Personal Lines Exam 5

1. Risk is defined as which of the following?

  1. Certainty of a gain
  2. Certainty of a loss
  3. Uncertainty of a loss
  4. Uncertainty of a gain

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2. Which part of an insurance policy sets the rules of conduct, duties, and obligations of the insured and insurer under the terms of the contract?

  1. Declarations
  2. Insuring agreement
  3. Conditions
  4. Exclusions

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3. A standard fire policy without attached endorsements or additional coverage forms insures against direct loss by:

  1. fire and lightning
  2. fire and removal
  3. fire, lightning and removal
  4. fire, lightning and internal explosion

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4. A Dwelling Policy Basic form without attached endorsements or additional coverage forms insures against direct loss by:

  1. fire and lightning
  2. fire and removal
  3. fire, lightning and removal
  4. fire, lightning and internal explosion

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5. A device which is used to minimize small claims and which helps to keep insurance premiums down is:

  1. arbitration
  2. a deductible
  3. a value policy
  4. coinsurance

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6. Coverage A under a dwelling policy covers all of the following except:

  1. A storage shed connected to the dwelling by a utility line.
  2. A laundry room attached to the dwelling.
  3. Building equipment and outdoor equipment.
  4. Materials and supplies used for construction or repair of the dwelling.

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7. Vehicles which may be insured by a personal auto policy (PAP) are described in the eligibility rules.  Each of the following is true about vehicles eligible for PAP coverage except:

  1. Vehicles with fewer than four wheels are not eligible.
  2. Vehicles owned by an individual or married couple may be insured.
  3. Private passenger autos used for business may be insured.
  4. Vans used in a delivery business are eligible.

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8. In property and casualty, when must insurable interest exist?

  1. at the time the loss occurs.
  2. at the time of application.
  3. at the time of application or at the time of the loss.
  4. at the time of application and at the time of the loss.

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9. Under contract law, the actions by a party may have the effect of giving up of a known right.  When this occurs, the party has created a:

  1. unilateral contract
  2. representation
  3. waiver
  4. warranty 

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10. Dave has an automobile insured by a personal auto policy.  He trades in his car and purchases a new private passenger auto as a replacement vehicle.  If he does not notify the insurance company, the liability coverage for his replacement vehicle will apply automatically:

  1. for 10 days.
  2. for 30 days.
  3. for 60 days.
  4. until the end of the policy period.

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11. The purpose of the FAIR Plan (Fair Access to Insurance Requirements) is to:

  1. Give the federal government a major role in providing insurance.
  2. Make property insurance available and affordable in high-risk areas.
  3. Require complete disclosure of the reasons for cancellations.
  4. Force all insurance companies to participate in an insurance pool.

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12. Under the dwelling property forms, personal property moved to a new principle residence will be automatically covered at the new location (subject to policy expiration) for a period of:

  1. 60 days.
  2. 30 days.
  3. 20 days.
  4. 10 days.

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13. Which dwelling policy forms provide coverage for loss of rental value?

  1. Special form only.
  2. Basic and Broad forms only.
  3. Broad and Special forms only.
  4. Basic, Broad and Special forms.

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14. The mobile home endorsement (MH200) may be added to which of the following forms?

  1. HO-2 and HO-3
  2. HO-3 and HO-5
  3. HO-2 only
  4. HO-4 and HO-6

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15. Each of the following is true about the National Flood Insurance Program except:

  1. Coverage is sold by licensed insurance agents and brokers.
  2. Coverage may be written by private insurance carriers.
  3. Eligibility requirements are set by private insurance carriers.
  4. The federal government reimburses insurance companies for losses.

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16. Which of the following situations would be covered by liability insurance under a personal auto policy?

  1. An insured caused injuries while operating a taxi cab.
  2. An auto mechanic has an accident while road testing a customer’s vehicle.
  3. An insured damages another vehicle while driving a motorcycle.
  4. An insured who rents a private garage backs in and damages the garage.

