Shared Flashcard Set

Details

Texas P&C Insurance
Based on quizes preparing for Texas P&C License
340
Insurance
Not Applicable
08/05/2014

Additional Insurance Flashcards

 


 

Cards

Term

Union Plastics is a large manufacturing company, and they handle all their own insurance claims. If Stan was hired by Union Plastics to investigate suspicious claims and determine if the claim needs to be paid, Stan would be considered

 

A) an insurance commissioner
B) an insurance counselor
C) an insurance adjuster
D) an insurance agent

 

Definition
C
Term

 

Ace Property and Casualty of Texas has had several catastrophic losses on the coast because of some major storms, and the company’s claim division does not have the staff to meet state claim handling deadlines. On a temporary basis, Ace would most likely hire

 

A) public adjusters
B) insurance agents
C) staff adjusters
D) contractors

 

Definition
D
Term

 

Susan had a large fire that caused some damage to her home, and she is not certain as to the proper settlement amount. If Susan needs a person to represent her in the settlement of her claim, Susan would need

 

A) a public adjuster
B) a staff adjuster
C) an independent adjuster
D) an insurance commissioner

 

Definition
A
Term

 

Sure Bet Insurance Company, a large P&C carrier, has a claims backlog because of flooding in the area. If Sure Bet wanted to hire some additional staff adjusters but have them start assisting with the flood claims immediately for training purposes, they could request temporary licenses for the new hires by providing the Commissioner with at least

 

A) 45 days notice
B) 5 days notice
C) 10 days notice
D) 30 days notice

 

Definition
B
Term

Doug is licensed as a property and casualty adjuster and works for Allied Insurance Company. Doug could work all the following claims for Allied EXCEPT

 

A) windstorm damage to an insured’s home
B) theft of personal property from an insured’s residence
C) injury to Sam, an employee of an insured, while Sam is at work
D) physical damage to an insured’s vehicle

 

Definition
C
Term

 

A company licensed in Texas to provide homeowners and automobile insurance would be regulated by

 

A) the company
B) the county commissioner
C) the governor
D) the Department of Insurance

 

Definition
D
Term

 

ABC Insurance Company has offices around the world, and its corporate office is located in Maine. If ABC is providing coverage to residents of New York, in New York, they would be considered

 

A) domestic
B) illegal
C) alien
D) foreign

 

Definition
D
Term

 

ABC Insurance Company has offices around the world, and its corporate office is located in Maine. If ABC is providing coverage to residents of Maine, they would be considered

 

A) domestic
B) foreign
C) alien
D) local

 

Definition
A
Term

 

An insurance company is considering opening an office in a state, and it is concerned with the current laws in that state and how they might be different than its state of domicile. Who is responsible for writing the laws in a given state?

 

A) The state legislature
B) The company
C) The clients
D) The Commissioner

 

Definition
A
Term

 

Risky Business Insurance Company writes business in Texas as a Surplus Lines Insurer. Risky Business is most likely operating as:

 

A) an admitted company
B) an authorized company
C) a nonadmitted company
D) an illegal company

 

Definition
C
Term

 

In order for a person to be licensed as an adjuster, the person must comply with all of the following EXCEPT

 

A) be at least 18 years of age
B) pass the state exam
C) have 10 years experience
D) be trustworthy

 

Definition
C
Term

 

All of the following people would be exempt from taking the state adjuster license exam EXCEPT

 

A) a person who is licensed as an agent
B) a person whose license has expired in the past year
C) a person holding a CPCU® designation
D) a person holding an AIC designation

 

Definition
A
Term

 

Steve, a licensed adjuster, has moved his family across town into a new home. How long does Steve have to notify the state of his new address?

 

A) 10 days
B) 60 days
C) 30 days
D) 45 days

 

Definition
C
Term

 

An adjuster license will remain in effect for how many years?

 

A) 5 years
B) 10 years
C) 2 years
D) 3 years

 

Definition
C
Term

 

Unless a company is newly admitted, how often is the Commissioner required to examine (i.e., audit) all admitted insurance companies?

 

A) Every five years
B) Once a year
C) Never
D) Every three years

 

Definition
A
Term

 

A person that markets and sells insurance policies to the public is known as

 

A) the agent
B) the Commissioner
C) the adjuster
D) the governor

 

Definition
A
Term

 

In order for the adjusters to perform their job functions, they are required to know all of the following EXCEPT

 

A) case law derived from judicial decisions
B) policy language
C) established company methods and procedures
D) how much money the insured makes

 

Definition
D
Term

 

What level of fiduciary responsibility do adjusters have to adhere to?

 

A) Expert
B) Normal
C) Legal
D) Extraordinary

 

Definition
D
Term

 

All of the following would be considered an illegal incentive received by an adjuster EXCEPT

 

A) free car washes for one year
B) reimbursement of expenses by an insurance company
C) an all expense paid trip
D) tickets to upcoming football game from customer

 

Definition
B
Term

 

All of the following would be considered a breach of the Statement of Principles EXCEPT

 

A) explaining the policy provisions to a claimant
B) advising claimants as to their legal rights
C) communicating with a claimant who is represented by an attorney
D) advising a claimant against seeking legal advice

 

Definition
A
Term

 

Who must see that the contractual promises that have been made to policyholders are honored promptly, fairly, and accurately?

 

A) Agents
B) The customer
C) The adjuster
D) The insurance company

 

Definition
C
Term

 

All of the following are unfair claims practices EXCEPT

 

A) responding to a claimant in 20 days after receiving notice of claim
B) attempting to settle a claim by underpaying what is actually due to the claimant
C) after receiving the appraisal of damaged property, paying loss to the claimant
D) denying the claim before conducting proper investigation

 

Definition
C
Term

 

Who is responsible for submitting records, including claim records, to the state to verify proper handling?

 

A) The agent
B) The insurance company
C) The adjuster
D) The claimants

 

Definition
B
Term

 

When can an insurance company require the claimant to produce tax or financial records?

 

A) When requested by the adjuster
B) Following a total loss by fire
C) At any time
D) Never

 

Definition
B
Term

 

When would a deceptive trade practice occur in any commercial transaction?

 

A) Seller causes provable mental anguish
B) Adjuster is licensed in the state
C) Company has Certificate of Authority
D) Adjuster follows all laws and settles the claim

 

Definition
A
Term

 

All insurance contracts have several parties; the party known as the second party would be

 

A) the insurance company
B) the insured
C) the agent
D) the Department of Insurance

 

Definition
A
Term

 

Losses paid to others that were caused by the insured are paid to

 

A) 3rd parties
B) agents
C) policyholders
D) 1st parties

 

Definition
A
Term

 

When an adjuster is adjusting a loss for a claimant, does the adjuster have to comply with the policy that the claimant has?

 

A) No, the adjuster has no contractual obligations to the claimant.
B) Yes, the state mandates this compliance.
C) No, unless the adjuster’s company gives them permission.
D) Yes, the adjuster must always adhere to the claimant policy

 

Definition
A
Term

 

If Joe is an insured with Sure Bet Insurance Company and he is found liable for damages that he caused to Larry’s vehicle, Larry would be considered

 

A) damaged
B) claimant
C) liable
D) 1st party

 

Definition
B
Term

 

A contractual requirement for disclosure to all parties is called

 

A) legal disclosure
B) explanation
C) utmost good faith
D) representation

 

Definition
C
Term

 

If an insurance company suspects that the loss was caused by arson, how many days does the insurer have to notify the insured in writing of the acceptance or rejection of the claim?

 

A) 15 days
B) 20 days
C) 30 days
D) 10 days

 

Definition
C
Term

 

A major hurricane has damaged many homes along the coast. If the storm caused damage and the insured notified the insurer of damage, how long does the insurer have to acknowledge receipt of the claim?

 

A) 10 days
B) 30 days
C) 15 days
D) 20 days

 

Definition
C
Term

 

Once the insurer has received all needed information to settle a claim that it is liable for, how long does the insurer have to send the payment to the insured?

 

A) 10 days
B) 20 days
C) 5 business days
D) 30 days

 

Definition
C
Term

 

By state claims settlement guidelines, how long does the company have to investigate a claim that they think might be fraudulent after they receive the proof of loss from the insured?

 

A) 60 days
B) 30 days
C) 45 days
D) 10 days

 

Definition
A
Term

 

If the insurer does not make payment on the claim after 60 days of receiving the proof of loss from the insured, they are required to

 

A) pay damages, including 25% interest on the amount of the claim
B) serve 6 months in jail
C) pay a fine to the state
D) pay damages, including 18% interest on the amount of the claim

 

Definition
D
Term

 

Which of the following would be considered a competent person?

 

A) A woman at least 18 years of age who is sane and sober
B) A customer at a bar that is intoxicated
C) A person that is not found to be mentally competent
D) A college student that is 17 years old

 

Definition
A
Term

 

All of the following are required for a contract to be in force EXCEPT

 

A) legal purpose
B) a valid offer must be followed by an acceptance
C) exchange of value between parties
D) be in force for at least 5 years

 

Definition
D
Term

 

What is the type of contract, written by an insurer, where the insured has no negotiation or input in its writing and must either take it or leave it?

 

A) Aleatory contract
B) Personal contract
C) Unilateral contract
D) Contract of adhesion

 

Definition
D
Term

 

Joan lives in a $200,000 home and has the coverage written through Safety Insurance Company with an annual premium of $725 a year. This would be an example of

 

A) a conditions contract
B) an illegal contract
C) an unfair contract
D) an aleatory contract

 

Definition
D
Term

 

The exchange of value between the parties to a contract is called

 

A) fraud
B) consideration
C) concealment
D) gifts

 

Definition
B
Term

 

Steve is a customer of National Property and Casualty, and his policy has a requirement that the burglar alarm system be turned on and maintained at times. This requirement is written into the policy and is considered

 

A) a waiver
B) a warranty
C) a concealment
D) a representation

 

Definition
B
Term

 

If an applicant deliberately withholds material information from the insurer, this will void the coverage and is considered

 

A) misrepresentation
B) concealment
C) fraud
D) material misrepresentation

 

Definition
B
Term

 

Jeff is an agent with ABC Insurance Company, and he has sold many homeowners contracts in the past year. It has been discovered that Jeff has been telling all his customers that flood is covered under the policy when, in fact, the policy does not include this coverage. Assuming that one of Jeff’s clients has a flood loss, the insurer would be liable for the loss and would have recovery rights against Jeff. This would be an example of

 

A) legal purpose
B) waiver
C) aleatory contract
D) estoppel

 

Definition
D
Term

 

If an adjuster forgoes policy provisions and gives the insured more time than the policy allows to submit information to the insured, the adjuster has

 

A) issued a binder.
B) broken state laws.
C) created a legal situation.
D) granted a waiver

 

Definition
D
Term

 

Answers on the application for insurance by the applicant are considered to be

 

A) misrepresentation
B) warranties
C) representations
D) absolute truth

 

Definition

 

Representations are statements made by the prospective insured on an application for insurance that are believed to be entirely true.

 

Term

 

Amanda owns a home, and it is insured by Prosper Insurance Company. If her home were to be damaged by a fire, the home has suffered

 

A) a liability loss
B) a direct loss
C) a consequential loss
D) an indirect loss

 

Definition

 

Direct loss is immediate actual physical damage to tangible property; example: Amanda’s house suffers damage from a fire.

 

Term

 

Amanda owns a home insured by Prosper Insurance Company. Her home is damaged by a fire and Amanda cannot live in her home during the period of restoration. Her company offers to pay her expenses to live in a hotel. This would be considered

 

A) a direct loss
B) an indirect loss
C) a consequential loss
D) a liability loss

 

Definition

 

Indirect loss is the inability to use property as a result of a direct loss; example: Amanda cannot live in her house and must rent a hotel room due to the fire damage to her house.

 

Term

 

Hank has a homeowner policy with the We Care Insurance Company. If Hank was out playing golf and one of Hank’s errant shots struck another golfer, this would be an example of

 

A) a liability loss
B) an indirect loss
C) a consequential loss
D) a direct loss

 

Definition

 

Liability loss is a damage/injury claim that arises out of actions that cause loss to a 3rd party.

 

Term

 

James is an avid investor, and he has been losing money lately. He approaches Stan, his insurance agent, about insuring his investments in case he loses more money. Stan tells James that his risk is not insurable because he could make or lose money. James’s risk is considered to be

 

A) a pure risk
B) a speculative risk
C) a strange risk
D) an impossible risk

 

Definition

 

Speculative risk involves the chance of gain/loss and is not insurable (e.g., gambling, stock market).

 

Term

 

Kendra is walking and slips on some wet leaves on a sidewalk; she falls and breaks her arm when she strikes the ground. In this example, what is the peril?

 

A) Wet leaves on the sidewalk
B) Contact with the ground
C) Walking
D) Rain that caused the wet leaves

 

Definition

 

The peril is the actual cause of loss. In this example, the wet leaves would be the hazard that increased Kendra’s chance of loss, but the peril and cause of loss would be the contact with the ground.

 

Term

 

All of the following are parts to an insurance contract EXCEPT

 

A) the exclusions
B) conditions
C) the policy folder
D) an insuring agreement

 

Definition

 

The four parts of an insurance contract include the following (memory aid: DICE):

 

  • Declarations
  • Insuring agreement
  • Conditions
  • Exclusions

 

Term

 

Which of the following would NOT be found on the declarations page?

 

A) The total premium for the policy
B) Effective date of the policy
C) The named insured
D) The perils covered by the policy

 

Definition

 

The declarations page contains the following:

 

  • Property that is covered
  • Policy period
  • Premium
  • Parties involved
  • Policy coverage limits

 

Term

 

The insured has a loss, and his policy requires him to pay an amount before the policy limits can be paid. This is called

 

A) the deductible
B) the limit of liability
C) the scheduled payments
D) the coverage amount

 

Definition

 

Deductibles are amount of loss the insured agrees to assume before the policy limits are paid. Deductibles are usually found only on a property policy.

 

Term

 

Where would the insured find the maximum amount that the policy would pay for a covered loss?

 

A) Conditions
B) Exclusions
C) Insuring agreement
D) Declarations page

 

Definition

 

Policy limits set the amount of protection for an insured. The limit of liability is the dollar amount stated on the insurance contract representing the maximum amount that can be paid for a covered loss; this information is found on the declarations page.

 

Term

 

All insurance contracts require that an exchange of value take place between the insured and the insurer. The value added by the insured is the premium that is paid. The value added by the insurer is

 

A) found in the declarations page
B) the promise to pay found in the insuring agreement
C) found in the conditions section
D) perils not covered

 

Definition

 

The insurance company’s promise to pay will be included in the insuring agreement. This also describes the covered perils.

 

Term

 

All of the following perils are covered in the original SFP EXCEPT

 

A) removal

 

B) lightning

 

C) fire

 

D) wind

 

Definition

 

The original SFP only covered fire, lightning, and removal. Wind was added later.

 

Term

 

An insured has gone on vacation. The insured’s house is

 

A) vacant

 

B) unoccupied

 

C) empty

 

D) uninsured

 

Definition

 

A building is considered vacant only when empty of people and contents.

 

Term

 

Which of the following statements about property insurance is CORRECT?

 

A) Both real and personal property can be insured.

 

B) It is used to insure only personal property and contents.

 

C) Only real property can be insured.

 

D) Only a business buys real property insurance.

 

Definition

 

Property insurance insures real and personal property for individuals and businesses.

 

Term

 

Which of the following is a package policy?

 

A) A policy that insures property only

 

B) A policy that insures property and liability

 

C) A policy that insures liability only

 

D) A policy that insures real property and personal property

 

Definition

 

Package policies insure both property and liability. A policy that insures only one line is called a monoline policy.

 

Term

 

Mr. John Empty has filed a claim for damage to his previous home caused by vandalism. He has told you that the house has been for sale 6 months because he bought another home and moved. You will probably deny his claim. Why?

 

A) All property policies do not cover vandalism.

 

B) The house had been unoccupied for 6 months.

 

C) The house had been vacant for 6 months.

 

D) The house was for sale.

 

Definition

 

Most policies do cover certain perils such as vandalism after a house has been vacant for more than 60 consecutive days.

 

Term

 

Which of the following is a Correct statement?

 

A) Class #1 fire rates are less than class #6.

 

B) Class # 4 fire rates are the lowest rates.

 

C) Class #3 fire rates are the lowest rates.

 

D) Class #6 fire rates are less than class #1

 

Definition

 

Construction class #6 (fire resistive) has lower fire rates than class #1 (frame).

 

Term

 

You have been assigned to pay a claim where a home has been completely destroyed by fire. The estimated replacement cost is $ 100,000. The insured has purchased $80,000 of insurance to comply with the 80% coinsurance requirement. The policy has a $500 deductible. How much will you pay?

 

A) $79,500

 

B) $100,000

 

C) $80,000

 

D) $85,000

 

Definition

 

In the case of a total loss, the coinsurance requirement is ignored. The insured receives his policy limits.

