Insurance MCQ

Which of the following is covered under Part A of the Personal Auto policy? Answer: Damage to the attached garage of a dwelling rented by the insured.

Which of the following statements is TRUE of Ocean Marine insurance? Answer: Ocean marine insurance policy forms are not standardized.

All of the following injuries occurring on the job would probably be deemed compensable, EXCEPT: Answer: A cerebral hemorrhage occurring at work and caused from years of high blood pressure.

Sarah is shopping at a grocery store and wants to purchase a bottle of juice. The aisle is marked off with a rope awaiting the clerk to clean up a previously broken bottle and spill on the floor. Sarah moves the rope to get the item and slips and falls on the floor, cutting her face on the scattered glass. Which of the following would be the defense that the insurance company would most likely use in this situation? Answer: Assumption of risk and contributory negligence on the part of the customer.

Widgets Warehouse has submitted a First Report of Injury to their workers' compensation insurance company for an injury sustained by one of their employees. After an investigation, the insurer has decided to deny the claim. Which of the following is true in this situation? Answer: The insurance company must forward to the injured employee an official written notice of denial.

Under which circumstances would it be legal for an insurer to charge one insured more than another insured for the same coverage? Answer: When the insured is statistically more likely to experience a loss.

When Chris' car is stolen from his apartment's parking lot, he heads down to the local dealership and buys a new car. Three months later, Chris decides he may as well report the stolen car to his insurer, so he can get some money for it. What is the most likely reason the insurer might deny his claim? Answer: Chris did not promptly report the stolen vehicle.

What is the main difference between arbitration and mediation in dealing with coverage disputes in the claims adjusting process? Answer: Mediation is not binding on the parties involved, but with arbitration the decision is final and binding.

Symbol 23 is designated on the insured's Garage Coverage form. This indicates that: Answer: that owned private passenger autos only are covered.

Which of the following protects against legal liability for loss or damage to baggage? Answer: Cargo Liability coverage

All of the following are excluded from coverage under the Personal Effects Floater, EXCEPT: Answer: Luggage.

Ocean marine coverage for losses to the insured vessel caused by bursting boilers, latent defects in the vessel and negligence of the master or crew members are addressed by which of the following? Answer: The Inchmaree clause.

A domestic insurer is: Answer: One formed in your state.

All of the following are "Perils of the Sea" under an Ocean Marine policy, EXCEPT: Answer: Pirates.

Which of the following is NOT a true statement regarding the agency relationship? Answer: An agent is an agent for the third party contracting with the principal

Under the provisions of the 1943 New York Standard Fire Policy, an insured may file a suit to recover for a loss, only if all of the required duties have been met and the period of limitation tolled is ________ from the date of the loss. Answer: one year

Katrina has her commercial building covered by a Commercial Package policy. Which if the following is the section within her policy where she would see the dimensions of her building listed? Answer: The Commercial Property declarations page.

All of the following are reasons that an adjuster should keep very detailed log notes, EXCEPT: Answer: To produce notes that will support a fraudulent denial of claims.

Section I of the Homeowners forms provides up to ________ when the insured is assessed by a corporation or property owner's association for damage to property owned collectively, but only if it was damaged by a peril insured against under Coverage A of the policy. Answer: $1,000

An office building is limited in the number of stories it may contain and still be eligible for coverage under a standard Businessowners Policy. This number is: Answer: Six stories

Kelly, Vince, Ed, and Ginny are all staff adjusters. Which of these adjusters is acting appropriately as a fiduciary agent? Answer: Ed knows the claimant can't possibly afford to pay for their extensive damages, but he denies the claim anyway because the cause of loss was not covered by the policy.

Dave has suffered a property loss. He hires Katie, a public adjuster to assist him in presenting his claim to Indemnify Insurance, Inc., the company that insures his damaged property. Indemnify assigns the claim to Mark, one of their staff adjusters. Which of the following statements best describes how Katie and Mark will proceed in processing Dave's claim? Answer: Katie will proceed with her investigation and Mark will proceed with his investigation independently of each other. Each will create individual reports regarding the claim.

