Principles of Risk Management and Insurance - Chapter 24

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1

Which of the following statements about Dwelling Property 1 (basic form) is true?

  1. A) Coverage on the dwelling is written on a replacement cost basis.
  2. B) The full amount of personal property coverage applies to property away from the insured premises.
  3. C) Coverage for fair rental value of the dwelling is subject to both an overall maximum and a monthly maximum.
  4. D) "Open-perils" (all risks) coverage is automatically provided for both the dwelling and personal property.

Answer: C

2

Perils insured under Dwelling Property 1 (basic form) include which of the following?

  1. Earthquake
  2. Smoke
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

3

Which of the following perils is covered under the Dwelling Property 2 (broad form) policy?

  1. A) weight of ice, snow, or sleet
  2. B) flood
  3. C) theft
  4. D) earthquake

Answer: A

4

Which of the following statements about Dwelling Property 3 (special form) is (are) true?

  1. Personal property is covered only for those perils specifically named in the policy.
  2. The dwelling and other structures are covered on an "open perils" (all risks) basis.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

5

Which of the following coverages are provided by an unendorsed ISO Dwelling Program form?

  1. Theft of personal property
  2. Named-perils coverage for personal property
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

6

Which of the following statements about the eligibility requirements for insuring mobile homes by endorsing a homeowners policy is (are) true?

  1. The mobile home must be designed for year-round living.
  2. The mobile home must be located in a fenced area with security guards.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: A

7

Which of the following statements about mobile home insurance is (are) true?

  1. Coverage for the mobile home may be written on either a replacement cost basis or an actual cash value basis, depending on how much the mobile home has depreciated.
  2. An additional coverage pays, up to a specified dollar limit, for the cost of transporting the mobile home to a safe place when it is endangered by a covered peril.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

8

Which of the following is a characteristic of most inland marine floater policies?

  1. A) The insurance can be tailored to the specific type of personal property insured.
  2. B) Coverage amounts are pre-specified by the insurer and cannot be changed.
  3. C) Coverage is normally written on a named-perils basis.
  4. D) Covered property is insured only when it is at a specified location.

Answer: A

9

Which of the following statements about the Personal Articles Floater is (are) true?

  1. It is designed to cover several classes of personal property.
  2. Coverage is written on an "open perils" (all-risks) basis.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

10

Which of the following statements about various coverages under a Personal Articles Floater is (are) true?

  1. Each item of jewelry is described and is insured for a specified amount.
  2. Stamp and coin collections can be insured on a blanket basis.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

11

Which of the following statements about types of property covered under the Personal Articles Floater is true?

  1. A) Golfer's equipment is covered only in the United States.
  2. B) Furs are covered on a blanket basis without the necessity to schedule individual items.
  3. C) A higher premium must be paid to insure musical instruments if they are played for pay.
  4. D) Coverage for silverware and goldware is not available under the Personal Articles Floater.

Answer: C

12

Reasons why an insured might add a scheduled personal property endorsement to a homeowners policy include which of the following?

  1. To lower the premium by limiting the perils covered
  2. To obtain higher limits for certain personal property
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

13

All of the following statements about the boatowners package policy are true EXCEPT

  1. A) Physical damage coverage for the boat is usually written to cover all losses except those losses specifically excluded.
  2. B) Liability coverage is provided for bodily injury only.
  3. C) Some policies provide optional uninsured boaters coverage.
  4. D) Medical payments coverage for water-skiers is available under the policy.

Answer: B

14

All of the following statements about yacht insurance are true EXCEPT

  1. A) Property damage coverage includes damage from insects, weathering, and wear and tear.
  2. B) Liability coverage includes the cost of raising, removing, or destroying a sunken or wrecked yacht.
  3. C) Coverage can be added for maritime workers covered by the United States Longshoremen and Harbor Workers Compensation Act.
  4. D) Medical payments coverage pays for medical expenses because of accidental bodily injury.

Answer: A

15

Which of the following statements about the federal flood insurance program is true?

  1. A) Under the write-your-own program, each insurer services the policies it writes.
  2. B) The regular portion of the program does not allow the purchase of higher amounts of coverage than are available under the emergency portion of the program.
  3. C) No coverage is available for property owners in areas where flooding has occurred previously.
  4. D) The maximum amount of coverage that can be written on any single dwelling is $25,000.

