test bank 10.doc

Chapter 10 Analysis of Insurance Contracts 1) The portion of a property property and liability insurance insurance contract that contains information about the property or activity to be insured is called the A) declarations. B) insuring agreement. C) exclusions. D) conditions. Answer A Question Status: Previous Edition

!) "hat information is contained in the insuring agreement of an insurance policy# A) a description of the property or life to be insured B) a summary of the ma$or promises of the insurer C) a summary of the obligations of the insured D) a list of the property% losses% and perils that are excluded Answer B Question Status: Previous Edition

&) "hich of the following statements about 'all(riss' coverage is *are) true# +. All losses are covered except those losses speci,cally excluded. ++. The burden of proof is on the insured to prove that a loss is covered. A) + only B) ++ only C) both + and ++ D) neither + nor ++ Answer A Question Status: Previous Edition

-) The exclusion of ood in a homeowners policy is an example of an A) excluded activity. activity. B) excluded condition. C) excluded property. property. D) excluded peril. Answer D Question Status: Previous Edition

11! /e$da 0 Principles of Risk Management Management and Insurance % Tenth dition 2) xclusions are used in insurance policies for all of the following reasons 3C4T A) to reduce moral ha5ard. B) to waive policy conditions. C) to eliminate coverage for uninsurable uninsurable perils. D) to eliminate coverage not needed by typical insureds. Answer B Question Status: Previous Edition

6) /easons why a peril may be considered uninsurable and therefore excluded from insurance contracts include which of the following# +. The losses from the occurrence of the peril may be due to a predictable decline in value. ++. The losses from the occurrence of the peril may be incalculable and catastrophic. A) + only B) ++ only C) both + and ++ D) neither + nor ++ Answer C Question Status: Previous Edition

7) The policy provision re8uiring re8uiring the ,ling of proof of loss with the insurer is an example of a*n) A) declaration. B) condition. C) insuring agreement. D) miscellaneous provision. Answer B Question Status: Previous Edition

9) "hich of the following statements about the de,nition of the insured is *are) true# +. +n some cases% a person who is not speci,cally named may be classi,ed as an insured.

++. :nder no circumstances can more than one person be named as an insured. A) + only B) ++ only C) both + and ++ D) neither + nor ++ Answer A Question Status: Revised

Chapter 1; Analysis of +nsurance Contracts 11& <) All of the following statements about endorsements and riders are true 3C4T A) They are usually written. B) They can be used to add or delete policy provisions. C) They normally tae precedence over other conicting policy provisions. D) They are primarily used to circumvent the purpose of legislation re8uiring speci,c policy provisions. Answer D Question Status: Previous Edition

1;) Deductibles are used in all of the following types of insurance 3C4T A) life insurance. B) health insurance. C) property insurance. D) automobile insurance. Answer A Question Status: Previous Edition

11) All of the following are purposes of deductibles 3C4T A) to eliminate small claims. B) to reduce premiums. C) to reduce morale ha5ard. D) to exclude uninsurable perils. Answer D Question Status: Previous Edition

1!) The deductible for automobile collision losses is an example of a*n) A) corridor deductible. B) elimination period. C) straight deductible. D) aggregate deductible. Answer C Question Status: Previous Edition

11- /e$da 0 Principles of Risk Management and Insurance % Tenth dition 1&) "hich of the following statements about a calendar(year deductible is *are) true# +. +t re8uires the insured to pay a speci,ed amount of each claim regardless of when the claim occurs during the year and regardless of any previous claims during the year. ++. +t is used only in policies which cover direct property losses. A) + only B) ++ only C) both + and ++ D) neither + nor ++ Answer D Question Status: Previous Edition

1-) A provision in a disability income insurance policy that re8uires a person to be disabled for 6; days before receiving bene,ts is an example of a*n) A) corridor deductible. B) exclusion period. C) elimination period. D) probationary period. Answer C Question Status: Revised

12) At what point in time must an insured meet the coinsurance re8uirement in a property insurance policy in order to avoid having to pay a portion of the loss# A) only at the time of loss B) only at the time of policy inception C) only at the time of policy application D) both at the time of policy inception and at the time of loss

Answer A Question Status: Revised

16) David owns a commercial building with a replacement cost of =- million. The building is insured on a replacement cost basis for =& million under a ,re insurance policy that has an 9; percent coinsurance clause. >ow much will David collect if the building sustains a covered ,re loss with a replacement cost of =&!;%;;;# A) =!66%667 B) =!72%;;; C) =&;;%;;; D) =&!;%;;; Answer C Question Status: Previous Edition

Chapter 1; Analysis of +nsurance Contracts 112 17) The primary purpose of coinsurance in property insurance is to A) reduce moral ha5ard. B) achieve e8uity in rating. C) minimi5e problems in settling claims. D) eliminate small losses. Answer B Question Status: Previous Edition