Which of the following watercraft would be covered under Section II - Liability of the Homeowners forms? Answer: A watercraft in storage.

Imogene has purchased a personal auto policy including Parts A through D. She is driving to work one day and rolls through a stop sign, crashing into the car that had the right-of-way in an intersection. Imogene submits a claim for the accident. Which of the following would NOT be included in her claims payment? Answer: The transmission problem Imogene was having prior to the accident.

Joe makes a small down payment on a sports car and finances the remainder of the cost of the car with Benevolent Bank, Inc. He also purchases a standard Personal Automobile policy through Binders Keepers Insurance Company to cover the car. Joe makes one car payment before he is caught with $200,000 of drugs in the car on his way to deliver it to addicts for money. Joe is arrested and the car is permanently confiscated by the authorities. How will coverage apply in this situation? Answer: The policy will cover the damage to the body of the automobile on behalf of Benevolent Bank, Inc.

The freight charge is paid by the shipper to the carrier: Answer: When the cargo has been delivered to its destination point.

When an insurer files a declaratory judgement action with a court of law, all of the following questions will be resolved by the court, EXCEPT: Answer: Will the insurer become insolvent if they pay the claim as submitted by the insured?

Which of the following is used to bring a standardized insurance form into compliance with state laws? Answer: Endorsements.

The insured is covered under a standard HO-5 policy. What coverage does the insured have for personal property? Answer: open perils

The auto liability limits $100/300/50 are an example of: Answer: split limits

A claim is made on an excess liability policy. It is discovered during the claims investigation, that the underlying liability policy and the excess liability policy have different inception and expiration dates. The adjuster finds that the different dates has created a situation where the underlying policy was not in effect at the time of the occurrence, and therefore cannot trigger the excess liability policy to pay the claim. This situation is known as: Answer: Nonconcurrency.

Which of the following situations would NOT be considered an unfair claim settlement practice according to the NAIC Model Act? Answer: Indemnify Insurance pays thousands of claims per year, but on two of those claims they failed to accept or deny the claim within the time frame required by state law

An insured has an auto accident and sustains bodily injury worth $50,000. The responsible party carries auto liability limits of 15/30/15 which provides $15,000 for bodily injury for any one person per occurrence. The insured carries Underinsured Motorist limits providing $100,000 bodily injury for any one person per occurrence. Therefore, the responsible party's policy will pay its limit of $15,000 and the insured's Underinsured Motorist policy will pay: Answer: $35,000

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a settlement, which is a final binding decision is known as: Answer: Arbitration

All of the following "personal effects" would be covered by the Part D -- Additional Coverage of the Personal Watercraft, EXCEPT: Answer: jewelry

Of the following businesses, which one is NOT eligible for coverage under a Businessowners policy? Answer: An auto dealership with $1 million dollars in gross annual sales.

Which of the following endorsements permits the insured under a Commercial Property policy to increase their business personal property coverage amount for specified periods of time when inventory may be higher than usual? Answer: Peak Season Endorsement.

All of the following are characteristics of an insurable risk, EXCEPT: Answer: The loss must be catastrophic in nature.

The Builders' Risk form provides an extension of coverage for building materials within 100 feet of the building being constructed and belonging to others, but under the care, custody, and control of the insured for up to: Answer: $5,000

The Coverage C - Uninsured Motorists coverage of a standard, unendorsed Personal Automobile policy applies to all of the following, EXCEPT: Answer: Property damage sustained by the insured vehicle by an uninsured vehicle.

An oral or written contract for temporary insurance is referred to as a: Answer: Binder

An "insured" under an unendorsed Homeowners policy can be all of the following, EXCEPT: Answer: A childhood friend of the named insured who is visiting for a month from England.

Which of the following is TRUE regarding deductibles that pertain to Part D of the standardized Personal Automobile policy? Answer: There are separate deductible amounts, chosen by the insured, for the "Collision" coverage and the "Other Than Collision" coverage..

Resident Alabama insurance adjusters are required to complete ________ hours of continuing education every _____ years. Answer: 24, 2. Resident Alabama insurance adjusters are required to complete 24 hours of CE every 2 years.

