Understanding Insurance and Indemnity Principles, Exams of Insurance Economics

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State Farm Estimatics Exam Questions and Answers (2024) (Verified Answers) which of the following refers to being restored to the financial condition you were in before a loss? - Correct answer-indemnification mark incurred 8000$ damage to his car in an accident. he received 8000$ from his insurance company and 4000$ from the other driver. by receiving a profit from the loss, Mark is in violation of.. - Correct answer-principle of indemnity the transfer of risk from one party to another is called - Correct answer- insurance the principle of indemnity is designed to prevent - Correct answer-keeps the insured from making a profit from an insured loss. the fee paid by the insured in exchange for an insurance policy is called a - Correct answer-premium insurance - Correct answer-transfers risk of financial losses from one party to another insured - Correct answer-individual or organization that pays premiums in exchange for protection insurer - Correct answer-company group or government agency offering financial protection insurance policy - Correct answer-a legally binding contract in which the insurer agrees to take on specified risks in exchange for the insured's premiums principle of indemnity - Correct answer-restoration to previous financial condition; no more, no less. what are the four qualifications of a contract - Correct answer-agreement, consideration, competent parties, and legal purpose. must be 18 years of age what is not a requirement for a legally binding contract - Correct answer- notarization when an insurer issues an insurance policy, the actual item, person or organization that is being insured is called the - Correct answer-the risk what is a reserve, in insurance terms - Correct answer-a pool of collected premiums that the insurer sets aside to pay claims a insurance company allows its policyholders to enjoy dividends in the form of reduced premiums and expanded benefits - Correct answer- stock insurance companies - Correct answer-always for profit, publicly traded, 'non- participating' insurers: no dividends go to policy holders mutual insurance company - Correct answer-owned by policy holders (no shareholders), elect board directors, participate in dividends re-insurer - Correct answer-an insurer that provides insurance for other insurers reciprocal insurer - Correct answer-a group of ppl or organizations that insure each other. always non- profit. government insurer vs private - Correct answer-government: mandatory, run by government, suited to needs of general public private: offer insurance products based on customer preferences commercial insurer vs non-commercial - Correct answer-commercial: runs for profit non-commericial: non-profit; pass gains on to policyholders stock insurer vs mutual - Correct answer-stock: publicly traded; stockholders participate in dividends (non-participating) mutual: no stockholders; policyholders participate in dividends (participating) reciprocal insurere - Correct answer-group of people or organizations that insure each other re-insurer - Correct answer-insurance for insurers fraternal benefit society - Correct answer-non-profit, mutual aid organization that will usually offer insurance benefits to members and their families risk retention group - Correct answer-a form of insurer in which the members use their own capital to write insurance policies risk purchasing group - Correct answer-people or organizations that band together to buy insurance as a group an insurer that adheres to the laws of a state but is located outside of that state is called... - Correct answer-an foreign insurer abc oil and gas drilling needs to purchase liability insurance to protect itself from the risks of the oil and gas drilling business. assuming that ABC O&G wants to use its own money to insure itself, effectively becoming both the insurer and the insured, through whom can ABC oil and gas dirlling purchase an insurance policy - Correct answer-a risk retention group an insurer that obeys the laws of a country other than the U.S. is called - Correct answer-an alien insurer what insurance providers uses investors money as capital against an insurance policy - Correct answer-risk retention groups two meaning of risk - Correct answer-potential loss, the insured item speculative risk - Correct answer-any risk in which gain is possible. not insurable pure risk - Correct answer-any risk in which no gain is possible. insurable exposure - Correct answer-the possibility or likelihood of damage or loss hazard - Correct answer-anything that increases exposure. ie high crime neighborhoods, smoking peril - Correct answer-the cause of damage or loss. ie lightning, hail, fire, vandals ect loss - Correct answer-reduction in value, expenses caused by a covered peril, the amount an insurer pays to settle a claim which of the following activities is a speculative risk? -parking the company truck in a dry riverbed -building a house on the beach -driving into a hail storm -betting on a horse race - Correct answer-betting on a horse race which of the following best describes a 'risk' according to the insurance definition - Correct answer-the potential for a financial loss which of the following statements applies to