Which of the following statements about a typical personal umbrella policy is (are)
true?
I. Losses covered under an underlying policy and the umbrella policy are settled on a
pro rata basis.
II. Losses not covered by the basic underlying contracts are subject to a self-insured
retention which typically is at least $25,000.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following persons are eligible for survivor benefits under Social Security
EXCEPT
A) dependent parents age 62 or older.
B) unmarried children between the ages of 18 and 22 who are attending college.
C) a surviving spouse age 60 or older.
D) a surviving spouse with eligible children younger than age 16.
Parker Department Stores has been hurt in recent months by a large increase in
shoplifting losses. Parker’s risk manager concluded that while the frequency of
shoplifting losses was high, the severity is still relatively low. What is (are) the
appropriate risk management technique(s) to apply to this problem?
A) retention
B) loss control and retention
C) transfer through insurance
D) avoidance
Frank purchased a building in a run-down area of a city. When Frank was unable to
obtain property insurance in the voluntary insurance market, an agent suggested that he
contact a state pool created in the 1960s that makes property insurance available in
riot-prone areas. The state pool the agent referred to is called a(n)
A) unsatisfied judgment fund.
B) FAIR plan.
C) guaranty fund plan.
D) assigned risk plan.
One general liability loss exposure develops as a result of a written or oral agreement to
assume the legal liability of another party. A lease that specifies that the building owner
is held harmless for liability arising out of use of the building is an example. This
liability loss exposure is
A) premises and operations liability.
B) contractual liability.
C) products and completed operations liability.
D) contingent liability.
In which of the following situations would medical payments be paid under an
unendorsed PAP?
A) injuries incurred while riding a motorcycle
B) injuries incurred while an auto is being used without the presumption that
permission would have been granted to use the auto
C) injuries incurred in an auto while it is used in a share-the-expense car pool
D) injuries incurred during the course of employment if workers compensation benefits
are available
Reasons why an insured might add a scheduled personal property endorsement to a
homeowners policy include which of the following?
I. To lower the premium by limiting the perils covered
II. To obtain higher limits for certain personal property
A) I only
B) II only
C) both I and II
D) neither I nor II
One item that appears on an insurance company’s financial statements is a liability that
represents an estimate of the claims reported and adjusted but not yet paid, claims
reported and filed but not yet adjusted, and claims incurred but not yet reported to the
company. This liability is called the insurer’s
A) net income.
B) loss reserves.
C) admitted assets.
D) unearned premium reserve.
All the following are common exclusions in a major medical insurance policy EXCEPT
A) routine dental care.
B) surgeons’ fees.
C) expenses covered by workers compensation laws.
D) cost of eyeglasses.
Which of the following is (are) characteristics of HMO managed care plans?
I. Unlimited choice of physicians and hospitals
II. Emphasis on controlling the cost of covered services
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements regarding health care expenditures in the United
States is (are) true?
I. As a nation, the U.S. spends significantly more per-person on health care than most
other industrialized nations.
II. Health care expenditures in the U.S. are high because everyone is covered by a
health insurance plan.
A) I only
B) II only
C) both I and II
D) neither I nor II
Michelle had major abdominal surgery. Months after the surgery, she still did not feel
well. When she was operated on again, the surgeon discovered two sponges that were
not removed at the conclusion of the first operation. Michelle should be able to collect
damages without having to prove negligence under the doctrine of
A) joint and several liability.
B) res ipsa loquitor.
C) contributory negligence.
D) uberrimae fidei.
Sue’s office building was damaged by a fire caused by a careless tenant. After paying
Sue for the loss, the insurance company sued the tenant to recover its loss. This suit is
based on the principle of
A) warranty.
B) insurable interest.
C) utmost good faith.
D) subrogation.
Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark
lets some of his patrons play the machines, and Mark keeps any profits. This type of
gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his
slot machines were confiscated by the police. Such an insurance contract would not be
enforceable. Which requirement needed to form a valid insurance contract is missing?
A) consideration
B) offer and acceptance
C) legal purpose
D) competent parties
Helen and John both own automobiles on which they carry liability insurance. If Helen
is negligent and has an accident while driving John’s car with his permission, how will
each insurer respond to any liability judgment against Helen?
A) The insurers will pay the judgment on a pro rata basis.
B) John’s insurer will pay on an excess basis if Helen’s insurance is insufficient to cover
the judgment.
C) Helen’s insurance will pay on an excess basis if John’s insurance is insufficient to
cover the judgment.
D) The policies will pay the judgment on the basis of contribution by equal shares.
From the insured’s perspective, the use of deductibles in insurance contracts is an
example of
A) risk transfer.
B) risk control.
C) risk avoidance.
D) risk retention.
If insurers were to provide indemnification for losses that were deliberately caused,
which characteristic of ideally insurable risks would not be met?
A) The loss must be accidental and unintentional.
B) The loss must be determinable and measurable.
C) The loss should not be catastrophic.
D) There must be a large number of similar exposure units.