Which of the following statements about Alabama auto insurance is FALSE? Answer: Alabama has mandatory no-fault insurance. Alabama does not require people to carry no-fault insurance.

Which of the following would NOT affect the rating for comprehensive and collision coverage on a vehicle? Answer: The color of the vehicle. The color of the vehicle would not affect its insurance rates.

Joe filed an auto damage claim with his insurer, XYZ Insurance, who committed several unfair claims settlement practices while handling Joe's claim. Which of the following is NOT one of these unfair practices? Answer: XYZ Insurance took 11 days to acknowledge Joe's claim and send him all the necessary paperwork. In Alabama, an insurer has 15 days to acknowledge a claim and provide all necessary paperwork to the claimant, so XYZ Insurance was under this threshold with 11 days.

Law and Ordinance, also known as Code Upgrade Coverage, covers which of the following expenses? Answer: The cost of repairs or upgrades done to meet new building codes. Law and Ordinance pays for the cost of repairs or upgrades done to meet new building codes after a covered loss.

Which of the following insurance packages will indemnify a policyholder for a variety of hospital-related expenses such as nursing care, supplies, and rooming charges? Answer: Hospitalization Expense insurance. Hospitalization Expense insurance provides coverage for a variety of hospital expenses, including room and board, medical expenses, lab fees, nursing care and other hospital fees.

States that have special legislation that requires workers' compensation coverage to be provided exclusively by the state's workers' comp program are: Answer: monopolistic. States that require businesses to purchase WC insurance through the state fund are called monopolistic. There are four states with monopolistic workers compensation laws: Ohio, Washington, Wyoming, and North Dakota.

Under the Longshore and Harbor Workers' Compensation Act, how much would the surviving spouse of a deceased worker receive in benefits? Answer: 50% of the deceased worker's Average Weekly Wage. The surviving spouse of a deceased worker would receive 50% of the worker's AWW.

Amanda is walking her dog in a rural area when a small plane suddenly crashes only 15 feet in front of her. Amanda is not hurt, but she is so distressed that she files an insurance claim for mental anguish. Which aviation coverage would pay this claim? Answer: Bodily Injury Excluding Passengers. Bodily Injury Excluding Passengers would cover anyone injured by the use, maintenance, or ownership of the aircraft who isn't actually a passenger on the plane. This coverage includes bodily injury, sickness, disease, mental anguish and death.

Which of the following losses would be excluded from coverage under a Personal Articles Floater? Answer: A rat slipped inside a golf bag before it was packaged for shipping and chewed several holes in the bag before it arrived at its destination. Personal Articles Floaters do not cover losses caused by vermin, so the damage to the golf bag that was eaten by rats would not be covered.

All of the following are types of Cargo Coverage in Ocean Marine insurance, EXCEPT: Answer: All Risk Form. There are three types of Cargo coverage: 1) Single Risk Form; 2) Floating, Open or Long Term; and 3) Warehouse-to-Warehouse.

Sam's Ocean Marine hull policy has a franchise deductible of $50,000. When Sam's ship suffers $75,000 in damage after being overtaken by pirates, how much indemnification can Sam expect to get from his insurer? Answer: $75,000. If a covered loss exceeds the amount of the franchise deductible, the insurer pays for the entire loss.

The Write Your Own program allows private insurers to: Answer: sell standardized NFIP policies. The Write Your Own program lets private insurers sell standardized NFIP policies, collect premiums, adjust claims, and pay losses.

A flood inundates Howard's property, causing $100,000 of damage to the dwelling and $25,000 of damage to the detached garage. If Howard has a Dwelling Form flood policy with a $150,000 limit, how much will the policy pay for the damage to Howard's home and detached garage combined? (Ignore deductible amounts.) Answer: $115,000. The Dwelling Form pays up to 10% of the Coverage A limit for detached garages. 10% of $150,000 is $15,000. So, Howard's policy will pay $100,000 for the damage to Howard's dwelling, plus $15,000 for his detached garage, for a total of $115,000.

