Fire & Casualty Practice Exam 4

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Questions: 150 | Attempts: 3,245 | Updated: Mar 22, 2023

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Fire & Casualty Practice Exam 4 - personal practice purpose only

Questions and Answers

1.

Which of the following would be known as the process whereby an insurer determines appropriate charges for its policies ?
- A.
  
  Premium factoring
- B.
  
  Rate-making
- C.
  
  Underwriting
- D.
  
  Marketing
Correct Answer
B. Rate-making

Explanation
Rate-making refers to the process in which an insurer determines the appropriate charges for its policies. This involves analyzing various factors such as the risk level, claims history, and market conditions to calculate the premiums that policyholders should pay. By considering these factors, insurers can ensure that the premiums charged are sufficient to cover potential claims and expenses while also remaining competitive in the market. Therefore, rate-making is the correct term to describe this process.

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2.

All of the following would be considered benefits of insurance, except
- A.
  
  Reduction of the financial uncertainty of the insured
- B.
  
  Payment for the cost of covered losses
- C.
  
  Source of investment funds
- D.
  
  Retention of the loss by the insured
Correct Answer
D. Retention of the loss by the insured

Explanation
Insurance is designed to provide financial protection and reduce uncertainty for the insured. It does this by offering payment for covered losses and reducing the financial burden on the insured. Insurance can also serve as a source of investment funds, as premiums paid by policyholders are often invested by insurance companies. However, the retention of the loss by the insured is not a benefit of insurance. Instead, insurance aims to transfer the risk of loss from the insured to the insurer, allowing the insured to avoid bearing the full financial impact of the loss.

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3.

The amount paid for damaged property which is equal to the price for which it could have been sold is the
- A.
  
  Actual cash value
- B.
  
  Stated amount
- C.
  
  Market value
- D.
  
  Replacement amount
Correct Answer
C. Market value

Explanation
The market value refers to the price at which a damaged property could have been sold. It represents the value of the property in the current market conditions. Therefore, if the amount paid for the damaged property is equal to its market value, it means that the compensation received is equivalent to the price at which the property could have been sold. This indicates that the payment is fair and reflects the actual value of the property.

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4.

Under an un-endorsed commercial property coverage form with no optional coverages, on what basis are buildings valued?
- A.
  
  Guaranteed replacement cost
- B.
  
  Replacement cost
- C.
  
  Actual cash value
- D.
  
  Functional replacement cost
Correct Answer
C. Actual cash value

Explanation
Under an un-endorsed commercial property coverage form with no optional coverages, buildings are valued on the basis of actual cash value. Actual cash value is the value of the property at the time of loss, taking into account factors such as depreciation. It is calculated by subtracting the depreciation from the replacement cost of the property. This means that the insured will receive the current value of the building, taking into consideration its age, wear and tear, and market value.

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5.

The named insured for a commercial package policy is "Jill Koslin and Edward Koslin DBA Coastline Photo Shop". Under the terms of the common policy conditions of the commercial package policy, who is responsible for the premium payments?
- A.
  
  Jill
- B.
  
  Edward
- C.
  
  Coastline Photo Shop
- D.
  
  Both Jill and Edward have equal responsibility
Correct Answer
A. Jill

Explanation
Jill is responsible for the premium payments because she is specifically named as the insured in the policy. Edward and Coastline Photo Shop may also have some responsibility, but the named insured, Jill, is ultimately the one responsible for paying the premiums.

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6.

If an insured discovers an occurrence 75 days after the expiration of a claim-made commercial liability policy, what must the insured have in order for the loss to be covered?
- A.
  
  Nothing; he is covered as long as the loss occurred during the policy period
- B.
  
  Supplemental extended reporting period endorsement
- C.
  
  An umbrella policy
- D.
  
  The loss will not be covered since it was not reported during the policy period
Correct Answer
B. Supplemental extended reporting period endorsement

Explanation
The insured must have a supplemental extended reporting period endorsement in order for the loss to be covered. This endorsement extends the reporting period beyond the expiration of the policy, allowing the insured to report occurrences that happened during the policy period but were discovered after the policy expired. Without this endorsement, the loss would not be covered since it was not reported during the policy period.

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7.

All of the following meet the definition of the insured under a HO-3 policy, except
- A.
  
  A 70-year-old grandparent residing in an adult care facility
- B.
  
  An 89-year-old uncle residing in the household
- C.
  
  An 18-year-old foster child residing with the insured
- D.
  
  A 20-year-old son enrolled as a full-time student in another state
Correct Answer
A. A 70-year-old grandparent residing in an adult care facility

Explanation
The HO-3 policy typically covers the named insured, their relatives living in the household, and other individuals under their care. The 70-year-old grandparent residing in an adult care facility does not meet the definition of the insured under the HO-3 policy because they are not living in the household. The other options, including the 89-year-old uncle, the 18-year-old foster child, and the 20-year-old son, all meet the criteria as they either reside in the household or are under the care of the insured.

