Insurance Exam Questions And Answers

A deductible is a specific amount that the policyholder must pay out-of-pocket before the insurance company pays a claim. By having a deductible, insurance policies discourage small nuisance claims because the policyholder has to consider whether the cost of repairing the damage is worth more than the deductible they would have to pay. This system helps reduce the number of minor claims that insurance companies have to handle, which can lead to lower overall costs for the insurer. As a result, this helps keep insurance premiums more affordable for everyone.

Under most property insurance policies, the policy territory typically includes the United States, its territories and possessions, and Canada. This means that coverage extends to properties located within the United States, its territories (such as Puerto Rico, Guam, etc.), possessions (such as American Samoa), and Canada. Including these areas in the policy territory ensures that properties situated within these regions are covered by the insurance policy, providing broader protection for policyholders.

An insurance consultant is a type of insurance professional who provides expert advice about insurance coverage but does not sell insurance policies. Unlike agents or brokers who are involved in the selling of insurance products, consultants focus on analyzing existing insurance policies, assessing risks, and advising clients on the most suitable coverage options based on their specific needs. This role is crucial for businesses and individuals who require specialized knowledge to navigate complex insurance decisions, ensuring that they make informed choices without the pressure of purchasing from a specific provider.

A waiver occurs when a person voluntarily gives up a known right, typically through explicit declaration or by some act that implies the intention to relinquish the right. In legal contexts, waivers are significant because they prevent the person who has waived the right from claiming any contrary course of action later on. For instance, if someone signs a document stating they waive the right to sue a company, they cannot legally file a lawsuit against that company regarding the specified matters in the future. Waivers are used to avoid disputes and clarify that certain rights will not be enforced.

The proximate cause of loss refers to a negligent act that directly leads to a loss through an uninterrupted chain of events. It is the primary cause that sets in motion a sequence of events, ultimately resulting in the loss. This concept is important in determining liability and causation in legal cases. It is different from an assumption of risk, which involves voluntarily accepting the potential risks associated with an activity, an intervening cause, which is an unforeseeable event that breaks the chain of causation, and strict liability, which holds a party liable regardless of fault.

A hazard is something that increases the likelihood that a loss will occur. It is a condition or circumstance that makes it more probable for a peril (a specific event that causes loss, like a fire or flood) to cause damage or loss. For instance, storing flammable materials improperly is considered a hazard because it increases the chance of a fire, which is the peril. Understanding hazards is crucial in both everyday risk management and in designing insurance policies to ensure that risks are appropriately identified and mitigated.

In addition to collision and other than collision coverage, if a covered loss makes an insured auto unavailable, a personal auto policy will provide coverage for transportation expenses up to $20 per day, subject to a maximum payment of $600.

A deductible is a specific amount that a policyholder must pay out-of-pocket before the insurance company pays a claim. The main purpose of a deductible is to decrease the insurer's liability for small or minor claims, thereby encouraging policyholders to avoid filing frequent, small claims. It also helps in managing the cost of premiums, as generally, higher deductibles lead to lower premium costs. This system allocates some risk back to the policyholder, ensuring they have a financial stake in the risk management process.

Under a commercial property coverage part with the basic causes of loss form attached, perils such as windstorm, explosion, and volcanic eruption are typically covered. However, sprinkler leakage is not included in the list of covered perils in the basic form. Coverage for sprinkler leakage usually requires a more comprehensive form or a specific endorsement to be added to the policy. The basic form primarily covers the most direct and common types of physical damage but does not extend to more specific risks like those caused by accidental activation or malfunction of a sprinkler system.

Under the NCCI (National Council on Compensation Insurance) worker's compensation and employer's liability policy form, the basic or minimum limit for employer's liability coverage per accident is $100,000. This amount represents the minimum financial protection provided for each accident under the employer’s liability section of the policy. This coverage helps protect employers against lawsuits filed by employees for work-related injuries or diseases that are not covered under the worker’s compensation part of the policy. The $100,000 limit helps ensure that employers have a foundational level of financial protection against potential claims.

