Business Law, 8e (Cheeseman)
Chapter 50 Insurance
1) Insurance is a form of coverage for loss that is initiated after the loss has occurred.
2) An insurance contract is called a policy.
3) Premiums are based on an estimate of the number of parties within the pool who will suffer
the risks insured against.
4) An insurance broker is an agent of the insurer.
5) Insurance policies can only be sold by direct agents of the insurer.
6) If the insured does not have an insurable interest in the property being insured, the contract is
treated as a wager.
7) An insurable interest is created when the insurer has ownership of the item being insured.
8) For a life insurance, insurable interest is necessary at the time of loss.
9) An insurance policy, once made, cannot be modified.
10) Insurance coverage is typically suspended during grace periods for payments.
11) If no beneficiary is mentioned in a life insurance, then the proceeds of the insurance go to the
insured’s estate.
12) The suicide clause is a clause that states that insurance proceedings will not be paid in case
of a suicide at any time during the policy’s validity.
13) For a life insurance, the owner and beneficiary cannot be the same person.
14) Most employers pay for disability insurance for their employees in totality.
15) The coverage of a standard fire insurance policy cannot be enlarged by adding riders or
endorsements to the policy.
16) Personal injury is not covered under a standard fire insurance policy.
17) Under the replacement cost insurance, the insurer has the right to either pay the insured for
the loss or pay to have the property restored.
18) A homeowner’s policy does not cover theft that takes place at the insured’s workplace even if
the item is insured.
19) A personal articles floater helps insure specific items like heirlooms.
20) A personal articles floater provides coverage for loss or damage to the articles while
traveling.
21) Renter’s insurance fails to cover the insured for personal liability.
22) Lienholders cannot purchase title insurance on a property on which they have a lien.
23) An owner of real property or a mortgagee pays only one premium for title insurance, usually
at closing.
24) Collision insurance covers damages to a car in a natural disaster.
25) An insured can cover his automobile under both collision insurance and comprehensive
insurance simultaneously.
26) Automobile liability insurance covers damages that the insured causes to third parties.
27) A drive-other coverage protects the insured for damages to a rental car caused by the insured.
28) The uninsured motorist coverage only covers when the accident is the insured’s fault.
29) A no-fault insurance assures the insured party that coverage is available if they are injured in
an automobile accident.
30) Shippers can purchase comprehensive insurance to cover the risk of loss to their goods
during shipment.
31) A worker’s compensation insurance allows an employee to sue the employer along with
claiming the insurance coverage.
32) A buy-sell agreement made using proceeds from a key-life insurance is not considered valid.
33) A directors’ and officers’ liability insurance helps an organization sue its directors and
officers in case of personal negligence.
34) A professional malpractice insurance protects professionals against liability caused by
personal negligence.
35) An automobile insurance with the omnibus clause is called an umbrella insurance policy.
36) An insurer will issue an umbrella policy only if a stipulated minimum amount of basic
coverage on other insurance policies has been purchased by the insured.
37) ________ is a means for persons and businesses to protect themselves against the risk of
loss.
A) Abatement
B) Ademption
C) Insurance
D) Easement
38) An insurance contract is defined as a ________.
A) policy
B) premium
C) lien
D) writ
39) In the context of insurance, what does the term “premium” refer to?
A) the money received from the defaulting party
B) the money paid to the insurance company
C) the money paid to insured after an accidental damage
D) the money paid to insurance brokers as fee
40) What is the difference between an insurance broker and an insurance agent?
A) An insurance agent works exclusively for one company, while an insurance broker works for
a number of insurance companies.
B) An agent requires a commission payment after the deal is made, while a broker requires the
service charge to be paid before the deal is made.
C) An agent represents the insured, while a broker represents the company.
D) An agent is authorized to sell insurance directly, while a broker can only mediate an
insurance contract.
41) Who is an underwriter?
A) a lawyer who represents the insurance company
B) an agent who works for only one insurance company
C) a broker who works on behalf on many insurance companies
D) an insurance company that provides coverage to the insured
42) ________ is a requirement that a person who purchases insurance have a personal stake in
the insured item or person.
A) Delivery of possession
B) Endorsement
C) Adverse possessory interest
D) Insurable interest
43) Which of the following statements is true of insurance?
A) It has to be paid after the risk has been encountered.
B) It can be obtained even if one has no insurable interest in that property.
C) It is a means of transferring and distributing the risk of loss.
D) It cannot be modified once issued.
44) Which of the following statements is true of a life insurance?
A) The insurable interest need not exist at the time of insurance.
B) The insurable interest need not exist at the time of death or loss.
