INSURANCE RIGHTS and GLOSSARY A Auto In the Commercial General Liability coverage part, an auto includes motorized vehicles

meant to be used on public roads, but not certain specifically defined mobile equipment. Avoidable Consequences Consequences that are caused by lack of care on the part of an individual, and that could have been avoided had the individual exercised proper care. Generally refers to events that occur following a loss as the result of a person's failure to take steps to prevent the consequences. Accident An unforeseen, unintended and expected event. Accounts receivable insurance Insurance against loss of revenue that cannot be collected because accounts receivable records are destroyed by an insured peril. Coverage commonly includes any extra expense to recapture records and payment of interest on loans needed to cover the interim period reduction in collections. An insured's keeping duplicate records in safe storage off premises is a highly recommended risk reduction technique-and the cost of coverage is considerably reduced thereby. Insurance may be arranged to cover electronic records as well as paper. Actual cash value (ACV) A method for placing value on property as of the time of its loss or damage. ACV may be determined by market value (the current price for a like item in the same general condition) or replacement cost new less use depreciation (the cost of the same item brand new minus the insured's contribution to pay for the added life expectancy of the property new property). The insured may generally select whichever method is more favorable. Contrast with replacement cost. Additional insured One who qualifies as "insured" under the terms of a policy even though not named as insured. Officers of a corporation may be included as insureds under the terms of a policy written in the name of the corporation. Additional living expense insurance This coverage, found in the broad and special dwelling and homeowners forms, applies to extra expenses necessitated by the insured's inability to reside in the insured dwelling because of a covered loss-for example, restaurant meals and hotel bills. The amount is the difference between normal household expenses and the increase. Adjuster A person may act either on behalf of the insurance company or the insured in the settling a claim. Independent adjusters represent the insurance company on a fee basis; public adjusters represent the insured on a fee basis. Admitted company An insurance company that is licensed (admitted) to conduct business within a given state. Admitted market The range of insurance available through admitted companies. Advance premium Relates to a policy premium that cannot be precisely determined until the end of the term. The advance premium, also called "deposit premium," is a downpayment on what will be final premium. Adverse selection The idea that the greater the likelihood of loss, the more attractive the idea of buying insurance to cover that loss becomes. Advertising injury Claim arising out of slander, libel, copyright infringement, or misappropriation of advertising ideas. Coverage is provided as part of coverage B of the commercial general liability policy. Agent The term used for one person acting on behalf of another in an insurance transaction. Aggregate limit The maximum amount an insurer will pay under a policy in any one policy period. Anniversary date The anniversary of the original date of issue of a policy as shown in the declarations. Annual aggregate deductible A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a peroccurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.

Arson The intentional setting afire of property. Assigned risk A risk that may not be generally acceptable to any insurance company but for which the law says that insurance must be acquired. Personal auto liability is one such necessary coverage. Insurance companies doing personal auto business in a state can be required to accept assignment of a portion of the state's unacceptable drivers as insureds. Automobile liability insurance Insurance in which the insurer agrees to pay all sums for which the insured is legally obligated because of bodily injury or property damage arising from the ownership, maintenance, or use of an auto. Automobile medical payments Insurance applying to the medical, hospital, or funeral expenses of anyone injured while on or in an insured automobile. The coverage is not dependent on liability, being triggered simply by an accident. It may be included in either the Business Auto Policy or the Personal Auto Policy. B Bodily Injury In Commercial General Liability insurance refers to injuries to a person, as well as sickness, disease and death. Basic named perils Covered perils in a property insurance contract: fire, lightning, windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosions and riot. Binder An insurer's agreement, by way of an agent, to provide non-life insurance on the spot, pending issuance of the policy contract. Blanket coverage A means of insuring various items of property under one limit of liability. Blanket insurance Insurance covering multiple items of property as a group. Covered property may be at one location or several. Bodily injury A term that refers to physical injury, sickness, or disease, or death resulting there from. In some jurisdictions "bodily injury: includes emotional injury. Bodily injury liability Legal obligation that flows from the injury or death of another person. This insurance is commonly limited to bodily injury liability derived by the way of negligence, but coverage of liability by way of contract (holding another harmless) is also possible. Boiler & machinery insurance Fired vessels, steam generators, mechanical and or electrical objects and turbines, are all examples of "objects" that might be listed for coverage under a boiler and machinery policy. Coverage is for damage to covered property caused by an accident to an object identified in the policy's schedule. Coverage includes extra expense, automatic 90-day coverage at new locations, defense against liability claims, and supplementary payments like those provided under public liability policies. Bond A document for expressing surety. A bond engages three entities; the "surety" (bonding company) sells the bond to the "principal" for the purpose of paying off the party the principal will owe to the "obligee" upon failure of the "principal" to perform some act or provide some service under agreed terms. Bond, surety A surety bond is the financial assumption of responsibility by one or more persons for fulfilling another's obligations. Broad form perils A property insurance designation for coverage that extends beyond the basic named perils. Broker One who acts as the insured's agent in arranging insurance. A broker may also serve as an agent of an insurance company. Builders risk insurance A variation of property coverage specifically applicable to construction projects. It is commonly written in an amount to cover the value of the structure when completed. The premium charged takes into account that values at risk increase gradually over the term of the policy. Business Auto Policy (BAP) A standardized contract for writing liability and property coverage on commercial autos.

Business income coverage Insurance protecting the income derived from an insured's business activities when curtailed peril. Coverage includes reasonable extra the insured undertakes to expedite return to business operations. Business personal property A tern relating to "contents" of a commercial enterprise, it may include furniture, fixtures, machinery and equipment as well as stock, all other chattels owned by the insured, and even use interest in building improvements and betterments. Business Owners policy (BOP) A package of property and liability insurance for small and medium size businesses, the BOP owes its origin to the success of the homeowners policy. C Cancellation; flat, pro rata, or short rate In a flat cancellation the full premium is returned to the insured. A pro rata cancellation means the insurer has charged for the time the coverage was in force. Short rate cancellation entails a penalty in excess of pro rata for early termination. Cargo insurance An inland marine or ocean marine policy covering cargo in the care, custody, or control of the carrier. Casualty insurance The type of insurance concerned with legal liability for losses caused by bodily injury to others or physical damage to property of others. Certificate of insurance A written description of insurance in effect as of the date and time of the certificate. The certificate does not ordinarily confer any rights on the holder, i.e., the issuing insurer does not promise to inform the holder of change in or cancellation of coverage. Claims-made coverage A type of public liability insurance that responds only to claims for injury or damage that are brought (to the insurer) during the policy period (or during a designated extended reporting period beyond expiration). The development was in response to "long tail" claims, such as those related to asbestosis injury, carrying over many years and multiple layers of coverage limits. However, most public liability policies are written on an "occurrence" basis, covering injury or damage occurring during the policy period even if a claim is brought months or even years later. Coinsurance clause "Coinsurance" refers to the bargain between commercial property owners and the insurance industry. The clause in property policies encourages the property owner to gauge coverage needs by possible, not probable, maximum loss. With $1 million at risk but a probable maximum loss of $100,000, for example, the property owner would probably buy $100,000 insurance and bank on avoiding the larger disaster. The bargain offered by the insurance industry is a reduced rate per $100 of coverage if the owner agrees to buy coverage at a specified relation (80% commonly) to value (to possible maximum loss in other words). If the insured accepts the bargain but events prove the amount of insurance is inadequate to the stated coinsurance percentage, the insured becomes "co-insurer" in the same ratio as the amount of insurance bears to the amount that should have been carried. Collapse A property insurance peril, subject to its own specific agreement in commercial property policies, which otherwise insure on an open perils basis. Combined Single Limit (CSL) Liability policies commonly offer separate limits that apply to bodily injury claims for property damage. "50/100/25" is shorthand under such a policy for $50,00 per person/$100,000 per accident for bodily injury claims and $25,000 for property damage. A combined single limits policy might cover for $100,000 per covered occurrence whether bodily injury or property damage, one person or many. Commercial General Liability (CGL) The CGL policy is an ISO form, widely used to provide commercial enterprises with premises and operations liability coverage, products and completed operations insurance and personal injury coverage. Premises medical payments coverage is often included as well. Commercial lines A distinction marking property and liability coverage written for business or entrepreneurial interests as opposed to personal lines. Commissioner of Insurance The official in a state (or territory) responsible for administering insurance regulation: sometimes called the Superintended of Insurance. Compensatory damages The award, usually monetary, that is intended to compensate the claimant for injury sustained. Comprehensive physical damage (automobile)

Auto insurance covering physical damage except collision. Contractors equipment floater Coverage designed for the special needs of contractors to insure their machinery and other equipment. Contractual liability Liability that does not arise by the way of negligence but by assumption under contract. For example, in certain leases, a tenant may assume a landlord's liability to others unsafe conditions on the premises. Some such assumptions are covered automatically under the Commercial General Liability form. Contributory negligence A defense to a negligence action in which it is asserted that the claimant failed to meet the standard required for his or her own protection, and that the failure contributed to the loss. Covered loss An accident, including accidental damage by forces of nature, that brings a contract of insurance into play. Credit card forgery A criminal act involving the illegitimate of credit cards to obtain goods or money. Limited coverage for such losses is automatically provided in most homeowners policies. Crop Insurance Insurance covering growing crops against hail, wind, and fire. Protection against a broader range of perils can often be arranged as well. Claim A demand to recover under an insurance policy for loss. In Commercial General Liability insurance, a policy for loss. In Commercial Liability insurance, the claim may be against the insured by a third party under the insurance policy held by the insured. In this case, claims are referred to the insurer to handle on behalf of the insured in accordance with the term of the policy. Claims-Made Policy In Commercial General Liability insurance, a policy that pays for events occurring during a specified period and for which a claim is made during the policy period, subject to stipulated limitations and extensions. Commercial General Liability Insurance A line of insurance available to commercial organizations and providing coverage on behalf of insureds for sums they may be legally required to pay to others as a result of the insureds' actions or negligence. May include coverage for bodily injury, property damage, personal injury, advertising injury, medical payments, and certain supplemental payments specified in the policy. Commercial Package Policy (CPP) The Insurance Services Office (ISO) commercial lines policy that contains two or more lines of insurance or two or more coverage parts. It will include some forms and/or endorsements that are common to all lines of insurance or coverage parts, as well as the individual forms and endorsements required for the individual coverages selected. In order to quality as a CPP, the policy must include two or more of these coverage parts: Commercial General Liability, various other liability coverage parts, Commercial Property, Commercial Crime, Commercial Inland Marine, Boiler and Machinery, Farm or Commercial Auto. Individual insurers may have similar commercial packages with different requirements. Contract A legal agreement between two or more parties. An insurance policy is a contract. Coverage In insurance, the guarantee to pay for specific losses as provided under the terms of the policy. Coverage means the same as protection and is often used synonymously with the word "insurance." D Debris removal clause A consequential coverage commonly included in direct loss policies. For example, fire policies limited recovery for the insured's cost of removing the debris after a covered fire. Not to be confused with "removal." Declaration page That part of a property or liability insurance policy that discloses information pertinent to the coverage promised including names, addresses, limits, locations, term, premium, forms, and so on. The same information, perhaps in a shorthand version, is contained as well in the daily. Deductible The part of the loss that is to be borne by the insured; it comes off the top of any payment from the insurer. Deposit premium When the price of insurance is tied to fluctuating values or costs that cannot be known until the end of the policy period, inventory or payroll are two common examples, a deposit or provisional premium or estimated premium may be charged at the outset of a

policy with final adjustment to come at the end of the term. Depreciation A property ages and becomes worn it often loses value and that has to be taken into account in any property insurance that covers loss of actual cash value. Driver Other Car (DOC) endorsement A business auto or garage policy endorsement providing coverage for named individuals while driving non-owned autos in situations related to the business of the insured. E Earned premium The amount of policy premium that has been earned at any point in time from inception of term to the end. A disproportionate amount will have been "earned" during the early days of contract that is subject to short rate cancellation. Effective date The date shown in the declarations of policy upon which coverage is to take effect. Employee dishonesty coverage: Insurance protecting employers from loss due to theft by their employees. Employers liability insurance A feature of standard workers compensation policies, this coverage applies to liability that may be imposed on an employer outside the provisions of a worker compensation law. Employers non-ownership liability Employers who buy commercial auto coverage on a basis other than "any auto" have this exposure whenever an employee uses his or her own auto on the employer's behalf. Employment practices liability Coverage against allegations of illegal or discriminatory hiring firing practices, sexual harassment of employees, an so on. Endorsement An amendment to a policy form. Errors and omissions coverage A type of professional liability insurance protecting the insured against claims alleging bodily injury or property damage caused by the professional or technical incompetence of the insured. Excess insurance Coverage that applies on top of underlying insurance that is primary, i.e., that pays until its coverage limit is exhausted at which point that excess coverage takes over. Excess or surplus lines market The range of insurance available through non-admitted insurers, i.e., insurance companies that are not licensed in a particular state or territory. Specific provisions of state or territorial law control placements. Experience A record of losses. Experience modification The rising or lowering of premiums under term of an experience rating plan. Extended period of indemnity A time of recovery of proved business income loss after physical property is restored and business reopened. The 30-day extension of business income forms may be extended by endorsement. Excess Insurance Insurance coverage that pays only after other insurance, called primary insurance, has been exhausted. Exclusion Anything specifically stated in an insurance policy as not covered by the policy. F Farm Owners-ranch owners policy A "homeowners" type package policy adapted to include farm and ranch exposures. Fiduciary liability insurance

