legal and not against public policy. D. For the benefit of the general public.

Answer 59

C. The purpose of a contract must be legal and not against public policy for the contract itself to be enforceable by law (or legal).

Question 60

The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the A. Conditions. B. Exclusions. C. Declarations. D. Insuring clause.

Answer 60

A. The Conditions The conditions is the part of an insurance policy that sets forth the obligations and duties of the insurer and the insured.

Question 61

Which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur? A. Per person limit B. Aggregate limit C. Per occurrence limit D. Split limit

Answer 61

B. Aggregate limit is the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur.

Question 62

What provision in a property policy applies when the insurer broadens coverage but does not increase the premium? A. Insuring clause B. Subrogation clause C. Appraisal clause D. Liberalization clause

Answer 62

D. Liberalization clause The liberalization clause extends broader coverages to current policies if they do not affect the premium. A modifying endorsement is not required to add such coverage.

Question 63

Which method of loss valuation is contrary to the basic concept of indemnity? A. Functional replacement cost B. Agreed value C. Market value D. Replacement cost

Answer 63

D. Replacement Cost. The replacement cost method of loss valuation is contrary to the basic concept of indemnity because following a loss it may provide the insured with a settlement in excess of the property's actual cash value.

Question 64

What is Indemnity?

Answer 64

indemnity is a fundamental principle that means the policyholder should be restored to the same financial position they were in immediately before a covered loss, and no better. The goal is to make the insured "whole again," but not to allow them to profit from the loss.