Insurance Basics
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The purpose of this quiz is to test your knowledge of personal lines home and auto policies. Please carefully read the question in full then select the best response.
- 1.Which of the following terms is most closely related to the concept of insurable interest?
- A.
Loss valuation
- B.
Actual cash value
- C.
Indemnity
- D.
Replacement cost
- 2.Replacement cost minus depreciation best describes which of the following?
- A.
Direct loss value
- B.
Actual cash value
- C.
Insurable Interest
- D.
Financial risk
- 3.All of the following are required as elements of a legal contract except:
- A.
Consideration
- B.
Competent parties
- C.
Agreement
- D.
Countersignature
- 4.An answer to an insurance question on an application that is guaranteed to be true best defines:
- A.
Representations
- B.
Misrepresentations
- C.
Warranties
- D.
Concealments
- 5.
- A.
A binder is not usually valid for more than 90 days
- B.
A binder may be oral or written
- C.
A binder may be canceled by the insured within 2 days
- D.
Binders are valid for 15 days after the policy is issued
- 6.In order to broaden or amend coverage in property and casualty policies, which of the following is used:
- A.
Binders
- B.
Amendments
- C.
Endorsements
- D.
Conditions
- 7.If an insured decides to stop paying premiums on his or her policy and returns the contract to the insurer mid-term, the insured would receive which of the following premium refunds?
- A.
Short rate
- B.
Pro-rate
- C.
Actual cash value
- D.
Specified peril
- 8.An insured purchases a fire policy for $150,000 and takes a policy with an 80% co-insurance clause. The building is worth $250,000. The insured has a kitchen fire and the damages are $30,000 and he carries a $500 deductible. What will the insurer pay?
- A.
$18,500
- B.
$28,000
- C.
$22,000
- D.
$22,500
- 9.All of the following are essential elements of negligence except:
- A.
Actual injury
- B.
Legal duty
- C.
Proximate cause
- D.
Criminal act
- 10.Which of the following policies provides open perils coverage?
- A.
HO-2 Policy
- B.
HO-3 Policy
- C.
HO-4 Policy
- D.
HO-6 Policy
- 11.Special limits of liability in a Homeowners contract include all but the following:
- A.
Money and securities
- B.
Jewelry and furs
- C.
Firearms
- D.
Clothing
- 12.Auto insurance premiums for a Personal Auto Policy are based on all of the following except:
- A.
Type and amount of coverage desired
- B.
Individuals who will operate the vehicle
- C.
Where the vehicle is garaged
- D.
Deductible chosen
- E.
Gross total weight of the vehicle
- 13.An insured with auto policy limits of 100/300/50 hits another vehicle injuring two people. They are awarded $15,000 and $90,000. How much will the insured’s automobile policy pay?
- A.
$100,000
- B.
$90,000
- C.
$105,000
- D.
$15,000
- 14.A basic fire policy will pay for all of the following EXCEPT:
- A.
Fire
- B.
Removal
- C.
Lightning
- D.
Explosion
- 15.By entering into an insurance contract, a policyholder transfers the right of legal action against a responsible third party to the insurer. This is known as:
- A.
Coinsurance
- B.
Insurance Interest
- C.
Subrogation
- D.
Abandonment
- 16.After a loss has occurred, an insured has all of the following duties EXCEPT:
- A.
Reimburse the mortgagee for its interests in the damaged property
- B.
Protect the property from further damage
- C.
Separate damaged property from undamaged property
- D.
Immediately provide notice
- 17.Uninsured motorist coverage in an auto policy provides payments to which of the following?
- A.
Bodily injury to the insured
- B.
Bodily injury to the parties at fault
- C.
Physical damage to the auto
- D.
Bodily injury to the uninsured driver
- 18.Lynn has an auto policy with limits of 50/100. She injures two people in an accident and one is left with $25,000 in injuries and the other with $75,000. How much will Lynn’s policy pay?
- A.
$50,000
- B.
$75,000
- C.
$100,000
- D.
$0; the policies of the injured parties provides primary coverage.
- 19.A driver loses control of his auto and damages his next door neighbor’s fence. The damages will be paid by the driver’s:
- A.
Collision
- B.