The insurance covers claims arising from a breach of the responsibilities or duties imposed on a benefit administrator, or a negligent act, error, or omission of the administrator. Fire Combustion evidenced by a flame or glow. Insurance distinguishes between a "hostile" fire (one out of bounds) and "friendly" fire (such as that contained within the fire box of a stove). Fire department service charge A fee that may be imposed by a fire department for responding to a call. Most fire coverage agreements include indemnification provisions for such eventualities. Fire legal liability Public liability policies routinely exclude coverage for damage to property in an insured's care, custody, or control. This leaves a big gap in a tenant's coverage, a gap partially filled by an exception in the commercial general liability policy that restores limited coverage for fire damage to the landlord's building. Perhaps the best benefit of the exception is to call attention to the exposure so arrangement can be made for broader coverage at appropriate limits. First named insured An insurance policy may have more than one party named as insured. In such cases, the first named insured attends to policy "housekeeping," i.e., pays premium, initiates (or receive notice of) cancellation, or calls for interim changes in the contract. This is spelled out in commercial policies in the "common policy conditions." Floater An inland marine form covering movable property wherever located within territorial limits. Flood insurance Flood insurance, like earthquake coverage, is usually only of interest to those relatively few whose property is exposed. Consequently, losses among this small group will be high and premiums can be prohibitive. However, in 1968 the Federal government stepped in to help property owners in designated "flood plains" with the National Flood Insurance Act of 1968. Coverage is not only available, but may even be required to obtain financing financing for exposed properties. Fraud The intentional perversion of the truth in order to mislead someone into parting with something of value. G Gap coverage Insurance for a lessee designed to cover the difference in selling price between a vehicle's actual cash value, and the payout left on a lease. Garage policy One of the early package policies, it is written for automobile dealers and may include liability for garage operations, automobile operations, physical damage coverage on garage owned autos, bailees coverage on customers cars, and auto and premises medical payments coverage. Garagekeepers liability A bailee coverage applying to automobiles. Commonly included in garage policies, it may be written to provide coverage for limited perils or for comprehensive physical damage, with or without collision damage coverage. Coverage may be expressed as covering the legal liability of the garagekeeper or amended to cover on a direct basis, as primary insurance or excess. Glass insurance Commercial property form that covers plate glass, glass signs, lettering, etc. H Hired auto A nonowned auto that may be borrowed as well as rented or leased by the insured. Personal auto policy insureds are covered automatically for hired autos, but business auto policy insureds may not be. Hold harmless agreement A contractual assumption by one party of the liability exposure of another. Lease agreements, for example, commonly require the tenant to hold the landlord harmless for bodily injury to property damage experienced by others on the premises. Home Owners insurance An early and hugely successful example of "packaged" property and liability insurance. A mid-twentieth century insurance development was introduction of the so-called "multi-line era" in which insurers became empowered to write both property and liability forms of insurance, making way for the first packaging of these coverages within a single policy.

I Indemnity A fundamental concept governing insurance: compensation for loss or injury sustained. Independent agent A "retailer" of insurance who, by contractual arrangement with a number of insurance companies, sells, and services property and liability insurance. The independent agent "owns" the policy information and expiration dates of his client's coverage and thus controls renewals and their placement. Inflation guard endorsement An endorsement attached to an insurance policy whereby the limits of liability on a piece of property are increased on a regular basis by a certain percentage in order to offset increasing building costs associated with inflation. Inland marine insurance Property insurance signaling broad coverage of properties exposed to the transportation peril and those subject to being used or kept at a location other than the insured's customary premises. Eligible property is identified in the so-called "Nationwide Definition of Marine Insurance." Insurable risk The exposure to significant, measurable accidental loss from identifiable perils. The exposure, while not catastrophic, must be shared by a sufficient number of potential insureds so that the cost of loss for one can be measured and affordably shared throughout the market. Insurance A mechanism whereby risk of financial loss is transferred from individual, company, organization, or other entity to an insurance company. Insurance policy The document containing the contract between the insured and the insurer which defines the right and duties of the contracting parties.

L Limits of Insurance The greatest amount of insurance a policy will provide; the amount beyond which the insurer is no longer required to pay. Loss experience What the loss history has been on a particular line or book of business. Loss exposure A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs. M Marine insurance Insurance primarily concerned with transportation exposures and property that is commonly moved around from place to place. The field is divided between inland marine and ocean marine. Mobile Equipment In the Commercial General Liability coverage forms, refers to certain carefully and specifically described vehicles for use on land. Some such vehicles are self-propelled while others are not. Some are used only when attached to other vehicles or to provide mobility to certain equipment. Some are intended for use on public roads while others are not. Medical malpractice Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform. Merit rating A form of auto rating in which an insured's past experience as well as anticipated experience is taken into account when arriving at a rate. Minimum premium An insurer's lowest charge for an insurance policy. Misrepresentation Generally, misstatement of facts made on an application for insurance. May also be misstatement of coverage made by an agent to

an insured. Monoline policy An insurance policy covering one subject of insurance, as opposed to a combination of multiline policy. N Named insured The party of parties specifically named as insured in the insurance contract. Others may have claim on the coverage of a policy by way of internal provisions, but any such right is by way of the agreement between the named insured and the insurance company. Named insured The individual or organization named in the declaration of an insurance policy as the insured, as opposed to someone who may have an interest in the coverage, but is not named in the policy. Named Perils A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for "the named peril" of fire. Nonowned auto This term signifies an auto that is neither owned, hired, nor borrowed by the insured under a commercial auto policy. Employees' cars used in company business are commonly classified this way. The employer's auto liability cover for use of nonowned autos is covered by entry of symbol 1 ("any auto") or symbol 9 ("nonowned autos") on the declaration page. O Occurrence In general, an event that triggers coverage under any policy. Specifically, an event that triggers coverage under an occurrencebased liability policy. Such a policy covers injury or damage that occurs during the policy period even if claim is brought months or even years after the policy has expired. Off premises cover Commercial property policies commonly established a small coverage limit that applies to property temporarily away from the insured's place of business. Occurrence Policy In Commercial General Liability insurance, a policy that pays for events that occur during its policy term, regardless of when a claim is filed. That is, an expired occurrence policy will pay a valid claim even if the claim is made years later, provided that the event occurred while the policy was in effect. P Package policy Any combination of insuring agreements that combines property and casualty coverages. Homeowners, business owners, and garage policies are examples. Peril A potential cause of loss. Personal liability insurance Insurance for individuals or members of a household offering protection against claims by third parties. (outsiders) alleging bodily injury or property damage due to negligence. Personal lines Insurance covering the liability and property damage exposures of private individuals and their households. Contrast with "commercial lines." Products and completed operations liability The liability exposure of the manufacturer whose malfunctioning products may cause injury or property damage or of the contractors whose failed structures or projects may do the same. Coverage of the exposure is a feature of the commercial general liability policy. The insurance does not in any way constitute a guarantee of either the insured's product or work. Contrast with "premises and operations liability.." Professional liability A form of errors and omissions insurance, (sometimes called "malpractice" coverage of errors alleged against those in the healing and legal professions). Arbitrarily it seems, "error and omissions" is the term applied most often to insurance covering liability for mistakes in matters affecting property, i.e., coverage for "Insurance Agents E&O," "Architects E&O while "professional liability" is used in reference to coverages such as "Druggists Professional Liability," Physicians and Surgeons Professional Liability," and "Lawyers Professional Liability."

Proximate cause That event which, in an unbroken sequence, results in direct physical loss under an insurance policy. For example, wind is the proximate cause of loss when a windstorm blows out a window that in turn topples a lit candle that sets fire to a structure and burns it down. Pure risk The only consideration is the possibility of loss. Contrast with "speculative risk." Products-Completed Operations Hazard Refers to bodily injury and property damage that occur somewhere other than the insured's premises, and involve the insured's products or work, subject to the limitations and parameters specified in the Commercial General Liability coverage forms. Property Damage In the Commercial General Liability coverage forms, refers to physical damage to tangible property and to loss of use tangible property, whether or not physically damaged. R Renters insurance Term for insurance for the non-owner occupant of a dwelling or apartment. Retroactive date The date that defines the extent of coverage in time under claims-made liability policies. Claims resulting from occurrences prior to the policy's stated retroactive date are excluded. Risk management The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance. S Schedule List of items on a policy declaration, sometimes also showing descriptions and values. Special form In contrast to the named perils forms in property insurance, those forms that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to delimit an define the protection intended. Split limits As in auto insurance, where rather than one liability amount applying on a per-accident basis, separate amounts apply to bodily injury and property damage liability. U Umbrella liability A liability contract with high limits covering over top of primary liability coverages and, subject to deductible, covering exposures otherwise uninsured. Underinsured motorists coverage Coverage for the insured and passengers whenever the at-fault driver in an accident has auto liability insurance with lesser limits than the insured's. This coverage lies atop "uninsured motorists coverage" or atop the at-fault driver's low limit automobile liability insurance and provides the insured and passengers with protection equal (usually) to the insured's own automobile liability cover. Uninsurable risk An uninsurable risk is one which is literally uninsurable because loss is certain rather than possible. V Vacant property Once defined as devoid of occupants or contents, a stricter definition is being applied as more and more communities find older buildings of three and four stories that are only one quarter occupied. Property policies impose limitations on coverage of "vacant" building so that (changing) definition of vacant property is quite important. Vicarious liability The condition arising where one person is responsible for the actions of another, as a parent is often held responsible for the vandalism damage a minor child does to a school.

W Waiver of subrogation An insurer has the right of subrogation; however, it may waive that right through this method. Wear and tear exclusion A common heading for an "all risks" exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn; it will rust, settle, become rotted, infested, marred, scratched, etc. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped into a fine wooden table. Workers compensation insurance Coverage that conforms to the workers compensation laws of the states in which it written. Workers Compensation and Employers Liability Insurance A type of liability insurance not included in the Commercial General Liability coverage part. Workers Compensation makes benefits payable for injuries to, disability or death of an employee without regard to liability. Employers Liability covers the common-law liability of an employer for injuries to an employee. Because these coverages are related specifically to employer-employee relationships, they are not characterized as general liability.

INS 21 Questions Answers Materials Dumps Chapter 1 QUESTION Within the realm of Risk Management, insurance is a technique that is often used. When insurance is used it is primarily attempting to a. Isolate the cost of losses. b. Prevent the cost of losses. c. Reduce the cost of losses. d. Transfer the cost of losses. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.4) QUESTION When insurance is used to transfer possible losses to the insurer, the vehicle that accomplishes this transfer is the a. Policy. b. Agent. c. Letter of transfer. d. Broker of record letter. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.4) QUESTION An insurance policy is a contract that states the rights and duties of a. The insured and insurer and agent. b. The insured and the insurer. c. The insured and the agent. d. The insured and other third parties. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.4-1.5) QUESTION Transferring the costs of losses to an insurer would be unnecessary, if there were no a. Exposures to loss. b. Civil courts. c. Agents. d. Reinsurance. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.4-1.5) QUESTION Making a profit for the insurance company is a major OBJECTIVE for which one of the following departments? a. Underwriting department b. Finance department c. Marketing department d. Claims department ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.12-1.13) OBJECTIVE 1 QUESTION An insurance company pays for covered losses and, in effect, distributes the costs of losses among all

a. Insurers in a state. b. Insureds. c. Members of society. d. Claimants. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.4) QUESTION All of the following statements regarding loss exposures are true, EXCEPT: a. There would be no need to transfer the costs of losses if there were no exposures to loss. b. For a loss exposure to exist, there must be the possibility of a loss. c. It is necessary for a loss to occur for a loss exposure to exist. d. Every home has a fire loss exposure. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.7-1.8) OBJECTIVE 2 QUESTION The law of large numbers is a mathematical principle that states that as the number of similar but independent exposure units increases, the relative a. Accuracy of predictions about future outcomes decreases. b. Accuracy of predictions about future outcomes increases. c. Frequency of predictions about future outcomes decreases. d. Frequency of predictions about future outcomes increases. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.5) QUESTION In order for the law of large numbers to operate, insurance companies need to insure a. A large number of similar exposure units. b. Exposure units that are widely dispersed. c. Exposure units that have not had losses. d. A large number of unique exposure units. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.5) QUESTION What states that as the number of similar but independent units increases, the relative accuracy of predictions about future outcomes based on these exposure units also increases? a. The principle of indemnity b. The principle of reciprocal pricing c. Loss trending and forecasting d. The law of large numbers ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.5) OBJECTIVE 3 QUESTION John has worked for Alloto, Inc. for 25 years and is considering retiring within the next two years. John's retirement is an example of a. A personnel loss exposure for Alloto, Inc. b. A human loss exposure for Alloto, Inc. c. A liability loss exposure for Alloto, Inc. d. A loss transfer loss exposure for Alloto, Inc. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.7) QUESTION Pam operates a home business that requires her clients to come to her house. The possibility of one of Pam's clients tripping on a step leading to Pam's house and injuring herself is a a. Property loss exposure. b. Liability loss exposure. c. Personnel loss exposure. d. Human loss exposure. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.6-1.7) QUESTION The possibility of Chuck's house being damaged by fire is a. A property loss exposure relating to real property. b. A property loss exposure relating to personal property. c. A noninsurable loss exposure.

d. A commercial loss exposure. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.6) OBJECTIVE 4 QUESTION All of the following are characteristics of ideally insurable loss exposures, EXCEPT: a. Losses that are definite and measurable b. Losses that are accidental c. Large number of similar exposure units d. Large concentration of financial capacity ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.7) QUESTION Which one of the following is most likely to have the characteristics of an ideally insurable loss exposure? a. Explosion of an industrial factory steam boiler b. Sun damage to an exterior paint finish c. Physical damage to a lunar land rover d. Termite damage to a home ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.7)

