Deck 19: Insurance

Question 1

Johnny pays $600 for six months of automobile insurance. This payment is called the policy.

Answer 1

False
Explanation: The insurance contract is called the policy; Johnny's payment is called the premium.

Question 2

Insurance transfers the risk of economic loss from the insured to the insurance company.

Answer 2

True
Explanation: Insurance is the transfer of the risk of economic loss, for a fee, from the insured to the insurer. Small contributions by a large number of people provide sufficient funds, with the help of properly managed investment opportunities, to protect the losses that are suffered by a few as they occur on an annual basis.

Question 3

If an insured person becomes disabled, he or she will be excused from paying premiums if he or she has purchased a waiver of premium option.

Answer 3

True
Explanation: The waiver of premium option excuses the insured from paying premiums if he or she becomes disabled. Some insurance policies automatically include the waiver in their provisions; others offer it as an extra-cost option.

Question 4

Tia is severely injured in an auto accident and dies four months later from these injuries. Her beneficiaries may collect under a double indemnity provision.

Question 5

David's house suffers $5,000 of water damage due to the fire department fighting a fire at his house. David may recover for this loss under his fire insurance policy.

Question 6

During inflationary times, when bank interest rates are high, insurance policies are usually poor sources for loans at low interest rates.

Question 7

Coinsurance covers goods that are moved by land carriers such as rail, truck, and airplane.

Question 8

Decreasing term insurance reduces the premium over time.

Question 9

If Viva, who is 38, has low income, she automatically qualifies for Medicare, a federally funded health insurance program.

Question 10

Carl takes out insurance on his life and names a homeless stranger, Troy, as beneficiary. Troy can collect the life insurance when Carl dies.

Question 11

Ted, one of the consultants in a two-man business, cannot take life insurance on his business partner, Brendan, because he does not have an insurable interest in Brendan's life.

Question 12

An insurance policy is an unconditional promise to pay money a claim.

Question 13

Insurance companies have the right to step into the shoes of the party they compensate and sue any party whom the compensated party could have sued.

Question 14

When the insurance company gives up one of its rights to help the insured, the company has made a waiver.

Question 15

An individual takes out a typical life insurance and commits suicide three years later. The beneficiary may collect the insurance.

Question 16

Property insurance can be made less expensive by the use of a deductible.

Question 17

Sagan forgets to list in his health insurance application that he broke his arm at age five. He is not guilty of fraudulent concealment.

Question 18

The cash surrender value of a straight life insurance policy equals the face value of the policy at a stated age (usually ninety-five or hundred years).

Question 19

To avoid risk while waiting for an insurance policy to be formally accepted, an insured may choose to have the insurer issue a binder to provide interim coverage.

Question 20

Under bodily injury liability automobile insurance, the insurer is liable for damages up to the limit of the insurance purchased.

Question 21

Joe had made an agreement with Auto Insurance Co. not to use his van for commercial business purposes when he purchased auto insurance. Joe had an accident while delivering pizzas for Bigger Pizza, Inc. For which type of violation will Joe not be covered under his insurance?

A) Fraudulent concealment
B) Misrepresentation
C) Concealment
D) Breach of warranty

Question 22

Universal life insurance allows the policy owner to modify the:

A) face value of the policy and the premiums.
B) face value of the policy, but not the premiums.
C) premiums, but not the face value of the policy.
D) face value of the policy and obtain refunds of premiums already paid.

Question 23

Peter lost control of his car and drove it though his neighbor Clyde's fence. If Clyde were to bring a claim against Peter for the damage to the fence, what type of insurance would Peter need to cover the damage?

A) Homeowner's insurance
B) Property damage liability insurance
C) Collision insurance
D) No-fault insurance

Question 24

In most states, an innocent misrepresentation by the insured would make the policy:

A) voidable by the insurer.
B) voidable by the beneficiary.
C) enforceable, since there was no intentional misconduct.
D) enforceable to a reasonable amount as determined by the court.

