Property and Casualty Insurance Licensing Exam

To prevent recovery beyond the amount of the insured's actual loss, the policy will contain:

An Other Insurance Clause

Collision coverage of an auto policy covers:

a) road damage to the tires

b) upset of the vehicle

c) frozen engine block

d) falling objects

B) upset of the vehicle

The maximum amount of payable for all losses resulting from one event is known as the:

a) occurrence limit

b) aggregate limit

a) occurrence limit

Which of the following is a cause of loss form?

a) declarations form

b) proof of loss form

c) garage keepers' form

d) basic form

d) Basic form

The minimum flood deductible is:

a) $100

b) $250

c) $500

d) $1000

c) $500

The insured intentionally did not inform the insurer that the insured owned only 35% of the property. The insurer can void the policy for:

a) conditional coverage

b) misrepresentation

c) error

d) concealment

d) concealment

Which of the following is NOT a defense against negligence?

a) contributory negligence

b) statues of limitations

c) presumption of negligence

d) assumption of risk

c) presumption of negligence

The presumed authority necessary to carry out the producer's routine tasks is known as:

a) expressed authority

b) implied authority

b) implied authority

Which of the following statements regarding the Towing and Labor endorsement is false?

a) it will pay to the limit stated in the endorsement each time a covered vehicle is disabled

b) there is no coverage for roadside labor costs

c) there is no deductible

d) none of the above

b) there is no coverage for roadside labor costs

A licensee may violate federal law and be subject to a fine and prison for doing which of the following?

a) selling insurance w/ a nonresident license

b) sending threatening letters to the state insurance regulator

c) fraudulently telling an insured a claim isn't covered on the policy

d) murdering an applicant

b) sending threatening letters to the state insurance regulator

Which of the following is not an insured location for liability coverage under the homeowners policy?

a) a restaurant party room the insured has rented for a business meeting

b) the insured's cemetery plot

c) a restaurant party room the insured has rented for a birthday party

d) vacant land owned by the insured

a) a restaurant party room the insured has rented for a business meeting

Special covers each of the following EXCEPT:

a) theft

b) mysterious disappearance

c) Acts of God

d) floods and earthquakes

d) floods and earthquakes

Sam has underinsured motorist coverage with limits of $100/$300. Sam is injured by Quincy who has limits of $50/$100. Sam's injuries are valued at $125,000. Sam's underinsured motorist coverage will pay;

a) $25,000

b) $50,000

c) $75,000

d) $125,000

b) $50,000

The contract agreement may be referred as the:

a) legal interest test

b) good faith

c) meeting of the minds

d) promise of indemnification

c) meeting of the minds

Which of the following boats owned by the insured would require the HO watercraft endorsement for liability coverage?

a) a boat with 25 horsepower outboard engine

b) a sailboat with 25 ft. in length

c) a boat with a 15 horsepower inboard motor

d) none of the above

c) a boat with a 15 horsepower inboard motor

Authority expressed orally by the insurer to the agent is:

a)apparent authority

b) no authority

c) implied authority

d) express authority

d) express authority

Contracts require each of the following except:

a) consideration

b) notarization

c) implied authority

d) express authority

b) notarization

Contracts require each of the following except:

a) consideration

b) notarization

c) legal purpose

d) competent parties

b) notarization

A broad form policy covers:

a) sewer backup

b) inherent vice

c) earthquake

d) volcano

d) volcano

Which section of the policy specifies which stores are owned by an insured are covered

a) insuring agreements

b) conditions

c) exclusions

d)declaration

d) declaration

Mike gets a grizzly bear to keep as a pet at his home. This results in a type of liability known as:

a) strict liability

b) professional liability

c) absolute liability

d) vicarious liability

c) absolute liability

Insurable losses will be listed in what section?

a) declarations

b) exclusions

c) conditions

d) insuring agreements

d) insuring agreements

Which is true regarding insurance companies?