a speculative risk - Correct answer-a speculative risk involves a conscious choice. to an insurance company, which of the following is not an example of a risk - Correct answer-a high crime neighborhood from the point of view of an insurer, which of the following would be considered a risk - Correct answer-an automobile during a violent summer storm, a bolt of lightning hits Mr. Jones house damaging a large portion of the roof. in this case, the insurer would call the lightning bolt a - Correct answer-peril the law of large numbers - Correct answer-States that with high probability, the insurance company's average policyholder claim will be close to the true mortality risk of the entire population. ie if you flip a coin 10 times the ratio of heads to tails will most likely not be 50/50 but if you flip the coin 1000 times the ratio will get much closer to 50/50 the more times you flip. which of the following is not an insurable risk? a small town an airplane a collection of jewelry a forklift - Correct answer-a small town a hazard is defined as - Correct answer-something that increases the chance of a loss when an insurer issues an insurance policy, the actual item, person, or organization that is being insured is called - Correct answer-the risk four risk management techniques - Correct answer-risk avoidance, risk reduction, risk transference, risk retention risk avoidance - Correct answer-eliminates risk by refusing to grant policy because of poor credit or high chance of loss risk reduction - Correct answer-reduces or mitigates risk. by making a policy holder pay higher premiums or provide less coverage risk transference - Correct answer-is re-insurance: sharing risk risk retention - Correct answer-assumes or accepts risk insurer - Correct answer-the company or organization offering financial protection insured - Correct answer-the person or organization that pays premiums for financial protection. person or organization purchasing the policy first named insured - Correct answer-the first person or organization listed on the declarations page policy period - Correct answer-the dates during which the policy is in effect. period between inception and termination dates. depreciation - Correct answer-an items estimated loss of value due to wear, tear and age valued policy - Correct answer-a valuation method that assigns a set value to each insured item annual depreciation - Correct answer-replacement cost divided by the items useful life accumulated depreciation - Correct answer-the items annual depreciation multiplied by its age replacement cost - Correct answer-cost to replace an item at todays market value actual cash value - Correct answer-replacement cost minus accumulated while making a right hand turn from the right lane ben is sideswiped by Roxanne, which totals the car he bought 6 years ago for 15,000 dollars assuming the car depreciates at a rate of 1100 a year how much can ben expect to be indemnified by roxannes insurance policy - Correct answer- 8400 kevin plays in a brass band using two rare antique alexander tubas. since they are no longer produced the value of the tubas is difficult to determine. which type of policy would best indemnify kevin in the event that his tubas were ever damaged, lost or stolen - Correct answer-agreed value policy joes driveway has a very steep grade and several sharp turns. in addition the driveway becomes muddy during rains. to an insurance company joes driveway might best be described as - Correct answer-hazard which of the following statements most accurately describes the law of large numbers - Correct answer-the larger the number of units insured the more accurately the insurer can predict the number of claims from that group which of the following is not a benefit of a co-insurance clause? - Correct answer-co- insurance reduces the risk of damage to a home bill has bought 175,000$ in insurance coverage on his 300,000 home. which of the following statements applies to bill? - Correct answer-bill is underinsured on his home janes $150,000 home is fully insured with a 3% percentage deductible. one night, an oven fire destroys her kitchen, causeing 50,000$ in damage. how much of the damage falls under janes responsibility? - Correct answer- 1,500$ to meet the 80% level of co-insurance required by his lender, tom discovers he must insure his homje for at least 320,000$ what is the value of toms home? - Correct answer-400,000 which of the following incidents would fall under the scope of product liability insurance protection? - Correct answer-an exercise machine snaps a belt, injuring a consumer andy works for xyz shipping. hes been working 14 hour shifts for three weeks straight, wearing him out physically and reducing his patience with customers. when a customer chastises him for taking too long with his package, andy punches him in the face, breaking the customers nose. which type of insurance would protect xyz shipping from andys actions? - Correct answer-employer liability insurance which of the following incidents would a liability insurance policy cover? -a fire damages the back bed room of your house -a man crashes his car into his own fence -the company van is stolen from your warehouse -a man slips inside a grocery store and injures himself - Correct answer-a man slips inside a grocery store and injures himself