Deck 10: Structure and Analysis of Insurance Contracts

Question 1

The exclusions in a named-perils policy are more definitive of coverage than in an open-perils policy.

Answer 1

False

Question 2

Insuring clauses do not vary greatly from policy to policy.

Answer 2

False

Question 3

Personal injury is the physical injury to a person, including the pain and suffering that may result.

Answer 3

False

Question 4

When an insurance policy is suspended, the effect is only temporary.

Question 5

The function of the agent is to induce a potential insured to make an offer.

Question 6

An open-perils policy provides broader coverage than a named-perils policy.

Question 7

Suspension of an insurance contract negates coverage as long as some condition exists.Once the condition is eliminated, protection reverts after a new agreement between the parties.

Question 8

Exclusions exist to limit coverage of nonfortuitous events.

Question 9

A named-perils policy usually requires a higher premium than an open-perils policy.

Question 10

Losses due to wear and tear are excluded because they are accidental rather than inevitable.

Question 11

Losses that are accidental make prediction difficult, cause coverage to be expensive, and represent circumstances in which coverage would be contrary to public policy.

Question 12

Riders are used with life/health policies, whereas endorsements are used with property/casualty policies.

Question 13

More insurance is bought rather than sold.

Question 14

Liability policies usually cover damage to or loss of others' property in the care, custody, or control of the insured because these properties are considered as the insured's properties.

Question 15

The earthquake peril requires separate rating and is excluded from homeowners' policies.

Question 16

Actual cash value and replacement cost are the most common means of valuing property loss.

Question 17

Inherent vice is excluded in insurance coverage.

Question 18

Health insurance policies often are written on an open-perils basis.

Question 19

All insurance policies specify the period of coverage.

Question 20

A binder cannot be oral because it becomes very difficulty to prove its existence in case of a dispute.

Question 21

Which of the following statements is true about open-perils policy and named-perils policy?

A)Open-perils policies cover many perils not covered by named-perils policies.
B)An open-perils policy covers only losses caused by the perils listed in the policy.
C)A named-perils policy is also known as the "all risk" policy.
D)The exclusions in a named-perils policy are more definitive of coverage than in an open-perils policy.
E)A named-perils policy provides broader coverage than an open-perils policy.

Question 22

In property/casualty insurance, an agent who has this authority can create a contract between the insurance company and the insured.Two factors influence the granting of such authority.First, some companies prefer to have underwriting decisions made by specialists in the underwriting department, so they do not this binding authority to the agent.Second, some policies are cancelable; others are not.The underwriting errors of an agent with this authority may be corrected by cancellation if the policy is cancelable.Identify this authority.

A)Waiver authority
B)Binding authority
C)Facultative authority
D)Estoppel authority
E)Duress authority

Question 23

Perpetual insurance policies remain in force:

A)until canceled by the insured or the insurer.
B)for the entire life of the insured.
C)for a three-month or six-month period, but most are for a year.
D)as long as premiums are paid.
E)as long as there is no dispute between the insurer and the insured.

Question 24

In an insurance policy, it states that the "insurer promises to pay…." This general description of the insurer's promises is the essence of:

A)an insuring clause.
B)the conditions of a policy.
C)the exclusions of a policy.
D)an endorsement.
E)a rider.

Question 25

If a peril is not listed in the insurance contract, loss resulting from it is not covered.Identify this policy.

A)Open-perils policy
B)Flexible-perils policy
C)Closed-perils policy
D)Named-perils policy
E)All risk perils policy

Question 26

Which of the following sections is generally the first part of the insurance policy?

A)Conditions
B)Endorsements and riders
C)Exclusions
D)Declarations
E)Insuring agreement

Question 27

These are statements that identify the person(s) or organization(s) covered by the contract, give information about the loss exposure, and provide the basis upon which the contract is issued and the premium determined.This information may be obtained orally or in a written application.This section also includes the period of coverage and limitations of liability.Identify this section in an insurance contract.

A)Exclusions
B)Insuring agreement
C)Endorsements and riders
D)Conditions
E)Declarations

Question 28

With cancelable policies, the insurer is responsible under a binder for losses that:

A)occur due to pure risk exposures.
B)the underwriter thinks are insurable.
C)occur due to idiosyncratic risk exposures.
D)occur throughout the term of the policy.
E)occur prior to cancellation.

Question 29

Identify the policy that covers losses caused by all perils except those excluded.