Acme Bottling Co. makes bottles for a large food manufacturer. Acme has dozens of machines, including conveyors, fillers, and cappers, to name a few. Acme Bottling Co. has a Boiler & Machinery insurance policy to protect its financial investment in these machines. On their policy, each of their machines would be referred to as: Answer: an "object.". In the Equipment Breakdown Protection Coverage Form, a risk is usually referred to as an "object."

Which endorsement to the Commercial Crime policy would protect a bank against its legal liability for burglary, robbery, destruction, or damage to customers' belongings kept in safe deposit at the bank? Answer: Safe Depository. The Safe Depository Endorsement covers the named insured's legal liability if it is the safe depository for customers' property. The perils covered include burglary, robbery, destruction, or damage. A bank would be likely to need such coverage.

Which of the following best describes how losses are valued under a Commercial Crime policy? Answer: Money is valued at face value; securities are set at their value on the day the loss is discovered; and other property is valued at the lesser of the cost to repair or replace. The Valuation provision states that money is valued at its face value; securities are set at their value on the day the loss is discovered; and other property is valued at the lesser of the cost to repair or replace.

All of the following are covered under Coverage A of a Business Owners Policy, EXCEPT: Answer: leased business personal property that must be insured. Leased business personal property would not be covered under Coverage A.

Which financial institution bond is designed for all types of insurance companies? Answer: Standard Form 25. The Standard Form 25 is a blanket financial institution bond used by all kinds of insurance companies.

Dr. Jones' current occurrence malpractice policy is in effect from July 1, 2005 through July 1, 2006. Which lawsuit would trigger this malpractice insurance policy? Answer: A man sues Dr. Jones on July 26, 2009 for a damaging knee surgery performed on March 3, 2006. An occurrence policy covers occurrences that take place during the policy period, regardless of when the lawsuit is filed. In this case, the policy would cover Dr. Jones for the knee surgery that was performed on March 3, 2006, even though the claim was not filed until 2009.

Grace purchased a recliner from XYZ Furniture. After getting it home, she decided to try out the new chair. While leaning back, the chair breaks and Grace injures her neck. She sues XYZ Furniture and is awarded $70,000. Assuming XYZ Furniture's CGL has a Products-Completed Operations limit of $500,000 with a per occurrence limit of $75,000, how much out-of-pocket expense will XYZ Furniture incur if the court costs total $85,000? Answer: $0. Because the damages awarded by the court fall below the per occurrence limit, XYZ Furniture will not have to pay anything. The insurer will cover the entire amount of the claim and the legal fees.

Craig is just starting out with his business. He needs an insurance policy to cover his liability against any unknown defects within his products. Of the four types of CGL policies listed below, which offers the best coverage for Craig's business, regardless of when a claim is filed? Answer: Occurrence Policy. An occurrence policy will protect Craig for the period stated within the policy, regardless of whether the policy is currently active or inactive. If Craig's company finishes production and then shuts down, he will still be covered from any accidents that occurred while his policy was in effect, regardless of when the claim is filed.

After Tony, the owner of XYZ Cleaners, accidentally starts a fire, XYZ Cleaners burns to the ground, taking all the garments with it. Afterwards, Tony has to rent a new building and purchase new equipment and supplies. He is also responsible for all the clothing that was in his care. Which type of coverage in his commercial property policy could help Tony with the cost of paying for his customers' destroyed clothing? Answer: Legal Liability Coverage. The Legal Liability Coverage Form provides insurance protection against negligent damage to the personal property of others while in the insured's care or on the insured's premises.

Alan owns a commercial landscaping business and does most of his work during the summer months. One day, he arrives at work to find an enormous hole in the middle of the yard where he stored his lawn mowers. Under which Causes of Loss form(s) would the mowers, which were consumed by the sinkhole, be covered by his commercial property policy? Answer: Basic, Broad, and Special Forms. Sinkhole Collapse is covered in all three coverage forms: Basic, Broad, and Special.

Francis owns a small shoe store. Since his business isn't particularly risky, he has a commercial property policy that provides named-peril coverage to his building and personal property, without any additional coverages. Which Causes of Loss form does Francis have attached to his coverage form? Answer: Basic Form. The Basic Cause of Loss Form is a named-peril form, meaning losses are covered only by the specific perils named in the insurance coverage.