19) "hich of the following statements about problems arising from the use of a coinsurance clause is *are) true# +. The amount of insurance should be periodically evaluated to avoid a coinsurance penalty because of ination. ++. An agreed value coverage option is one method used to solve the problem of values that uctuate throughout the policy term. A) + only B) ++ only C) both + and ++ D) neither + nor ++ Answer C Question Status: Previous Edition

1<) Connie has a ma$or medical policy with a =!;; deductible and a 72 (!2 coinsurance *percentage participation) clause. +f she has eligible medical expenses of =1;%;;;% how much will be paid by her insurer# A) =7%&;; B) =7%&2; C) =7%2;; D) =<%9;; Answer B Question Status: Previous Edition

116 /e$da 0 Principles of Risk Management and Insurance % Tenth dition !;) 4urposes of the coinsurance *percentage participation) clause in health insurance contracts include which of the following# +. To reduce premiums. ++. To exclude coverage for certain medical procedures. A) + only B) ++ only C) both + and ++ D) neither + nor ++ Answer A Question Status: Previous Edition

!1) The purpose of other(insurance provisions is to A) eliminate the need for deductibles. B) penali5e those insureds who carry inade8uate amounts of insurance. C) specify who will pay losses if the insurer is banrupt. D) preserve the principle of indemnity. Answer D Question Status: Previous Edition

!!) ?isa has three ,re insurance policies on her o@ce building. The policy from company A is for =-;;%;;;% and the policies from companies B and C are for =1;;%;;; each. +f ?isa has a =&6;%;;; loss% how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the

insurers# A) each policy =1!;%;;; B) policy A =16;%;;; policies B and C =1;;%;;; each C) policy A =!-;%;;; policies B and C =6;%;;; each D) policy A =&6;%;;; policies B and C nothing Answer C Question Status: Previous Edition

Chapter 1; Analysis of +nsurance Contracts 117 !&) evin has three liability policies which provide for contribution by e8ual shares in case other insurance applies to a loss. >ow much will each policy pay for a =&%;;;%;;; liability $udgment if  policy A provides =2;;%;;; of coverage% policy B provides =1%;;;%;;; of coverage% and policy C provides =&%;;;%;;; of coverage# A) ach policy will pay =2;;%;;;% and evin must pay the remaining =1%2;;%;;;. B) 4olicy A will pay =2;;%;;;% policies B and C will each pay =1%;;;%;;;% and evin must pay the remaining =2;;%;;;. C) 4olicy A will pay nothing% policy B will pay =1%;;;%;;;% and policy C will pay =!%;;;%;;;. D) 4olicy A will pay =2;;%;;;% policy B will pay =1%;;;%;;;% and policy C will pay =1%2;;%;;;. Answer D Question Status: Revised

!-) >elen and ohn both own automobiles on which they carry liability insurance. +f >elen is negligent and has an accident while driving ohn s car% how will each insurer respond to any liability  $udgment against >elen# A) The insurers will pay the $udgment on a pro rata basis. B) ohns insurer will pay on an excess basis if >elens insurance is insu@cient to cover the  $udgment. C) >elens insurance will pay on an excess basis if ohns insurance is insu@cient to cover the  $udgment. D) The policies will pay the $udgment on the basis of contribution by e8ual shares. Answer C Question Status: Previous Edition

!2) ate is covered under her employers group health plan. Ehe is also covered as a dependent under her husbands group health plan. :nder the usual coordination(of(bene,ts provision% how will each company respond to a claim ,led by ate# A) ates plan is primary% and her husbands plan is excess. B) >er husbands plan is primary% and ates plan is excess. C) The plan of the person with the birthday earliest in the year pays ,rst% and the other plan is excess. D) ach plan will pay 2; percent of the claim. Answer A Question Status: Previous Edition

119 /e$da 0 Principles of Risk Management and Insurance % Tenth dition !6) rics property was damaged in an accident. >e phoned his agent to see if the loss was covered under his property insurance policy. The agent said% 'As long as the cause of loss is not speci,cally excluded in the policy% the loss is covered.' Based on the agents answer% what type of insuring agreement appears in the policy# A) unconditional coverage B) named(perils coverage C) extended(perils coverage D) 'all(riss' coverage Answer D Question Status: Revised

!7) anet hit a wall causing a large dent in the fender of her car. Ehe was busy at wor and delayed reporting the damage to her insurer for < months. The insurer denied the claim% stating% 'Although such a loss is usually covered% you are re8uired under the terms of the contract to provide prompt noti,cation in case of loss.' The prompt noti,cation re8uirement is an example of a*n) A) declaration. B) de,nition. C) insuring agreement. D) condition. Answer D Question Status: Previous Edition

