Deck 13: Property and Liability Insurance: Protecting Your Lifestyle Assets

Question 1

If those who are in ill health purchase health insurance and this raises the premiums for all of the insureds,this would be an example of

A)a non-insurable interest.
B)adverse selection.
C)moral suasion.
D)pure risk.

Answer 1

adverse selection.

Question 2

Which of the following is not an example of risk reduction?

A)Wearing seat-belts
B)Looking both ways before you cross the street
C)Purchasing homeowner's insurance
D)Installing a smoke detector

Answer 2

Purchasing homeowner's insurance

Question 3

Indemnification

A)means that the insurance proceeds will return you to your pre-loss financial status.
B)permits the insurance company to sue you for negligence.
C)means that your insurance company has first claim on any court-awarded damages.
D)applies only on life insurance covering the entire family.

Answer 3

means that the insurance proceeds will return you to your pre-loss financial status.

Question 4

If you lower the probability of loss by taking preventive action you are engaging in which one of the following risk management strategies?

A)Risk avoidance
B)Risk reduction
C)Risk retention
D)Risk transfer

Question 5

Which of the following is an example of risk transfer?

A)Buying a car with air bags
B)Only crossing at the corner
C)Quitting smoking
D)Purchasing auto liability insurance

Question 6

When there is only the possibility of accidental loss,there is

A)speculative risk.
B)default risk.
C)pure risk.
D)fortuitous risk.

Question 7

The author of the text suggest that you should

A)attempt to offset all risks with market-purchased insurance.
B)self-insure against major financial losses and purchase market insurance only to cover minor monetary losses.
C)self-insure against minor monetary losses and purchase market insurance only to cover major financial losses.
D)attempt to offset all risks with self-insurance.

Question 8

Personal liability coverage

A)protects you against the financial harm caused by the negligence of others.
B)protects you only from financial damages for the bodily injury your negligence has caused others.
C)protects you only from financial damages for the property loss your negligence has caused others.
D)protects you against legally-obligated expenses for the bodily injury or property damage your negligence has caused others.

Question 9

In which of the following losses are you not likely to have an insurable interest?

A)An oil spill in Alaska that destroys wildlife
B)The death of your spouse
C)The death of your child
D)Damage to your home from a hurricane

Question 10

You have an insurable interest in an event if

A)it is the result of accidental circumstances.
B)it has a potentially negative impact on your wealth.
C)you have no financial interest in the outcome.
D)it the result of predetermined actions.

Question 11

Speculative risk

A)exists whenever there is the potential for both gain and loss.
B)exists whenever there is only the possibility of loss.
C)exists only in financial markets.
D)exists only in gambling.

Question 12

The primary difference between entering into a gamble and purchasing insurance is that

A)in a gamble the odds are known with certainty.
B)with all types of insurance you are always financially better off,whereas,with gambles,you are always financially worse off.
C)a gamble involves pure risk,whereas insurance involves speculative risk.
D)gambling is in many circumstances illegal and insurance is legal.

Question 13

Increasing the deductible on your homeowner's policy is an example of

A)risk avoidance.
B)risk reduction.
C)risk retention.
D)risk transfer.

Question 14

Quitting cigarette smoking and,thus,eliminating the cause of a loss is an example of

A)risk avoidance.
B)risk reduction.
C)risk retention.
D)risk transfer.

Question 15

Adverse risk selection occurs when

A)those with higher then average risk enter the risk pool.
B)insurance companies terminate insurance for individuals with higher than average risk.
C)the size of the risk pool decreases.
D)speculative risk increases.

Question 16

Which of the following is an example of "pure risk"?

A)The risk associated with holding a portfolio of stocks and bonds
B)The risk associated with a bet on a horse race
C)The risk associated with a change in careers
D)The risk associated with fire and theft

Question 17

Which of the following is the best example of risk transfer?

A)Purchasing life insurance
B)Paying a chimney sweep to clean your chimney
C)Flying instead of driving your car
D)Increasing the deductible on your auto insurance policy

Question 18

When insureds engage in a pooling of risk,

A)each individual experiences an increase in his or her total risk.
B)the individual risk accompanying future uncertain events is decreased.
C)they can reduce the total losses of the insureds.
D)total premiums will be less than total losses.