 

Term

 

Mr. Chang owns a building and purchases $80,000 of insurance with a $1,000 deductible. A small fire loss occurs and causes $20,000 of damage. The policy has an 80% coinsurance requirement. You have been assigned the claim. You estimate the replacement cost of the building to be $200,000. How much will you pay Mr. Chang?

 

A) $9,000

 

B) $20,000

 

C) $10,000

 

D) $19,000

 

Definition

 

The penalty formula for being underinsured is insurance carried divided by the insurance required ($80,000 ÷ $160,000) times the loss ($20,000). Then subtract the deductible ($1,000). This equals $9,000.

 

Term

 

Why would an insured purchase automatic increase coverage?

 

A) To avoid the coinsurance penalty

 

B) To protect against increase building costs

 

C) To help with maintenance of the building

 

D) To keep from having to pay a deductible

 

Definition

 

The limits of insurance are raised at certain intervals to protect against the increased cost of replacing a building.

 

Term

 

An insured has purchased $50,000 of blanket jewelry coverage. One specific piece of jewelry has been stolen. You have been assigned the claim. How much will you pay?

 

A) The estimated value of the missing piece up to $50,000

 

B) The full $50,000

 

C) Nothing, unless the piece is specifically listed

 

D) The reciprocal portion of the loss

 

Definition

 

A blanket limit of insurance insures multiple pieces of the same type property using a single limit of insurance. The entire limit can be used to pay for a single item.

 

Term

 

Your son has been injured while playing quarterback for the high school football team. If you sue the school, what defense would the school’s insurer most likely use?

 

A) Assumption of risk

 

B) Last clear chance

 

C) Comparative negligence

 

D) Contributory negligence

 

Definition

 

You knew of the risk of injury in the game of football, so you, as the parent, assumed the risk.

 

Term

 

An insured of Forum Insurance Company has run a stop sign and hit another car. As an adjuster for Forum Insurance, you are handling the claim made against the insured. Of the following, which will you most likely pay?

 

A) Damages to the insured’s car.

 

B) The insured’s medical bills.

 

C) The insured’s lost income because of injury.

 

D) Damages to the other person’s car.

 

Definition

 

Liability is not to the insured, but to the other party.

 

Term

 

All of the following are elements of negligence EXCEPT

 

A) proximate cause

 

B) duty accepted

 

C) actual loss

 

D) duty breached

 

Definition

 

The four elements of negligence are duty owed, duty breached, actual loss, and proximate cause.

 

Term

 

What is the definition of proximate cause?

 

A) The last cause in an unbroken chain

 

B) The only cause

 

C) The first cause in an unbroken chain

 

D) The first cause

 

Definition

 

Proximate cause is the first cause in an unbroken chain of events.

 

Term

 

You are the adjuster assigned to a claim made against your insured. Your insured was intoxicated and became involved in a brawl at a bar. Is you making payment regarding this claim a possibility, and if so, what circumstances could contribute to this possibility?

 

A) No, because your insured was intoxicated.

 

B) No, your insured said he did not start the brawl.

 

C) Yes, simply because your insured was intoxicated

 

D) Yes, if your insured was the proximate cause.

 

Definition

 

If the proximate cause of the claim was your insured starting the brawl, it is possible that you may have to make payment.

 

Term

 

You are the tortfeasor. What does that mean?

 

A) You have committed a wrongful act.

 

B) You should hire an attorney.

 

C) You are going to jail.

 

D) You have been sued

 

Definition

 

A tortfeasor is the party who commits a wrongful act and causes injury or damage to another.

 

Term

 

An insured runs a red light while texting on his cell phone and causes injury to another. What is the insured’s liability?

 

A) Direct

 

B) Absolute

 

C) Vicarious

 

D) Strict

 

Definition

 

The party who is the tortfeasor has direct liability.

 

Term

 

An aggregate liability limit applies to

 

A) all claims combined

 

B) only bodily injury

 

C) one claim

 

D) each person

 

Definition

 

Aggregate limits limit the total number of claims that will be covered and are usually found only in commercial policies.

 

Term

 

What is an accident?

 

A) 2 cars colliding at a red light

 

B) Repeated exposure to radiation

 

C) Continuously drinking contaminated water

 

D) Taking medicine for 5 years that causes a stroke

 

Definition

 

An accident is a sudden and unforeseen event.

 

Term

 

A child drowns in a swimming pool. Your insured owns the home. There is, however, a 10-foot high fence around the pool with a locked gate. Will you, as the adjuster, pay a claim made by the child’s parents?

 

A) No, because your insured is not negligent.

 

B) Yes, due to absolute liability.

 

C) Yes, because the gate lock was broken.

 

D) No, because your insured had a tall fence and a locked gate.

 

Definition

 

The insured has absolute liability. Proof of negligence is not required.

 

Term

 

A claim may be denied for all of the following EXCEPT

 

A) if there have been no damages sustained

 

B) if there is no applicable policy in force

 

C) when the insured does not feel she is liable

 

D) when the insured has no legal liability for the loss suffered by a third-party claimant

 

Definition

 

The absence of any one of three elements—coverage, damages, or legal liability—can result in the denial of a claim

 

Term

 

In claim handling, investigation means

 

A) reaching a settlement with the person who made a claim

 

B) preparing a claim for litigation

 

C) determining the dollar value of a claim

 

D) gathering the facts pertaining to a loss

 

Definition

 

An adjuster cannot settle, litigate, or determine the value of a claim without first gathering the facts.

 

Term

 

Which of the following is NOT 1 of 3 initial steps of claim handling?

 

A) verify information

 

B) establish coverage

 

C) compare information

 

D) calculate value

 

Definition

The 3 steps are establish coverage, obtain information, and verify and compare information. Calculating value is not an initial step in claims handling.

Term

 

Which of the following is a denial of liability?

 

A) The wrong policy is involved.

 

B) Insured did not admit guilt.

 

C) All the facts of the case reveal the insured is not the liable party.

 

D) There are no damages.

 

Definition

 

Once coverage for the loss in question has been confirmed under the applicable policy, a denial of liability will occur when the claims investigation of all the facts and circumstances of the case reveals that the insured is not the liable party.

 

Term

 

When verifying insurance coverage on a 1st party claim, the claim representative would consider all of the following factors except one. Which one of the following is NOT relevant in determining whether a first party claim is covered?

 

A) The insured was legally liable for the loss.

 

B) The loss occurred in the coverage territory.

 

C) The loss was caused by a covered peril.

 

D) The loss occurred during the policy period.

 

Definition

 

Legal liability is only relevant in 3rd party claims.

 

Term

 

Tom purchases a house from John. He borrows $75,000 from First City Bank, which along with his $25,000 down payment, equals the $100,000 purchase price of the home. Who has an insurable interest in this house?

 

A) Tom’s son, who would like to inherit the house someday

 

B) Tom

 

C) Tom and First City Bank

 

D) First City Bank

 

Definition

 

Insurable interest exists when there is an actual economic interest in the subject of the insurance from loss. Tom has an insurable interest in the home because he owns it. First City Bank has an insurable interest as long as it carries a mortgage on the home.

 

Term

 

A policy that covers any loss that is not specifically excluded by the policy is

 

A) a broad peril policy

 

B) an open peril policy

 

C) a named peril policy

 

D) a specific named perils policy

 

Definition

 

An open peril policy covers any loss that is not specifically excluded by the policy.

 

Term

 

Which of the following would normally be excluded under a property contract?

 

A) Losses that are uncontrollable by the insured

 

B) Losses to personal property

 

C) Catastrophic losses (war, flood, earthquake, and ordinance or law)

 

D) Accidental losses

 

Definition

 

Catastrophic losses are losses that may be insured by a separate policy specifically for the type of risk involved.

 

Term

 

The open peril/special policy form part insures structures against

 

A) all risks of direct physical loss unless specifically excluded

 

B) earthquake only

 

C) a list of basic named perils only

 

D) all risks of loss to the insured building

 

Definition

 

An open peril/special policy covers structures against all risks of direct physical loss except those risks that are specifically excluded in the policy.

 

Term

 

Which of these statements regarding claim payments is CORRECT?

 

A) Settlement checks for first party claims can only be made out to the named insured.

 

B) State laws do not address when claim payments must be made.

 

C) After a claim is settled, the insurer normally pays the claim immediately or within a very short time.

 

D) Claim handlers usually have no limit on their authority to issue claim checks.

 

Definition

 

A first-party settlement check may also be made out to a loss payee, such as a mortgage company. All states have unfair claim settlement practices laws that require payments to be made within a specified period of time.

 

Term

 

In Texas, the signed and sworn proof of loss statement must be sent to the insured claimant within how many days of their insured’s claim notification to the insurance carrier?

 

A) 30 days

 

B) 10 days

 

C) 90 days

 

D) 15 days

 

Definition

 

The time limit set by Texas is 15 days.

 

Term

 

In Texas, the signed and sworn proof of loss statement must be returned to the insurance company by the insured within how many days?

 

A) 10 days

 

B) 30 days

 

C) 91 days

 

D) 15 days

 

Definition

 

The time limit set by Texas is 91 days.

 

Term

 

Duties of the insured after a loss include all of the following EXCEPT

 

A) cooperate with the insurance company

 

B) submit to questions under oath

 

C) provide an inventory of the damaged property to the company

 

D) not protect property from further damage

 

Definition

 

The insured has a duty to protect their property from further loss.

 

Term

 

Abandonment is a loss provision that clarifies that the insured may NOT do which of the following?

 

A) The insured may not upgrade to a more expensive vehicle once her claim is settled.

 

B) The insured may not change insurance carriers during the claim settlement process.

 

C) The insured may not abandon her property in the event of a claim to obtain a total loss settlement.

 

D) The insured may not move to another state until her claim is settled.

 

Definition

 

Abandonment is a loss provision that clarified that the insured, including a mortgagee or other lien holder, may not abandon property in the event of a claim to obtain a total loss settlement.

 

Term

 

What determines a total loss?

 

A) The insured does not want his property repaired.

 

B) The insurer did not get all the information needed to settle the claim.

 

C) The cost to repair is greater than the value of the property pre-loss value.

 

D) Parts to repair the property are difficult to locate and purchase.

 

Definition

 

The cost to repair is greater than the value of the property.

 

Term

 

An adjuster is evaluating a claim involving damage to property that has depreciated $2,000 since the time it was purchased new for $10,000. The replacement cost of this item is $15,000. What is the actual cash value of this property?

 

A) $2,000

 

B) $15,000

 

C) $8,000

 

D) $13,000

 

Definition

 

Actual cash value is usually calculated by subtracting depreciation from replacement cost. In this case, $15,000 – $2,000 = $13,000.

 

Term

 

A drop-draft settlement is used for which of the following?

 

A) No release is required

 

B) Claims that require litigation

 

C) Less complicated claims

 

D) The amount of the settlement is in question

 

Definition

Drop-draft settlements are used for less complicated claims where an adjuster would not expect the claimant to return for a supplemental claim settlement.

Term

 

Replacement cost provides a settlement to the insured to replace property without subtracting

 

A) depreciation

 

B) agreed value

 

C) labor costs

 

D) appraised value

 

Definition

 

The settlement is paid without subtracting depreciation.

 

Term

 

Valued policies are commonly written on all of the following items EXCEPT

 

A) decorative plant

 

B) antiques

 

C) collectors’ items

 

D) classic automobiles

 

Definition

 

This loss settlement is commonly used with items of a high value.

 

Term

 

An insured purchased new furniture for $6,000. At the time of a fire loss, it had depreciated $2,000. The same furniture will cost $7,000 to replace. What is the actual cash value of the destroyed furniture?

 

A) $6,000

 

B) $7,000

 

C) $5,000

 

D) $8,000

 

Definition

 

Actual cash value is replacement cost minus depreciation: $7,000 – $2,000 = $5,000.

 

Term

 

Texas regulations require the insurance company to notify the named insured in writing within

 

A) 10 days after the date of the initial settlement offer, and within 30 days after the claim is settled

 

B) 15 days after the date of the initial settlement offer, and within 30 days after the claim is settled

 

C) 20 days after the date of the initial settlement offer, and within 45 days after the claim is settled

 

D) 5 days after the date of the initial settlement offer, and within 20 days after the claim is settled

 

Definition

 

Texas regulations require the insurance company to notify the named insured in writing within 10 days after the date of the initial settlement offer and 30 days after the claim is settled.

 

Term

 

Which of the following processes that adjusters use when they have difficulty verifying coverage is not used in Texas?

 

A) None of these can be used in Texas

 

B) Nonwaiver Agreement

 

C) Reservation of Rights Letter

 

D) Declaratory Judgement Action

 

Definition

 

The non-waiver agreement is a letter similar to the reservation of rights letter; however, it must be approved and signed by the claimant. These are not used in Texas.

 

Term

 

Which of the following is an example of oral evidence?

 

A) Photographs taken at the scene of the accident

 

B) Testimony given by a witness to an accident

 

C) Charts that diagram the events leading up to an accident

 

D) A police report taken at the scene

 

Definition

 

Oral evidence is a verbal description of what happened before, during, or after an incident.

 

Term

 

Which of the following determines whether an insured is liable?

 

A) Insured

 

B) Claims adjuster

 

C) Courts of competent jurisdiction

 

D) Insurance company

 

Definition

 

Only courts of competent jurisdiction and legal fact finders can make legal determinations about the liability of one part to another for damages on the basis of the totality of the circumstances being litigated.

 

Term

 

A document that provides notice to the claimant that a particular claim may not be covered and that the insurer is not giving up its right to deny coverage by investigating the claim is

 

A) a denial of claim notice

 

B) a reservation of right to refuse to investigate the claim

 

C) a reservation of rights letter

 

D) a reservation of denial letter

 

Definition

 

The reservation of rights letter allows the insurance company to continue investigating a claim without giving up its right to deny coverage.

 

Term

 

Which of the following best defines an adjuster’s draft authority?

 

A) Draft authority is the authorization to contact the insured.

 

B) Draft authority is the authorization to review the claimant’s file.

 

C) Draft authority is the authorization to work with an attorney.

 

D) Draft authority is the size of a claim check an adjuster is allowed to authorize without another person’s approval.

 

Definition

 

An adjuster’s draft authority is the size of a claim check the adjuster has the authority to draft without another person’s approval. The adjuster’s draft authority usually increases with the amount of the adjuster’s training and experience.

 

Term

 

Which of these statements about arbitration is CORRECT?

 

A) In some states, a claim must be arbitrated before it can be litigated in court.

 

B) It is not used to resolve disputes between insurance companies.

 

C) Arbitration is voluntary in all states.

 

D) The parties to the arbitration are not allowed to be represented by an attorney.

 

Definition

 

Mediation is always voluntary, but in some states, a claim must be arbitrated before it can be litigated in court.

 

Term

 

What is the most common way for an insurance company to pursue subrogation?

 

A) File a claim with the responsible party’s insurance company

 

B) File a lawsuit against the responsible party

 

C) File a lawsuit against the responsible party’s insurance company

 

D) Have the claim arbitrated

 

Definition

 

While a subrogation claim can be litigated or arbitrated, the most common method of pursuing subrogation is to file a claim with the responsible party’s insurance company.

 

Term

 

What type of alternative dispute resolution is specifically designed to settle disagreements between the insured and the insurer on the amount that should be paid for a 1st party property damage claim?

 

A) Negotiation

 

B) Appraisal

 

C) Mediation

 

D) Arbitration

 

Definition

 

Most property insurance policies contain an appraisal condition as a means to resolve payment disputes on 1st party property damage claims.

 

Term

 

Negotiation is an alternative to dispute resolution. In order to maintain good-faith negotiation the adjuster should do all of the following EXCEPT:

 

A) exaggerate the weaknesses of the opposing case

 

B) maintain professionalism

 

C) evaluate the claim fairly

 

D) remain objective

 

Definition

 

In order to maintain good-faith negotiation, the adjuster should:

 

  • maintain courtesy and professionalism at all times;
  • evaluate the claim fairly and ensure that the offers are consistent with evidence and file documentation;
  • remain objective to ensure proper settlement of the claim; and
  • emphasize the strengths of the insurer’s case and reduce the strengths of the opposing case.

 

Term

 

Personal auto insurance was created for

 

A) company vehicles that were owned and primarily used for business use

 

B) used vehicles that were owned and primarily used for vacation use

 

C) private passenger vehicles that were owned and primarily used for personal use

 

D) private passenger vehicles that were owned and primarily used for any use

 

Definition

 

The personal auto policy covers the vehicles that are individually owned and used for the personal use of the insured.

 

Term

 

Personal auto insurance provides all the following types of coverage EXCEPT

 

A) medical coverage to protect the insured for injuries that she has while using her vehicle

 

B) the insured’s personal liability if she causes damage to another’s body or property while playing golf

 

C) physical damage coverage to repair the insured’s vehicle

 

D) liability to protect the insured for damages that the insured causes to others

 

Definition

 

This insurance provides coverage for:

 

  • liability to protect the insured for their legal obligations to others;
  • medical coverage’s for the insured and their passengers; and
  • physical damage to the insured’s damaged auto.