A)No risk perils policy
B)Flexible-perils policy
C)Open-perils policy
D)Named-perils policy
E)Closed-perils policy

Question 30

Identify the element of the insurance contract that is a general statement of the promises the insurer makes to the insured.

A)Conditions
B)Endorsements and riders
C)Exclusions
D)Declarations
E)Insuring clauses

Question 31

The insuring agreement provides a general description of the circumstances under which the policy becomes applicable.The circumstances include the covered loss-causing events, called:

A)exposures.
B)perils
C)moral hazard.
D)adverse selection.
E)morale hazard.

Question 32

Some forms of automobile insurance may be written on a continuous basis, with premiums payable at specified intervals, such as every six months.Such policies remain in force:

A)as long as there is no dispute between the insurer and the insured.
B)for a three-month or six-month period, but mostly for a year.
C)as long as premiums are paid.
D)for the entire life of the insured.
E)as long as the insured is insurable.

Question 33

A claim for the death benefit under this receipt will be paid if death occurs while one's application for life insurance is being processed even if the deceased is found not to be insurable.Identify this receipt.

A)Conditional receipt
B)Binding receipt
C)Estoppel
D)Facultative receipt
E)Waiver receipt

Question 34

The estate tax repeal rider, which exemplifies the need to modify policies as tax laws change, was created in response to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001).

Question 35

This receipt does not bind the coverage of life insurance at the time it is issued, but it does put the coverage into effect retroactive to the time of application if one meets all the requirements for insurability as of the date of the application.A claim for benefits because of death prior to issuance of the policy generally will be honored, but only if you were insurable when you applied.Identify this receipt.

A)Conditional receipt
B)Binding receipt
C)Estoppel
D)Facultative receipt
E)Waiver receipt

Question 36

It is important to understand the nature of such a policy because the insured has to look for what is not covered rather than what is covered.Identify this perils policy.

A)Named-perils policy
B)Open-perils policy
C)Flexible-perils policy
D)No risk perils policy
E)Closed-perils policy

Question 37

Which of the following benefits the insured when losses are predictable and manageable?

A)Loss avoidance
B)Loss forecasting
C)Loss retention
D)Loss transfer
E)Loss backcasting

Question 38

Which of the following statements is true about periods of coverage and limitations of liability?

A)Life insurance policies promise to pay a specified amount for total expenses during one's lifetime.
B)Health policies typically limit payment to the face amount of the policy.
C)Term life policies often provide coverage for the entire life of the insured.
D)Perpetual policies remain in force until canceled by the insured or the insurer.
E)Liability policies provide coverage up until a specified age.

Question 39

One form of the homeowner's policy, HO-2, insures for direct loss to the dwelling, other structures, and personal property caused by eighteen different perils.Only losses caused by these perils are covered.Riot or civil commotion is listed, so a loss caused by either is covered.On the other hand, earthquake is not listed, so a loss caused by earthquake is not covered.Identify the perils policy of HO-2.

A)Closed-perils policy
B)Flexible-perils policy
C)Open-perils policy
D)All risk perils policy
E)Named-perils policy

Question 40

In most states, an oral binder is as legal as a written one, but in case of a dispute:

A)written binders are given more weightage.
B)one requires both written and oral binder to prove the existence of a contract.
C)it is difficult to prove its terms.
D)the court does not rule in favor of individuals who only have oral binder as evidence.
E)written binders do not require oral binder as evidence, but oral binders have to be backed by written binders.

Question 41

Which of the following statements is true about exclusions?

A)Losses caused intentionally by the insured are not excluded.
B)Wear and tear is included in insurance coverage.
C)Exclusions encourage adverse selection and moral hazard.
D)Losses that are not accidental make prediction difficult.
E)Naturally occurring losses that are expected are not excluded in insurance coverages.

Question 42

A waiver of premium rider increases the benefits of a life insurance policy by:

A)providing for continued coverage without continued payment of premiums after a specific age.
B)providing for continued coverage without continued payment of premiums if the insured becomes totally disabled.
C)paying the face value to the insured before his or her death, after the premium payment period is over.
D)providing for continued coverage without payment of premiums in case of certain conditions.
E)insuring a few exposures that are normally not insured in a life insurance policy.

Question 43

Nonphysical injury to a person, including damage caused by libel, slander, and false imprisonment are examples of:

A)bodily injury.
B)punitive damages.
C)facultative damages.
D)contingent damages.
E)personal injury.

Question 44

Some organizations choose to continue operating following property damage, but they are able to do so only by incurring additional costs known as:

A)preventative losses.
B)dependent losses.
C)contingent business interruption losses.
D)extra expense losses.
E)facultative losses.