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8.

The loss under a watercraft endorsement is covered it it arises out of
- A.
  
  The use of the watercraft for a business party
- B.
  
  The use of the watercraft to carry property for a fee
- C.
  
  The use of a sailboat in a racing competition
- D.
  
  Rental of the watercraft to others
Correct Answer
A. The use of the watercraft for a business party

Explanation
The loss under a watercraft endorsement is covered if it arises out of the use of the watercraft for a business party. This means that if any damage or loss occurs during a business-related event or function on the watercraft, it will be covered by the insurance policy.

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9.

Actual cash Value is defined as the
- A.
  
  The amount to replace damaged property less depreciation
- B.
  
  The value of the damaged property on the open market
- C.
  
  The amount agreed upon by the insured and the insurer at policy inception
- D.
  
  The amount to replace damaged property without a deduction for depreciation
Correct Answer
A. The amount to replace damaged property less depreciation

Explanation
Actual cash value is the amount that an insurance company would pay to replace damaged property, taking into account the depreciation of the property. This means that the value of the damaged property is determined by subtracting the depreciation from the cost of replacing it.

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10.

All of the following vehicles are eligible for coverage under a personal auto policy, except
- A.
  
  An SUV owned by a 25 year old individual
- B.
  
  A pickup truck leased to a husband and wife
- C.
  
  A private passenger auto owned by a partnership
- D.
  
  A conversion van leased to a 19 year old individual
Correct Answer
C. A private passenger auto owned by a partnership

Explanation
A personal auto policy typically provides coverage for vehicles that are owned by individuals or families for personal use. A partnership is a business entity, and therefore a private passenger auto owned by a partnership would not be eligible for coverage under a personal auto policy.

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11.

Exclusive agents
- A.
  
  Make all sales by telephone
- B.
  
  Specialize exclusively in one class of business
- C.
  
  Generally represent only one insurer
- D.
  
  Have exclusive ownership rights to their renewals
Correct Answer
C. Generally represent only one insurer

Explanation
Exclusive agents generally represent only one insurer. This means that they work exclusively with one insurance company and do not represent any other insurers. These agents have a close relationship with the insurer they represent and have in-depth knowledge about their products and policies. They are dedicated to selling the insurance products of that particular insurer and do not have the flexibility to offer products from other companies. This exclusivity allows the insurer to have more control over their sales and customer service, and it also ensures that the agent is well-versed in the specific policies and coverage options offered by that insurer.

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12.

A common formula that is used to establish actual cash value is:
- A.
  
  ACV = stated value - agreed value
- B.
  
  ACV = market value - overhead
- C.
  
  ACV = stated value - depreciation
- D.
  
  ACV = replacement cost - depreciation
Correct Answer
D. ACV = replacement cost - depreciation

Explanation
The correct answer is ACV = replacement cost - depreciation. This formula is used to determine the actual cash value (ACV) of an item or property. It takes into account the replacement cost, which is the cost to replace the item with a similar one in the current market, and subtracts the depreciation, which is the decrease in value over time due to wear and tear or obsolescence. By subtracting the depreciation from the replacement cost, the formula calculates the ACV, which represents the current value of the item.

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13.

Which of the following coverages is a property insurance coverage
- A.
  
  Medical payments
- B.
  
  Personal injury
- C.
  
  Property damage liability
- D.
  
  Other than collision
Correct Answer
D. Other than collision

Explanation
"Other than collision" is a property insurance coverage that protects against damage to a vehicle that is not caused by a collision, such as theft, vandalism, or natural disasters. Medical payments, personal injury, and property damage liability are all types of liability insurance coverages, which protect against injuries or damages caused to others.

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14.

Professionals are exposed to liability for failure to properly perform their professional duties. Which of the following would be the least likely prospect for a professional liability policy ?
- A.
  
  Dentist
- B.
  
  Pro basketball player
- C.
  
  Attorney
- D.
  
  Architect
Correct Answer
B. Pro basketball player

Explanation
A professional liability policy is designed to protect professionals from liability claims arising from errors or negligence in their professional duties. In this context, a pro basketball player would be the least likely prospect for such a policy. Unlike the other options, a pro basketball player does not typically provide professional services that could result in liability claims. Their role is primarily related to sports and entertainment, rather than providing professional advice or services. Therefore, the need for a professional liability policy would be significantly lower for a pro basketball player compared to the other professions listed.

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15.

Are standardized umbrella policies available ?
- A.
  
  Yes, standardized umbrella policies are now available
- B.
  
  No, because each company defines covered exposures based upon their own loss experience
- C.
  
  No, because of the unique needs of the insured requires specialized attention
- D.
  
  No, because each company wants the ability to establish their own pricing
Correct Answer
B. No, because each company defines covered exposures based upon their own loss experience
16.