 

Term

 

The policy to cover the insured’s personal automobiles has changed names through the years. All of the following are names for this type of coverage EXCEPT

 

A) state mandated policy

 

B) family auto policy

 

C) basic auto policy

 

D) personal auto policy

 

Definition

 

Although most states use the personal auto policy, the coverage has been called the family auto policy and the basic auto policy through the years.

 

Term

 

Jeff, an insured with Sure Bet Insurance Company, has heard that a person can satisfy his financial responsibility to the state in several ways. Which of the following is NOT an approved way to meet this requirement?

 

A) Carrying auto liability coverage

 

B) Deposit $85,000 with the state

 

C) Deposit $85,000 with the federal government

 

D) Post a bond with the state

 

Definition

 

All owners and operators of automobiles are required to be financially responsible for any damages or injuries they cause another with an automobile. This requirement is for individuals as well as businesses. There are four ways that this requirement can be met:

 

  • Posting a bond payable in the amount of $85,000
  • Depositing money or securities with the Texas Secretary of State in the amount of $85,000
  • Using self-insurance; this method may be used only by a business setting up its own insurance company just to insure themselves
  • Carrying auto liability insurance

 

Term

 

What is an SR-22?

 

A) A sports car

 

B) Proof of auto ownership

 

C) Endorsement added to cover DVD players

 

D) A proof of financial responsibility form

 

Definition

 

An SR-22 is a proof of financial responsibility form filed by the insurance company with the Texas Department of Public Safety (DPS). This verifies that a person carries the insurance meeting the minimum financial responsibility, and if the policy is ever cancelled then the insurer must notify the Texas DPS.

 

Term

 

Under the personal auto policy, all the following vehicles would be examples of insured EXCEPT

 

A) trailers attached to covered vehicle

 

B) a leased vehicle

 

C) a vehicle listed in the declarations

 

D) the neighbor’s car

 

Definition

 

Other than owned or newly acquired vehicles, the following are other vehicles that have automatic coverage under the personal auto policy:

 

  • A vehicle used as a temporary substitute for any other covered vehicle that is out of use because of breakdown, repair, servicing, loss, or destruction is automatically covered for liability
  • Vehicles rented by the insured are covered automatically for liability coverage
  • Trailers attached to an insured vehicle are covered and need not be listed or endorsed to the auto policy for liability coverage.

 

Term

 

Steve and Sally are adding an additional vehicle to their household, and they carry 50/100/50 limits of liability with $500 deductibles on the physical damage section of their policy. How many days of automatic coverage do they have for the new car?

 

A) 14

 

B) 10

 

C) 4

 

D) 30

 

Definition

 

If the newly acquired vehicle is an additional vehicle to be added to the policy, the newly acquired vehicles are automatically covered for 14 days with the broadest physical damage coverage currently available to any vehicle in the household.

 

Term

 

Steve and Sally are adding an additional vehicle to their household. They do not carry physical damage coverage for any of the vehicles in the household. They only carry 50/100/50 limits of liability coverage. How many days will the new vehicle have temporary physical damage coverage?

 

A) 30

 

B) 4

 

C) 14

 

D) 10

 

Definition

 

If the current policy does not include physical damage coverage for any of the vehicles in the household, the newly acquired vehicle is extended temporary physical damage coverage for 4 days. This temporary coverage is subject to a $500 deductible, and the insured must request physical damage coverage within the four-day period in order for physical damage coverage to apply.

 

Term

 

Susan and Tom are replacing one of their current vehicles; they carry 100/300/100 limits of liability with $250 deductibles on the physical damage section of their policy. Susan forgets to call their agent to add the new vehicle. On the 17th day, Tom runs a red light and strikes a vehicle. Will their policy respond to this accident?

 

A) No, the vehicle was not added; therefore, no coverage exists.

 

B) Yes, all the damage would be covered.

 

C) Yes, the damage caused to the 3rd party would be covered but not the damage to their vehicle.

 

D) Yes, the damage to the 3rd party would not be paid but the damage to their vehicle would be covered.

 

Definition

 

If the newly acquired vehicle is a replacement vehicle for another vehicle currently on the policy, the replacement vehicle will have liability coverage continues until the end of the policy term.

 

Term

 

All of the following could be an insured covered by the policy EXCEPT

 

A) the next door neighbor driving the vehicle without permission

 

B) the next door neighbor driving the vehicle with permission

 

C) resident relatives—those living with the named insured and related by blood, marriage, or adoption

 

D) the named insured

 

Definition

 

The following are considered to be insureds under a personal auto policy (PAP):

 

  • Named insured—found on the declarations page; includes resident spouse and nonresident estranged spouse
  • Resident relatives—those living with the named insured and related by blood, marriage, or adoption (includes wards and foster children)
  • Any person driving an insured car with permission

 

The automobile insurance on the owner of the car involved in a claim is primary—insurance follows the car

 

Term

 

The personal auto policy can provide coverage for all the following EXCEPT

 

A) damage caused by the insured

 

B) injuries to passengers in the insured’s vehicle

 

C) property damage caused by the insured

 

D) injuries to the insured’s neighbor during a football game

 

Definition

 

A personal auto policy can be looked at as a menu of 5 coverages that may be selected by the insured based upon the insured’s coverage needs. The insured may purchase one or all of the following:

 

  • Liability
  • Medical payments
  • Personal injury protection
  • Uninsured/underinsured motorists
  • Physical damage

 

Term

 

If the insured’s policy is represented as 100/300/100, this is known as

 

A) excellent coverage

 

B) split limits

 

C) poor coverage

 

D) combined single limits

 

Definition

 

When split limits are written, there will always be 3 numbers all representing thousands. Many times, however, the extra 0s representing thousands are implied and commonly not shown. The minimum split limits of liability for auto liability in Texas are 30/60/25.

 

Term

 

If Hank carried split limits of 50/100/50 on his auto policy and caused the following damages, how much would Hank’s policy pay for liability losses?

 

Injured driver $39,000

 

Injured passenger $72,000

 

Injured passenger $65,000

 

Damaged caused to the injured party’s vehicle $93,000

 

A) $150,000

 

B) $269,000

 

C) $211,000

 

D) $189,000

 

Definition

 

Injured driver $39,000
Injured passenger $50,000
Injured passenger $11,000
Damage caused to the injured party’s vehicle $50,000

 

Term

 

In the previous question, if Hank carried combined single limits of 300,000, how much would the policy pay for liability losses?

 

A) $269,000

 

B) $211,000

 

C) $150,000

 

D) $232,000

 

Definition

 

In a combined single limits policy, all damages caused by the insured would be paid up to the policy limit.

 

Term

 

All of the following would be considered supplementary payments under the personal auto policy EXCEPT

 

A) defense cost

 

B) lost wages of the insured

 

C) first aid provided at the scene

 

D) interest on a judgment against the insured

 

Definition

 

Defense costs are technically not a supplementary payment; however, the cost of defending the insured (e.g., courts costs and attorney’s fees) will also be paid in addition to the liability limits.

 

Term

 

What is the minimum personal injury protection coverage limit?

 

A) $2,500

 

B) $1,000

 

C) $500

 

D) $2,000

 

Definition

 

Minimum limit is $2,500 per person; maximum limit available is $100,000 per person. This limit may be distributed in the form of medical, lost wages, essential services, or death benefit (i.e., funeral) as needed.

 

Term

 

What is the maximum limit for personal injury protection?

 

A) $75,000

 

B) $100,000

 

C) $2,500

 

D) $50,000

 

Definition

 

Minimum limit is $2,500 per person; maximum limit available is $100,000 per person. This limit may be distributed in the form of medical, lost wages, essential services, or death benefit (i.e., funeral) as needed.

 

Term

 

Both medical and personal injury protection are provided if

 

A) they are endorsed onto the policy

 

B) the insured has a qualifying loss

 

C) the loss is less than $500,000

 

D) the injuries are caused by a negligent 3rd party

 

Definition

 

The medical and the personal injury protection coverages are not included in the base policy and would have to be added by endorsement to provide coverage.

 

Term

 

All of the following would be covered under the medical payments coverage EXCEPT

 

A) injuries sustained by the insured

 

B) injuries caused to the insured while he is occupying the vehicle

 

C) the insured’s lost wages because of his injuries

 

D) injuries to the insured’s guest passengers

 

Definition

 

This coverage provides payment of medical or funeral expenses (but no loss of income) incurred within 3 years of the accident date without regard to fault.

 

Term

 

If the insured was injured in an accident that was caused by a negligent 3rd party, would the insured’s medical coverage provide for the insured’s medical bills?

 

A) Yes, if the negligent 3rd party agreed to let the insured’s policy pay.

 

B) No, since the insured was not at fault, no coverage would be provided.

 

C) No, the insured’s injuries would have to be paid by the 3rd party.

 

D) Yes, the insurer would then subrogate the losses from the 3rd party

 

Definition

 

Once a claim has been paid, there is subrogation potential against a negligent 3rd party that caused the accident.

 

Term

 

Under the personal auto policy, coverage C provides the insured with

 

A) physical damage

 

B) theft

 

C) liability

 

D) uninsured/underinsured motorist

 

Definition

 

Part A Liability
Part B Medical/PIP
Part C Underinsured Motorist/underinsured motorist
Part D Physical damage

 

Term

 

What is the standard deductible for property damage under the uninsured motorist coverage in the personal auto policy?

 

A) $250

 

B) $1,000

 

C) $500

 

D) $100

 

Definition

 

The property damage portion of the UM/UIM has a mandatory $250 deductible. It also pays for a rental vehicle.

 

Term

 

What coverage would the insured need to provide her coverage for damage to her vehicle that was caused by a hit and run driver?

 

A) Uninsured motorist

 

B) Collision

 

C) Liability

 

D) Comprehensive

 

Definition

 

Physical contact with the at-fault vehicle is required; therefore, a hit-and-run driver falls under the definition of an uninsured motorist.

 

Term

 

Janis has a personal auto policy and strikes a bridge because she was avoiding contact with a drunk driver that was about to hit her vehicle. Could Janis cover this loss under uninsured motorist coverage?

 

A) Yes, because she was trying to avoid a serious accident.

 

B) No, physical contact must occur; otherwise, the car would be a phantom.

 

C) No, the at-fault 3rd party would need to pay.

 

D) Yes, the damage to her vehicle would always be covered under UM/UIM.

 

Definition

 

A vehicle that runs the insured off the road is not considered to be an uninsured motorist as there is no physical contact with the at-fault vehicle. Instead, this is referred to as a phantom vehicle.

 

Term

 

What is the maximum coverage that the insured can buy in UM/UIM coverage?

 

A) There is no maximum

 

B) 100/300/100

 

C) The liability limit carried by the insured

 

D) 250/500/250

 

Definition

 

The maximum limits are up to what the insured carries under Coverage A (liability).

 

Term

 

All the following types of damage to the insured’s vehicle would be covered under collision EXCEPT

 

A) if the insured swerved to miss a dog and struck a tree

 

B) if the insured ran off the road and his vehicle rolled 3 times

 

C) if the insured struck a fence

 

D) if the insured’s vehicle is stolen

 

Definition

 

Collision includes the upset of the insured’s vehicle or its impact with another vehicle or object. This covers the insured’s vehicle only and is always written with a deductible.

 

Term

 

If the insured has OTC (Other Than Collision) coverage on his policy with a $250 deductible and he calls his agent to inquire about what types of losses would be covered by this coverage, his agent would tell him that all the following would be covered EXCEPT

 

A) if the insured feel asleep while driving, left the road, and struck a bridge

 

B) if the insured’s windshield is shattered by a piece of flying debris

 

C) if the insured’s vehicle is flooded by water

 

D) if the insured strikes a deer while driving

 

Definition

 

Other Than Collision (often referred to as comprehensive) is also written with a deductible and provides protection for losses not covered by collision such as fire, wind, hail, theft, glass, flood, vandalism and malicious mischief, contact with birds or other animals, and so forth.

 

Term

 

If the insured wishes to have damage to his vehicle covered, he would include which of the following coverages?

 

A) Uninsured motorist

 

B) Personal injury protection

 

C) Physical damage

 

D) Liability

 

Definition

 

Physical damage coverage is purchased by the insured to indemnify for physical losses that have occurred to an insured’s car.

 

Term

 

If Ken has 100/300/100 limits of liability on his auto policy, carries a $500 deductible on his physical damage coverage, and causes the following damages, how much will Ken’s policy pay?

 

$22,000 to the injured driver

 

$118,000 to the injured passenger

 

$37,000 to an injured bystander

 

$37,550 damage to the injured party’s vehicle

 

$27,500 damage to Ken’s vehicle

 

A) $223,550

 

B) $241,550

 

C) $223,050

 

D) $242,050

 

Definition

 

Injured driver $22,000
Injured passenger $100,000
Injured bystander $37,000
Damage to injured party’s vehicle $37,550
Damage to Ken’s vehicle $27,000

 

Term

 

An insured was driving to work and struck a deer running across the street; what part of the personal

 

policy would cover this?

 

A) UM/UIM motorist

 

B) Liability

 

C) OTC (comprehensive)

 

D) Medical payments

 

Definition

 

Other than collision (often referred to as comprehensive) is also written with a deductible and provides protection for losses not covered by collision such as fire, wind, hail, theft, glass, flood, vandalism and malicious mischief, contact with birds or other animals, and so forth.

 

Term

 

If the insurer wishes to non-renew the insured’s policy, how many days notice is the company required to give the insured?

 

A) 60

 

B) 45

 

C) 30

 

D) 10

 

Definition

 

The insurer is required to give 10 days for notice of cancellation and 30 days for notice of non-renewal to the insured

 

Term

 

If the insurer wishes to cancel the insured’s policy during the first 60 days of a new policy, how many days notice is the company required to give the insured?

 

A) 10

 

B) 30

 

C) 60

 

D) 45

 

Definition

 

The insurer is required to give 10 days for notice of cancellation and 30 days for notice of non-renewal to the insured.

 

Term

 

All of the following statements are true regarding TAIPA policies EXCEPT

 

A) policies are written on an annual basis only.

 

B) the company receiving the assignment must insure the risk for one year.

 

C) agents receive 10% commission on the business.

 

D) the only way to get off an assignment is by cancelling for nonpayment of premium or if a driver's

 

license or vehicle registration is revoked or suspended.

 

Definition

 

The company receiving the assignment must insure the risk for THREE years.

 

Term

 

All of the following would be considered duties after a loss EXCEPT

 

A) report the loss as soon as reasonable

 

B) notifying the police if the insured has been involved in an accident

 

C) notifying the police if the vehicle is stolen

 

D) allowing the insurer to appraise damage before the repairs are completed

 

Definition

 

The following are duties of the insured after an auto-related loss:

 

  • Notifying insurer promptly of how, when, and where the loss occurred
  • Cooperating with the insurer
  • Immediately forwarding notice of legal action (i.e., lawsuits) against insured to the insuring company
  • Agreeing to a physical examination
  • Agreeing to an examination under oath
  • Authorizing the insurer to obtain medical reports and records
  • Submitting a proof of loss to the insurer within 91 days when required
  • Protecting the auto from further loss
  • Notifying police if covered auto is stolen or is damaged in a hit-and-run accident
  • Permitting inspection and appraisal of damaged auto before it is repaired

 

Term

 

The extended non-owned endorsement would be added to a policy to provide for the named insured‘s

 

use of which of the following vehicles?

 

A) Tractor

 

B) Tow truck

 

C) Taxi

 

D) Company car

 

Definition

 

The extended nonowned auto coverage for a named individual broadens coverage to include nonowned autos that are available for the regular use of the insured (e.g., a company car). This endorsement provides excess coverage over the vehicle owner’s insurance.

 

Term

 

Which of the following cannot be covered under a dwelling policy?

 

A) A home under construction

 

B) A mobile home not permanently located

 

C) A four-unit apartment

 

D) A home rented to another person

 

Definition

 

A mobile home must be permanently located to be eligible.

 

Term

 

A dwelling property policy can be used to insure all of the following EXCEPT

 

A) duplexes

 

B) rental homes

 

C) farms

 

D) lake cabins

 

Definition

 

Farms are not eligible for a dwelling policy.

 

Term

 

A dwelling policy is considered to be a monoline policy since it has one major type of insurance, which is

 

A) casualty

 

B) flood

 

C) property

 

D) earthquake

 

Definition

 

An unendorsed dwelling policy has property coverage only.

 

Term

 

Coverage A on a dwelling policy is

 

A) dwelling

 

B) fair rental value

 

C) personal property

 

D) other structures

 

Definition

 

Coverage A coverage is for the residential structure and anything that is attached to the dwelling.

 

Term

 

Which one of the following items of personal property would be covered under Coverage C of a dwelling policy?

 

A) A chair in the family room

 

B) A prize show dog

 

C) a storage shed in the backyard

 

D) A shade tree in the front yard

 

Definition

 

Coverage C coverage includes the household personal property of the insured.

 

Term

 

Which one of the following perils is NOT covered by the DP-1 with extended coverage?

 

A) Aircraft

 

B) Hail

 

C) Vandalism and malicious mischief

 

D) Fire

 

Definition

 

Vandalism and malicious mischief may be added for an additional premium.