Question 45

This section of the insurance contract enumerates the duties of the parties to the contract and, in some cases, defines the terms used.Identify this element of the insurance contract.

A)Conditions
B)Endorsements and riders
C)Exclusions
D)Declarations
E)Insuring clauses

Question 46

Whether the policy is open-perils or named-perils, the coverage it provides cannot be ascertained without considering the _____, which are those perils, risks, losses, and properties that are not covered in an all-risk policy.

A)exclusions
B)declarations
C)conditions
D)endorsements
E)riders

Question 47

Consequential losses are also known as:

A)direct losses.
B)accidental losses.
C)extra expense losses.
D)indirect losses.
E)punitive losses.

Question 48

Two factors influence the granting of binding authority by the insurers to the agents.List these factors.

Question 49

The 1992 Chicago flood required that Marshall Fields downtown store close its doors for several days while crews worked to clean up damage caused by the flood waters.Identify this loss.

A)Business interruption loss
B)Preventative loss
C)Accidental loss
D)Extra expense loss
E)Punitive loss

Question 50

Differentiate between conditional and binding receipts.

Question 51

The comprehensive glass policy insures against all glass breakage except those caused by:

A)earthquake, war, or terrorist activities.
B)fire, flood, or earthquake.
C)fire, war, or nuclear peril.
D)flood, hurricane, or volcanic eruptions.
E)hurricane, earthquake, or nuclear peril.

Question 52

Identify the losses that occur when an organization is unable to sell its goods or services, and/or unable to produce goods for sale because of direct or indirect loss.

A)Accidental losses
B)Punitive losses
C)Business interruption losses
D)Extra expense losses
E)Preventative losses

Question 53

The _____ value of a life insurance policy represents the value paid upon the insured's death.

A)death
B)face
C)life-time
D)economic
E)premium

Question 54

To buy an insurance contract, the insured is required to make a(n) _____, which is an offer to buy insurance.

Question 55

Which of the following are damages assessed against defendants for gross negligence, supposedly for the purpose of punishment and to deter others from acting in a similar fashion?

A)Contingent damages
B)Bodily damages
C)Punitive damages
D)Facultative damages
E)Personal damages

Question 56

The 1992 Chicago flood required that Marshall Fields downtown store close its doors for several days while crews worked to clean up damage caused by the flood waters.If Marshall Fields reduced its orders to suppliers of its goods, these suppliers would experience losses caused by the water damage, even though their own property was not damaged.Identify these losses.

A)Dependent losses
B)Contingent business interruption losses
C)Extra expense losses
D)Preventative losses
E)Facultative business interruption losses

Question 57

Summarize the difference between named-perils policy and open-perils policy.

Question 58

Policies that cover loss of use of property without physical damage to the property are called:

A)accidental losses.
B)punitive losses.
C)direct losses.
D)extra expense losses.
E)consequential losses.

Question 59

_____ loss to property is the value that is physically destroyed or damaged, not the loss caused by inability to use the property.

A)Consequential
B)Accidental
C)Business interruption
D)Direct
E)Indirect

Question 60

Distinguish between direct and indirect loss.

Question 61

Policies written on a named-perils basis cannot cover all possible causes of loss because of "_____ peril."

Question 62

A(n) _____ policy covers only losses caused by the perils listed in the policy.

Question 63

_____ refers to losses caused by characteristics of the insured property.

Question 64

The _____ receipt provides interim coverage while your application is being processed, whether or not you are insurable.

Question 65

_____ represent the third major part of an insurance policy and explicitly identify losses not covered by the policy.

Question 66

When loss is caused by property damage not owned by the business, it is considered a(n) _____.

Question 67

The second major element of an insurance contract, the _____, specifies the perils and exposures covered, or provide some indication of what they might be.

Question 68

A policy clause, termed _____ clause, addresses the potential problem of duplicating coverage when two or more similar policies cover the same exposure.

Question 69

The maximum amount payable by the insurance policy is known as _____.

Question 70

The purpose of the _____ clause is to force insureds to perform the way they would if they did not have insurance.

Question 71

A(n) _____ makes a change in the property/casualty insurance policy to which it is attached.

Question 72

When a(n) _____ is incurred in an insurance contract, coverage is terminated.

Question 73

A(n) _____ policy was formerly called "all risk" policy.

Question 74

A(n) _____ makes a change in the life/health insurance policy to which it is attached.