Insurance MCQ

A navigation error caused a cargo ship to run around on a reef. The ship, valued at $1.5 million, was carrying $1.5 million in grain and $1.5 in electronic devices. The ship sustained $150,000 in physical damage. If this loss is a "particular average" loss, how will the loss be settled? A) the owners of each of the three interests are responsible for $50,000 B) the owner of the ship is responsible for the entire $150,000 loss C) the two cargo owners are each responsible for $75,000 of the loss D) the owner of the ship is responsible for the first $100,000 of the loss, and the two cargo owners are each responsible for $25,000 of the loss Answer: B

The exterior walls, the roof, and the plumbing, heating and air conditioning systems of a residential condominium can be insured through the purchase of  A) builders risk insurance B) condominium association coverage form C) dwelling property broad form D) condominium commercial unit-owners insurance Answer: B

Tom opened a store in a mall. His store is located between a theater and a department store. Tom counts on the theater and department store to generate walk-in business at his store. While his store has been successful, Tom knows that if either or both of the other business closed, his store would suffer an economic loss. What type of dependent property situation is illustrated in this scenario? A) contributing location B) recipient location C) manufacturing location D) leader location Answer: D

An Inter-Ocean Transfer cargo ship was forced to jettison some cargo in heavy seas. If $400,000 worth of iron ore was jettisoned, for how much of this amount would Inter-Ocean Transfer be responsible under general average? A) nothing B) $160,000 C) $200,000 D) $400,000 Answer: B

Inter-Ocean Transfer owns 12 large cargo ships which transport goods. Inter-Ocean can obtain physical damage insurance on these vessels by purchasing A) hull insurance B) cargo insurance C) protection and indemnity insurance D) freight insurance Answer: A

One type of commercial property insurance excludes perils which are covered by the basic coverages. Some businesses buy this coverage to fill some gaps, including food and earthquake, and to cover property in other countries. This type of insurance is called A) protection and indemnity insurance B) building and personal property coverage form C) difference in conditions insurance D) builders risk coverage form Answer: C

Rick is risk manager of Herald News, a daily newspaper in a competitive market. Rick wants to make sure that if Herald's printing facility is damaged or destroyed , the paper will continue to be published. What type of insurance can Rick purchase to cover the added cost of continuing to print the paper after a physical damage loss has occurred? A) contingent business income coverage B) product liability insurance C) business income from dependent properties coverage D) extra expense coverage Answer: D

The inventory at Frank's business fluctuates. Frank's property insurance requires periodic reporting of inventory values. Frank believes he can save money by under-reporting the inventory. Last period, Frank reported $200,000 when he value was really $400,000. Shortly after filing report, when the value was $500,000, the inventory was destroyed. How much will Frank's insurer pay, assuming no deductible? A) nothing, as underreporting voids coverage B) $200,000 C) $250,000 D)$400,000 Answer: C

Renee is risk manager of XYZ company. She purchased a commercial Package Policy for her company and added one of the optional coverages. This option suspends the coinsurance clause and substitutes a new agreement covering any loss int eh same proportion that the limit of insurance bears to a value specified in the declarations. This provision is known as A) waiver of inventory coverage B) inflation guard coverage C) agreed value coverage D) replacement cost coverage Answer: C

All of the following statements about the business owners policy are true EXCEPT A) Coverage for business personal property includes coverage for leased personal property which the named insured has a contractual responsibility to insure. B) The amount of insurance on the buildings increase by a stated percentage each year. C) Additional coverages include pollutant cleanup and removal D) The policy must be written with a deductible of at least $2,000 for property losses Answer: D

Which of the following statements about the business owners policy is (are) true? I. It is designed primarily to meet the insurance needs of large manufacturing firms. II. It is a package policy designed to meet the basic property and liability needs of an insured in a single contract. A) I only B) II only C) Both I and II D) Neither I nor II Answer: B