Answer: A

16

Which of the following statements about coverage under the federal flood insurance program is (are) true?

  1. Subsidized coverage is available for contents, but not for dwellings.
  2. A $10,000 deductible applies to each loss.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: D

17

All of the following are considered floods under the federal flood insurance program EXCEPT

  1. A) the overflow of tidal waters.
  2. B) the accumulation of surface water after a heavy rain.
  3. C) a mudslide caused by an accumulation of water after a heavy rain.
  4. D) the discharge of water from a home appliance, such as a water heater or washing machine.

Answer: D

18

Which of the following statements about federal flood insurance is true?

  1. A) It is available even if property has been previously flooded.
  2. B) It is unavailable in high-risk flood areas.
  3. C) It is available only for residences, not for businesses.
  4. D) Waiting periods are not used in the federal flood insurance program.

Answer: A

19

The basic purpose of FAIR plans is to provide

  1. A) property insurance to persons who cannot obtain it in normal markets.
  2. B) automobile insurance to persons who cannot obtain it in normal markets.
  3. C) health insurance to persons who cannot afford it in normal markets.
  4. D) workers compensation insurance to employers who do business in several states.

Answer: A

20

Which of the following statements concerning FAIR plans is (are) true?

  1. All property is eligible for coverage regardless of physical condition.
  2. Losses and expenses are shared by insurers who participate in a plan.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

21

Mark purchased a boat owners package policy. While using his boat, he negligently hit a pier. A person standing on the pier fell and was severely injured. Which of the boat owners package policy coverages will respond to a lawsuit filed as a result of this negligent act?

  1. A) physical damage coverage
  2. B) liability coverage
  3. C) medical expense coverage
  4. D) uninsured boaters coverage

Answer: B

22

Which of the following statements about title insurance is true?

  1. A) A premium must be paid annually to keep the policy in force.
  2. B) The policy term runs for 30 years or the length of the insured's mortgage loan, whichever is shorter.
  3. C) The policy guarantees that the owner will keep possession of the property if a defect in the title is discovered.
  4. D) The policy provides protection against title defects that occurred prior to the effective date of the policy.

Answer: D

23

Which of the following statements about a typical personal umbrella policy is (are) true?

  1. Losses covered under an underlying policy and the umbrella policy are settled on a pro rata basis.
  2. Losses not covered by the basic underlying contracts are subject to a self-insured retention which typically is at least $25,000.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: D

24

The personal umbrella policy covers some personal injuries. Which of the following is considered a personal injury?

  1. A) bodily injury
  2. B) property damage
  3. C) defamation of character
  4. D) liability arising from professional services

Answer: C

25

Paul has a personal auto policy with a per-person liability limit of $300,000. He also has a personal umbrella policy with a limit of $2,000,000 and a self-insured retention of $1,000. How much will be paid by each policy if a person wins a judgment of $500,000 against Paul as a result of bodily injury arising from the auto accident?

  1. A) The auto policy will pay nothing, and the umbrella policy will pay $449,000.
  2. B) The auto policy will pay $250,000, and the umbrella policy will pay $250,000.
  3. C) The auto policy will pay $300,000, and the umbrella policy will pay $199,000.
  4. D) The auto policy will pay $300,000, and the umbrella policy will pay $200,000.

Answer: D

26

All of the following are commonly excluded by personal umbrella policies EXCEPT

  1. A) acts committed with the intent to cause bodily injury or property damage.
  2. B) professional liability.
  3. C) aircraft liability.
  4. D) libel, slander, and other types of personal injury.

Answer: D

27

William would like to insure his home. He does not want theft or personal liability coverage; however, he would like "open perils" (all-risks) coverage on the dwelling. William should purchase a

  1. A) Homeowners 3 Policy.
  2. B) Dwelling Property 1 Form.
  3. C) Dwelling Property 2 Form.
  4. D) Dwelling Property 3 Form.