OBJECTIVE 5 QUESTION One of the major reasons why government insurance programs exist is because the insurance may a. Not be available from private insurers. b. Be too complicated for private insurers to write. c. Not be allowed to be written by private insurers.d. Be a significant source of revenue for the government. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.11-1.12) QUESTION All of the following are types of insurance provided by the federal government, EXCEPT: a. Flood insurance b. Crop insurance c. Tenants insurance d. Social Security ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.11) QUESTION Government insurance programs exist because a. The government has expertise in handling insurance claims. b. The government has the necessary financial resources. c. The government has infrastructure and staff to provide insurance. d. The government has legal representatives in every state of the union. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.11) OBJECTIVE 6 QUESTION The department in an insurance company that is primarily concerned with determining customer's needs and then promoting products/services to meet those needs is the a. Customer service department. b. Underwriting department. c. Public relations department. d. Marketing department. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.12-1.13) QUESTION What is the process by which insurers decide which potential customers to insure and what coverage to offer them? a. Reinsuring b. Marketing c. Prospecting d. Underwriting ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.13)

OBJECTIVE 7 QUESTION The primary reason why insurance regulators monitor the financial condition of insurers is to prevent a. Poor customer service. b. Unfair competition. c. Increased Premiums. d. Insolvency. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.14) QUESTION All of the following are ways that state insurance departments regulate and protect consumers, EXCEPT: a. Insurers must maintain a certain ratio of agents to residents in an area b. Insurers must be licensed to write insurance policies in a given state c. Insurers must meet certain tests of financial strength d. Insurers must comply with laws on marketing, underwriting, and claims practices ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.14) OBJECTIVE 8 QUESTION In insurance, the term that means restoring a party who has had a covered loss to the same financial position that the party held before the loss occurred is a. Subrogate. b. Recoup. c. Indemnify. d. Rectify. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.15) QUESTION Joan Appleton has purchased a new car, and when registering her vehicle, she is told that she must provide proof of liability insurance. Which one of the following benefits of insurance applies to Joan's situation? a. Support for credit b. Satisfaction of legal requirements c. Efficient use of resources d. Reduction of social burdens ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.17) OBJECTIVE 9 QUESTION One of the costs of insurance is said to be opportunity costs. This means that if capital and labor were not being used in the insurance business, they could be used elsewhere and making other productive contributions to a. Society. b. The insurance industry. c. The agency system. d. Government. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.18) QUESTION Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it a. Increases competition in the industry. b. Reduces agents' commissions. c. Increases the total cost of insurance. d. Reduces the term of many policies. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.18-1.19) QUESTION The direct and indirect costs of insurance include which of the following? a. Premiums paid by insureds b. Increased lawsuits c. Operating costs of insurers d. All of the above ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.18) OBJECTIVE 10 QUESTION Another name for liability insurance is

a. First party insurance. b. Second party insurance. c. Third party insurance. d. Multiple party insurance. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.21-1.22) QUESTION All of the following are types of property insurance, EXCEPT: a. Fire and allied lines b. Crime c. Business income d. Directors and officers ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.20) QUESTION Willie's floral shop was damaged by fire and the business was closed for six months. Willie had property insurance to cover the fire damage, but which one of the following types of coverage did he need to cover his loss of net income during the six-month restoration period? a. Crime insurance b. Fire and allied line insurance c. Business income insurance d. Leasehold insurance ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.21) OBJECTIVE 11 QUESTION A small business owner concerned about something happening and not being able to work or earn a living for an extended period of time should purchase a. Personal liability insurance. b. Medical insurance. c. Disability insurance. d. Universal life insurance. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.23-1.24) QUESTION Term life insurance a. Provides lifetime protection. b. Accrues a cash value. c. Provides maximum protection for the lowest cost. d. Allows the policyholder to borrow against policy savings. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.23) QUESTION Whole life insurance a. Provides coverage for a specified period such as 5 or 10 years. b. Lapses when the policyholder reaches age 65. c. Is primarily an investment vehicle. d. Accrues a cash value. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.23) OBJECTIVE 12 QUESTION Any condition or situation that presents the possibility of a financial loss to an individual or a family by such causes as death, sickness, or injury is referred to as a a. Personal loss exposure. b. Personnel loss exposure. c. Liability loss exposure. d. Medical loss exposure. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 1.7) QUESTION To restore a party who has sustained a loss to the same financial position that party held before the loss occurred is called a. Reciprocity. b. Reimbursement. c. Insurance.

d. Indemnification. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.15) QUESTION Life insurance that provides coverage for a specified period with no cash value is called a. Universal life. b. Term insurance. c. Whole life. d. Long-term care insurance. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 1.23) Chapter 2 QUESTION All of the following are types of private insurers, EXCEPT: a. Stock insurers b. Mutual insurers c. Participating insurance consortiums d. Reciprocal insurance exchanges

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.4) QUESTION A mutual insurance company is owned by a. Independent investors. b. Policyholders. c. State insurance departments. d. Mutual funds. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.6) QUESTION Which one of the following describes the characteristics of a mutual insurance company? a. A corporation owned by stockholders that earns profits for the stockholders. b. An unincorporated association that provides reciprocal coverage to subscribers. c. A corporation owned by policyholders that provides insurance to its policyholders. d. An unincorporated association that earns profits for its individual investors. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.6) QUESTION How does a stock insurance insurer differ from a reciprocal insurance exchange? a. Stockholders own a stock company. Subscribers own a reciprocal insurance exchange . b. A stock company provides insurance to its policyholder-owners. A reciprocal insurance provides insurance to investors. c. Each is owned by stockholders; however, the reciprocal insurance exchange provides coverage to investors. d. Each is formed to provide profit to investors; however, the stock insurer is managed through a board of directors. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.4-2.5) QUESTION A reinsurance company

a. Is formed to write all or part of the insurance for a parent company. b. Provides insurance for loss exposures that private insurers are unwilling to provide. c. Transfers losses to a primary insurer. d. Accepts loss exposures from a primary insurer. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.9) OBJECTIVE 1 QUESTION One of the unique characteristics of the Social Security program is that it a. Is free. b. Requires mandatory participation. c. Is administered by the state governments. d. Is available to all regardless of eligibility.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.10) QUESTION The four types of benefits included in the federal Social Security program are a. Retirement, portfolio protection, disability, and medical benefits. b. Retirement, survivorship, unemployment, and medical benefits. c. Retirement, unemployment, disability, and medical benefits. d. Retirement, survivorship, disability, and medical benefits. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.10) QUESTION Mandatory participation in the Social Security program for those eligible eliminates the need for a. Individual underwriting. b. Premiums. c. Scheduled benefits. d. Occasional increases in benefits.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.10) QUESTION Some federal government insurance programs provide coverage for loss exposures that private insurers have avoided largely because of the potential for catastrophic losses. An example of such a program is a. Workers compensation insurance funds b. Unemployment insurance programs c. Automobile insurance plans d. The National Flood Insurance Program ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.10) OBJECTIVE 2 QUESTION One of the main reasons why private insurers have largely avoided writing such coverage as flood and crop insurance is due to the potential for a. Speculative losses. b. Fraudulent losses.

c. Catastrophic losses. d. Difficulty in valuing losses.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.10) QUESTION Private insurers are reluctant to provide coverage for flood and crop losses due to the a. Concentration of exposure units. b. Large number of exposure units. c. Variety of exposure units. d. Dispersion of exposure units.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.10)

OBJECTIVE 3 QUESTION In some states the only source for workers' compensation insurance is through the state. This is an example of a a. Residual state fund. b. Unilateral state fund. c. Monopolistic state fund. d. Competitive state fund.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.11) QUESTION Unemployment insurance programs are operated by a. Federal government. b. Local governments. c. State governments. d. Private insurers.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.10) QUESTION Programs that make workers' compensation insurance available to those who cannot obtain voluntary coverage through private insurers is called a a. Residual market plan. b. Rating bureau plan. c. Revolving market plan. d. Recessive market plan.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.11) OBJECTIVE 4 QUESTION The National Association of Insurance Commissioners (NAIC) has identified a problem that affects all states. Unscrupulous auto body shops are:

Hiring thieves to steal cars, cross state lines, and deliver the stolen vehicles to the shops Insuring the vehicles and later claiming they are stolen Changing the vehicle identification number (serial number) Reselling the vehicles The NAIC would like to address these issues uniformly across the United States by introducing tough laws to punish the body shops for claim fraud, but the NAIC members recognize that there are significant differences from one state to the next. How can the NAIC address the problem? a. Develop a Model Bill for the proposed solution and distribute it to the states for possible enactment. b. Require each state insurance commissioner to draft a proposed solution to the problem tailored to his or her state. c. Draft a federal bill and lobby for legislative action to address the problem uniformly. d. Circulate a petition among all state legislators to join in a countrywide campaign to pass tough laws in each state.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.13-2.14) QUESTION The National Association of Insurance Commissioners (NAIC) created a uniform financial statement for property and liability insurance companies. The purpose of the uniform statement is to a. Ensure that state insurance departments not mistake these companies for life insurers. b. Provide accounting expertise for those state insurance departments that do not have staff actuaries. c. Simplify the state insurance department's task of comparing the financial reports of many different insurers. d. Capture the essential criteria required for rate regulation.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.13-2.14) OBJECTIVE 5 QUESTION The figure that is multiplied by the exposure unit(s) for insurance coverage is called the a. Premium base. b. Expense factor. c. Modifier. d. Rate.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.14-2.15) QUESTION The formula for determining an insurance premium is a. Rate x Number of exposure units = Premium. b. Rate % Number of exposure units = Premium. c. Loss costs x Inflation factor = Premium. d. Loss costs % Inflation factor = Premium.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.14-2.15) QUESTION The individuals who are responsible for developing insurance rates are called a. Raters.

b. Underwriters. c. Actuaries. d. Statisticians. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.15) OBJECTIVE 6 QUESTION State insurance departments regulate insurance rates to protect consumers against rates that are all of the following, EXCEPT: a. Excessive b. Inadequate c. Class specific d. Unfairly discriminatory ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.15) QUESTION Why would insurance regulators have a goal of assuring that the premiums charged by insurers are adequate? a. To maintain insurer solvency b. To eliminate the potential of a monopoly c. To protect consumers from high insurance rates d. To promote equity among insurers ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.15-2.16) QUESTION An automobile insurance policyholder has complained that her insurance premium is higher than her neighbor's premium. Both the policyholder and her neighbor have insurance with the same company, and they have identical vehicles. The policyholder feels that she is the subject of unfair discrimination. As the policyholder's agent, you know the policyholder has been responsible for several small auto accidents. The policyholder has mentioned that her neighbor has had no accidents or violations in the last three years. You must explain to the policyholder the OBJECTIVE of rate regulation ensuring that rates are not unfairly discriminatory, as it applies in her case. Which one of the following is an accurate explanation? a. Insureds with similar characteristics are usually placed in the same class and charged the same rate unless social equity required modification in that rate structure. This has probably occurred in your situation. b. Insureds with similar characteristics are placed in the same class and charged the same rate. However, your accidents have probably placed you in a different classification. Your premium is based on the loss experience for policyholders in your classification. c. Your neighbor has probably received a credit based on the length of time he has had his policy with the company. This is not unfairly discriminatory because it is available to all policyholders over time. d. Your neighbor has been placed in a preferred category of policyholders, which gives him rights and privileges that you do not have. Your neighbor has been given a rate reduction based on excess profits that have been returned to policyholders.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.15-2.16) QUESTION A ratemaking concept in which rates are based on calculated loss experience and insureds with similar characteristics are placed in the same rating class is called a. Unfair discrimination. b. Premium differential. c. Actuarial equity. d. Social equity.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.16) QUESTION The type of insurance rating law that requires rate approval by the state insurance department before the rates can be used is a. Flex rating law. b. Open competition law. c. File-and-use law. d. Prior-approval law.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.17) OBJECTIVE 7 QUESTION Most insurers would probably favor which one of the following rating laws? a. Prior-approval b. Flex c. Use-and-file d. Open competition

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.17) QUESTION Under a flex rating law, prior approval is required only if the new rates a. Are a specified percentage above or below previously filed rates. b. Are a specified percentage above previously filed rates. c. Are a specified percentage above or below competitors' rates. d. Are a specified percentage above statewide average filed rates.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.17) QUESTION Sometimes the state insurance department establishes rates that all insurers must adhere to. This is referred to as a. Compulsory insurance. b. State-mandated rates. c. Modified prior approval. d. Closed competition.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.17) OBJECTIVE 8 QUESTION One of the methods used by regulators to ensure insurance company solvency is through the Insurance Regulatory Information System (IRIS), which is a. The licensing system required for insurance companies that transact business in a state. b. The licensing process for alien insurers that are incorporated in another country. c. A periodic examination conducted by a team of state examiners, working at the insurer's home office to review activities including claims, underwriting, marketing, and accounting procedures. d. A system that gathers data from insurers' financial statements and develops financial ratios to determine an insurer's overall financial condition.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.19) OBJECTIVE 9 QUESTION Some communities in the United States celebrate holidays with firecrackers. Firecracker vendors erect stands in the parking lot of shopping centers before the holidays. One shopping center owner sponsoring a firecracker vendor's booth found that his insurance did not cover the exposure. He found that none of the insurers licensed to do business in the state sold insurance coverage for the exposures. How can the shopping center owner obtain appropriate coverage for the exposure from the firecracker vendor's booth? a. By obtaining coverage through the excess and surplus lines market. b. By pooling the risk with other shopping center owners with similar exposures. c. Through a proportionate sharing arrangement with multiple insurers. d. From alien insurers in countries that also celebrate holidays with firecrackers.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 2.21-2.22) QUESTION States regulate the excess and surplus lines market by a. Establishing a monitoring board comprised of all insurers licensed to do business in the state. b. Examining the market conduct practices of the unlicensed insurers. c. Licensing the excess and surplus lines brokers that transact business with the unlicensed insurers. d. Approving the policy forms and rates used by the unlicensed insurers.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.23)

