Chapter 2

Question 1

An assignment must be:

Answer 1

agreed to in writing by the insurer

Question 2

Molly has been driving a car which has tires that are severely worn and should be replaced. The tires are an example of a:

Answer 2

Hazard

Question 3

A hazard

Answer 3

Increases the likelihood of a peril occurring

Question 4

Assume that a property is insured by two policies. Each policy has an equal amount of coverage. If the property is damaged by a covered peril:

Answer 4

both insurers will share equally in the loss.

Question 5

Q sold a building but did not cancel the policy. The building was later destroyed by a covered peril. Q will not collect under the policy

Answer 5

lack of insurable interest

Question 6

The Other Insurance Clause:

Answer 6

Prohibits stacking by the Insured who might try to collect in full under multiple policies.

Question 7

The other insurance clause upholds the principle of:

Answer 7

indemnification

Question 8

A written document providing evidence that coverage is in effect and which summarizes the coverage is known as:

Answer 8

a certificate of insurance

Question 9

The insured cancels a policy half way through its term yet receives less than a 50% refund. This is:

Answer 9

a short-rate refund

Question 10

An insured who cancels a Commercial Property Form will receive a:

Answer 10

short-rate refund

Question 11

A document outlining the coverage with evidence that coverage is in effect is known as a/an?

Answer 11

certificate of insurance

Question 12

A loose handrail on a staircase is a:

Answer 12

Hazard

Question 13

The proportionate distribution of the amount to be paid by insurance companies insuring the same loss is covered by

Answer 13

other insurance/pro rata

Question 14

To have an insurable interest, one must:

Answer 14

have a monetary interest in the property

Question 15

An Insurer may cancel a property policy due to

Answer 15

fraudulent property valuation

Question 16

Cindy and Hal own a commercial building. Cindy asks the Insurer to increase the coverage but Hal objects. What should the Insurer do?

Answer 16

Comply with the desire of whichever Insured is named first in the policy’s declarations.

Question 17

Which component of the policy requires the insured to assume a stated amount of the loss?

Answer 17

Deductible

Question 18

One who can lose financially in the event of a loss has:

Answer 18

an insurable interest

Question 19

An insurer’s discontinuation of a policy after expiration is:

Answer 19

nonrenewal

Question 20

The earthquake deductible is

Answer 20

percentage

Question 21

The maximum the policy will pay for any one loss is the:

Answer 21

limit of liability

Question 22

If your client complains that your premiums are too high, suggest:

Answer 22

raising the deductible.

Question 23

A peril is:

Answer 23

the proximate cause of the loss.

Question 24

The insurer’s exposure under a policy is restricted by:

Answer 24

the Limit of Liability.

Question 25

If there is duplicate property insurance, the parties will utilize which provision?

Answer 25

pro rata

Question 26

A careless employee routinely leaves the rear door to the store unlocked. This is a?

Answer 26

morale hazard

Question 27

Which is a hazard? a. a flood b. a collision c. a slippery road d. a fire

Answer 27

a slippery road

Question 28

Deductibles:

Answer 28

eliminate small claims and reduce administrative expenses.

Question 29

The minimum property deductible for Commercial Property Forms is usually:

Answer 29

$250

Question 30

The maximum the insured can collect under the policy is the

Answer 30

limit of liability

Question 30

Special covers:

Answer 30

all risks except those excluded

Question 31

The cause of the loss is:

Answer 31

peril

Question 32

Increasing the deductible:

Answer 32

lowers the premium

Question 33

A policy may be voided due to each of these EXCEPT

Answer 33

failure to file a proof of loss form

Question 34

The amount an insured may recover under an airplane policy is restricted by the

Answer 34

limit of liability

Question 35

A clogged exhaust vent on the kitchen’s deep-fat fryer in a fried chicken restaurant is a?

Answer 35

physical hazard

Question 36

The limit of liability in a policy refers to the extent of the:

Answer 36

insurer's liability.

Question 36

The deductible:

Answer 36

specifies the amount of the claim that won't be paid by the policy.

Question 37

The deductible does each of these EXCEPT: a. lower premium costs. b. excludes payment for small claims. c. indemnify the insured. d. reduce loss costs.

Answer 37

indemnify the insured.

Question 38

Payment based on the fact that the Insured owns the property involved is:

Answer 38

Insurable interest

Question 39

A deductible does each of the following EXCEPT: a. lowers the premium cost b. increases the cost of insurance c. lowers the quantity of claims d. improves the availability of insurance

Answer 39

increases the cost of insurance

Question 40

The limit of liability is the most the policy will pay:

Answer 40

per loss

Question 41

Deductibles are used to:

Answer 41

encourage the insured to be careful.

