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Chapter 24—Property Insurance
MULTIPLE CHOICE
1. The concept of insurance is to
a.
reimburse the insured for financial losses.
b.
insure that a loss-causing event will not occur.
c.
both a and b.
d.
neither a nor b.
2. The New York fire insurance form
a.
was originally enacted by the legislature of New York state.
b.
provides the foundation for most property damage insurance policies in this country.
c.
both a and b.
d.
neither a nor b.
3. The New York fire insurance form does not provide coverage for losses
a.
by fire.
b.
by lightning.
c.
sustained while removing property from damaged premises.
d.
by flood.
4. The money paid for insurance is called the insurance
a.
rider.
b.
endorsement.
c.
peril.
d.
premium.
5. An insurance endorsement is also known as
a.
a rider.
b.
an attachment.
c.
an assignment.
d.
both a and b.
6. As an owner of real estate, one is exposed to losses by
a.
damage to the property.
b.
other persons being injured on the property.
c.
both a and b.
d.
neither a nor b.
7. A typical homeowner insurance policy does not cover
a.
the dwelling.
b.
living expenses while damage to the residence is being repaired.
c.
personal property within the dwelling.
d.
automobiles in the garage on the property.
8. A typical HO-A homeowner’s policy covers damage caused by
a.
mudflow.
b.
civil war.
c.
freezing water pipes.
d.
earthquakes.
9. Coverage for additional perils can be obtained by
a.
purchasing a separate policy.
b.
adding an endorsement to a regular fire insurance policy.
c.
both a and b.
d.
neither a nor b.
10. A property damage or public liability policy
a.
can be cancelled at any time by the insured.
b.
cannot be cancelled by the insured.
c.
can be cancelled at any time by the insurer.
d.
can be cancelled only after 30 day’s notice by either party.
11. The financial responsibility which one has to others as a result of one’s actions or negligence is known
as
a.
personal liability.
b.
public liability.
c.
both a and b.
d.
neither a nor b.
12. The war clause exemption in property insurance policies includes losses or damage caused by
a.
insurrection.
b.
enemy attack.
c.
usurped power.
d.
all of the above.
13. The inflation guard endorsements are available and automatically increase property damage coverage
by
a.
1.5%
b.
2%
c.
2.5%
d.
all of the above.
14. Coverage under any homeowner policy can be extended by adding endorsements covering
a.
appreciation on the value of the property.
b.
worker’s compensation.
c.
both a and b.
d.
neither a nor b.
15. A homeowner’s insurance policy will NOT protect against which of the following?
a.
Public liability directly connected with the insured property.
b.
Damage to household goods contained in the insured premises.
c.
Flood damage to the insured premises.
d.
Theft of personal property.
16. If a property is rented, the landlord should make certain that he has
a.
adequate liability coverage.
b.
adequate property damage coverage.
c.
adequate property damage and liability coverage.
d.
the renter purchases all insurance.
17. Medical payments provided under a homeowner policy can be paid to
a.
the named insured and family members.
b.
guests of the insured on the premises.
c.
claims arising from business pursuits.
d.
none of the above.
18. The liability coverage of a homeowner policy
a.
applies to the insured premises.
b.
provides protection away from the premises.
c.
both a and b.
d.
neither a nor b.
19. When a property is mortgaged to a lending institution, the lender will usually require the owner to
provide
a.
fire and extended coverage on structures.
b.
personal property coverage.
c.
medical payment coverage.
d.
liability coverage.
20. An insurance policy which fixes the insurance company’s liability to the insured to the actual cash
value of the insured property is said to provide
a.
“old for new” coverage.
b.
“new for old” coverage.
c.
“old for old” coverage.
d.
“new for new” coverage.
21. The lender on a condominium unit will require proof that the
a.
unit owner carries liability insurance.
b.
unit owner carries contents insurance.
c.
condominium association carries insurance on the common elements.
d.
condominium association carries insurance on the individual owner’s contents.
22. A landlord package policy provides coverage for
a.
property damage.
b.
liability.
c.
loss of rents.
d.
all of the above.
23. All of the following mortgages require either flood insurance or a certificate that the mortgaged
property is not in a flood zone EXCEPT
a.
VA-guaranteed mortgages.
b.
FHA-insured mortgages.
c.
mortgages carried back by sellers.
d.
conventional mortgages secured from federally chartered savings and loans associations.
24. If a liability claim arises under Section II of a homeowner’s policy, the insurance company will pay for
a.
damages up to the policy limits.
b.
damages up to the policy limits plus the legal costs of defense.
c.
damages and legal costs up to the policy limit.
d.
damages beyond policy limits in certain cases.
25. Flood insurance can be purchased for
a.
structures and contents.
b.
public liability.
c.
medical expenses.
d.
damages and legal costs.
26. Lenders on real estate mortgages may require that the borrower provide
a.
a replacement cost policy on the full amount of the loan.
b.
insurance in an amount equal to the purchase price of the property.
c.
inflation guard coverage.
d.
content coverage.
