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Basics of Insurance

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Licensure Insurance (Quizzes) Quiz on Basics of Insurance, created by Heather Donaldson on 20/07/2016.
Heather Donaldson
Quiz by Heather Donaldson, updated more than 1 year ago
Heather Donaldson
Created by Heather Donaldson almost 8 years ago
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Resource summary

Question 1

Question
A monoline policy:
Answer
  • Is a property that is written to cover property only
  • Is any insurance written as a single line policy
  • Is a policy that covers only lines of insurance which cannot be part of package policies
  • There is no such thing

Question 2

Question
A risk is:
Answer
  • A peril
  • Certainty of loss
  • Proximate cause
  • Uncertainty of loss

Question 3

Question
A pure risk involves a chance of:
Answer
  • Gain
  • Loss
  • Both A&B
  • Neither A&B

Question 4

Question
A risk management technique that eliminates a loss exposure and reduces the chance of loss to zero is:
Answer
  • Loss prevention
  • Retention
  • Loss reduction
  • Avoidance

Question 5

Question
When suffering is a covered loss, an insured individual should do which of the following?
Answer
  • Send a list of items damaged stating the quantity and receipts of purchase
  • Submit to an interview with the insurers representative without any other person present
  • Notify the police if there is a theft loss
  • All of the above

Question 6

Question
How many days does an insurer hve to return unearned premiums to an insured?
Answer
  • 10 days
  • 15 days
  • 25 days
  • 30 days

Question 7

Question
The amount to replace property with like property of the same quality and construction is the:
Answer
  • Replacement cost
  • Actual cash value (ACV)
  • Market value
  • Stated value

Question 8

Question
What is actual cash value (ACV)?
Answer
  • ACV = replacement cost + depreciation
  • ACV = market value - depreciation
  • ACV = replacement cost - depreciation
  • ACV = stated cost - depreciation

Question 9

Question
If an individual or a family suffers a loss due to death or disability of a member, what type of loss is it?
Answer
  • Personal loss
  • Personnel loss
  • Human loss
  • Needs loss

Question 10

Question
Insurance has a number of characteristics. Which of the following is not one of them?
Answer
  • If there is ambiguous language i an insurance contract, it will be resolved in the favor of the insured
  • Parties to a contract should be able to rely upon the honest representations of the other party
  • It involves a catastrophic exposure
  • The insurer is bound to perform under the contract

Question 11

Question
Which of the following is an example of loss retention?
Answer
  • Buying health insurance
  • Not purchasing collision insurance on your auto
  • Placing a watercraft endorsement on your homeowner's policy
  • Removing dried brush from your house's premises

Question 12

Question
If it is proven that another person's negligence contributed to an injury, what gives the injured party the right to seek compensation?
Answer
  • Case law
  • Contract law
  • Criminal law
  • Tort law

Question 13

Question
Which of the following statements is true regarding compensatory damages?
Answer
  • General damages have specific economic value
  • Punitive damages are awarded to a person for actual pain and suffering
  • Special damages do not have a specific economic value
  • There is usually no direct correlation between the amount of general and special damages awarded to the victim

Question 14

Question
Liability losses are referred to as:
Answer
  • First party losses
  • Second party losses
  • Third party losses
  • None of the above

Question 15

Question
In an insurance contract, D. I. C. E. refers to:
Answer
  • Declarations, insurable interest, conditions, and exclusions
  • Declarations, insurable interest, conditions, and endorsements
  • Declarations, insuring clause, conditions and endorsements
  • Declarations, insuring clause, conditions, and exclusions

Question 16

Question
An insured purchased new furniture for $6,000. At the time of a fire loss, it had depreciated $2,000. At current rates, the same furniture will cost $7,000 to replace. The actual cash value of the destroyed furniture is:
Answer
  • $7,000
  • $8,000
  • $6,000
  • $5,000