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17. An insurance company has made an underwriting profit when:

  1. its combined ratio is greater than 100%
  2. its combined ratio is less than 100%
  3. its loss ratio is less than its expense ratio.
  4. its expense ratio is less than its loss ratio.

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18. Under a personal auto policy, which of the following is not a collision loss?

  1. Impact between the covered auto and a deer.
  2. Impact between the covered auto and a stationary object.
  3. Impact between the covered auto and another vehicle.
  4. Upset of the covered auto, resulting in damage.

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19. National flood insurance is available for:

  1. Private residences only.
  2. Private residences and residential contents only.
  3. Residential and non-residential buildings only.
  4. Residential and non-residential buildings and contents.

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20. All of the following are requirements for ideally insurable risks, except:

  1. The applicant must have an interest in protecting what is insured.
  2. The applicant must face a personal risk of loss.
  3. The applicant must not share the interest with anyone else.
  4. The applicant must not have a potential for gain because of the insurance.

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21. Something that increases the likelihood that a loss will occur is called a:

  1. Peril.
  2. Risk.
  3. Hazard.
  4. Catastrophe.

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22. The most common definition of “actual cash value” in the property insurance field is:

  1. Original cost plus depreciation
  2. Original cost minus depreciation
  3. Replacement cost plus depreciation
  4. Replacement cost minus depreciation

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23. Replacement cost coverage without the deduction for depreciation is known as:

1. Actual cash value
2. Market value
   3. Replacement cost
4. Functional replacement cost

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24. Some property insurance policies provide for payment of the full policy limit in the event of a total or partial loss by a covered peril, regardless of the actual value of the property.  These policies are known as:

  1. Indemnity policies.
  2. ACV policies.
  3. Valued policies.
  4. Market value policies.

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25. Each of the following is true about homeowners personal property coverage except:

  1. The basic form does not include personal property coverage.
  2. Personal property of a guest may be covered.
  3. Special sublimits apply to some type of personal property.
  4. The full limit applies to personal property anywhere in the world.

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26. Which of the following is not an optional property coverage on homeowners policies?

  1. Personal property replacement cost.
  2. Inflation guard coverage.
  3. Increased limits for jewelry, watches and furs.
  4. Coverage for loss of use of the premises.

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27. Under Section II of a homeowners policy, damage to the property of others will not be covered if it is caused intentionally by an insured who is at least:

  1. 18 years of age.
  2. 16 years of age.
  3. 13 years of age.
  4. 10 years of age.

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28. Which of the following losses is not excluded under the physical damage coverage of a personal auto policy?

  1. Loss of custom furnishings in a customized van.
  2. Loss caused by freezing of the cooling system.
  3. Damage to equipment designed for the detection of radar.
  4. Damage to a covered auto while being used as part of a car pool.

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29. If coverage for towing and labor costs is included in a personal auto policy, labor costs will be covered only if the labor is performed:

  1. At a garage by an experienced mechanic.
  2. At the place of disablement.
  3. Within 24 hours of the disablement.
  4. Within 48 hours of the disablement.

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30. Furniture which is destroyed when a building burns down is an example of what kind of loss?

  1. direct
  2. indirect
  3. consequential
  4. residual

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31. “Special” or “all risk” coverage forms:

  1. Name the perils to be insured against.
  2. List the policy exclusions.
  3. Have no exclusions.
  4. Are no longer available in the general insurance market.

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32. Which of the following causes of loss forms are “named peril” forms?

  1. Basic form
  2. Broad form
  3. Earthquake form
  4. All of the above

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33. Each of the following business occupancies would be permitted in a dwelling insured under a dwelling form except:

  1. A small shop carrying merchandise for sale.
  2. A professional office providing services to clients.
  3. A photographic studio.
  4. A beauty shop run by the insured and her daughter.

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34. Each of the following coverages is always included in Section I on a homeowners policy except:

  1. Personal property coverage
  2. Coverage for loss of use.
  3. Medical payments coverage.
  4. Coverage for property removed to protect it from loss.