C) The beneficiary and the insured cannot be the same person.
D) The beneficiary and the insured must be bound by a relationship of blood.
45) A person who is to receive life insurance proceeds when the insured dies is known as a
________.
A) donor
B) bailee
C) beneficiary
D) notary
46) A(n) ________ is a document that modifies an insurance policy and becomes part of the
insurance policy.
A) endorsement
B) easement
C) injunction
D) convention
47) Hillary had purchased a term life insurance policy and nominated her mother as the
beneficiary, while William, her colleague, had a universal life insurance with himself as the
beneficiary. Hillary and William recently got married and wish to nominate each other as
beneficiaries in their individual life insurance policies. In the context of the given scenario,
which of the following statements is true?
A) Hillary and William will have to purchase two new policies to nominate each other as
beneficiaries.
B) Hillary and William will have to seek an endorsement to make the requisite changes in their
current individual life insurance policies.
C) Hillary will be able to nominate William as the beneficiary, but William cannot to do so
because he did not enlist a beneficiary earlier.
D) William will have to nominate both Hillary and her mother as beneficiaries for his insurance
policy because existing beneficiaries cannot be denied coverage.
48) The ________ is a duty of the insurer to protect the insured against lawsuits or legal
proceedings that involve a claim within the coverage of the insurance policy.
A) duty of strict liability
B) duty to pay
C) duty of reasonable care
D) duty to defend
49) Which of the following is the insurer’s duty to pay?
A) to pay back the insured’s money on demand
B) to pay back the premiums paid by the insured upon an endorsement of insurance
C) to pay legitimate claims up to the insurance policy limits
D) to pay interest for the premiums paid by insured on a monthly or yearly basis
50) A(n) ________ is a clause in an insurance policy that provides that insurance proceeds are
payable only after the insured has paid a specified amount toward the damage or loss.
A) incontestability clause
B) coinsurance clause
C) exclusions from coverage clause
D) deductible clause
51) Helen has a $40,000 automobile collision policy with a $750 deductible. If her car is
involved in an accident costing $15,000 in damages, ________ is the amount she will have to
pay to receive coverage for the damages from the insurer.
A) $750
B) $39,250
C) $40,000
D) $14,250
52) Roger Ray runs a motel in a rented property and sublets a part of its garage to the owner of a
nearby fuel station. Three months later, the motel catches fire from a fuel leak in the garage and
Roger suffers severe damages. If Roger owns a standard fire insurance policy for years, the
insurer can use the ________ to refuse covering the damage caused by the fire.
A) deductible clause
B) exclusions from coverage clause
C) incontestability clause
D) copay clause
53) What is the copay clause in an insurance policy?
A) a clause in a life insurance contract that provides no coverage if the insured commits suicide
before a stipulated date
B) a clause in an insurance policy that expressly stipulates the risks that are not covered by the
insurance policy
C) a clause that prevents insurers from contesting statements made by insureds in applications
after the passage of a stipulated number of years
D) a clause that requires the insured to pay a percentage of an insured loss along with the
remainder being paid by the insurer
54) Which of the following clauses protects the insurers from intentional or unintentional
material or informative misrepresentation from an insurance applicant?
A) exclusions from coverage clause
B) incontestability clause
C) deductible clause
D) coinsurance clause
55) What happens to the life insurance proceeds upon the death of the insured who has not
named a beneficiary?
A) The proceeds are given to the state.
B) The proceeds remain with the insurer for the full-term of the insurance.
C) The proceeds are given to charitable organizations.
D) The proceeds go to the insured’s estate.
56) The owner of the policy in a life insurance without exception is the ________.
A) insurance company that issues the policy
B) person who pays the premiums
C) next of kin of the insured person
D) person who receives the insurance proceeds
57) Which of the following statements is true of the suicide clause in a life insurance?
A) The insurer is liable to pay in cases of legitimate suicides even if the life insurance policy had
elapsed.
B) The suicide clause has a specified date set.
C) The insurer doesn’t have to pay the beneficiary even if the suicide takes place after the
specified date.
D) The suicide has to occur within the specified date for payment.
58) Henry works as an assembly line worker at MM Corporation. Two weeks back, he suffered
multiple fractures while trying to repair a block in the machinery. The doctors have advised him
to take two months of rest to recuperate from this accident. However, Henry is reassured that the
________ that he is eligible for will provide him with a monthly income till he is fit to return to
work.
A) life insurance
B) disability insurance
C) health insurance
D) homeowner’s policy
59) An employee of a company that provides ________ insurance to its employees can receive
payments, as provided by the policy, for injuries suffered by employees while working on the
job.