Question 17

Question
When an insurer cancels a policy and only retains earned premium, this is:
Answer
  • Flat cancellation
  • Short rate cancellation
  • Pro-rata cancellation
  • Continuous cancellation

Question 18

Question
An insurers loss reserve for a claim is:
Answer
  • Equal to claims paid divided by earned premium reserve, not including loss adjustment expense
  • The maximum amount the insurer wil have to pay to close the claim
  • The exact amount the insurer will have to pay to close the claim
  • An estimate of the amount that the insurer will pay

Question 19

Question
What is the process called whereby insurers decide which customers to insure and what coverage to offer?
Answer
  • Adverse selection
  • Rate making
  • Marketing
  • Underwriting

Question 20

Question
A reduction in the value of property that results immediately from damage to the property is known as:
Answer
  • Additional living expense
  • Consequential loss
  • Extra expense
  • Direct loss

Question 21

Question
The process whereby an insured suffers a loss and is paid to return him to his prior financial condition is:
Answer
  • Insurable interest
  • Pure risk
  • Indemnity
  • Ceding

Question 22

Question
What is a hazard?
Answer
  • Anything that increases the chance of loss
  • A broken promise
  • Any possibility of financial loss
  • A peril or loss of property

Question 23

Question
A policy may not be transferred to another without:
Answer
  • Oral consent of the insured
  • Oral consent of the insurer
  • Written consent of the insured
  • Written consent of the insurer

Question 24

Question
Which of the following is a true statement about insurance?
Answer
  • It is a method of transferring risk
  • It is for the low income/high risk persons
  • It is sold by government officials
  • It is a method of retention

Question 25

Question
Grouping people by similar characteristics is:
Answer
  • Unfair discrimination
  • Prejudice
  • Fair discrimination
  • A basic principle of insurance

Question 26

Question
A peril is defined as:
Answer
  • A cause of loss
  • Increases the chance of loss
  • A hazard
  • An accident

Question 27

Question
The main purpose of insurance is to:
Answer
  • Transfer the risk
  • Reduce perils
  • Avoid hazards
  • Reduce the risk

Question 28

Question
The insured should be compensated for his loss, returning him to the condition that existed prior to the loss. The is the principle of indemnity. Which of the following is correct?
Answer
  • It is based on the law of small numbers
  • It is a basic principle of insurance
  • It is based on the law of supply and demand
  • It involves the principle of adhesion

Question 29

Question
Which of the following is an example of loss retention?
Answer
  • Buying life insurance
  • Not purchasing collision insurance on your auto
  • Placing a motorcycle endorsement on your homeowners policy
  • Removing dried brush from your house's premises

Question 30

Question
Which of the following is an example of reducing risk probability?
Answer
  • Buying OTC
  • Reducing premium payments
  • Increasing deductibles
  • Putting a fence around a pool

Question 31

Question
Which of the following is not a benefit of insurances?
Answer
  • It can be a source of investment funds
  • It transfers loss
  • It reduces risk exposure
  • It reduces out of pocket expenses

Question 32

Question
A house located next to a dynamite plant is considered what kind of hazard?
Answer
  • Moral
  • Legal
  • Physical
  • Liability

Question 33

Question
Where is a policy personalized to say who is covered, what is covered, limit of insurance, and policy period?
Answer
  • Insuring clause
  • Declarations
  • Conditions
  • Endorsements

Question 34

Question
An insured suffers a loss caused by a third party. How will the insured's insurance company handle the claim?
Answer
  • The company will not cover the loss
  • The company will have to seek reimbursement himself from the third party
  • The insurer will cover a portion of the loss
  • The insurer will pay the insured for a covered loss and seek reimbursement from the party at fault with the cooperation of the insured

Question 35

Question
The insurer's right to recover its claim payment to an insured from a negligent third party is known as:
Answer
  • Arbitration
  • Liberalization
  • Subrogation
  • Assignment

