Which of the following statements about the replacement cost provision of the
Homeowners 3 policy is true?
A) It applies to personal property losses only.
B) Except for small losses, the insured must repair or replace the damaged property in
order to receive full replacement cost.
C) The insured is required to carry an amount of insurance equal to 100 percent of the
replacement value of the insured property.
D) Loss settlements are equal to 50 percent of the value of the loss if the insured is
carrying less than the required amount of insurance.
A risk that affects only individuals or small groups and not the entire economy is called
a
A) diversifiable risk.
B) pure risk.
C) speculative risk.
D) nondiversifiable risk.
An insurer denied payment of the life insurance proceeds to the beneficiary. The insurer
claimed that during the application process, the insured hinted that she might be
concealing something material. The life insurance agent made a note about this
possibility and filed it with other related documents sixteen months ago when the policy
was written. Which life insurance contractual provision protects the beneficiary by not
permitting the insurer to introduce his outside information to deny the claim?
A) entire contract clause
B) incontestable clause
C) reinstatement clause
D) change-of-plan provision
If a third party is led to reasonably believe that an agent is acting with the scope of
his/her authority, even though the agent is exceeding his/her authority, the principal may
still be bound by the agent’s actions. In this case, the agent has bound the principal by
A) implied authority.
B) apparent authority.
C) incidental authority.
D) express authority.
An earthquake is an example of
A) a moral hazard.
B) a peril.
C) a physical hazard.
D) an objective risk.
Which of the following statements about life insurance settlement options is true?
A) Under the fixed period option, the beneficiary normally has the right to make partial
withdrawals in case of emergency.
B) Under the fixed period option, any remaining proceeds revert to the insurer if the
beneficiary dies before the end of the fixed period.
C) Under the fixed amount option, the beneficiary can be given the right to increase or
decrease the fixed amount.
D) Under the fixed amount option, any interest credited in excess of the guaranteed rate
increases the amount of each periodic payment.
Which of the following is a characteristic of longevity insurance?
A) payment of the face value of the policy at age 100
B) forfeiture of the purchase price if the annuitant dies during the deferral period
C) cash value can be borrowed or recouped through a nonforfeiture option
D) high-cost annuity compared to other life annuities
Which of the following statements regarding minimum vesting standards for qualified
defined benefit plans is (are) true?
I. The vesting standards apply to both employer and employee retirement contributions.
II. Employers may vest benefits more quickly than the minimum standards .
A) I only
B) II only
C) both I and II
D) neither I nor II
Frank asked his company’s employee benefits director if his group health coverage
could be converted to individual coverage. The benefits director said, “Yes, you can
convert to an individual policy, and the coverage is identical to your group coverage.”
Frank quit his job and converted to an individual policy. Six months later he filed a
claim. He was dismayed to learn the conversion policy was limited compared to the
group coverage, and his claim was denied. What legal doctrine will allow Frank to
bring a successful legal action against his former employer because he was financially
harmed due to his reasonable reliance upon a representation of fact?
A) adhesion
B) waiver
C) estoppel
D) subrogation
Common sources of underwriting information for life and health insurance include all
of the following EXCEPT
A) the application.
B) a physical examination.
C) the Medical Information Bureau.
D) the applicant’s income tax return.
One method through which reinsurance is provided is through an organization of
insurers that underwrites insurance on a joint basis. Through the organization, financial
capacity is available for large commercial risks. This reinsurance arrangement is a(n)
A) quota-share treaty.
B) surplus-share treaty.
C) excess-of-loss treaty.
D) reinsurance pool.
Which of the following statements about the financing of unemployment insurance
benefits is true?
A) Each state maintains its own trust fund at the state level, and the state pays qualified
beneficiaries from the trust fund the state administers.
B) While experience rating is used for other types of insurance, it is not used in
unemployment insurance.
C) Part of an employer’s contribution is used for administrative expenses, to fund
extended benefits, and to maintain a loan fund that can be drawn upon if the state’s
account is depleted.
D) Most state programs are financed primarily by payroll taxes paid by employees.
Which of the following statements describes a Difference in Conditions (DIC) Policy?
A) It is a type of commercial umbrella liability policy.
B) It is an all-risk policy that covers perils not insured by basic property insurance
contracts.
C) It is designed to cover indirect losses for which the insured has direct damage
coverage.
D) It is used to settle disputes when an insured has more than one insurance policy with
differing policy provisions.
The general liability policy covers bodily injury or property damage caused by “an
accident, including continuous repeated exposure to substantially the same general
harmful conditions.” This cause is loss is called a(n)
A) occurrence.
B) accident.
C) event.
D) incident.
Compensatory damages include
A) general damages and special damages.
B) special damages and punitive damages.
C) punitive damages and general damages.
D) general damages, special damages, and punitive damages.
The human life value is defined as the
A) present value of a deceased breadwinner’s future gross income.
B) future value of a deceased breadwinner’s past earnings.
C) present value of the family’s share of a deceased breadwinner’s future earnings.
D) future value of the family’s share of a deceased breadwinner’s future earnings.
Holiday DeCor Company is insured by a commercial general liability policy (CGL).
Holiday DeCor rented a storage facility for one month to store some excess inventory.
While visiting the storage facility, a Holiday DeCor employee discarded a cigarette. The
resulting fire severely damaged the storage facility. Which statement is true regarding
coverage of this damage under the CGL?
A) There is no coverage as the damage occurred at a rented premises.
B) There is no coverage because property damage liability is excluded.
C) The damage is covered under the fire legal liability coverage.
D) There is no coverage because an employee of Holiday DeCor caused the loss.
An insurance company chartered in another country has been licensed to operate in
your state. In your state, the insurer would be considered a(n)
A) nonadmitted insurer.
B) foreign insurer.
C) alien insurer.
D) reciprocal insurer.
David has a Homeowners 3 policy that provides $280,000 of insurance on his dwelling,
which has a current replacement value of $400,000. Ignoring any deductible, how much
will David collect if a kitchen with a replacement value of $24,000 but an actual cash
value of $18,000 is destroyed in a fire?
A) $18,000
B) $20,000
C) $21,000
D) $24,000