!9) Far reviewed his homeowners policy. >e learned that his personal property was insured on an

actual cash value basis. >e would lie replacement cost coverage on the property. >e contacted his agent who said% '+ll simply add an amendment to your contract that changes the basis of recovery to replacement cost.' The written provision the agent was referring to is called a*n) A) endorsement. B) coinsurance clause. C) binder. D) deductible. Answer A Question Status: Previous Edition

Chapter 1; Analysis of +nsurance Contracts 11< !<) :nder the terms of ennys auto insurance policy% she must pay the ,rst =2;; of any physical damage loss to her vehicle before her insurer will pay anything. "hat type of deductible is included in ennys auto insurance policy# A) calendar(year deductible B) corridor deductible C) straight deductible D) aggregate deductible Answer C Question Status: Previous Edition

&;) Ehauna hurt her bac and was unable to wor. Ehe ,led a claim under her disability income insurance policy. :nder terms of the policy% 6; days must pass between the date of the in$ury and when the insurer begins to replace lost earnings. This 6;(day period is called a*n) A) grace period. B) enrollment period. C) probationary period. D) elimination *waiting) period. Answer D Question Status: Previous Edition

&1) ABC Company insured its building on a replacement cost basis for =7;;%;;; under a property insurance policy that included an 9; percent coinsurance clause. The building had a replacement cost of =1 million when it sustained a =-;%;;; loss. >ow much will ABC Company receive from its insurer% assuming no deductible applies# A) =&&%&&& B) =&2%;;; C) =&6%;;; D) =-;%;;; Answer B Question Status: Previous Edition

1!; /e$da 0 Principles of Risk Management and Insurance % Tenth dition &!) 3GH Company insured its building on a replacement cost basis for =-2;%;;; under a property insurance policy that included an 9; percent coinsurance clause. The building had a replacement cost of =2;;%;;; when it sustained a =2;%;;; loss. >ow much will 3GH Company receive from its insurer% assuming no deductible applies# A) =-!%2;; B) =-2%;;; C) =2;%;;; D) =26%!2; Answer C Question Status: Previous Edition

&&) ?auras ma$or medical insurance policy includes a =2;; deductible and an 9; (!; coinsurance clause. ?aura was hospitali5ed and her covered medical expenses were =1;%2;;. >ow much of the =1;%2;; will be paid by the insurer under ?auras ma$or medical policy# A) =7%2;; B) =7%<;; C) =9%;;; D) =1;%;;; Answer C Question Status: Previous Edition

&-) ames purchased liability insurance with a =1;;%;;; limit from +nsurer A. "hen +nsurer A denied a claim that ames thought should be covered% he bought a second liability insurance policy with a =12;%;;; limit from +nsurer B. Before he cancelled the policy with +nsurer A% a =6;%;;; loss occurred. +f this loss is settled on a pro rata basis% how much must each insurer pay#

A) +nsurer A will pay =1;%;;; and +nsurer B will pay =2;%;;;. B) +nsurer A will pay =!;%;;; and +nsurer B will pay =-;%;;;. C) +nsurer A will pay =!-%;;; and +nsurer B will pay =&6%;;;. D) +nsurer A will pay =-;%;;; and +nsurer B will pay =!;%;;;. Answer C Question Status: Previous Edition

Chapter 1; Analysis of +nsurance Contracts 1!1 &2) ane purchased a =2;%;;; liability insurance policy from +nsurer A. Iearing that she did not have enough liability insurance% she purchased an additional =1;;%;;; of liability coverage from +nsurer B. As a result of her negligence% ane was ordered to pay =72%;;; in damages. Assuming the coverage from +nsurer A is primary and the coverage from +nsurer B is excess% how will this claim be settled# A) +nsurer A will pay =2;%;;; and +nsurer B will pay =!2%;;;. B) +nsurer A will pay =&7%2;; and +nsurer B will pay =&7%2;; . C) +nsurer A will pay =!2%;;; and +nsurer B will pay =2;%;;;. D) +nsurer A will pay nothing and +nsurer B will pay =72%;;;. Answer A Question Status: Previous Edition

&6) Jne method of providing group health insurance is a basic medical expense plan supplemented with ma$or medical insurance. The insured is re8uired to pay a deductible between where the basic coverage ends and where the ma$or medical coverage begins. This deductible is called a*n) A) corridor deductible. B) waiting period. C) aggregate deductible. D) straight deductible. Answer A Question Status: New

&7) The purpose of a coordination(of(bene,ts provision in group health insurance plans is to A) determine which plan pays ,rst if more than one plan covers a loss. B) determine which health care provider an insured may use for his or her care. C) determine if the calendar(year deductible has been satis,ed by the insured. D) determine if the employee is eligible for coverage under the group health plan. Answer A Question Status: New