practice exam Flashcards by Red Ryan

Which of the following is a cancellation procedure in which the premium returned to the insured is NOT in direct proportion to the number of days remaining in the policy period?

Short Rate
Flat Rate
Dividend
Pro Rata

Short Rate.

(Short rate cancellation is a cancellation procedure in which the premium returned to the insured is not in direct proportion to the number of days remaining in the policy period)

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Which of the following is NOT one of the independent rating services that publishes guies to insurance companies’ financial integrity?

NAIC
Moody’s
AM Best
Fitch

NAIC

(The various independent rating services are AM Best, Fitch, Standard and Poor’s, Moody’s, and Weiss. NAIC is a regulatory organization composed on insurance commissioners.)

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After an automobile accident, an individual decided he would not drive or ride in a car ever again. Which method of risk management does this describe?

Retention
Avoidance
Sharing
Reduction

Avoidance.

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What is the purpose of the coinsurance clause in property insurance policies?

Prevent insureds from profiting from a loss.

Set higher standards of care by requiring the insured to pay a portion of every loss.

Prevent overinsurance of the property.

Encourage insurance to value.

(In return for the insured’s promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full)

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An ocean marine loss that occurs through the voluntary sacrifice of a part of the vessel or cargo to save the ship, crew, or other cargo is known as

A salvage loss
A general average
A particular average
Sue and labor

A general average.

(Average in ocean marine language means loss or damage. If one piece of cargo is sacrificed to save the rest, it is a general average – all benefit, and all associated with the voyage help pay)

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The extended discovery period in the crime general provisions for the Loss Sustained Form is

90 days
60 days
3 years
1 year

1 year.

One year is a standard provision of the loss sustained form

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An insurance policy is a legal contract, and as such, it must include all of the following elements EXCEPT

Legal purpose
Offer and acceptance
Conditions
Consideration

Conditions.

Conditions are part of the policy structure. Consideration is an essential part of a contract

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All of the following are other coverages under the dwelling policy EXCEPT

Other structures
Improvements, alterations, and additions
Earth movement
Debris removal

Earth movement.

Earth movement is not included in the other coverages of the dwelling policy

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Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty
Representation
Indemnity
Concealment

Warranty.

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An insurer neglects to pay a legitimate claim covered under the terms of the policy. Which element on the contract has the insurer violated?

Representation
Good faith
Consideration
Adhesion

Consideration.

(The binding force in any contract is consideration. Consideration on the part of the insurer is the promise to pay in the event of loss)

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The homeowners policy form that covers condominium unit owners is

HO-3
HO-4
HO-2
HO-6

HO-6.

HO-6 is designed specifically to cover the exposure of a condominium unit owner

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The process an insurer uses to evaluate risks and determine if a policy should be insured and on what terms, conditions, and rates is known as

Rating
Underwriting
Acceptance
Adverse selection

Underwriting.

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A policy that insures all property at multiple locations for a single amount is referred to as

Special
Limited
Comprehensive
Blanket

Blanket.

(Blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss)

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The primary purpose of a surety bond is to

Pay employer losses
Secure a line of credit of a contractor
Make sure obligations are fulfilled
Eliminate the possibility of loss.

Make sure obligations are fulfilled.

A surety bond guarantees the performance of the principal

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Which HO form provides open peril coverage for Coverage A - Dwelling and Coverage C - Contents

HO-5.

(HO-2 form is named peril (broad form perils) coverage for both dwelling and contents. HO-3 is open perils for dwelling and named peril for contents. HO-5 is open peril for both dwelling and contents. HO-8 is named peril (basic perils) coverage for both.

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Who is responsible for paying producer appointment fees?

The appointing insurer
The Commissioner’s office
The Department of Insurance
The producer

The appointing insurer

(Insurers pay agent appointment feeds. They also must notify the Department of all agent appointments and appointment terminations)

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A special type of insurance that guarantees the faithful performance of a trustee of employee benefit plan is called

Directors and officers insurance
Fiduciary liability insurance
Error and omissions
Surety bond.

Fiduciary liability insurance.

Fiduciary liability insurance insures an employee benefit plan against bad acts of the plan’s fiduciaries or trustees

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A liability policy that covers all claims arising out of incidents occurring during the policy period, regardless of whether the policy is still in effect at the time of the claim, is known as

An occurrence policy
A limited liability policy
A claims-made policy
An aggregate policy

An occurence policy.