Question 36

Question
If an insured voluntarily relinquishes his rights, this is an example of:
Answer
  • Estoppel
  • Coercion
  • Waiver
  • Warranty

Question 37

Question
The amount to replace property with like property of the same quality and construction is the:
Answer
  • Replacement cost
  • Actual cash value
  • Market value
  • Stated value

Question 38

Question
When an insurance policy is cancelled by the insured, and the company retains premium for the protection provided plus expenses, cancellation is said to be on a:
Answer
  • Flat basis
  • Short rate basis
  • Pro rata basis
  • Fixed basis

Question 39

Question
An insurer cancels a policy and returns the entire premium. This is:
Answer
  • Short rate
  • Pro rata
  • Flat cancellation
  • No fault

Question 40

Question
How many days does an agent have to return unearned premium to an insured?
Answer
  • 25 days
  • 10 days
  • 30 days
  • 15 days

Question 41

Question
How many days does an insurance company have to give unearned premium back to an agent?
Answer
  • 10 days
  • 15 days
  • 25 days
  • 30 days

Question 42

Question
Insurers may purchase reinsurance for a variety of reasons. Which of the following is not a good example of the use of reinsurance? Insurer purchases reinsurance:
Answer
  • Only on the below average business submitted to them, keeping the good business for themselves.
  • To avoid capacity problems by reducing the amount of unearned premium
  • To more safely insure an exceptionally large account

Question 43

Question
Which insurance company is owned and formed for the benefit of its members?
Answer
  • Llloyds of London
  • A mutual insurer
  • Demutualization
  • Captive companies

Question 44

Question
What effect does increasing a deductible have on a policy?
Answer
  • Increases the premium payment
  • Reduces the premium payment
  • Increases likelihood of getting insurance
  • Increases insurance policy benefits

Question 45

Question
The method in which insurance companies receive approval from the DOI before using certain rates:
Answer
  • Prior approval
  • Underwriting
  • Reinsurance
  • Coinsurance

Question 46

Question
Which of the following is not a method for risk management?
Answer
  • Transfer
  • Avoidance
  • Retention
  • Variance

Question 47

Question
The system in which insurers determine who to insure and that rates to charge is known as
Answer
  • Insurance
  • Underwriting
  • Indemnity
  • Reinsurance

Question 48

Question
Insurance companies transfer part of a particularly large risk through what process:
Answer
  • Reinsurance
  • Indemnity
  • Underwriting
  • Transfer

Question 49

Question
Insurance contracts are between how many parties?
Answer
  • 4
  • 3
  • 1
  • 2

Question 50

Question
The total amount an insurance company is liable to pay out is:
Answer
  • Policy total
  • Limit of insurance
  • Aggregate limit
  • Indemnity

Question 51

Question
A speculative risk, like a pure risk, is insurable:
Answer
  • True
  • False

Question 52

Question
To qualify as an insurable risk:
Answer
  • Losses must be definable
  • Losses must be accidental
  • Losses must be enough to cause hardship to the insured
  • All of the above

Question 53

Question
Aleatory in nature refers to:
Answer
  • Ambiguous language
  • Enforeable
  • Unequal exchange by two parties
  • Waiver of a promise

Question 54

Question
Because insurance is a contract of adhesion, ambiguous language in a contract will show which party at fault:
Answer
  • Insurance company
  • MGA
  • Insured
  • Agent

Question 55

Question
Failure to disclose material fact is:
Answer
  • Concealment
  • Fraud
  • Waiver
  • Estoppels

Question 56

Question
Misrepresentation, deceit, or trickery can be defined as:
Answer
  • Materiality
  • False warrant
  • Conditional concealment
  • Fraud

Question 57

Question
Provisions that deny coverage for certain perils:
Answer
  • Exclusions
  • Declarations
  • Endorsements
  • Conditions

Question 58

Question
The insuring agreement contains all of the following except:
Answer
  • Perils insured against
  • Persons/property covered
  • Location
  • Exclusions

