Deck 47: Insurance

Question 1

With a binder, an applicant for insurance obtains temporary coverage before the insurance company accepts or rejects the application.

Answer 1

True

Question 2

To encourage an owner to insure his or her property for an amount as close to full value as possible, a fire insurance policy can include a coinsurance clause.

Answer 2

True

Question 3

Because types of losses that are expected and types that are foreseeable vary with the nature of an activity, insurance is classified according to the nature of the risk involved.

Answer 3

True

Question 4

In most situations, state law determines the status of all parties writing or obtaining insurance.

Question 5

An insured with multiple insurance policies covering a loss can collect only each insurer's proportionate share of the liability relative to the total amount of insurance.

Question 6

Because an insurance agent is an agent of an applicant for insurance, not the insurance company, the agent owes fiduciary duties to the applicant.

Question 7

Insurance contracts are usually obtained through an agent, who works as an independent contractor.

Question 8

Insurance is a contract in which the insurer promises to reimburse the insured or a beneficiary in the event of a loss.

Question 9

Customarily, an insurance company offers to insure individuals and businesses by advertising for applicants, who can either accept or reject the offer.

Question 10

Without an insurable interest, there can be no enforceable insurance contract.

Question 11

By insuring property, its owners protect themselves.

Question 12

Insurance is an arrangement for transferring and allocating risk.

Question 13

Because an insurance contract is governed by the principles of contract law, for the contract to be binding, consideration must be given.

Question 14

Courts interpret insurance policies as containing any provisions mandated by statute.

Question 15

An insurable interest in property need not exist when a policy insuring against its damage or loss is purchased.

Question 16

A person can insure anything, even if he or she does not have an insurable interest in it.

Question 17

If a statute requires that any limitations on coverage be stated in an insurance contract, an insurer can avoid liability by relying on an unexpressed restriction.

Question 18

Life insurance requires that an insurable interest in the continued life of the insured exist when a policy is obtained.

Question 19

Insurance policies differ in relation to the interests that they protect because the types of losses that are expected vary with the nature of an activity.

Question 20

Courts interpret the words used in an insurance policy as if most people have the special training necessary to understand the intricate terminology.

Question 21

An insurer can cancel, or refuse to renew, a policy for any reason, including a reason that would otherwise violate public policy.

Question 22

A creditor generally can reach insurance proceeds payable under a life insurance policy if the payment of the premiums constituted a fraud on the creditor.

Question 23

Greta applies for a homeowners' policy with Home Insurance Company through Ivy, an insurance agent. As a general rule, Home is bound by

A)Ivy's acts.
B)Greta's acts.
C)the acts of both Greta and Ivy.
D)the acts of neither Greta nor Ivy.

Question 24

In the absence of exclusion in a life insurance contract, a court is most likely to construe any cause of death to be one of the insurer's risks.

Question 25

An insurance broker is most likely

A)an employee of an insurance company.
B)an independent contractor.
C)an underwriter.
D)a beneficiary.

Question 26

Liability coverage under a homeowner's insurance policy normally does not apply to liability that arises from business or professional activities.

Question 27

An insured's interest in a life insurance policy is not generally an asset that can be subject to the rights of a judgment creditor.

Question 28

Rizzo obtains a fire insurance policy on his apartment building with Safe-wise Insurance Company. This policy is an arrangement for

A)avoiding the assumption of responsibility.
B)predicting a potential loss based on unknown factors.
C)shifting the imposition of liability.
D)transferring and allocating risk.

Question 29

For a business, comprehensive general liability insurance can protect against liability for physical injuries and for the loss of financial support suffered by a family due to the injuries.

Question 30

Good faith requires the party who is applying for insurance to reveal everything necessary for the insurer to evaluate the risk of issuing a policy.

Question 31

Once an insurer has accepted a risk, and an event occurs that gives rise to a claim, the insurer has a duty to investigate to determine the facts.

Question 32

If an insurer in bad faith denies coverage for a claim, the insured may sue, but can recover no more than the policy's coverage limits.

Question 33

An insurance company can raise as a defense against payment on a policy any of the defenses that would be valid in an ordinary action on a contract.

Question 34

A life insurance contract determines only the extent of the insurer's liability on the death of the insured.

Question 35

As a condition for recovery, a fire insurance policy may require an insured to file a proof of loss, but the insurer cannot avoid liability for a failure to comply.

Question 36

When it is unclear whether an insurance contract actually exists because a written policy has not been delivered, the uncertainty is normally resolved against the insured.

Question 37

Coverage can be procured under a comprehensive general liability policy to include payment for expenses to recall and replace a product that has proved to be defective.

Question 38

Before a loss has occurred, a fire insurance policy is assignable without the consent of the insurer, because the policy is not regarded as a personal contract between the insurer and the insured.

Question 39

Commerce Insurance Corporation promises to compensate Data Company on the death of Elko, a key Data executive. This contract is

A)a statutory mandate.
B)a binder.
C)a wager.
D)insurance.

