2014 Property & Casualty Crash Course

1. 2014 Property & Casualty Crash Course

2. GENERAL INFO

3. What is the definition of insurance? A. It is an oral contract B. It is a written contract whereby one seeks to indemnify another against loss, damage, or liability arising from a contingent or unknown event C. It is a bilateral contract D. All of the above

4. A written contract that indemnifies another party against loss, damage, or liability arising out of a contingent or unknown event describes which of the A. A written provision B. Adhesion C. Insurance D. Incontestability

5. Which of the following is the restoring of a party after a loss to the same financial position that the party held before the loss? A. Recovery B. Indemnification C. Loss Control D. Loss Settlement

6. The insured should be compensated for his loss, returning him to the condition that existed prior to the loss. This is the principle of indemnity. Which of the following is correct? A. It is based on the law of small numbers B. It is a basic principle of insurance C. It is based on the law of supply and demand D. It involves the principle of adhesion

7. The process whereby an insured suffers a loss and is paid to return him to his prior financial condition is: A. Insurable risk B. Pure risk C. indemnity D. Ceding

8. What is the definition of risk? A. A peril B. A certainty of loss C. Proximate cause D. An uncertainty or chance of loss

9. A pure risk involves a chance of: A. Gain B. Loss (or no loss) C. Both A&B D. Neither A or B

10. A situation in which there is only the possibility of loss or no loss is considered a: A. Pure risk B. Particular risk C. Fundamental risk D. Speculative risk

11. An example of a pure risk would be: A. Ed plays the slot machines and loses money B. John invests in the stock market and the prices go down C. A corporation invests in overseas investments and suffers a loss due to devaluation of the dollar D. Mary has a financial loss due to an auto accident (medical bills)

12. Which of the following best characterizes a speculative risk? A. A person who is careless and/or irresponsible B. Insuring a life with a policy that provides double indemnity for accidental death C. A situation that offers the possibility of a loss or a gain D. Transferring the risk of loss to another party

13. The purpose of insurance is: A. To retain risk B. To avoid risk C. To transfer risk D. To reduce risk

14. What is true about insurance? A. It is a form of gambling B. It is a form of reducing risk C. It is the principle of adhesion D. It is a form of transferring risk

15. The purchase of an insurance contract by an applicant is the process of risk: A. Sharing B. Transfer C. Avoidance D. Retention

16. An insurance policy may not provide which of the following? A. Transfer of risk B. Elimination of risk C. Give the insured a piece of mind D. None of the above

17. Which of the following is not an example of what an insurance policy can provide? A. Replace a large possible loss with that of a small certain loss B. Reduce uncertainty of financial loss C. Help protect from a loss D. Eliminate the risk of sickness

18. All of the following would be needed to determine if a risk was insurable except: A. The loss must be calculable B. The loss must be definite C. The loss must be catastrophic in nature D. The loss must not apply to a large number of insureds at the same time

19. What does the acronym STARR stand for? Share Transfer Avoid Retain Reduce

20. A risk management technique that eliminates a loss exposure and reduces the chance of loss to zero is: A. Loss prevention B. Retention C. Loss reduction D. Avoidance

21. Which of the following is an example of loss retention? A. Buying health insurance B. Not purchasing collision insurance on your auto C. Placing a watercraft endorsement on your homeowner’s policy D. Removing dried brush from your house’s premises

22. Loss retention is an effective risk management technique when all of the following conditions exist except: A. The probability of loss is unknown B. The losses are highly predictable C. The insured chooses to assume the losses incurred D. The worst possible loss is not serious

23. Contracts of insurance are between how many parties or persons? A. 1 B. 4 C. 3 D. 2

24. Who is considered the first party in an insurance contract? A. The agent B. The insured C. The claimant D. The insurer

25. What is required for a life insurance contract to be a legal contract? 1. Mutual assent 2. Parties with legal capacity 3. Valuable consideration 4. Valid legal purpose A. 1&3 B. 2, 3, & 4 C. none of the above D. all of the above

26. What is true about an aleatory contract? A. There is always an equal exchange of money B. The insurer always pays more into the contract than the insured C. The insured always pays more into the contract than the insurer D. There may be an unequal exchange of money

27. The term aleatory means: A. The outcome depends on an uncertain future event B. An insurance policy is a one sided contract C. Each party should be able to rely on the representations of the other party D. Mandatory