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In auto insurance, what is the term that defines parts that are used in the repair of an insured vehicle by other than the original manufacturer?

Replacement parts
After-market parts
Used parts
Second-hand parts

After-market parts.

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In HO policies, all of the following are duties of the insured after a loss occurs EXCEPT

Arrange for an appraisal by an unbiased third party
Protect the property from further damage
Notify the policy if the loss is caused by theft
Provide prompt notice of the loss to the insurer.

Arrange for an appraisal by an unbaised third party.

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In a commercial package policy, (CPP), the business owner may select from all of the following types of coverage EXCEPT

General liability coverage
Crime
Workers’ Compensation
Equipment breakdown

Workers’ Compensation

Worker’s Comp is not available through the Commerical Package Policy (CPP)

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Which of the following would be covered under a Building and Personal Property coverage form?

Building foundations
Outdoor sign
Personal property while airborne
Underground pipes

Ourdoor sign

There is a $2,500 per sign limitation for loss or damage to outdoors signs attached to the building

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Which of the following would NOT be eligible for coverage under a Personal Auto policy?

A vehicle listed on the Dec Page
A vehicle purchased 90 days ago
A trailer owned by the insured
A non-owned temp substitute vehicle

A vehicle purchased 90 days ago.

(A covered auto includes automobiles listed in the dec, owned trailers, newly acquired autos (for 30 days), nonowned temp sub vehicles, and additional temporary vehicles due to repair, servicing, breakdown, or loss)

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All of the following are Other Coverages included in both the broad and special form dwelling policy EXCEPT

theft of personal property
lawns, trees, shrubs, and plants
breakage of storm door glass
collapse

theft of personal property

can only be included by endorsement

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FAIR plans are provided by The Guaranty Association The State Private Insurers The federal government

Private insurers.

Cargo is damaged short of its destination. An agent at an immediate port sells the damaged cargo at the best price. Settlement is based on the difference between insured value and the net sales proceeds. This is considered A particular average A general average Sue and labor A salvage loss

A salvage loss.

Which of the following agencies administers the National Flood Insurance Program? FIA FEMA FERC NAIC

FIA | Federal Insurance Administration FIA created the National Flood Insurance Program

Two individuals are in the same risk and age class; yet they are charged different rates for their insurance policies due to an insignificant factor. What is this called? Underwriting Adverse Selection Unfair discrimination Law of Large Numbers

Unfair discrimination

When would uninsured motorist coverage apply? Only when the insured is legally liable Any time the insured is involved in an accident with an uninsured driver Only when the insured driver drives an uninsured car Only when the other party is legally liable but has no insurance.

Only when the other party is legally liable but has no insurance.

Under a dwelling policy, which of the following is NOT a factor in determining a loss? The amount negotiated by the insured The amount necessary to repair or replace the property The policy limit The amount of the insured's interest in the property at the time of loss

The amount negotiated by the insured. (The value of a loss is decided according to the actual cash value of the property, the policy limit, the amount needed to repair or replace the property, or the amount reflective of the insured's interest in the property)

An insurer who transacts insurance in this state, but whose articles of incorporation are registered in Canada, would be considered what type of insurer? Alien Surplus lines Foreign Unauthorized

Alien.

Which of the following would NOT be covered by HO liability insurance? Property damage first aid expenses intentional tort bodily injury

intentional tort

Employers liability coverage under a workers' compensation policy includes third-party liability claims punitive damages intentionally caused injuries claims from a spouse injured by an employee

third party liability claims (employers liability coverage protects the employer against suits arising out of an employee's injuries that are brought by third parties)

All of the following are supplemental payments found in liability policies EXCEPT limited amounts of bonds related to a claim reasonable expenses incurred by the insured all expenses and defense costs incurred by the insurer costs the insured incurred in hiring an attorney

Costs the insured incurred in hiring an attorney. (Supplemental payments pay the insurance company's expenses and will not pay expenses incurred by the insured unless incurred at the insurer's request.)