Christine's spinach field was partially destroyed by fire that resulted from a lightning strike during a recent storm. She lost 23 of her 150 acres. The adjuster writes her a check for the value of the damaged 23 acres, even though the yield from the rest of the field is doing exceptionally well and may make up for the damaged portion. What type of insurance policy does Christine have? Answer: Crop-Hail. Christine has a crop-hail policy. MPCI would not pay this loss, since the intact portion of Christine's crop is growing well enough to make up for the lost revenue. Yield protection and Revenue protection would step in if the revenue from a crop fell below a certain predetermined amount.

Farmer Jane had an MPCI policy in place when her wheat field was ruined by a hail storm. Jane promptly plowed up the wheat and planted a cover crop. Two days later she filed a claim with her insurer. The claim was denied. What might be the reason for the denial? Answer: Jane did not leave samples of the destroyed crop for the adjuster to examine. In crop insurance, one of the insured's duties after a loss is to leave samples of the damaged crop for the adjuster to inspect. If Jane did not do this, then the insurer could deny her claim.

Who sets the critical production dates and assigns commodity market prices for MPCI policies? Answer: The Risk Management Agency. The Risk Management Agency sets the critical production dates and assigns commodity market prices for MPCI policies.

Farmer Steve barely escapes a massive tornado, but the storm does completely destroy one of the barns on his property. Luckily, Steve has an insurance policy on his barn with a replacement cost endorsement, and the barn was fully insured. At the time of the loss, the actual cash value of the barn was $65,000, and its replacement cost is currently $85,000. When will Steve receive full indemnification for his losses on the barn? Answer: When he replaces the barn and submits receipts to the insurer. Replacement cost policies pay ACV at first, and reimburse the insured for the full cost of repair or replacement once the work is complete. The insurer will wait until Steve provides the receipts for replacing the barn before indemnifying him for the full amount.

Which of the following would NOT be covered under Part A of a Personal Auto Policy? Answer: Damage the insured causes to his own garage. Liability coverage does not apply to damage to the insured's own property.

Which of the following would NOT be covered under the Comprehensive section of a PAP? Answer: Rollover. Comprehensive coverage does not cover rollover.

In which case would the insured be indemnified by her auto liability coverage? Answer: She has to pay a fee to retrieve relevant court documents. Liability coverage can indemnify the insured for any reasonable expenses she incurs at the insurer's request.

In dwelling policies, Coverage D pays for: Answer: lost rental income. In Dwelling policies, Coverage D pays for lost rental income.

In a homeowners policy, Coverage B - Other Structures provides insurance for which of the following? Answer: Detached garages. Coverage B provides coverage for detached structures on the residence premises, such as detached garages. However, it does not cover detached structures that are rented to others or used for business purposes.

During a severe windstorm, a large tree in Jeff's yard was blown down and two large bushes were ripped from the ground. Jeff has an HO-3. What is the maximum amount that Jeff can receive for the replacement of the tree and bushes that were damaged by the windstorm? Answer: $0. The other coverage Trees, Shrubs, etc. allows for $500 towards the replacement of any one tree or shrub, but wind is not a covered peril.

Tim's $2,500 boat trailer was stolen from his driveway. Ignoring any deductibles, how much can Tim receive for his stolen trailer when he files a claim against his homeowners policy? Answer: Trailers have a special limit of $1,500.

Who is NOT eligible for a homeowners policy? Answer: An owner of a house in which he does not live, but rents to a tenant. To be eligible for coverage under a Homeowners policy, a person must either be a renter, or an owner who occupies the insured dwelling. The owner of a dwelling that is wholly rented out to someone else would not be eligible for a Homeowers policy, but instead would need to purchase a Dwelling policy.

Sam, who has a typical HO-3 policy, is forced to evacuate his home by civil authorities due to rising flood waters in his neighborhood. It takes a month before Sam is allowed to come back to his home. During this time, he has spent $3,000 in hotel expenses, on top of his monthly mortgage payment of $850. When he files a claim, how much will Sam receive under Coverage D - Loss of Use? Answer: $0. Coverage D will pay for loss of use when the insured is prohibited to use the dwelling by Civil Authority, but only if the cause is a covered peril. Flood is excluded in a typical HO-3 policy.

