Code & Ethics

Chapters 1-4 of P&C License (CA): Chapter 1 - General Insurance, Chapter 2 - Property and Casualty Basics, Chapter 3 - Dwelling Policy, Chapter 4 - Homeowners Policy

What type of insurer is formed under the laws of another state?

Foreign

What does the term unilateral contract mean?

A unilateral contract is a one-sided contract. This means only one party makes an enforceable promise.

A situation in which a person can experience only a loss and no gain presents what type of risk?

Pure risk

Insurance contracts are aleatory in nature. What does that mean?

Unequal values are exchanged between the parties to a contract

What are the methods of managing risk?

Avoidance, transfer, sharing, retention, and reduction

In the agent/insurer relationship, who is considered the principal?

Insurer

What are the three types of hazards?

Physical, moral, and morale

Insurers are classified according to their domicile. What are the three types of insurers?

Domestic, foreign, and alien

Wagering at a sporting event is known as what type of risk?

Speculative

What is the term for the causes of loss insured against in an insurance policy?

Peril

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

What does the term reasonable expectations mean in insurance?

Certain expectations for coverage that a reasonable person would have based on sources other than just the policy language

In insurance contracts, when is the offer usually made?

When the insurance application is submitted

What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?

Indemnity

What type of authority is based on the agent’s actions or words?

Apparent

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What does indemnify mean in insurance?

To restore an insured to the same financial status as before a loss

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Admitted or authorized

A tornado that destroys a property would be an example of what?

Peril

According to the Law of Agency, who represents the principal?

Agent or producer

What is consideration in an insurance contract?

Consideration is something of value that each party gives to the other. Consideration on the part of the insurer is binding.

Conditions that increase the chance of a loss are known as what?

Hazards

What are the three types of agent authority?

Express, implied, and apparent

What is a risk?

Uncertainty of loss

What is consideration on the part of the insurer?

A promise to pay in the event of a loss

What document is required for an insurance company to transact insurance?

Certificate of Authority

What are the five characteristics of an ideally insurable risk?

1. Due to chance

2. Definite and measurable

3. Statistically predictable

4. Not catastrophic

5. Randomly selected

What is the term for the insurer’s legal right to seek damages from third parties, after it has reimbursed the insured for the loss?

Subrogation

What type of losses may be covered by property insurance?

Direct losses only

In which section of the policy will the insured find the basic underwriting information, such as the insured’s name, address, amount of coverage, and premiums?

Declarations

What is the process that insurers use to determine whether a policy should be issued and on what terms and conditions?

Underwriting

Where is the policy period stated in the policy?

On the declarations page

In property insurance, when must insurable interest exist?

At the time of loss

What is the name for printed addendums to a contract that are used to change the policy’s original terms, conditions, or coverages?

Endorsements

A policy that covers all causes of loss except for those specifically excluded is known as what type of policy?

Open peril (or special) form

If an insured peril was the proximate cause of loss, what type of loss is it?

Direct

What type of limits of liability has the limits separately stated for different coverages?

Split limits

In property insurance, what is the actual cash value?

Replacement cost at the time of loss, minus depreciation

What are the two types of property losses that individuals and businesses are exposed to?

Direct and indirect

In property and casualty insurance, what is required to make policy assignments valid?

Prior written consent of the insurer

What sublimit in a liability policy puts a ceiling on the payment for all claims that arise from a single accident?

Per occurrence

What does the conditions section of the policy define?

The general rules or procedures that the insurer and insured agree to follow under the terms of the policy

When does an excess policy pay for a loss?

Only after the primary policy has paid up to its limits

What is the difference between cancellation and renewal?

Cancellation is the termination of an insurance policy by either party prior to the policy’s expiration date. Nonrenewal is the termination of a policy at its expiration date by not offering a continuation of the existing policy.

What provision in a property policy applies when the insurer broadens coverage but does not increase the premium?

Liberalization

Which part of the insurance contract states the obligation of the insurance company to provide the insurance coverages as stated in the policy?

Insuring agreement

Who is the first named insured?

A person whose name appears first on the policy declarations

How does a higher deductible affect the premium of a property policy?

A higher deductible lowers the premium.

What is the calculation for the actual cash value (ACV) method of valuation?

Current replacement costs minus depreciation

How are additional insureds added to the policy?

By endorsement

How are direct and indirect losses related?

Direct losses can cause indirect losses

Who is responsible for evaluating applications submitted to the insurer and determining whether a policy should be issued?

The underwriter

What determines an insurer’s responsibility for payment, as stated in an insurance policy?

Limits of liability

What method of valuation will most likely be used for a property that cannot be restored with the original materials or methods of construction?

Functional replacement cost

An insured’s business is damaged by a fire, and temporarily shuts down for repairs. As a result, the insured suffers loss of income. What type of loss is the loss of income?