Question 25

____________ insurance offers protection alone, and is the least expensive kind of life insurance.

A) Straight life
B) Universal life
C) Limited-payment life
D) Term

Question 26

Faith owes $50,000 to Investment Lenders, Inc., a partnership of Cindy and Ryan. She is also a partner with Tom in a business venture. What insurable interests exist in this situation?

A) Faith has an insurable interest in the lives of Cindy and Ryan.
B) Investment Lenders, Inc. has an insurable interest in Tom, but does not have an insurable interest in Faith.
C) Only Tom and Faith have insurable interests.
D) Tom and Faith have insurable interests in each other's lives and Investment Lenders, Inc. has an insurable interest in Faith.

Question 27

A(n) ____________ will provide temporary insurance coverage until the policy is formally accepted.

A) premium
B) adhesion contract
C) binder
C) warranty

Question 28

____________ coverage permits a driver to buy optional coverage, such as personal injury insurance, that would allow him or her to receive payment without bothering to determine fault.

A) Comprehensive
B) Add-on
C) Threshold
D) Collision

Question 29

Which of the following is true of coinsurance?

A) It is rarely found in property insurance policies.
B) It allows the insured to pay an extra premium initially in exchange for a guaranteed option to buy more insurance at certain specified times later.
C) It excuses the insured from paying premiums if he or she becomes disabled.
D) It is a provision under which the insurer and the insured share costs, after the deductible is met, according to a specific formula.

Question 30

What type of insurance policy requires the payment of premiums throughout the life of the insured and pays the beneficiary the face value of the policy upon the insured's death?

A) Limited-payment life insurance
B) Universal life insurance
C) Straight life insurance
D) Term life insurance

Question 31

An uninsured motorist drove through a red light and hit the passenger side of David's car. David, the driver, suffered a concussion, and the passenger, Jayne, broke her right arm and leg. David's car sustained extensive damages that would cost $2,000 to repair. If David has uninsured-motorist insurance, the coverage will:

A) protect David, but not Jayne.
B) protect David and Jayne and reimburse David for the $2,000 in damages to his car.
C) protect David and Jayne, but not cover any of the damages to David's car.
D) cover any injuries sustained by the uninsured motorist, to prevent the motorist from suing David.

Question 32

If an insured purchases a guaranteed insurability provision on a life insurance policy, the:

A) insured is allowed to pay an extra initial premium in exchange for an assured option to buy more insurance at certain specified times later with no questions asked.
B) insurer is allowed to excuse the insured from paying premiums if the insured becomes disabled.
C) insured has to pay an extra $25 in exchange for a guarantee of coverage by the insurance, should the insured become disabled.
D) insurer has to pay double the amount of the policy to the beneficiary if the insured dies from accidental causes.

Question 33

The ____________ accepts the risk of loss in return for a premium.

A) insured
B) insurer
C) beneficiary
D) benefactor

Question 34

Stanley falls into the low-income group. Which of the following health care plans can Stanley opt for?

A) Medicaid
B) Long-term care insurance
C) Medicare
D) Mediclaim

Question 35

The insurance company's liability under comprehensive coverage is limited to the ____________ of the vehicle at the time of the loss.

A) actual cash value
B) outstanding loan value
C) replacement value
D) stated value

Question 36

Lucia had a homeowner's insurance policy on her house. While she was away on vacation, her porch got burned to the ground. After the fire, her house was burglarized and goods worth thousands of dollars were stolen from it. When Lucia arrived home, she called the police. While a police officer was interviewing her in her dining room, a chandelier fell on him and knocked him unconscious. Which losses will Lucia's homeowner's policy cover?

A) The losses due to theft and the injuries sustained by the officer, but not the losses incurred by the fire.
B) The losses due to fire and the injuries sustained by the officer, but not the losses incurred by theft.
C) The losses incurred due to fire and theft, but not the injuries suffered by the police officer while on her property.
D) The losses incurred due to fire and theft as well as the injuries suffered by the police officer while on her property.