Which of the following is listed on a commercial general liability declarations as an aggregate limit ?
- A.
  
  Property damage
- B.
  
  Bodily injury limit
- C.
  
  Products/completed operations limit
- D.
  
  Pollution liability limit
Correct Answer
C. Products/completed operations limit

Explanation
The products/completed operations limit is listed on a commercial general liability declarations as an aggregate limit. This limit represents the maximum amount of coverage available for claims related to products or completed operations, such as injuries or damages caused by a product or service after it has been completed or delivered. It ensures that the insurer will only pay up to this limit for all claims arising from products or completed operations during the policy period.

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17.

All of the following are characteristics of "an ideally insurable loss exposure," except
- A.
  
  Losses that are accidental
- B.
  
  Large number of similar exposure units
- C.
  
  Losses that are definite and measurable
- D.
  
  Losses that are catastrophic
Correct Answer
D. Losses that are catastrophic

Explanation
The characteristics of an ideally insurable loss exposure include losses that are accidental, a large number of similar exposure units, and losses that are definite and measurable. However, losses that are catastrophic do not fall under the category of an ideally insurable loss exposure. Catastrophic losses are typically large-scale events that result in significant damage or loss, such as natural disasters or major accidents. These types of losses are often difficult to predict and manage, making them less suitable for insurance coverage.

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18.

The insurance code definition of an "insurance broker" is
- A.
  
  Someone paid to transact insurance on behalf of another person, but not on behalf of the insurer
- B.
  
  Someone appointed by a fire & casualty broker-agent (employer), receiving commissions from the employer, transacting insurance with the insurers the employer represents and acting on behalf of the clients
- C.
  
  Any agent that writes more difficult-to-place business with the specialty insurers who have appointed him
- D.
  
  Someone appointed to transact insurance with admitted insurers and receives commissions from them, but acts on behalf of the clients
Correct Answer
A. Someone paid to transact insurance on behalf of another person, but not on behalf of the insurer

Explanation
An insurance broker is defined as someone who is paid to handle insurance transactions on behalf of another person, but not on behalf of the insurer. This means that the broker acts as a middleman between the client and the insurance company, helping the client find the best insurance policies and negotiate the terms. The broker's loyalty lies with the client, not the insurer, ensuring that the client's best interests are prioritized in the insurance transaction.

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19.

California has lower financial responsibility limits than most other states. If Randy, a California personal auto policy insured, carrying minimum limits on coverage, has an accident in a state that requires higher limits, then
- A.
  
  The policy will automatically provide the higher required limits - at no extra charge
- B.
  
  The unendorsed policy does not cover the out-of-state operation of the automobile
- C.
  
  He is breaking the law of that state unless he has added the "other-state" endorsement
- D.
  
  The policy will provide the higher limits retroactively, but only when he has paid the difference in premiums
Correct Answer
A. The policy will automatically provide the higher required limits - at no extra charge

Explanation
California has lower financial responsibility limits compared to most other states. However, if Randy, who has a California personal auto policy with minimum limits, has an accident in a state that requires higher limits, his policy will automatically provide the higher required limits without any additional charge. This means that Randy will be covered for the higher limits mandated by the state where the accident occurred, even though his policy initially had lower limits.

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20.

What is a self-insured retention under an umbrella policy?
- A.
  
  A deductible applicable to losses excluded by underlying coverage and covered by the umbrella
- B.
  
  The limits of liability of the umbrella policy
- C.
  
  The amount of the underlying limits of liability
- D.
  
  A deductible applicable to all covered losses
Correct Answer
A. A deductible applicable to losses excluded by underlying coverage and covered by the umbrella

Explanation
A self-insured retention under an umbrella policy refers to a deductible that is applicable to losses that are excluded by the underlying coverage but are covered by the umbrella policy. In other words, if a claim falls under the umbrella policy but is not covered by the primary insurance, the insured party will be responsible for paying the self-insured retention amount before the umbrella policy coverage kicks in. This deductible is specific to losses that are excluded by the underlying coverage and provides an additional layer of protection for the insured.

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21.

One example of a loss covered by business income insurance is a loss
- A.
  
  Of profits due to a suspension of business operations because of a premises fire
- B.
  
  Represented by the difference between the actual cash value and present replacement cost
- C.
  
  Of perishables due to a delay in transporting
- D.
  
  Due to depreciation of parts of matched sets
Correct Answer
A. Of profits due to a suspension of business operations because of a premises fire

Explanation
Business income insurance provides coverage for the loss of profits that a business may experience due to a suspension of business operations caused by a premises fire. This type of insurance helps to compensate the business for the income it would have earned during the period of interruption. It is designed to help the business recover from the financial impact of the fire and continue its operations after the incident.

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22.