Question 40

Actuarial Insurance Inc. collects and analyzes data to estimate the frequency and costs of the claims of its insured. A prediction concerning potential loss based on known and unknown factors is

A)business management.
B)a binding forecast.
C)a wager on liability.
D)risk.

Question 41

Miles obtains a property insurance policy from Nova Insurance Company for Miles's restored 1957 Chevy. Nova can cancel the policy if Miles

A)fails to pay the premiums.
B)files a claim under the policy.
C)appears as a witness in a case brought against Nova.
D)any of the choices.

Question 42

Salvage Yard obtains an insurance policy to protect against losses incurred by the firm as a result of being held liable for personal injuries or property damage sustained by others. This is

A)casualty insurance.
B)fire insurance.
C)major medical insurance.
D)malpractice insurance.

Question 43

Jin, the insured under a life insurance policy, fails to pay the premium on its due date but makes the payment within the next thirty days. Ordinarily, under an antilapse clause, this policy would

A)automatically lapse.
B)not be canceled.
C)be subject to arbitration concerning the propriety of the payment.
D)be adjusted proportionate to the delay in the premium payment.

Question 44

Red obtains a fire insurance policy on his vacation cabin near Smoky Mountain from Torchlight Insurance Company. The cabin is lost in a fire, but the parties dispute the amount of Torchlight's liability under an ambiguous clause in the policy. A court would most likely

A)interpret the clause against Red.
B)interpret the clause against Torchlight.
C)rewrite the clause and apply it as rewritten.
D)strike the clause from the policy.

Question 45

Fresco Inc. insures the life of Giotto, a key Fresco executive. Giotto leaves the firm to work for HVAC Company. Fresco continues to pay the premiums on the policy. Giotto subsequently dies. Benefits under the policy can be collected by

A)Giotto's estate.
B)Fresco.
C)HVAC.
D)none of the choices.

Question 46

Neon Signs LLC wants to insure the equipment and supplies that it uses to create its products. To obtain insurance, Neon must have an insurable interest in the property

A)at the time a premium is paid.
B)at the time a loss occurs.
C)at the time a policy is obtained.
D)continuously from the time a policy is obtained to the time a loss occurs.

Question 47

Bjorg applies for a life insurance policy to be issued by Credible Insurance Inc. If a dispute arises between the parties concerning the settlement of a claim, the insurer wants the dispute to be submitted to an impartial third party, not a court, for resolution. Under an arbitration clause, this would be

A)permitted, but not required.
B)required.
C)prohibited.
D)restricted, but not prohibited.

Question 48

Burgers & Brews Inc. applies for, and obtains, casualty insurance coverage from Corporate Insurance Company. The effective date of the policy is the date

A)the application is submitted.
B)the premium is accepted.
C)the policy is issued.
D)specified in the application as the effective date.

Question 49

Dash Delivery wants to procure an insurance policy that protects it against liability for property damage resulting from the operation of its vehicle. This would be

A)unobtainable.
B)liability insurance.
C)malpractice insurance.
D)automobile insurance.

Question 50

Because the types of losses that are expected and the types that are foreseeable or unforeseeable vary with the nature of an activity, insurance is classified according to

A)the targeted market of the insurer.
B)the identity of a policy's beneficiary.
C)the nature of the risk involved.
D)the personal interest of the insured.

Question 51

Conflagration Insurance Corporation promises to compensate Dakota for property damage and personal injuries resulting from fire. This may be

A)automobile insurance.
B)fire insurance.
C)homeowner's insurance.
D)any of the choices.

Question 52

Eden Orchards, the insured under a policy with Farm Insurance LLC, files a claim for a covered loss. The parties cannot agree on the amount of the loss. Under an appraisal clause,

A)the loss will be shared proportionately by the insurer and the insured.
B)an estimate by an impartial, qualified third party can be demanded.
C)the dispute will be submitted to an impartial third party for resolution.
D)the loss will be appraised to the difference between the disputed values.

Question 53

Quinn applies to Real Insurance Company for property insurance. Real issues a policy but later discovers that the application includes misstatements. The misstatements can void the policy if the insurer can show that

A)the broker who obtained the policy did not know the true facts.
B)Quinn would not have applied for a policy if he had foreseen avoidance.
C)the agent who wrote the policy did not investigate the facts.
D)Real would not have issued the policy if it had known the facts.

Question 54

Verity Insurance Inc. promises to pay, for a certain period of time, a portion of the monthly wages of the employees of Wood Products Company whose illnesses or injuries cause disability. This is

A)ability insurance.
B)capability insurance.
C)disability insurance.
D)liability insurance.

Question 55

Rena is the chief executive officer for Sales Inc., a successful market research firm. The company obtains insurance on Rena's life from Tempo Insurance Company. This is

A)key-person insurance.
B)liability insurance.
C)life insurance.
D)none of the choices.

Question 56

Cutting Edge Corporation makes and sells knives, scissors, garden shears, and other cutting devices. To cover injuries to consumers if the products prove defective, Cutting Edge should obtain

A)malpractice insurance.
B)key-person insurance.
C)liability insurance.
D)life insurance.