OBJECTIVE 10 QUESTION A contractual agreement that transfers all or some of the potential loss exposures from one insurer to another is called a. Coinsurance. b. Reinsurance. c. Third-party insurance. d. Excess insurance.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.9) QUESTION The National Association of Insurance Commissioners (NAIC) was established to encourage a. Coordination and cooperation. b. Competition and cooperation. c. Coordination and research. d. Competition and uniformity. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.13)

QUESTION Some classes of business present unusual or unique exposures or requires unusually broad coverage. This nontraditional market is known as a. Excess and supplementary lines. b. Primary and excess lines c. Excess and surplus lines. d. Primary and residual lines.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 2.21) NS 21 Questions Answers Materials Dumps Chapter 3 ---------------------------------------------------------------------------Please refer the following 'Case Study' with appropriate QUESTIONs and ANSWERs: ---------------------------------------------------------------------------CASE: Mammoth Insurance Co Mid-State Painting Company owns vans, trucks, and cars that carry workers, supplies, and equipment to worksites. On November 1, Mammoth Insurance Company issued a business auto policy with a one-year period to Mid-State Painting Company. The premium for the policy is $24,000. ---------------------------------------------------------------------------CASE: Hometown Insurer The financial report for Hometown Insurer contains the following information: Earned premiums $4,000,000 Written premiums $5,000,000 Investment income $1,000,000 Incurred Losses $3,000,000 Incurred underwriting expense $2,000,000 ---------------------------------------------------------------------------OBJECTIVE 0 QUESTION What was the written premium for Mid-State Painting Company's business auto policy as of December 31? a. $4,000 b. $6,000 c. $20,000 d. $24,000

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 3.3-3.4) QUESTION What was the unearned premium for Mid-State Painting Company's business auto policy as of December 31? a. $4,000 b. $6,000 c. $20,000 d. $24,000

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 3.3-3.4)

OBJECTIVE 1 QUESTION Brown Insurance Company has the following expenses:

Licenses, taxes, and fees $70,000 Claim staff salaries $100,000 Agents' commissions $200,000 Advertising costs $50,000 Rent and utilities $60,000 What is the amount of Brown Insurance Company's acquisition expenses? a. $250,000 b. $300,000 c. $350,000 d. $450,000

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.8) QUESTION Amounts designated by insurers to pay claims for losses that have already occurred are called a. Acquisition expenses. b. Loss adjustment expenses. c. Loss reserves. d. Unearned premium reserves.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.7) QUESTION Which one of the following types of financial statements shows the financial position of an insurance company at any particular time? a. Income statement b. Balance sheet c. Sales report d. Cash flow report ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.14)

OBJECTIVE 2 QUESTION The formula for determining an insurer's net underwriting gain or loss is a. Earned premiums - (losses and underwriting expenses.) b. Written premiums - (losses and underwriting expenses.) c. Earned premiums % (losses and underwriting expenses.) d. Written premiums % (losses and underwriting expenses.)

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.9) QUESTION Compared to net underwriting gain, an insurer's overall gain or loss from operations gives a a. Distorted picture of an insurer's profitability. b. Less complete picture of an insurer's profitability. c. More complete picture of an insurer's profitability. d. More conservative picture of an insurer's profitability.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.9) QUESTION The owners of an insurance company are entitled to the net income after all expenses are paid. Sometimes this is paid as a dividend. The amount that is left after all dividends are paid becomes an addition to the insurer' s a. Surplus. b. Non-admitted assets. c. Reinsurance recoverable account. d. Dividend account.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.9) QUESTION The creation of two categories of assets, admitted and nonadmitted-reflects the a. Creative nature of insurance accounting. b. Conservative nature of insurance accounting. c. Consistent nature of insurance accounting. d. Collaborative nature of insurance accounting.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.11) OBJECTIVE 3 QUESTION Admitted assets are types of property that regulators allow insurers to show as assets on their financial statements because they are a. Very stable in value. b. Never subject to decreases in value. c. Generally increasing in value. d. Easily converted to cash. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.11) QUESTION World Insurance Company has the following assets: Cash $ 50,000 Stocks $ 400,000 Bonds $ 200,000 Real Estate $ 500,000 Furniture and office equipment $ 70,000 Premium balance due in less than 90 days $ 20,000 Premium overdue more than 90 days $ 10,000 What is the amount of World's total admitted assets? a. $450,000 b. $650,000 c. $1,170,000 d. $1,250,000

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.11) OBJECTIVE 4 QUESTION

Loss reserves are often the largest liability on an insurer's balance sheet. The loss reserve include a. All loss amounts paid that year. b. Claim expenses paid for that year. c. Unpaid loss amounts for claims not yet settled. d. All claims paid, excluding expenses not yet settled.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.12) QUESTION The financial report for Apex Insurers contains the following information: Admitted assets $500,000 Unadmitted assets $400,000 Liabilities $300,000 What is the amount of Apex Insurers' policyholders surplus? a. $100,000 b. $200,000 c. $400,000 d. $600,000

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.12) OBJECTIVE 5 QUESTION The balance sheet shows an insurer's financial position a. At a particular point in time. b. For a particular period of time. c. Based upon revenues versus expenses. d. Based upon assets minus expenses.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.14) QUESTION A insurer's balance sheet can best be described as a. A relationship between revenue and liabilities. b. An estimate of its financial position. c. A summary of premiums written. d. A snapshot of its financial position.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.14) QUESTION An insurer's income statement shows amounts for all of the following for a particular period, EXCEPT: a. Earned premiums b. Policyholders surplus c. Incurred losses d. Underwriting expenses

ANSWER B

EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.15) OBJECTIVE 6 QUESTION A insurer's income statement can best be described as a financial statement that shows a. Relationship between revenue and liabilities. b. Relationship between assets and income. c. Relationship between revenues, expenses, and net income. d. Relationship between revenues and incurred losses.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.15) QUESTION If an insurer's admitted assets stayed the same but its liabilities increased significantly, its policyholders' surplus would a. Stay the same. b. Increase. c. Decrease d. Can' t determine.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.12) QUESTION INS Insurer's earned premiums are $1,800,000 for the year. Its losses and expenses are $1,730,000. What type of financial performance did INS Insurer experience for the year? a. A net operating gain of $70,000 b. A net underwriting gain of $70,000 c. A net operating loss of $1,730,000 d. A net operating gain of $1,800,000

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.15) QUESTION All of the following parties are likely to monitor an insurer's financial performance, EXCEPT: a. Regulators b. Agents c. Claimants d. Shareholders

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.13) OBJECTIVE 7 QUESTION What is Hometown Insurer's loss ratio? a. 20% b. 30% c. 50% d. 75%

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.16) QUESTION What is Hometown Insurer's expense ratio? a. 20% b. 40% c. 50% d. 75%

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.16) QUESTION What is Hometown Insurer's combined ratio? a. 75% b. 95% c. 105% d. 115%

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.17) QUESTION What is Hometown Insurer's investment income ratio? a. 10% b. 20% c. 25% d. 50%

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.18) QUESTION What is Hometown Insurer's overall operating ratio? a. 75% b. 90% c. 105% d. 115%

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.18) QUESTION A decrease in incurred losses will generally cause a decrease in all of the following, EXCEPT: a. Combined ratio b. Expense ratio c. Overall ratio d. Loss ratio

ANSWER B

EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 3.16-3.17)

OBJECTIVE 8 QUESTION The capacity ratio compares an insurer's written premiums to its a. Total liabilities. b. Admitted assets. c. Policyholders' surplus. d. Earned premiums.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.20) QUESTION Old Faithful Insurer has written premiums of $1,400,000 and policyholders' surplus of $400,000. What does the capacity ratio indicate about Old Faithful Insurer? a. Financial weakness b. Financial strength c. Operating strength d. Operating weakness

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 3.20) INS 21 Questions Answers Materials Dumps Chapter 4 QUESTION Principals often authorize another party to act on their behalf. This relationship is called a. Broker. b. Fiduciary. c. Agency. d. Attorney in fact.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.3) QUESTION When an agency relationship is created between a principal and the agent, it requires a high degree of a. Trust. b. Patience. c. Oversight. d. Creativity. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.3) QUESTION When an insurer appoints an agent to act its behalf, the agent's scope of authority is spelled out in the a. Broker of record letter. b. Insurance contract. c. Agency contract.

d. Letter of intent.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.4) QUESTION All of the following are true about the insurance agency relationship, EXCEPT: a. The agency agreement is a written agreement between the insurer and an agent b. The agency agreement gives the agent the right to represent the insurer and sell insurance on the insurer's behalf c. The principal is the party the agent authorizes to bind coverage d. The agent is the party authorized by the principal to act on the principal's behalf

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.3) QUESTION Which one of the following statements is true regarding the agency contract? a. The agent is the principal in the agency contract relationship. b. An agency contract is also known as an agency endowment. c. Insurance agency contracts usually have a fixed expiration date. d. The agency contract states the scope of the agency's authority to conduct business for the insurer.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.4)

OBJECTIVE 1 QUESTION In an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the a. Insured. b. Insurer. c. Broker. d. Policyholder.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.4) QUESTION The primary duty of a principal to its agent is to a. Pay the agent for services performed. b. Generate sales leads for the agent. c. Hire and train sales people. d. Be obedient.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.5)

QUESTION From an insured's point of view, relative to the concept of agency, little distinction exists between the a. Broker and the claimant. b. Insurance agent and the insurance department.

c. Broker and the insurer. d. Insurance agent and the insurer.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.5) QUESTION The laws of agency impose all of the following specific duties on agents, EXCEPT: a. Profitability b. Obedience c. Loyalty d. Accounting

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.4-4.5) QUESTION The laws of agency impose all of the following specific duties on all agents, EXCEPT: a. Prudence b. Accounting c. Loyalty d. Relaying information ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.4-4.5) QUESTION Which one of the following is the principal's primary duty to the agent? a. To pay the agent for services performed b. To act as the agent's legal representative c. To educate and train the agent d. To act on behalf of the agent in court proceedings ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.5)

OBJECTIVE 2 QUESTION The authority that the principal specifically grants to the agent is contained in the agency contract. This authority is known as a. Implied authority. b. Apparent authority. c. Express authority d. Contractual authority. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.6) QUESTION The scope of an agent's authority can go beyond the terms of the agency contract and may include authority to perform other tasks necessary to accomplish the purpose of the agency relationship. This authority is referred to as a. Implied authority. b. Apparent authority. c. Express authority d. Contractual authority.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.7) QUESTION An agent may at times act on behalf of the principal in ways that the principal did not intend, and a third party reasonably believes that the agent has sufficient authority. This authority is known as a. Implied authority. b. Apparent authority. c. Express authority d. Contractual authority.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.7) QUESTION The authority that the principal specifically grants the agent is called a. Implied authority. b. Express authority. c. Apparent authority. d. Conditional authority ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.6-4.7) QUESTION When an insurance company appoints an insurance agent to serve as its representative, what specifies the scope of authority given to the agent in this relationship? a. Implied authority b. Binding authority c. A unilateral contract d. An agency contract

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.6-4.7) QUESTION Authority that the insurance company specifically grants to an agent is called a. Binding authority b. Express authority c. Implied authority d. Apparent authority

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.6-4.7) OBJECTIVE 3 QUESTION One of the main distinguishing features between independent agency systems and other marketing systems is the ownership of a. The company expiration list. b. Insurance company stock. c. The sales prospecting list. d. The agency expiration list. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.9)

QUESTION An independent business owner or firm that sells insurance by representing customers rather than insurers is a. An insurance broker. b. A managing general agency. c. An exclusive agent. d. A direct writer.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.10) QUESTION If a consumer or policyholder had a preference for dealing with sales representatives who are employees of the insurer, which marketing system would they choose? a. Insurance broker b. Managing general agency c. Exclusive agent d. Direct writer

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.11) QUESTION An independent business owner or firm that sells insurance by representing customers rather than insurance companies is which one of the following? a. An independent adjuster b. An underwriter c. An insurance broker d. An insurance carrier ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.10) OBJECTIVE 4 QUESTION Sometimes an agent may be eligible for a commission based on its premium volume and profitability. This type of compensation is called a. A contingent commission. b. A sales commission. c. An indirect commission. d. An annual commission. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.15) QUESTION Sometimes a policy is cancelled or non-renewed even though the agent was paid its commission. In these situations the agent will be requested to return the a. Earned commission. b. Unearned commission. c. Contingent commission. d. Estimated commission.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.14)

QUESTION At the end of the year, agencies that have carefully selected business throughout the year can earn a sizeable a. Contingent commission. b. Sales commission. c. Indirect commission. d. Annual commission.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.15) QUESTION For an independent agency or an exclusive agency, the percentage of the premium that goes to the agency or to the producer for new policies sold or existing policies renewed is the a. Contingent commission b. Profit sharing c. Salary d. Sales commission

