Deck 50: Insurance

Question 1

A coinsurance clause requires the insured to pay a percentage of an insured loss.

Answer 1

True

Question 2

An insurance contract is one where one party indemnifies another against loss from an unknown event.

Answer 2

True

Question 3

An insured that does not have an insurable interest in the property being insured is treated like a wager and it cannot be enforced.

Answer 3

True

Question 4

State insurance laws generally provide that insurance must be sold through a broker or agent.

Question 5

Insurance can be sold directly to the insured by the insurer.

Question 6

The usual time period for the validity of a suicide clause is 10 years.

Question 7

Insurance companies need only refund policy premiums if an insured commits suicide before the date specified in the suicide clause of the life insurance policy.

Question 8

An insurance broker is the agent of the insurance company.

Question 9

The McCarran-Ferguson Act provides that insurance is regulated by the states.

Question 10

In a life insurance policy,it is possible for the owner of the policy and the insured to be the same person.

Question 11

An insurance agent is the agent of the insurance company.

Question 12

With disability insurance,the payments are generally made to the insured even though the insured does not document actual expenses.

Question 13

The insured owes a duty to defend against any suit brought against him or her that involves a claim within the coverage of the policy.

Question 14

In the case of a life insurance policy on the insured's own life,it is not necessary for the named beneficiary to have an insurable interest in the insured.

Question 15

In a life insurance policy,the insured is the party who is to receive the insurance proceeds upon the death of the insured.

Question 16

An insurance deductible clause usually states that insurance proceeds are payable only after the insured has paid a specified amount of the damage or losses.

Question 17

Life insurance is really death insurance.

Question 18

Incontestability clauses are invalid as they are not fair to insurers.

Question 19

An insurance broker typically works for a single insurance company.

Question 20

The insurable interest in a piece of property must exist at the time of loss.

Question 21

Smaller companies usually do not carry directors' and officers' liability insurance as it is too expensive.

Question 22

In automobile insurance,comprehensive coverage refers to a policy that covers all types of losses related to the ownership and operation of an automobile.

Question 23

Under the collision coverage of an automobile insurance policy,loss to the insured automobile is covered even in an accident that is the fault of the insured.

Question 24

The primary coverage of renters insurance is for the possessions of the insured.

Question 25

The insurance industry is regulated:

A) by Congress under the commerce clause
B) by the Central Insurance Regulatory Agency
C) by state law pursuant to the McCarran-Ferguson Act
D) by self-regulation
E) by the Sherman Act

Question 26

Workers compensation was designed to make payments to those workers who put more time in on the job.

Question 27

Most insurance companies allow valuable items to be covered under an insured's homeowners policy thereby eliminating the need for any additional insurance.

Question 28

Collision insurance pays for damages caused if an automobile owner's car is struck by another car.

Question 29

Due to rising insurance costs,most modern fire insurance policies do not provide replacement cost insurance.

Question 30

Title insurance protects against defects in title such as liens or encumbrances that are not disclosed on the title insurance policy.

Question 31

Modification of an existing insurance contract is usually accomplished by means of a(n):

A) endorsement
B) modifier
C) rider
D) A or B only
E) A or C only

Question 32

Coinsurance clauses are not common in fire insurance policies.

Question 33

A homeowners policy includes coverage for theft of the insured personal property,but not when the insured has the property away from the home.

Question 34

Most fire insurance policies are issued using the Delaware standard fire insurance policy form.

Question 35

Because there are so many professionals in today's workforce,professional malpractice premiums are reasonably priced.

Question 36

A homeowners policy has the same coverages as a fire insurance policy except that it is written for a homeowner rather than a business.

Question 37

Business interruption insurance was designed to reimburse the insured whose business is severely destroyed or damaged during the time it takes to repair or reconstruct the damaged property.

Question 38

Under the McCarran-Ferguson Act:

A) insurance company regulation is the responsibility of the states
B) insurance rates became subject to regulation at the federal level
C) several large insurance companies were broken up into smaller companies
D) banks were allowed to begin selling life insurance
E) the whole life form of life insurance was authorized

Question 39

Mold is generally not covered under the majority of insurance policies.

Question 40

An omnibus clause under an automobile liability policy covers other drivers of the insured's automobile.

Question 41

The basic difference between whole life insurance and universal life insurance is which of the following?

