Deck 35: Insurance

Question 1

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

Answer 1

True

Question 2

In some instances, the insurance applicant is not protected until a formal written policy is issued.

Answer 2

True

Question 3

A loss sustained before the effective date of an insurance contract will still be covered by the policy.

Answer 3

False

Question 4

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

Question 5

Liability insurance protects a business in the event of the death disability of a key employee.

Question 6

Insurance protection may compensate for the injury or death of the insured, but not for the injury or death of another.

Question 7

Customarily, a party offers to purchase insurance by submitting an application to an insurance company.

Question 8

A person must have an insurable interest in something in order to insure it.

Question 9

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

Question 10

Misstatements in an insurance application can void a policy.

Question 11

Insurance policies are governed by the general principles of contract law.

Question 12

Insurance is an arrangement for transferring and allocating risk.

Question 13

An insurance agent is an agent of an applicant for insurance, not the insurance company.

Question 14

Group insurance provides individual coverage obtainable by persons who are members of certain groups.

Question 15

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

Question 16

Insurance policies differ in relation to the persons and interests that they protect.

Question 17

Insurance companies deal with risk through risk dodging .

Question 18

An insurance contract is called a premium .

Question 19

When a broker deals with an applicant for insurance, the broker is the applicant's agent.

Question 20

A filled-in application for insurance is usually attached to the policy and made of the insurance contract.

Question 21

Bram applies for a homeowners' insurance policy with Castle Insurance Inc. through Dian, an agent. In this transaction, Dian is

A) an agent for both parties.
B) Bram's agent, not Castle's agent.
C) Castle's agent, not Bram's agent .
D) an agent for neither party.

Question 22

Incontestability clauses prevent the insurer from asserting certain defenses.

Question 23

Ross applies for a life insurance policy with Secure Insurance Company. The consideration Ross pays to the insurer is

A) a premium.
B) a pool .
C) a policy.
D) proceeds.

Question 24

The insurer can cancel a policy only under certain circumstances.

Question 25

Insurance protection may compensate for

A) the injury or death of the insured or another.
B) the injury or death of someone other than the insured .
C) such losses as those resulting from lawsuits.
D) all of the choices.

Question 26

State statutes commonly require that life and health insurance policies do not include incontestability clauses.

Question 27

An insurer does not have a duty to investigate and provide reasons for any decision to deny or reduce a particular claim.

Question 28

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 29

Actions that are against public policy can give the insurance company a defense against the payment of a claim.

Question 30

Under an appraisal clause , ordinarily the insured has a grace period within which to pay an overdue premium before the policy is canceled.

Question 31

If there is no ambiguity in an insurance policy, the policy generally is interpreted against the insurance company.

Question 32

A state statute usually requires that the insurer give advance written notice of the cancellation of a policy to the insured.

Question 33

An insurer can cancel a policy because the insured has appeared as a witness in a case against the insurance company.

Question 34

Charlie is an insurance broker . This means that Charlie is most likely

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

Question 35

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

Question 36

A person who is obtaining insurance from an insurance company's agent is not protected until a formal, written policy is issued.

Question 37

If the parties to an insurance contract agree that a policy will be issued and delivered at a later time, the contract is not effective until the policy is issued and delivered.

Question 38

Nick is the beneficiary of a life insurance policy on Ollie's life obtained from Peoples Insurance Company through Quinn, an insurance broker. The insurer of this policy is

A) Nick.
B) Ollie .
C) Peoples Insurance.
D) Quinn.

Question 39

If a person hires a broker to obtain insurance, and the broker fails to secure a policy, the applicant is normally insured by a binder.

Question 40

A binder is a written, permanent insurance policy.

Question 41

Construction Cranes LLC wants to insure the equipment that it leases to its customers. To obtain insurance, the company 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 42

Dyan and Ed are partners who own and operate Footlong's, a chain of hot-dog stands. Their partnership obtains insurance on their lives. This is

A) disability insurance.
B) death insurance.
C) key-person insurance.
D) liability insurance.

Question 43

World Hotels, Inc., insures its real and personal property to protect its financial interest should some event undermine its security. This is risk

A) management.
B) pooling.
C) dodging.
D) imposition.

Question 44

Jason wants to insure himself against injuries and damage resulting from the operation of his taxi that he owns. Jason should obtain

A) automobile insurance.
B) disability insurance.
C) group insurance.
D) life insurance.

Question 45

Darlene owns and operates an organic farm with her son Evan. Darlene obtains an insurance policy from Farm Insurance Company to pay $1 million to Evan on Darlene's death. This is

A) a lack of good faith.
B) a misrepresentation that will void the policy.
C) liability insurance.
D) life insurance.

Question 46

Ron applies to Stately Insurance Company for homeowners' insurance. The company issues a policy, but later discovers that Ron's application includes several misstatements. Most likely, these misstatements can

A) affect the coverage under the policy but cannot void the policy.
B) bind Ron but cannot affect the coverage.
C) not bind Ron or affect the policy.
D) void the policy.