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.14-4.15) QUESTION An independent agent received his monthly commissions for the new policies he has sold. Even though he wrote twenty new policies that month, his commission was low. Which one of the following explains why this could occur? a. Commissions are not fully earned at the time of a sale. Other policies written by the agent might have been cancelled with the unearned portion of the commission returned to the insurance company. b. The agent failed to provide the level of service required by the insurance company. The insurance commission was reduced as an incentive for better performance. c. The agent did not meet the premium volume and profitability levels that were specified in his contract; therefore, his commission was reduced. d. The agent is a salaried employee of the insurance company and receives only contingent commissions.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.14-4.15) QUESTION The managers of an independent agency are hoping to earn contingent commissions from several insurers at the end of the year. What should the agency managers attempt to do to earn contingent commissions? a. Reduce the number of homeowners policies written for houses in urban areas compared to the homeowners policies written for houses in rural areas. b. Reduce the number of employees required to acquire and service the policies in the agency. c. Increase the premium volume and profitability level of the agency's business with those insurers. d. Increase the level of customer service provided to policyholders and claimants.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.15-4.16) OBJECTIVE 5 QUESTION With respect to advertising, programs that emphasize the names of both the insurer and the agent are typically the a. Agents' Trade Association. b. Exclusive agency system. c. Direct writing system. d. Independent agency system.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.16) QUESTION Advertising by independent agencies promotes a. Brand recognition of the companies represented. b. The agency rather than the insurers it represents. c. Symbols used to increase recognition of the insurers represented. d. Attention to the prices of the policies offered.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.15-4.16) OBJECTIVE 6 QUESTION An insurer using independent agents typically will employ which one of the following to supervise its producers? a. Marketing representative b. Underwriter c. Captive agent d. Vice president of marketing ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.17) QUESTION An insurer employee who works in the insurer's office in an underwriting position but also travels to visit agents and sometimes clients is called a a. Production underwriter. b. Special underwriter. c. Agency underwriter. d. Underwriting manager. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.17) QUESTION Large insurers who conduct business nationally or over a widespread geographic area will often establish offices close to producers' offices. Those larger offices that provide underwriting claims and support are usually called a. Brokers' offices. b. Branch offices. c. Home offices. d. Specialty offices.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.17) QUESTION Insurance companies attempt to motivate producers to sell the types of business the companies want to acquire. Which one of the following would motivate producers to sell the desired type of business? a. Reduce commissions if sales goals are not achieved. b. Hold sales contests to encourage the type of sales activity. c. Provide additional staff to help with the processing. d. Offer subscriptions to educational services for the producers.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.18) OBJECTIVE 7 QUESTION To function legally as an insurance agent, a producer must a. Be a college graduate. b. Be licensed by the state. c. Work for an insurance company. d. Have a valid drivers' license. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.19) QUESTION Once a state agent's license has been issued, the agent must seek to be appointed by one or more a. Insurers. b. Brokers. c. Trade associations. d. Insurance departments.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.19) QUESTION Most states require that producers complete a specified number of hours of educational study related to insurance in order to renew their license. This is called the a. Annual education requirement. b. State education requirement. c. Insurance education requirement. d. Continuing education requirement.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.19)

OBJECTIVE 8 QUESTION Many states have adopted laws that specify certain prohibited business practices that apply to insurance agents. These laws are known as a. Unfair insurer practices act laws. b. Unfair producers' practices act laws. c. Unfair trade practices act laws. d. Unfair agents practices act laws.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.19) QUESTION Offering a cash payment or something of value to an applicant as an inducement to buy or maintain insurance is called a. Rebating. b. Misrepresentation. c. Tie-in. d. Twisting.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.20) QUESTION It is an unfair trade practice for a lender to require that a borrower purchase insurance from the lender or from any insurance producer recommended by the lender. This practice is called a. Misrepresentation. b. Twisting. c. A tie-in sale. d. Rebating.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.20) QUESTION An insurance agent wrote insurance policies for a number of military service veterans who were satisfied with the coverage they received and the price they paid for the coverage. Subsequently, the agent ran an ad in a local newspaper stating that the insurance policies offered by his agency are "Veteran Approved Insurance." Why would this be considered misrepresentation or false advertising? a. The statement misrepresents the benefits, conditions, or terms of the insurance policies. b. The statement uses a name or title for the insurance policies that misrepresents the true nature of the policies. c. The statement indicates that sales are tied to other benefits. d. The statement makes an illegal reference to a government entity in an insurance sale.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.20) QUESTION RipTide Insurance Company has formed an alliance with Local Bank and U-Betcha Used Car Sales. When U-Betcha sells a car, the sales person directs the customer to Local Bank for the loan and RipTide for insurance. If the customer transacts business with all three organizations, the customer will receive reduced auto rates. Would this be considered to be an unfair trade practice by RipTide? a. Yes, it is an unfair trade practice to tie the purchase of insurance to some other sale or financial arrangement. b. Yes, offering a preferred rate to a customer as described is considered to be rebating. c. No, businesses interact in this way as a regular practice. d. No, this is not deceptive or unfair to the applicants or insureds.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.20) QUESTION Producers are not allowed to pay a portion of the premiums for a policy or give any commission to a policyholder. Actions of this type are called a. Tie-in sales b. Contingent commissions c. Misrepresentation of dividends d. Rebating

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 4.20-4.21)

OBJECTIVE 9 QUESTION A distribution channel that insurers use to market directly to customers is the a. Independent agency system. b. Direct response system. c. Exclusive agency system. d. Brokerage system.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.12) QUESTION An insurance agent's authority to effect coverage on behalf of the insurer is called a. Express authority. b. Binding authority. c. Apparent authority. d. Temporary authority.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 4.6)

Chapter 5 ---------------------------------------------------------------------------Please refer the following 'Case Study' with appropriate QUESTIONs and ANSWERs: ---------------------------------------------------------------------------CASE STUDY 1 : Maxfield Insurance The Maxfield Mutual Insurance Company writes only homeowners insurance for homes that range in value from $100,000 to $200,000 in one state in the central plains of the United States. Maxfield has written insurance profitably for 75 years. This long period of profitability has developed a considerable available capacity for Maxfield Mutual. However, in the last five years Maxfield's executive staff has become increasingly concerned about the increasing number of tornado losses Maxfield's policyholders have experienced. Losses paid during these years have been higher than any other period in Maxfield's history. In addition, competitors have aggressively marketed in the state and Maxfield has lost policyholders to the competitors for lower premiums. ---------------------------------------------------------------------------CASE STUDY 2 : GhostWriter Publish GhostWriter Publishing Company publishes romance novels. They purchase manuscripts from freelance novelists, edit that material, print the texts, and bind the books. GhostWriter owns the building where its employees perform all of its publication operations. GhostWriter uses book-binding glue that is flammable and toxic, so employees try to take care in opening windows when they are in the binding step of the operation. GhostWriter has been unwilling to install a sprinkler system or appropriate ventilation system due to the associated costs. So far, opening the windows has been effective, and none of the employees has become ill from the fumes. GhostWriter's employees dump any unused book-binding glue in a 50-gallon drum behind the building. The Environmental Protection Agency determined that the drum has been leaking for years, and the toxins in the glue have run into the ground. They have ordered GhostWriter to perform a clean-up. GhostWriter submitted a claim to its insurer for the expenses associated with the clean-up. Recent court decisions have eroded the original exclusions in the insurer's policy language that would eliminate pollution losses. The insurer will be required to pay for the pollution loss. In the last year, profits have been down for GhostWriter. One evening, the fire department responded to a fire reported at GhostWriter's building. They were able to extinguish the three small fires that started simultaneously in the building. GhostWriter's

owners said they had received anonymous threats that someone would "burn them down." GhostWriter's owners were suspected of involvement, but nothing could be proven. ---------------------------------------------------------------------------OBJECTIVE 0 QUESTION It has been argued that if insurance companies would simplify the selection process and accept almost all applicants that costs would be dramatically reduced for the consumer. Insurance companies say that this would not be the case because there would be an increase in a. Diverse selection. b. Inverse selection. c. Adverse selection. d. Reverse selection. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.4) QUESTION Insurers screen applicants to determine which ones they desire to insure. If insurers do not properly select policyholders a. Their profits will be excessive in comparison to the premiums collected. b. Some insureds might be allowed to purchase insurance at prices that do not adequately reflect their loss exposures. c. They will have an excessive number of new policies, and their expenses related to writing the new policies will be excessive. d. The entire group of policyholders written will be substandard. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.3-5.4) QUESTION As insurers select insureds they attempt to avoid adverse selection. Adverse selection occurs when a. Applicants purchase insurance with the intent of submitting fraudulent claims. b. An insurer does not select a cross-section of applicants that range from low to high probability of loss. c. Competitors select the better applications, leaving the remainder to the insurer. d. People with the greatest probability of loss are the ones most likely to purchase insurance. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.4) OBJECTIVE 1 QUESTION Maxfield is considering expanding its policy writings to other types of insurance and different geographic areas. How could this activity help Maxfield protect its available capacity? a. By meeting regulatory requirements to provide coverage to a wide range of policyholders, the insurer will be less likely to engage in unfair discrimination. b. By reducing the chances that the company's overall results will be affected by a large number of losses from one loss event. c. The insurer will reduce its reinsurance premiums by reducing its exposure to any one catastrophic event. d. Diversification will allow the insurer to create a more visible image in the market, attracting more potential applicants from which it can select.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.4-5.6) QUESTION Which one of the following is an example of how Maxfield can optimize its available resources in order to protect its available capacity? a. Maxfield chooses not to solicit applications for automobile insurance. b. Maxfield shops its reinsurance contracts for better pricing and coverage. c. Maxfield outsources its claims handling functions.

d. Maxfield's management staff takes classes to learn how to provide reasonable accommodations for physically challenged employees. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.4-5.6) QUESTION Maxfield Mutual's executive staff is considering lowering its standards in the selection of policyholders. In this way, Maxfield can maintain the same rate level, but add more policyholders that have slightly higher exposures to loss. What is the likely result of this decision? a. Maxfield might be accused of unfair discrimination. b. Maxfield must reduce the amount of reinsurance it purchases. c. Maxfield must spread its risks at the same time to be profitable. d. Maxfield's premiums will not be commensurate with the exposures. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.4-5.6) QUESTION The amount of business an insurer is able to write based on a comparison of the insurer's written premium to the size of its policyholders' surplus is a. Capacity b. Adverse selection c. Risk selection d. Combined ratio ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.4-5.6) OBJECTIVE 2 QUESTION Which of the following types of insurance rates would be appropriate for the type of insurance and loss exposures that Maxfield Mutual writes? a. Merit rates b. Individual rates c. Class rates d. Judgement rates ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.7-5.8) QUESTION Which one of the following statements is true regarding types of rates used by insurers? a. Class rates apply to all insureds in the same rating category. b. Merit rating plans are also called manual rating plans. c. Class rates are not based on loss statistics. d. Class rates reflect loss characteristics of a particular insured. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.7-5.8) QUESTION In insurance terminology, which of the following refers to a book of business? a. All policies sold by an insurance company or agency b. All policies in a particular territory c. All policies providing a particular type of insurance d. All the above ANSWER D

EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.9) OBJECTIVE 3 QUESTION One of the responsibilities of underwriting management is to arrange reinsurance. One type of reinsurance is arranged to automatically reinsure a portion of all eligible risks of the primary insurer. This arrangement is called a. Treaty reinsurance b. Temporary reinsurance c. Facultative reinsurance d. Facilitative reinsurance

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.10) QUESTION How do underwriting guidelines help an insurer achieve its OBJECTIVEs? a. By establishing the criteria required for treaty reinsurance to apply b. By creating a channel for communication for the insurer's vision, mission, and OBJECTIVEs c. By providing a uniform set of rules that guide underwriters toward consistent decisions d. By maintaining a consistently applied set of behavioral measurements against which an individual's performance will be measured

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.11-5.12) OBJECTIVE 4 QUESTION When the underwriter read the inspection report from his loss control department about a risk that was recently submitted, it indicates that the management team seemed to be indifferent about the inspector's recommendations. The underwriter's primary concern is probably the a. Moral hazard. b. Physical hazard. c. Legal hazard. d. Attitudinal hazard.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.15) QUESTION How does an expert system assist underwriters in the underwriting process? a. It automatically assembles the necessary information to underwrite an application. b. It helps ensure that no necessary information is overlooked. c. It provides management reports to ensure underwriters' compliance with guidelines. d. It monitors the results of the decisions made and suggests changes in underwriting guidelines

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.13) QUESTION Some insurers now use expert systems in the underwriting process. The primary purpose of these expert systems is to a. Reduce claim expenses and loss adjustment expenses. b. Replace underwriting decision-making and enhance accuracy. c. Emulate the underwriting decision-making process as it would be performed by expert underwriters. d. Modernize insurance company information systems.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.13) OBJECTIVE 5 QUESTION An underwriter is reviewing an application for a start-up business that is planning on opening in about one month. Overall the underwriter is impressed with the account but would like to obtain more information on the owners of the business, especially their experience. Which one of the following sources of underwriting information would be most helpful to the underwriter in this situation? a. Claim files b. Premium audit reports c. Consumer investigative report d. Applicant or insured's records

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.13-5.14) QUESTION An underwriter is reviewing an application for a business that is just being created. The business will manufacture a product that the owner herself just invented. Which one of the following sources of information would probably be most helpful to the underwriter? a. Claim files b. Premium audit reports c. Consumer investigative report d. Previous carrier

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.13-5.14) QUESTION A new underwriter is reviewing an application for a business that is just being created. He's not comfortable that he fully understands the nature of the product and the business involved. Which one of the following sources of information should he use to increase his comfort level? a. Claim files b. Premium audit report c. Consumer investigative report d. Producer