28. When entering a contract, any doubt or ambiguity found in the document by the person to whom it is offered will be construed against the party who drew up the contract. This is because an insurance policy is a contract of: A. Aleatory B. Adhesion C. Excessive D. Peril

29. One of the basic principles of an insurance contract is adhesion. If any ambiguous language is found in the contract, it will indicate which party to be at fault? A. Insurance Company B. The insured C. The agent D. MGA

30. Which of the following describes the concept of utmost good faith? A. A judge usually would resolve a dispute over unclear language in an insurance contract in favor of the insured B. Only the insurer is bound by the terms of the insurance contract C. Each party to a contract should be able to rely on the representations of the other party D. There is an unclear outcome of who will end up paying the most for the insurance coverage

31. Utmost good faith must exist between all of the following except: A. Applicant B. Agent C. State D. Insurer

32. In an insurance contract, DICE refers to: A. Declarations, insurable interest, conditions, and exclusions B. declarations, insurable interest, conditions and endorsements C. declarations, insuring clause, conditions, and endorsements D. declarations, insuring clause, conditions, and exclusions

33. Which part of the insurance contract summarizes the major promises of the insurer? A. Definitions B. Conditions C. Insuring agreement D. Declarations

34. The policy provision that denies coverage for certain perils is: A. Exclusions B. Endorsements C. Declarations D. Conditions

35. What is not part of DICE? A. Declarations B. Insuring Agreement C. Exclusions D. Endorsements

36. A document which is attached to a policy and changes the original policy is called: A. Exclusion B. Endorsement C. Binder D. condition

37. Lapse in a policy refers to: A. The insured voluntarily cancels their coverage B. The insurer decides not to continue insuring a customer C. Termination due to non payment D. A policy that is cancelled upon its effective dates

38. When an insurer cancels a policy and only retains earned premium, this is a: A. Flat cancellation B. Short rate cancellation C. pro-rata cancellation D. Continuous cancellation

39. A policy is cancelled. The policy is exactly halfway through its term. The insurer keeps 50% of the premium and returns the other 50% to the insured. Cancellation is said to be: A. Short rate B. pro-rata C. Flat cancellation D. Continuous cancellation

40. When an insurance policy is cancelled by the insured and the company retains premium for the protection provided plus expenses, cancellation is said to be on a: A. Flat basis B. Short rate basis C. pro-rata basis D. Fixed basis

41. An insurer cancels a policy and returns the entire premium. This is: A. Short rate B. pro-rata C. Flat cancellation D. No fault

42. When an insurer endorses, rejects, declines, cancels or surrenders a policy, unearned premium must be returned to the insured or person entitled within: A. 10 days B. 15 days C. 25 days D. 30 days Company has 10 days to return unearned premium to agent; Agent has 15 days to return unearned premium to the insured

43. If the insurance company returns unearned premium to the agent, how the agent have to return the unearned premium back to the insured? A. 10 days B. 30 days C. 25 days D. 15 days

44. How long does an insurance company have to return unearned premium to the agent? A. 10 days B. 25 days C. 30 days D. 15 days

45. Bob pays $900 in annual premium for a policy. If the insurer cancels a policy for cause after 9 months, what is the amount of earned premium? A. None, because the policy was cancelled B. $225 C. $675 D. $900

46. With whom are policy forms filed? A. Insurance Services Office (ISO) B. Department of Insurance (DOI) C. National Council on Compensation D. Internal Revenue Service (IRS)

47. Which advisory organization develops insurance policies for the standard market? A. Alliance of American Insurers (AAI) B. National Association of Insurance Commissioners (NAIC) C. Insurance Services Office (ISO) D. National Association of Insurance Commissioners (NAIC) and the Insurance Services office (ISO)

48. Which of the following is the total amount an insurance company is liable to pay out: A. Limit of insurance B. Policy total C. Indemnity D. Aggregate limit

49. What is Actual Cash Value (ACV)? A. ACV= Replacement Cost + Depreciation B. ACV= Market Value-Depreciation C. ACV= Replacement Cost - Depreciation D. ACV= Stated Value- Depreciation

50. An item’s replacement cost is defined as the: A. Amount agreed between the insured and the insurer at policy inception B. Amount equal to the value of damaged property on the market C. Amount to replace the damaged property D. Amount to replace the damaged property without a deduction for depreciation