Question 19

We buy life insurance in order to transfer

A)adverse risk.
B)negative risk.
C)pure risk.
D)speculative risk.

Question 20

Property loss insurance provides protection from all but one of the following.Which one is not covered by property loss insurance?

A)The financial harm that your negligence causes others
B)Damage to your property resulting from natural disasters
C)Your financial loss due to the negligence of others
D)Your financial loss due to your own negligence

Question 21

The mortgage clause on a homeowners insurance policy requires that

A)you must be promptly notified if the holder of your mortgage transfers the contract to another lending institution.
B)payments for damages to the structure of the building be made to the mortgagee who will hold the funds until repairs are completed.
C)if insurance premiums are not paid on time,the lender may revoke your home mortgage.
D)in the event you are held liable for damages to a third party,the courts may not attach a lien on the mortgaged equity in the home.

Question 22

Deductibles serve to

A)enhance the profits of the insurance companies by denying payments on small claims.
B)dissuade customers who are at high risk from purchasing insurance.
C)reduce court awards for damages.
D)lower premiums by eliminating the cost of handling many small claims.

Question 23

John Biner's roof was totally ruined by a fire.The insurance company estimates that the cost of building a new roof is $10,000.It also estimates that roofs like this are expected to last 20 years.The existing roof had been in place for five years.Given this information,the replacement cost is

A)$500.
B)$2,500.
C)$7,500.
D)$10,000.

Question 24

Under most homeowners' policies compensation for structural damage is at

A)replacement cost.
B)replacement cost plus depreciation.
C)actual cash value.
D)market value.

Question 25

The mortgage clause

A)ensures that the lender receives insurance payouts for structural damage to the home.
B)ensures that the face amount of the policy covers the remaining balance on the loan.
C)ensures that you have an insurable interest in the home.
D)provides for periodic insurance payments.

Question 26

An inflation guard endorsement on a homeowner's insurance policy

A)periodically increases the face amount of dwelling protection to reflect changes market value.
B)ensures that insurance premiums will not rise faster than the general price level.
C)ensures that insurance premiums will not rise faster than the average price of a new home.
D)indexes copayments to the cost of living.

Question 27

The amount of damages you agree to pay for,if you file an insurance claim is known as a(n)

A)collectable.
B)apportionment.
C)deductible.
D)copayment.

Question 28

Actual cash value is equal to

A)replacement cost minus depreciation.
B)replacement cost plus depreciation.
C)market value plus depreciation.
D)replacement cost.

Question 29

Which of the following statements concerning homeowners' insurance is false?

A)Under named perils insurance,it is the insurance company's responsibility to prove that your loss was not due to one of the named perils.
B)Even under all risks insurance some perils,such has earthquakes,are excluded.
C)Named perils insurance protects you only against perils that are specifically named in the policy.
D)In actuality,named perils insurance provides broader coverage than all risks insurance.

Question 30

The co-insurance provision on homeowners' policies

A)is meant to eliminate homeowners claims for small losses.
B)means that the homeowner will receive less than 100% reimbursement on all losses.
C)implies that more than one insurance company may be responsible for the losses.
D)provides an incentive for homeowners to insure their homes for 100% of replacement cost.

Question 31

The typical homeowners' policy provides protection against

A)property loss and personal liability.
B)only property loss.
C)only personal liability.
D)only structural damage to the home.

Question 32

"All risks" homeowners' insurance insures you against

A)the general class of risks associated with the perils named in the policy.
B)all risks not specifically excluded in the policy.
C)both flood and earthquake damage.
D)no more risks than a named perils policy.

Question 33

John Biner's roof was totally ruined by a fire.The insurance company estimates that the cost of building a new roof is $10,000.It also estimates that roofs like this are expected to last 20 years.The existing roof had been in place for five years.Given this information,the actual cash value of the damage is

A)$500.
B)$2,500.
C)$7,500.
D)$10,000.

