Chapter 1 Property and Casualty Insurance Terms and Related Concepts

Question 1

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

Answer 1

Open Peril (or Special) form

Question 2

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

Answer 2

Morale

Question 3

What is subrogation?

Answer 3

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

Question 4

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 4

Indemnity

Question 5

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

Answer 5

Direct

Question 6

In property insurance, what is actual cash value?

Answer 6

Replacement cost at the time of loss, minus depreciation

Question 7

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 7

Subrogation

Question 8

What determines an insurer’s responsibility for payment, as stated in an insurance policy?

Answer 8

Limits of liability

Question 9

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

Answer 9

Per Occurrence

Question 10

Both robbery and burglary can be considered what?

Answer 10

Theft

Question 11

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

Answer 11

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

Question 12

What is burglary?

Answer 12

A forced entry into another’s premises with felonious intent

Question 13

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

Answer 13

Hazards

Question 14

What does indemnify mean in insurance?

Answer 14

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

Question 15

What is a deductible in an insurance policy?

Answer 15

A specified dollar amount that the insured must pay before the insurer will pay the policy benefits.

Question 16

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

Answer 16

Insurance

Question 17

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

Answer 17

Occurrence

Question 18

What is a risk?

Answer 18

uncertainty of loss

Question 19

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

Answer 19

Strict liability

Question 20

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

Answer 20

Loss

Question 21

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

Answer 21

To encourage insured to insure property close to its value

Question 22

A tornado that destroys a property would be an example of what?

Answer 22

peril

Question 23

What is the difference between vacant and unoccupancy?

Answer 23

Vacancy refers to an insured structure in which no people have been living or working and no property has been stored for the specified period of time. Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but some property is stored.

Question 24

In property insurance, when must insurable interest exist?

Answer 24

At the time of loss

Question 25

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

Answer 25

Peril

Question 26

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 26

Indirect or consequential

Question 27

(Insurance ÷ Insurance Required) X Loss Amount =

Answer 27

Loss Payment

Question 28

How are direct and indirect losses related?

Answer 28

Direct losses can cause indirect losses

Question 29

How is the actual cash value of a property calculated?

Answer 29

Current replacement cost minus depreciation.

Question 30

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 30

Moral

Question 31

Insurance is a contract that protects the insured from what?

Answer 31

Loss

Question 32

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

Answer 32

The Fair credit reporting act

Question 33

What are the two types of compensatory damages?

Answer 33

special and general

Question 34

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

Answer 34

Split limits

Question 35

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

Answer 35

Proximate cause

Question 36

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

Answer 36

blanket policy

Question 37

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

Answer 37

Speculative

Question 38

What is negligence?

Answer 38

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

Question 39

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

Answer 39

Pure risk

Question 40

What are the three types of hazards?

Answer 40

Physical, moral, and morale