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35. Each of the following statements regarding the homeowners broad form (HO-2) are true except:

  1. The dwelling is covered.
  2. Coverage is provided against all risks of physical loss.
  3. Other structures are covered.
  4. Losses from vandalism and malicious mischief are covered.

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36. Coverage B of a homeowners policy will apply to which of the following losses?

  1. Damage to an unattached garage of an insured home.
  2. Damage to the kitchen of an insured home.
  3. Damage to construction materials which are intended for a new front porch for an insured home.
  4. Damage to living room furnishings in the insured home.

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37. On the homeowners policy, coverage D is also called:

  1. Other structures.
  2. Personal property.
  3. Loss of use.
  4. Personal liability.

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38. The coverage which automatically increases the property insurance limits on a homeowners policy is:

  1. Replacement cost.
  2. Special limits of liability endorsement.
  3. Inflation guard endorsement.
  4. Insurance-to-value.

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39. Which of the following is not considered a consequential loss?

  1. Loss of rental value.
  2. Damage to personal property.
  3. Extra expense incurred while rebuilding damaged property.
  4. Loss of business income while a building is closed for repairs.

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40. In which part of an insurance contract would you expect to find a description of the duties and obligations of the insured?

  1. Declarations
  2. Insuring clause
  3. Exclusions
  4. Conditions

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41. General liability policies provide coverage for damage to:

  1. Property owned or occupied by the insured.
  2. Personal property in the care, custody, or control of the insured.
  3. The insured’s products which are held for sale to others.
  4. Property of third parties when caused by negligence of an insured.

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42. The named non-owner coverage endorsement is used to provide personal auto insurance for:

  1. Relatives of the named insured who do not live in the same household.
  2. Someone who does not own an automobile, but who drives borrowed or rented autos.
  3. Other members of the named insured’s family who live in the same household.
  4. Non-family members who use the named insured’s auto with permission.

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43. Automobile limits of liability expressed as $25,000/$50,000/$10,000 mean:

  1. $25,000 bodily injury, $50,000 property damage, $10,000 medical payments each accidents.
  2. $25,000 bodily injury for each person, $50,000 bodily injury each accident, $10,000 property damage each accident.
  3. $25,000 property damage per accident, $50,000 bodily injury per accident, $10,000 bodily injury per person.
  4. None of the above.

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44. An insurer that is not entitled to transact insurance business in California is known as a:

  1. Non-soliciting insurer.
  2. Non-admitted insurer.
  3. Non-certified insurer.
  4. Non-transacting insurer.

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45. Anyone willfully engaging in an unfair method of competition may be liable for a fine of up to:

  1. $1,000
  2. $2,500
  3. $5,000
  4. $10,000

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46. The penalty for a person who violates the privacy protection laws and obtains information that they have no legitimate reason to receive is:

  1. A $5,000 fine.
  2. A $5,000 fine or up to six months in jail.
  3. A $10,000 fine.
  4. A $10,000 fine or up to one year in jail.

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47. The penalty for a person found guilty of submitting fraudulent claims for the payment of a loss is:

  1. Up to two years in jail and fine of up to $10,000.
  2. Up to three years in jail and a fine of up to $20,000.
  3. Up to five years in jail and a fine of up to $25,000.
  4. Up to five years in prison and a fine of up to $150,000.

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48. How does the California Insurance Commissioner get his or her title?

  1. Appointed by the Governor
  2. Approved by the Governor
  3. Elected by the Public
  4. None of the above

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49. An insurance company’s actuarial department is responsible for which of the following?

  1. Rating of insurance companies.
  2. Predicting profits of an insurance company.
  3. Keeping an insurance company financial sound.
  4. Assisting with service of insurance company claims.

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50. All rates in California are subject to which of the following?

  1. Mandatory rates.
  2. Manual rates.
  3. Prior approval rules.
  4. Experienced rating.

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51. Rates in California are subject to which of the following?

1. Manual rates
2. Use and file
3. File and use
4. Merit rating

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52. What does a broad form dwelling policy have that is not included in a basic form dwelling policy?