A) Universal life includes health insurance and whole life does not.
B) The universal life investment portion pays interest at a variable rate and whole life does not.
C) Universal life is a single premium payment plan and whole life is not.
D) There is no difference because they are two terms for the same type of policy.
E) Universal life is usually purchased by corporations on its employees and whole life is usually purchased by individuals for family members.

Question 42

When must an insurable interest exist for life insurance and property insurance,respectively?

A) At the time of policy issuance,and at the time of loss.
B) At the time of policy issuance,and at the time of payment of the premium.
C) At the time of loss,and at the time of policy issuance.
D) At the time of policy issuance for both life insurance and property insurance.
E) At the time of loss for both life insurance and property insurance.

Question 43

What type of clause in an insurance policy states that the insurer will pay for a covered loss only to the extent that it exceeds a certain stated amount that the insured pays toward that loss?

A) indemnity clause
B) coinsurance clause
C) endorsement clause
D) deductible clause
E) subrogation clause

Question 44

Which of the following is not covered under the typical homeowners insurance policy?

A) Damage to the primary dwelling unit.
B) Damage to appurtenant structures such as garages.
C) Theft of personal property from the primary dwelling unit.
D) Theft of personal property from the insured while the insured is traveling.
E) All of these are covered under the typical homeowners insurance policy.

Question 45

Which of the following is true about the parties to an insurance policy?

A) The insured and the owner can be the same person.
B) The owner and beneficiary can be the same person.
C) The insurer and the insured can be the same person.
D) The beneficiary cannot be changed during the period that the policy is in effect.
E) Both A and B.

Question 46

Which of the following is true about insurable interest regarding property insurance?

A) Only one party can have an insurable interest in the same item at the same time.
B) A party has an insurable interest in any item for which the party can establish a value.
C) The insurable interest in the property must exist at the time there is a loss.
D) The insurable interest in the property must exist at the time of the policy issuance.
E) Both A and C.

Question 47

The requirement that an insured would suffer a loss in the absence of insurance if the insured property is damaged or destroyed is the requirement of:

A) indemnification
B) reinsurance
C) insurable interest
D) beneficiary interest
E) coinsurance

Question 48

The following types of life insurance have a cash surrender value except:

A) term life
B) universal life
C) whole life
D) straight life
E) limited-payment life

Question 49

A coinsurance clause in a fire insurance policy provides which of the following?

A) The insured must buy policies covering the insured property from at least two different companies.
B) The insurer will contract with another company to share the risk for loss on the property.
C) The insured must purchase insurance coverage for a minimum percentage of the property's value or will be required to bear a portion of any losses.
D) The insurance policies are backed up by the insurer obtaining reinsurance.
E) An independent government agency will cover any covered claims that the insurer is unable to pay due to bankruptcy,and other factors.

Question 50

The type of life insurance that is "straight insurance" for a fixed period of time is:

A) double indemnity life
B) universal life
C) whole life
D) variable life
E) term life

Question 51

The type of auto insurance coverage that pays for the damage caused by the insured to the car of the other driver in an accident is:

A) collision
B) comprehensive
C) liability
D) medical payments
E) no fault

Question 52

Universal life insurance combines the features of:

A) whole life and ordinary life
B) limited-payment life and whole life
C) ordinary life and straight life
D) whole life and annuity life
E) whole life and term life

Question 53

What is the usual effect of a double indemnity clause?

A) It provides that a single life insurance policy covers the lives of two people,typically a husband and wife.
B) It provides that the standard premiums purchase twice the amount of insurance coverage as they usually do.
C) It provides that the policy will pay twice the policy amount if death occurs within the first 10 years that the policy is in effect.
D) It provides that the policy will pay twice the policy amount if death is caused by an accident.

Question 54

What can an insured do under a homeowners policy to provide insurance coverage for specific valuable items,such as a rare and valuable painting?

A) Nothing in particular; it will be covered within the overall policy limits,but that might leave less coverage for other items.
B) Execute an appurtenant structure substitution agreement in which the coverage for the rare item will take the place of coverage for appurtenant structures.
C) Add a personal effects floater to the policy covering the artwork.
D) Add the standard artwork addendum to the policy.
E) Obtain an independent appraisal and submit it to the insurer.

Question 55

Which of the following is not one of the parties to a standard life insurance contract?