Question 34

A new roof costs $10,000.Assume that the value of the roof depreciates 5% per year.If your roof is destroyed by fire after five years,then

A)actual cash value is $7,500 and replacement cost is $10,000.
B)actual cash value and replacement cost are $7,500.
C)actual cash value and replacement cost are $10,000.
D)actual cash value is $7,500 and replacement cost is $2,500.

Question 35

The coinsurance provision in the homeowners' policy generally

A)prohibits homeowners from having more than one policy in effect at a given time.
B)sets limits on the amount one insurance company will pay when there is more than one policy in effect.
C)indicates the dollar deductible on each damage claim.
D)requires the homeowner to pay part of the replacement cost when the dwelling unit is insured for less than 80% of its replacement value.

Question 36

A policy that reimburses you for losses at actual cash value will pay you an amount equal to

A)replacement cost.
B)replacement cost plus depreciation.
C)replacement cost minus depreciation.
D)depreciation.

Question 37

Joan insures her house (with a market value of $50,000,not including $10,000 for the foundation and lot)with a $30,000 insurance policy calling for 80% co-insurance.A fire causes $10,000 worth of structural damage valued at replacement cost.Considering only the information provided,what amount is she likely to collect from the insurance company?

A)$10,000
B)$7,500
C)$6,000
D)$5,000

Question 38

Which of the following is an example of risk retention?

A)Not driving an automobile to avoid having an accident
B)Wearing a safety belt when driving
C)Purchasing auto insurance
D)Having a $200 deductible clause on your auto insurance policy

Question 39

The main purpose of the coinsurance clause is to

A)provide an incentive for adequate coverage.
B)cheat homeowners.
C)hold down the cost of insurance.
D)allocate responsibilities among multiple insurers.

Question 40

Which of the following terms indicates homeowners' insurance for which it is the obligation of the insurer to show that the loss was not excluded by a specific exemption?

A)Named perils coverage
B)Specific perils coverage
C)General risks coverage
D)All risks coverage

Question 41

Which of the following is a correct ordering of homeowners' policies from the least to the most coverage?

A)Basic Form HO-1,Broad Form HO-2,Special Form HO-3.
B)Basic Form HO-1,Special Form HO-3,Broad Form HO-2.
C)Special Form HO-3,Basic Form HO-1,Broad Form HO-2.
D)Special Form HO-3,Broad Form HO-2,Basic Form HO-1.

Question 42

Which of the following would not be an appurtenant structure?

A)The dwelling unit
B)The unattached garage
C)The storage shed
D)The mailbox

Question 43

The apportionment clause ensures that

A)damages are appropriately apportioned among responsible parties.
B)liability is shared by you and your insurer.
C)you do not receive more than 100 percent of your loss by having multiple policies.
D)copayments are not more than 80 percent of dwelling protection.

Question 44

Which one of the following statements concerning homeowners' insurance is false?

A)Your property away from home is generally not covered under your homeowners' policy.
B)There are generally policy limits on specific contents like silverware and jewelry.
C)Homeowners' insurance generally covers additional living expenses if your home is uninhabitable due to a covered loss.
D)Increasing your deductible is generally a beneficial method for reducing your insurance premiums.

Question 45

The most widely purchased homeowners' insurance providing all risks coverage on the dwelling and named perils coverage on personal property is

A)Basic Format HO-1.
B)Broad Form HO-2.
C)Special Form HO-3.
D)Comprehensive Form HO-5.

Question 46

Unscheduled personal property loss

A)is not covered under a typical homeowners' policy.
B)is usually reimbursed at replacement cost.
C)is rarely subject to loss limits.
D)covers personal property items that are not specifically listed in the policy.

Question 47

Which of the following is least likely to be covered by your homeowners' policy?

A)Damage to landscaping due to a covered loss
B)Fees for service calls by the fire department
C)Rented property off your premises
D)Removal of property damaged by a covered loss

Question 48

Which of the following is least likely to be covered under your homeowners' policy?

A)Liability for minor damage in an automobile accident
B)Liability while doing occasional babysitting
C)Liability for a minor delivering newspapers
D)Liability for accidents others have while on your property

Question 49

Which one of the following statements concerning homeowners' insurance is false?