Your insured has a ten year lease on his store. He has spent $50,000 on shelving, wall-to-wall carpeting, partitions, and lighting, etc., all of which are part of the building and cannot be legally removed. He is concerned that a fire might damage these changes that he has made and wants to make sure he is protected for their value. He should purchase
- A.
  
  Coverage for improvements and betterments
- B.
  
  Coverage for legal liability
- C.
  
  Accounts receivable coverage
- D.
  
  $50,000 on the building
Correct Answer
A. Coverage for improvements and betterments

Explanation
The insured should purchase coverage for improvements and betterments because these are changes that he has made to the building and cannot be legally removed. This coverage will protect him in case of a fire or damage to these improvements, ensuring that he is compensated for their value.

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23.

What clause is commonly used to require insureds to purchase insurance close t the value of the property
- A.
  
  Deductible clause
- B.
  
  Co-insurance clause
- C.
  
  Valuation clause
- D.
  
  Reinsurance
Correct Answer
B. Co-insurance clause

Explanation
The co-insurance clause is commonly used to require insureds to purchase insurance close to the value of the property. This clause ensures that the insured carries a sufficient amount of insurance coverage relative to the value of the property. If the insured fails to meet the required percentage of coverage stated in the co-insurance clause, they may be subject to a penalty or receive reduced claim payments in the event of a loss.

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24.

In the state of California a rate will not remain in effect if it is considered to be any of the following, except:
- A.
  
  Excessive
- B.
  
  Unfairly discriminatory
- C.
  
  Inadequate
- D.
  
  Impartial
Correct Answer
D. Impartial

Explanation
In the state of California, a rate will not remain in effect if it is considered to be excessive, unfairly discriminatory, or inadequate. The term "impartial" does not fit into this context as it is not typically used to describe rates. Impartiality refers to being unbiased or neutral, which may not be relevant when determining the effectiveness of a rate.

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25.

Which of the following insurance professionals would be employed to aid an insurance broker?
- A.
  
  Managing general agent
- B.
  
  Insurance solicitor
- C.
  
  Underwriter
- D.
  
  Insurance adjuster
Correct Answer
B. Insurance solicitor

Explanation
An insurance solicitor would be employed to aid an insurance broker because they specialize in legal matters related to insurance. They provide legal advice, draft contracts, and handle any legal disputes that may arise. Insurance brokers often require the assistance of solicitors to ensure that they are in compliance with insurance laws and regulations, as well as to navigate any legal issues that may arise in their business operations. Therefore, an insurance solicitor would be a valuable resource for an insurance broker.

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26.

If a building is damaged during an attempted burglary where money was stolen from a vault, which of the following coverages would cover the loss of the money as well as the damage to the building ?
- A.
  
  Inside the premises - robbery or safe burglary of other property
- B.
  
  Inside the premises - theft of money and securities
- C.
  
  Business personal property form
- D.
  
  Outside the premises coverage
Correct Answer
A. Inside the premises - robbery or safe burglary of other property

Explanation
The correct answer is "Inside the premises - robbery or safe burglary of other property". This coverage would cover the loss of the money as well as the damage to the building in the event of a burglary.

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27.

A distinct feature of the alternative funding method known as self-funding is:
- A.
  
  No evidence of insurability is required
- B.
  
  It only applies to large groups
- C.
  
  The benefits are tailored to the group
- D.
  
  It is designed for entrepreneurs
Correct Answer
C. The benefits are tailored to the group

Explanation
Self-funding is a funding method where the benefits are customized or tailored to suit the needs of a specific group. This means that the benefits provided through self-funding can be designed to meet the specific requirements and preferences of the group members. Unlike traditional insurance plans, self-funding allows for flexibility in determining the coverage and benefits offered, allowing the group to have more control over their healthcare plans. This feature makes self-funding an attractive option for organizations or groups that want to have more control and customization over their healthcare benefits.

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28.

A pickup or van with a gross vehicle weight of 9,500 lbs. may be eligible for a personal policy it it was used in the business of
- A.
  
  Floral delivery
- B.
  
  Claims adjusting
- C.
  
  Farming or ranching
- D.
  
  Hauling property for a fee
Correct Answer
C. Farming or ranching

Explanation
A pickup or van with a gross vehicle weight of 9,500 lbs. may be eligible for a personal policy if it was used in the business of farming or ranching. This is because farming or ranching often requires the use of heavy vehicles for transporting equipment, livestock, or agricultural products. Therefore, insurance companies may offer personal policies to individuals engaged in these activities, as they understand the specific needs and risks associated with farming or ranching operations.

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29.

Thomas Fry has insured a building under his commercial policy. the building was vacant for 75 consecutive days before a loss. the policy will not pay for the loss if caused by the perils of
- A.
  
  Building glass breakage and vandalism
- B.
  
  Riot
- C.
  
  Fire
- D.
  