Under the Personal Auto Policy, liability for bodily injury resulting from the insured's use of a nonowned automobile is not covered provided by the insured's policy on a primary basis provided by the insured's policy on an excess basis shared on a pro rata basis

provided by the insured's policy on an excess basis. (automobile insurance follows the insured auto, os the coverage written on the auto is primary. automobile insurance also follows the insured as excess over other collectible insurance)

With respect to commercial auto policies, the Garage Coverage Form provides liability protection for all of the following EXCEPT the insured's business autos the insured's business premises the insured's business income losses due to personal injury the insured's business products and work performed

The insured's business income losses due to personal injury. (The Garage Coverage Form does not cover personal injury and loss of wages from those injuries. Such coverage would be provided by a CGL policy)

An insured has a DP-3 policy written for $100,000. The dwelling replacement cost is $115,000. Fire causes $75,000 in damage to the dwelling, $15,000 to a separate garage, and kills 10 trees valued at $600 each. How much will the policy pay for the trees?

$5,000. | $500 is the max for each tree and should not exceed 5% of Coverage A in total

Which of the following perils is covered by the HO-2 and HO-3 policies? flood sudden and accidental rupture of a heating system loss due to power interruption that occurs off the premises war or military action

sudden and accidental rupture of a heating system. | off-premises power failure, flood, and war are excluded from all DP and HO policies

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses? declarations insuring agreement additional coverage exclusions

additional coverage (the additional coverage portion of a policy provides an additional amount of coverage for specific loss expense at no additional premium)

The legal concept that requires that workers compensation coverage benefits be accepted by injured employee as the only recourse an employee has in the settlement of injury claims is called the executive authority provision the exclusive remedy provision the unilateral recourse provision the omnibus resolution provision

The exclusive remedy Provision | workers comp is the exclusive remedy for all injury claims against employers

Which of the following protects consumers against the circulation of inaccurate or absolute information? the guaranty association unfair trade practices law consumer privacy act the fair credit reporting act

The Fair Credit Reporting Act

CGL Coverage B (Personal Injury and Advertising Injury) will cover An offense committed by an insured whose business is advertising Inadvertent injury to others caused by the advertising of the insured's product Publication of material the insured knows is false Failure of goods to conform to advertised quality or performance.

Inadvertent injury to others caused by the advertising of the insured's product. (Personal Injury and Advertising Injury do not cover professional advertisers, do not cover intentional injury, and do not guarantee the product will perform as advertised)

In a dwelling policy, other structures would be covered if used by the insured's neighbor as a private garage as a farming operation by the insured to house a manufacturing operation by the insured to operate a retail business

by the insured's neighbor as a private garage. (under coverage b - other structures, structures may not be rented to anyone except a tenant of the main dweling. however, a garage that is used for a private garage does not come under this exclusion of rented property and is covered even if it is rented to someone other than the occupant of the dwelling)

A dwelling policy has a standard deductible that applies to all property coverage, with some exceptions. How much is this deductible? 1,000 100 500 250

250. (A standard deductible of $250 applies to all property coverage, except fair rental value, additional living expense, and the fire department service charge)

Which policy consists of the declaration, conditions, endorsements, and other attachments applicable to a single coverage part? casualty businessowners monoline commercial package

monoline. | a monoline policy is a policy that contains only one coverage part

Which of the following reports includes information regarding an applicant's credit, character, reputation, and habits? consumer report agent's report any federal report credit report

consumer report (consumer reports include information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources)

The members of a Limited Liability Company (LLC) are insureds under a BOP if each individual is listed as a named insured members of a LLC cannot be insured under a BOC the LLC is designated as the named insured a single individual member of the LLC is listed as the named insured

the LLC is designated as the named insured.

To have insurable interest, what risk must the policyowner face? speculative risk physical injury financial loss property damage

Financial Loss.

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be resident admitted qualified certified

Admitted. (Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted)

When do binders expire? when an original policy is replaced after 10 days of issue no later than 30 days of issue as soon as the policy is issued

as soon as the policy is issued. | binders expire when the policy is issued. the period of time for a binder can vary from insurer to insurer

Which of the following does a producer NOT have the authority to do? negotiate contracts of insurance solicit insurance contract deliver policies write regulations of the insurance code

write regulations of the insurance code | an insurance producer sells, solicits, or negotiates contracts of insurance

The Declarations section of a PAP identifies all of the following EXCEPT definition of covered auto mailing address named insured loss payees

definition of covered auto (the PAP declarations section identifies the following: named insured, mailing address, policy period, applicable coverages and their limits, and loss payees)

What is the maximum number of families per covered home that are allowed by Homeowners policies?