Valued or agreed amount policies provide for payment of the full policy limit in the event of a total loss by a covered peril, regardless of the actual value of the property. These policies are different from ACV (actual cash value) policies, which only pay for the depreciated value of the property at the time of the loss. Indemnity policies, on the other hand, reimburse the policyholder for the actual amount of the loss up to the policy limit. Market value policies pay out based on the current market value of the property.

The correct answer is the basic and broad forms. In dwelling insurance, the Basic Form (DP-1) and Broad Form (DP-2) are named peril forms, meaning they only cover specific perils explicitly listed in the policy. The Basic Form covers limited perils like fire, lightning, and internal explosion, with options to add more through endorsements. The Broad Form expands on this by including additional named perils such as falling objects, burglary damage, and freezing of pipes. In contrast, the Special Form (DP-3) is an open peril form that covers all perils except those explicitly excluded, providing broader protection. Thus, only the Basic and Broad Forms are considered named peril forms.

When a dwelling policy includes coverage for personal liability and medical payments, the basic limit of coverage for medical payments is typically $1,000 per person. This amount serves as the default coverage limit, providing financial assistance for medical expenses incurred by someone injured on the insured's property, regardless of fault. The insured has the option to purchase higher coverage limits, but unless specified, $1,000 per person is the standard provision. This helps ensure quick and straightforward financial help to cover necessary medical costs, fostering goodwill and potentially preventing more costly liability claims.

Medical payments under a homeowners policy are available for expenses resulting from an injury to a residence employee. This means that if a residence employee, such as a nanny or a housekeeper, gets injured while working at the insured's home, the homeowners policy will cover their medical expenses.

Under a personal auto policy, if a newly acquired auto replaces another auto, the new vehicle automatically has the broadest coverage for liability, medical payments, and uninsured motorists coverage for any auto shown in the declarations until the end of the policy period.

An "aggregate limit" under liability insurance policies refers to the maximum amount that the insurer will pay for all losses that occur during a specific policy period. This means that regardless of the number of claims or accidents that take place within that period, the insurer will only pay up to the aggregate limit. Once that limit is reached, the insurer will not provide any further coverage for losses.

The term "personal injury" under liability insurance policies usually refers to injury for things such as libel, slander, false arrest, or invasion of privacy. This means that if someone is harmed due to any of these actions, they may be covered under the liability insurance policy. It does not solely refer to bodily injuries, but includes other forms of injury that affect a person, such as damage to reputation or financial injury.

Claims-made general liability coverage only applies to bodily injury or property damage that occurs after the policy's retroactive date. This means that any claims arising from incidents that happened before the retroactive date are not covered by the policy.

Under the business auto coverage part, all classes of newly acquired autos are automatically covered. This means that when a business acquires a new vehicle, it is automatically covered under the policy without the need for any additional action or endorsement. This is different from the other statements, which discuss the ability to select different classifications for various coverages, the broadest coverage classification being "any auto," and the inclusion of leased, hired, rented, or borrowed autos under the classification of "hired autos."

Under the National Flood Insurance Program, if you move your property to protect it from a flood, the insurance will cover it at the new location for up to 45 days. This means that if you take your belongings to a safer place because a flood is coming, the insurance helps cover any damage to them for a month and a half. This coverage is important because it gives people a way to safeguard their property during floods without worrying about the cost of potential damages while temporarily relocated.

The loss ratio is used to compare the company's loss experience from year to year. It is calculated by dividing the amount of incurred underwriting losses by the earned premium. It can be calculated separately for individual lines of insurance or the company's entire operations.

DIC policies do provide broad property coverage intended to supplement other coverages and fill insurance gaps. For this reason, DIC policies typically exclude coverage for traditional perils such as fire, lightning, and extended coverage perils. DIC policies do not provide any liability coverage.