 

Term

 

Basic form named perils always include all of the following EXCEPT

 

A) lightning

 

B) fire

 

C) collapse

 

D) internal explosion

 

Definition

 

Collapse is a broad form named peril.

 

Term

 

If an insured has purchased vandalism and malicious mischief coverage, he risks losing this coverage if his dwelling is vacant for a period of how many consecutive days?

 

A) 90

 

B) 60

 

C) 30

 

D) 10

 

Definition

 

An insured loses coverage for vandalism and malicious mischief if the dwelling is vacant for a period of 60 consecutive days

 

Term

 

Which dwelling policies cover loss caused by weight of ice, snow, or sleet?

 

A) DP-1, DP-2, and DP3

 

B) DP-2 and DP-3

 

C) DP-1 and DP-3

 

D) DP-1 and DP-2

 

Definition

 

Broad form and special form perils include coverage for damage caused by weight of ice, snow, or sleet.

 

Term

 

DP-3 Special Form policy is an open peril policy, which means that it provides coverage for which of the following?

 

A) Earthquake

 

B) Flood

 

C) All perils

 

D) All risks of direct physical loss except those specifically excluded

 

Definition

 

Special form policies are open perils, which means they provide coverage for all risks of direct physical loss except those specifically excluded in the policy.

 

Term

 

Coverage L of the personal liability and medical payments to others endorsement provides coverage when

 

A) the insured is found to be legally liable for bodily injury and or property damage to others

 

B) the neighbor cuts down a tree that damages the insured’s home

 

C) damage to property owned by the insured

 

D) the insured is sued due to an automobile accident

 

Definition

 

Coverage L is third party liability coverage that does not provide coverage for the insured.

 

Term

 

Which of the following statements regarding the dwelling policy is CORRECT?

 

A) Removal is automatically included for 30 days at no additional premium.

 

B) Liability is included on all dwelling policies.

 

C) Debris removal may be added to the policy for an additional charge.

 

D) The dwelling policy is written for owner occupied residential structures only.

 

Definition

 

Removal is automatically included in the dwelling policy.

 

Term

 

Supplementary payments are always included in liability coverage. Which of the following is NOT a supplementary coverage?

 

A) Defense and expenses for the investigation of the claim

 

B) Interest on a judgment

 

C) First aid coverage to the insured in the event the insured is injured

 

D) Loss of the insured’s earnings if the insured misses work to attend a hearing

 

Definition

 

Supplementary payments are 3rd party coverage. First aid is for the party injured by the insured.

 

Term

 

The dwelling under construction endorsement is for which of the following?

 

A) When the insured is building the dwelling for a client

 

B) When the insured is renting a construction site to build a dwelling

 

C) When the intended occupant of the dwelling under construction is not the named insured

 

D) When the intended occupant of a dwelling under construction is the named insured

 

Definition

 

The dwelling under construction is an endorsement when the intended occupant of the dwelling is the named insured.

 

Term

 

The inflation guard endorsement is designed to protect the insured against

 

A) the stock market decline.

 

B) not being successful selling your dwelling.

 

C) the market value of property

 

D) the increased cost of construction due to inflation.

 

Definition

 

This endorsement is added to protect the insured from the increased cost of construction due to inflation.

 

Term

 

The HO policy combines property and liability coverages; where can the property coverage be found?

 

A) Section 4

 

B) Section 5

 

C) Section 2

 

D) Section 1

 

Definition

 

The homeowners policy is considered to be a package policy since it has two major types of insurance: property (Section I) and liability (Section II) coverage

 

Term

 

The eligibility for the homeowner’s policy states that the dwelling must be occupied by

 

A) the owner

 

B) the company

 

C) the agent

 

D) the tenant

 

Definition

 

The eligibility requirements for a homeowners policy require the insured to live on the premises (i.e., the residence location).

 

Term

 

All of the following types of property could be covered under the standard HO policy EXCEPT

 

A) a 2-family residence

 

B) a mobile home added by endorsement

 

C) a single family residence

 

D) a farm

 

Definition

 

In order to be eligible for a homeowners policy, the risk must meet the following criteria.

 

  • The structure must be used for residential purposes.
  • The dwelling may consist of one to four family units (e.g., single family dwelling, duplex, triplex, or quadplex).
  • The insured must live on the residential premises that are covered.
  • Homes under construction are eligible and may be added by endorsement; however, the policy must be written in the name of the future owner-occupant.
  • Farms are not eligible as this is considered a business exposure.

 

Term

 

All of the following would be considered an insured under the HO policy EXCEPT

 

A) the named insured

 

B) the insured’s brother living out of state

 

C) the spouse of the insured

 

D) the insured’s son who is 16 years old

 

Definition

 

As you consider who is an insured under the homeowners policy, remember this is not only from a property coverage standpoint but also from a liability coverage standpoint.

 

Term

 

All of the following locations could be covered under the standard HO policy EXCEPT

 

A) cemetery plots or burial vaults

 

B) residences newly acquired during the policy period

 

C) the insured’s workplace

 

D) residence listed in the declarations page

 

Definition

 

Unless specified otherwise below, these are insured locations for both property and liability coverage.

 

  • The premises described (i.e., the physical address of the home) in the declarations
  • Residences newly acquired during the policy period
  • Temporary residences of the insured or premises rented by the insured for non-business uses
  • Vacant land owned or rented by the insured (for liability only)
  • Land owned by the insured on which a residence is being built (for liability only)
  • Cemetery plots or burial vaults

 

Term

 

The basic homeowners form would include all of the following perils of coverage EXCEPT

 

A) lightning

 

B) accidental discharge of water

 

C) smoke damage

 

D) fire damage

 

Definition

 

Basic perils include the following:

 

  • Fire and lightning
  • Windstorm
  • Civil commotion
  • Smoke
  • Hail
  • Aircraft
  • Vehicles
  • Volcanic eruption
  • Explosion
  • Riot
  • Vandalism and malicious mischief
  • Theft

 

Term

 

The broad form adds all of the following perils to the basic form EXCEPT

 

A) burglar damage

 

B) accidental discharge of water

 

C) injuries caused by the insured

 

D) falling objects

 

Definition

 

Broad perils include all of the basic perils plus the following:

 

  • Falling objects (e.g., tree limb falls on house and damages roof)
  • Weight of snow, ice, or sleet (i.e., causes the collapse of the roof)
  • Accidental discharge or overflow of water or steam
  • Sudden and accidental rupture of heating, air conditioning, sprinkler, or water heater
  • Freezing of plumbing
  • Artificially generated electrical current

 

Term

 

All of the following would be excluded from the special form EXCEPT

 

A) flood damage

 

B) earthquake

 

C) power interruption off premises

 

D) theft of building fixtures

 

Definition

 

All real property (i.e., structures) is written as open perils on the special form, subject to the following exclusions:

 

  • Flood
  • Earthquake
  • Power interruption off premises
  • Ordinance or law

 

Term

 

Which of the following covers flood damage?

 

A) None of these

 

B) Broad

 

C) Basic

 

D) Special

 

Definition

 

None of the homeowners policies cover the peril of flood.

 

Term

 

If the police department breaks down the insured’s front door and confiscates personal property owned by the insured, would this be a covered loss under the special form?

 

A) No, if the insured has not added the governmental endorsement.

 

B) No, this type of damage is never covered.

 

C) Yes, if the police gave the insurer notice of the damage.

 

D) Yes, the policy does cover this type of damage.

 

Definition

 

All real property (i.e., structures) is written as open perils, subject to the following exclusions:

 

  • Flood
  • Earthquake
  • Power interruption off premises
  • Ordinance or law
  • War
  • Nuclear hazard
  • Government seizure                               All personal property is written with broad perils.

 

Term

 

Under Coverage C in the homeowner’s policy, which of the following would be covered in full after the loss is reported?

 

A) A trailer that was stolen, valued at $3,000

 

B) $500 in cash

 

C) A diamond ring that was stolen, valued at $5,000

 

D) A gun that was stolen, valued $2,000

 

Definition

 

Some of these property limitations apply only to the peril of theft:

 

  • Money, gold, and silver $200
  • Securities, tickets, stamps, and deeds $1,500
  • Watercraft, trailers, motors, and equipment $1,500
  • Other trailers $1,500
  • Theft of jewelry and/or furs $1,500
  • Theft of guns $2,500
  • Theft of silverware or goldware $2,500
  • Business property on premises $2,500
  • Business property off premises $500

 

Term

 

All of the following would be covered under Coverage A of the HO policy EXCEPT

 

A) the dwelling

 

B) the attached garage

 

C) the swimming pool

 

D) materials and supplies on the premises that are for repair or construction of the dwelling

 

Definition

 

Dwelling coverage (Coverage A) includes:

 

  • attached structures (e.g., attached garage, porch); and
  • materials and supplies on the premises that are for repair or construction of the dwelling.

 

Term

 

Coverage A is written to adhere to a valued policy or liquidated demand. This would cover

 

A) the insured’s personal property

 

B) the insured’s vehicles in the garage

 

C) total loss of the dwelling by fire, covering the structure only

 

D) the insured’s art work

 

Definition

 

Coverage is written to adhere to the valued policy (i.e., liquidated demand) law.

In the event of a total loss to the insured’s premises by fire, the insured can make a liquidated demand against the insurer for the face amount of the policy for the building coverage.

This clause applies only to real property (i.e., structures).

The liquidated demand law does not apply to personal property. In the event of claim for personal property, the insured must submit a proof of loss with an inventory of the damaged property before the adjuster will pay the claim.

 

Term

 

All of the following would be covered under coverage B in the HO policy EXCEPT

 

A) an air conditioning system

 

B) a detached garage

 

C) a fence

 

D) an in ground swimming pool

 

Definition

 

This coverage includes structures located on the same premises as the covered dwelling that are set apart by clear space (e.g., a detached garage, in-ground swimming pool, storage shed, and fence).

 

Term

 

Steve needs coverage for his stamp collection; what section of the HO policy provides this coverage?

 

A) Coverage D

 

B) Coverage B

 

C) Coverage C

 

D) Coverage A

 

Definition

 

Coverage C under the homeowners policy provides coverage for the insured’s personal property at and away from the premises.

 

Term

 

How much coverage does the insured have for trees located on his residence premises?

 

A) $750 per tree

 

B) $100 per tree

 

C) $1,000 per tree

 

D) $500 per tree

 

Definition

 

Coverage is provided for up to $500 per tree, shrub, or plant, subject to a maximum of 5% of Coverage A per loss.

 

Term

 

The insured’s home is being threatened by a severe windstorm that is sure to hit the home. The policy will provide coverage for the insured to take his personal property out of the house to protect the property from damage. This coverage is called

 

A) protection clause

 

B) smart thinking

 

C) reasonable actions

 

D) removal

 

Definition

 

This automatic coverage is for the saving of property from a sure and certain loss for 30 days. If property is removed to protect against loss caused by a covered peril, the insured will have coverage for this property for losses against any covered perils for a period of 30 days.

 

Term

 

George sold a set of golf clubs, and when he went to his bank to deposit the money, he was informed that the money was counterfeit. How much does George’s policy cover in this situation?

 

A) $500

 

B) $1,500

 

C) $1,000

 

D) None

 

Definition

 

The homeowner’s policy will pay up to $500 for receiving counterfeit money or the theft or unauthorized use of a credit or debit card.

 

Term

 

Under the homeowner’s policy, what is the standard deductible?

 

A) $500

 

B) 1% of Coverage A

 

C) $1,000

 

D) $250

 

Definition

 

The standard deductible on a homeowners policy is $250 per occurrence, and it applies to Coverage A, B, and C.

 

Term

 

What coverage would allow the insured to have his damaged property cleaned up and removed following a covered loss?

 

A) Emergency repairs

 

B) Removal

 

C) Additional living expenses

 

D) Debris removal

 

Definition

 

The cost of cleanup after a covered loss is included automatically. If the limit of liability for the property has been exhausted, an additional 5% of applicable coverage (A, B, or C) is available.

 

Term

 

Under the homeowners policy, Coverage E provides what type of coverage for the insured?

 

A) Separate structures

 

B) Medical payments

 

C) Liability

 

D) Dwelling

 

Definition

 

Liability coverage is in Section II of the homeowners policy and is Coverage E with the medical coverage covered as Coverage F.

 

Term

 

How much is the deductible for Coverage E in the homeowners policy?

 

A) $250

 

B) $0

 

C) $1,000

 

D) $500

 

Definition

 

The liability coverage provided by Coverage E pays for damages to a 3rd party, and there is not a deductible applied to these types of losses.

 

Term

 

In what section of the homeowners policy would the insured find protection for damages the insured might cause to a neighbor?

 

A) Section V

 

B) Section II

 

C) Section I

 

D) Section III

 

Definition

 

Liability coverage is in Section II of the homeowners policy and is Coverage E with the Medical coverage covered as Coverage F.

 

Term

 

What is the minimum limit for liability coverage in the homeowners policy?

 

A) $250,000

 

B) $100,000

 

C) $150,000

 

D) $200,000

 

Definition

 

The limit for liability included is $100,000 but can be raised by the insured.

 

Term

 

All of the following losses would be excluded from homeowners liability coverage EXCEPT

 

A) if the insured hit his neighbor in the face during a fight

 

B) if the insured struck another golfer at the course with an errant shot

 

C) if the insured’s business pursuits caused injury to a 3rd party

 

D) if the insured crashed his airplane into a building

 

Definition

 

The following are some of the more common liability exposures that are not covered:

 

  • Intentional acts
  • Business pursuits—separate policy
  • Aircraft or motor vehicles

 

Term

 

All of the following statements about the watercraft endorsement are true EXCEPT

 

A) it extends watercraft liability coverage beyond the size limits in the policy

 

B) it covers business use of professional operators of watercraft

 

C) it extends watercraft liability coverage beyond the horsepower limits in the policy

 

D) it does not cover business use of professional operators of watercraft

 

Definition

 

This endorsement extends watercraft liability coverage beyond the size and horsepower limits permitted in the policy. It does not cover business use of professional operators of watercraft.

 

Term

 

The scheduled personal property endorsement provides a separate schedule of insurance for all of the following categories of valuable property EXCEPT

 

A) show dogs

 

B) cameras

 

C) fine arts

 

D) golf equipment

 

Definition

 

Domestic animal coverage cannot be endorsed on the homeowners policy.

 

Term

 

Which of the following is NOT a correct statement regarding the Special Provision for Texas?

 

A) The fungi or black mold exclusion is removed.

 

B) The policy provisions dealing with catastrophe claims, adjuster deadlines, and the proof of loss are amended.

 

C) The residential community property clause is added to allow for adequate coverage of the insurable

 

interest of both spouses during marriage and a separation.

 

D) The policy is amended to settle jewelry losses on a replacement cost basis.

 

Definition

 

This endorsement is mandatory for all Texas homeowners policies and brings the policy into compliance with any laws and regulations specific to this state. This changes the policy as follows:

 

  • The fungi or microbes (i.e., black mold) exclusion is added.
  • The liquidated demand clause is added to apply to total losses to the structures by the peril of fire.
  • The policy is amended to settle jewelry losses on a replacement cost basis.
  • The residential community property clause is added to allow for adequate coverage of the insurable interest of both spouses during marriage and a separation.
  • The policy provisions dealing with catastrophe claims, adjuster deadlines, and the proof of loss are amended.

 

Term

 

Which of the following coverages must be added by endorsement in order to be covered on the homeowners policy?

 

A) Property

 

B) Trees

 

C) Earthquake

 

D) Liability

 

Definition

 

Earth movement is excluded from coverage under all homeowners forms. However, an endorsement for earthquake coverage may be purchased.

 

Term

 

A homeowners policy provides no coverage for liability arising out of business-related perils, other than for permitted incidental occupancies. Which of the following endorsements provides liability coverage for a business conducted away from the resident premises?

 

A) Business pursuits endorsement

 

B) Personal property replacement cost endorsement

 

C) Permitted incidental occupancies endorsement

 

D) Personal injury endorsement

 

Definition

 

This endorsement provides liability protection for business activities for employees engaged in sales, teaching, or clerical work activities.

 

Term

 

A policy that insures only one type of insurance (e.g., just property insurance) on a policy is called

 

A) a monoline policy

 

B) a single policy

 

C) a package policy

 

D) a multi-line policy

 

Definition

 

A policy with just one type of insurance is called a monoline policy.

 

Term

 

Under the building and personal property coverage form, Coverage A includes the building and all of the following EXCEPT

 

A) completed additions and additions under construction

 

B) stock and inventory

 

C) personal properties owned and used in the service and maintenance of the building, such as fire extinguishing equipment and lawn mowers

 

D) permanently installed fixtures, machinery, and equipment

 

Definition

 

Coverage A (building) typically includes the structure and anything that is permanently attached to the structure. It is also extended to cover property used to service and maintain the premises (e.g., fire extinguishing equipment, appliances used for cooking, ventilating, dish washing, laundering, and lawn mowers). It would not cover stock or inventory.

