Personal Lines Workbook Practice Exam 1 Review

Practice flashcards based on the Personal Lines Workbook Practice Exam 1 and Answer Key, covering California DOI regulations, auto (PAP), and homeowners (HO) policy details.

What is the basic characteristic of any type of insurance regarding the status of the insured after a loss?

The insured is returned to the same (or close to the same) status that existed prior to the loss, without a chance for gain or profit.

What type of coverage does an open peril policy provide?

It provides coverage for perils other than those specifically named as being excluded.

What is the formula for determining Actual Cash Value (ACV)?

$$\text{Actual Cash Value} = \text{Replacement Cost} - \text{Depreciation}$$

Calculate the Actual Cash Value for office equipment with a current replacement cost of $12,000$ and a depreciated amount of $5,000$ at the time of loss.

$$12,000 - 5,000 = 7,000$$

What are the continuing education (CE) requirements for a personal lines broker/agent as required by the DOI?

$24$ hours during each $2$ year license term.

An individual living next to a Nuclear Power Plant is exposed to what specific type of hazard?

Physical hazard (tangible characteristics that can be quantified such as location).

What is the fundamental characteristic of Insurance in relation to risk?

It is considered a method of transferring risk from an individual to a group of similar risk exposures.

How does the California DOI define an 'admitted insurer'?

An insurer that transacts insurance business according to the laws of the state of California and is approved to do so.

What is an 'exclusive-agent'?

An agent who sells one insurance company's products only.

What method does the California DOI use to approve or disapprove rate filings for homeowners and automobile insurance?

Prior approval method.

How is 'Risk' defined in the insurance industry?

The uncertainty of financial loss.

What does the concept of 'pure risk' involve?

The possibility or chance of a loss only.

What type of insurance company has owners who are stockholders sharing in the profits?

Stock insurance companies.

If a fire resulting from a broken gas line (caused by an earthquake) destroys a car and a garage, and the insured has an unendorsed HO-3 and auto liability-only coverage, what is covered?

The garage only (the vehicle requires physical damage/comprehensive coverage; the homeowners policy excludes the auto).

What is the likely result of selecting a lower deductible ($250$) instead of a higher deductible ($1000$)?

A greater number of smaller claims sent to the insurer and higher premiums for the insured.

What are the characteristics of an 'ideally insurable risk'?

The risk is part of a similar group, the loss value is financially measurable, the cause is accidental, and there must be a chance of loss occurring.

What is an insurer's 'loss reserve'?

The approximate dollar amount of an insurer's liability for at least one (or more) open claims.

For how long after a policy expires does an insurer have the right to audit the books and records of an insured?

$3$ years.

How is the limit of liability for 'damage to your automobile' stated in a personal auto policy (PAP)?

The lesser of the amount necessary to replace or repair the property, or the actual cash value (ACV) of the damaged or stolen property.

What does ocean marine hull insurance cover?

The vessel itself (physical damage to the hull) and limited liability for damages caused to other vessels.

What are the conditions of the Mexico coverage endorsement in a California PAP?

It provides liability coverage on an excess basis for losses occurring within $25$ miles of the California/Mexico International border.

Which endorsement should a person who does not own or lease a car purchase to obtain coverage for renting or occasionally borrowing vehicles?

Named non-owner coverage endorsement.

What is 'short rate' cancellation?

A cancellation at the request of the insured where the insurer keeps earned premiums plus an amount for overhead expenses.

Under HO-3, what is the sublimit for jewelry, furs, and watches if the loss is caused by theft?

$1,000$.

Which dwelling insurance contract provides the broadest coverage?

The special form (all-risk), which covers all perils except those specifically excluded.

Which homeowners policy is recommended for the owner of a condominium?

HO-6 contract (covers common walls, fixtures, and assessments for common areas).

What is the territorial limit for a personal auto policy (PAP)?

The United States, its territories and possessions (Puerto Rico, Guam), and Canada.

How is 'collision' defined in a personal auto policy?

Hitting any other vehicle or object with the insured vehicle, or the upset of the insured vehicle.

A PAP has split limits of 30,000/$50,000 for bodily injury. If three people are injured for $10,000$, $13,000$, and $35,000$, what is the total payout?

$50,000$ (The $35,000$ claim is capped at the $30,000$ per-person limit, and the total $10+13+30 = 53$ is capped at the $50,000$ per-accident limit).

Under a PAP, which section covers damage from an earthquake, flood, wind, or hitting an animal?

Other-than-collision coverage (also known as comprehensive).

If an insured with $500$ collision and $50$ other-than-collision deductibles hits another vehicle causing $1,050$ in damage, what does the insurer pay?

$550$ ($1,050 - 500 = 550$).

What is the purpose of the California FAIR Plan?

To provide insurance for high-risk residential properties located in hazardous brush fire areas or high-risk urban areas.

What is 'reinsurance'?

The process of transference and acceptance of risks by several insurers with equal or unequal liability.

According to the California Insurance Code, what is 'materiality'?

Information determined by the influence of the facts on each party in determining their estimates of the disadvantages of the proposed contract.

When does a fire and casualty broker/agent license become 'inactive'?

When the broker/agent has no appointment with an insurance company, but licensing renewal fees and CE requirements have been met.

Who is legally allowed to advertise nonadmitted insurers in California?

Licensees with a surplus lines brokers license.

Can an insurance commissioner disapprove the use of a licensee's true name?

No; however, the commissioner can deny the use of a corporate name if it is misleading or too similar to another name.

What three factors help determine auto insurance rates in California according to the Insurance Code?

(1) The number of miles driven annually, (2) the driving safety record, and (3) years of driving experience (Note: Age cannot be used).