Comprehensive
- C.
Property Damage Liability
- D.
No coverage applies due to driver negligence.
- 20.Which of the following is excluded from a flood policy?
- A.
Overflow of inland waters
- B.
Surface water run-off
- C.
Sewer backup
- D.
Mudslide
- 21.Henry is sued for negligence and the jury awards the injured party $175,000. Henry’s policy has a limit of up to $100,000 per occurrence. In addition, his insurance carrier is charged $17,000 for defending the suit. How Henry’s his policy pay?
- A.
$100,000
- B.
$117,000
- C.
$125,000
- D.
$175,000
- 22.Which of the following statements regarding medical payments coverage in a personal auto policy is true?
- A.
All reasonable medical expenses are covered up to the policy limit.
- B.
Legal liability need not be proven for payment to be made.
- C.
An insured struck by a vehicle while a pedestrian would be covered.
- D.
A neighbor is assisting you in changing your tire and is injured while loosening the lug nuts.
- E.
All of the above.
- 23.If an insured and insurer disagree as to whether there is coverage under a policy, which of the following would be used to determine a resolution?
- A.
Arbitration
- B.
Appraisal
- C.
Assignment
- D.
Subrogation
- 24.What term best describes a building that does not have any contents and there are no normal activities taking place?
- A.
Absent
- B.
Vacant
- C.
Unoccupied
- D.
None of the above.
- 25.An insurance contract does which of the following?
- A.
Eliminates risk by accumulating funds
- B.
Transfers risk by accumulating funds
- C.
Makes risks predictable by transferring funds
- D.
Eliminates risk by transferring funds
- 26.The Smiths are concerned about the burglaries that have recently been on the rise in their apartment complex. They now decide its time to buy renter’s insurance. This describes which of the following?
- A.
Personal Contract
- B.
All-risk coverage
- C.
Adverse selection
- D.
Inherent risk
- 27.All of the following statements regarding umbrella policies are true except:
- A.
It provides extra limits of coverage.
- B.
It is an insurance contract on behalf on an insured for a variety of personal losses.
- C.
It is the only liability contract an individual or business needs.
- D.
It provides coverage exposures not covered by other policies.
- 28.Which of the following principles describes liability resulting from the negligence of a person who uses an auto with the insured's permission?
- A.
Vicarious liability
- B.
Visible liability
- C.
Implicit liability
- D.
Implied liability
- 29.The relinquishment of a known right is called:
- A.
Estoppel
- B.
Waiver
- C.
Cancellation
- D.
Give up
- 30.The limits of liability are found in which section of a casualty policy?
- A.
Conditions
- B.
Insuring Agreement
- C.
Declarations
- D.
Definitions
- 31.A property and casualty insurer pays claims that have been submitted out of which kind of fund?
- A.
Loss reserves
- B.
Surplus funds
- C.
Endorsements
- D.
Premiums
- 32.Who would use a HO-6 Homeowners form?
- A.
Owner of a rental house
- B.
Owner of a duplex
- C.
Owner of a condominium
- D.
Tenant of a rental house
- 33.Jeff and his family want to move to the West Coast but are concerned about earthquakes. Jeff called Frank, an insurance agent with the ABC Company. What advice should Frank give Jeff about earthquake coverage and how to protect his home?
- A.
Adding the earthquake coverage endorsement will provide the coverage needed.
- B.
The Homeowners policy automatically provides.
- C.
A state fund will cover damages resulting from earthquake.
- D.
A separate earthquake policy should be purchased to provide full coverage for earth movement.
- 34.A policyholder has a homeowners policy for $60,000 on the dwelling. The home is completely destroyed after a fire loss. The cost to replace the home is $40,000. How much will the insured receive?
- A.
$60,000
- B.
$48,000
- C.
$40,000
- D.
$0
- 35.Trees, shrubs, and other plants are covered as additional coverage, but they are limited to certain perils. All of the following perils are covered when causing damage to a tree or shrub EXCEPT:
- A.
Explosion
- B.
Theft
- C.
Wind
- D.
Riot
- 36.Which of the following bests describes the law of large numbers?
- A.
The smaller the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incurred.
- B.
