Home Self Study: Chapter 1 Capstone Exam

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| By David Pezzano
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David Pezzano
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Quizzes Created: 5 | Total Attempts: 1,349
Questions: 12 | Attempts: 327

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Study Quizzes & Trivia

This brief exam will test your retention of knowledge from Home Insurance Self Study Chapter 1: Essential home knowledge
This is a closed book exam. You may not use notes while taking this exam.


Questions and Answers
  • 1. 

    Which of the following best describes the loss settlement provision to the homeowners contract?

    • A.

      The condition that describes the method of indemnification relative to each of the Section I coverages

    • B.

      The condition that stipulates the maximum amount of time an insurer may take to pay a valid claim

    • C.

      The condition that outlines the steps that both the insurer and insured are expected to take in the event of a covered loss

    • D.

      The condition that describes how disputes between insured and insurer are to be settled regarding the assessed value of a loss

    Correct Answer
    A. The condition that describes the method of indemnification relative to each of the Section I coverages
    Explanation
    Section 1.1 Property insurance basics
    The loss settlement provision is the condition that describes how damages will be valued. Separate coverages may have different loss settlement methods. Common loss settlement examples include replacement cost, actual cash value, agreed value, stated amount, and market value.

    Other terms found above:
    Duties after a loss: The condition that outlines the steps that both the insurer and insured are expected to take in the event of a covered loss including the maximum amount of time an insurer may take to pay a valid claim
    Appraisal: The condition that describes how disputes between insured and insurer are to be settled regarding the assessed value of a loss

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  • 2. 

    Which best represents the first party to a liability contract?

    • A.

      A person injured on the insured’s property attempting to recover damages from the insured

    • B.

      The insurance company providing liability coverage

    • C.

      The person seeking to transfer risk of loss from himself to another party

    • D.

      None of these scenarios describe the first party

    Correct Answer
    C. The person seeking to transfer risk of loss from himself to another party
    Explanation
    Section 1.2 – Casualty insurance basics
    The first party is the named individual or party who enters into a liability contract. It is the person transferring the risk of loss to the insurer (the second party). In a standard homeowners contract scenario, the homeowner is both the first named insured and first party to the liability section of the contract

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  • 3. 

    Which type of damages are not paid by personal lines casualty insurance coverages?

    • A.

      General damages

    • B.

      Special damages

    • C.

      Punitive damages

    • D.

      Casualty insurance protects against all three of the listed damage types

    Correct Answer
    C. Punitive damages
    Explanation
    Section 1.2 – Casualty insurance basics
    Punitive damages are not paid by personal lines casualty insurance. Punitive damages are fees and fines charged to the insured as punishment for breaking a law or acting in a grossly negligent fashion. A speeding ticket is an example of a punitive damage.

    General damages: Intangible damages sustained by a third party being charged to the insured. The values of general damages are typically subjective and as such are often negotiated during a settlement process or contested in civil court. Common general damages include pain & suffering. When covered by the policy general damages are typically paid to a third party by Coverage E: Personal Liability

    Special damages: Tangible medical bills and other finite damages sustained by a third party being charged to the insured. When covered by the policy, general damages are typically paid to a third party by Coverage F: Medical Payments. Depending on the situation and value of damages, special damages may also be paid by Coverage E: Personal Liability

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  • 4. 

    Which of these common losses would likely be paid by an unendorsed homeowners contract?

    • A.

      Sump pump overflow

    • B.

      Loss due to power failure

    • C.

      Pipe burst due to cracking or bulging

    • D.

      Loss due to earth movement or settling

    Correct Answer
    C. Pipe burst due to cracking or bulging
    Explanation
    Section 1.4 – Section I Coverages
    Of the perils listed above, only pipe bursting is covered by Section I of the standard homeowners contracts. Loss due to sump pump overflow or backup may be endorsed onto most policies. Earth movement/earthquake endorsements are available but vary greatly by territory and carrier. Power failure is not a commonly endorsable coverage and is not often paid by insurance.

    The common policy exclusions are:
    Flood, earth movement, war, sump pump overflow, neglect, intentional destruction, power failure, sewer backup, nuclear hazard, ordinance or law, and wear and tear. Many policies also exclude loss due to mold, fungi, wet rot & dry rot. Exclusions vary by carrier.

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  • 5. 

    Which of the parties listed below would be eligible to receive a settlement from Coverage F: Medical Payments?

    • A.

      The named insured only

    • B.

      The named insured and spouse only

    • C.

      The named insured and all household members (as related by blood, marriage, or adoption)

    • D.

      None of the listed parties would be eligible to receive a Coverage F payment from the insured’s policy

    Correct Answer
    D. None of the listed parties would be eligible to receive a Coverage F payment from the insured’s policy
    Explanation
    Section 1.5 – Section II Coverages
    Section II coverages (Coverage E: Personal Liability and Coverage F: Medical Payments) cannot be paid to insureds or household members. Section II coverages offer liability protection, meaning that they protect the insured’s assets by paying to injured third parties seeking damages from the insured due to the insured’s negligence

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  • 6. 

    How do endorsements differ from additional/other coverages?

    • A.

      They are interchangeable terms used by different insurers, but function the same

    • B.