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.13-5.14) QUESTION All of the following are sources of information underwriters use as they gather information for underwriting, EXCEPT: a. Producers b. Government records c. Inspection reports d. Educational records ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.13-5.14) OBJECTIVE 6 QUESTION Which one of the following represents a physical hazard in the GhostWriter Publishing case? a. The suspicious fire b. The ownership of the building

c. The book-binding glue d. The 50-gallon drum ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5-15-5.16) QUESTION Which one of the following represents a morale hazard in the GhostWriter Publishing case? a. Failure to install sprinklers and ventilation b. Use of the glue c. The suspicious fire d. The lack of profits ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.15-5.16) QUESTION Which one of the following represents a legal hazard in the GhostWriter Publishing case? a. The treatment of the employees b. The toxic pollution c. The inability to provide GhostWriter's involvement in the fire d. The court interpretation of the policy language ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.15-5.16) OBJECTIVE 7 QUESTION In evaluating an application, an underwriter has three options: accept without modification, reject, and accept with modification. Which one of the following is most correct? a. Accepting with modification requires the greatest amount of creativity. b. Rejecting the application requires the greatest amount of creativity. c. Accepting without modification requires the greatest amount of creativity. d. Accepting with modification requires the least amount of creativity.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.16-5.17) QUESTION When courts mandate coverage broader than the insurers intended in its policies, this is referred to as a a. Moral hazard. b. Legal hazard. c. Judicial hazard. d. Regulatory hazard.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.16) QUESTION Why would an underwriter modify the rate charged for the coverage provided when evaluating an application for insurance? a. Because treaty reinsurance in unavailable for the exposures indicated b. To address the moral hazards the underwriter identified during investigation c. To better match the rate to the characteristics of the risk d. Because the applicant is not acceptable for coverage

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.5.16-5.17) QUESTION Which one of the following underwriting options requires the greatest amount of underwriting creativity on the part of the underwriter? a. Accepting the application with modifications b. Accepting the application without modifications c. Processing the application without using an expert or knowledge-based system d. Rejecting the application ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.16-5.17) OBJECTIVE 8 QUESTION In evaluating an application, an underwriter thinks that the class of business is not one that the company wishes to write, but he would need to physically inspect it to be certain. He also realizes that the business is located in an undesirable section of the city. Based on the location alone, the underwriter decides not to issue the policy. According to many state insurance laws, this would be an example of a. Diversification. b. Unfair discrimination. c. Fair discrimination. d. Regulated discrimination.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.16-5.17) QUESTION How do states prohibit unfair discrimination by insurers? a. By reviewing each policy cancellation or nonrenewal and the justification for the insurer's action b. By maintaining a channel for policyholder complaints c. By identifying it as an unfair trade practice in state insurance laws d. By examining insurers' mission statements and OBJECTIVEs

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.19-5.20) QUESTION Why do states require that insurers notify the insured before a policy is to be canceled or nonrenewed? a. To provide the state an opportunity to investigate the reason for the cancellation or nonrenewal b. To give the policyholder an opportunity to replace the coverage c. To eliminate the possibility of an insurer canceling all policies covering a category of business or in a geographic area d. To reduce the opportunity for an insurer to red line

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 5.19-5.20) OBJECTIVE 9 QUESTION In evaluating an application, an underwriter realizes that the amount of insurance required is more than the company is willing/able to provide. If the underwriter decides to issue the policy for the requested limits, she will probably need to secure a. Treaty reinsurance. b. Increased surplus. c. Facultative reinsurance. d. Coinsurance.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.11) QUESTION If an insurance company's policyholders' surplus has decreased, this will adversely impact how much business they are able to write. When this situation happens it results in a reduction in a. Capacity. b. Retention. c. Adverse selection. d. Profits.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 5.4) INS 21 Questions Answers Materials Dumps Chapter 6 QUESTION An insured suffers a serious loss, such as the destruction of his or her house, and hires someone to represent his or her interests. The person hired is a. A staff adjuster. b. A producer. c. A public adjuster. d. An independent adjuster.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 6.7-6.8) QUESTION Sometimes an insurer does not have enough policyholders in a given region to justify hiring its own claim representatives. In these situations, the insurer is likely to use a. An independent adjuster. b. A third party administrator. c. A public adjuster. d. A regional adjuster.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 6.6-6.7) QUESTION Sometimes an insurer will provide authority to some of its agents to settle and pay certain types of claims up to a specified limit. When this occurs it is called a. Binding authority. b. Settlement authority. c. Temporary authority. d. Producer authority.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.7) QUESTION Generally, an inside claim representative

a. Meets with parties involved with the loss b. Handles claims by phone or mail from the insurer's office c. Visits the scene of the loss to investigate damages d. Offers claim settlement service for a fee to insurers

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.5) QUESTION Mary's car collides with two other cars, and several people are injured. The accident occurs near her insurer's branch office location. What type claim representative will Mary's insurer generally use to handle this claim? a. Independent adjuster b. Public adjuster c. Inside claim representative d. Outside claim representative

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.6) QUESTION All of the following describe an independent adjuster, EXCEPT: a. Self-employed b. Contracted by an insurer c. Employee of an insurer d. Employee of an adjusting firm

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 6.6-6.7) QUESTION Jim notifies ABC Insurer of an accident with an ABC insured in a state in which ABC does not do business. What type of claim staff will ABC Insurer generally use to investigate this claim? a. Inside claim representative b. Outside claim representative c. Independent adjuster d. Independent agent

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 6.6-6.7) QUESTION ABC Widget Company pays for all its property losses up to $3 million and purchased insurance for losses over $3 million. What is this plan called? a. Coinsurance b. Reinsurance c. Self-insurance d. Umbrella insurance ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.8) QUESTION XYZ Company has established a self-insurance plan to treat its loss exposures. Other than its internal staff, what resources would XYZ Company generally use to settle claims?

a. Independent adjusters b. Public adjusters c. Third party administrators d. Outside claim representatives

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 6.8-6.9) OBJECTIVE 1 QUESTION Despite the unique challenges and variations from case to case, the last step in the claim handling process is usually a. Determine cause of loss. b. Determine the amount of damages. c. Verify coverages. d. Negotiate and settle.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.9) QUESTION If an insured's house burns down to the ground due to lightening, the most difficult part of the claim handling process will probably be a. Determining the cause of loss. b. Verifying coverage. c. Determining the amount of damages. d. Determining insurable interest.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.13) QUESTION In an auto accident where serious bodily injuries are involved, the most difficult part of the claim handling process will probably be a. Verifying coverage. b. Determining cause of loss c. Negotiating and settling the claim. d. Determining insurable interest.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.9) OBJECTIVE 2 QUESTION In property insurance claims, there is sometimes a QUESTION of whether coverage exists or not. In these situations the insurer will send a reservation of rights letter. The purpose of this letter is to advise the insured that a. A coverage problem may exist. b. The claim will be handled by an independent adjuster. c. The policy may not be renewed due to loss frequency. d. The claim is in excess of their deductible.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.10) QUESTION A person or entity that would suffer a financial loss if their property were damaged has a. A contractual interest.

b. A discretionary interest. c. A renewable interest. d. An insurable interest.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.10) QUESTION If an insured submits a claim for a seven-year-old refrigerator that was damaged due to lightening, the adjuster will probably factor in an allowance for wear and tear. This is called a. Replacement cost. b. Depreciation. c. Stated amount. d. Agreed amount.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.14) QUESTION If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase a. Actual Cash Value (ACV). b. Replacement cost. c. Agreed value. d. Market value.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.14) QUESTION John has an unendorsed homeowner's policy. John's two-year-old bicycle is stolen. The bicycle's purchase price was $800, and depreciation is estimated at $450. What is the bicycle's actual cash value? a. $225 b. $350 c. $450 d. $800

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.14) QUESTION Subrogation is the insurer's right to a. Recover its claim payment from the party responsible b. Drop a claim in exchange for an agreed amount of money c. Estimate the value of the damaged property d. Transfer coverage to a third party

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.17) OBJECTIVE 3 QUESTION In liability claims the claimant is referred to as the a. Third party. b. Second party.

c. First party. d. Primary party.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.17) QUESTION With a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as a. Punitive damages. b. Special damages. c. Secondary damages. d. General damages. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.20) QUESTION What is an example of general damages? a. Hospital expenses b. Lost wages c. Prescriptions d. Disfigurement

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.20) QUESTION A liability loss has the following damages: Medical expenses $10,000 Damages for disfigurement $50,000 Damages for pain and suffering $100,000 What is the amount of special damages? a. $10,000 b. $50,000 c. $100,000 d. $160,000

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.20) QUESTION A liability loss has the following damages: Medical expenses $10,000 Damages for disfigurement $50,000 Damages for pain and suffering $100,000 What is the amount of general damages? a. $60,000 b. $110,000 c. $150,000 d. $160,000

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.20) OBJECTIVE 4 QUESTION Property insurers are subject to the possibility of many claims occurring from a single event often straining their resources. This is called a. An accident. b. An occurrence. c. A catastrophe. d. A simulation.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.21) QUESTION In order to expedite claim handling during a catastrophe, an insurer will consider modifying all of the following procedures, EXCEPT: a. Temporarily increasing claim handling authority for producers b. Making advance payments to policyholders c. Using abbreviated claim handling procedures d. Suspending the use of independent adjusting firms ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.23)

OBJECTIVE 5 QUESTION One of the greatest challenges in dealing with a catastrophe is in the area of staffing. Which one of the following is an unlikely response to this challenge? a. Identify and train staff from other areas to assist. b. Establish relationships with independent adjusters to help manage overflow. c. Purchase catastrophe reinsurance. d. Bring in catastrophe teams of claims representatives from other regions.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.22) QUESTION The person hired by an insured to represent the insured in handling a claim is called a a. First party adjuster. b. Outside claim adjuster. c. Independent adjuster. d. Public adjuster.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 6.6) QUESTION The insurer's right to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss is called a. Fiduciary rights. b. Salvage rights. c. Constructive rights. d. Catastrophe rights.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 6.3-6.27) QUESTION A loss reserve determined by the claim adjuster that is assigned to an individual claim is called a a. Case reserve. b. Bulk reserve. c. Third party reserve. d. Deferred reserve.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 6.20-6.24) INS 21 Questions Answers Materials Dumps Chapter 7 QUESTION When someone who wants to buy insurance completes an application this is essentially an a. Offer. b. Acceptance. c. Consideration. d. Agreement.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 7.4) QUESTION If there is duress, coercion, fraud, or a mistake then the contract is said to be a. Nontransferable. b. Under consideration. c. Binding. d. Unenforceable.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 7.4) QUESTION In order for a contract to be enforceable there must be something of value exchanged. This is called a. Mutual assent. b. Consideration. c. Indemnity. d. Adhesion.

ANSWER B OBJECTIVE 0 QUESTION There are two basic types of property: real property and personal property. Wall-to-wall carpeting is typically considered to be an example of real property because it a. Tends to depreciate in value. b. Is permanently installed. c. Is readily visible. d. Is easy to value.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.5)

QUESTION Property insurance policies use the term "personal property" to refer to the a. Contents of a building. b. Equipment used to maintain the building. c. Company's copyrights and trademarks. d. Buildings not attached to the main building.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.5)

QUESTION Many businesses have refrigeration equipment, production equipment, steam boilers, and air conditioning systems. These are all examples of a. Property in transit. b. Personal property. c. Mobile equipment. d. Boilers and machinery. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.7) OBJECTIVE 1 QUESTION How will the claim representative assigned to The Printer's Thumb loss determine whether the peril is covered by the property policy? a. If the peril is not specifically excluded by the policy, coverage is provided. b. If the peril is listed and described in the policy, coverage is provided. c. If the manager of The Printer's Thumb can prove that the loss was caused by a covered peril, coverage is provided. d. If the manager of The Printer's Thumb can prove that he was not responsible for the loss, coverage is provided.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.7-8.8) QUESTION Many property insurance policies list the covered causes of loss they intend to cover. These policies are commonly known as a. Special form. b. Open perils. c. Named perils. d. Broad form.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.7)

QUESTION An important difference between named perils and special form coverage involves the burden of proof. In a special form policy, if a loss occurs to covered property it is initially assumed that coverage applies. If there is a QUESTION regarding coverage, the burden of proof will be on the a. Insured.

b. Mortgagee. c. Insurer. d. Claimant.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.8)

QUESTION With a named perils policy, for coverage to apply, it must be proven that the loss was caused by a covered cause of loss. The burden to prove this is on the a. Insured. b. Mortgagee. c. Insurer. d. Claimant.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.8)

OBJECTIVE 2 QUESTION When property is lost or damaged, the value of the property is decreased. In addition to direct damage to the property there could be additional loss to the business known as a. Lost income. b. Deferred income. c. Historical income. d. Residual income.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.9)

QUESTION In order to determine the potential lost income to a business after a fire, an analysis must be conducted to determine projected income compared to post-lost income. This is referred to as a a. "What for" analysis. b. "If only" analysis. c. "What if" analysis. d. "Why me" analysis.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.9) OBJECTIVE 3 QUESTION What was the Printer's Thumb's relationship to the customer whose original documents and files were destroyed in the fire as they were waiting to be copied? a. The customer was an unsecured lender. b. The Printer's Thumb was a user of property. c. The Printer's Thumb was a bailee. d. The customer was a bailee.