Before an insurer will pay any loss under a policy, what is usually required from the insured? a binder notice of claim a claims-made form proof of loss

proof of loss. (a sworn statement, called proof of loss, must usually be furnished by the insured to an insurer before any loss under a policy can be paid)

Under a dwelling policy, within how many years of a loss many an insured bring a lawsuit against an insurer? 1 year 3 years 4 years 2 years

2 years. (if an insured wants to bring a suit against an insurer, the insured must comply with all policy conditions and start action against the insurer within 2 years of the loss.)

All of these types of property may be covered on a farm property coverage form EXCEPT barns silos farm machinery growing crops

growing crops. (the only way to insure growing crops is with a crop insurance policy, the crop insurance is separate from the farm coverage program.)

All of the following are essential parts of the property insurance contract EXCEPT provisions exclusions insuring clause conditions

provisions (provisions is a braod term used to refer to the sections or clauses of an insurance policy that communicates the policy's benefits, conditions, etc. Policy parts are declarations, insuring clause, conditions and exclusions.)

A basic dwelling policy automatically provides coverage against fire, lightning, and riots windstorm smoke internal explosion

internal explosion.

All of the following are conditions commonly found in the insurance policy EXCEPT subrogation cancellation and nonrenewal appraisal insuring agreement

insuring agreement (insuring agreement provides information on the policy's coverages. conditions state the legal obligations and duties of the parties to the contract)

If the actual values exceed the limit of insurance, the BOP contains a seasonal increase provision that automatically increases the limit of insurance for business personal property by 10% 50% 25% 30%

25% (the BOP contains a seasonal increase provision that automatically increases the limit of insurance for business personal property by 25% if the actual values exceed the limit of insurance)

The requirement that agents not commingle insurance monies with their own funds is known as fiduciary responsibility accepting accounting principle premium accountability express authority

fiduciary responsibility | money collected with respect to an insurance transaction must be held in a position by the agent or broker

Under a dwelling policy, which of the following clauses applies if an insured has lost one of two matching silver candlesticks? fractional loss recovered property pair or set sets coverage

Pair or set. (pair or set is a clause that if only item of a set has been lost, the insurer is not obligated to pay the total value of the set)

Which of the following are the authorities that an agent can hold? authorized and admitted apparent and allowed express and implied primary and secondary

Express and Implied. (the powers and authorities that an agent holds are express and implied. apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created)

Which of the following symbols used in business auto coverage is corrected described? symbol 7 - hired autos only symbol 2 - owned autos subject to no-fault symbol 9 - nonowned autos only symbol 1 - owned auto only

symbol 9 - nonowned autos only | symbol 1 is used for any auto, 2 is used for owned autos only, 7 is used for specifically describes autos only

If an insured purchases an insurance policy with a large deductible, what risk management technique is the insured exercising? reduction avoidance sharing retention

Retention (when an insured purchased a policy with a large deductible, he or she received a lower premium rate. in return for the lower premium rate, the insured was required to retain a larger amount of the loss, should it occur)

Which of the following is a statutory defense? contributory negligence intervening cause assumption of risk comparative negligence

Comparative Negligence (many states, by state, require that damages be apportioned based upon the degree of negligence of each party in an accident)

A covered watercraft was damaged in an accident. The actual cash value was assessed at $10,000; the cost of repairs - $5,000. The insured's watercraft policy has a $25,000 limit. How much will the insurer pay?

$5,000. (the limit of liability for part D will be the lesser of the amount shown in the Declarations, the actual cash value of the stolen or damaged property, or amount necessary to repair or replace the property)

An insured purchased an insurance policy 5 years ago. Last year, she received a nontaxable dividend from the insurer. This year, she did not receive any dividends. What type of insurer is it?