A)Damage due to nuclear accident is normally excluded.
B)You cannot collect more than the face amount of your dwelling protection.
C)The insurance company may refuse to cover damages to business-related equipment in your home.
D)If your home is unoccupied for more than 30 days,your homeowners' policy may not cover damages due to vandalism.

Question 50

Which of the following is most likely covered by your homeowners' insurance?

A)Expensive sound equipment in your car
B)Your pets
C)The property of tenants
D)Your personal property left in a locked car

Question 51

If your face amount of dwelling protection is $100,000 and you have contents coverage on unscheduled property of $50,0000,the maximum amount you could collect if your policy has a deductible of $1,000 and a co-insurance clause is

A)$150,000.
B)$149,000.
C)$100,000.
D)$99,000.

Question 52

A paragraph added to a policy that amends the original policy is called a(n)

A)a codicil.
B)an umbrella clause.
C)a floater.
D)an endorsement.

Question 53

The clause that places your right to sue for damages after the insurers is known as the

A)apportionment clause.
B)subrogation clause.
C)mortgage clause.
D)residual clause.

Question 54

Home replacement cost

A)may exceed actual cash value on older homes.
B)is likely to exceed actual cash value on new homes.
C)is equal to actual cash value plus depreciation.
D)and actual cash value are identical concepts.
E)is equal to the face amount of dwelling protection.

Question 55

Liability insurance protects you from

A)harm others cause you.
B)natural catastrophes.
C)property loss due to all causes.
D)the harm your negligence causes others.

Question 56

Comprehensive endorsement Form HO-15

A)extends coverage under HO-3 to include named perils coverage on contents.
B)extends coverage under HO-3 to include all risks coverage on contents.
C)extends coverage to include a second home owned by the named insured.
D)extends liability limits to $1 million or more.

Question 57

The basic difference between Older Home Form HO-8 and other homeowners' policies is that

A)the home is insured at actual cash value instead of replacement cost.
B)the home is insured at replacement cost instead of market value.
C)the contents of the home are insured at market value instead of replacement cost.
D)the contents of the home are insured at replacement cost instead of at market value.

Question 58

In a homeowners' policy,the subrogation clause

A)places your right to sue after the insurers right to sue for recovery of its payments for damages.
B)places your right to sue before the insurers right to sue for recovery of its payments for damages.
C)eliminates your right to sue for any damages for which even partial reimbursement is received.
D)provides coverage from any damage due to a subterranean source.

Question 59

Older Home Form HO-8 allows owners of older homes to purchase homeowners' insurance at a reasonable price because

A)the cost of the policy is subsidized by the federal government.
B)the federal government directly reimburses homeowners for 10 % of their losses.
C)reimbursement for structural damage is set at actual cash value.
D)reimbursement for structural damage is set at replacement cost.

Question 60

An inflation guard endorsement will

A)protect you from a decline in housing prices by ensuring that you can resell your home for at least as much as you paid for it.
B)protect you from a rise in housing prices by ensuring that you can resell your home for the initial purchase price plus an adjustment for inflation.
C)periodically increase your dwelling protection to reflect increases in replacement cost.
D)increase the co-insurance percentage in the replacement cost provision.

Question 61

If you home is in a Special Flood Hazard Area,

A)the government will provide free flood insurance.
B)flood protection is automatically provided under the basic homeowners' policy.
C)you must purchase flood insurance before you can obtain a mortgage on the home.
D)insurance companies are not allowed to sell you homeowners' insurance.

Question 62

The first step in making sure you collect on a homeowners' covered loss is

A)documentation.
B)notification.
C)evaluation.
D)arbitration.

Question 63

An umbrella policy

A)will cover the deductible and the co-insurance payment on only your homeowners' policy.
B)will cover the deductible and the co-insurance payment on both your homeowners' policy and your auto policy.
C)will extend the liability limits on your homeowners' policy and your auto policy.
D)will extend the number of covered perils while leaving the liability limits on your auto and homeowners' policies unchanged.

Question 64

Earthquake insurance may be added to your homeowners' protection with

A)a codicil.
B)an umbrella clause.
C)a floater.
D)an endorsement.