A) owner
B) insurance company
C) insurance broker
D) insured
E) beneficiary

Question 56

Under an automobile insurance policy,what does comprehensive coverage protect against?

A) All types of loss in connection with the ownership and operation of a vehicle.
B) All types of losses caused by the insured to other parties.
C) All types of damage to the covered vehicles of the insured.
D) All types of damage to the covered vehicles of the insured except for damage caused by collision.
E) Coverage for all losses in connection with the vehicle of the insured that are caused by other parties.

Question 57

The type of life insurance in which the investment portion pays a variable interest rate is:

A) double indemnity
B) universal life
C) whole life
D) variable life
E) term life

Question 58

If a car insurance policy provides that it will pay the medical expenses of other drivers who are injured through the actions of the insured,the coverage is:

A) collision
B) comprehensive
C) liability
D) medical payments
E) no fault

Question 59

An insurable interest can best be described as:

A) the insured having paid the premiums of an insurance policy as called for in the policy
B) the insurance covering an item that,if damaged or destroyed,would cause a loss for the party if it were damaged or destroyed in the absence of insurance
C) the item in question being fully covered under a valid insurance policy
D) the item in question being fully capable of identification at the time of a loss,even if it could not have been identified at the time that the insurance policy was taken out

Question 60

In addition to the coverages provided in a policy of fire insurance,homeowners insurance provides coverage for:

A) an annuity component
B) private mortgage insurance
C) flood insurance
D) personal liability
E) disability of the homeowner

Question 61

Steve has a car insurance policy that provides full coverage.Steve was involved in an accident recently that resulted in significant damage to his car,and he also received some bruises.Steve suspected he was partly at fault and decided not to report the accident to his insurance company.Steve made a small payment to the other driver involved,who did not have insurance.Steve also paid to have his own car repaired.Several months later,Steve receives a summons and has been sued by the other driver for $200,000.Steve also learns at about the same time that he has an internal injury that will require surgery to correct.Steve notifies his insurance company about the accident,the amounts he has spent in connection with it,and the lawsuit.Steve is afraid that his insurance company will cancel his insurance if it learns too much about the accident or learns about Steve's eyesight problem,which he did not mention on his application with the company four years ago.Thus,he has been avoiding the insurance company's phone calls and requests for information about the accident.However,Steve believes the company has an obligation to reimburse him and defend the suit.Discuss the legal issues involved.

Question 62

Mary purchases automobile insurance including all types of coverage available.Mary is driving home from work one afternoon when there is a severe thunderstorm threatening the town in which she lives.She hears on the radio that this storm contains large hail.She considers going directly home without making a planned stop at a building supply store so that she can put the car in her garage,but decides to take a chance and stop at the store anyway.While she is in the store,heavy hail falls and breaks out three of the windows in her car.Just as she is leaving,she notices a couple of vandals who break out the remaining windows of her car and flee.Which would be covered under the comprehensive portion of Mary's auto insurance policy?

A) Both the hail damage and the vandalism damage.
B) The vandalism damage,but not the hail damage,because she assumed the risk by choosing to leave her car parked outside in the storm.
C) Damage from neither source would be covered because her actions choosing to park outside in the storm was the proximate cause of both types of damage.
D) The damage from the hail storm,but not the vandalism because it was the willful act of third parties who are responsible for the damage they caused.
E) The damage from the hail storm,but the vandalism damage only if the vandals are caught and prosecuted.

Question 63

When major natural disasters strike,there are some insurance companies that are not able to pay their claims because they have not purchased adequate reinsurance.How might this problem be minimized? Would disclosure requirements or reinsurance coverage requirements be better?

Question 64

Mindy has decided to open a business that sells novelty exploding chocolates.Mindy has actually been in the candy business for many years,but recently learned of a way to encase high-pressure carbon dioxide into a special piece of sugar.The sugar piece will be surrounded by chocolate.As the hollow piece of sugar melts in someone's mouth,or if the person bites on the sugary center,the carbon dioxide will explode with surprising force.The force is not so great as to be painful most of the time,but it will certainly shock anyone who is not expecting it.Thus,Sandy expects that some customers will buy the candy for themselves,but many will buy it to offer to others as a practical joke.From the outside,the candy looks like any other candy.Sandy has formed a new corporation for this venture.Sandy has come to you for information on the types of insurance that she should consider purchasing for this business.What would you tell her?

