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59 Cards in this Set
- Front
- Back
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In a property insurance policy, what is the term for the amount of a loss that the insured must cover out of his or her own pocket, and the insurer will only pay for the additional amount of the loss above this limit? |
Deductible |
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The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called? |
Subrogation
(When insureds accept loss payment from the insurance company, they must transfer their rights to recovery to the insurer. This prevents the insured from collecting twice for the same loss, and allows the insurer to indemnify the insurance company.) |
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A person who is not named as an insured on the declaration page of a policy but is protected by the policy, usually in regard to a specific interest is known as a.... |
Additional Insured |
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Losses caused by continuous or repeated exposure to conditions resulting in injury persons or damage to property that is neither intended nor expected is the definition of which term? |
Occurrence |
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To insure coin collections, stamp collections, and other items that would be difficult to appraise after a loss, it is best to insure with.... |
Stated amount insurance.
(The insured and insurer agree the policyholder has the property, what it is worth, and insurer it for an agreed value.) |
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What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy? |
Open Peril Policy
(Open peril (special) policies cover everything except what they say they don't. Named peril policies cover only perils named in them.) |
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All of the following statements describe the concept of strict liability EXCEPT... A. Claimants may need to provide proof that a product defect caused an injury B. It is imposed regardless of fault. C. It is applied in product liability cases. D. It is imposed on defendants engaged in hazardous activities. |
D. It is imposed on defendants engaged in hazardous activities.
(Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence.) |
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What best expresses the purpose of a stated value contract? |
To pre-establish the amount of coverage available for property items that are difficult to value. |
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The section of an insurance policy that details what perils are not insured against and what persons are not insured is know as the.... |
Exclusions
(The exclusions section of an insurance policy details what perils are not insured against and what persons are not insured.) |
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The process an insurer uses to evaluate applications and determine if a policy should be issued and on what terms, conditions, and rates is known as.... |
Underwriting
(Underwriting is the process of reviewing applications for insurance and deciding if a policy should or should not be issued.) |
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The transfer of an insured's right to seek damages from a negligent party to the insurer is found in which of the following clauses? |
Subrogation Clause |
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In property insurance, actual cash value is defined as which of the following? A. Stated value of the property as shown on the declaration. B. The actual amount of a loss payable, less the policy deductible. C. Replacement cost at the time of the loss, less depreciation. D. Market value of the property at the time of the loss. |
C. Replacement cost at the time of the loss, less depreciation.
(A loss valuation method used in many property forms is determined by today's replacement cost minus depreciation for age and obsolescence.) |
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All of the following are conditions commonly found in the insurance policy EXCEPT... A. Subrogation B. Appraisal C. Insuring agreement D. Cancellation and nonrenewal |
C. Insuring Agreement
(Insuring agreement provides information on the policy's coverage's. Conditions state the legal obligations and duties of the parties to the contract.) |
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Which of the following policies does NOT contain an automatic reinstatement provision? A. General liability written with an aggregate limit B. Business automobile liability C. Personal automobile liability with split limits D. Homeowners |
A. General liability written with an aggregate limit
(An aggregate limit is reduced by the payment of claims. It is possible for an insured to run out of coverage before the expiration of the policy. Aggregate limits are restored on the anniversary date of the policy.) |
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Which of the following terms refers to other insurance that is written on the same risk, but not on the same coverage basis? A. Pro rata B. Contribution by equal shares C. Nonconcurrency D. Primary and excess |
C. Nonconcurrency
(The term nonconcurrency refers to other insurance written on the same risk, but not on the same coverage basis.) |
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What rating method provides an insurer with that portion of a rate that does not include provisions of expenses (other than adjusting expense) or profit and is based on historical aggregate loss and loss adjustment expenses projected through development to their ultimate value and through trending to a future point in time? |
Loss Costs Rating |
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The pro rata liability clause is designed to protect the principle of..... |
Indemnity |
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What type of compensatory damages will pay for pain and suffering and disfigurement? |
General
(General compensatory damages are for intangible elements that cannot be specifically measured in terms of dollars.) |
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What is the legal defense that can be used in most states in which proportionate damages may be awarded when both the plaintiff and defendant were negligent? |
Comparative Negligence |
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Insurable interest in the property covered in a policy must be proven... |
At time of loss |
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What best describes the transfer of a legal right or interest in an insurance policy? |
Assignment |
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Which of the following coverage's in Dwelling and Homeowners policies is for indirect losses? A. Structures B. Contents C. Loss of use D. Dwelling |
C. Loss of use
(Loss of use coverage applies only after a direct loss caused by a covered peril has occurred.) |
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Sally did not want to worry about coinsurance in her new insurance policy, but wanted the insurance to represent a fair valuation for her property. What provision did Sally most likely use to do this? |
Agree Value |
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What best defines as the cost to replace damaged property with less expensive and more modern construction or equipment? |
Functional Replacement Cost |
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The policy that pays first in the event of a covered loss, or the policy that covers the first layer of loss in a layered program of insurance is known as the.... |
Primary Policy |
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According to the standard mortgage clause, who has the right to bring a suit in their own name to recover damages, pay policy premiums, and submit a proof of loss? |
Mortgagee |
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What are the two types of compensatory damages? |
Special and general |
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An insured is driving above the posted speed limit. As he rounds a curve, he crashes into an illegally parked car. This is an example of what? |
Contributory Negligence |
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Negligence is defined as: |
The failure to do what a reasonable prudent person would do under given circumstances. |
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An additional loss that results from a direct loss of property is called a/an |
Indirect loss |
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Where is the policy period stated? |
On the declarations page of the policy |
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Compared with other drivers in his age group, a driver has had more minor accidents and traffic violations. Which of the following rating types would most accurately reflect the driver's true insurance risk? |
A. Retrospective |
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Which of the following describes the transfer of a legal right or interest in an insurance policy? A. Assignment B. Abandonment C. Obligation D. Legal purpose |
A. Assignment
(Assignment is the transfer of a legal right or interest in an insurance policy. In property and casualty insurance, assignments of policies usually are valid only with the prior written consent of the insurer.) |
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A beauty parlor burns to the ground. What type of loss is this to the owner?