The smaller the number of risks combined into one group, the larger the loss will be to any one individual in that group.
- C.
The larger the number of risks combined into one group, the smalled the loss will be to any one individual in that group.
- D.
The larger the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incurred.
- 37.Who would use a HO-4 Homeowners form?
- A.
Someone renting a third floor apartment
- B.
The owner of a condominium
- C.
The owner of an apartment building
- D.
No one - There is no form HO-4.
- 38.In which section of the homeowners policy will I find an insured's duties after a loss has occurred?
- A.
Exclusion
- B.
Declaration
- C.
Conditions
- D.
Insuring agreement
- 39.Coverage A in a homeowners policy refers to:
- A.
Appurtenant structures(detached)
- B.
The dwelling
- C.
Contents
- D.
Additional living expenses
- 40.The homeowners policy Coverage C Personal Property applies to all the following but one, which one does not apply.
- A.
We will cover personal property owned or used by an insured person while it is anywhere in the world.
- B.
Property of roomers and boarders not related to an insured person, or property of tenants.
- C.
Any personal property which is usually kept at an insured person’s residence other than the residence premises is covered for up to 10% of the Personal Property Coverage limit but not less than $1,000.
- D.
Certain items carry special limits but these limits may be increased for an additional charge.
- 41.Dorothy borrows her neighbor's car because her daughter took hers to college for a week. In this situation, the car that Dorothy has borrowed from her neighbor is a(n):
- A.
Uninsured automobile
- B.
Non-owned automobile
- C.
Temporary substitute vehicle
- D.
Owned automobile
- 42.An automobile policy will provide coverage for an auto being driven in all of the following areas EXCEPT:
- A.
Mexico City, Mexico
- B.
Honolulu, Hawaii
- C.
Anchorage, Alaska
- D.
Alberta, Canada
- 43.In order to motivate a buyer to sign an application for insurance, a producer offers to give the applicant one half of his commission. This is an example of:
- A.
Twisting
- B.
Coercion
- C.
Commission sharing
- D.
Rebating
- 44.All of the following are considered family members in a personal auto policy EXCEPT:
- A.
A blood relation within the household
- B.
A resident family member
- C.
A brother living out of state
- D.
A foster child
- 45.Select the example of where an insurance producer has demonstrated questionable ethical standards?
- A.
Producer Dawson convinces her prospect to purchase health insurance by explaining how and why the policy is best suited for the prospect's needs.
- B.
Several of the parents of the children who play soccer with Producer Dimartino's daughter have used his professional services.
- C.
Producer Hill is enrolling in her first financial planning class next fall. She decides to add "financial planner" to her business cards now.
- D.
Producer Sam gives a prospect information on the financial condition of an insurer.
- 46.John and Susan were painting their new nursery, John knock over a ladder, paint spilled and the ladder damaged the drywall. Which item would NOT be covered under the HO-3?
- A.
Carpet
- B.
Base Board
- C.
Drywall
- D.
Crib
- 47.Michelle purchases a Homeowners policy for $70,000 which contains an 80% co-insurance clause. The home is worth $125,000. Michelle is just learning to cook and accidentally causes fire damage to her new kitchen. The damages total $10,000. What will the insurer pay?
- A.
$10,000
- B.
$7000
- C.
$3000
- D.
$7500
- 48.Which of the following supplementary payments is NOT provided under bodily injury coverage in a personal auto policy?
- A.
The cost of investigating the accident.
- B.
The premium for a bail bond.
- C.
All of the insured's lost earnings during attendance at a hearing or trial.
- D.
The premium for an appeal bond.
- 49.Deductibles are used for a variety of reasons. Select the reason below that does NOT apply.
- A.
Eliminate nuisance claims
- B.
Increase the insured's caution
- C.
Eliminate small losses
- D.
Reduce the cost of insurance
- 50.In addition to the Limits of Liability under Part I of the auto policy the company will pay for which of the following.
- A.
All costs the company incurs in the settlement of any claim or defense of any suit.
- B.
Loss of earnings up to $100 a day when the company will ask you to attend trials or hearings.
- C.
Punitive damages.
- D.
Bodily injury for the named insured, spouse and resident relatives.
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