ANSWER C

EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.11) QUESTION The party most affected when property is lost, damaged, or destroyed is usually the a. User of the property. b. Secured lender. c. Owner of the property. d. Holder of the property.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.11)

QUESTION Jim's Computer Repair will often take customers' computers into the shop for repairs and service. While Jim has the customer's computer in his possession he is in the role of a. A bailee. b. A bailor. c. A secured lender. d. An agent.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.11)

QUESTION In addition to protecting the owner, property insurance policies generally protect the secured lender's interest in the financed property by a. Issuing a mortgagee interest only policy. b. Sending them a letter of intent. c. Issuing a separate policy. d. Naming them on the owner's policy.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.11)

OBJECTIVE 4 QUESTION Sometimes property is not in a fixed location, but rather moves from location to location. In order to protect this type of property one would need to purchase a a. Dwelling policy. b. Floater policy. c. Flex policy. d. Consequential policy.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.12)

QUESTION Because personal property can be moved more easily than buildings, it is usually a. Exposed to more perils.

b. Exposed to fewer perils. c. Not Exposed to many perils. d. Not exposed to insurable perils.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.14) OBJECTIVE 5 QUESTION For the loss that occurred at The Printer's Thumb building, what was the proximate cause of loss? a. The lightning b. The fire c. The electrical wiring d. The trash accumulation

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.16-8.17) QUESTION Water damage to a building following a windstorm is often not covered by a property policy unless a. The windstorm is confirmed by the weather service. b. The policy is written with named perils. c. The policy is written with special coverage. d. Wind caused an opening in the structure through which water entered.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.17) QUESTION The taking of property from a person by someone who has caused or threatened to cause personal harm is a. Burglary. b. Robbery. c. Theft. d. Dishonesty.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.21-8.22) QUESTION If you were a property owner and wanted the broadest coverage available to protect your building you would purchase a. Basic form coverage. b. Broader form coverage. c. Broad form coverage. d. Special form coverage.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.16)

QUESTION It was a cool fall night and Jean decided to get a fire going in the fireplace. It took a while, but she soon had a roaring blaze going. The next day when she was cleaning out the ashes she realized that a log with unique hand carvings was inadvertently placed in the fireplace and was destroyed. If Jean submitted a claim to her insurer for the value of this special log, the insurer would more than likely discuss with her the concept of a

a. Fireplace fire. b. Fortuitous fire. c. Friendly fire. d. Foreseeable fire.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.16)

QUESTION The event that sets in motion an uninterrupted chain of events contributing to a loss is called a. Preventable cause. b. Proximate cause. c. Projected cause. d. Preliminary cause.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.17) OBJECTIVE 6 QUESTION Catastrophe perils, such as war, are generally excluded from property insurance policies because the risk is considered to be uninsurable since a. The losses could be prevented. b. The premiums required to cover the exposure would be unaffordable by most families and businesses. c. Most families and businesses do not face the loss exposure. d. The funds of the entire insurance industry might be inadequate to pay for all the claims ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.22-8.23) QUESTION Property insurance policies typically exclude loss from maintenance perils. Such losses are generally uninsurable because a. Covering such losses would result in a moral hazard. b. They are either certain to occur, over time, or are avoidable. c. Maintenance policies are written only through excess and surplus lines. d. It is difficult (if not impossible) to identify the date of loss and therefore the policy or insurer providing coverage.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.23) QUESTION Almost all property insurance policies exclude coverage for losses from catastrophes, such as war and nuclear hazard, because a. There might not be enough claim adjusters. b. It is against public policy to cover these events. c. Funds might not be adequate to pay all claims. d. It is illegal to cover these events.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.22-8.23)

QUESTION Wear and tear, rust, marring, and scratching are examples of maintenance perils which are usually excluded in property insurance policies. They are excluded because

a. There might not be enough claim adjusters. b. It is against public policy to cover these events. c. They are certain to occur. d. It is illegal to cover these events.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.23)

QUESTION Insurance is primarily designed for definite and accidental losses. Because of this, most policies will exclude coverage for what is known as a. Named perils. b. Maintenance perils. c. Broad perils. d. Specified perils.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.23) OBJECTIVE 7 QUESTION The financial expenses incurred by The Printer's Thumb to rent the office space at the mall is which form of financial consequence that might be covered by their property insurance policy? a. A direct loss b. Lost income c. Extra expense d. Optional rental reimbursement

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.24-8.25) QUESTION Bea's Restaurant suffered a very serious fire due to a lightening strike, and the structure had to be torn down. The damage to the building is an example of a a. Indirect loss. b. Direct loss. c. Time element loss. d. Consequential loss.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.24)

QUESTION Expenses that a business incurs to reduce the length of a business interruption or to enable a business to continue some operations after the property has been damaged are called a. Deferred expenses. b. Extra expenses. c. Supplementary expenses. d. Emergency expenses.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.24)

QUESTION Lost income and extra expenses resulting from direct loss to property can be insured. Such losses are often called a. Potential element losses. b. Future element losses. c. Additional element losses. d. Time element losses.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.24) OBJECTIVE 8 QUESTION Which one of the following describes the rights granted to a mortgagee versus the rights granted to a loss payee under a property insurance policy? a. A mortgagee and a loss payee have the same rights. The two clauses simply differentiate loans for real and personal property. b. In the event of a loss, the mortgagee is paid first, the named insured second, and any loss payee is third. c. The terms are used interchangeably depending on the insurance contract. d. A mortgagee is granted some rights that are greater than those granted to the named insured; however, the loss payee has the same rights as the named insured.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.26-8.27) QUESTION The person whose name(s) appear on the declarations page of an insurance policy and has the broadest coverage is referred to as the a. Insured. b. Named insured. c. Additional insured. d. Other insured.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.25)

QUESTION When a policy provides coverage for personal property and there is a secured lender, the secured lender will be listed on the policy as a a. Loss payee. b. Mortgagee. c. Bailee. d. Named insured.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.27) OBJECTIVE 9 QUESTION A lender has an insurable interest in property until the a. Policy is cancelled. b. Loan is paid in full. c. Loan is partially paid. d. Policy is paid in full.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.26)

QUESTION When an insured borrows money to purchase a car, the insured is required to add the bank to the auto policy as a a. Lessee. b. Mortgagee. c. Loss Payee. d. Named insured.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.27) OBJECTIVE 10 QUESTION What purpose do insurance-to-value provisions serve in property insurance policies? a. They discourage insurance fraud by ensuring that the property is worth the value requested in the policy limits. b. They encourage insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property. c. They establish the maximum amount the insurance company will pay for any loss. d. They establish the options available to the insurance company in settling the loss. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 8.29-8.30) QUESTION An insurance-to-value provision in property insurance policies that reduces the amount the insurer will pay for a covered loss that occurs to property that is underinsured is a. A coinsurance clause. b. A deductible. c. A policy limit. d. The replacement value.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.30) QUESTION Insurers generally have the option to repair, replace, or pay the value of lost or damaged property. They will usually go with the option that will a. Reduce their costs. b. Increase the insured's recovery. c. Reduce the insured's costs. d. Be the quickest.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.29)

QUESTION A portion of a covered property loss that is subtracted from the amount the insurer would otherwise be obligated to pay is the a. Amount of the loan still outstanding. b. Pro-rata premium. c. Reinsurance. d. Deductible.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.29)

QUESTION Many property insurance policies impose a penalty if the property is underinsured. This provision is known as a. Reinsurance. b. Coinsurance. c. The deductible. d. Other insurance clause.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.30) OBJECTIVE 11 QUESTION Under a property insurance policy, a fire that leaves its intended place is known as a(n) a. Hostile fire. b. Angry fire. c. Uncontrolled fire. d. Wild fire.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.16)

QUESTION Willful and malicious damage to or destruction of property is known as a. War. b. Vandalism. c. Burglary. d. Robbery.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 8.19) INS 21 Questions Answers Materials Dumps Chapter 9 QUESTION The law that consists of the body of principles and rules established over time by courts on a case-by-case basis is called a. Administrative law. b. Constitutional law. c. Common law. d. Regulatory law. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.5) QUESTION Laws made by formal enactments of legislative bodies are referred to as a. Statutory law. b. Common law. c. Case law.

d. Constitutional law. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.5) QUESTION The source of all of our fundamental rights, such as freedom of speech, freedom of religion, etc., is found in a. Common law. b. Constitutional law. c. Statutory law. d. Court decisions.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.4)

QUESTION The body of principles and rules established over time by courts on a case-by-case basis is known as a. Statutory law. b. Informal law. c. Common law. d. State law.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.5)

QUESTION If an insurance company were presented with a very serious auto accident, what type of law would determine who was at fault? a. Criminal law b. Constitutional law c. Common law d. Statutory law

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.5) OBJECTIVE 1 QUESTION Wrongful acts that society deems harmful to the public welfare are addressed by a. Criminal law. b. Common law. c. Contract law. d. Constitutional law.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.6)

QUESTION Contract law deals with contracts and settles contract disputes and is a branch of a. Common law. b. Civil law c. Criminal law d. Constitutional law.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.6)

QUESTION John was involved in a serious accident that included injuries to the other party, and charged with driving while intoxicated. The actions that are likely to be brought against John are a. Statutory and common. b. Civil and common. c. Constitutional and criminal. d. Civil and criminal. ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.7) OBJECTIVE 2 QUESTION When John was driving his car, he was inattentive and was unable to stop in time to avoid hitting a car stopped at a traffic light. He damaged the stopped car he collided with. What is the basis for John's liability? a. Negligence b. Absolute liability c. Statutory liability d. No-fault statutes

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 9.8-9.9) QUESTION A tort is a. The legal right of recovery for damage or injury. b. A failure to act in a reasonably prudent manner. c. Any wrongful act other than a crime or breach of contract. d. An unbroken chain of events that causes injury or damage.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.8) QUESTION Sean drove his vehicle even though his doctor advised him not to drive because the medication he was taking caused drowsiness. Unfortunately, Sean was involved in an accident causing serious injury to himself and others. In this situation, Sean committed a a. Criminal act. b. Breach of contract. c. Tort. d. Intentional tort.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.8)

QUESTION Although largely modified or restated in statues, tort law is still based mainly on a. Constitutional law. b. Common law. c. Contract law. d. Statutory law.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.8)

QUESTION Many states have enacted automobile "no-fault" laws. This ensures adequate compensation for injuries without lengthy disputes over who's at fault. These laws are an example of a. Statutory liability. b. Common Law. c. Tort law. d. Contract law.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.12) OBJECTIVE 3 QUESTION All of the following are the elements of negligence, EXCEPT: a. Duty owed to another b. Breach of duty owed c. Injury or damage d. Minimum threshold of loss

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 9.8-9.9) QUESTION A man told a pedestrian that he would break her arm if she did not give him her purse. This is an example of a. False arrest. b. Invasion of privacy. c. Assault. d. Battery.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.10) QUESTION In speaking with John, Mark said that Peter embezzled $500,000 from their employer. If this statement is false, it is an example of a. Slander. b. Libel. c. Breach of warranty. d. Misdemeanor.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.10) QUESTION The liability that someone could incur because of an inherently dangerous activity like building demolition is called a. Nonretractable liability. b. Nontransferable. c. Strict liability. c. Compulsory liability.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.11) QUESTION In order to determine if someone was negligent there are four elements that needs to be considered. Negligence will be proven if a. Any of the four elements exist. b. All of the elements exist. c. Most of the elements exist. d. Some of the elements exist.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 9.8-9.8)

QUESTION A building owner is responsible for keeping the premises safe and free of any situation that may cause injury to a customer. Which one of the following elements of negligence does this address? a. Duty owed b. Breach of duty c. Damages d. Unbroken chain of events

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 9.8-9.9)

QUESTION With regard to negligence, no recovery can be made unless someone a. Has a witness. b. Suffers injury or damage. c. Has a contract. d. Breaks the chain of events.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.9) OBJECTIVE 4 QUESTION In the event that a lawsuit against an insured is found to be groundless, the insurer will still end up paying a. Special damages. b. General damages. c. Defense costs. d. Compensatory damages.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.14)

QUESTION An award of compensatory damages is the amount of money that has been judged to equal a. All of the damages incurred. b. Punitive damages only.

c. Special damages only. d. Special and general damages.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.13) OBJECTIVE 5 QUESTION Anyone who owns or occupies property has a a. Products liability loss exposure. b. Professional liability loss exposure. c. Premises liability loss exposure. d. Pollution liability loss exposure.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.15)

QUESTION A licensed electrician completes the job of rewiring a house and returns to his shop. With regard to the completed work, the electrician has a a. Completed operations loss exposure. b. Premises liability loss exposure. c. Business operations loss exposure. d. Professional liability loss exposure.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.15)

QUESTION County Janitorial Service is contracted local bars and taverns to clean their restrooms on a daily basis. County's greatest liability exposure is probably a. Liquor liability. b. Professional liability. c. Advertising liability. d. Completed operations.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.15) OBJECTIVE 6 QUESTION Iron Works, Inc. is insured under a commercial liability policy listing several names on the declarations page. The declarations lists Bart Danner, Paul Binder, and Iron Works, Inc. A policy provision would generally identify which of the following as the insured(s) with whom the insurer has legal contact? a. Bart Danner b. Paul Binder c. Iron Works, Inc. d. All of the above ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.18) QUESTION A liability policy generally gives the broadest protection to the

a. Mortgagee. b. Loss payee. c. Additional insured. d. Named insured.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.18)

QUESTION Many liability policies provide the spouse of the named insured with the same coverage that is provided to the named insured if both a. Have been married more than five years. b. Live in the same household. c. Have not been married before. d. Do not have children under the age of 21. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.18) OBJECTIVE 7 QUESTION Pup's Pet Shop advertised and sold homemade dog treats that caused a customer's dog to have a serious allergic reaction and die. This is an example of a. Bodily injury. b. Advertising injury. c. Property damage. d. Personal injury.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.20)

QUESTION An injury arising from an intentional tort such as libel, slander, or invasion of privacy is called a. Individual injury. b. Bodily injury. c. Property damage. d. Personal injury.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.20)

QUESTION Within the context of a CGL policy, claims for injury, sickness, disease, and resulting death are usually considered to be a. Bodily injury. b. Personal injury. c. Professional injury. d. Individual injury.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 9.19-9.20) OBJECTIVE 8 QUESTION Broad pollution coverage is not typically included in liability policies primarily as an attempt to

a. Eliminate duplicate coverage. b. Avoid covering uninsurable losses. c. Keep premiums reasonable. d. Avoid insuring losses that could be prevented. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.22) OBJECTIVE 9 QUESTION Many liability policies cover medical payments for injured persons, regardless of a. Where the incident took place. b. When the injuries occurred. c. The amount of damages. d. Fault.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.25)