a) stock companies are managed by the policy owners

b) mutual are owned by the policy holders, have the management members chosen by the policy holders, and pay dividends to the policy holders

c) stock companies and mutual both pay dividends to the policy holders

d) stock companies are owned by the policy holders but mutual are owned by the stock holders

b) mutuals are owned by the policy holders, have the management members chosen by the policy holders, and pay dividends to the policy holders

The "other than collision" section of a personal auto policy will cover which of the following?

a) the car is destroyed in a flood

b) a new tire is damaged by a pothole

c) the cars diesel engine is damaged when the owner fills it with gas

d) a purse is stolen from the car

a) the car is destroyed in a flood

Flood insurance covers each of these except:

a) beach erosion

b) sewer back up

c) overflow of tidal waters

d) mudslides

b) sewer back up

Which of the following statements regarding a contract of good faith is false?

a) all parties must rely on each other to be honest

b) the insured relies on the insurer's promise to pay claims

c) all parties rely on the contract to provide for an equal transfer of value between the parties

d) the insurer relies on the applicant to be truthful

c) all parties rely on the contract to provide for an equal transfer of value between the parties

Which of the following will cover personal injury?

a) umbrella

b) homeowners

c) both A and B

d) none of above

a) umbrella

Auto med pay:

a) pays regardless of coverages in other policies

b) pays medical and funeral expenses for the insured and any passengers in the insured's auto

c) is required by both federal and state law

d) covers any pedestrians hit by the insured's auto

b) pays medical and funeral expenses for the insured and any passengers in the insured's auto

Concealment involves:

a) intentionally failing to disclose an immaterial fact

b) unintentionally failing to disclose a material fact

c) unintentionally failing to disclose an immaterial fact

d) intentionally failing to disclose a material fact

d) intentionally failing to disclose a material fact

Which of the following is not one of the components used to develop rates?

a) loss reserves

b) loss costs

c) business expenses

d) profits

a) loss reserves

The joint ownership endorsement would be appropriate for insuring an auto

a) owned by the 2 unmarried people living in the same household

b) owned by 2 unmarried people in different households

c) owned by 2 friends living in different households

d) owned by 2 married people in the same household

a) owned by the 2 unmarried people living in the same household

The comprehensive section of an auto policy covers which of the following?

a) earthquake damage

b) furniture stolen from auto

c) road damage to tires

d) a mechanic installs a wrong part in the motor

a) earthquake damage

Personal injury liability covers each of the following except:

a) slander

b) discrimination

c) malicious prosecution

d) wrongful eviction

b) discrimination

General damages are:

a) intangible

b) specific

c) exemplary

d) economic

a) intangible

Participation in the NFIP is:

a) usually required by the government but sometimes voluntary

b) always required by the government

c) always voluntary

d) usually voluntary but sometimes required by the government

d) usually voluntary but sometimes required by the government.

Insurer

the insurance company

insured

the policy holder

agent (producer)

acts as a legal representative of the insurance company

broker

representative of the insured

risk

the chance of loss or the uncertainty of loss

speculative risk

the chance of loss one accepts in hope of realizing a gain; insurance does NOT cover

pure risk

the chance of experiencing a loss with out the possibility of a gain. The essence of the insurance industry.

Risk Avoidance

staying away from risky activities altogether

risk reduction

taking measures to reduce your risk

waiver of liability (hold harmless agreement)

states you wont be responsible for any damages

risk retention (self insuring)

client may choose to build up a fund to pay claims that insurance companies would have paid.

indemnification

making a loss a whole

Law of large numbers

the mathematical concept that says its easier to predict losses based on historical data

The USA patriot act deals with:

money laundering and insurance companies

A dwelling policy may be used if the structure has a max. of how many boarders?

5

Methods of risk management include

Transfer, sharing, avoidance

An insured has suffered a fire loss to his or her dwelling. This insured is which party to the claim?

