Which of the following statements about the insurer’s obligation to provide a legal
defense under the personal liability coverage (Coverage E) of the homeowners policy is
(are) true?
I. The insurer agrees to defend the insured only if the suit is not groundless, false, or
fraudulent.
II. The insurer’s obligation to defend the insured ceases after the amount paid for
damages from an occurrence equals the policy limit.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about consideration in an insurance contract is (are)
true?
I. The insured’s total consideration is submission of a completed application.
II. The insurer’s consideration is the promise to do those things specified in the policy.
A) I only
B) II only
C) both I and II
D) neither I nor II
One of the “Tips for Buying a Homeowners Policy” is to consider purchasing a personal
umbrella policy. What coverage is provided by a personal umbrella policy?
A) blanket property coverage for any damage caused by water
B) excess liability coverage and coverage for some liability claims excluded by
underlying policies
C) all-risk, replacement cost, property coverage
D) coverage for business and professional liability
As an alternative to coinsurance, rate discounts can be given as the amount of insurance
to value increases. This alternative is called
A) graded rates.
B) agreed value coverage.
C) retrospective rating.
D) manual rating.
Which of the following statements is true regarding an automatic premium loan
provision?
A) Its purpose is to prevent a policy from lapsing because of nonpayment of premium.
B) Interest does not have to be paid on an automatic premium loan.
C) If the provision is used, the insured must show evidence of insurability to resume
regular premium payments.
D) An automatic premium loan, unlike a regular policy loan, is forgiven if the insured
dies before the loan is repaid.
The personal umbrella policy covers some personal injuries. Which of the following is
considered a personal injury?
A) bodily injury
B) property damage
C) defamation of character
D) liability arising from professional services
Factors that affect the cost of homeowners insurance include which of the following?
I. Construction material
II. Deductible amount
A) I only
B) II only
C) both I and II
D) neither I nor II
One inland marine coverage form is the accounts receivable coverage form. In which of
the following cases would the purchaser of this form (the insured) be indemnified
through the coverage?
A) if the insured cannot pay amounts owed because the purchaser has become insolvent
B) if the insured cannot pay amounts owed because the purchaser has suffered an
insured physical damage loss
C) if the insured cannot collect accounts receivable because of the destruction of
records
D) if the insured cannot collect accounts receivable because the purchaser extended
credit to poor credit risks
The regulation of insurers in areas that affect consumers, which include claims
handling, underwriting, complaints, advertising, sales practices, and other trade
practices is called
A) solvency surveillance.
B) market conduct regulation.
C) combined ratio analysis.
D) market share regulation.
Which of the following statements about an insurable interest in life insurance is (are)
true?
I. It is required of any person named as beneficiary.
II. It may result from a pecuniary (financial) interest.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about group insurance underwriting principles is
true?
A) Employees should be required to remit premiums directly to the insurance company.
B) The average age of the group should ideally increase over time.
C) A group should be formed for the specific purpose of obtaining insurance.
D) The employer should ideally share in the cost of a group insurance plan.
In schedule rating, each building is individually evaluated based on several rating
factors. One factor refers to the possibility that the building will be damaged or
destroyed by a fire that starts at an adjacent property and spreads to the building. This
rating factor is known as
A) occupancy.
B) protection.
C) maintenance.
D) exposure.
Huge Insurance Company is a property insurer that is interested in protecting itself
against cumulative losses that exceed $200 million during the year. This protection can
best be obtained using a(n)
A) quota-share reinsurance treaty.
B) surplus-share reinsurance treaty.
C) excess-of-loss reinsurance treaty.
D) reinsurance pool.
Which of the following would help to reduce the long-range OASDI actuarial deficit ?
A) increasing the payroll tax rate
B) increasing benefits
C) reducing the taxable wage base
D) increasing the cost of living adjustment
Which of the following statements is (are) true with respect to the differences between
insurance and surety bonds?
I. Insurance is a two-party contract; surety involves three parties.
II. Insurers usually do not have the right to recover a loss payment from an insured,
while a surety does have the legal right to recoup a loss payment.
A) I only
B) II only
C) both I and II
D) neither I nor II