Question 42

A shopping mall with only one exit is a

Answer 42

physical hazard

Question 43

Mary has an agreement stating that if she wrecks her car, the insurer will make the payments to Mary’s banker. This is:

Answer 43

an assignment

Question 44

Any condition increasing the chance of loss is a

Answer 44

hazard

Question 45

A’s homeowner policy is valid for one year. During the year, A sold the home to B. A’s lender is willing to allow A to transfer the homeowner policy to B. A must first obtain written permission from

Answer 45

the insurer

Question 46

The policy specifies the amount of the loss the insured must pay for through the:

Answer 46

deductible

Question 47

The deductible

Answer 47

decreases the insurer’s losses

Question 48

The liberalization clause applies when:

Answer 48

the coverage is increased but the premium is not

Question 49

A certificate of insurance

Answer 49

summarizes the policy’s coverage

Question 50

Fire wood stored next to a wood stove is a

Answer 50

physical hazard

Question 50

Property ownership represents:

Answer 50

an insurable interest.

Question 51

The limit of liability is the maximum amount that:

Answer 51

the insured can collect for any one loss.

Question 51

Josephine wants to insure her home. Her fear is that a fire will damage her stained glass window (which she just purchased for $17,000). The value of the home is $100,000 and the policy has an 80% coinsurance requirement. Josephine should purchase a minimum of how much insurance so that the window will be fully insured

Answer 51

Josephine must insure the home to 80% of the home's value to be fully insured on a partial loss. Thus, $80,000 coverage is required to fully cover a $17,000 loss.

Question 52

With regard to cancellation:

Answer 52

The insured may cancel without reason or prior notice to the insurer.

Question 53

Which covers only listed perils?

Answer 53

Specified (Named) Perils

Question 54

Tim owes Visa $800 on a credit card bill. Visa purchased a fire insurance policy covering Tim's home. If Tim's home is destroyed by fire, how much will Visa be able to collect from the Insurer?

Answer 54

$0, Visa has no insurable interest

Question 54

Faulty wiring is an example of a:

Answer 54

physical hazard

Question 54

When must an insurable interest exist under a liability policy?

Answer 54

at the time of the loss

Question 55

Nonrenewal involves:

Answer 55

the insurer's refusal to continue the coverage at the end of the policy term

Question 56

Which CANNOT have an insurable interest?

Answer 56

insurer

Question 57

To prevent recovery beyond the amount of the insured’s actual loss, the policy will contain

Answer 57

an Other Insurance Clause

Question 57

A deductible:

Answer 57

reduces moral hazards

Question 58

Complete the coinsurance formula: (Did carry/divided by what????) X Loss = Amount of recovery. a. Replacement cost b. Required coverage c. Requested coverage d. Actual cash value

Answer 58

Required coverage

Question 59

A brush fire which spreads to a garage is an example of a:

Answer 59

peril

Question 60

The portion of the claim not covered by the policy is specified in the?

Answer 60

deductible

Question 61

Policy provisions designed to cover property not covered under the policy are known as:

Answer 61

extensions

Question 62

Which CANNOT be an Insurer's reason for cancellation?

Answer 62

claims filed

Question 62

Nonrenewal requires the Insurer to

Answer 62

mail notice to the insured in advance

Question 63

A property policy which lists the perils covered is:

Answer 63

Named Peril

Question 63

Each of the following can have an insurable interest EXCEPT: a. a mortgagee b. a tenant c. an ex-owner who didn’t cancel the policy d. an ex-owner carrying the mortgage

Answer 63

an ex-owner who didn’t cancel the policy

Question 64

Brenda is no longer covered by her insurance policy. Which of the following methods of policy termination would have resulted in a premium refund to Brenda?

Answer 64

Cancellation

Question 65

Property ownership is evidence of:

Answer 65

an insurable interest

Question 66

A lender financing a boat purchase may require the insured to name the lender as an insured party. The lender has:

Answer 66

an insurable interest

Question 66

With the consent of the insurer, Albert assigned his warehouse insurance policy to Benson. Benson is the:

Answer 66

assignee

Question 67

Cancellation involves

Answer 67

termination by either the insurer or insured during the policy term.

Question 68

Under the Other Insurance Clause, if the Insured is covered by two policies, what will happen if a loss occurs?

Answer 68

Each policy will pay a part of the loss

Question 69

T has insured his $400,000 home for $250,000 under a replacement cost policy. In the event of a total loss, he will recover

Answer 69

$250,000