  Windstorm or hail
Correct Answer
A. Building glass breakage and vandalism

Explanation
The policy will not pay for the loss if caused by the perils of building glass breakage and vandalism. This means that if the loss was a result of these specific perils, Thomas Fry's policy will not cover it. The other perils listed (riot, fire, windstorm or hail) are not excluded, so if the loss was caused by any of those, the policy would provide coverage.

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30.

A car is insured using a personal auto policy. the car is damaged by hail. The loss is
- A.
  
  Covered as other than collision loss
- B.
  
  Excluded because of the uninsurable catastrophic potential damage by hail
- C.
  
  Covered as a collision loss
- D.
  
  Covered only if the car was in a garage or shelter at the time of the hail
Correct Answer
A. Covered as other than collision loss

Explanation
The car being insured using a personal auto policy means that it is protected against various types of losses, including damage caused by hail. Since the question states that the car is damaged by hail, it implies that the loss is covered under the insurance policy. The term "other than collision loss" refers to comprehensive coverage, which typically includes damage caused by hail, fire, theft, vandalism, and other non-collision incidents. Therefore, the correct answer is that the loss is covered as other than collision loss.

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31.

Any person who makes a loan of money using real property as security
- A.
  
  Shall be allowed to make available the information contained in a fire or casualty insurance policy for the purpose of soliciting either fire or casualty insurance only
- B.
  
  Shall not make available the information contained in a borrower's fire or casualty policy if the borrower as filed a statement with the lender that they do not want the lender to disclose this information
- C.
  
  There are no current laws regarding lenders disclosing borrower's information in the state of California
- D.
  
  Can give out any borrower information to a solicitor if the lender discloses its practices to the borrower at the time the loan is made
Correct Answer
B. Shall not make available the information contained in a borrower's fire or casualty policy if the borrower as filed a statement with the lender that they do not want the lender to disclose this information

Explanation
The correct answer is that a person who makes a loan using real property as security shall not make available the information contained in a borrower's fire or casualty policy if the borrower has filed a statement with the lender that they do not want the lender to disclose this information. This means that if a borrower specifically requests that their insurance information not be shared, the lender must respect their wishes and keep the information confidential.

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32.

A medical condition that exists on the policy effective date and during a specified time earlier, is the definition of
- A.
  
  Undisclosed condition
- B.
  
  First-manifest condition
- C.
  
  First diagnosed condition
- D.
  
  Pre-existing condition
Correct Answer
D. Pre-existing condition

Explanation
A pre-existing condition refers to a medical condition that already exists before the policy becomes effective and during a specific period prior to the policy's start date. This means that the individual had the condition before obtaining the insurance coverage.

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33.

In an unendorsed claims-made general liability policy, how long does an insured have to report a claim which occurred during the policy period.
- A.
  
  Indefinitely
- B.
  
  60 days
- C.
  
  30 days
- D.
  
  6 months
Correct Answer
B. 60 days

Explanation
In an unendorsed claims-made general liability policy, the insured has 60 days to report a claim that occurred during the policy period. This means that the insured must notify the insurance company within 60 days of becoming aware of the claim in order for it to be covered by the policy. After this time period, the insurance company may deny coverage for the claim.

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34.

Under a standard (ISO) homeowner's HO-3, real property and personal property are covered for the perils of
- A.
  
  Broad form named perils - coverage applies to personal property. There is no coverage for real property since this is a tenant's form
- B.
  
  "All risks" - coverage applies to real property, broad form named perils coverage applies to personal property.
- C.
  
  "All risks" - coverage applies to both
- D.
  
  Broad form named perils - coverage applies to both
Correct Answer
B. "All risks" - coverage applies to real property, broad form named perils coverage applies to personal property.

Explanation
Under a standard homeowner's HO-3 policy, the coverage for real property is provided under the "All risks" category, which means that it covers any peril or risk unless it is specifically excluded in the policy. On the other hand, the coverage for personal property is provided under the broad form named perils category, which means that it only covers specific perils that are listed in the policy. Therefore, the correct answer is that "All risks" coverage applies to real property, while broad form named perils coverage applies to personal property.

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35.

To determine the actual cash value of a commercial building for coinsurance purposes, use
- A.
  
  Fair market value
- B.
  
  The actual cash cost of replacing the building
- C.
  
  The price the client paid for the property, less the value of the land
- D.
  
  The country assessor's office figures
Correct Answer
A. Fair market value

Explanation
The correct answer is fair market value. Fair market value refers to the price that a willing buyer and a willing seller would agree upon in an open and competitive market. It takes into account factors such as the condition of the building, its location, and current market conditions. Using fair market value helps to ensure that the commercial building is adequately insured for its true value, taking into consideration any appreciation or depreciation since the client purchased the property.

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36.

Which of the following types of loss would result in a claim for monetary damages due to injury to another or damage to another's property ?
- A.
  
  Real property loss
- B.
  
  Personal property loss
- C.
  
  Liability loss
- D.
  