Question 65

Sam owns his own business.He has several different types of insurance policies to cover various risks to his business.The policies have various coverage limits.Sam is considering purchasing a policy that would add coverage in excess of all these individual policies up to $1 million.The type of policy that Sam is interested in adding is:

A) double indemnity
B) comprehensive
C) fidelity
D) umbrella
E) group

Question 66

Which of the following is true about no-fault auto insurance?

A) It means that if there is no fault on the part of the insured,there will be no payment by the insured's insurer.
B) A driver's insurer pays for the injuries to that driver regardless of who is at fault in the accident.
C) No-fault insurance is broad,usually providing coverage for lost wages,pain and suffering,and punitive damages.
D) No-fault insurance is lower cost coverage available only to good drivers who have never been at fault in an accident.

Question 67

What are the advantages and disadvantages of no-fault automobile insurance? What is the purpose of no-fault coverage? Should no-fault coverage be mandatory,optional,or not offered? Give reasons for your answer.

Question 68

What is the effect of an incontestability clause?

A) The insured cannot file a claim more than a specified time following the insured event.
B) The insurer cannot challenge the information in the application after a specified time.
C) The insured is required to not challenge the statements made by its own insured.
D) The state is prevented from challenging any claim payment decisions of the insurer.
E) The insurer is prevented from canceling an insurance policy due to nonpayment.

Question 69

Bob is 25 years old and has a 40-year-old uncle who has recently entered his second adolescence.Bob is close to this uncle although the uncle does not provide Bob with any support.Within the past year,Bob's uncle has obtained a divorce,bought a large customized motorcycle,and begun smoking and drinking heavily.In addition,he has begun hanging out in bars known for periodic violence.Bob decides that taking out a life insurance policy on his uncle could be a good investment.In this situation:

A) Bob has an insurable interest in his uncle because of the close family relationship.
B) Bob has an insurable interest,but only if he is named in his uncle's will to receive assets from his uncle's estate.
C) Bob does not have an insurable interest because he took out the policy only after his uncle's lifestyle change.
D) Bob does not have an insurable interest because the relationship is too remote and he receives no support from the uncle.
E) Bob does not have an insurable interest because parents and children are the only persons who can have an insurable interest in the life of another person.

Question 70

Which of the following best describes an umbrella insurance policy?

A) It is a policy that covers more than one type of risk.
B) It is a policy that provides coverage beyond the dollar limits of the insured's other policies.
C) It is a policy that covers damage only if it was caused by rain.
D) It is a policy that covers risks to a business.
E) It is a policy that combines life insurance and fire insurance protection.

Question 71

Kirk was recently visited by a life insurance salesperson.The salesperson did an especially good job of selling,and Kirk decided to buy several policies.In addition to a policy on himself,Kirk purchased one policy each on the life of his wife,his mother,his son,his aunt,his uncle,and the old man who lives next door.Kirk has been married for 12 years.His mother is 62 years old and provides no support to Kirk.In fact,Kirk has very little contact with her.His aunt provides no support,but had provided support when Kirk was young and his parents had difficulty making ends meet.Kirk receives $10,000 each year as a gift from his uncle,but otherwise receives nothing from him.Kirk has known the old man next door for 11 years and often assists the old man when he needs help.For which of these policies does Kirk have an insurable interest?

Question 72

Fred has an automobile liability insurance policy of $100,000 and an umbrella policy with $1 million dollars in coverage.Fred is driving negligently and crashes into Barney's car.Barney suffers $500,000 in damages.How will the policies pay for the damages?

A) The $500,000 will be paid directly from the umbrella policy.
B) The first $100,000 will be paid from the automobile liability policy,and the remaining $400,000 will be paid from the umbrella policy.
C) Barney will receive the $100,000 from the automobile liability policy,but nothing from the umbrella policy.
D) Barney will receive $50,000 from the automobile liability policy and $450,000 from the umbrella policy.

Question 73

Should an insurance company have a duty to defend the insured when the defense will cost the insurance company more than it will cost to simply pay the claim? For example,should an auto insurance company have a duty to spend $10,000 to defend an insured when the claim is under $10,000? What ethical problems arise when the outcome would affect the insured's driving record,and therefore the rates that the insured would charge? What ethical problems can arise with this duty to defend when both drivers are covered by the same insurance company?