Question 37

A(n) ____________ is an amount of any loss that is to be paid by the insured and can be a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid.

A) loan value
B) deductible
C) annuity
D) cash surrender value

Question 38

A protection that insures property that cannot be covered by specific insurance because the property is constantly changing in either value or location is referred to as a(n):

A) floater policy.
B) collision insurance.
C) annuity.
D) coinsurance.

Question 39

Bill has a $500,000 life insurance policy naming his minor children as beneficiaries. Bill is shot and killed while breaking into his neighbor's home. Will Bill's children likely be able to collect the life insurance proceeds?

A) No, policies often do not cover the insured when he/she violates the law.
B) Yes, as it would not be against public policy for beneficiaries to receive insurance proceeds in such a case.
C) Yes, but not entirely. They will be given an allowance for necessaries with the balance going to others.
D) No, all the proceeds will go to a state administrated crime victims' fund.

Question 40

Kaycee obtains fire insurance on an empty warehouse. Later, Kaycee manufactures and stores fireworks in the building. A lightning strike in a thunderstorm explodes the fireworks and destroys the building. The fire insurance policy is:

A) valid, since the building was empty when the policy was obtained.
B) void, since a material change in risk occurred.
C) voidable if the lightning was not foreseeable.
D) valid, since there are negligible liabilities which applies to storing fireworks.

Question 41

Malone purchased a painting by Van Gogh and took out a $1 million insurance policy on it. He later sold the painting, but continued to make payments on the policy. When the painting was destroyed by vandals, Malone tried to collect $1 million from the insurance company. Evaluate the situation.

Question 42

While Leah and Grant were lawfully married, Leah had purchased a $500,000 life insurance policy on Grant's life, naming herself as the beneficiary. Subsequently they got divorced and Grant died a year later. Grant leaves two surviving children, Tom and Cindy. Who is likely to receive the proceeds of the $500,000 life insurance policy?

Question 43

Lane mails a $600 check for his $50,000 home policy with Surround Insurance Co. two months late. Surround cashes the check. Two weeks later, the house is destroyed by fire. When Lane attempts to collect the $50,000 in policy proceeds, Surround asserts that the policy had lapsed and offers to refund the $600 payment. Discuss the legal rights and obligations of Lane and Surround Insurance Co.

Question 44

Logan's building has a replacement cost of $500,000 and his fire insurance policy has an 80% coinsurance clause. Logan has $200,000 of insurance on the building which is completely destroyed by fire. Discuss how much Logan will collect from the fire insurance policy.

Question 45

Titan Insurance Co. pays the damages for Anna's car. The damages were a result of an accident caused by Earl, who was drunk while driving. Discuss Titan's legal rights in this situation.

Question 46

Melinda hits a hole in the road while driving down the highway. Her car's axle breaks, resulting in $2,500 of damages. Discuss if Melinda has coverage under any form of auto insurance.

Question 47

Juanita's grandfather loans valuable artwork to the Art Museum on the condition that the same will go to Juanita if the museum closes. She wants to purchase property insurance on the art work because she feels that it would be a great loss if any mishap occurs. Discuss the legal implications of this situation.

Question 48

Taft takes out an insurance policy on his wife, Kathryn, when he learns that she is to be stationed in another country that is at war. She gets killed while on duty in the war zone. Can Taft collect on the life insurance policy? Explain.

Question 49

Grant, a construction worker, purchased a double indemnity option from his life insurance company. Several years later, Grant was seriously injured in a construction accident. Four months after the accident, Grant died as a result of the bodily injuries he sustained in that accident. When Grant's wife, the beneficiary, attempted to collect double the amount of the policy, the insurer informed her that she was only entitled to the original amount of coverage. Analyze the case.

Question 50

At 18, Jackson purchased a straight life insurance policy with a face value of $20,000. At a later time, he borrows a loan value against the cash surrender value of the policy. However, Jackson dies unexpectedly while the loan is still outstanding. Discuss the case.