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Direct
(Damage caused by a peril that is insured against is classified as direct loss.) |
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__________ __________ is a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined resulting from one accident or occurrence. |
Combined Single |
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A insured'sl business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this? |
Consequential
(Consequential loss, also know as indirect loss, is a second financial loss caused by a covered direct loss.) |
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A contractor who builds homes has never made a claim on his business insurance policy. His agent discovers that his policy is written on a scheduled rating. If the contractor changes to an experience rating policy, what would most likely happen? |
Premiums would go down |
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Rates that are established based on the similarities of the risk with other risk are known as... A. Experience Rates B. "A" Rates C. Merit Rates D. Manual Rates |
D. Manual Rates
(Rates that are established by similarity of risk are manual rating or class rates.) |
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Using an air-cooled engine, a proposed insured has developed a new, experimental aircraft. If the inventor applies for liability insurance, what rating type will the insurer most likely use? |
Judgment Rating
(Because there are few similar aircraft, it is not possible to rate the risk basked upon history or experience. For those reasons, a judgment rating is the most likely system.) |
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What type of damages may be awarded by the court to create disincentives that discourage behavior that is deemed highly undesirable by society? |
Punitive |
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What is Punitive? |
Punitive damages are a form of punishment, intended to serve as an example to others to discourage undesirable behavior. |
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What is used in the formula for calculating the actual cash value of a property? |
Replacement Cost |
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What is all required elements for establishing a charge of negligence? |
Legal duty owed, breach of legal duty owed, proximate cause, damages |
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______________ 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. |
Negligence |
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What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk? A. Nonconcurrency B. Primary and excess C. Other insurance D. Valid insurance |
C. Other Insurance
(Other insurance is a provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk.) |
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In property insurance, actual cash value is defined as? |
Replacement cost at the time of the loss, less depreciation. |
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When a parent is required to pay for damages caused by his or her children, this is an example of. A. Vicarious Liability B. Strict Liability C. Intervening Cause D. Assumption of Risk |
A. Vicarious Liability |
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Greg owns several buildings, each at a different location and insured on a separate policy. What type of coverage does Greg have? |
Specific Coverage
(Specific insurance provides a specific amount of coverage for each property. A blanket insurance policy provides coverage for more that one property with a single limit of coverage.) |
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If a property is covered by company A for $20,000 and Company B covers the same property for $40,000, how much will Company A pay on a $24,000 loss? |
$8,000
(Pro rata liability applies. Each policy pays a percentage of the loss based on the percentage of coverage that policy provides. Company A carries 1/3 of the total coverage ($20k + $40k = $60k). Therefore, it is responsible for 1/3 of the $24,000 loss, or $8,000) |
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What kind of liability would a person who owns a swimming pool have? |
Absolute
(Any conduct that is inherently dangerous (swimming pools, using explosives, keeping wild animals) imposes absolute liability. The claimant does not have to prove anything.) |
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Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages? |
Special |
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The insured has violated the contract without the knowledge of the mortgage holder. After a loss.... |
The insured cannot collect but the mortgage holder will still be paid. |
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What is the purpose of the coinsurance clause found in property insurance policies? |
Encourage insurance to value |
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Which of the following does the term "proximate cause" refer to? A. Reason for filing a lawsuit B. Negligence that leads to an injury C. Injury that leads to a monetary compensation D. Duty of the defendant to act |
B. Negligence that leads to an injury
(Proximate cause is reasonable foreseeable act or event that results in an injury or damage. Negligence may often be the proximate cause of the damage; without it, the accident would not have happened. This is also called Direct Liability.) |
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Replacement cost is defined as... |
Full replacement of property at its current cost, new and without reduction for depreciation. |
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Which of the following is NOT one of the four primary elements considered in establishing negligence? A. Proximate cause B. Legal Duty C. Standard of care D. Proof of carelessness |
D. Proof of carelessness |
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An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?
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$30,000
Formula= 200000 * .8 = 160000 (coinsurance) Insured Policy of $120,000 120000/160000 = .75 or 75% 40,000 * .75 = $30,000 |
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A type of policy that is used to provide a specific amount of replacement cost for a given risk after it has been destroyed is called a(n) |
Valued Policy
(A value policy provides for payment of the full policy amount in the event of a total loss WITHOUT regard to actual value or depreciation.) |
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What is the correct formula for computing a loss ratio? |
(Incurred losses + loss adjusting expense)/earned premium |