  Physical loss
Correct Answer
C. Liability loss

Explanation
Liability loss would result in a claim for monetary damages due to injury to another or damage to another's property. Liability loss refers to the legal responsibility or obligation one has towards another person or their property. In this case, if someone is found liable for causing injury or damage to someone else or their property, they may be required to compensate the affected party by providing monetary damages.

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37.

Jevon has a personal auto policy with $250 deductible collision coverage and $100 deductible other than collision coverage. He runs a stop sign and hits another car. There is $1,300 worth of damage to his (the insured's) car. How much would the insurer pay for the damage to the Jevon's car /
- A.
  
  $1,050
- B.
  
  $1,200
- C.
  
  $950
- D.
  
  Nothing, since it was Jevon's fault
Correct Answer
A. $1,050

Explanation
The insurer would pay $1,050 for the damage to Jevon's car. This is because the deductible for collision coverage is $250, so Jevon would be responsible for paying that amount. The remaining damage amount of $1,050 would be covered by the insurer.

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38.

Which of the following situations suggest the need for an attachment of the additional residence rented to others endorsement to an insured's homeowner's policy? The homeowner's insured also owns a two-family dwelling and rents it out to two families. The insured
- A.
  
  Is concerned that the person she is renting the dwelling to will move out without paying the rent.
- B.
  
  Wants to have medical payments coverage to pay for injuries to renters that require medical attention
- C.
  
  Is concerned that she might be liable to the renter for injuries that might occur in connection with the rental
- D.
  
  Wants protection of $50,000 for her own personal property in the furnished rental dwelling.
Correct Answer
C. Is concerned that she might be liable to the renter for injuries that might occur in connection with the rental

Explanation
The insured's concern about being liable to the renter for injuries that might occur in connection with the rental suggests the need for an attachment of the additional residence rented to others endorsement to the homeowner's policy. This endorsement would provide coverage for any liability claims arising from injuries that occur on the rented property.

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39.

If a named insured is not the owner of the building, improvements and betterments are covered under the
- A.
  
  Business personal property
- B.
  
  Building
- C.
  
  Agreed value
- D.
  
  Newly constructed property
Correct Answer
A. Business personal property

Explanation
If a named insured is not the owner of the building, improvements and betterments are covered under the business personal property. This means that any improvements or upgrades made to the building by the named insured would be covered under their business personal property insurance. This coverage is important because it protects the named insured's investment in the improvements and betterments, even if they do not own the building itself.

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40.

Under a value reporting form, if the insured has made no reports as required, what is the most that will be paid in the event of a loss ?
- A.
  
  80% of the limit
- B.
  
  75% of the limit
- C.
  
  90% of the limit
- D.
  
  100% of the limit
Correct Answer
B. 75% of the limit

Explanation
Under a value reporting form, the insured is required to make regular reports on the value of the insured property. If the insured fails to make these reports as required, the most that will be paid in the event of a loss is 75% of the limit. This means that the insured will receive a reduced payout, as they did not fulfill their reporting obligations.

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41.

It is a violation of the CA Insurance code to act as a producer for a non-admitted carrier unless
- A.
  
  The producer is an insurance solicitor
- B.
  
  It is always a violation, no matter what type of producer
- C.
  
  The producer is duly licensed in at least two states
- D.
  
  The producer is a surplus lines broker
Correct Answer
D. The producer is a surplus lines broker

Explanation
The correct answer is that the producer is a surplus lines broker. A surplus lines broker is a licensed insurance professional who specializes in placing insurance coverage with non-admitted carriers. Non-admitted carriers are insurance companies that are not licensed or authorized to do business in a particular state. Surplus lines brokers are allowed to work with these carriers to provide coverage for risks that cannot be insured through admitted carriers. Therefore, if a producer is acting as a surplus lines broker, it is not a violation of the CA Insurance code to work with a non-admitted carrier.

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42.

What additional coverage does a DP2 have compared to a DP1 ?
- A.
  
  Debris removal
- B.
  
  Personal liability
- C.
  
  Improvements, alterations and additions
- D.
  
  Additional living expenses
Correct Answer
D. Additional living expenses

Explanation
A DP2 insurance policy provides coverage for additional living expenses, which means that if a covered event such as a fire or natural disaster renders the insured property uninhabitable, the policy will cover the cost of temporary living arrangements such as hotel stays or rental accommodations. This coverage is not provided by a DP1 policy, which only covers the actual cash value of the property and does not include additional living expenses.

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43.

Self-funding of employee benefit plans cannot be used for
- A.
  
  Hospital benefits
- B.
  
  Health benefits
- C.
  
  Death benefits
- D.
  