Answer: D

28

Steve and Mary are art collectors. They own lithographs, etchings, and vintage photographs valued at over $250,000. Steve and Mary display their art collection at their home. They can insure this valuable personal property through a

  1. A) title insurance policy.
  2. B) dwelling property form.
  3. C) personal articles floater form.
  4. D) personal umbrella policy.

Answer: C

29

Martin would like to insure valuable personal property limited in coverage by his homeowners policy. Martin has two options. He can purchase the coverage through a separate personal articles floater policy or he can add an endorsement to his homeowners policy. The endorsement is called the

  1. A) extended coverage endorsement.
  2. B) scheduled personal property endorsement.
  3. C) personal injury endorsement.
  4. D) replacement cost endorsement.

Answer: B

30

Carolyn is considering the purchase of a large (60-foot) boat. She called her insurance agent to see if she needs a separate policy for the boat. The agent said that a special category of insurance policies was designed to insure large watercraft. These policies are called

  1. A) yacht insurance policies.
  2. B) flood insurance policies.
  3. C) floater policies.
  4. D) Dwelling Property 3 (special form) policies.

Answer: A

31

Jerry built a home in a flood plain. He did not purchase flood insurance. Recently, a noted meteorologist predicted torrential rains for the area for the next 7 days. Jerry attempted to purchase flood insurance through the National Flood Insurance Program. Which flood insurance provision is likely to block Jerry's efforts to obtain coverage for protection against the predicted torrential rain?

  1. A) waiting period
  2. B) definition of covered flood
  3. C) deductible
  4. D) insurance limit

Answer: A

32

Which of the following statements is (are) true about the National Flood Insurance Program?

  1. You can't purchase flood insurance through this program if your property is located in a high-flood-risk area.
  2. Coverage is not available for any property which has been flooded previously.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: D

33

Frank purchased a building in a run-down area of a city. When Frank was unable to obtain property insurance in the voluntary insurance market, an agent suggested that he contact a state pool created in the 1960s that makes property insurance available in riot-prone areas. The state pool the agent referred to is called a(n)

  1. A) unsatisfied judgment fund.
  2. B) FAIR plan.
  3. C) guaranty fund plan.
  4. D) assigned risk plan.

Answer: B

34

Len is considering the purchase of a home. As a home is a large investment, Len wants to make sure that there are no liens, easements, or other encumbrances preventing him from an unchallenged right to possess and enjoy his property. Len can protect this right through the purchase of

  1. A) extended coverage insurance.
  2. B) replacement cost insurance.
  3. C) personal umbrella insurance.
  4. D) title insurance.

Answer: D

35

Tina purchased a personal umbrella policy with a $1 million limit. Her insurer required her to carry liability limits of 250/500/50 under her auto insurance policy. The personal umbrella policy was written with a $1,000 self-insured retention. Tina was responsible for an auto accident in which the other driver was severely injured. The other driver's bodily injuries were $400,000 and the property damage was $20,000. How much will the insurer pay under Tina's umbrella policy?

  1. A) nothing
  2. B) $149,000
  3. C) $150,000
  4. D) $170,000

Answer: C

36

Tina purchased a personal umbrella policy with a $1 million limit and a $1,000 self-insured retention. Her insurer required her to carry a $300,000 liability limit under her homeowners policy. Tina was held responsible for slandering a public official. The public official won a $100,000 judgment against Tina. The insurer that wrote Tina's homeowners policy denied coverage. How much will the insurer pay under Tina's personal umbrella policy?

  1. A) nothing
  2. B) $49,000
  3. C) $99,000
  4. D) $100,000

Answer: C

37

All of the following are ISO personal umbrella liability policy exclusions EXCEPT

  1. A) liability arising out of uncompensated board service for a nonprofit organization.
  2. B) liability arising out of expected or intentional injury.
  3. C) liability arising out of business operations.
  4. D) liability arising out of operation of watercraft not covered by an underlying policy.

Answer: A

38

Which of the following statements is (are) true with regard to an unendorsed ISO Dwelling Form?

  1. The Dwelling forms provide theft coverage and personal liability insurance.
  2. The Dwelling 3 form provides broader property coverage than the Dwelling 1 form.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

39

Congressional action in 2012 extended the National Flood Insurance Program (NFIP) until 2017. Which of the following is a key provision of the Biggert-Waters Flood Insurance Reform and Modernization Act of 2012?