Question 65

Earthquake insurance is typically included

A)under the basic homeowners' policy.
B)by adding a floater to the basic homeowner's policy.
C)by adding an endorsement to the basic homeowners' policy.
D)by adding federal earthquake protection to the basic homeowners' policy.

Question 66

A few expensive items of personal property may be insured for all risks at replacement cost with the addition of

A)a codicil.
B)an umbrella clause.
C)a floater.
D)an endorsement.

Question 67

A small business in your home

A)is typically covered for property loss,but not business related liabilities,under your homeowners' policy.
B)Is typically covered for minor business related liabilities,but not property loss,under your homeowners' policy.
C)Is typically covered for both property loss and minor business related liabilities under your homeowners' policy.
D)can be included under your homeowners' coverage with a business pursuits endorsement.

Question 68

Named perils on a homeowners' insurance policy do not include

A)fire.
B)windstorm.
C)theft.
D)flood.

Question 69

Which one of the following coverages is provided only through a federal government-sponsored program?

A)Flood insurance
B)Earthquake insurance
C)Lightning insurance
D)Liability insurance

Question 70

When the single liability limit is the same as the limit per accident on a split liability limit policy,

A)the better coverage will depend upon the number of people involved in the accident and the severity of the physical injuries.
B)both policies will provide identical coverage.
C)the split liability limit will provide the better coverage.
D)the single liability limit will provide the better coverage.

Question 71

Medical payments coverage under the homeowners' and auto policy is meant to cover

A)small payments for immediate treatment regardless of who is at fault.
B)small payments for immediate treatment only if you are not at fault.
C)catastrophic medical payments for extended treatment regardless of who is at fault.
D)catastrophic medical payments for extended treatment only if you are not at fault.

Question 72

Which of the following statements concerning a personal articles floater is false?

A)A personal articles floater covers both scheduled and unscheduled property.
B)Personal articles floaters typically cover all risks with no deductible.
C)Personal articles floaters extend the dollar coverage on personal property beyond the limits set in the basic policy.
D)A personal articles floater may take the form of either a separate policy or an endorsement to the original policy.

Question 73

With 100/300/10 split auto liability limits,the maximum payout for property damage is

A)$10,000.
B)$100,000.
C)$300,000.
D)$450,000.

Question 74

The most needed auto coverage is

A)personal liability.
B)collision.
C)other-than-collision.
D)medical payments.

Question 75

Standard formats exist for

A)auto policies but not homeowners' policies.
B)homeowners' policies,but not auto policies.
C)both homeowners' and auto policies.
D)neither homeowners' nor auto policies.

Question 76

If you purchased automobile insurance coverage with policy limits of $100,000/$300,000/$20,000,this means that

A)a maximum of $100,000 would be paid to the injured in your automobile and $300,000 to the injured in the other car.
B)$100,000 is the limit on damages per individual with a $300,000 overall limit per accident.
C)$20,000 is the limit on damages per individual with $100,000 limit per accident and an overall limit on all accidents of $300,000.
D)$100,000 is the limit on damages per individual with a maximum of $300,000 being paid to the driver of the other car in property damages.

Question 77

Which of the following statements is false?

A)Insurance companies share information on the claims experience of their insureds.
B)A good credit score can lower your insurance premiums.
C)Insurance companies cannot refuse to insure you because you have filed a number of small claims.
D)Renter's personal property is not insured under the landlords insurance policy.

Question 78

Which of the following statements concerning flood insurance is false?

A)You can only purchase flood insurance if you are in a Special Flood Hazard Area.
B)If you are in a Special Flood Hazard Area you will only be extended a mortgage if you have flood insurance.
C)You need to contact a private insurer to purchase federal flood insurance.
D)Flood insurance is subsidized by the federal government.

Question 79

In the stilted language of auto policies,the "second party" in an accident is

A)you.
B)the driver of the other car.
C)the passenger in your car.
D)your insurer.

Question 80

If you are sued for monetary losses resulting from bodily injury incurred in an auto accident you are protected under the

A)liability section of your auto policy.
B)medical payments section of your auto policy.
C)collision coverage of your auto policy.
D)other-than-collision coverage of your auto policy.