      Additional / other coverages are automatically included in the standard policy, while endorsements must be manually added to the policy

    • C.

      Endorsements restrict or reduce coverage while additional / other coverages increase or broaden coverage

    • D.

      Additional / other coverages may only be paid at the discretion of the insurer while endorsement payments are guaranteed in the event of a loss

    Correct Answer
    B. Additional / other coverages are automatically included in the standard policy, while endorsements must be manually added to the policy
    Explanation
    Section 1.6 – Additional / other coverages
    Additional / other coverages are “freebies” automatically included into the policy. Most additional / other coverages help to enable or expedite the payment of larger losses. Common additional / other coverages include fire department service charge and removal of trees

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  • 7. 

    Which of the following would be a good reason to offer a water/sump pump backup endorsement?

    • A.

      The insured has a finished basement

    • B.

      The insured has sustained a prior loss due to a sump pump failure

    • C.

      The insured has gone to above-average lengths to ensure that the sump pump will operate in extreme conditions

    • D.

      All of the listed circumstances are opportunities to offer water/sump pump backup coverage

    Correct Answer
    D. All of the listed circumstances are opportunities to offer water/sump pump backup coverage
    Explanation
    Section 1.7 – Endorsement basics
    All of the above reasons are triggers that you should use to offer water/sump pump backup coverage. The lowest level of the home is most susceptible to water losses.

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  • 8. 

    Which of the following types of work-related usage best fits our use of endorsed incidental business coverage?

    • A.

      An employee of a large corporation who telecommutes more often than she is in the office

    • B.

      A person who earns supplemental income through the sale of crafts online

    • C.

      A partner at a small law firm who consults with clients out of his personal residence

    • D.

      A person who rents a detached structure on the residence premises to residential tenants

    Correct Answer
    B. A person who earns supplemental income through the sale of crafts online
    Explanation
    Section 1.8 – Endorsements – incidental business
    Only the person selling crafts is eligible. The telecommuter does not need any special endorsement and we would be able to insure her with no issues because her usage of the property does not constitute incidental business usage. The partner of a law firm is ineligible because he requires professional liability protection which we are unable to provide (other occupations in this ineligible category include psychologists, psychiatrists, dentists, and other medical professionals who operate primarily out of the primary residence). The person renting a detached structure on the residence premises does not qualify for this endorsement because rental income is not equivalent to business income for the purposes of personal lines insurance.

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  • 9. 

    What is the least amount of Coverage A that should be included with all HO-06 policies?

    • A.

      $20,000

    • B.

      $10,000

    • C.

      The software will determine an appropriate amount based on the reconstruction estimate

    • D.

      HO-06 policies do not include Coverage A

    Correct Answer
    A. $20,000
    Explanation
    Section 1.9 – Home and property forms
    Nearly all condominium unit owners are responsible for all structural items from the “studs in.” This typically puts the unit owner on the hook for wiring, electrical work, walls and finishes, light fixtures, etc. The insured also needs coverage A to replace any built-in bathroom and kitchen fixtures like sinks and counter-tops. While $20,000 is the recommended minimum, it should be understood that this is still insufficient for most condo unit owners.

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  • 10. 

    Which of the following is true of dwelling contracts?

    • A.

      Dwelling contracts are most frequently used in owner occupied homes where limited coverage is desired

    • B.

      Customers who wish to add liability protection to a dwelling contract must also purchase a monoline residential liability form

    • C.

      Dwelling coverage is used for landlords of tenant occupied and vacant structures

    • D.

      Dwelling contracts are not designed to insure properties owned by an L.L.C. or other corporate entity

    Correct Answer
    D. Dwelling contracts are not designed to insure properties owned by an L.L.C. or other corporate entity
    Explanation
    Section 1.9 – Home and property forms
    Personal lines dwelling contracts are designed for landlords with a small number of rental properties. For these customers we typically write a DP-02 Broad Form or DP-03 Special Form with a Personal Liability endorsement. We do not insure owner-occupied properties with dwelling contracts.

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  • 11. 

    When is the most appropriate time to set up a home insurance policy using the customer’s escrow account?

    • A.

      The customer wishes to switch to escrow payments to avoid billing fees

    • B.

      The customer’s prior policy is paid through the escrow account currently

    • C.

      The customer is about to finish paying the mortgage

    • D.

      The customer wishes to pay for the policy in full

    Correct Answer
    B. The customer’s prior policy is paid through the escrow account currently
    Explanation
    Section 1.10 – Insurable interest and mortgage basics
    Regardless of the reason, there are only two valid times in which you may submit payment to escrow. If the policy is written in conjunction with a new home closing or the customer currently has homeowners insurance paid through an escrow account, you may submit a request for payment to the escrow account. Under no other circumstances may you do this.

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  • 12. 

    To which of the following financial entities can you submit an escrow payment?(Check ALL correct answers)

    • A.

      Home equity loan

    • B.

      Reverse mortgage

    • C.

      Primary mortgage with separate servicing agency

    • D.

      Homeowners association

    Correct Answer
    C. Primary mortgage with separate servicing agency
    Explanation
    Section 1.11 – Other forms of additional interests
    Home equity loans and reverse mortgages do not come with escrow accounts and do not manage the homeowners insurance. A homeowners association is in no way an interested party to the home itself.

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