A) disability
B) life
C) homeowner’s
D) standard fire
60) Which of the following types of insurances provides replacement cost insurance?
A) health insurance
B) standard fire insurance
C) disability insurance
D) life insurance
61) A(n) ________ is a comprehensive insurance policy that includes coverage for the risks
covered by a fire insurance policy as well as personal liability insurance.
A) homeowners’ policy
B) life insurance policy
C) umbrella insurance
D) omnibus policy
62) Which of the following statements is true of a personal articles floater?
A) The insured can insure specific body parts using this policy.
B) The coverage includes insurance of intangible properties.
C) The coverage does not include loss or damage cause during travel.
D) The insurance company will charge an increased premium based on the articles insured.
63) Able Adams has a number of rare paintings at home that he inherited from his paternal
family, many of whom were patrons and collectors of the arts. Able knows that the value of these
paintings makes them likely targets of theft and he needs to insure these items specifically by
using a ________.
A) homeowner’s policy
B) standard fire insurance
C) personal articles floater
D) personal liability coverage
64) Which of the following types of insurances will help an owner of a real property establish
clear ownership over that property?
A) comprehensive insurance
B) title insurance
C) omnibus insurance
D) renter’s insurance
65) Which of the following statements is true of the collision insurance?
A) The coverage is in effect whether the insured’s car is moving or standing still.
B) The coverage is in effect even if another car was not involved in damaging the car belonging
to the insured.
C) The coverage also gives protection from car thefts, natural calamities, vandalism, and riots.
D) The coverage gives insurance for damages caused by the insured on third parties.
66) ________ is a form of property insurance that insures an automobile from loss or damage
due to causes other than collision.
A) Omnibus insurance
B) Comprehensive insurance
C) Coinsurance clause
D) No-fault automobile insurance
67) What is an automobile liability insurance?
A) an insurance that covers the insured’s automobile from theft
B) an insurance that covers the insured’s automobile from collision with another car
C) an insurance that covers damages that the insured causes to third parties
D) an insurance that covers the insured’s automobile from natural disasters
68) If Matheson wishes to be covered for the possibility of the chauffer getting into an accident,
he would require a(n) ________.
A) omnibus clause in his automobile insurance
B) collision clause in his automobile insurance
C) deductibility clause in his automobile insurance
D) double indemnity clause in his automobile insurance
69) What kind of insurance helped restore Matheson’s car after it was damaged by the hurricane?
A) collision insurance
B) comprehensive insurance
C) automobile liability insurance
D) uninsured motorist coverage
70) Norah is a single mother who has just taught Janet, her daughter, to drive. Once Janet has a
driving permit, Norah intends to let Janet do most of the driving because driving for long
stretches usually gives Norah severe pain in her upper back and shoulders. Norah’s car is insured
in her name. In this scenario, Norah could opt for a(n) ________ to protect the car from damages
that could occur while Janet drives the car.
A) collision insurance
B) comprehensive insurance
C) omnibus clause
D) medical payment coverage
71) A(n) ________ is an automobile insurance system used by some states in which the driver‘s
insurance company pays for any injuries or death the driver suffers in an accident irrespective of
who caused the accident.
A) no-fault insurance
B) comprehensive insurance
C) automobile liability insurance
D) collision insurance
72) What kind of insurance provides such coverage?
A) product liability insurance
B) key-person life insurance
C) workers’ compensation insurance
D) business interruption insurance
73) What kind of insurance would protect Lucy from being sued by the injured employees for
this damage?
A) business interruption insurance
B) directors’ and officers’ insurance
C) workers’ compensation insurance
D) key-person life insurance
74) Which of the following insurances covers the death of the co-owner’s loss to the business?
A) directors’ and officers’ insurance
B) key-person life insurance
C) business interruption insurance
D) workers’ compensation insurance
75) Insureds who want to increase their liability coverage beyond the original coverage can
purchase a(n) ________.
A) umbrella insurance
B) life insurance
C) business insurance
D) fire and homeowners’ insurance
76) Which of the following statements is true with regard to umbrella insurance?
A) It is cannot be used for liability coverage.
B) It does not require the insured to have already purchased insurance policies.
C) It cannot be used with other insurance policies.
D) It is only paid if the limits on other insurance policies have been exceeded.
77) What are the duties of an insured and insurer?
78) Who are the different parties to a life insurance contract? How is a beneficiary determined
for a life insurance?
79) What is the importance of title insurance in real property?
80) Give an account of the no-fault automobile liability insurance.
81) What is a key-person life insurance? How does it influence a buy-sell agreement?