Which of the following statements is NOT true of endorsements? Answer: An endorsed policy will always provide more coverage than an unendorsed policy. Endorsements can either add coverage that is not included under the original policy, or subtract coverage that is included.

In the Standard Fire Policy, "intentional losses" and "extreme perils that cause catastrophic damage to a large number of policyholders" would be considered examples of: Answer: exclusions. "Intentional losses" and "extreme perils that cause catastrophic damage to a large number of policyholders" would be considered examples of exclusions.

Frank purchased a $150,000 insurance policy for his home, which is valued at $125,000, with the hopes of making a $25,000 profit in the event his home is destroyed. After Frank burns his house down, he files a claim against his homeowners policy. Assuming that Frank's policy includes an overinsurance provision, how much will his insurer indemnify Frank for his loss? Answer: $0 By purchasing extra insurance with intentions to defraud the insurer, Frank voided his insurance policy and he will receive nothing.

According to the Mortgagee Clause, what is NOT one of the rights of the mortgagee? Answer: The mortgagee may change the coverage amount.

Many adjusters prefer arbitration to litigation, because professional arbitrators tend to be more ___________ than civil juries. Answer: knowledgeable

Which of the following claims might best be settled through negotiations? Answer: The claimant asks for $37,795; the insurer offers $31,000. if the two amounts are within a reasonable range of each-other, such as $37,795 and $31,000, negotiations are most likely to be successful.

Cindy and her insurer cannot reach an agreement for her property claim, and have gone back and forth for weeks without coming within $10,000 of each other. At this point, since both believe they are offering a fair settlement, a third party is needed to help facilitate the negotiation. Both parties still want to retain their ability to "walk-away" if they cannot reach an agreement. What is the next best step for Cindy and her insurer? Answer: Mediation

After her water heater leaked and damaged her hardwood floors, Clarice filed a claim with her insurer, KLM Insurance, who sent their adjuster, Bob, to inspect the loss. Clarice also hired a public adjuster, Jose, to represent her in her claim. Bob has the responsibility to report to which principal? Answer: KLM Insurance

A claimant is: Answer: an individual or business that makes a claim for payment after a loss occurs.

Joan files a lawsuit against Andy because his dog escaped and caused her to fall on an icy sidewalk. Which of the following statements is FALSE? Answer: Andy's insurer will send Joan a reservation of rights.

Clara plays the harp in an orchestra. Her harp cost $12,000, and she had it for 5 years before it was stolen from her locker at a symphony hall. She recently found out a new harp will cost $15,000. Assuming her harp depreciated at $1,000 a year, how much will an actual cash value policy indemnify Clara? Answer: $10,000 - ACV pays at current market value minus depreciation

Sue decides to get a valued insurance policy on her antique car. She and her insurance company agree to a value of $85,000. Three years later, the car is destroyed when a tree falls on it in a parking lot. The car depreciates at $2,000 a year, and its replacement cost is $100,000. Ignoring any deductible, how much can Sue expect her insurer to indemnify her? Answer: $85,000

A power surge sparks a small electrical fire in an office building. The electrical fire triggers the automatic sprinkler system. The water from the sprinklers soaks the carpets and shorts-out all the computers, causing thousands of dollars in damage. What is the proximate cause of the loss? Answer: The power surge

What is a binder? Answer: Temporary coverage for an insurance applicant until the policy is issued

Steve has just purchased a wedding ring for his new bride. If something were to happen to the ring, he'd be out a lot of money, so he purchases an insurance policy. He is able to do this because: Answer: the ring is a pure risk.

Which of the following best describes a Fraternal Benefit Society? Answer: A fraternal benefit society is a social organization based around common interests and beliefs.

Which of the following is NOT a characteristic of insurance contracts? Answer: Universal

Which of the following is found in the declarations page of an insurance policy? Answer: The name of the insured party

In an insurance policy, the summary of what the insurer will do in the event of a covered loss is called: Answer: The insuring agreement.