A firm wishing to insure a single shipment of merchandise sent by a common carrier would purchase a(n) A) annual transit policy B) trip transit policy C) bailee's liability policy D) equipment floaters Answer: B

All of the following statements about filed inland marine forms are true EXCEPT A) A mail coverage form covers securities in transit by first-class mail, registered or certified mail, or expressed mail B) A commercial articles coverage form is used to insure photogenic equipment and musical instruments C) A jewelers block coverage form is used by individuals in insure jewelry limited in coverage by the homeowners form D) The signs coverage form covers neon, mechanical, and electrical sign. Answer: C

All of the following are considered to be means of transportation and communication for purposes of inland marine insurance EXCEPT A) trains B) tunnels C) transmission lines D) television towers Answer: A

Which of the following statements about ocean marine insurance is true? A) It usually covers the peril of war B) Hull insurance includes collision liability covering the ship's owner if the ship collides with another ship. C) Protection and indemnity (P&I) insurance covers the shipper of goods for cargo losses D) A particular average loss is a loss incurred only if a ship is totally lost or destroyed. Answer: B

All of the following are implied warranties in ocean marine insurance EXCEPT A) seaworthiness B) clear tile C) no deviation D) legal purpose Answer: B

Which of the following statements about marine insurance coverages is true? A) Hull insurance limits coverage to the breakdown of a ship's machinery and equipment. B) Cargo insurance protects the shipowner for the loss of the earnings if a ship is lost of damaged and goods are not delivered. C) Freight insurance covers the owner of cargo if the cargo is damaged or destroyed. D) Protection and indemnity insurance provides liability insurance to the ship owner for bodily injury and property damage to third parties. Answer: D

Which of the following statements describes a Difference in Conditions (DIC) Policy? A) It is a type of commercial umbrella liability policy. B) It is an all-risk policy that covers perils not insured by basic property insurance contracts. C) It is designed to cover indirect losses for which the insured has direct damage coverage. D) It is used to settle disputes when an insured has more than one insurance policy with differing policy provisions. Answer: B

One of the filed inland marine forms is the accounts receivable coverage form. In which of the following cases would the purchaser of this form be indemnified through the coverage? A) If the purchaser cannot pay amounts owed because the purchaser has become insolvent. B) If the purchaser cannot pay amounts owned because the purchaser has suffered an insured physical damage loss. C) If the purchaser cannot collect accounts receivable because of the destruction of records. D) If the purchaser cannot collect accounts receivable because the purchaser extended credit to a poor credit risks. Answer: C

Spoilage because of loss of refrigeration at a frozen foods processor would be covered under  A) equipment breakdown insurance B) extra expense insurance C) business income insurance D) inland marine insurance Answer: A

Which of the following statements about the equipment breakdown protection coverage form is (are) true? I. The covered cause of loss is a breakdown of covered equipment, including boilers, machinery, and electrical and mechanical equipment. II. It provides coverage for the reasonable cost of expediting permanent repair or replacement of damaged property. A) I only B) II only C) Both I and II D) Neither I nor II Answer: C

All of the following statements about business income insurance are true EXCEPT A) Business income is defined as total sales that would have been made plus continuing normal operating expenses. B) Payroll is considered a continuing normal operating expense. C) Business income insurance does not cover the physical damage caused by a peril which created the interruption in business D) The business income coverage form can be purchased with a coinsurance requirement Answer: A

Which of the following statements about the condominium commercial-unit owners coverage form is (are) true? I. It provides coverage for the unit owner's proportionate financial interest in the condominium building. II. It provides coverage for fixtures and improvements which are part of the building and owned by the unit owner. A) I only B) II only C) Both I and II D) Neither I nor II Answer: B

Which of the following forms is used to insure building that are under construction? A) builders risk coverage form B) floor plan coverage form C) new construction coverage form D) labor and materials coverage form Answer: A