alex owns a manufacturing business creating toys for young children. some of the toys have small parts which, if used inappropriately, could cause harm to small kids. he has a blah blah - Correct answer-product liability insurance liability insurance - Correct answer-protects policyholders when they cause damage or injuries to another party. public liability - Correct answer-a person or organizations responsibility for damage or injury that takes place on their property product liability - Correct answer-a companys responsibility for any damages or injury that result from the manufacturing, merchandising, distributing, or operation of a product employer liability - Correct answer-an employers responsibility for any damages caused by or to their employees. vicarious liability - Correct answer-transfer of negligence from one party to another indemnifies - Correct answer-in a legal sense, protects negligence - Correct answer-always an unintentional act. Failure to use a reasonable degree of care four elements of negligence - Correct answer-1. negligent party had a duty to act in a certain way. 2. negligent party failed to act accordingly 3. claimant suffered sam is a claimant seeking damages from xyz insurance. the xyz adjuster comes to meet with sam to hear the circumstances of her injury. the adjuster determines that sam played an active role in her own injuries and therefore xyz insurance will pay her nothing at all for her injuries what defense is the adjuster using - Correct answer-contributory negligence while visiting greg jane asks to borrow his car to pick a few things up from the store. while driving into the parking lot jane his a concrete barrier causing 3500 in damage to the front end of gregs car. gregs car is covered because - Correct answer-jane was a permissive user. one December morning alex arrives at his business to find freshly fallen snow on his property. he decides not to shovel his walkway and sidewalk because it looks very pure. ten minutes later an old lady comes by slips on the snow and falls breaking her hip what type of insurance might help pay for her injury - Correct answer-public liability insurance coming home one night jeff runs a red light and crashes into a car injuring all three passengers: clair, jon and rick. calir suffered 25,000 in injuries jon 45000 and rick suffered the most at 62000. assuming jeffs liability policy limits are set at 50/150/75 how much if any will jeff be required to pay for the passengers injuries - Correct answer- 12,000$ `james owns a small masonry business. his fleet of cement trucks are covered by a commercial liability policy with the following aggregate limits: 150,000/500,000$. while at a job site one of the trucks chutes cannot reach the foundation to pour so the operator adds two extra chutes extending its lengt. the chute collapses under the weight of the additional concrete injuring one of the job site worker to the tune of 35000. the loss is covered by the policy and james insurer pays the claim. what will the new limits be for the remainder of the term? - Correct answer-$150,000/$465,000 statutory law - Correct answer-based on written legislated laws common law - Correct answer-based on court cases and customs tort law - Correct answer-body of law that applies to civil court cases and addresses any civil wrongdoing intentional tort - Correct answer-planned wrongful act negligent tort - Correct answer-unintentional wrongful act tortfeasor - Correct answer-the defendant in the court case plaintiff - Correct answer-One who begins a lawsuit in tort law a person or entity that commits an act of wrongdoing or negligence that leads to damages to a third party is known as a - Correct answer-tortfeasor which of the following is excluded from liability insurance coverage? - Correct answer- intentional acts of tort or wrongdoing which of the following does not apply to tort law? -the defendant is called the tortfeasor -the state charges the defendant -only a simple majority is required to reward the claimant for damages -tort law applies only to civil trials - Correct answer-the state charges the defendant a is a law set forth by a governing body such as a state or city - Correct answer- statutory law complaint - Correct answer-filed by a claimant against a policy holder answer - Correct answer-policyholders response to a complaint default judgment - Correct answer-issued if policyholder fails to answer complaint duties of the insured - Correct answer-alert insurer if taken to court; send insurer all info pertaining to the case obligations of the insurere - Correct answer-defend the insurer in a court case reservation of rights - Correct answer-issued when the case may not fall under the terms of the insurance policy james and eric want to play a prank on bob for Halloween they dress up like blah blah blah end up lighting bobs porch on fire causing 3500$ in damages. bob sues both james and eric for the cost of the repairs. in court james and eric would be.. - Correct answer-a joint tortfeasor a few weeks ago frank was involved in an accident with another car and was judged at fault. aside from his premiums increasing frank didn't worry too much about it since he had liability insurance. unfortunately yesterday frank received a notice that he is named as the defendant in a lawsuit involving the accident. franks