Indirect or consequential

A gas stove exploding in the dwelling is an example of which named peril?

Internal explosion

What are some of the exclusions found in all 3 dwelling forms?

Earth movement, water damage, power failure, neglect war, nuclear hazard, intentional loss, freezing of plumbing, ordinance or law, and government action

Under what conditions can broad theft coverage be added to a dwelling policy?

If the insured is the owner-occupant of the dwelling

When will damage to the interior of the building be covered under the falling objects peril in the broad form of the dwelling policy?

Only if the interior damage is a direct result of exterior damage from a falling object

What are extended covered perils on a basic Dwelling policy?

Windstorm/hail, explosion, smoke, aircraft and vehicles, riot or civil commotion, volcanic eruption, and vandalism and malicious mischief

What are the 5 coverages of dwelling policies?

Coverage A - Dwelling, Coverage B - Other Structures, Coverage C - Personal Property, Coverage D - Fair Rental Value, and Coverage E - Additional Living Expenses

Which of the 3 DP forms provides the most limited coverage?

DP-1 (Basic)

What are the 3 types of coverage available in dwelling policies?

Basic, Broad, and Special

What is the maximum number of units in residential dwellings insurable by a Dwelling policy?

Up to 4 units

Which dwelling policy coverage will insure a garage not attached to the primary insured dwelling?

Coverage B - Other Structures

Under Coverage C - Personal Property in the dwelling policy, when will a guest’s property be covered?

Only when the property is at the insured location

In dwelling policies, within how many years of a loss may an insured bring a lawsuit against the insurer?

2 years

Replacement cost coverage is provided in both the broad and special form dwelling policies when the amount of insurance on the dwelling is what percentage?

At least 80% of the replacement cost

Which dwelling form is called the Broad form?

DP-2

If 3 volcanic eruptions happen within 48 hours, and each contributes to property damage, how many deductibles will apply in the dwelling policy?

1 deductible (all instances of volcanic eruptions that occur within a 72-hour period are considered 1 occurrence)

Which dwelling policy coverage will provide protection for contents damaged by fire in an insured dwelling?

Coverage C - Personal Property

If an insured is in the process of moving to a new location, his personal property coverage under the dwelling policy will apply on a pro rata basis at both locations for how long?

30 days

What do dwelling policies insure?

Dwelling only, contents only, or both dwelling and contents

An insured’s house becomes uninhabitable due to damage by a fire. As a result, the insured has to rent an apartment until repairs are made. Which type of coverage under the dwelling policy will pay for the expense of renting the apartment?

Coverage E - Additional Living Expenses

DP-3 (Special) is an open-peril form. What does that mean?

All perils are insured unless specifically excluded.

Which dwelling form provides open peril coverage on the building?

DP-3 (Special)

A basic dwelling policy automatically provides coverage against what?

Fire, lightning, and internal explosion

In dwelling policies, what is the purpose of the automatic increase in insurance endorsement that increases the amount of insurance by an annual percentage?

To offset the effects of inflation

In dwelling policies, any volcanic activity will be considered part of one occurrence if it all happens within how many hours?

72 hours

Which dwelling coverage form(s) will pay for the replacement cost of a dwelling?

Broad (DP-2) and Special (DP-3)

What type of coverage is included in Homeowners policies, but is not available in Dwelling policies?

Liability coverage

When replacement coverage cost is not reasonable, what type of HO coverage is applicable?

The HO-8 modified homeowners form is intended for use when replacement cost coverage is not practical.

Why does the HO-4 form not provide dwelling coverage?

HO-4 is written for a tenant residing in a rented dwelling; the tenant does not own the dwelling.

Who would not be covered by Coverage F - Medical Payments to Others in homeowners policies?

The insured or regular residents of the insured’s household, except residence employees

Under Coverage C of an HO-3 policy, what is the amount of insurance provided for personal property?

At least 50% of the Coverage A limit (this applies to all policies except for HO-4 and HO-6)

What HO form covers a historic home with replacement cost more than the market value?

HO-8 (modified homeowners)

What HO form covers condominium unit owners?

HO-6 (condominium unit owners)

In homeowners policies, which coverage provides protection against an indirect or consequential loss?

Coverage D - Loss of Use

In Homeowners policies, what determines the amount an insurer will pay under coverage D?

The amount of coverage on a dwelling

What type of coverage is included in Section II of Homeowners insurance?

Personal liability coverage

An insured with a Homeowners policy has removed property from the insured location to protect it from loss that could be caused by a covered peril. The removal coverage applies for how many days?

30 days

What coverage forms are available in Homeowners policies?

HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8

What HO form insures a tenant living in an apartment?

HO-4 (tenant broad form)

How many owner-occupied residences per covered home are allowed by Homeowners policies?