Question 59

Question
Assignment/transfer cannot be made without written consent from:
Answer
  • Additional insured
  • Agent
  • First named insured
  • Insurer

Question 60

Question
A deductible is the portion of a loss retained by the insured before the insurer will cover a claim.
Answer
  • True
  • False

Question 61

Question
To what does lapse refer?
Answer
  • The insurer decides not to continue insuring a customer
  • The insured voluntarily cancels their coverage
  • Termination due to non-payment
  • A policy that is cancelled upon its effective date

Question 62

Question
Insureds must comply with certain provisions when submitting a claim. These include:
Answer
  • Prompt notice of loss or damage
  • Submitting claims
  • Notifying the police if theft is involved
  • All answers are correct

Question 63

Question
Coinsurance refers to the amount of insurance an insured must carry in order to be fully insured
Answer
  • True
  • False

Question 64

Question
What is unoccupied?
Answer
  • There are people living in the building but no furniture
  • There may be furniture but no people in a building
  • No people and no furniture
  • The same as vacant

Question 65

Question
Which of the following must be on ALL insurance policies?
Answer
  • Parties of the contract
  • Insurable interest
  • Term of the policy
  • All answers are correct

Question 66

Question
To what does insurable interest mean?
Answer
  • A loss to the property would have some financial loss for the person
  • A loss that the insured would like to cover through insurance
  • Property taken over by an insurer to reduce loss
  • All of the above

Question 67

Question
A term that refers to a situation in which two or more perils cause a loss
Answer
  • Peril
  • Open peril
  • Consequential loss
  • Concurrent causation

Question 68

Question
A consequential loss is not directly caused by a peril but assumed as a result of a direct loss
Answer
  • True
  • False

Question 69

Question
In order for negligence to exist, which of the following must be present?
Answer
  • Breach of the duty to act
  • Occurrence of injury or damage
  • Duty to act
  • All of the above

Question 70

Question
Compensatory damages in a hearing will generally determine the amount of punitive damages
Answer
  • True
  • False

Question 71

Question
An event that results in a loss to an insured at a definite time and place or due to repeated exposure can be defined as
Answer
  • Negligence
  • Occurrence
  • Accident
  • None of the above

Question 72

Question
Through what kind of liability can a person be held responsible for the actions of others. IE: negligent acts of a child or employee
Answer
  • Strict
  • Absolute
  • Vicarious
  • Intentional

Question 73

Question
An insurer organized in a state outside the state of California can be referred to as what kind of insurer?
Answer
  • Domestic
  • Foreign
  • Alien
  • Admitted

Question 74

Question
What department is set up in order to regulate insurance rates?
Answer
  • DOI
  • The FAIR plan
  • CAARP
  • ISO

Question 75

Question
A person that solicits, negotiates and effects contracts on behalf of an insurer is a:
Answer
  • Agent (Producer)
  • Captive agent
  • Solicitor
  • Independent agent

Question 76

Question
A person that sells insurance for only one company is:
Answer
  • Agent
  • Broker
  • Captive agent
  • Independent agent

Question 77

Question
A fiduciary must hold funds and property in a position of trust. They must also:
Answer
  • Act in a prudent fashion
  • Act as an agent
  • Commingle money
  • Misappropriate funds

Question 78

Question
An illegal practice which occurs when an agent mixes personal funds with the insured's or insurer's funds:
Answer
  • Theft
  • Stealing
  • Commingling
  • Robbery

Question 79

Question
An incorporated insurer owned by its policy holders and formed for their benefit is called
Answer
  • Stock insurer
  • Mutual insurer
  • Independent Insurer
  • Broker insurer

Question 80

Question
A way for insurers to avoid having to pay for large or catastrophic losses
Answer
  • Claims handling
  • Avoidance
  • Reinsurance
  • Underwriting
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