Question 47

Multi-Enterprise Corporation offers its employees, as an employment benefit, individual medical insurance coverage. This is

A) liability insurance.
B) disability insurance.
C) group insurance.
D) key-person insurance.

Question 48

Adrian applies for, and obtains, casualty insurance coverage from Business Insurance Company for his business, Class Courses LLC. The effective date of the policy is the date

A) Adrian submits the application.
B) Business Insurance accepts the first premium.
C) Business Insurance issues the policy.
D) the application specifies as the effective date.

Question 49

Irene obtains an insurance policy that protects her against some risks of loss to the contents of her residence. This is

A) homeowners' insurance.
B) key-person insurance .
C) group insurance.
D) liability insurance.

Question 50

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

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

Question 51

Donald applies for a life insurance policy with Equity Insurance Company through Fletch, an agent who works for Equity. Donald pays the initial premium. Fletch 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 52

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) group insurance.
B) key-person insurance.
C) liability insurance.
D) life insurance.

Question 53

Leon obtains an insurance policy that will replace a portion of his monthly income from employment in the event that illness or injury causes a disability. This is

A) disability insurance.
B) liability insurance .
C) illness and injury insurance.
D) key-person insurance.

Question 54

Long-life Insurance Company insures a large number of people with the knowledge that only a small proportion of them will die in any one year. The large number of premiums provides the funds to pay for the small number of deaths. This is risk

A) management.
B) pooling.
C) dodging.
D) imposition.

Question 55

Commercial Storage Corporation obtains an insurance policy that covers losses to the insured as a result of fire.  This is

A) group insurance.
B) fire insurance.
C) liability insurance.
D) key-person insurance.

Question 56

Roma obtains a fire insurance policy on her house with Safe-wise Insurance Company. This policy is an arrangement best described as

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 57

Greta applies for a homeowners' policy with Homewood Insurance Company through Ivy, an insurance agent. As a general rule, Homewood 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 58

Insurance companies deal with risk by

A) confining the risk to a small number of people.
B) avoiding the risk through legal tactics.
C) spreading the risk among a large number of people.
D) imposing the risk on third-party individuals and businesses.

Question 59

Rick obtains an insurance policy from Stable Insurance Inc. The policy provides that on Rick's death Stable will pay $500,000 to Taylor, the beneficiary. This is

A) health insurance.
B) key-person insurance .
C) life insurance.
D) disability insurance.

Question 60

Dino is the beneficiary of a life insurance policy on Erin's life obtained from Fidelity Insurance LLC through Gillian, Fidelity's agent. The insured of this policy is

A) Dino.
B) Erin .
C) Fidelity Insurance.
D) Gillian.

Question 61

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

Question 62

Commerce Insurance, Inc., has a valid reason to cancel a policy issued to DIY Auto Parts Company. In most states, Commerce 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 63

Donovan obtains from Equity Insurance Company a policy that provides that if the parties cannot agree on the amount of a loss covered by the policy, an estimate of the value by an impartial third party can be demanded. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 64

Clark obtains from Dependable Insurance Inc. a policy that provides if a dispute arises between the parties concerning the settlement of a claim, the dispute must be submitted to an impartial third party, not a court, for resolution. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 65

Anne obtains a liability insurance policy for her Bagels & Coffee Shop from Choice Insurance Company. In their dealings, both parties must

A) be open and honest .
B) attempt to deny or reduce any claim.
C) prevent the other from asserting certain defenses.
D) have an insurable interest.

Question 66

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 67

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) considers insurance with a rival firm.

Question 68

Gina obtains an insurance policy from Hope Insurance Company. The policy includes an incontestability clause. Under such a clause, after a policy has been in force for a specified period of time, such as two or three years

A) Gina cannot enter a contest sponsored by Hope or its affiliate.
B) Gina cannot contest Hope's refusal to pay a claim under the policy.
C) Hope cannot contest Gina's eligibility for continued coverage.
D) Hope cannot contest Gina's statements in the application.

Question 69

Gil obtains from Health Insurance Company a policy that provides that Gil has thirty days after a premium's due date to pay it before the policy will be canceled. This is

A) an arbitration insurance clause.
B) an antilapse clause.
C) an appraisal clause.
D) an incontestability clause.

Question 70

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 71

Energy Inc. obtains an insurance policy with Fidelity Insurance Inc. that provides if the parties cannot agree on the amount of a covered loss, either party can demand an estimate by an impartial and qualified third party. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 72

Dominion Insurance Company tells its customer Elise that she need not respond to questions about her national origin or race on her application. Elise provides the information anyway. The insurer can

A) use the information to cancel the policy.
B) not use the information to cancel the policy.
C) use the information to refuse to renew the policy.
D) use the information for any purpose.