 

Term

 

Under the building and personal property coverage form, all of the following could be included under the definition of business personal property for Coverage B EXCEPT

 

A) stock including inventory, raw materials, or finished products

 

B) tenant improvements and betterments

 

C) structures

 

D) furniture, fixtures, machinery, and equipment

 

Definition

 

Coverage B (business personal property) typically includes everything that is not a structure or permanently attached to the structure like stock, inventory, furniture, fixtures, machinery, and equipment. If the insured is a tenant, it may also extend to tenant improvements and betterments (e.g., ceiling fans, flooring, and paint).

 

Term

 

Under the building and personal property coverage form, business personal property overage under Coverage B is extended to properties located in, on, or within how many feet of the business premises?

 

A) 500

 

B) 100

 

C) 1,000

 

D) 2,500

 

Definition

 

Coverage B (business personal property) is extended to properties located in, on, or within 100 feet of the business premises.

 

Term

 

Under the building and personal property coverage form, which of the following could be covered under Coverage C (personal property of others)?

 

A) A dry cleaner has customers’ clothes in her possession for cleaning.

 

B) A computer repair shop is repairing a computer for a customer.

 

C) A florist made an arrangement for a customer, and it is awaiting delivery.

 

D) An accountant borrows 2 additional computers for the office during tax season.

 

Definition

 

Coverage C (personal property of others) does not include:

 

  • bailee customers property as that is covered under an inland marine type policy; or
  • property that is sold, but not delivered as that is as part of business personal property (Coverage B).

 

Term

 

Which one of the following is covered property under the building and personal property coverage form?

 

A) Money

 

B) Stock

 

C) Underground pipes

 

D) Land on which covered property is located

 

Definition

 

Money, land, underground pipes, and drains are excluded under the commercial building and personal property policy. Stock would be covered as personal property.

 

Term

 

If the insured meets a coinsurance requirement of 80% or more under the commercial building and personal property policy, all of the following coverages are automatically extended EXCEPT

 

A) personal property temporarily off premises is covered for $10,000

 

B) newly acquired buildings and personal property is covered for 30 days

 

C) trees, shrubs, and plants are covered for specified perils up to $250 each, subject to a maximum of $1,000 per occurrence

 

D) detached outdoor signs are covered for $1,000

 

Definition

 

Signs that are not attached to the building have no coverage under this policy. Attached signs would be covered up to $1,000 under the outdoor property coverage extension.

 

Term

 

The commercial building and personal property coverage form automatically includes up to what amount for the restoration of electronic data made necessary due to a covered loss?

 

A) $1,000 per year

 

B) $2,500 per year

 

C) $2,500 per loss

 

D) $1,000 per loss

 

Definition

 

Up to $2,500 per year for restoration of electronic data is automatically covered under this policy.

 

Term

 

Debris removal is automatically built into the commercial building and personal property policy as an additional coverage. It automatically gives the insured up to 25% of the actual loss. If that is not enough, then what additional amount is available?

 

A) $1,000

 

B) $25,000

 

C) $10,000

 

D) $5,000

 

Definition

 

This policy provides up to 25% of the actual loss sustained for debris removal related to the covered loss. If that is not adequate, an additional $10,000 is available.

 

Term

 

All of the following are additional coverages that are included automatically without any coinsurance required EXCEPT

 

A) replacement cost coverage is covered for the building and business personal property

 

B) fire department service charges are covered up to $1,000, with no deductible applicable

 

C) pollution cleanup and removal are covered up to a maximum of $10,000 if loss occurs as a result of covered peril

 

D) coverage for the increased cost of construction to comply with building codes or ordinances due to a covered loss is covered; it pays the lesser of 5% of Coverage A or $10,000

 

Definition

 

Fire department service charges, pollution cleanup, and building code/ordinance coverage are automatically included under this policy. If the insured wants replacement cost coverage on the building and business personal property, this must be purchased by an endorsement.

 

Term

 

Which of the following is not covered on a builders risk coverage form?

 

A) liability

 

B) dwellings under construction

 

C) scaffolding, cribbing, and other temporary structures

 

D) building supplies of other contractors

 

Definition

 

Liability is not covered and should be included on another policy.

 

Term

 

Any building supplies that are in, on, or within how many feet of the premises are covered under the builder’s risk policy?

 

A) 500 feet

 

B) 250 feet

 

C) 1,000 feet

 

D) 100 feet

 

Definition

 

Any building supplies that are in, on, or within 100 feet of the premises are covered under the builder’s risk policy.

 

Term

 

On a builder’s risk value reporting form, the insured must send in a report on

 

A) a monthly basis

 

B) a quarterly basis

 

C) a weekly basis

 

D) a yearly basis

 

Definition

 

On a builder’s risk value reporting form, the insured must send in a report on a monthly basis.

 

Term

 

All of the following are correct about the duration of the builder’s risk policy EXCEPT

 

A) this is considered temporary insurance, so if the building is finished or becomes occupied, then permanent insurance should be purchased

 

B) the insured has only 90 days after construction is complete to secure permanent insurance

 

C) once the contractor’s insurable interest has ceased, the policy may be assigned automatically to the new owner of the property

 

D) the policy is written for a policy term of one year

 

Definition

 

Once a contractor’s insurable interest in the construction project has ceased, the builder’s risk policy is terminated and the new owner of the project needs to secure permanent insurance. Also, insurance contracts are considered to be personal contracts, meaning policy assignment is normally prohibited on all contracts without an insurer’s approval.

 

Term

 

All of the following statements are correct about a builder’s risk policy EXCEPT

 

A) in addition to the property coverage, it also covers liability

 

B) a builders risk may be written on a value reporting form or a completed value form

 

C) the policy is written for one year

 

D) 100% coinsurance is required

 

Definition

 

A builder’s risk policy is a property policy and contains no liability coverage. A contractor would need to purchase a commercial general liability policy.

 

Term

 

Which of the following statements is NOT correct about the covered property on the condominium association master policy?

 

A) The association’s master policy covers the personal property of the unit owners.

 

B) The association’s bylaws help define coverage under the policies.

 

C) The association’s master policy covers buildings and personal property owned by the association itself or that the unit owners have an indivisible ownership interest in.

 

D) If there is overlap with a unit owner’s policy, the association’s master policy is primary and the unit owner’s policy is excess.

 

Definition

 

The personal property of the unit owners will not be covered under the association’s master policy; that will be covered under a unit owner’s policy.

 

Term

 

Which of the following would be covered under the condominium commercial unit owners policy?

 

A) The outer walls and roof of the condominiums

 

B) The unit owner’s business personal property

 

C) The unit owner’s liability

 

D) The parking structures

 

Definition

 

The business personal property of the unit owners will be covered under the condominium commercial unit owners policy.

 

Term

 

What coverage does a tenant of a leased building space purchase to cover his legal liability due to direct physical loss or damage, including loss of use, to the landlord’s building?

 

A) Business income coverage

 

B) Extra expense coverage

 

C) Legal liability insurance

 

D) Commercial building and personal property coverage form

 

Definition

 

Legal liability insurance is bought by a tenant of a leased building space purchase to cover their legal liability due to direct physical loss or damage, including loss of use, to the landlord’s building.

 

Term

 

The primary purpose of the business income coverage forms is to reimburse the insured for

 

A) loss resulting from employees’ work-related injuries

 

B) damage to accounts receivable records

 

C) loss of income resulting from property damage at the insured’s premises

 

D) the cost of debris removal following loss from a covered peril

 

Definition

 

The primary purpose of the business income coverage form is to reimburse the insured for loss of income resulting from property damage at the insured’s premises.

 

Term

 

The extra expense coverage form provides

 

A) payment for unforeseen expenses an insured may incur while the business is shut down following a property loss

 

B) additional money to pay for property damage losses at a covered location

 

C) coverage that will permit the insured to continue in business without interruption following a property damage loss to avoid a permanent loss of customers

 

D) extra money for an insured whose accounts receivable records have been damaged

 

Definition

 

The extra expense coverage provides for the payment of any extra expenses (not just unforeseen expenses) that permit the insured to continue in business without interruption following a property damage loss to avoid a permanent loss of customers.

 

Term

 

Which one of the following causes of loss is NOT included in the basic form?

 

A) Falling objects

 

B) Sprinkler leakage

 

C) Vandalism

 

D) Sinkhole collapse

 

All of the following are covered under the broad cause of loss form EXCEPT

 

A) the weight of ice, sleet, or snow causes the collapse of the roof at a restaurant

 

B) a tree limb breaks, falls, and causes damage to the restaurant’s roof

 

C) a dishwasher at the restaurant accidentally discharges and causes water damage to business personal property

 

D) the creek behind the restaurant overflows due to heavy rain and causes flood damage to the building

 

Definition

 

Falling objects is a broad peril, not a basic peril.

 

Term

 

All of the following are correct about the special cause of loss form EXCEPT

 

A) all of the perils covered in the basic and the broad forms are also covered in the special form

 

B) the special form is an open peril form that covers all perils unless they are excluded

 

C) out of the three causes of loss forms, the special form is the best and the most expensive

 

D) some of the perils covered under the special form are flood, earthquake, mechanical breakdown,

 

explosion of steam boilers, and employee theft

 

Definition

 

The perils of flood, earthquake, mechanical breakdown, explosion of steam boilers, and employee theft are excluded in the special form.

 

Term

 

Which of the following commercial property endorsements is NOT matched with the correct description?

 

A) The peak season endorsement is used for businesses that have identifiable times during the year when inventory levels increase and provides coverage for this increase during a specified period predetermined by the insured when the policy is purchased.

 

B) The spoilage endorsement covers perishable stock for the perils of breakdown of refrigeration equipment, contamination by refrigerants, and power interruption on or off the premises.

 

C) The ordinance or law endorsement provides the businessowner with property coverage even if the businessowner is breaking a law or ordinance.

 

D) The value reporting endorsement is used by businesses that experience frequent fluctuations in the value of their inventory and requires the insured to regularly report the value of inventory

 

Definition

 

The ordinance or law endorsement replaces the building code and ordinance exclusion with coverage to pay for losses resulting from the enforcement of a building code or ordinance.

 

Term

 

The limit of insurance scheduled on the peak season limit of insurance endorsement applies

 

A) to the insured’s building specified on the schedule

 

B) only during the period scheduled on the endorsement

 

C) at any time except the period shown on the schedule of the endorsement

 

D) during the entire policy period

 

Definition

 

The limit of insurance scheduled on the peak season limit of insurance endorsement applies only during the period scheduled on the endorsement.

 

Term

 

A customer in a drug store trips over a display case extension cord and sprains her ankle. This is best described as what type of liability claim for the business insured?

 

A) Completed operations

 

B) Premises

 

C) Operations

 

D) Products

 

Definition

 

The claim arose out of the condition of or the use of the business location (premises).

 

Term

 

An employee driving a backhoe knocks over a fire hydrant. This is best described as what type of liability claim for the business insured?

 

A) Operations

 

B) Products

 

C) Premises

 

D) Completed operations

 

Definition

 

The claim arose out of the employee’s actions (operations).

 

Term

 

A dry cleaning business improperly stores chemicals that start a fire and damage the landlords building. This is best described as what type of liability claim against the insured tenant?

 

A) Fire legal

 

B) Products

 

C) Premises

 

D) Operations

 

Definition

 

Fire legal liability claims include fire damage to the landlord’s building as a result of the negligence of the insured tenant.

 

Term

 

All of the following are operations liability claims EXCEPT

 

A) after a repairman worked on a customer’s microwave, the appliance explodes due to the negligent work and damages the customer’s house

 

B) while a contractor is installing a new composition shingle roof for a customer, the roofer throws the old shingles down and injures a neighborhood child

 

C) while a plumber is unclogging a drain, he drops a heavy tool and cracks the customer’s sink

 

D) while an employee is stacking a display, it topples over and injures a customer

 

Definition

 

Although the microwave was a product when originally purchased, the damage happened because of the negligent work performed by the repairman (completed operations).

 

Term

 

A customer buys an iron from a discount store and takes it home. After doing his morning ironing, the customer leaves the iron plugged in and he leaves for work. The iron subsequently shorts out and causes a fire. This is best described as what type of liability claim for the business insured?

 

A) Fire legal

 

B) Products

 

C) Premises

 

D) Operations

 

Definition

 

The claim arose out of as a result of a product that a business manufactured or sold.

 

Term

 

Which of the following best describes the trigger of coverage on a liability policy written on an occurrence form?

 

A) When the loss of damage happens during the policy period

 

B) When the claimant goes to the doctor during the policy period

 

C) When the claim is turned in during the policy period

 

D) When the lawsuit is filed during the policy period

 

Definition

 

Under a liability policy written on an occurrence form, the loss or damage must occur during the policy period.

 

Term

 

Which of the following would most likely be covered under a liability policy written on a claims-made form?

 

A) For loss or damage occurring before the retroactive date and reported during the policy period or up to 1 year after the policy expires

 

B) For loss or damage occurring before the retroactive date and reported during the policy period

 

C) For loss or damage occurring after the retroactive date and reported during the policy period

 

D) For loss or damage occurring after the retroactive date and reported during the policy period or up to 1 year after the policy expires

 

Definition

 

Under a liability policy written on a claims-made form, the loss or damage must occur after the retroactive date and must be reported during the policy period (or during the extended reporting period).

 

Term

 

The date in the declarations page of a claims-made CGL which indicates the first date an event may occur and be covered as a valid claim is known as:

 

A) the retention date.

 

B) the extended reporting date.

 

C) the retroactive date.

 

D) the supplemental date.

 

Definition

 

A retroactive date is the first date that an event may occur and still be covered on a claims-made policy.

 

Term

 

Which feature of the claims-made CGL provides coverage to the insured for claims reported after the policy expires?

 

A) Retroactive date

 

B) Occurrence date

 

C) Extended reporting period

 

D) Coverage trigger

 

Definition

 

The extended reporting period extends the amount of time available for reporting claims for injuries that occurred during the claims-made policy even after the policy expires.

 

Term

 

All of the following are usually written on a claims-made basis EXCEPT

 

A) errors and omissions insurance

 

B) commercial general liability

 

C) pollution liability

 

D) medical malpractice insurance

 

Definition

 

Pollution liability and professional liability (e.g., medical malpractice and errors and omissions) is usually written on a claims-made basis. Most other liability is written on an occurrence form.

 

Term

 

All of the following could be insureds in the commercial general liability policy EXCEPT

 

A) the owners of the insured business

 

B) the directors, officers, managers, and employees of the business

 

C) recipients of the claim payments

 

D) the spouse of individual owners

 

Definition

 

Recipients of the payments would be the 3rd party, not an insured.

 

Term

 

Which one of the following situations best illustrates bodily injury liability covered under Coverage A of the CGL Policy?

 

A) A customer steps on a piece of fruit someone dropped on the floor of a grocery store and slides several feet before coming to a halt. She is very embarrassed, but not injured.

 

B) A doctor’s patient in the medical complex slips on an escalator and falls backward to the floor. He fractures his skull and later dies.

 

C) While unloading groceries she just bought at the grocery store, Emily slips and falls at her house and gets injured.

 

D) A person is walking into the mall from the parking garage and has a heart attack and dies.

 

Definition

 

In order for Coverage A to pay, there must be an injury to a third party for which the business is legally responsible.

 

Term

 

All of the following scenarios are excluded under the commercial general liability Policy EXCEPT

 

A) an auto repair shop damages a customer’s auto when it is in the shop’s care

 

B) a doctor amputates the wrong leg of a patient in the hospital

 

C) a bar serves too many alcoholic beverages to a customer who subsequently is involved in an auto accident due to her intoxication

 

D) a customer of a store is hit by an employee using a forklift to move a pallet of inventory

 

Definition

 

The CGL excludes professional liability, liquor liability, and bailee customers' liability. The customer being hit by a forklift is an example of operations exposure that could be covered by the policy.

 

Term

 

All of the following are insured contracts under the CGL policy EXCEPT

 

A) sidetrack agreement

 

B) lease of equipment

 

C) easement agreement

 

D) elevator maintenance agreement

 

Definition

 

There are five insured contracts (LEASE) covered by the CGL. If they are not listed here, they are not covered:

 

  • Lease of a premises (not lease of equipment)
  • Easement agreement
  • Agreement to indemnify a municipality
  • Sidetrack agreement
  • Elevator maintenance agreement

 

Term

 

Which of the following is an example of a fire legal liability claim?

 

A) An auto mechanic leases a building for his repair operations. The poor housekeeping of this insured starts a fire and damages the landlord’s building.

 

B) A restaurant cook negligently causes a fire and damages the building owned by the restaurant owners.

 

C) An air conditioner contractor improperly installs a cooling system, and it causes a fire at the customer’s house.

 

D) A blender is purchased by a customer and shorts out causing a fire at the customer’s house.

 

Definition

 

Fire legal liability only covers claims due to fire damage to the landlord’s building as a result of the negligence of the insured tenant.

 

Term

 

Which one of the following would be considered a personal and advertising injury?

 

A) Electronics World runs a TV advertisement accusing a competitor of selling rebuilt components but representing them as being new.

 

B) A magazine overcharges a customer for placing an advertisement.

 

C) A newscaster trips over her microphone cord and breaks her leg.