next course of action is to - Correct answer-immediately notify his insurer once a claimant files a complaint to the court the claimant will become - Correct answer- the plaintiff a few weeks ago graces garage was destroyed by an out of control motorist named Zach. fortunately Zach had liability insurance with limits great enough to cover the damages but zachs insurer is giving grace the runaround negotiating the claim. grace finally files a complaint forcing the policy holder to... -issue a judgement -pay grace ore than her garage is worth -submit an answer -pay the claim in full - Correct answer-submit an answer compensatory damages - Correct answer-awards money for tangible and intangible damages special damages - Correct answer-money awarded for exact value of tangible damages general damages - Correct answer-money awarded for intangible, emotional damages decided by court punitive damages - Correct answer-awards money for malicious willful misconduct on the part of the tortfeasor. tangible - Correct answer-(adj.) capable of being touched; real, concrete intangible - Correct answer-not perceptible by touch statue of limitations - Correct answer-a plaintiff has a limited time to file a complaint after an occurrence wrongful death act - Correct answer-protects parties associated with a death caused by negligence waiver of sovereign immunity - Correct answer-individuals may sue government entities in certain cases workers compensation laws - Correct answer-keeps employees from suing their employers for injuries auto no-fault laws - Correct answer-keeps people from suing drivers for damages due to motorized vehicles breach of product warranty - Correct answer-manufactures are strictly liable for producing faulty or dangerous products statue of limitations in florida - Correct answer-personal injury: 2 years fraud: 4 years defamation of character: 2 years wrongful death: 2 years assault, false arrest or prison 4 years which of the following applicants would not be eligible for a homeowner policy - Correct answer-a small business that makes less that 70,000 per year open peril - Correct answer-Term used in property insurance to describe the breadth of coverage provided under an insurance policy form that insures against "any risk of loss" that is not specifically excluded. the most important portion of an insurance policy is the section with the shortest paragraph, usually one sentence long. this section, commonly referred to as the heart of the policy is the - Correct answer-insuring agreement declarations page - Correct answer-name, address, location of propert, agent, policy number, policy term, amount of premium paid for each coverage, limits of liability, deductibles- policy begins at 12:01 am on date listed!!! coverage A - Correct answer-Covers dwelling. Provided in all forms except HO- 4. coverage b - Correct answer-Provides an additional 10% of Coverage A amount. (Standard Amount of Coverage for Separate Structures) • Applies to other structures *detached* from the residence premises what items would not be covered against loss or damage under coverage C of a homeowners insurance policy - Correct answer-a television that belongs to the insureds tenant staying in the guest house coverage c - Correct answer-Personal Property an out of control motorist smashes thru sally front yard and into her attached garage taking out lmap posts her mailbox and a gazebo. he does not carry insurance. under sallys homeowers policy which items might be covered under coverage b - Correct answer-the lamp posts mailbox and gazebo dewit has a 200,000 limit of liability for coverage a dwelling under his homeowners policy. how much coverage will his policy automatically provide for other structures (assuming no endorsements)? - Correct answer-20,000 the limit of liability for coverage b other structures is 10% of the coverage a limit. coverage d - Correct answer-Loss of Use collapse coverage - Correct answer-Covers the risk of loss caused by the perils named in the policy plus other perils such as the weight of rain that collects on a roof, hidden decay or hidden insect damage tiff and her roomies decide to hold a party. over 80 ppl attend, 40 go to the balcony. under the weight of so many ppl the balcony gives way. no one is hurt. what type of coverage would help pay to rebuild the balcony? - Correct answer-collapse coverage which of these homeowners coverages does not usually have a deductible? sewer backup personal property debris removal fire department service charge - Correct answer-fire department service charge while renting a home in fl ben built a shed. a storm knocked down a tree over his she. what type of coverage could indemnify ben for the cost of replacing the shed - Correct answer-building additions and alterations coverage after the collapse of tiffanys porch there was new codes added for building a porch. what could help in the cost - Correct answer-ordinance or law coverage heavy rains fall near patricks home which is located at the end of the block a mass of water piles up and being too much for the drain pipe to handle rushes into patricks basement causing extensive damage. which section of patricks ho-3 policy will cover the damages from the water - Correct answer-none in which section of the policy might you find the following statement? "damage to