  1. Appurtenant structures coverage
  2. Dwelling coverage
  3. Additional living expenses
  4. Fair rental value

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53. In a homeowners policy, the insured is required to provide proof of loss within:

  1. 10 days
  2. 20 days
  3. 30 days
  4. 60 days

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54. All of the following are factors for rating physical damage coverage on a personal auto policy (PAP) except:

  1. Year of the vehicle.
  2. Make of the vehicle.
  3. Driving safety record.
  4. Model of the vehicle.

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55. Which of the following coverages does an open peril policy provide?

a) Ocean and sea perils

b) Perils that would affect business continuance.

c) Perils other than those specifically named as being excluded.

d) Perils stated in the policy.

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56. Of the following, which is the true characteristic about insurance?

a) It is considered a type of gambling.

b) It is considered a way of retaining risk.

c) It is considered a method of transferring risk.

d) It has as its basis the law of level averages.

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57. How is an admitted insurer defined according to the California DOI?

a) It transacts insurance business in all states

b) It Is organized and chartered according to and under the laws of the state of California

c) It transacts insurance according to the laws of the state of California.

d) It is incorporated under the laws of any other jurisdiction other than the state of California

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58. The method that the California DOI uses to approve or disapprove rate filings for various types of insurance such as homeowners and automobile is known as?

a) File and use method

b) Open competition method

c) Mandated rates method

d)Use and file method

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59. “Risk” is one of the most important terms in the insurance industry. How is it defined?

a) The certainty-of financial loss.

B) The uncertainty of financial loss

c) The basis of a financial loss

d) The predictability of a financial loss

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60. The concept of “pure risk” involves the possibility or chance of which of the following?

a) A loss only

b) Either a loss or gain

c) A profitable distribution of risks

d) None of the above

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61. With regards to insurance applicability, the word “risk” can be best defined as which of the following?

a) The uncertainty associated with a loss occurring

b) The uncertainty of a financial loss

c) The cause of the loss

d) The increase in the probability of a loss occurring

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62. In the State of California, how is a domestic insurer defined according to the California DOI code?

a) Marketing and selling insurance under the laws of the state of California

b) Specializing in insurance products that are unique to the needs of California (e.g.,earthquake insurance).

c) Organized, chartered, or incorporated under the laws of the State of California

d) Any insurance company that has a regional, district, or agency office in California.

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63. Which of the following is the best definition of an insurer’s loss reserve?

a) The dollar amount an insurance company must pay to close-out a claim

b) The dollar amount of claims paid divided by earned premiums, excluding loss adjustment expenses

c) The approximate dollar amount of an insurer’s liability for at least one (or more) open claims

d) The dollar amount received by an insurer for coverage provided

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64. When an automobile insurance policy is canceled at the request of the insured, and the insurance company keeps all earned premiums, in addition to an amount to pay for overhead expenses incurred by the insurer, it is referred to as what type of cancellation?

a) The short rate type of cancellation.

b) The pro-rata type of cancellation.

c) The flat rate type of cancellation

d) It is none of these

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65. You, as a licensed fire & casualty broker/agent, are suggesting coverages for a prospective client who owns a condominium in a rural farm area in your territory. The following coverages are needed Fire and all extended coverage for his personal property Liability coverage for himself and his wife and children Coverage for any assessments that result from damage to any common areas The correct recommendation would be:

a) An HO-2 contract

b) An HO-3 contract

c) An HO-4 contract

d) An HO-6 contract

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66. The type of a homeowners contract that should be considered, and then purchased by one of your prospective insureds, who is a tenant renting a 2,500 sq. foot, 2-story house is which of the following?

a) HO-2

b) HO-3

c) HO-4

d) HO-6

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67. A PAP contains the following limitations: $25,000/person & $50,000/accident for bodily injury. An accident occurs that injures three people resulting in a number of lawsuits. The outcome of the lawsuits found the insured to be liable and responsible for the following damages: $10,000, $13,000, $35,000. What is the maximum that the policy will pay for any one person?

a) $10,000

b) $25,000

c) $35,000

d) $58,000

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68. A PAP contains the following limitations: $25,000/person & $50,000/accident for bodily injury. An accident occurs that injures three people resulting in a number of lawsuits. The outcome of the lawsuits found the insured to be liable and responsible for the following damages: $10,000, $13,000, $35,000. What is the maximum that the policy will pay for all persons?