 

D) A misprint in the insured’s advertisement states that a lawnmower is on sale for $20 rather than $200.

 

Definition

 

Personal and advertising injury includes libel, slander, false arrest, invasion of privacy, wrongful eviction, and copyright infringement. Libel (written defamation) or slander (spoken defamation) in an advertisement would be an advertising injury.

 

Term

 

Cheryl Harper owns a mail order business. Who of the following is eligible for medical expense coverage under Coverage C of Cheryl’s CGL policy?

 

A) A computer programmer contract employee who spills boiling coffee on himself and has to go to the doctor for the burns

 

B) Cheryl, who cuts herself severely on a paper cutter

 

C) A friend of Cheryl’s who has volunteered to help pack shipments during a busy time and is injured when some boxes fall on her

 

D) The regular full-time receptionist who slips on an icy walk and hurts herself coming into the building in the morning

 

Definition

 

Coverage C (medical payments) under the commercial general liability policy pays regardless of fault or legal liability for medical bills to an injured third party. It does not pay to an insured or an employee of the insured.

 

Term

 

Which of these could be considered to be an advertising injury?

 

A) Slander of a competitor on the company's Facebook page

 

B) Calling the mayor incompetent

 

C) Making false accusations about your neighbor

 

D) Calling the competition cheats and liars at a party

 

Definition

 

An advertising injury must occur through use of a medium of advertising and be directed at the competition.

 

Term

 

Which of the following statements about Coverage C medical payments is CORRECT?

 

A) Pays only when the injury occurs on premises

 

B) Helps prevent law suits

 

C) Covers injuries to employees

 

D) Requires proof of liability

 

Definition

 

Payment of medical bills resulting from the insured's personal and advertising activities without requiring liability is a good will gesture that helps prevent further action.

 

Term

 

Which of the following is NOT an example of personal injury?

 

A) slander, libel

 

B) false arrest

 

C) malicious prosecution

 

D) fraud committed by the insured

 

Definition

 

Examples of personal injury include the following:

 

  • False arrest, detention, or imprisonment
  • Malicious prosecution
  • Wrongful entry into or eviction from a premises
  • Slander (i.e., spoken defamation) or libel (i.e., written defamation)
  • Violation of the right of privacy

 

Term

 

Patti’s Pizza Parlor has purchased a commercial general liability policy. Which of the following is paid as a supplementary payment and does not reduce her policy’s aggregate limits?

 

A) Bodily injury suffered by a customer when she gets burned on a hot pizza pan as it is delivered to the table

 

B) Personal injury caused to Patti when she makes disparaging remarks about a competing pizza parlor

 

C) Cost of the attorneys and court fees associated with defending the insured for a claim

 

D) Property damage when a driver for the pizza parlor drops two soft drinks on a customer’s carpet

 

when he was making a delivery

 

Definition

 

Supplementary payments on most liability policies include the following:

 

  • Bonds (e.g., appeal bonds and bail bonds)
  • First aid to others
  • Interest on a judgment until paid
  • Loss of earnings of an insured if they must miss work while attending a hearing or trial
  • Other expenses made necessary by the claim
  • Defense and investigation costs on behalf of the insured

 

Term

 

Other than products claims, the territory for most claims under the commercial general liability policy is

 

A) the United States, its territories and possessions (including Puerto Rico), and Canada

 

B) worldwide

 

C) the United States, its territories and possessions (including Puerto Rico)

 

D) the United States

 

Definition

 

The territory for most coverage under the Commercial General Liability Policy is the United States, its territories and possessions (including Puerto Rico), and Canada. One exception to this rule is that products claims are covered worldwide, but the lawsuit must be filed in the United States.

 

Term

 

What is the purpose of a premium audit?

 

A) To charge less premium

 

B) To ensure the insurance company charges an appropriate premium

 

C) To charge more premium

 

D) To look into the books and records of the insured business to make sure they are not hiding anything

 

illegal

 

Definition

 

After the policy expires, a premium audit will be performed to adjust the premium to reflect the actual sales or payroll figures in order to charge an appropriate premium for the risk.

 

Term

 

The deductible liability endorsement allows the insurance company to utilize a deductible on the CGL Policy for

 

A) medical payments claims

 

B) bodily injury and/or property damage claims

 

C) defense cost claims

 

D) personal injury and/or advertising injury claims

 

Definition

 

The deductible liability endorsement allows the insurance company to utilize a deductible on the CGL Policy for bodily injury and/or property damage claims.

 

Term

 

The policy general aggregate applies to all of the following claims EXCEPT

 

A) Fire legal

 

B) Completed operations

 

C) Operations

 

D) Slip and fall

 

Definition

 

The general aggregate per policy period applies to all claims except products and completed operations.

 

Term

 

All of the following would best be written on a business auto coverage form EXCEPT

 

A) a construction company to cover all of the vehicles, except the mobile equipment (e.g., forklifts and bulldozers)

 

B) a taxi cab company to cover its fleet of cars

 

C) a repair shop with customers’ autos in their care, custody, or control

 

D) a florist delivering flowers in a company van

 

Definition

 

The business auto coverage form is used for all businesses except truckers (covered by a truckers policy), motor carriers using all types of vehicles (covered by a motor carrier policy), or garage related business with customers’ cars in their care, custody, or control (covered by a garage policy).

 

Term

 

A symbol shown on the declarations page of a commercial auto policy signifies

 

A) which vehicles have a particular coverage

 

B) the cost of a vehicle

 

C) which coverages the insured bought

 

D) the territory where the vehicle is used

 

Definition

 

A symbol shown on the declarations page of a commercial auto policy signifies which vehicles have a particular coverage.

 

Term

 

Which of the following fits the definition of a nonowned auto (symbol 9) used in the business auto coverage form?

 

A) Personal vehicles being used to make deliveries by employees of a local pizza parlor

 

B) A private passenger auto leased from an auto dealer

 

C) A van borrowed from a neighboring business

 

D) A truck rented from a commercial leasing service

 

Definition

 

Nonowned autos (symbol 9) only represent employees’ vehicles used on behalf of the business

 

Term

 

All of the following are excluded for liability under the business auto coverage form EXCEPT

 

A) injuries sustained by an employee arising out of the course of his employment

 

B) pollution, unless the pollutants are internal fluids necessary for the normal operation of the covered auto

 

C) racing, demolition contests, tractor-pulls, or stunting

 

D) mobile equipment (e.g., forklifts and bulldozers) when being transported using a vehicle that is approved for use on the highway

 

Definition

 

The mobile equipment exclusion has an exception that still covers the mobile equipment if it is transported using a vehicle (i.e., trailer) approved for use on the highways.

 

Term

 

Loss caused by which of the following would NOT be covered by specified causes of loss coverage of the business auto coverage form?

 

A) Windstorm

 

B) Explosion

 

C) Collision with a bird or animal

 

D) Sinking of a conveyance transporting the covered auto

 

Definition

 

Specified causes of loss is a less expensive alternative to comprehensive since it names the perils that are covered. It covers many of the same perils as comprehensive, except it does not cover hitting a bird or animal.

 

Term

 

Which of the following statements about coverage under the garage policy is NOT correct?

 

A) For a vehicle dealership, the vehicles held for sale must be scheduled in order for physical damage to apply.

 

B) Physical damage coverage provides both comprehensive and collision coverage for vehicles owned by the business.

 

C) Garage liability coverage provides broad-based liability coverage not only for the use of automobiles, but also for the general liability exposures of an automobile related business.

 

D) Garagekeepers coverage provides both comprehensive and collision coverage for customers’ vehicles in the care, custody, or control of the insured.

 

Definition

 

For a vehicle dealership, the vehicles held for sale can be covered on a blanket basis for physical damage to prevent the need to schedule the autos.

 

Term

 

Under the truckers coverage form and the motor carrier forms, trailer interchange coverage

 

A) extends the forms to provide coverage for motor carriers

 

B) provides coverage for an insured trucker’s legal liability for damage to nonowned trailers in his care, custody, or control under a trailer interchange agreement

 

C) extends the forms to provide coverage for private carriers

 

D) is available by endorsement only

 

Definition

 

Under both the truckers and the motor carrier forms, trailer interchange coverage provides coverage for an insured trucker’s legal liability for damage to nonowned trailers in his care, custody, or control under a trailer interchange agreement.

 

Term

 

All of the following are correct about the Motor Carrier Act of 1980 EXCEPT

 

A) truckers are categorized by the law based upon what type of cargo they are hauling

 

B) a Type 1 trucker hauls nonhazardous property and must carry a minimum limit of $250,000

 

C) a Type 2 trucker hauls hazardous substances, including compressed gas, explosives, poison gas, and radioactive materials and must carry a minimum limit of $5 million

 

D) this law also requires truckers and motor carriers to carry much higher liability requirements (including pollution coverage) than an average person or business

 

Definition

 

A Type 1 trucker hauls nonhazardous property and must carry a minimum limit of $750,000.

 

Term

 

Which of the following endorsements is NOT properly matched with its purpose?

 

A) The mobile equipment endorsement covers scheduled mobile equipment including bulldozers, forklifts, air compressors, and snow plows.

 

B) The Texas changes endorsement is a mandatory endorsement that amends the policy to comply with Texas regulations.

 

C) The additional insured—lessor endorsement covers scheduled leased autos as owned rather than hired or borrowed autos.

 

D) Individual named insured endorsement excludes a particular driver due to their poor driving record.

 

Definition

 

This individual named insured endorsement extends coverage to the insured’s family members with liability coverage as a named insured.

 

Term

 

An accountant hired Terri’s Taxi to take him to the downtown convention center. On the way, they were involved in an accident due to the driver’s negligence. The accountant was injured and missed 3 days of work. What coverage does the driver need on her business auto policy to cover this claim?

 

A) Uninsured/Underinsured motorist

 

B) Personal injury protection

 

C) The accountant assumed the risk when he got in the car, so there is no claim

 

D) Medical payments

 

Definition

 

The personal injury protection endorsement pays for bodily injury sustained in an auto accident and covers the medical bills and the lost wages of anyone other than an employee occupying an insured vehicle.

 

Term

 

Which of the following losses to covered equipment would be covered under the equipment breakdown protection coverage form?

 

A) Damage from an explosion caused by the centrifugal force of moving parts

 

B) Damage resulting from a windstorm

 

C) Damage caused by fire

 

D) Damage that occurs while the equipment is undergoing a pressure test

 

Definition

 

There are only two covered causes of loss in this policy: explosion and mechanical breakdown of equipment. Damage that occurs while the equipment is undergoing a test is specifically excluded.

 

Term

 

Which of the following would NOT be covered under an equipment protection policy?

 

A) A computer gets a virus

 

B) A boiler explodes

 

C) A refrigerator breaks down

 

D) An air conditioner breaks down

 

Definition

 

An equipment protection policy covers explosion of boilers and mechanical breakdown of equipment, but it excludes a computer getting a virus.

 

Term

 

Which of the following statements about the equipment breakdown policy is NOT correct?

 

A) Breakdown occurring during the testing of the equipment would not be covered.

 

B) This policy provides actual cash value coverage unless it is amended.

 

C) The objects that are insured are machinery and equipment that could suffer a sudden and accidental breakdown, but it does not cover wear and tear or maintenance types of issues.

 

D) This coverage may also be called an equipment protection policy or a boiler and machinery policy.

 

Definition

 

Loss settlement is replacement cost, unless the policy is changed.

 

Term

 

Under the suspension clause in the equipment protection coverage form, coverage may be immediately suspended if

 

A) covered equipment is found to be in ill repair or a dangerous condition

 

B) a loss occurred and has not been fixed

 

C) the insured made a misrepresentation to the insurer

 

D) a hurricane or flood is threatening the insured’s property

 

Definition

 

Under the suspension clause in the equipment protection coverage form, coverage may be immediately suspended if covered equipment is found to be in ill repair or a dangerous condition.

 

Term

 

The actual cash value endorsement in the equipment breakdown coverage form changes the property damage loss settlement condition from

 

A) actual cash value to replacement cost

 

B) replacement cost to actual cash value

 

C) agreed value to actual cash value

 

D) actual cash value to agreed value

 

Definition

 

The purpose of the actual cash value endorsement in the equipment breakdown coverage policy is to change the loss settlement clause from replacement cost to actual cash value so that obsolete and useless property will not be repaired or replaced.

 

Term

 

Many of the inland marine policies are referred to as floaters because they insure property that

 

A) hovers or glides in the air

 

B) is suspended on the water

 

C) tends to be moveable in nature

 

D) floats in the water or in the air

 

Definition

 

Inland marine policies are many times called floaters because they cover property that tends to be moveable in nature; therefore, coverage must be flexible and will follow (i.e., float with) the property anywhere it goes.

 

Term

 

Which of the following is NOT a category of marine insurance as identified in the nationwide marine definition?

 

A) Imports

 

B) Exports

 

C) Commercial property floater risks

 

D) Buildings

 

Definition

 

Buildings will not be written on an inland marine policy because they are not mobile in nature.

 

Term

 

Which of the following types of inland marine forms may be written as part of a commercial package policy?

 

A) Manuscript forms

 

B) Filed forms

 

C) Both non-filed and manuscript forms

 

D) Non-filed forms

 

Definition

 

Only filed inland marine coverage forms may be part of a commercial package policy.

 

Term

 

Which of the following would be excluded under the accounts receivable floater?

 

A) The weight of snow causes a roof of a furniture store to collapse and destroys its accounts receivable records. The store is forced to take out a loan and pay $500 interest to meet their business expenses.

 

B) A hurricane destroys the accounts receivable records at a furniture store, and it costs $3,000 to reconstruct the billing records.

 

C) The bookkeeper of a furniture store sends out a statement indicating the customer owes $500, when in fact the customer owes $5,000.

 

D) A fire burns down a furniture store along with its records of accounts receivable. By the time the records are recreated and the bills go out, some of the customers move and the accounts get sent to a collection agency.

 

Definition

 

Accounting and billing errors are excluded under the accounts receivable floater.

 

Term

 

Which of the following would be the least likely to buy a commercial articles floater?

 

A) Camera or musical instruments dealer

 

B) Professional photographers specializing in weddings

 

C) Country and western band touring around the country

 

D) Freelance photographer selling his photos to various new organizations

 

Definition

 

A commercial articles floater insures cameras and musical instruments owned and used by a business. It would not cover dealers.

 

Term

 

Which of the following could be covered under a jeweler’s block coverage?

 

A) Customer’s property that was being cleaned and repaired is stolen during a robbery

 

B) A shortage discovered during an inventory

 

C) Mysterious disappearance of inventory

 

D) Employee steals inventory belonging to the store

 

Definition

 

A jeweler’s block could cover a loss to customer’s property that was being cleaned and repaired; however, mysterious disappearance, employee dishonesty, and shortages discovered at inventory are not covered losses.

 

Term

 

What part of the valuable papers and records floater states that if an insured does not keep her valuable papers and records in the required container when they are not being used or the business is closed, losses by fire will not be covered?

 

A) Receptacle warranty

 

B) Container representation

 

C) Fireproof container warranty

 

D) Safe and vault promise

 

Definition

 

The receptacle warranty outlines the insured’s promise to keep her valuable papers and records in fireproof containers or coverage could be in jeopardy in the event of a loss.

 

Term

 

Daryl purchases a new dishwasher at an appliance store. He arranges for Paul, a plumber, to install the new dishwasher at his house. The dishwasher could be covered under an installation floater in all of the following circumstances EXCEPT

 

A) the dishwasher is being tested by Paul

 

B) the dishwasher is at the appliance store

 

C) the dishwasher has been picked up by the Paul

 

D) the dishwasher is being installed by Paul

 

Definition

 

The installation floater does not begin until the installer takes possession of the property to be installed. Prior to the installer taking possession, the retail store would still cover the property as their inventory under their building and personal property policy.

 

Term

 

Which of the following statements about a bill of lading is NOT correct?

 

A) There are only two ways a bill of lading may be written: —free on board (FOB) and buyer beware (BB).

 

B) The bill of lading is a contract of carriage.

 

C) If the bill of lading is written FOB, the seller is responsible for insuring the shipment until it reaches a designated point. Once the point has been reached, the buyer becomes responsible for insuring the shipment.

 

D) A bill of lading details who is responsible for purchasing the insurance.

 

Definition

 

There are three ways a bill of lading may be written:

 

  • Cost and freight
  • Cost, insurance, and freight
  • Free on board

 

Term

 

If a grocery store chain is regularly hauling its own goods on its own trucks, they would be good candidates for

 

A) annual transit policy

 

B) motor truck cargo—owner’s form

 

C) motor truck cargo—trucker’s form

 

D) trip transit policy

 

Definition

 

A business hauling its own goods on its own trucks on a regular basis needs to purchase a motor truck cargo—owner’s form.

 

Term

 

Which of the following statements concerning farm insurance is NOT correct?

 

A) Farm insurance may provide both property and liability coverage.

 

B) Farm insurance covers the farmer’s growing crops.

 

C) Farm insurance covers the farmer’s business and personal loss exposures.

 

D) Farm insurance can be written on a commercial package policy.