  Short-term disability benefits
Correct Answer
C. Death benefits

Explanation
Self-funding of employee benefit plans cannot be used for death benefits because death benefits typically involve providing financial support or compensation to the beneficiaries or dependents of an employee who has passed away. These benefits are usually paid out by the employer or the insurance company, and they are not typically funded through a self-funded employee benefit plan. Self-funding is more commonly used for health benefits, hospital benefits, and short-term disability benefits, where the employer assumes the financial risk of providing these benefits directly to employees.

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44.

Which of the following conditions would not be included among the chronic illness triggers of a LTC policy ?
- A.
  
  Deafness
- B.
  
  Aizheimer's
- C.
  
  Incontinence
- D.
  
  Dementia
Correct Answer
A. Deafness

Explanation
Deafness would not be included among the chronic illness triggers of a LTC policy because it is not typically considered a chronic illness. Chronic illnesses are long-term conditions that require ongoing medical care, whereas deafness is a sensory impairment that can be managed with assistive devices and communication methods. Therefore, it does not meet the criteria for a chronic illness trigger in a LTC policy.

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45.

The commercial general liability (CGL) declarations page displays many different limits of insurance that apply to a policy. One limit shown is the insured's general aggregate limit. Which of the following is a correct statement about the general aggregate limit? The general aggregate limit
- A.
  
  Is the total of all the other sub-limits shown on the declaration page
- B.
  
  Does not include the products - completed operations aggregate limit
- C.
  
  Is the total limit for any occurrence
- D.
  
  Is the total limit for any one accident
Correct Answer
B. Does not include the products - completed operations aggregate limit

Explanation
The general aggregate limit is a limit of insurance that is displayed on the commercial general liability (CGL) declarations page. It refers to the total limit of coverage for all claims made during the policy period, except for claims covered under the products-completed operations aggregate limit. In other words, it does not include coverage for claims related to products or completed operations.

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46.

Under a personal auto policy, what qualifies as an insured while using a covered auto ?
- A.
  
  Only the named insured and resident relatives
- B.
  
  Any person
- C.
  
  Only the named insured, resident relatives, and other entities responsible for the user of the auto
- D.
  
  Only the named insured, resident relatives, and passengers
Correct Answer
C. Only the named insured, resident relatives, and other entities responsible for the user of the auto

Explanation
Under a personal auto policy, the insured while using a covered auto includes the named insured, resident relatives, and other entities responsible for the use of the auto. This means that not only the policyholder and their immediate family members are covered, but also any other individuals or organizations that have been given permission to use the insured vehicle.

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47.

The retro-active date of a claims-made professional liability policy is always:
- A.
  
  The date after which no more claims may be made under the policy
- B.
  
  The effective date for the current policy term
- C.
  
  The earliest date an event/loss may occur and still be eligible for recovery
- D.
  
  The date that the claims-made policy expires
Correct Answer
C. The earliest date an event/loss may occur and still be eligible for recovery

Explanation
The retro-active date of a claims-made professional liability policy refers to the earliest date an event or loss may occur and still be eligible for recovery. This means that any claims made for events or losses that occurred before the retro-active date would not be covered by the policy. It is important to note that the retro-active date is not the expiration date of the policy or the date after which no more claims can be made.

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48.

Fred is a named insured on a commercial property policy insuring a commercial building. Fred burns the building down and is convicted of arson. Fred's commercial property policy conditions state that
- A.
  
  The mortgagee of the insured property can recover on this loss
- B.
  
  His partner, also an insured, has the right of recovery
- C.
  
  Fred's spouse can recover on this loss
- D.
  
  None of the above have the right of recover
Correct Answer
A. The mortgagee of the insured property can recover on this loss

Explanation
The correct answer is that the mortgagee of the insured property can recover on this loss. This means that if Fred burns down the building and is convicted of arson, the mortgagee (the lender who provided the loan for the property) has the right to recover the loss. This is because the mortgagee has a financial interest in the property and wants to protect their investment. Fred's partner and spouse do not have the right to recover on this loss, as stated in the policy conditions.

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49.

Under the financial responsibility law requirements in California, what is the minimum limit for several people injured in one accident ?
- A.
  
  $15,000
- B.
  
  $25,000
- C.
  
  $30,000
- D.
  
  $10,000
Correct Answer
C. $30,000

Explanation
The correct answer is $30,000. Under the financial responsibility law requirements in California, the minimum limit for several people injured in one accident is $30,000. This means that if multiple individuals are injured in an accident, the minimum amount of insurance coverage required to cover their medical expenses and damages is $30,000. This ensures that there is enough financial protection for the injured parties in case of an accident.

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50.

A home is damages minutes after an earthquake, first by fire, and then by fuel pipes bursting and causing an explosion. Under a homeowner's HO-3 form
- A.
  
  There is coverage, but only for the damage caused by the ensuing fire and explosion
- B.
  
  There is no coverage due to the fact that HO-3 covers only named perils
- C.
  
  The policy covers all of the damage since explosion is an insured peril
- D.
  
