Insurance MCQ

When the insurer and the insured cannot agree on the value of a loss, the matter is submitted to disinterested parties for resolution. Under a standard appraisal clause, how many parties are involved in determining the value of the loss? A) One. B) Two. C) Five. D) Three. Answer: D

Which of the following legal principles allows insurance companies to collect from a negligent third party damages it paid to an insured? A) Assignment. B) Risk transfer. C) Subrogation. D) Indemnity. Answer: C

Which one of the following describes the concept of subrogation? A) The insured claims the right to sue a third party. B) The insurer claims the right to send the disputed claim into arbitration. C) The insurer claims the right to collect from a negligent third party. D) The insurer claims the right to collect damages from the insured. Answer: C

An auto is sold for salvage value following payment of a loss. Who receives the proceeds? A) Lien holder. B) Insurance company. C) Insured. D) Claimant. Answer: B

An insurance company takes possession of a damaged auto it has covered. When the company becomes the legal owner of the auto, it is exercising the right of: A) condemnation. B) leasing. C) liability. D) salvage. Answer: D

The insured has a building with a replacement cost of $200,000 but has insured it for only $100,000. An 80% coinsurance provision is present in the policy. When a $80,000 loss occurs, the policy will pay: A) $40,000.00 B) $80,000.00 C) $100,000.00 D) $50,000.00 Answer: D

Which one of the following best describes the purpose of coinsurance? A) Rate penalty. B) Claims credit. C) Partial deductible. D) Rate credit. Answer: D

An insured owns an office building valued at $200,000. He carries a deductible of $1,000. The building sustains a loss of $40,000. If the insurance policy carries an 80% coinsurance clause, how much coverage must the insured carry to ensure that the loss is paid in full? A) $192,000.00 B) $200,000.00 C) $160,000.00 D) $80,000.00 Answer: C

The definition of actual cash value is: A) the cost of replacing damaged or destroyed property at the time of a loss. B) replacing damaged property with similar property that performs the same function as the damaged or destroyed property. C) replacement cost minus depreciation. D) replacement cost plus depreciation. Answer: C

Which of the following phrases best describes actual cash value? A) Original cost less depreciation. B) Replacement cost less depreciation. C) Replacement cost plus appreciation. D) Original cost less appreciation. Answer: B

When a policy is written on a reporting basis, a premium is paid at the beginning of the policy period that is based on an estimate of what the final premium will be. This is called a (an): A) total premium. B) audited premium. C) deposit premium. D) final premium. Answer: C

Which of the following terms describes a building in which no one is present but to which the occupants intend to return? A) Vacant. B) Unoccupied. C) Occupied. D) Uninhabited. Answer: B

Which of the following terms is used to describe an empty building that is not being used? A) Absent. B) Vacated. C) Unoccupied. D) Vacant. Answer: D

When an insured fails to pay an insurance premium, the mortgagee remits the premium to the insurance company. When a loss occurs, the loss payment settlement would be made to the: A) mortgagee. B) insured. C) insured and the mortgagee. D) contractor. Answer: A

Which one of the following statements about the standard mortgage clause is CORRECT? A) The mortgagee is the only party that can submit claims under the policy. B) The mortgagee has no rights under the policy. C) Nothing the insured does can prevent the mortgagee from collecting under the policy. D) The mortgagee can only collect from the policy with the prior written consent of the policyowner Answer: C

A parking valet at a hotel uses a guest's car to do a personal errand and damages the car in a collision. The guest has a personal auto policy (PAP). The insurance company will pay the claim and: A) subrogate against the parking valet. B) relieve the parking valet of legal liability for the loss. C) subrogate against the named insured. D) recover any additional loss from the lienholder. Answer: A

A bailee is: A) someone who escorts litigants into a court room. B) a bond posted to free someone from jail. C) a temporary reprieve from liability. D) someone who has taken temporary custody of another person's property for a special purpose. Answer: D

The liberalization provision will do which of the following? A) Require the insurer to liberalize the conditions of the policies. B) Automatically broaden coverage without additional premium if there is a revision to the policy. C) Protect the insured against a cancellation of the policy. D) Allow the insurer to set the property values. Answer: B

What does the liberalization clause do to a property policy? A) Eases the criteria for concealment or fraud. B) Gives the insurer subrogation rights. C) Broadens coverage. D) Waives the premium in some situations. Answer: C

Two insurance policies apply to Monica's home. The limit for Policy A is $100,000, and the limit for Policy B is $50,000. Both policies have a pro rata other insurance clause. If she suffers a $9,000 covered loss to her home, how much will Policy A pay? A) $6,000.00 B) $9,000.00 C) $4,500.00 D) $3,000.00 Answer: A