  1.       $10,000
  2.        $25,000
  3.       $50,000
  4.       $58,000

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69. An endorsement and an extra premium would be required for which all of the following property losses under an HO-3, except:

a) Firearms

b) Silverware

c) Money

d) Jewelry

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70. A homeowners policy contains liability insurance coverage under Section II. Which of these would be covered under this part of the policy?

a) The little boy of the named insured intentionally strikes another little boy with a hockey stick

b) The named insured, while using a metal detector belonging to his neighbor, damages it when it is dropped on a cement sidewalk

c) A fraudulent and unjustified lawsuit is filed against the named insured

d) These are all covered

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71. An unendorsed personal auto policy would cover which of the following under the liability coverage part?

a) A rental car expense after the insured’s vehicle is damaged and is not driveable following an accident that is not the fault of the insured

b) Property damage or bodily injury that is intentionally caused by the insured

c) The insured’s windshield is smashed when a brick falls from a bridge that is being constructed over a freeway where the insured is driving

d) The repair expenses that are needed to fix the damage to a neighbor’s fence that was the result the insured negligently driving through it while driving unsafely

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72. The State of California DOI minimums for liability coverage are $15,000/$30,000/$5,000. An insured has an accident out of state that has higher financial responsibility limits than California. Which of these is true?

a) The policy automatically provides the higher necessary limits without an extra premium

b) The policy only pays up to its limits

c) There is no coverage

d) The insured will have to pay an additional premium for the increased difference in the required coverage

*Each state may have different minimums liability limits. Be sure to research your states.

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73. “Umbrella policies” provide coverage for and are best defined as which of the following?

a) Excess liability coverage, on a broader basis, above an underlying primary policy

b) Coverage, on an all-risk basis for damage that occurs to both personal and commercial property risks

c) Physical damage coverage, written as excess and broader coverage, over an underlying primary policy

d) High risk commercial business exposures that are not able to be insured elsewhere

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74. When does the license of a fire and casualty broker/agent become inactive?

a) When the broker/agent no longer transacts or sells insurance

b) When the broker/agent has no appointment with any insurance company, but licensing renewal fees have been paid and CE requirements have been met

c) When the broker/agent doesn’t renew their license upon its expiration

d) These are all situations where a license becomes inactive

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75. For more serious offenses and convictions, an application for a license can be denied without a hearing. Which of the following circumstances would allow for an application to be denied for an insurance license, without a hearing?

a) The applicant for the license has never been licensed to sell insurance and therefore has no experience in the industry

b) The applicant for the license has failed the required pre-license exam twice within a year

c) The applicant for the license has had a previous license denied for cause within the previous 5 years

d) The applicant for the license speaks English as a second language

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76.  All homeowners policies specifically describe the duties of the insured following a loss. Identify which of the following is not a duty of the insured following a loss.

a) Contact the police if the loss is the result of theft

b) Prepare an inventory of the property that has been damaged which includes a description of the property, the quantity, the amount of the loss, and the actual cash value

c) Be prepared to submit to questions under oath about the loss circumstances while not in the presence of any other named insureds.

d) Take the steps necessary to protect the property from further damage, which may or may not include reasonable or necessary repairs as needed.

