Mark reviewed his homeowners policy. He learned that his personal property was
insured on an actual cash value basis. He would like replacement cost coverage on his
personal property. He contacted his agent who said, “I’ll simply add an amendment to
your contract that changes the basis of recovery to replacement cost.” The written
provision the agent was referring to is called a(n)
A) endorsement.
B) coinsurance clause.
C) binder.
D) deductible.
Bishop Appliance Store is covered by a commercial crime insurance policy. The policy
provides coverage for “Employee Theft” on a blanket basis. When the store owner
arrived to open the store for business one morning, he discovered that many small
electrical appliances were missing. A surveillance tape showed a company employee
had disabled the burglar alarm before leaving work, and had returned to the store later
and had taken the appliances. Which of the following statements regarding this loss is
true?
A) There is no coverage under “Employee Theft” as the loss was property, not money.
B) There is no coverage as the employee was not specifically named in the policy.
C) There is coverage because “Employee Theft” includes coverage for property.
D) There is no coverage as it requires that the employee be caught while committing the
theft.
Which of the following is a result of adverse selection?
A) The insurer’s financial results will be substantially improved.
B) Persons most likely to have losses are also most likely to seek insurance at standard
rates.
C) It is unnecessary for the insurance company to use underwriting.
D) Insurance can be written only by the federal government.
Which of the following is a form of casualty insurance?
A) fire insurance
B) general liability insurance
C) inland marine insurance
D) ocean marine insurance
Which of the following statements about covered perils and loss settlement under an
unendorsed Homeowners 3 policy is true?
A) The dwelling is covered on a named-perils basis.
B) Personal property losses are settled on an actual cash value basis.
C) Losses to the dwelling are always settled on an actual cash value basis.
D) Personal property is covered on an open-perils basis.
When the capital retention approach is used to determine how much life insurance to
purchase, all of the following are subtracted from total assets to calculate the capital
available to produce income EXCEPT
A) investments in stocks and bonds.
B) non-income producing capital such as autos and the value of the home.
C) the amount of money needed to pay off the mortgage.
D) auto loans and credit card debt.
Life insurance policyholders may borrow the cash value from their life insurance
policies. Where are life insurance policy loans shown on a life insurance company’s
financial statements?
A) as an asset
B) as a liability
C) as income
D) as an expense
All of the following statements about business income insurance are true EXCEPT
A) Business income is defined as total sales that would have been made if the loss had
not occurred.
B) Payroll is considered a continuing normal operating expense.
C) Business income insurance does not cover the physical damage caused by a peril
which created the interruption in business.
D) The business income coverage form can be purchased with a coinsurance
requirement.
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.
Which of the following is considered to be a collision loss under Part D (coverage for
damage to your auto) of the PAP?
A) The covered auto was damaged when the car hit a deer.
B) The covered auto is vandalized by a thief after it is stolen.
C) The covered auto is damaged when it slid off an icy road and hit a fence.
D) The covered auto is damaged by a fire after the engine overheated.
Which of the following statements about the Medicare prescription drug benefit is (are)
true?
I. Beneficiaries select a prescription drug plan and pay monthly premiums, with the
premium reduced or waived for low-income beneficiaries.
II. The benefit provides first-dollar coverage of prescription drugs up to a maximum of
$10,000 per year, but no coverage after $10,000.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following types of forms is used to insure fluctuations in business
personal property, such as inventory and finished goods?
A) accounts receivable coverage form
B) a value reporting form
C) difference in conditions insurance
D) business income insurance