 

Definition

 

The farmer’s growing crops are always excluded while they are still planted in the ground. Crops may only be covered if they are harvested, stored in a building, and scheduled on the policy.

 

Term

 

A storage shed housing a mower and maintenance equipment for the farmer’s lawn would be covered under

 

A) Coverage G—barns, outbuildings, and other farm structures

 

B) Coverage E—scheduled farm personal property

 

C) Coverage F—unscheduled farm personal property

 

D) Coverage B—appurtenant structures

 

Definition

 

Coverage B covers appurtenant private structures that are set apart from the dwelling by clear space like a storage shed for the personal belongings of the farmer, detached garage, gazebo, or in-ground swimming pool. Farm buildings and structures that service the business side of the farm are covered under Coverage G.

 

Term

 

Which of the following may be scheduled under Coverage E—scheduled farm personal property?

 

A) Tractors and plows

 

B) Growing crops still planted in the field

 

C) The farmer’s truck licensed for road use

 

D) A sheep herding dog

 

Definition

 

Tractors and plows may be scheduled under Coverage E; however, the work dog, truck, and growing crops cannot be added to this policy.

 

Term

 

All of the following may be insured as livestock under farm insurance EXCEPT

 

A) chickens

 

B) horses

 

C) swine

 

D) sheep and goats

 

Definition

 

Chickens are considered poultry, not livestock.

 

Term

 

Which of the following property will most likely be covered under Coverage F—unscheduled farm personal property?

 

A) Horses

 

B) Grain in the silo

 

C) Hand tools used to work on the tractors

 

D) A big screen television

 

Definition

 

The farmer’s hand tools are most likely going to be covered under Coverage F. The farmer’s horses and grain will be scheduled under Coverage E, and the big screen television would be covered under Coverage C.

 

Term

 

The basic cause of loss form for farm insurance includes all of the following perils EXCEPT

 

A) electrocution of livestock

 

B) earthquake and flood loss to livestock

 

C) sinkhole collapse

 

D) collision to farm machinery and livestock

 

Definition

 

Electrocution of livestock is a broad peril, not a basic peril.

 

Term

 

Which of the following is NOT a broad peril under farm insurance?

 

A) Accidents involving loading or unloading of covered livestock

 

B) Transportation of covered livestock

 

C) Attacks on covered livestock by dogs or wild animals

 

D) Accidental shooting of covered livestock

 

Definition

 

Transportation of covered livestock is not covered under the broad form. This exposure would be covered under an inland marine floater.

 

Term

 

Which of the following is excluded under farm property insurance written under a special form?

 

A) Riot and civil commotion

 

B) Volcanic action

 

C) Pollutants or contamination

 

D) Drowning of livestock

 

Definition

 

Pollutants or contamination claims are excluded under the special form. Riot, civil commotion, and volcanic eruption are basic perils; drowning of livestock is a broad peril. Remember if a peril is covered under the basic or broad, it would also be covered under the special form.

 

Term

 

All of the following are excluded under farm liability EXCEPT

 

A) aircraft spraying or crop dusting

 

B) injury to compensated farm employees

 

C) the insured’s performance or failure to perform custom farming operations for others, if receipts for the custom farming exceed $250 per year

 

D) pollutants

 

Definition

 

Custom farming is not excluded until it exceeds $2,000 per year.

 

Term

 

Which of the following is an example of custom farming?

 

A) Farmer Garza acts neighborly by assisting Farmer Wright plant his soybeans, since Farmer Wright helped him last month.

 

B) Farmer Green contracts with a grocery store chain to supply them with 1,000 bushels of tomatoes.

 

C) Farmer Perry is experimenting and planted ten acres of asparabeans (i.e., asparagus crossed with green beans).

 

D) Farmer Jones hires Farmer Smith to assist with harvesting his bumper crop of corn.

 

Definition

 

Custom farming involves hiring someone to complete specific farming operations, such as tillage, planting, harvesting, and haying.

 

Term

 

A customer hides in the restroom of a convenience store that is closing. The store manager is called by the alarm company indicating an intruder was on the premises. Upon arriving and reviewing the security camera, it is discovered that this felon came out of the restroom, took beer and cigarettes, opened a window in the restroom, and escaped with the stolen goods. This is an example of

 

A) embezzlement

 

B) robbery

 

C) burglary

 

D) theft

 

Definition

 

This scenario depicts a theft. It was not an employee; therefore, it is not embezzlement. It was not burglary because there was no forced entry or exit as the intruder left through a window the customer opened. It was not a robbery because there was no face-to-face contact that resulted in violence, threat, or fear.

 

Term

 

Theft coverage includes all of the following EXCEPT

 

A) robbery

 

B) larceny

 

C) mysterious disappearance

 

D) burglary

 

Definition

 

Theft includes any act of stealing. Mysterious disappearance is not considered theft.

 

Term

 

Who of the following would NOT qualify as a custodian under a crime form?

 

A) The insured

 

B) The insured’s partner

 

C) A clerk employed by the insured

 

D) A janitor

 

Definition

 

In crime insurance, a custodian has responsibility for the care of business property inside the premises. A janitor would not qualify as a custodian under this crime definition.

 

Term

 

Crime policies written on the loss-sustained form cover only losses

 

A) discovered within the policy period or within 1 year of the end of the period

 

B) discovered within the policy period or within 60 days of the end of the period

 

C) occurring during the policy period, no matter when they are discovered

 

D) discovered within the policy period or within 2 years of the end of the period

 

Definition

 

Crime policies written on the loss-sustained form cover only losses discovered within the policy period or within 1 year of the end of the period.

 

Term

 

All of the following accurately describe a crime policy written on a discovery form EXCEPT

 

A) the discovery form is written to cover losses that are sustained during that policy period

 

B) if no retroactive date is shown in the declarations, the effective date becomes the retroactive date by default

 

C) a crime policy written on a discovery form works similarly to a liability policy written on a claims-made form

 

D) a retroactive date is necessary to avoid an overlap of policies

 

Definition

 

The discovery form is written to cover losses discovered during the policy period but not necessarily sustained during that policy period.

 

Term

 

Which one of the following is a crime of fidelity?

 

A) Attempted burglary

 

B) Safe burglary

 

C) Robbery of a custodian

 

D) Embezzlement

 

Definition

 

Employee theft, employee dishonest, fidelity, and embezzlement are all words to describe the same type of crime—an employee stealing from the employer.

 

Term

 

The employee theft insuring agreement insures against loss to

 

A) only money

 

B) money, securities, and property other than money and securities

 

C) only property other than money and securities

 

D) only securities

 

Definition

 

Employee theft applies to any property to include money, securities, and other property.

 

Term

 

The employee theft—name schedule insuring agreement covers loss arising from theft by

 

A) any employee

 

B) officers and partners only

 

C) any salaried employee

 

D) specifically named employees

 

Definition

 

When employee theft coverage is written on a name schedule basis, that means that only specifically named employees are covered.

 

Term

 

Which commercial crime insuring agreement covers loss of or damage (i.e., theft) to covered property accomplished by the use of a computer?

 

A) Computer fraud

 

B) Computer theft

 

C) Computer loss

 

D) Computer extortion

 

Definition

 

The computer fraud insuring agreement covers theft of property by using a computer.

 

Term

 

All of the following scenarios would be covered under money orders and counterfeit currency coverage EXCEPT

 

A) A customer goes into a furniture store in Del Rio, Texas. They buy a dishwasher and pay with a counterfeit money order.

 

B) A western wear store from Eagle Pass, Texas takes cowboy hats to a rodeo in Piedras Negras, Mexico. A customer buys 3 hats and pay with counterfeit dollars.

 

C) A customer goes into a clothing store in El Paso, Texas. They buy 5 shirts and pay with counterfeit pesos.

 

D) A customer goes into a shoe store in Brownsville, Texas. They buy 6 pairs of shoes and pay with counterfeit dollars.

 

Definition

 

The transaction occurred in Mexico and is outside the coverage territory (i.e., the United States, its territories and possessions, or Canada); therefore, it is not covered.

 

Term

 

Which of the following statements about the differences between insurance policies and bonds is NOT correct?

 

A) Insurance policies may or may not have subrogation potential; bonds always have subrogation potential.

 

B) Insurance policies pay for losses; bonds do not pay for losses.

 

C) Insurance policies have 2 parties; bonds have 3 parties.

 

D) Insurance policies have definite policy periods; bonds are continuous and have no expiration.

 

Definition

 

Both insurance policies and bonds pay for covered losses.

 

Term

 

The process of the surety guaranteeing the acts of a principal to an obligee may be referred to as

 

A) insurance

 

B) assurance

 

C) indemnification

 

D) suretyship

 

Definition

 

Suretyship is the process of the surety guaranteeing the acts of a principal to an obligee.

 

Term

 

The maximum limit of liability under a bond is called

 

A) the penalty

 

B) the indemnification amount

 

C) the aggregate limit

 

D) the occurrence limit

 

Definition

 

The maximum limit of liability under a bond is called the penalty.

 

Term

 

License and permit bonds are required by local, state, and federal law to obtain government licenses and permits. The principal is

 

A) the person or entity that is applying for a license or permit

 

B) the customer that is wronged by the business not following the law

 

C) the bonding company

 

D) the political subdivision requiring the bond

 

Definition

 

Under a license and permit bonds, the principal is the party making the promise to abide by the laws and regulations (i.e., the person or entity that is applying for a license or permit).

 

Term

 

Which surety bond guarantees that bills for labor and materials will be paid by the contractor as they are due?

 

A) Payment bond

 

B) Performance bond

 

C) Bid bond

 

D) Supply bond

 

Definition

 

The payment bond guarantees that bills for labor and materials will be paid by the contractor as they are due.

 

Term

 

When the National Flood Insurance Program was created, the federal government solicited the assistance of private insurance companies to “write their own” flood insurance. All of the following are correct about the “Write Your Own” program EXCEPT

 

A) private insurance companies sell and service the policies

 

B) private insurance companies collect the premiums

 

C) private insurance companies get a tax credit for any net loss they sustain if the claims exceed the premiums collected

 

D) private insurance companies settle their own policy claims

 

Definition

 

The federal government underwrites (i.e., covers) the losses; therefore, there is no risk to private insurance companies that write flood insurance under this program.

 

Term

 

Which of the following is NOT a characteristic of the regular flood program?

 

A) Substantially higher limits are available (e.g., up to $250,000 maximum on a single family dwelling).

 

B) This program is for a community that has still not implemented flood control measures.

 

C) The community has been surveyed by the government establishing flood zones based upon the probability of flooding.

 

D) The rating is on an actuarial basis meaning rates charged are based upon the probability of flooding.

 

Definition

 

The regular flood program requires that flood control measures have been implemented in the community.

 

Term

 

Which of the following could be covered by a flood policy?

 

A) A flood causes the insured to live in a hotel creating additional living expenses for the homeowner

 

B) Water from sources on the insured’s property and within control cause flooding

 

C) A flood affects 2 structures or 2 acres of normally dry land

 

D) A flood is in progress on the effective day of insurance

 

Definition

 

General flooding covered by the flood policy requires property damage affecting 2 structures or 2 acres of normally dry land. The flood policy does not cover water sources within the insured’s control (i.e. overflow of bathtub), floods in progress when the coverage begins, or indirect losses (e.g., additional living expenses or loss of business income).

 

Term

 

The flood policy carries a standard deductible of

 

A) $1000 which applies separately to both the building and contents

 

B) $500 per occurrence

 

C) $250 which applies separately to both the building and contents

 

D) $1,000 per occurrence

 

Definition

The flood policy carries a standard deductible of $1000 which applies separately to both the building and the contents.

Term

 

Which of the following property damage caused by a flood could be covered by a flood policy?

 

A) The insured’s land devalues

 

B) The insured’s lawn furniture and toys outside the home and in the yard

 

C) The insured’s furniture in a basement bedroom

 

D) The insured’s house is damaged by a mudslide

 

Definition

 

Property damaged due to a mudslide caused by flooding is a covered loss.

 

Term

 

The boatowners policy is typically for watercraft that

 

A) are smaller (e.g., 26 feet or less in length)

 

B) travel the ocean

 

C) are larger (e.g., more than 26 feet in length)

 

D) have overnight accommodations

 

Definition

 

The boatowners policy is typically for watercraft that are 26 feet or less in length.

 

Term

 

Physical damage for watercraft on the boatowners policy may cover all of the following EXCEPT

 

A) oars

 

B) a boat trailer

 

C) boats and motors

 

D) water skis and fishing poles

 

Definition

 

The boatowners policy will not cover the personal effects of the boatowner; however, it will cover the equipment and accessories necessary for the operation of the boat.

 

Term

 

The territory for the boatowners policy usually allows operation of the watercraft in all of the following locations EXCEPT

 

A) oceans

 

B) inland lakes

 

C) rivers

 

D) coastal areas

 

Definition

 

There is usually a coverage territory that specifies that coverage is for inland lakes and rivers only. Limited coastal use may be allowed, but is not normally covered out in the oceans.

 

Term

 

The coverages under the boatowners policy are many times compared to the coverages under the personal auto policy. If the insured boatowner, while operating his own watercraft, collides with another boat injuring another person, what coverage under the boatowners policy would pay for the medical bills of the 3rd party claimant?

 

A) Medical payments

 

B) Uninsured boaters

 

C) Liability

 

D) Physical damage

 

Definition

 

Legal obligations for bodily injury or property damage to a 3rd party claimant are paid under the liability coverage of the boatowners policy.

 

Term

 

If an implied warranty is violated in ocean marine insurance, the insurer could

 

A) charge an additional premium

 

B) send a notice of nonrenewal

 

C) deny the claim

 

D) send a notice of cancellation

 

Definition

 

Implied warranties in ocean marine insurance are similar to a written warranty in other types of insurance; if a warranty is violated the insurer could deny the claim.

 

Term

 

What type of ocean marine insurance provides physical damage coverage for the ship while it is in transit?

 

A) Protection and indemnity

 

B) Hull

 

C) Freight

 

D) Cargo

 

Definition

 

Hull insurance provides physical damage for the ship and all onboard equipment. The cargo would be covered on a separate policy.

 

Term

 

In ocean marine insurance, the group of perils including naturally occurring causes of loss like hurricanes is called

 

A) extended coverage

 

B) perils on the sea

 

C) perils of the sea

 

D) Inchmaree clause

 

Definition

 

Perils of the sea include the naturally occurring causes of loss like unusual wind or wave action.

 

Term

 

A cook accidentally starts a fire in the galley of the ship. Any resulting damage would be paid under the group of perils covering manmade causes of loss occurring during ocean travel called

A) perils on the sea

B) Inchmaree clause

C) extended coverage

D) perils of the sea

Definition

 

Perils on the sea cover manmade causes of loss occurring during ocean travel.

 

Term

 

A specific cause of loss that covers throwing cargo overboard by order of the ship’s captain to balance out the load in order to save the ship, cargo, and crew is referred to as

 

A) rebalancing clause

 

B) barratry

 

C) jettison

 

D) abandonment

 

Definition

 

Jettison is the specific cause of loss that covers throwing cargo overboard by order of the ship’s captain to balance out the load in order to save the ship, cargo, and crew. Claims are handled on a general average basis (i.e., shared by all with an insurable interest in the ship and cargo).

 

Term

 

Which clause applies to losses resulting from the negligence of the captain or crew or by any defect in the hull or machinery on the vessel?

 

A) Errors and omissions

 

B) Oversight

 

C) Deficiency

 

D) Inchmaree

 

Definition

 

The Inchmaree clause applies to losses resulting from the negligence of the captain or crew or by any defect in the hull or machinery on the vessel. This clause was named after a ship called the Inchmaree that sank in an English harbor due to a defective pump. 

 

Term

 

If the pilot warranty is violated and a claim occurs, then

 

A) the policy could be cancelled

 

B) the claim could be denied

 

C) the claim could be shared with the insured who breached the warranty

 

D) an additional premium could be charged

 

Definition

 

Like all other warranties under other policies, a breach may result in the denial of the claim.

 

Term

 

Hull insurance includes coverage on all of the following EXCEPT

 

A) the aircraft, including the airframe

 

B) electronic navigation and communications equipment

 

C) luggage and other personal effects

 

D) the engines of the aircraft

 

Definition

 

Similar to auto and boat insurance, physical damage does not include personal effects.

 

Term

 

The goodwill coverage that is paid to passengers on an airplane that are injured regardless of fault is called

 

A) benevolence support payments

 

B) uninsured aviation insurance

 

C) medical payments

 

D) personal injury protection

 

Definition

 

Medical payments are paid to passengers on an airplane that are injured regardless of fault. This coverage is more likely to be found on personal aircraft policies, not commercial airlines.

 

Term

 

What policy covers the insured’s liability for damage to stored aircraft?

 

A) Hangarkeepers liability

 

B) Airport liability

 

C) Hull insurance

 

D) Aviation premises

 

Definition

 

If a person owns a hangar (i.e., garage for aircraft) and that person stores another person’s aircraft, the owner of the hangar needs hangarkeeper’s liability, which is bailee coverage.