  There is no coverage unless the insured has made an earthquake endorsement as part of his policy
Correct Answer
A. There is coverage, but only for the damage caused by the ensuing fire and explosion

Explanation
The correct answer states that there is coverage, but only for the damage caused by the ensuing fire and explosion. This means that the homeowner's insurance policy will cover the damage caused by the fire and explosion that occurred after the earthquake. However, it does not cover the damage caused directly by the earthquake itself.

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Quiz Edited by
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Dec 27, 2009

Quiz Created by
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Fire & Casualty Practice Exam 4

Which of the following would be known as the process whereby an insurer determines appropriate charges for its policies ?

All of the following would be considered benefits of insurance, except

The amount paid for damaged property which is equal to the price for which it could have been sold is the

Under an un-endorsed commercial property coverage form with no optional coverages, on what basis are buildings valued?

The named insured for a commercial package policy is "Jill Koslin and Edward Koslin DBA Coastline Photo Shop". Under the terms of the common policy conditions of the commercial package policy, who is responsible for the premium payments?

If an insured discovers an occurrence 75 days after the expiration of a claim-made commercial liability policy, what must the insured have in order for the loss to be covered?

All of the following meet the definition of the insured under a HO-3 policy, except

The loss under a watercraft endorsement is covered it it arises out of

Actual cash Value is defined as the

All of the following vehicles are eligible for coverage under a personal auto policy, except

Exclusive agents

A common formula that is used to establish actual cash value is:

Which of the following coverages is a property insurance coverage

Professionals are exposed to liability for failure to properly perform their professional duties. Which of the following would be the least likely prospect for a professional liability policy ?

Are standardized umbrella policies available ?

Which of the following is listed on a commercial general liability declarations as an aggregate limit ?

All of the following are characteristics of "an ideally insurable loss exposure," except

The insurance code definition of an "insurance broker" is

California has lower financial responsibility limits than most other states. If Randy, a California personal auto policy insured, carrying minimum limits on coverage, has an accident in a state that requires higher limits, then

What is a self-insured retention under an umbrella policy?

One example of a loss covered by business income insurance is a loss

What clause is commonly used to require insureds to purchase insurance close t the value of the property

In the state of California a rate will not remain in effect if it is considered to be any of the following, except:

Which of the following insurance professionals would be employed to aid an insurance broker?

If a building is damaged during an attempted burglary where money was stolen from a vault, which of the following coverages would cover the loss of the money as well as the damage to the building ?

A distinct feature of the alternative funding method known as self-funding is:

A pickup or van with a gross vehicle weight of 9,500 lbs. may be eligible for a personal policy it it was used in the business of

Thomas Fry has insured a building under his commercial policy. the building was vacant for 75 consecutive days before a loss. the policy will not pay for the loss if caused by the perils of

A car is insured using a personal auto policy. the car is damaged by hail. The loss is

Any person who makes a loan of money using real property as security

A medical condition that exists on the policy effective date and during a specified time earlier, is the definition of

In an unendorsed claims-made general liability policy, how long does an insured have to report a claim which occurred during the policy period.

Under a standard (ISO) homeowner's HO-3, real property and personal property are covered for the perils of

To determine the actual cash value of a commercial building for coinsurance purposes, use

Which of the following types of loss would result in a claim for monetary damages due to injury to another or damage to another's property ?

Jevon has a personal auto policy with $250 deductible collision coverage and $100 deductible other than collision coverage. He runs a stop sign and hits another car. There is $1,300 worth of damage to his (the insured's) car. How much would the insurer pay for the damage to the Jevon's car /

Which of the following situations suggest the need for an attachment of the additional residence rented to others endorsement to an insured's homeowner's policy? The homeowner's insured also owns a two-family dwelling and rents it out to two families. The insured

If a named insured is not the owner of the building, improvements and betterments are covered under the

Under a value reporting form, if the insured has made no reports as required, what is the most that will be paid in the event of a loss ?

It is a violation of the CA Insurance code to act as a producer for a non-admitted carrier unless

What additional coverage does a DP2 have compared to a DP1 ?

Self-funding of employee benefit plans cannot be used for

Which of the following conditions would not be included among the chronic illness triggers of a LTC policy ?

The commercial general liability (CGL) declarations page displays many different limits of insurance that apply to a policy. One limit shown is the insured's general aggregate limit. Which of the following is a correct statement about the general aggregate limit? The general aggregate limit

Under a personal auto policy, what qualifies as an insured while using a covered auto ?

The retro-active date of a claims-made professional liability policy is always:

Fred is a named insured on a commercial property policy insuring a commercial building. Fred burns the building down and is convicted of arson. Fred's commercial property policy conditions state that

Under the financial responsibility law requirements in California, what is the minimum limit for several people injured in one accident ?

A home is damages minutes after an earthquake, first by fire, and then by fuel pipes bursting and causing an explosion. Under a homeowner's HO-3 form