Deck 37: Insurance

Question 1

A whole life policy may develop either a cash surrender value or a loan value,but not both.

Answer 1

False

Question 2

The insurer may not exercise a right of subrogation if it is required to pay for the loss of property under a fire insurance contract.

Answer 2

False

Question 3

Fire insurance contracts generally cover losses only from hostile fires.

Answer 3

True

Question 4

Property insurance contracts are indemnity contracts.

Question 5

A term life insurance contract:

A)obligates the insured to pay the specified premium for the duration of his or her life.
B)obligates the insurer to pay the face amount of the policy if the insured dies within a specified period of time.
C)develops a loan value that the insured can recover if the policy is terminated.
D)develops a cash surrender value that the insured can recover if the policy is terminated.

Question 6

Unearned portions of any premiums paid by the insured need not be returned to the insured at the cancellation of the policy by the insurer.

Question 7

The insured must pay all past-due premiums and a stated amount of interest along with proof of insurability to secure reinstatement.

Question 8

Property insurance policies are generally nonassignable.

Question 9

A warranty is an implied condition of an insurance contract.

Question 10

An insurance policy taken out by a minor is not voidable at the election of the minor.

Question 11

Health insurance contracts normally do not cover preexisting health conditions.

Question 12

Whole life insurance contracts:

A)do not bind the insurer to pay the face value of the policy on the death of the insured.
B)have a convertibility feature that allows the insured to convert the policy to a term life policy.
C)has no cash surrender value if the policy is terminated.
D)require the insured to pay the specified premium for the duration of his/her life.

Question 13

In an insurance contract,the payment of consideration is called a(n):

A)issue.
B)negotiable instrument.
C)premium.
D)valued policy.

Question 14

Some fire insurance policies contain a coinsurance clause that can operate to limit the insured's right to recovery.

Question 15

In life insurance contracts:

A)the rate of the premiums to be paid decreases if the face value increases.
B)the loan value decreases as the age of the policy increases.
C)the rate of the premiums to be paid depends on the face value of the policy.
D)the loan value enables the insured to borrow money from the insurer,but at high interest rates.

Question 16

Insurance companies do not permit the insurer to seek voluntary settlements of liability claims against the insured.

Question 17

Malpractice insurance provides protection for professionals whose negligent professional conduct causes injuries to third persons.

Question 18

Health insurance policies may require the insured to pay up to a certain amount each year before the insurer's payment obligation begins.

Question 19

In life insurance policies,the person who purchases the policy must have an insurable interest in the life being insured at the time the loss occurs,not at the time the policy was issued.

Question 20

An important distinction between valid insurance contracts and wagering contracts is that:

A)insurance contracts create a new risk that did not previously exist while wagering contracts don't.
B)wagering contracts are not contrary to public policy while insurance contracts are.
C)insurance contracts transfer existing risks while wagering contracts create new ones.
D)unlike insurance contracts,wagering contracts are indemnity contracts.

Question 21

In cases in which the insured has misstated his or her age:

A)the insurer cannot contest its liability at any point of time.
B)the insured can take advantage of a misstatement of age clause.
C)the insurer can use a misstatement of age clause to cancel the policy.
D)the insured can object on the basis of absence of insurable interest.

Question 22

Which of the following insurance contracts is enforceable?

A)An insurance policy taken out by a minor.
B)Life insurance contracts in writing.
C)A contract where either party to a contract has the capacity to contract.
D)Breach of warranty by the insured.

Question 23

This clause bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time.

A)Misstatement of age clause
B)Pro rata clause
C)Incontestability clause
D)Coinsurance clause

Question 24

Simons purchased a home for $120,000,insuring it for $120,000 with Mutual Life.She later purchased a $60,000 policy from Equitable.The home was totally destroyed by fire while it still had a fair market value of $120,000 and the losses amounted to $30,000.Under these circumstances,which of the following statements is true?

A)Simons can claim the damages only from Mutual Life as its policy amount is greater.
B)She cannot claim insurance from either as policies with pro rata clauses cover only partial losses.
C)Simons can recover $180,000-the total of both policies,as part of his insurance contract.
D)Simons cannot claim more than $60,000 from Equitable.

Question 25

Which of the following is not covered by property insurance contracts?

A)Overflows from burst pipes.
B)Loss from vandalism.
C)Loss from hostile fire.
D)Nuclear contamination.

Question 26

If Geoff makes a fraudulent statement about his medical history on his application for insurance:

A)the insurance company has a right to cancel Geoff's policy.
B)the insurance company cannot consider the contract voidable.
C)the insurance company can adjust the benefits payable at its discretion.
D)the insurance company cannot cancel the policy unless Geoff misrepresented his age.

Question 27

____ generally require that the insured pay a deductible each year before the insurer's payment obligation begins.

A)Property insurance policies
B)Life insurance policies
C)Liability insurance policies
D)Health insurance policies

Question 28

Douglas obtained a $100,000 insurance policy on his warehouse.The policy contained an 80 percent coinsurance clause.A fire totally damaged the building that had a fair market value of $250,000 at the time of the loss.How much will Douglas recover from his insurance company?