 

Term

 

The deductible applicable to physical damage claims on the hull of an aircraft could best be described as

 

A) a loss percentage deductible

 

B) either a fixed dollar amount or loss percentage deductible

 

C) a fixed dollar amount deductible

 

D) none of these, as there is no deductible on hull insurance, because claims are rare

 

Definition

 

The deductible on aviation hull insurance may be either a fixed dollar amount or loss percentage deductible.

 

Term

 

Within the insurance industry, the terms umbrella policy and excess liability policy are used interchangeably although there is a distinct difference. Which of the following statements is NOT correct?

 

A) Both umbrella and excess policies provide liability insurance that provides high limits to protect against catastrophic losses.

 

B) Umbrellas and excess polices may only be written over commercial liability exposures.

 

C) A true excess policy only provides higher limits than underlying policies.

 

D) Umbrellas usually provide broader coverage than underlying policies.

 

Definition

 

Umbrellas and excess polices may be written over personal and commercial liability exposures.

 

Term

 

When an umbrella or excess policy is written, the underlying policies pay on what type of basis for 3rd party liability claims against an insured?

 

A) A primary basis

 

B) An excess basis

 

C) An equal shares basis

 

D) A pro rata basis

 

Definition

 

The underlying policies pay on a primary basis; the umbrella or excess policies pay on an excess basis.

 

Term

 

A child drowns in the insured’s pool resulting in a $750,000 judgment in the court. The insured has a homeowners policy that has a $500,000 liability limit and a $1,000,000 umbrella policy with a self insured retention of $1,000. How much does the umbrella pay?

 

A) $250,000

 

B) $749,000

 

C) $249,000

 

D) $750,000

 

Definition

 

$250,000 (figured $750,000 loss – $500,000 underlying homeowners limit). When a claim is covered under both the underlying policy and the umbrella policy, the underlying policy pays first until it is exhausted. The umbrella pays the remainder of the claim. The self insured retention does not apply to claims when the umbrella is acting as excess coverage.

 

Term

 

The insured has a $1 million personal umbrella policy with a retention limit of $1,000. The insured suffers a $15,000 loss that is excluded by the underlying policy, but not excluded by the umbrella. How much of this loss would be paid under the umbrella?

 

A) $15,000

 

B) $14,000

 

C) $0

 

D) $16,000

 

Definition

 

The umbrella pays $14,000 (figured $15,000 loss – $1,000 self insured retention). The self insured retention applies to these types of claims where the umbrella is acting as primary coverage.

 

Term

 

Maintaining the underlying policies is a condition of coverage, and the policies will be listed on the declarations page of the umbrella policy. If an underlying policy lapses, the insurer will

 

A) only pay the amount of the loss that exceeds the amount of underlying coverage that was required

 

B) pay all of the claim and then subrogate from the insured since the insured did not meet all of the conditions in the policy

 

C) pay all of the claim

 

D) pay nothing because the insured did not meet all of the conditions of the policy

 

Definition

 

If an underlying policy lapses, the insurer will only pay the amount of the loss that exceeds the amount of underlying coverage that was required. The insured must pay the amount the lapsed underlying policy would have covered.

 

Term

 

An umbrella policy does for liability insurance what a Difference in Conditions policy does for

 

A) commercial building insurance

 

B) auto insurance

 

C) property insurance

 

D) homeowners insurance

 

Definition

 

A Difference in Conditions policy does for property insurance what an umbrella policy does for liability insurance. It could be used in conjunction with personal or commercial insurance.

 

Term

 

The Terrorism Risk Insurance Act was passed as a result of the terrorism of

 

A) Vietnam War

 

B) Oklahoma City Bombing

 

C) World War II

 

D) September 11, 2001

 

Definition

 

The Terrorism Risk Insurance Act was passed as a result of the terrorism of September 11, 2001.

 

Term

 

Which of the following events could qualify as terrorism under the Terrorism Risk Insurance Act (TRIA)?

 

A) A explosion occurs in the subway system of Tokyo, Japan.

 

B) A car bomb explodes outside a café in Paris.

 

C) Letters laced with poison are sent to hundreds of government officials in Washington, DC.

 

D) A bomb explodes on a Scandinavian cruise ship.

 

Definition

 

The Terrorism Risk Insurance act applies to US terrorism.

 

Term

 

The Terrorism Risk Insurance Act (TRIA) voided terrorism exclusions on

 

A) most insurance policies

 

B) most commercial insurance policies

 

C) all insurance policies

 

D) most personal insurance policies

 

Definition

 

TRIA voided terrorism exclusions on most commercial policies.

 

Term

 

The Terrorism Risk Insurance Act provides for the federal sharing of insurance claims with insurance companies if the terrorism losses during a year are between

 

A) $10 million and $10 billion

 

B) $100 thousand and $100 million

 

C) $10 billion and $10 trillion

 

D) $100 million and $100 billion

 

Definition

 

Federal sharing of insurance claims with insurance companies apply if terrorism losses during a year are between $100 million and $100 billion.

 

Term

 

A business has one insurance policy that covers only business liability exposures. This is an example of

 

A) a one exposure policy

 

B) a monoline policy

 

C) a multi-line policy

 

D) a special policy

 

Definition

 

A monoline policy has only one type of insurance (e.g., a policy with just liability, or a policy with just property).

 

Term

 

All of the following are differences between the commercial package policy and the businessowners policy EXCEPT

 

A) The commercial package policy is very flexible because almost any coverage may be added, but the businessowners policy is much more restrictive when it comes to limits and coverages.

 

B) The commercial package policy is assembled by the agent based upon the customer’s needs and the businessowners policy is prepackaged.

 

C) The commercial package policy has only property coverage, but the businessowners policy has property and liability coverage.

 

D) The commercial package policy can be written for almost any business; however, the businessowners policy is for small to medium size businesses with low to moderate hazards

 

Definition

 

Both of the commercial package policies have property and liability coverages.

 

Term

 

It is mandatory that package policies for a business include

 

A) property (Section I) and automobile (Section II)

 

B) property (Section I) and liability (Section II)

 

C) building (Section I) and business personal property (Section II)

 

D) direct loss coverage (Section I) and indirect loss coverage (Section II)

 

Definition

 

Package policies must always include property (Section I) and liability (Section II).

 

Term

 

It is more cost effective for an insurer to issue 1 package policy with multiple lines of insurance instead of numerous monoline policies covering only 1 type of insurance each; therefore, the cost savings is

 

A) shared by the insurer and the agent to encourage the selling of package policies

 

B) retained by the insurer in the form of profits

 

C) passed onto the state of Texas and the company, in turn, gets a tax credit

 

D) passed on to the insured in the form of a package discount

 

Definition

 

The cost savings is passed on to the insured in the form of a package discount.

 

Term

 

All of the following can be included in the commercial package policy EXCEPT

 

A) automobile

 

B) ocean marine

 

C) inland marine

 

D) equipment protection

 

Definition

 

Ocean marine cannot be added to a commercial package policy.

 

Term

 

It is the insurer’s right at any time to inspect or survey the insured’s premises, but only as it relates to

 

A) local and city ordinances

 

B) insurability and premiums

 

C) OSHA requirements

 

D) compliance with state and federal regulations

 

Definition

 

It is the insurer’s right at any time to inspect or survey the insured’s premises, but only as it relates to insurability and premiums. There will be no warranty for safety or compliance to regulations given by the insurer.

 

Term

 

In Texas a commercial package policy must always have Section I and Section II. What does that represent?

 

A) Section I—commercial property; Section II—commercial liability

 

B) Section I—commercial buildings; Section II—business personal property

 

C) Section I—bodily injury; Section II property damage

 

D) Section I—personal property; Section II—personal liability

 

Definition

 

On a commercial package policy, Section I is always commercial property and Section II is always commercial liability.

 

Term

 

What is the most common property form used on the commercial package policy?

 

A) Condominium association coverage form

 

B) Condominium commercial unit owners coverage form

 

C) Building and business personal property coverage form

 

D) Dwelling, appurtenant structures, and personal property coverage form

 

Definition

The business personal property coverage form is the most common property form used for Section I on the commercial package policy.

Term

 

What is the most common liability form used on the commercial package policy?

 

A) Garage liability coverage form

 

B) Workers’ compensation liability coverage form

 

C) Commercial general liability coverage form

 

D) Bailee customers liability coverage form

 

Definition

 

The commercial general liability coverage form is the most common liability form used for Section II on the commercial package policy.

 

Term

 

All of the following commercial coverages may be added to the commercial package policy EXCEPT

 

A) ocean marine

 

B) auto

 

C) inland marine

 

D) crime

 

Definition

 

Ocean marine insurance cannot be added to a commercial package policy and is always a separate policy.

 

Term

 

All of the following are characteristics of a businessowners policy EXCEPT

 

A) the businessowners policy typically has a 3-year policy term

 

B) the declarations page will include the insured’s business description

 

C) the renewal premium must be paid before the anniversary date of the policy

 

D) premiums at renewal will be based on the insurer’s rates and rules in effect at the time of renewal

 

Definition

 

The businessowners policy typically has a one-year policy term.

 

Term

 

Which of the following businesses could be eligible for a businessowners policy?

 

A) Joe’s Bar and Grill

 

B) Dawn’s Dress Shop

 

C) Family Fun Time Amusement Park

 

D) Hometown Bank & Trust

 

Definition

 

Dawn’s Dress Shop would most likely be eligible. Banks, places of amusement, and restaurants serving alcohol are not eligible.

 

Term

 

Which of the following businesses would most likely be eligible for a businessowners policy?

 

A) Parking garage

 

B) Farm

 

C) Restaurant exceeding $3 million in sales

 

D) Coffee shop

 

Definition

 

Given the 4 businesses, the coffee shop is the most likely eligible due to size and operations of the other businesses.

 

Term

 

Which of the following would NOT be covered by a businessowners policy?

 

A) The insured’s building was damaged during a riot.

 

B) A passing motorist lost control of her car, struck the insured’s building, and sped away.

 

C) An employee accidentally left a back door to the insured’s building open. During the night, it rained into the building, and merchandise on tables near the door was damaged.

 

D) A corner of an insured’s building was damaged in a sinkhole collapse.

 

Definition

 

Sinkhole collapse, vehicle damage, and riot are all basic commercial perils that are covered. Water damage caused by an employee leaving a door open, even if an accident, is not covered.

 

Term

 

Damage caused by which of the following could be covered by a businessowners policy written on a special form?

 

A) Earth movement

 

B) Falling objects

 

C) Nuclear hazard

 

D) Power failure away from the insured’s premises

 

Definition

 

Falling objects is a broad peril and, therefore, would be covered on a special form as well. The remaining three perils are excluded from the special form.

 

Term

 

Which of the following typically would NOT be covered as part of the building coverage under a businessowners policy?

 

A) Permanently installed heating and air conditioning systems

 

B) Building additions

 

C) Tenant improvements and betterments to the building

 

D) Lawn mowers and fire extinguishers

 

Definition

 

Tenant improvements and betterments made to the building are typically insured by the tenant as part of their business personal property due to their insurable interest. The remaining items listed fall under the definition of building items—building additions, servicing equipment (e.g., lawn mowers and fire extinguishers), and permanently installed equipment and fixtures.

 

Term

 

Larry leased a space in a retail strip mall to open up his new barber shop. He purchased a businessowners policy. All of the following can be covered as his business personal property EXCEPT

 

A) a shelving unit on the sidewalk outside the store with hair products that are on clearance

 

B) his barber pole he installed to the outside wall of his unit identifying the barber shop

 

C) the indirect lighting installed by the landlord as part of the lease agreement

 

D) the storefront window of his rental space

 

Definition

 

Indirect lighting that the landlord installed is part of the building, and Larry does not have an insurable interest. However, Larry’s barber pole, which is a tenant improvement; inventory within 100 feet of the business premises; and exterior building glass can all be covered as business personal property as long as Larry has an insurable interest.

 

Term

 

All of the following are additional coverages automatically provided under the businessowners policy for no additional premium EXCEPT

 

A) debris removal covers the cleanup cost after a covered direct loss to the property

 

B) business income up to 12 months because of the loss of customers due to tough economic times

 

C) extra expenses up to 12 months due to a direct loss at the business location

 

D) increased cost of construction covers up to $10,000 to pay additional costs to comply with an ordinance or law in repairing the damage or replacing the damaged parts

 

Definition

 

Business income coverage for up to 12 months is automatically provided if there is a direct physical loss to the insured’s business premises, but no coverage is provided just due to tough economic times.

 

Term

 

Which additional coverage in a businessowners policy would pay for damage from any cause of loss to covered property that has been moved to another location to protect it from damage by a covered peril?

 

A) Preservation of property

 

B) Debris removal

 

C) Extra expense

 

D) Pollutant cleanup and removal

 

Definition

 

Preservation of property pays for damage from any cause of loss to covered property that has been moved to another location to protect it from damage by a covered peril. This additional coverage applies for up to 30 days from the date the property was removed.

 

Term

 

All of the following are coverage extensions under the businessowners policy EXCEPT

 

A) up to 90 days for newly acquired buildings and newly acquired business personal property

 

B) up to $10,000 for valuable papers and records at a described premises and up to $5,000 if at a premises that is not described on the policy

 

C) up to $10,000 for business personal property away from a premises the business does not own, lease, or operate

 

D) up to $10,000 for accounts receivables at a described premises and up to $5,000 if at a premises that is not described on the policy

 

Definition

 

The businessowners policy extends automatic coverage for newly acquired buildings up to $250,000 and business personal property up to $100,000 for up to 30 days.

 

Term

 

All of the following are correct about Section II of the businessowners policy EXCEPT

 

A) medical payments to others is a goodwill coverage for medical and funeral expenses of a 3rd party that are paid regardless of fault

 

B) the supplementary payments are paid in addition to the policy limits and pay expenses like cost of bonds, interest on a judgment, and defense costs of the insured

 

C) this part of the policy pays legal obligations of the insured for bodily injury, property damage, personal injury, and advertising injury caused to others

 

D) an insured could also be a claimant under this part of the policy

 

Definition

 

Liability pays legal obligations on behalf of an insured, but it pays to others (i.e., the claimant). An insured can never be a claimant under a liability policy.

 

Term

 

Which of the following is NOT considered an insured under the businessowners policy for the QuikPik Convenience Store?

 

A) John’s wife, Mary, is a loan officer in a bank and is negligent when her client gets injured when he trips over her briefcase in her office.

 

B) Mark, an employee of the QuikPik, just mopped the floor and, before he put up a sign, a customer got injured when he fell.

 

C) John and Marcus, partners that own the QuikPik Convenience Store, are sued when a customer falls and is injured in their store.

 

D) Marcus’ wife, Patty, is an accountant who does the payroll for the QuikPik. She comes into the store to deliver the checks to the manager on duty. She places her briefcase on the ground and a customer trips over her briefcase and breaks his leg.

 

Definition

 

In this scenario, Mary was not performing business acts for the QuikPik Convenience Store. She is covered as John’s spouse only as she relates to acts for this business.

 

Term

 

Which of the following statements about the aggregate limits is NOT correct?

 

A) The general aggregate pays all of the claims except products and completed operations claims.

 

B) There are 2 aggregate limits: —the general aggregate and the products and completed operations aggregate.

 

C) When one aggregate becomes exhausted (i.e., used up), then money may be borrowed from the other aggregate to pay any remaining claims during the year.

 

D) The aggregate limits may be viewed as checkbooks. All claims must be paid out of one of these checkbooks (i.e., aggregates).

 

Definition

 

When an aggregate becomes exhausted (i.e., used up), then no additional claims may be paid from that particular aggregate until the next policy period. No borrowing from one checkbook to the other is allowed

 

Term

 

The protective safeguards endorsement is a warranty which requires the insured to maintain protective safeguards in the insured building, such as a fire sprinkler system. If the fire sprinkler system is shut off or malfunctions, the insured has only 48 hours to notify the insurer. Otherwise

 

A) losses caused by water damage will not be covered

 

B) losses caused by fire will not be covered

 

C) the policy is subject to immediate cancellation

 

D) losses caused by any peril will not be covered

 

Definition

 

If the protective safeguards warranty is breached, the fire peril is suspended, but any other loss could still be paid.

 

Term

 

The hired and nonowned liability endorsement may be used to cover all of the following vehicles EXCEPT

 

A) autos owned by the business

 

B) personal autos owned by the employees and used in the business

 

C) autos rented or hired by the business

 

D) an auto borrowed by the business

 

Definition

 

This endorsement is used to cover hired (includes rented, hired, and borrowed autos) and nonowned (employees’ personal autos) exposures of a businessowner.

 

Term

 

All of the following are covered under the broad cause of loss form EXCEPT

 

A)

the weight of ice, sleet, or snow causes the collapse of the roof at a restaurant

B)

a tree limb breaks, falls, and causes damage to the restaurant’s roof

C)

a dishwasher at the restaurant accidentally discharges and causes water damage to business personal property

D)

the creek behind the restaurant overflows due to heavy rain and causes flood damage to the building

 

Definition

 

Flood is not covered on a basic, broad, or special form. The only way to get flood coverage is through a flood policy.

 

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