QUESTION Hospital bills, physician's fees, lost income, and rehabilitation expenses are all examples of a. Statutory damages. b. Special damages. c. General damages. d. Punitive damages.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 9.22-9.23) OBJECTIVE 10 QUESTION Assuming the retroactive date is the same as the policy inception date of a claims-made liability policy, which one of the following is true for coverage to apply? a. Coverage will never apply when the retroactive date is the same as the policy inception date. b. Bodily injury or property damage must occur during the policy period or anytime before policy inception. c. Claims must be submitted during the policy period. d. Claims can be submitted anytime during or after the policy period. ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 9.26-9.27) QUESTION Liability coverage that covers an accident that occurs during the policy period, regardless of when the claim is submitted to the insurer is which one of the following types of coverages? a. Claims made coverage b. Occurrence basis coverage c. Retroactive coverage d. Perpetual coverage ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.26) QUESTION Under a liability policy that provides occurrence basis coverage, if a covered accident occurs during the policy period, the claim will be covered, regardless of when the claim is a. Submitted. b. Settled.

c. Paid. d. Closed.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.26)

QUESTION From the insurer's perspective occurrence basis coverage means that liability claims may surface long after a. An insured has died. b. A policy has expired. c. A policy was written. d. A claim is made.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.26)

QUESTION The date in a claims-made policy on or after injury or damage must occur in order to be covered is known as the a. Retroactive date. b. Reoccurrence date. c. Expiration date. d. Elapsed date. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.27) OBJECTIVE 11 QUESTION The aggregate limit in a liability policy is the maximum amount an insurer will pay for all covered losses during the a. Calendar year. b. Policy period. c. Retroactive period. d. Fiscal year.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.27)

QUESTION Under a liability policy, the maximum amount an insurer will pay for both bodily injury and property damage arising from a single occurrence is known as the a. Aggregate limit. b. Split limit. c. Occurrence limit. d. Defined limit.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.27)

QUESTION Defense costs in a liability policy are usually payable a. In addition to the policy limits.

b. In addition to the premiums paid. c. If there is money left after compensatory damages are paid. d. If there is money left after punitive damages are paid.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.29) OBJECTIVE 12 QUESTION A wrongful act, other than a crime, committed by one party against another is a a. Contract. b. Tort. c. Breach. d. Civil crime.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.8)

QUESTION A contractual provision that obligates one party to assume the financial consequences of legal liability for another party is a. A statute. b. A hold-harmless agreement. c. An example of strict liability. d. A warranty.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.11)

QUESTION Interest that may accrue on damages before a judgment has been rendered is a. Retroactive interest. b. Collateral interest. c. Postjudgment interest. d. Prejudgment interest.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 9.25) INS 21 Questions Answers Materials Dumps Chapter 10 ---------------------------------------------------------------------------Please refer the following 'Case Study' with appropriate QUESTIONs and ANSWERs: ---------------------------------------------------------------------------CASE STUDY 1 : Jane Docker Jane owns a ten-year-old compact car that she uses to drive to work each day. Jane drives 20 miles into the city and parks her car on a street near her office. Jane's son, Joe, is 15-years-old, and he will obtain his driver's license this summer when he becomes 16. Joe has already expressed an interest in buying his own vehicle or driving Jane's compact car. Jane is concerned about the cost of owning a vehicle, buying the insurance, and the risk of parking the vehicle on the street. If Joe buys his own vehicle, she knows that her expenses and her concerns will increase. Jane is considering risk management alternatives to help her reduce expenses and risks.

---------------------------------------------------------------------------CASE STUDY 2 : Frank & Jan Frank and Jan are each twenty-five years old, and they have purchased their first home together. It required all of their savings and some money from their parents to make their down payment. The house needs repairs that they will do themselves and with the help of friends. The first project will be to seal the lead paint that is on the interior of the house and remove flaking lead paint that is on the exterior of the house. d Frank and Jan are also aware that a buried heating-oil tank in the yard is leaking slowly, but they have decided that replacing that tank must wait until they have the funds in a year or two. ----------------------------------------------------------------------------

OBJECTIVE 0 QUESTION Risk management concepts in one form or another apply a. Only to large companies. b. Only to international companies. c. To all companies but not families. d. To all companies and families.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.3-10.4)

QUESTION The first step in the risk management process is to a. Implement the selected technique. b. Select the appropriate technique. c. Identify loss exposures. d. Monitor results.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.4)

QUESTION The last step in the risk management process is to a. Implement the selected technique. b. Select the appropriate technique. c. Identify loss exposures. d. Monitor results.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.4) OBJECTIVE 1 QUESTION Grocers' Warehouse is a newly created business that will open next month. It will include a retail operation as well as 500,000 square feet of warehouse space, loading docks, etc. Which one of the following methods of identifying loss exposures would be least applicable in this situation? a. Physical inspection b. Loss exposure survey c. Loss histories d. Interviews with management

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.6-10.7)

QUESTION Loss exposure surveys or checklists are comprehensive and apply to almost any organization. The survey's major weakness is that a. They are expensive. b. They may omit an important exposure. c. They have to be custom designed for each business. d. They take too long to complete.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.5)

QUESTION Loss histories can offer great insight into an organization's loss exposures. The problem with depending too heavily on this one source is that some past events might a. Not have been recorded. b. Have been insured. c. Still be unresolved. d. Not have been insured.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.6-10.7) OBJECTIVE 2 QUESTION A risk manager in an industrial plant is trying to determine where she needs to spend most of her time in reducing the number of accidents. The plant has a history of work-related injuries, and she wants to make sure that is reduced. What should the risk manager measure to determine where she should expend her efforts? a. The number of workers in each area b. The flow chart bottlenecks c. The loss frequency d. The loss severity ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.7) QUESTION Why is it easier to gauge the potential severity of property losses than of liability losses? a. Property loss exposures are confined to the building and contents. Liability losses can encompass the surrounding grounds of the business. b. Property loss exposures have a documented annual frequency and severity that can be determined as an average according to the type of business. Liability loss exposures cannot be determined with this level of accuracy. c. Property loss exposures have a calculable frequency. The frequency of liability loss exposures cannot be determined with accuracy. d. Property loss exposures have a calculable severity. The severity of liability loss exposures is much harder to determine.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.7) QUESTION The dollar amount of damage that results or might result from a loss exposure is the

a. Loss severity. b. Loss frequency. c. Loss prevention. d. Loss reduction. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.7) QUESTION Analyzing the potential frequency and severity of a loss exposure enables the risk manager to a. Retain loss exposures. b. Avoid loss exposures. c. Prioritize loss exposures. d. Transfer loss exposures.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.7)

QUESTION The monetary amount of damage that results from a loss is known as a. The deductible. b. Loss severity. c. Loss Frequency. d. The retention.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.7)

QUESTION Gauging the severity of property losses is easier than gauging the severity of liability losses because property losses a. Tend to be insured. b. Have an infinite value c. Tend to happen more frequently. d. Are easier to calculate.

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.7) OBJECTIVE 3 QUESTION If Jane sells her vehicle and begins using public transportation, which one of the following risk management techniques will she be applying to her situation? a. Avoidance b. Loss control c. Noninsurance transfer d. Retention ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.8) QUESTION Jane is concerned that Joe might be hurt in her compact car if he is involved in an accident. She has read consumer reports indicating that people occupying trucks and sports utility vehicles suffer less injuries when their vehicles are involved in accidents. If Jane trades her compact car in for a sports utility vehicle, which one of the following risk management techniques will she be applying?

a. Avoidance b. Loss prevention c. Loss reduction d. Noninsurance transfer ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.9) QUESTION While she is at work, Jane has begun parking in a lot that has an attendant to reduce the chance of her vehicle being damaged while it is parked on the street. Which one of the following risk management techniques is Jane applying? a. Avoidance b. Loss prevention c. Noninsurance transfer d. Retention ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.9) QUESTION The technique that is used to decrease the frequency and/or severity of losses is a. Risk control. b. Risk financing. c. Retention. d. Transfer.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.8)

QUESTION Some businesses require key executives to fly on different flights. In case there would be an accident this would avoid wiping out the entire management team. This is an example of which one of the following risk control techniques? a. Avoidance b. Loss prevention c. Separation d. Duplication

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.9)

QUESTION Waking up on a cold February morning, Amy discovers the roads are icy and snow covered. Concerned about driving to work and possibly having an accident she decides to take the day off. Amy's decision is an example of which one of the following risk management techniques? a. Loss prevention b. Loss reduction c. Avoidance d. Separation ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.8) OBJECTIVE 4 QUESTION

Jane has decided to apply a retention risk management technique to reduce her insurance premium. She is deleting the physical damage coverage (collision and other-than-collision) on her car. Her car is currently worth $3,000. She will be able to save $250 every six months. Based on informal guidelines for selecting risk management techniques, is this a good decision? a. Yes, Jane will save $500 per year. b. Yes, if Jane can afford to lose $3,000. c. No, because the plan does not include loss control. d. No, this type of coverage is required in most states. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.10-10.11) QUESTION Alan Peachtree owns a hobby shop, which he runs from a small garage-like structure that is not attached to his home. Alan, in deciding not to purchase property coverage on the building, has set aside funds to pay for possible property damage losses. What risk management technique, if any, is Alan using? a. Avoidance b. Non-Insurance transfer c. Retention d. Loss control ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.10) QUESTION For loss exposures with high frequency and low severity, the two best risk management alternatives are retention and a. Loss control. b. Insurance. c. Avoidance. d. Transfer.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.14)

QUESTION Exposures with the potential of low frequency but high severity should generally be insured because they are a. Highly predictable. b. Less expensive. c. Highly unpredictable. d. More expensive.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.13)

OBJECTIVE 5 QUESTION In smaller organizations and in households, the person making risk management decisions is often the person a. Least qualified. b. Settling the claims. c. Implementing the program. d. Causing the losses. ANSWER C

EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.15)

QUESTION Larger organizations often have a written risk management statement outlining procedures and authority for a. Implementing risk management techniques. b. Eliminating risk management techniques. c. Excluding risk management techniques. d. Identifying risk management techniques.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.15)

OBJECTIVE 6 QUESTION How might the monitoring and revising step in the risk management process be simply described? a. Check to make sure the decisions made are still valid, and make changes as needed. b. Create a new workflow and identify new bottlenecks that have occurred. c. Make sure insurance is not being used as a substitute for loss control. d. Identify noninsurance transfers through hold harmless agreements. ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.16) QUESTION Monitoring a risk management program is an a. Occasional activity. b. Annual activity. c. Ongoing activity. d. Once and done activity.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.16)

QUESTION In order to monitor and modify the risk management program, the risk manager must periodically a. Identify and analyze new and existing loss exposures. b. Purchase insurance. c. Rewrite the risk management mission. d. Change insurance companies.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.16) 7OBJECTIVE 7 QUESTION What is a benefit that a business can receive by applying sound risk management? a. It will meet state and federal safety regulations. b. It will have a better opportunity to achieve business goals. c. It will not have to worry about losses.

d. It will be able to attract and retain talented employees and managers. ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.17-10.18) QUESTION What will Jane be able to gain as a benefit by applying sound risk management to her transportation situation? a. No future increases in her insurance premium. b. A loss free future c. Economic growth d. Greater peace of mind ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.17-10.18) QUESTION Businesses, individuals, and families that practice sound risk management can benefit society by doing all of the following, EXCEPT: a. Increasing interest in leisure activities b. Reducing the overall number of losses c. Controlling medical expenses through reduced injuries d. Stimulating economic growth ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.18) QUESTION One of the benefits to a business of retaining a loss exposure instead of insuring it is a. A reduction in expenses. b. A greater peace of mind. c. Access to the insurer's loss control services. d. Increase in expenses.

ANSWER A EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.17) OBJECTIVE 8 QUESTION What is an effective way for Frank and Jan to begin identifying the liability loss exposures associated with their new home? a. Hire a professional risk manager b. Determine the value of the home and contents c. Purchase a homeowners insurance policy d. Inspect the home to look for items and activities that might cause injury or damage

ANSWER D EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.19-10.21) QUESTION Frank and Jan researched lead paint hazards and abatement techniques on the Internet. They discovered that the best action they can take inside the house is to remove loose paint chips and dust, replace the windows, and seal the walls with a paint designed for that purpose. What risk management technique does this activity involve? a. Avoidance b. Loss control c. Retention d. Noninsurance transfer

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.19-10.21) QUESTION Frank and Jan have discovered that the pollution that is resulting from the fuel oil leaking into the soil is not covered by their homeowners insurance policy. They fear that the oil might seep into the water table and contaminate their neighbors' well water. Illness and damage that might result would be very expensive. Frank and Jan can purchase an endorsement that will provide coverage for this pollution exposure. The endorsement would cost $50 per year. Is this an effective risk management selection for Frank and Jan until they can replace the tank? a. Yes, they should do this indefinitely and not replace the tank. b. Yes, they are exchanging a large exposure for a little premium. c. No, they are spending a lot of money for little protection. d. No, each neighbor will have insurance to cover any damage to their wells.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.19-10.21) QUESTION Jeff recently started a consulting business. One of his concerns is that he will be sued for giving erroneous advice to a client. What would be the best risk management technique for Jeff's use in this situation? a. Retention b. Avoidance c. Insurance d. Duplication

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, pp. 10.19-10.20) OBJECTIVE 9 QUESTION The process of managing exposures to accidental losses is known as a. Insurance. b. Risk management. c. Retention. d. Avoidance.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.3)

QUESTION The risk control technique that seeks to lower the severity of losses is a. Loss prevention. b. Risk financing. c. Loss reduction. d. Duplication.

ANSWER C EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.9)

QUESTION When a household or organization decides to keep all or part of a loss exposure this is known as

a. Insurance. b. Retention. c. Reduction. d. Separation.

ANSWER B EVALUATING YOUR ANSWER (See Property and Liability Insurance Principles 4th ed., 2005, p. 10.10)