First party

Mr. Jones, a pedestrian, was injured by Mr. Smith while driving his vehicle. Mr. Smith is insured by the I am Bogus Insurance Company. The insurance company would be which party to the claim?

The second party

Which of the following is not included in the declarations section of an insurance contract?

a) identity of the named insured

b) the policy period

c) the covered perils

d) the policy premium

The covered perils

Which of the following is the section of an insurance contract that contains the provisions rules of conduct, duties, and obligations of the parties?

a) the insuring agreement

b) conditions

c) exclusions

d) the limitations

conditions

A loss that is a direct consequence of a particular peril is called a

direct loss

Which of the following is a clause in property and casualty contracts which states that if policy or endorsement forms are broadened and no additional premium then all existing similar or endorsements will be construed to include the broadened coverage?

a) liberalization

b) assignment

c) binder

d) co-insurance

liberalization

What provides written evidence of coverage pending the insurance of a policy

binder

which of the following is an example of a loss evaluation method?

a) liberalization

b) cause of loss form

c) stated amount

d) conditions

stated amount

A cost of replacement minus depreciation is:

actual cash value

Which of the following is a method requiring the insured to insure at least 80 percent of the value of the covered commercial property?

a) cause of loss form

b) standard mortgage clause

c) loss payable clause

d) co-insurance clause

co-insurance clause

Which of the following is a basis for insuring property that allows the insurer to report the value of the building contents to the insurance company on a monthly basis?

a) blanket basis

b) reporting form

c) specific basis

d) agreed value

specific basis

Which of the following is not a factor in determining negligence on the part of the insured

a) legal duty is owed

b) there is a breach of protection

c) proximate clause

d) damage

there is a breach of protection

In liability insurance, policy limits that apply one limit to each person injured, another for bodily injury claims of all persons injured in a single accident, and a separate limit for all property damage arising out of a single accident is

split limits

An insurance contract that is contingent on a uncertain event is referred to as

aleatory

Mr. Jones is involved in an at-fault accident. The other party was also at fault. The method to determine damages due each party based on a percentage of negligence is known as:

comparative negligence

The insured owns a filling station and an employee causes bodily injury to a third party. The insured is held legally liable for the employee's acts. This is called:

vicarious liability

One characteristic of an insurance contract is that both parties must preform certain acts to make a contract legally enforceable. This is called:

utmost good faith

A church has hired a painting contractor to stain and varnish the woodwork in the building. He leaves the rags and brushes used to apply the painting materials in a small storage area. This is an example of:

hazard

The insurance company is the author of the insurance policy. The insured buys what is offered by the company and accepts it as is. This is called:

contract of adhesion

An insured carries a DP-2 with $10,000 contents coverage. He owns a canoe and stores it at a lake in a private non-owned garage. Fire destroys the garage and the boat. How much coverage will his policy provide?

Nothing

An insured's home is covered by the DP-3 form. The policy provides $20,000 in coverage on a home that would cost $50,000 to replace. When high winds destroy the roof, it is determined that it will cost $2,000 to replace it. Assuming the actual cash value of the roof is $750., how much will the insured collect for this loss?

$1,000

Mr. Simpson owns a dwelling in a rural area close to a small wooded area. He is covered under a DP-3 form. A deer sees it's reflection in a picture window and jumps through and enters the dwelling causing severe wall and floor damages. Some of the furniture is damaged and must be replaced. He is covered for $100,000 on the dwelling and $50,000 on the contents. Which of the following would apply to this loss?

A. The entire loss would be denied; B. Pay replacement cost on the dwelling and ACV for the contents loss. ; C. Pay replacement cost on the dwelling and the contents. ; D. Deny the contents claim and pay the dwelling loss on a replacement cost basis.

D. Deny the contents claim and pay the dwelling loss on a replacement cost basis

The insured is covered under a DP-1 Dwelling policy with coverage on the dwelling in the amount of $100,000. He has a detached garage valued at $10,000. Both structures are destroyed by a fire. What is the total amount recoverable under the policy?

