Question 1

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 contains a summary of the major promises of the insurer, including the coverage provided and the conditions under which benefits will be paid out. It may also include exclusions or limitations on coverage, but this information would not be the primary focus of the insuring agreement. Descriptions of the property or life to be insured and the obligations of the insured would typically be found elsewhere in the policy.

Question 2

Connie has an individual medical expense policy with a $1,000 deductible. She is required to pay 20 percent of covered expenses in excess of the deductible. The insurer will pay 80 percent of expenses in excess of the deductible. If Connie has eligible medical expenses of $26,000, how much will be paid by her insurer?
A) $10,000
B) $11,000
C) $20,000
D) $21,000

Accepted Answer

C

Question 3

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 coinsurance clause is designed to reduce premiums by sharing the cost of medical expenses between the insurer and the insured. It is not meant to exclude coverage for certain medical procedures.

Question 4

That part 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 an insurance contract includes specific details about the property or activity being insured, such as its location or value. The insuring agreement outlines the coverage provided, the exclusions list what is not covered, and the conditions specify the terms and requirements of the policy.

Question 5

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

Accepted Answer

The deductible for automobile collision losses is typically a straight deductible, meaning that the insured must pay a fixed amount out-of-pocket before insurance coverage applies. A calendar year deductible applies to expenses incurred within a given calendar year, while an elimination period is a waiting period before coverage begins. An aggregate deductible applies to multiple losses within a specific period.

Question 6

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 customize an insurance policy to meet the needs of an individual or organization.

Question 7

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 provision requiring the filing of proof of loss is a condition of the insurance policy. It outlines the requirement for the insured to provide evidence of their loss to the insurer before any benefits are paid out. This condition ensures that the insurer has a complete understanding of the extent of the loss and can make an accurate determination of what benefits should be paid.

Question 8

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 as there are situations where a person who is not named may be classified as an insured, such as in the case of a spouse or dependent of the named insured. Statement II is false as there can be multiple named insureds on a policy.

Question 9

One of the reasons that deductible are used in insurance policies is to
A) eliminate coverage for small claims.
B) place restrictions or limits on the insurer's promise to perform.
C) provide broader coverage by increasing the number of perils covered.
D) exclude perils that are not insurable.

Accepted Answer

Deductibles are used in insurance policies primarily to eliminate coverage for small claims. This helps in reducing the number of minor claims that an insurer has to process and pay out, thereby reducing administrative costs and helping to keep premiums lower for policyholders.

Question 10

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 11

Which of the following statements about "open-perils" 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

Statement I is true as open-perils coverage, also known as all-risk coverage, covers all losses unless they are specifically excluded in the policy. Statement II is false as the burden of proof is on the insurer to prove that a loss is not covered.

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 in a homeowners policy is an example of an excluded peril. This means that any damage or loss caused by flooding is not covered by the policy.

Question 13

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) calendar year deductible.
B) grace period.
C) elimination period.
D) probationary period.

Accepted Answer

The period of 60 days that a person needs to be disabled in order to receive benefits is known as an "elimination period" in disability income insurance policies. This means that the insured person must bear the costs of their disability during this time before their policy benefits start to kick in. The other options listed (calendar year deductible, grace period, probationary period) do not refer to this specific waiting period for disability coverage.

Question 14

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 15

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

The primary purpose of coinsurance in property insurance is to achieve equity in rating. Coinsurance aims to ensure that policyholders purchase insurance coverage that is proportional to the value of the property they are insuring. This helps to prevent underinsurance and ensures that policyholders pay premiums that reflect the amount of risk they are transferring to the insurer.

Question 16

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 coinsurance clauses require policyholders to insure their property to a certain percentage of its value. If they fail to meet this percentage, they will face a coinsurance penalty. Inflation can increase the value of insured property, making it necessary for policyholders to periodically evaluate their insurance coverage to avoid penalties.

II is true because an agreed value coverage option allows policyholders to agree on a value for their property at the beginning of the policy term. This eliminates the need for a coinsurance clause because the agreed value is considered the maximum amount payable in the event of a loss, regardless of its actual value. This option is used to solve fluctuations in property value throughout the policy term.

Question 17

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 used to limit or eliminate coverage for certain perils or circumstances. They are not used to waive policy conditions, which are requirements that must be met in order for coverage to be provided. The other answer choices are valid reasons for exclusions: to reduce moral hazard by discouraging reckless behavior, to eliminate coverage for uninsurable perils, and to eliminate coverage not needed by typical insureds in order to keep premiums affordable.

Question 18

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 19

David owns a commercial building with a replacement cost of $4 million. The building is insured on a replacement cost basis for $2.4 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 $80,000?
A) $50,000
B) $60,000
C) $66,667
D) $80,000

Accepted Answer

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

Question 20

Deductibles are not used in which of the following type of insurance?
A) life insurance
B) health insurance
C) property insurance
D) disability income insurance

Accepted Answer

Deductibles are not used in life insurance as this type of insurance pays a benefit upon death, rather than requiring payment for expenses incurred.

Quiz 10: Analysis of Insurance Contracts

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

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.

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

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

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

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

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.

One of the reasons that deductible are used in insurance policies is to

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?

Which of the following statements about "open-perils" 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

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)

The primary purpose of coinsurance in property insurance is to

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

Deductibles are not used in which of the following type of insurance?