Chapter 5. Introduction To Property Insurance
In this chapter we'll review some of the basic features of property insurance, including some of the concepts that apply to property insurance coverages and standard policy provisions.
- 1.
Walt and Joanna are co-owners of a bagel shop. Both Walt and Joanna are listed in the declarations of the policy that insures the business, with Joanna's name appearing first. The declarations also list First State Bank, which has an outstanding loan on the business. Who is considered a named insured on the policy?
- A.
Walt only
- B.
Joanna only
- C.
Both Walt and Joanna
- D.
First State Bank
Correct Answer
C. Both Walt and JoannaExplanation
C is correct. The named insured is the person, business, or other entity named in the declarations to whom the policy is issued. First State Bank has an insurable interest as the mortgagee, but is not a named insured.Rate this question:
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- 2.
Renata's home is demolished in a fire that started when a neighbor misdirected the fireworks he set off to celebrate the Fourth of July. Renata's insurance company pays her for the damage, and then files suit against the neighbor to recover the amount it paid for the loss. This is an example of the application of what policy condition?
- A.
Liberalization
- B.
Subrogation
- C.
Abandonment
- D.
Salvage
Correct Answer
B. SubrogationExplanation
B is correct. The subrogation condition transfers the insured's right to collect from a responsible third party to the insurance company.Rate this question:
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- 3.
Byron sells his car to his friend Annette, but does not notify his insurance company. Assuming that Byron's policy will transfer to her automatically, Annette doesn't buy insurance for the car. When the car is stolen, Annette files a claim with Byron's former insurer. The insurer denies the claim. This is an example of the application of what policy condition?
- A.
Assignment
- B.
No benefit to bailee
- C.
Coinsurance
- D.
Other insurance
Correct Answer
A. AssignmentExplanation
A is correct. The Assignment condition specifies that a policy cannot be transferred to anyone else without the written consent of the insurer, except in the event of the death of the named insured.Rate this question:
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- 4.
A heavy snowfall causes the roof over Amaya's living room to collapse. The insurance company asks her to move her belongings out of the living room to protect them from further damage and put a tarp over the roof until it can be repaired. It also asks her to complete a proof of loss form listing the items that were damaged. This is an example of the application of what policy condition?
- A.
The Doctor Dances
- B.
The Long Game
- C.
Rose
- D.
World War Three
Correct Answer
C. RoseExplanation
"Rose" refers to the policy condition that outlines the responsibilities of the insured after a loss occurs. These responsibilities typically include giving notice of the claim to the insurance agent or company, protecting the property from further damage, and completing a proof of loss form to document the items that were damaged.Rate this question:
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- 5.
Three policies, totaling $300,000 in coverage, apply to an $80,000 loss. Policy A's limit of insurance is $100,000, policy B's limit is $50,000, and policy C's limit is $150,000. Use the pro rata method to determine how much policy C would pay for this loss.
- A.
$26,640
- B.
$40,000
- C.
$13.280
- D.
$60,000
Correct Answer
B. $40,000Explanation
B is correct. Because total coverage is $300,000 and policy C provides 50% of this amount ($150,000) it is obligated to pay 50% of the loss.Rate this question:
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- 6.
An indirect loss is which of the following?
- A.
The cause of a direct loss
- B.
A type of loss that results from a direct loss
- C.
An insignificant property loss
- D.
Not a type of property loss
Correct Answer
B. A type of loss that results from a direct lossExplanation
B is correct. An indirect loss is one that comes as a result, or consequence, of the original loss.Rate this question:
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- 7.
Consuela's Homeowners policy has an 80% Coinsurance condition. Her home's value is $125,000. What is the minimum amount of coverage she must carry to avoid a coinsurance penalty for partial losses?
- A.
$125,000
- B.
$100,000
- C.
$80,000
- D.
$75,000
Correct Answer
B. $100,000Explanation
B is correct. A Coinsurance condition requires an insured to carry a certain amount of insurance, which is expressed as a percentage of the insured property's value, in order to avoid a coinsurance penalty for partial losses. In this case, Consuela must carry insurance at least equal to 80% of the home's value, or $100,000, in order to satisfy the requirement.Rate this question:
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- 8.
Jake has two insurance policies on his house. They are issued by different companies, but they are otherwise identical. The term for this is
- A.
Concurrent causation
- B.
Fraud
- C.
Concurrent coverage
- D.
Double indemnity
Correct Answer
C. Concurrent coverageExplanation
C is correct. Concurrent coverage refers to two policies that offer the same coverage against the same perils. Concurrent causation is when two perils contribute to the same loss. Having concurrent coverage is not fraudulent. Double indemnity is a provision of life insurance policies that pays an extra benefit if death results from an accident rather than an illness.Rate this question:
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- 9.
Deirdre has a complete 12-piece tea service valued at $20,000. In an explosion covered by her insurance policy, most of the tea service comes through intact, but one of the tea cups is broken beyond repair. The cup by itself would be valued at $400, but the value of Deirdre's tea service without the broken cup is $17,000. How much will Deirdre's insurance company pay for the broken cup?
- A.
$400
- B.
$3,000
- C.
$17,000
- D.
$20,000
Correct Answer
B. $3,000Explanation
B is correct. Under the Pair and Set Clause, Deirdre will be compensated for the loss in the value of the set.Rate this question:
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- 10.
Under the Appraisal condition, the insured and the insurance company each chooses an appraiser. If the appraisers do not agree, the dispute is submitted to a third individual agreed upon jointly by the insured and the insurance company. That third party is called the
- A.
Attorney-in-fact
- B.
Judge
- C.
Super-appraiser
- D.
Umpire
Correct Answer
D. UmpireExplanation
D is correct. The umpire is selected jointly by the insured and the insurance company and settles the dispute if the appraisers selected by the insured and the insurance company do not agree on the value of the loss.Rate this question:
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