Question 1

Reasons why a peril may be considered uninsurable and therefore excluded from insurance contracts include which of the following?
I.The losses from the occurrence of the peril may be due to a predictable decline in value.
II.The losses from the occurrence of the peril may be incalculable and catastrophic.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

Both reasons are valid for considering a peril uninsurable. A predictable decline in value does not meet the criteria for insurability since insurance is designed to protect against unforeseen losses. Incalculable and catastrophic losses are also uninsurable because they can overwhelm an insurer's ability to pay claims, leading to financial instability.

Question 2

Connie has a major medical policy with a $200 deductible and a 75-25 coinsurance clause.If she has eligible medical expenses of $10,000,how much will be paid by her insurer?
A)$7,300
B)$7,350
C)$7,500
D)$9,800

Accepted Answer

First, Connie will have to pay the $200 deductible out of pocket. Then, the insurer will pay 75% of the remaining eligible medical expenses ($9,800) and Connie will be responsible for the remaining 25%.

75% of $9,800 = $7,350

Therefore, the insurer will pay $7,350 and Connie will be responsible for paying the remaining $2,450.

Option B is the closest answer at $7,350.

Question 3

Which of the following statements about problems arising from the use of a coinsurance clause is (are)true?
I.The amount of insurance should be periodically evaluated to avoid a coinsurance penalty because of inflation.
II.An agreed value coverage option is one method used to solve the problem of values that fluctuate throughout the policy term.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

I is true because if the insured property's value has increased due to inflation over time, the policyholder must ensure that their coverage limit keeps pace with the increased value. If the policyholder doesn't do so, they may face a coinsurance penalty.

II is also true because with an agreed value coverage option, the insurer and policyholder agree on a specific value for the insured property at the outset, so fluctuations in value during the policy period are irrelevant. This eliminates the coinsurance clause's problematic feature because the insured has an agreed value of coverage, and there is no need to calculate the extent of risk to the value of the asset to follow the percentage of the insured amount.

Question 4

David owns a commercial building with a replacement cost of $4 million.The building is insured on a replacement cost basis for $3 million under a fire insurance policy that has an 80 percent coinsurance clause.How much will David collect if the building sustains a covered fire loss with a replacement cost of $320,000?
A)$266,667
B)$275,000
C)$300,000
D)$320,000

Accepted Answer

The answer of David owns a commercial building with a...

Question 5

All of the following statements about endorsements and riders are true EXCEPT
A)They are usually written.
B)They can be used to add or delete policy provisions.
C)They normally take precedence over other conflicting policy provisions.
D)They are primarily used to circumvent legislation requiring specific policy provisions.

Accepted Answer

Endorsements and riders are not primarily used to circumvent legislation requiring specific policy provisions. Instead, they are used to modify or add specific provisions to existing policies.

Question 6

Which of the following statements about a calendar-year deductible is (are)true?
I.It requires the insured to pay a specified amount of each claim regardless of when the claim occurs during the year and regardless of any previous claims during the year.
II.It is used only in policies which cover direct property losses.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

I is incorrect because a calendar-year deductible requires the insured to pay a specified amount out-of-pocket each calendar year before the insurance coverage pays for any claims, not for each claim. II is incorrect because calendar-year deductibles are not exclusive to policies covering direct property losses; they are also used in health insurance and other types of policies.

Question 7

The deductible used for automobile collision losses is an example of a(n)
A)corridor deductible.
B)elimination period.
C)straight deductible.
D)aggregate deductible.

Accepted Answer

The deductible used for automobile collision losses is a straight deductible, which means the insured must pay a fixed amount out of pocket before the insurance coverage kicks in. Corridor deductibles apply to health insurance policies and require the insured to pay all medical expenses until a certain amount is reached, at which point the insurance coverage kicks in. Elimination periods apply to disability insurance policies and require the insured to wait a certain period of time before receiving benefits. Aggregate deductibles apply to property and casualty insurance policies and require the insured to pay a certain amount in total before insurance coverage kicks in.

Question 8

The primary purpose of coinsurance in property insurance is to
A)reduce moral hazard.
B)achieve equity in rating.
C)minimize problems in settling claims.
D)eliminate small losses.

Accepted Answer

Coinsurance helps achieve equity in rating by requiring policyholders to insure their property to a specified percentage of its full value. This ensures that policyholders are paying premiums in proportion to the amount of coverage they require, rather than subsidizing those who are underinsured. Coinsurance also encourages policyholders to maintain adequate insurance coverage, which can minimize problems in settling claims.

Question 9

The portion of a property and liability insurance contract that contains information about the property or activity to be insured is called the
A)declarations.
B)insuring agreement.
C)exclusions.
D)conditions.

Accepted Answer

The declarations portion of a property and liability insurance contract provides specific information about the property, activity, or individual being insured, including the policyholder's name and address, the coverages and limits selected, and any applicable deductibles or endorsements. The insuring agreement outlines the insurer's promise to pay for covered losses or damages, while exclusions and conditions set limitations or specify circumstances under which coverage is not provided.

Question 10

A provision in a disability income insurance policy that requires a person to be disabled for 60 days before receiving benefits is an example of a(n)
A)corridor deductible.
B)grace period.
C)elimination period.
D)probationary period.

Accepted Answer

An elimination period is a waiting period specified in a disability income insurance policy during which no benefits are paid. In this case, the person must be disabled for 60 days before becoming eligible for benefits.