XYZ, Inc. would suffer serious financial consequences if either of its two major customers were shut down and could not purchase XYZ products. Which of the following types of consequential loss protection would provide protection against this exposure? A) leasehold interest B) extra expense C) marine insurance D) business income from dependent properties Answer: D

Which of the following statements about the extra expense coverage form is (are) true? I. It provides coverage for the increased cost that must be paid to continue operations during a period of restoration. II. It provides coverage for lost profits for up to 90 days following a loss. A) I only B) II only C) Both I and II D) Neither I nor II Answer: A

The building and personal property coverage form provides several optional coverages. Under one optional coverage, no deduction is taken for depreciation when settling a covered loss. This optional coverage is called A) extra expense B) agreed value C) replacement cost D) inflation cost Answer: C

Which of the following statements about the business income coverage form is true? A) Business income is defined as gross earnings before taxes B) Payroll is excluded unless it is specifically added C) The form covers loss of business income and extra expenses incurred during restoration D) The form can be used by a manufacturing operation only Answer: C

Which of the following types of forms is used to insure fluctuations in business personal property? A) a value blanket form B) a value reporting form C) an inventory floater form D) an inventory business income form Answer: B

Which of the following statements is (are) true concerning the value reporting form? I. Failure to report accurately suspends coverage. II. If the insurer is able to prove that business personal property, including inventory, was under-reported before a loss, recovery is limited to the proportion that the last value reported bears to the value that should have been reported. A) I only B) II only C) Both I and II D) Neither I nor II Answer: B

Which of the following statements about the cause-of-loss special form of the ISO commercial package policy is (are) true? I. The cause-of-loss special form insures against risk of direct physical loss. II. Collapse is included as a additional coverage. A) I only B) II only C) Both I and II D) Neither I nor II Answer: C

All of the following causes of loss are included in the causes-of-loss basic form of the ISO commercial package policy EXCEPT A) fire B) lightning C) explosion D) flood Answer: D

What is the effect of the optional agreed value provision in the building and personal property coverage form? A) It provides replacement cost coverage B) It increases insured values along with inflation C) It suspends the coinsurance clause D) It reduces the deductible to $50 Answer: C

One of the additional coverages under the building and personal property coverage form is "increased cost of construction." The coverage is payable if  A) a skilled artisan is needed to duplicate the construction of the damaged property B) a labor strike or materials shortage increases construction costs C) an ordinance or building code increases the cost of construction D) the materials necessary to rebuild the damaged structure are more expensive than ordinary building materials Answer: C

Which of the following statements about the provisions of the building and personal property coverage form is (are) true? I. A separate deductible must be satisfied for each building damaged in the same occurrence. II. Under the replacement cost option, there is an automatic 10 percent deduction for depreciation. A) I only B) II only C) Both I and II D) Neither I nor II Answer: D

All of the following are extensions of coverage under the building and personal property coverage form EXCEPT A) newly acquired or constructed property B) valuable papers and records C) property off the premises D) currency and securities Answer: D

Which of the following statements about the building and personal property coverage form is (are) true? I. A limited amount of coverage is provided for pollutant cleanup and removal at the described premises if the release or discharge of the pollutant results from a covered cause of loss. II. Fire department service charges are specifically excluded because they are a normal cost of doing business. A) I only B) II only C) Both I and II D) Neither I nor II Answer: A

All of the following are covered under the building and personal property coverage form EXCEPT A) the insured's stock and inventory when located inside the insured building B) equipment used to service the insured building C) the insured's use interest in improvements and betterments if the insured is a tenant D) property owned by key customers and key suppliers of the insured Answer: D

Which of the following items is (are) contained in the common policy conditions page of the commercial package policy? I. The policy period. II. A provision describing the insurer's right to audit the insured's books and records. A) I only B) II only C) Both I and II D) Neither I nor II Answer: B

All of the following are contained in the common policy declarations page of a commercial package policy EXCEPT A) a description of the insured property B) the policy period C) the premium paid D) the policy cancellation provisions Answer: D