27. If the insured wishes to cancel his New York fire form policy,
a.
he must give a 5-day notice.
b.
he will receive a prorated refund.
c.
his refund will be based on short-rate premiums.
d.
he will receive no refund.
28. The owner of a rented property may insure that property by obtaining
a.
an endorsement to an existing homeowner policy.
b.
a landlord package policy.
c.
both a and b.
d.
neither a nor b.
29. Among the following, who does NOT hold an insurable interest?
a.
A property owner.
b.
The listing broker.
c.
A mortgage lender.
d.
The tenant.
30. The purchaser of a new home may protect himself against loss due to structural defects by
a.
having the home inspected before purchase.
b.
purchasing insurance under the Home Owners Warranty Program.
c.
both a and b.
d.
neither a nor b.
TRUE/FALSE
1. Typically, an owner of real estate is not exposed to losses by other persons being injured on his
property.
2. An “all-risk” homeowner policy (HO-C) does not include coverage for damage resulting from war or
nuclear accident.
3. In a typical homeowner’s policy, section I deals with losses to the insured’s property and section II
covers liability of the insured and family.
4. Section II of a homeowner insurance policy provides liability protection for the named insured but not
the members of the named insured’s family who lives with the insured.
5. An insurer may suspend an insurance policy if the insured allows the hazard exposure to the insurer to
increase beyond the risks contemplated when the policy was issued.
6. Fire insurance is the foundation of property damage policies.
7. An endorsement, also called a rider or attachment, is an agreement by the insurer to modify a basic
policy.
8. Forms HO-3 and HO-5 are typically not designed for single-family homes.
9. Medical payments coverage provides payment regardless of who is at fault.
10. To cover personal property and any additions or alterations to the unit not insured by the association’s
policy, a condominium unit owner’s form (HO-6) is available.
11. Actual cash value is the new price minus accumulated depreciation and is, in effect, “new for old”.
12. There are no exclusions in an all-risks policy.
13. “New for old” means that the policy pays replacement cost.
14. “Old for old” means that the policy pays only the depreciated cost.
15. An agreement by the insurance company to extend coverage to perils not covered by the basic policy is
called an insurable interest.
16. A homeowner policy is a policy that combines property and liability policies designed for residential
owner-occupants.
17. An insurer may suspend an insurance policy if the property is left vacant beyond a specified time.
18. Medical payments pay for the treatment of injuries without the need to determine fault.
19. Generally, a property owner is liable when there exists a legal duty to exercise reasonable care and the
property owner fails to do so.
20. A homeowner policy would typically cover the house and garage but not other structures on the
property such as a guesthouse or garden shed.
COMPLETION
1. ____________________ insurance is the foundation of property damage policies.
2. An agreement by the insurer to modify a basic policy, also called a rider or attachment, is known as
a(n) ____________________.
3. ____________________ liability, also called public liability, is the financial responsibility one has
toward others as a result of one’s actions or failure to take action.
4. An endorsement that periodically increase insurance coverage is known as ____________________
guard.
5. The insured is one who is ____________________ by insurance.
6. Policies that cover a large number of named perils are known as ____________________ form
policies (HO-2).
7. If one rents rather than owns, they would choose the ____________________ form (HO-4).
8. Actual ____________________ value s the new price minus accumulated depreciation and is, in
effect, “old for old”.
9. If the face amount of the homeowner’s policy is less than 80% of replacement cost, the
____________________ equals the insurance carried divided by 80% of today’s replacement cost
times today’s cost to replace the damaged portion.
10. A landlord policy combines property damage, liability, medical payments, and loss of
____________________.
MATCHING
Choose the one most appropriate answer for each.
a.
all-risks policy
k.
insurable interest
b.
actual cash value
l.
insurance premium
c.
broad form (HO-2)
m.
insured
d.
endorsement
n.
medical payments
e.
flood insurance
o.
new for old
f.
form HO-4
p.
old for old
g.
form HO-6
q.
peril
h.
homeowner policy
r.
public liability
i.
homeowner’s warranty
s.
tenant’s policy
j.
inflation guard
t.
worker’s compensation policy
1. also called hazards or risks
2. an endorsement that periodically increases insurance coverage
3. describes combined property and liability policies designed for residential owner-occupants
4. pays current cost of replacement less depreciation
5. pays cost of replacing damaged property at current prices
6. tenant’s policy form
7. condominium owner’s policy form
8. the financial responsibility one has toward others
9. the amount of money paid for insurance coverage
10. describes a policy that covers all perils, except those excluded in writing
11. insurance phrase for policies that cover a large number of named perils
12. an agreement by the insurance company to extend coverage to perils not covered in the basic policy
13. this would pay for damage from the outflow of inland or title waters
14. a financial interest that can be insured
15. insurance coverage for injuries incurred by an employee on the job
16. one who is covered by insurance
17. pays for the treatment of injuries without the need to determine fault
18. provides broad form coverage for personal property and reimbursement of any loss of use of rental
property
19. warrants against defects caused by faulty workmanship or materials and against major structural
defects
20. the new price minus accumulated depreciation and is, in effect, “old for old”