Question 11

Which of the following statements about "all-risks" coverage is (are)true?
I.All losses are covered except those losses specifically excluded.
II.The burden of proof is on the insured to prove that a loss is covered.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

"All-risks" coverage means that all losses are covered except for those specifically excluded. The burden of proof is on the insurer to prove that the loss is excluded, not the insured. Therefore, II is not true.

Question 12

The exclusion of flood in a homeowners policy is an example of an
A)excluded activity.
B)excluded condition.
C)excluded property.
D)excluded peril.

Accepted Answer

The exclusion of flood from a homeowners policy refers to the exclusion of a specific peril (i.e. flood) from coverage. Therefore, the correct answer is excluded peril.

Question 13

Exclusions are used in insurance policies for all of the following reasons EXCEPT
A)to reduce moral hazard.
B)to waive policy conditions.
C)to eliminate coverage for uninsurable perils.
D)to eliminate coverage not needed by typical insureds.

Accepted Answer

Exclusions are not used to waive policy conditions, but rather to limit coverage for specific perils or situations that are deemed uninsurable, would create moral hazard, or are not needed by typical insureds.

Question 14

What information is contained in the insuring agreement of an insurance policy?
A)a description of the property or life to be insured
B)a summary of the major promises of the insurer
C)a summary of the obligations of the insured
D)a list of the property,losses,and perils that are not covered

Accepted Answer

The insuring agreement of an insurance policy typically includes a summary of the major promises made by the insurer, such as the types of losses that will be covered, the limits of coverage, and any exclusions or conditions that may apply. It may also include information about the policyholder's obligations, but this is not typically the main focus of the agreement. The description of the property or life to be insured and any exclusions or limitations will generally be found elsewhere in the policy.

Question 15

Deductibles are used in all of the following types of insurance EXCEPT
A)life insurance.
B)health insurance.
C)property insurance.
D)automobile insurance.

Accepted Answer

Deductibles are not used in life insurance policies.

Question 16

Which of the following statements about the definition of the insured is (are)true?
I.In some cases,a person who is not specifically named may be classified as an insured.
II.Under no circumstances can more than one person be named as an insured.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

Statement I is true. For example, in an auto insurance policy, the insured may include not only the owner of the vehicle but also any other driver who has permission to use it. Statement II is false. More than one person can be named as an insured, such as in a joint life insurance policy or a business partnership insurance policy.

Question 17

At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss?
A)only at the time of loss
B)only at the time when the policy is issued
C)only at the time of policy application
D)both at the time when the policy is issued and at the time of loss

Accepted Answer

The answer of At what point in time must an...

Question 18

Purposes of the coinsurance clause in health insurance contracts include which of the following?
I.To reduce premiums.
II.To exclude coverage for certain medical procedures.
A)I only
B)II only
C)both I and II
D)neither I nor II

Accepted Answer

The primary purpose of the coinsurance clause in health insurance contracts is to reduce premiums by sharing the costs between the insurance company and the policyholder. It does not aim to exclude coverage for certain medical procedures.

Question 19

The policy provision requiring the filing of proof of loss with the insurer is an example of a(n)
A)declaration.
B)condition.
C)insuring agreement.
D)miscellaneous provision.

Accepted Answer

The policy provision requiring the filing of proof of loss with the insurer is an example of a condition. Conditions are requirements or duties imposed by the insurer or policyholder that must be met in order for coverage to be provided. Proof of loss is a condition that the policyholder must meet in order to receive coverage for a claim.

Question 20

All of the following are purposes of deductibles EXCEPT
A)to eliminate small claims.
B)to reduce premiums.
C)to reduce attitudinal hazard.
D)to exclude uninsurable perils.

Accepted Answer

Deductibles are not used to exclude uninsurable perils. Deductibles are used to eliminate small claims, reduce premiums, and reduce attitudinal hazard.

Quiz 10: Analysis of Insurance Contracts

Connie has a major medical policy with a $200 deductible and a 75-25 coinsurance clause.If she has eligible medical expenses of $10,000,how much will be paid by her insurer?

All of the following statements about endorsements and riders are true EXCEPT

The deductible used for automobile collision losses is an example of a(n)

The primary purpose of coinsurance in property insurance is to

The portion of a property and liability insurance contract that contains information about the property or activity to be insured is called the

A provision in a disability income insurance policy that requires a person to be disabled for 60 days before receiving benefits is an example of a(n)

Which of the following statements about "all-risks" coverage is (are) true? I.All losses are covered except those losses specifically excluded. II.The burden of proof is on the insured to prove that a loss is covered.

The exclusion of flood in a homeowners policy is an example of an

Exclusions are used in insurance policies for all of the following reasons EXCEPT

What information is contained in the insuring agreement of an insurance policy?

Deductibles are used in all of the following types of insurance EXCEPT

Which of the following statements about the definition of the insured is (are) true? I.In some cases,a person who is not specifically named may be classified as an insured. II.Under no circumstances can more than one person be named as an insured.

At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss?

Purposes of the coinsurance clause in health insurance contracts include which of the following? I.To reduce premiums. II.To exclude coverage for certain medical procedures.

The policy provision requiring the filing of proof of loss with the insurer is an example of a(n)

All of the following are purposes of deductibles EXCEPT