David never stopped to consider the possible consequences of a long-term, permanent,
disability. So David did not include disability income insurance in his personal risk
management program. David is dealing with the risk of disability through
A) passive retention.
B) active retention.
C) risk control.
D) risk avoidance.
Which of the following statements about liability risks is (are) true?
I. Future income and assets can be attached to pay judgments if inadequate insurance is
carried.
II. There is an upper limit on the amount of loss.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about treaty reinsurance is true?
A) The reinsurer is required to underwrite each individual applicant that is reinsured.
B) The reinsurer must accept all business that falls within the scope of the treaty.
C) The ceding insurer can choose which business falling within the scope of the treaty it
wishes to reinsure.
D) It protects the reinsurer by requiring the ceding insurer to charge adequate
premiums.
Janice purchased a living room set for $1,000 and insured this furniture on an actual
cash value basis. Two years later the living room set was destroyed by a covered peril.
At the time of loss, the property had depreciated in value by 25 percent. The
replacement cost of the furniture at the time of loss was $1,200. Assuming no
deductible, how much will Janice receive from her insurer?
A) $900
B) $950
C) $1,000
D) $1,200
Which of the following statements about Dwelling Property 3 (special form) is (are)
true?
I. Personal property is covered on an “open perils” (all risks) basis.
II. The dwelling and other structures are covered only for those perils specifically
named in the policy.
A) I only
B) II only
C) both I and II
D) neither I nor II
A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3
policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash
value of the loss was $9,000, but it will cost $12,000 to replace the roof. Assuming no
deductible, what will the insurer pay to settle this loss?
A) $8,000
B) $9,000
C) $10,000
D) $12,000
Jim and Paula Franklin started a dry cleaning business. The business may be successful
or it may fail. The type of risk that is present when either a profit or loss could occur is
called
A) pure risk.
B) subjective risk.
C) nondiversifiable risk.
D) speculative risk.
Which of the following statements is (are) true about the loss ratio method of class
rating?
I. A premium is calculated, and the pure premium is loaded to cover expenses, profit,
and contingencies.
II. The actual loss ratio is compared to the expected loss ratio, and the rate is adjusted
accordingly.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following property is covered under the personal property coverage
(Coverage C) of the Homeowners 3 policy?
A) a pet iguana owned by the named insured’s spouse
B) a bicycle owned by a foster child living with the named insured
C) a motor vehicle owned by the named insured
D) a stamp collection insured under a separate policy
A special coverage policy is a policy that
A) has no exclusions.
B) provides open-perils coverage.
C) provides replacement cost coverage.
D) has coverage for multiple lines of insurance.
All of the following are methods that a property and liability insurance company can
use to protect against catastrophic losses EXCEPT
A) sale of catastrophe bonds.
B) purchase of common stock.
C) purchase of excess-of-loss reinsurance.
D) quota share reinsurance with a low retention percentage.
A life insurance company based in Canada was licensed to operate in Massachusetts.
When operating in Massachusetts, the Canadian insurer would be considered a(n)
A) domestic insurer.
B) captive insurer.
C) foreign insurer.
D) alien insurer.
All of the following are general exclusions under Section I of the Homeowners 3 policy
EXCEPT
A) losses due to earthquake.
B) losses due to the failure of the insured to use all reasonable means to save and
preserve property after the time of a loss.
C) losses resulting from a power failure caused by an insured peril at the residence
premises.
D) losses due to radiation from a nuclear power plant.
Criticisms of compulsory insurance laws include which of the following?
I. They provide less than complete protection since they require only a minimum
amount of liability insurance.
II. Even with compulsory insurance laws, a substantial number of motorists continue to
operate vehicles without insurance.
A) I only
B) II only
C) both I and II
D) neither I nor II
Jan purchased a boat owners package policy. While using his boat, he negligently hit a
pier. A person standing on the pier fell and was severely injured. Which of the boat
owners package policy coverages will respond to a lawsuit filed as a result of this
negligent act?
A) physical damage coverage
B) liability coverage
C) medical expense coverage
D) uninsured boaters coverage