insured property must be reported within 15 days of the damaging occurrence" - Correct answer-conditions jerrys home lies in the path of an oncoming hurricane so he decides to load his big screen tv in his truck to get out of harms way. the tv falls out which extended coverage of a homeowners policy would indemnify jerry for the loss of his tv - Correct answer- property removal coverage coverage e - Correct answer-what coverage applies to liability for bodily injury or property damage arising out of insureds personal, non business, activities that occur anywhere. coverage f - Correct answer-Medical Payments Coverage e- personal liability - Correct answer-provides compensation to a third party who is injured or whose property is damaged by a policy holder what does coverage e include - Correct answer-medical bills, lost wages, pain and suffering, inconvenience, property damage coverage f- medical payments - Correct answer-coverage for medical dp-3 - Correct answer-Special form- An all-risk policy in which anything not excluded is covered. Unspecified perils are included, and theft coverage is added for items built into the structure but not contents. Liability is still not covered. Contents (if covered) are still named peril and ACV. Effect of extensions of coverage on Coverage A limit is the same as in DP-2. INCLUDES ALL COVERAGE OF DP1 and DP2 dwelling policy vs homeowners - Correct answer-dwelling policies do not provide liability insurance dp-2 broad form - Correct answer-all dp-1 perils (including extended coverage) plus broad form perils broad form perils - Correct answer-falling objects, weight of ice and snow, accidental discharge water/steam, volcanic eruption. coverage A, B, and cover direct loss which is.. - Correct answer-loss to tangible property, such as to building or personal property coverage D and E cover indirect losses which are.. - Correct answer- expenses that are direct cause of suffering a direct loss, such as losing rental income because of a fire destroying dwelling coverage A- dwelling - Correct answer-protects aginast losses to the main dwelling and any attached structures, as well as service machinery, such as AC compressors or furnaces coverage B- appurtenant physical structures - Correct answer-covers structures that are not attached to the main dwelling. limit: 10% of the limit for coverage A coverage c- personal property - Correct answer-covers the personal property located on the insured premises. coverage for off- premises personal property is 10% of coverage C limit coverage D- fair rental value - Correct answer-pays lost rental income after covered damages. calculates net loss, and only applies until necessary repairs are complete coverage E- additional living expenses - Correct answer-covers the increase in living expeses such as the cost of restaurants and lodging, after a covered loss. part A liability - Correct answer-does not apply to vehicles with fewer than four wheels, vehicles that are owned but not insured, uninsured vehicles owned by a family member, vehicles furnished for the regular use of the named insured or family member, and vehicles inside a racing facility used for competing in practicing in or preparing for a race a building is considered vacant if less than 31% of the available square footage is occupied for ... - Correct answer-60 consecutive days cancellation/ non renewal - Correct answer-guidelines for cancelling or not renewing a policy vacancy - Correct answer-property closed or less than 31% occupied for 60 days changes in policy - Correct answer-agreed upon thru endorsements concealment, misrepresentation and fraud - Correct answer-the insured must be honest about the facts of the claim control of property - Correct answer-protects against negligent acts of non- insureds other insurance - Correct answer-concerns property that is insured by more than one policy legal action against an insurer - Correct answer-says when an insured my sue the insurer subrogation - Correct answer-insurer can sue third parties for damages to the insured liberalization - Correct answer-when an insurer increases its coverage without raising the premium, current insureds have 45 days to adopt the increased coverage no benefit to bailee - Correct answer-coverage does not apply to a companys property when it is being used by a third party, even with the insureds permission business income coverage form - Correct answer-provides businesses protection for loss of income due to a covered loss the period of restoration - Correct answer-time frame within which business income coverage indemnifies the policyholder for loss of income, usually 72 hours after the loss up until the property is fully restored profit and loss statement - Correct answer-determines indemnification for net income. gross income- operating expenses= net income from operations business income coverage with extra expense - Correct answer-provides both forms of coverage by providing coverage for both loss of income and the costs for getting the business running again. (period of restoration begins right when the damage occurs, not after the usual 72 hour delay) business income coverage without extra expenses - Correct answer-also indemnifies for loss of income and for getting a business running but only to the extent that the extra expenses reduce the original loss.