Mutual. (mutual companies are owned and controlled by their policyholders. any surplus money is returned to the policyholders as dividends)

What policy would a business owner whose business fills scuba tanks most likely need to insure unfired pressure vessels and compressors? inland marine scuba floater equipment breakdown contractors equipment floater cgl

Equipment breakdown. | Equipment breakdown coverage is for high-pressure systems

An owner of a parking lot wants liability coverage for damage to vehicles while in their custody. The owner needs garage liability overage business auto coverage garagekeeprs coverage motor carrier coverage

Garagekeepers coverage | provides physical damage coverage on customers' autos while in the care, custody, and control of the garage operation

Which of the following could be insured with replacement cost coverage under the flood insurance program? a single-family home a garage an apartment building a shed

A single-family home. (a single-family home will be insured with replacement cost coverage if it is insured to at least 80% of its replacement value. All other buildings will be insured on an actual cash value basis)

Which of the following is the federal body that regulates truckers who travel across state lines? federal motor carrier safety administration motor carriers commerce agency federal trade commission truckers and trade commission

federal motor carrier safety administration

The equipment breakdown coverage form provides coverage for all of the following EXCEPT bodily injury and property damage damage to the insured's property damage to property of others in the insured's care and custody expediting expenses following a covered loss

Bodily injury and property damage | equipment breakdown is a property form; it does not cover liability exposures

The policy conditions define the amount of coverage the excluded perils how parties to the contract must act following a loss the basic underwriting information

How parties to the contract must act following a loss.

Which of the following would NOT be classified as personal property for insurance purposes? furniture a car a house a mobile home

A house | personal property is property that is moveable; real property is not moveable

Which of the following describes the insurer's responsibility for payment under a policy, as stated in the common policy provisions? utmost good faith consideration limits of liability premiums

Limits of Liability | limits of liability are the insurer's liability for payment as stated in an insurance policy

The reduction of value of the property insured in a policy by a peril insured against is known as hazard risk loss exposure

Loss. (loss is the reduction, decrease, or disappearance of value of the personal or property in a policy, by a peril insured against)

For business income coverage, the waiting period that must occur before the period of restoration may begin is 48 hours 24 hours 120 hours 72 hours

72 hours.

Homeowners policies permit all of the following incidental occupancies EXCEPT a bookkeeping service with one accountant knitting lessons taught to 3 students on premises a retail sales operation run by the insured from his garage a two-chair barbershop

A retail sales operation run by the insured from his garage (HO policies allow incidental office or professional service-type occupancy as long as no more than 2 people work there at a time. Retail sales are not allowed)

The insured is not legally bound to any particular action under the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract characteristic does this describe? Adhesion Unilateral Aleatory Conditional

Unilateral | in a unilateral contract, only one of the parties to the contract is legally bound to do anything

For which of the following reasons can a temporary license be issued? to provide temporary help to a licensed producer to solicit new business to service existing business the negotiate new insurance contracts

To service existing business. (temp licenses may be issued to the surviving spouse, next of kind or court-appointed personal representative of an agent who dies, or becomes mentally or physically disabled. temp licenses may not solicit new business)

The loss ratio compares losses to interest rates premiums to interest rates premiums to company expenses earned premiums to losses

Earned premiums to losses.

When an insured was towing a utility trailer with his auto, the trailer came loose and ran into a store front. What part of the insured's auto policy would pay for. the damage to the store? other than collision collision coverage no coverage property damage liability

property damage liability | the auto policy provides liability coverage for a trailer being towed by a covered auto

All of the following are found in the declarations section of a policy EXCEPT limits of insurance exclusions policy premiums name of the insured

Exclusions. (states who is insured, what is insured, where the property is located, when the policy begins and ends, how much the insurance and how much premium. the exclusions tell what is not covered)

What type of coverage do umbrella policies provide? property coverage for those who do not qualify for HO insurance primary coverage for risks that are difficult to insure property coverage for the basic perils of fire, wind, and hail excess coverage over an underlying policy

Excess coverage over an underlying policy. (umbrella policies, sometimes called catastrophe insurance, provides excess over the underlying or primary liability policy)

Which of the following is the amount of loss assessment coverage included under an HO Liability coverage section? up to $1,000 per occurrence up to $10,000 aggregate for the policy period up to $2,500 per occurrence up to $5,000 aggregate for the policy period

up to $1,000 per occurence.

What type of ocean marine insurance provides physical damage coverage for the ship while it is in transit? cargo freight hull protection and indemnity

Hull. | physical damage or loss of the ship itself is covered by the hull policy

Which of the following other coverage is NOT included in the basic form dwelling policy? removal coverage tenant's alterations and additions personal property temporarily away from the insured premises breakage of glass

Breakage of Glass. | breakage of glass is included in the DP-2 and DP-3 only

Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as nonrenewal forfeiture stop-loss cancellation

Cancellation

According to the law of agency, the agent always represents the insurance company public client state department of insurance

insurance company