$100,000

An insured lives close to Mount St. Helens and carried a DP-2 policy. When the volcano erupted, the movement of the earth caused his home to collapse. He reported the claim as a volcanic eruption loss. What do you feel would be the result of this claim?

The claim would be denied

A water pipe has burst and the insured has suffered floor and ceiling damage in his two story home. The cost to remove and replace the walls to get the pipe is $300. The cost to repair the damaged floor is $400. The pipe that burst must now be replaced according to new building codes. The cost to replace the pipe is $200. How much will the insured's policy pay?

$700

Mr. Jones purchased a policy on the dwelling in the amount of $40,000. His wife also purchased a policy in the amount of $20,000 unbeknownst to her husband from another company. In case of a $15,000 loss, what will her company pay on the loss?

$5,000

The insured has purchased a DP-3 form to cover his dwelling that is valued at a replacement cost of $100,000. He insures it for $60,000 and has a $30,000 fire loss. What can he expect to be paid?

$22,000

The insured has forgotten to close an upstairs window. A strong storm blows through and wind and water severely damages the contents and floors of the dwelling. The insured carried a DP-2 dwelling form. What will be the outcome of this loss?

The claim will be denied

The insured is covered under a DP-3 with contents coverage. He has a hunting rifle stolen by forcible entry into the dwelling. The front door is severely damaged and must be replaced. Which of the following is a true statement regarding this loss?

A. the entire claim will be denied

B. only the damage caused by the burglars will be paid

C. the theft of the gun is covered under personal property

D. both the damage to the door and the theft of the gun will be covered.

B. only the damage caused by the burglars will be paid

All of the following are covered under Coverage A of a Homeowner Policy, EXCEPT:

A. Attached garage

B. Construction materials used in building an addition to the dwelling

C. Detached garage

D. Furnace

C. Detached garage

The type of coverage on contents provided by the HO-3 is:

Named perils

Under the Homeowner policy, theft coverage does not cover theft of property:

at all

An apartment dweller would be in the market for a:

HO-4

The personal liability coverage for Mr. Jones' Homeowner Policy would cover Jones if:

his dog bit his neighbor on the nose

Coverage F of the homeowner policy applies to:

social invitees

Coverage E of the homeowner policy involves premises liability, personal activities and:

acts of residence employees

Which of the following Homeowner forms provides the least amount of perils coverage?

A. HO-5

B. HO-3

C. HO-2

D. HO-8

D. HO-8

Coverage D- loss of use provides what percentage of Coverage A under the HO-2

30%

The homeowner policy excludes which of the following types of property?

a. the insured's dog

b. the insured's motorbike

c. silverware

d. all of the above

a. the insured's dog

Under the HO-3, what percentage of the amount of insurance written for Coverage A applies to Coverage C for a one or two family dwelling

50%

Under coverage B- other structures of the homeowner policy, which of the following structures are not covered?

a. structures used for business purposes

b. structures rented to a non-tenant for other than a private garage

c. attached garage

d. all of the above

d. all of the above

Homeowner medical payments coverage does not apply to bodily injury to which of the following?

a. the insured's seven year old son who fell down the front stairs

b. an appliance repairman working on the insured's premises

c. an insured boarder who trips in her apartment over a rug

d. all of the above

a. the insured's seven year old son who fell down the front stairs

The limit of liability of any property insurance contract in a given loss is the:

RC settlement

Pro Rata

Each company's amount of insurance/ total amount of insurance in force

coinsurance

(did/should) x loss sustained= amount paid

Loss ratio

(incurred loss + loss adjusting expense)/ earned premium

Loss ratio refers to

a formula used by insurance companies to compare premium income to losses

insurance rate

amount charged for a particular amount of coverage

physical hazard

structural defects, occupancy, poor housekeeping or location increases the chance of a loss