  1. A) elimination of the waiting period for coverage to start
  2. B) elimination and phase-outs of several rate subsidies
  3. C) write-off of the multi-billion dollar deficit attributable to Hurricane Katrina claims
  4. D) elimination of deductibles in NFIP policies

Answer: B

40

Which statement is true about medical expense coverage under the boatowners package policy?

  1. A) It pays the medical expenses of a covered person who is injured while in the boat.
  2. B) It pays the medical expenses of another boat operator who is injured as a result of negligent operation of the boat by the insured.
  3. C) It pays the medical expenses of a swimmer or a water skier being towed by another boat if he or she is hit by the insured's boat.
  4. D) It pays the medical expenses of someone on a dock or pier if the insured's boat hits the dock or pier and injures him or her.

Answer: A

41

Andrea purchased an auto insurance policy with bodily injury liability limits of 250/500 ($250,000/$500,000). She also purchased a personal umbrella policy with a $1 million limit and a $500 self-insured retention. Andrea was talking on her cell phone while driving, and her car struck and killed a pedestrian in a crosswalk. The court ordered her to pay $750,000 to the spouse of the person she killed. How will this claim be settled?

  1. A) The umbrella policy will pay $749,500.
  2. B) Each policy will pay $375,000.
  3. C) $250,000 will be paid under the auto policy and $500,000 will be paid by the umbrella policy.
  4. D) The auto policy will pay $250,000, Andrea will pay $500, and the umbrella policy will pay $499,500.

Answer: C

42

Tom and Nancy Boyle were surprised to learn that some of their valuable personal property—a gun collection, jewelry, a mink coat, and sterling silverware—was subject to internal limits under their homeowners policy. What separate insurance policy can the Boyles purchase to obtain the desired coverage on this personal property?

  1. A) personal umbrella policy
  2. B) dwelling form
  3. C) personal articles floater
  4. D) title insurance

Answer: C

43

Valerie's home does not qualify for coverage under a standard homeowners policy. Valerie would like to have "open-perils" (all-risks) coverage on her dwelling and named-perils coverage on her personal property. Which of the following policies should Valerie purchase?

  1. A) Dwelling Property 1—Basic Form
  2. B) Dwelling Property 2— Broad Form
  3. C) Dwelling Property 3—Special Form
  4. D) All of these policies provide "open perils" coverage on the dwelling and named-perils coverage on personal property.

Answer: C

44

Under the ISO program, a mobile home can be insured by

  1. A) adding the appropriate endorsement to the ISO personal auto insurance policy.
  2. B) using an ISO floater policy.
  3. C) adding the appropriate endorsement to an ISO Homeowner 2 or Homeowners 3 form.
  4. D) using an ISO inland marine form.

Answer: C

45

Which of the following statements about mobile home insurance under the ISO program is true?

  1. A) The mobile home is insured on a replacement cost basis, but actual cash value coverage can be added by endorsement if it is more appropriate.
  2. B) There is no coverage available for “other structures.”
  3. C) Built-in, permanently attached furniture is considered personal property.
  4. D) Personal liability insurance is not part of the coverage available to mobile home owners.

Answer: A

46

All of the following are characteristics of inland marine floater policies EXCEPT

  1. A) Coverage can be specifically tailored to the specific type of personal property insured.
  2. B) Coverage applies only when the property is at a specified location, such as the insured’s home.
  3. C) The amount of insurance can be selected by the purchaser.
  4. D) Broader coverage can be obtained through an inland marine floater policy.

Answer: B

47

While the Homeowners Flood Insurance Affordability Act of 2014 rolled-back some premium increases in the Biggert-Waters Act, it included a provision to help fund the large deficit in the National Flood Insurance Program. The provision to help fund the deficit is

  1. A) a surcharge on every new home that is constructed in a flood plain.
  2. B) additional income tax paid by building supply companies in states where the largest flood losses have occurred.
  3. C) additional premium taxes charged to each insurer in the Write-Your-Own program.
  4. D) a surcharge on every flood insurance policy that is sold.

Answer: D