A)$80,000
B)$100,000
C)$125,000
D)$250,000

Question 29

The "incontestability clause" found in life insurance policies:

A)bars the insurer from objecting on the basis of the purchase of the policy with the intent to murder the insured.
B)bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time.
C)bars an insured from reinstating a lapsed policy that has not been surrendered for its cash surrender value.
D)bars the insurer from objecting on the basis of absence of insurable interest.

Question 30

As a general rule,if an applicant suffers a loss after applying but before the insurer formally accepts the application:

A)the insurer must cover the loss.
B)the applicant and the insured must share the loss.
C)the applicant must bear the loss.
D)the insurer must cover the loss only if there is no binder.

Question 31

The fire insurance policy on Dullard's home contained a 50 percent coinsurance clause.Dullard's home had a fair market value of $100,000.The face amount of the policy covering the home was $30,000.A hostile fire caused $30,000 worth of damage to the home.To what amount is Dullard entitled?

A)$100,000
B)$9,000
C)$30,000
D)$18,000

Question 32

The coinsurance clause:

A)requires the insured to insure the property to at least 80 percent of its fair market value in order to fully recover the value of partial losses.
B)usually allows the insured to recover the difference between the limits stated in the policy and the fair market value of the property.
C)places no restriction on the individual's right to recovery.
D)requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.

Question 33

Which of the following statements is true about health insurance contracts?

A)Health insurance contracts do not provide coverage for medical expenses resulting from preexisting conditions.
B)Most people receive their insurance coverage from individual policies that are provided by employers.
C)The Consolidated Omnibus Budget Reconciliation Act (COBRA)was enacted as a legislative response to the increasing popularity of group health policies.
D)Portable health insurance doesn't require insurance companies to provide coverage to people who have left a job.

Question 34

Malpractice insurance is similar to business liability coverage in that it:

A)requires the insured to insure the property to a specified percentage of its fair market value in order to fully recover the value of partial losses.
B)provides an alternative to prohibitively expensive individual health care insurance policies.
C)provides protection for professionals whose negligent professional conduct causes injuries to third persons.
D)requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.

Question 35

Homeowners' insurance policies:

A)often provide coverage under their comprehensive and collision sections for car damages resulting from vandalism.
B)insure both the insured's dwelling and the personal property located on the real property.
C)do not cover personal property that was temporarily removed from the dwelling at the time it was damaged.
D)do not allow property owners to purchase specialized policies to make up for gaps in a standard insurance contract.

Question 36

Flood-related damage to property is an example of a(n)____.

A)excluded peril
B)covered peril
C)conditional peril
D)open peril

Question 37

According to the ____,when the insured has purchased insurance policies from more than one insurer,the loss will be apportioned among the insurance companies.

A)coinsurance clause
B)pro rata clause
C)exculpatory clause
D)valued clause

Question 38

If property covered by a valued policy is totally destroyed:

A)the insured can recover the face amount of the policy only if it does not exceed the fair market value of the building.
B)the insured can recover only the fair market value of the building.
C)the insured can recover the face amount of the policy regardless of the fair market value of the building.
D)the insured can recover the fair market value of the property at the time it was destroyed,up to the limits stated in the policy.

Question 39

Open policies allow the insured to recover:

A)the fair market value of the property at the time it was destroyed,up to the limits stated in the policy.
B)the difference between the limits stated in the policy and the fair market value of the property.
C)the fair market value of the property,even if that value exceeds the limits stated in the policy.
D)the fair market value of the property only if the loss is partial.

Question 40

As a general rule,contracts are assignable:

A)even if the policy's terms limit assignability.
B)if they are not life insurance policies.
C)even without an irrevocably designated beneficiary's consent.
D)if they are not property insurance policies.

Question 41

Define portable health insurance.

Question 42

Under the right of subrogation:

A)the insurer is obliged to pay only the face amount of the policy if the insured dies within a specified period of time; which is the term of the policy.
B)the insurer obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the insured property.
C)the insurer obtains all of the insured's rights to pursue legal remedies only against those persons who have intentionally damaged the insured property.
D)the insurer is obliged to pay the face value of the policy on the death of the insured and the specified premium for the duration of his/her life.

Question 43

What are an insurer's obligations in a liability insurance contract?

Question 44

Identify the true statement about cancellation of an insurance policy.

A)Insurance contracts cannot be cancelled by the insured by surrendering the policy to the insurer.
B)Insurance contracts contain a reinstatement clause that allows an insured to reinstate a cancelled policy.
C)Insureds who terminate are entitled to a return of the premium on a short-rate basis.
D)Insurers that cancel need not return the unearned portion of any premiums paid by the insured.

Question 45

Describe the insurable interests required in life and property insurance.

Question 46

Briefly explain the right of subrogation.

Question 47

Those who have an insurable interest in property must have that interest:

A)before the loss occurs.
B)at the time the loss occurs.
C)within 30 days after the loss occurs.
D)throughout the term of the policy.

Question 48

Why are property insurance policies generally nonassignable?

Question 49

The required insurable interest in life insurance contracts must exist:

A)before the loss occurs.
B)at the time the loss occurs.
C)at the time the policy was issued.
D)throughout the term of the policy.

Question 50

A person who seeks to recover benefits under a life insurance policy:

A)must notify the insured that a loss covered by the policy has occurred.
B)needs to furnish only proof of loss.
C)needs to furnish a sworn statement of loss.
D)must notify the insurer of the loss and furnish proof of loss.