Question 57

Seasonal Resort Company applies for an insurance policy with Trustworthy Insurance Inc. through an agent who works for the insurer. The applicant pays the initial premium. The agent writes a binder, which

A)acknowledges the application and promises to consider it.
B)attests to the truth of each statement in the application
C)evidences receipt of the payment of the initial premium.
D)indicates that a policy is pending and states its essential terms.

Question 58

Raj obtains an insurance policy from Secure Insurance Inc. The policy provides that on Raj's death the insurer will pay $500,000 to Raj's spouse. This is

A)major medical insurance.
B)key-person insurance.
C)life insurance.
D)all-risk insurance.

Question 59

Mia applies for an insurance policy with National Insurance Company through a broker. Mia pays the initial premium, but the broker fails to procure the policy. Mia is

A)covered until the due date of the subsequent premium.
B)protected until National accepts or rejects the application.
C)protected from the time of the application until the end of the policy.
D)not insured.

Question 60

Energy Inc. obtains insurance policies with Fidelity Insurance Company and Good Insurance Inc. against the risk of loss of Energy's property. Each policy includes a multiple insurance clause. A fire destroys one of Energy's buildings. The insured can collect from either insurer

A)all of the loss.
B)half of the loss.
C)its proportionate share of the loss to the total amount of insurance.
D)none of the loss.

Question 61

Architecture P.A. obtains an insurance policy that protects its professionals against negligence claims by their clients. This is

A)product liability insurance.
B)general liability insurance.
C)professional malpractice insurance.
D)workers' compensation insurance.

Question 62

Estimable Credit Company loans funds to Farmland Granaries LLC to buy a silo. Estimable obtains an insurance policy from Grangers Insurance Inc. to cover the silo. Farmland also obtains a policy from Grangers to cover the silo. Later, Farmland sells the silo to Hi-Yield Harvest Company but keeps the policy. Hi-Yield also obtains a policy from Grangers to cover the silo. Estimable agrees to finance Hi-Yield's purchase of the property. A fire totally destroys the silo. Who can recover for the loss?

Question 63

Quia obtains a fire insurance policy on her house from Residential Insurance Company. Later, after she moves out and the house is empty, a fire destroys the structure. Most fire insurance policies require that at the time of a loss, the insured premises be

A)vacant and uninhabitable.
B)occupied.
C)unoccupied but habitable.
D)empty.

Question 64

Chik is injured in an accident caused by Dylan's negligence. Chik files a claim to recover for the injury under Dylan's homeowners' policy. Liability coverage under this policy normally applies to liability that arises from

A)business or professional activities.
B)the operation of a motor vehicle.
C)intentional misconduct.
D)none of the choices.

Question 65

Quality Insurance Company issues a business liability policy to Rapid River Tours Inc. When an event occurs that gives rise to a claim, the insurer has a duty to

A)investigate to determine the facts.
B)file a suit against the insured so that a court can settle the claim.
C)find a third party on whom to impose liability.
D)refund any unearned amount of the premium.

Question 66

Gus obtains an insurance policy from Health Insurance Inc. The policy includes an incontestability clause. Under this clause, after the policy has been in force for two or three years

A)Gus cannot contest Health's insurable interest.
B)Gus cannot contest Health's refusal to pay a claim under the policy.
C)Health cannot contest Gus's eligibility for continued coverage.
D)Health cannot contest Gus's statements in the application.

Question 67

Anya obtains a liability insurance policy for her Bubble Tea Bistro from Choice Insurance LLC. In their dealings, the parties must

A)act in good faith.
B)attempt to deny or reduce any claim.
C)prevent the other from asserting certain defenses.
D)have an insurable interest.

Question 68

Riverside Storage obtains a fire insurance policy from Security Insurance Inc., on a $400,000 warehouse. The policy includes an 80-percent coinsurance clause. Riverside insures the property for $320,000. In a fire, the warehouse suffers $200,000 in damage. The insured can recover

A)$400,000.
B)$320,000.
C)$200,000.
D)$80,000.

Question 69

Sid obtains a life insurance policy with no cash surrender value and names his daughter Teri as the beneficiary. This is

A)whole life insurance.
B)limited-payment life insurance.
C)universal life insurance.
D)term insurance.

Question 70

Commerce Insurance Inc. has a valid reason to cancel a policy issued to DIY Auto Parts LLC. In most states, the insurer could cancel the policy on

A)advance oral or written notice.
B)oral or written notice but only after arbitration.
C)no notice.
D)advance written-not oral-notice.

Question 71

Rob applies to Standard Insurance Company for a life insurance policy. On the application, Rob understates his age. Rob obtains the policy, but for a lower premium than he would have had to pay had he disclosed his actual age. The policy includes an incontestability clause. Five years later, Rob dies. Can Standard refuse payment on the policy?

Question 72

Signs Inc., a trade fixture installer, wishes to insure itself against injuries to employees and others on the premises during and after work hours. This business should obtain

A)workers' compensation insurance.
B)general liability insurance.
C)product liability insurance.
D)professional malpractice insurance.