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77. How would the damage resulting from hail be covered under a personal auto policy?

a) Not covered as it is considered an act of God

b) Covered as a collision

c) Covered as an other than collision loss

d) Covered only if the vehicle was parked at the insured location as named in the policy

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78. What kind of coverage would you recommend to one of your insureds, who is single and does not own a car, but, she does, on occasion, drive cars that belong to her friends (both male and female). Additionally, she is planning a vacation to Florida and will be renting a car while there.

a) These types of exposures would not be insurable

b) Named non-owner coverage endorsement

c) Extended non-owner coverage endorsement

d) Extended transportation endorsement

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79. What exactly do umbrella policies provide coverage for?

a) Broad excess liability coverage over one or more underlying policies

b) Broad property insurance coverage over one or more underlying policies

c) Broad form property damage for, rain, hail, and flood

d) Broad excess physical damage coverage

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80A.  Under a standard (ISO) homeowner’s HO-3, real property and personal property are covered for the perils of

  1. Broad form named perils – coverage applies to personal property. There is no coverage for real property since this is a tenant’s form
  2. “All risks” – coverage applies to real property, broad form named perils coverage applies to personal property.
  3. “All risks” – coverage applies to both
  4. Broad form named perils – coverage applies to both

80B.  Under a standard (ISO) homeowner’s HO-5, real property and personal property are covered for the perils of

  1. Broad form named perils – coverage applies to personal property. There is no coverage for real property since this is a tenant’s form
  2. “All risks” – overage applies to real property, broad form named perils coverage applies to personal property.
  3. “All risks” – coverage applies to both
  4. Broad form named perils – coverage applies to both

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80. What is the primary reason for co-insurance clauses in property policies?

  1. To establish a method for evaluating the value of the property
  2. To require the insured to always pay a portion of every loss
  3. To create a means of sharing the risk with another company
  4. To encourage insureds to purchase coverage near the value of the property

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81. Insurers may purchase reinsurance for a variety of reasons. Which of the following is not a good example of the use of reinsurance? Insurer purchases reinsurance

  1. Only on the below average business submitted to them, keeping the good business for themselves
  2. To avoid capacity problems by reducing the amount of unearned premium
  3. To more safely insure an exceptionally large account
  4. For protection from catastrophe exposures such as hurricanes or earthquakes

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82. Coverages A and/or B of the commercial general liability (CGL) contract contain coverage for

  1. Professional liability
  2. Advertising injury
  3. Losses arising from the ownership, maintenance or use of automobiles
  4. Workers Compensation

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83. What must a licensee do in order to surrender for cancellation a license in their possession?

  1. Give the Commissioner at least 60 days written notice prior to the effective date of termination
  2. Destroy the original, and advise the State of California
  3. Notify any insurer the agent has transacted business with in writing at least 60 days prior to the effective date of termination
  4. Deliver the document itself to the Commissioner

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84. If an insurer pays an insured $25,000 in lost wages, $45,000 for physicians visits and hospital costs, and $15,000 for physical therapy treatments, and later finds out that the claim was fraudulent, the insured may be fined as much as (2X the amount paid out = fine)

  1. $25,000
  2. $60,000
  3. $85,000
  4. $170,000

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85. An insurer’s loss reserve for a claim is

  1. Equal to claims paid divided by earned premium reserve, not including loss adjustment expense
  2. The maximum amount the insurer will have to pay to close the claim
  3. The exact amount the insurer will have to pay to close the claim
  4. An estimate of the amount that the insurer will pay

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86A.  Where do most states require insurers to file policy forms?

  1. The Insurance Services Office
  2. The Independent Insurance Association of America
  3. The Federal Government Insurance Regulatory Committee
  4. The Insurance Department

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86B.  Which of the following is responsible for creating policy forms?

  1. ISO and NAIC
  2. WCIRB
  3. The Federal Government Insurance Regulatory Committee
  4. The Insurance Department

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87. All of the following acts or practices are prohibited by the Unfair Practices Act, except:

  1. Advising claimants not to engage attorneys
  2. An agent of an insurance association advising members not to place business with an insurer that is introducing a product sold directly to the public
  3. Advising clients that an insurer is protected from insolvency by the California Insurance Guarantee Association
  4. Charging a different rate for males and females for life or annuity policies based on data in mortality tables that is segregated by sex

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88. Under a personal auto policy, if a newly acquired auto is to replace the covered auto with liability coverage only, how long does the insured have to request collision coverage?

  1. Immediately
  2. 4 days
  3. 14 days
  4. 30 days