Question

Chapter 10 Insurance and Risk management

Which of the following statements about a calendar-year deductible is (are) true?

I.    It requires the insured to pay a specified amount of each claim regardless of when the claim occurs during the year and regardless of any previous claims during the year.

II. It is used only in policies which cover direct property losses.

A) I only

B) II only

C) both I and II

D) neither I nor II

Eric's property was damaged in an accident. He phoned his agent to see if the loss was covered under his property insurance policy. The agent said, "As long as the cause of loss is not specifically excluded in the policy, the loss is covered." Based on the agent's answer, what type of insuring agreement appears in the policy?

A) unconditional coverage

B) named-perils coverage

C) extended-perils coverage

D) "open-perils" coverage

James purchased liability insurance with a $100,000 limit from Insurer A. When Insurer A denied a claim that James thought should be covered, he bought a second liability insurance policy with a $150,000 limit from Insurer B. Before he cancelled the policy with Insurer A, a $60,000 loss occurred. If this loss is settled on a pro rata basis, how much must each insurer pay?

A) Insurer A will pay $10,000 and Insurer B will pay $50,000.

B) Insurer A will pay $20,000 and Insurer B will pay $40,000.

C) Insurer A will pay $24,000 and Insurer B will pay $36,000.

D) Insurer A will pay $40,000 and Insurer B will pay $20,000.

The section of the insurance policy that includes provisions that qualify or limit the insurer's promise to perform is the

A) definitions.

B) insuring agreement.

C) exclusions.

D) conditions.

42) Roger owns some farmland that he rents to a tenant. The tenant lives in an old farmhouse on the property and raises crops on the land. Roger is concerned about possible legal liability if the tenant injures someone. Roger requires the tenant to have liability insurance and to add himself to the liability coverage through an endorsement. Under the tenant's liability insurance, Roger is a(n)

A) additional insured.

B) first-named insured.

C) second-named insured.

D) other insured.

44) In determining insurance limits and deductibles, an important concept is that insurance should be used to pay big losses rather than small losses. The objective is to insure big losses that could cause financial ruin and to exclude small losses that can be budgeted out of current income. This concept is called the

A) law of large numbers.

B) efficient loss-cost concept.

C) large-loss principle.

D) retention-transfer tradeoff.

46) Property insurance policies contain declarations, conditions, definitions, exclusions, and an insuring agreement. However, some policy terms, such as subrogation, cancellation, other insurance, and assignment do not fall into these categories. The part of an insurance contract in which these provisions can be found is the

A) endorsements.

B) binders.

C) conditions.

D) miscellaneous provisions.

48) Maggie purchased a life insurance policy. She was concerned that if she became disabled, she would no longer be able to pay the premiums. Her agent added an amendment of the policy stating that if she became disabled, future premium payments would be waived. Such an amendment to a life insurance policy is called a(n)

A) binder.

B) rider.

C) warranty.

D) schedule.

Answer 1

Which of the following statements about a calendar-year deductible is (are) true?

I.    It requires the insured to pay a specified amount of each claim regardless of when the claim occurs during the year and regardless of any previous claims during the year.

II. It is used only in policies which cover direct property losses.

A) I only

B) II only

C) both I and II

D) neither I nor II

Ans: Option D: Neither I nor II

Eric's property was damaged in an accident. He phoned his agent to see if the loss was covered under his property insurance policy. The agent said, "As long as the cause of loss is not specifically excluded in the policy, the loss is covered." Based on the agent's answer, what type of insuring agreement appears in the policy?

A) unconditional coverage

B) named-perils coverage

C) extended-perils coverage

D) "open-perils" coverage

Ans: Option D: "open-perils" coverage

James purchased liability insurance with a $100,000 limit from Insurer A. When Insurer A denied a claim that James thought should be covered, he bought a second liability insurance policy with a $150,000 limit from Insurer B. Before he cancelled the policy with Insurer A, a $60,000 loss occurred. If this loss is settled on a pro rata basis, how much must each insurer pay?

A) Insurer A will pay $10,000 and Insurer B will pay $50,000.

B) Insurer A will pay $20,000 and Insurer B will pay $40,000.

C) Insurer A will pay $24,000 and Insurer B will pay $36,000.

D) Insurer A will pay $40,000 and Insurer B will pay $20,000.

Ans: option C: Insurer A will pay $24,000 and Insurer B will pay $36,000.

The section of the insurance policy that includes provisions that qualify or limit the insurer's promise to perform is the

A) definitions.

B) insuring agreement.

C) exclusions.

D) conditions.

Ans: Option D: conditions.

42) Roger owns some farmland that he rents to a tenant. The tenant lives in an old farmhouse on the property and raises crops on the land. Roger is concerned about possible legal liability if the tenant injures someone. Roger requires the tenant to have liability insurance and to add himself to the liability coverage through an endorsement. Under the tenant's liability insurance, Roger is a(n)

A) additional insured.

B) first-named insured.

C) second-named insured.

D) other insured.

Ans: Option A: additional insured.

44) In determining insurance limits and deductibles, an important concept is that insurance should be used to pay big losses rather than small losses. The objective is to insure big losses that could cause financial ruin and to exclude small losses that can be budgeted out of current income. This concept is called the

A) law of large numbers.

B) efficient loss-cost concept.

C) large-loss principle.

D) retention-transfer tradeoff.

Ans: Option C: large-loss principle.

46) Property insurance policies contain declarations, conditions, definitions, exclusions, and an insuring agreement. However, some policy terms, such as subrogation, cancellation, other insurance, and assignment do not fall into these categories. The part of an insurance contract in which these provisions can be found is the

A) endorsements.

B) binders.

C) conditions.

D) miscellaneous provisions.

Am\ns: option D:miscellaneous provisions.

48) Maggie purchased a life insurance policy. She was concerned that if she became disabled, she would no longer be able to pay the premiums. Her agent added an amendment of the policy stating that if she became disabled, future premium payments would be waived. Such an amendment to a life insurance policy is called a(n)

A) binder.

B) rider.

C) warranty.

D) schedule.

Ans: Option B: rider.