- 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.
2. 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.
3. 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
4. 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
5. “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
6. 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
7. 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
8A. 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.
8B. In this State, how is a domestic insurer defined according to the State Laws/Statutes?
a) Marketing and selling insurance under the laws of this state.
b) Specializing in insurance products that are unique to the needs of this state (e.g.,earthquake insurance).
c) Organized, chartered, or incorporated under the laws of this State
d) Any insurance company that has a regional, district, or agency office in this state.
9. 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
10. Which of the following types of businesses could utilize a business owners policy?
a) Banks
b) Service station and auto repair shops
c) Restaurants
d) Office buildings 2-stories high and containing about 5,000 square feet
11. Liability exposures that result from the location of a business in addition to the activities of that business, is known as which of the following?
a) The completed operations exposure
b) The premises and operations exposure
c) The products and premises exposures
d) The general liability exposure
12. Of the following choices, which one would define the “retroactive date” which is contained in the structure of a claims-made professional liability policy contract?
a) The policy expiration date
b) A loss or event can occur and still be eligible for recovery of payment under the terms of the policy, if it occurs after this date
c) No further claims can be made or submitted under the policy after this date
d) The same as the inception date of the policy.
13. Where is ocean marine liability insurance found?
a) Protection and indemnity coverage
b) Ocean marine cargo coverage insurance
c) Ocean marine freight liability coverage
d) Comprehensive personal liability policies
14. Negligence under an ocean marine policy is covered by:
a) Protection and indemnity coverage
b) Ocean marine cargo coverage insurance
c) Ocean marine freight liability coverage
d) Comprehensive personal liability policies
15. The statement that is true regarding medical expense coverage in a Workers’ Compensation policy is.
a) It contains an unlimited amount of coverage for both time and dollar amounts
b) It has a time limit, but no dollar limit
c) It has a dollar limit, but no time limit
d) None of these are true statements
16A. 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
16A. When an automobile insurance policy is canceled at the request of the insured, and the insurance company keeps all earned premiums, 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
17. 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
18. 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
19. 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
20. 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?
- $10,000
- $25,000
- $50,000
- $58,000
21. 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
22. 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
23. 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
24. 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.
25. “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
26. The products and completed operations hazard would apply to which of the following situations?
a) Replacing a defective product
b) Damage to the insured’s property as the result of using the insured product
c) Bodily injury to a customer as the result of a defective product manufactured by the insured
d) Any contractual liability legally acquired by the insured
27. Business Income as it is defined under a business income coverage form provides coverage for actual losses of business income resulting from the suspension of the actual operation of the business. Which of the following is the formula to determine this dollar amount?
a) Gross income of the business
b) Net income of the business minus any income taxes
c) Net income of the business plus normal operating expenses excluding payroll
d) Net income of the business plus normal operating expenses including payroll
28. 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
29. 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
30. All home owners 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.
31. 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
32. 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
33. 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
34. What rights does an insurer have as far as auditing the books and records of an insured according to the conditions of a commercial property policy?
a) Perform an audit with the insured’s permission only
b) Perform an audit only after the policy period has expired
c) Perform an audit while the policy is in force and for three years after expiration or termination of the policy
d) Perform an audit while the policy is in force and for three months after expiration or termination of the policy
35. The phrase “80% coinsurance” in the commercial property field refers to:
a) A reduced premium to the insured because the insured has a deductible equaling 20% of the property’s value
b) The insured receives 80% of the value of a loss because of inflation and insurer administrative costs. The benefit to the insured is a lower premium
c) The insured must maintain insurance coverage equal to 80% of the value of the property as well as receiving a lower premium, otherwise a coinsurance penalty will be imposed in the event of a loss
d) The insured will not be paid for a loss if the insured does not carry at least 80% insurance to value on the property
36. Coverage parts A, B, & C of a CGL is which of the following?
a) Bodily injury and property damage liability, medical payments
b) Personal injury liability, advertising injury liability, medical payments
c) Bodily injury and property damage liability, personal and advertising injury, and medical payments
d) Medical payments, bodily injury and property damage liability
37. A claims-made professional liability policy contains a retroactive date. Which of these choices best describes this date?
a) The date the policy expires
b) The date the policy takes effect
c) The date that excludes any claims from coverage
d) The earliest date that a loss or event may occur and still be eligible for coverage under the policy
38. An employee dishonesty coverage form would apply to which of the following?
a) An employee imposing charges to his friends for products that are considerably less than the actual retail value
b) Product inventory shortages
c) Theft of business stock by an employee only proven during an inventory
d) Company funds and securities that are stolen by an employee
39. The limit of medical expense coverage in a workers compensation policy is:
a) not limited for time, but is for the dollar amount
b) not limited for the dollar amount, but is for the time
c) not limited for either the time and/or the dollar amount
d) is limited for both the time and/or the dollar amount
40. If an insured discovers an occurrence 75 days after the expiration of a claim-made commercial liability policy, what must the insured have in order for the loss to be covered?
- Nothing; he is covered as long as the loss occurred during the policy period
- Supplemental extended reporting period endorsement
- An umbrella policy
- The loss will not be covered since it was not reported during the policy period
41. In an unendorsed claims-made general liability policy, how long does an insured have to report a claim which occurred during the policy period.
- Indefinitely
- 60 days
- 30 days
- 6 months
42A. Under a standard (ISO) homeowner’s HO-3, real property and personal property are covered for the perils of
- Broad form named perils – coverage applies to personal property. There is no coverage for real property since this is a tenant’s form
- “All risks” – coverage applies to real property, broad form named perils coverage applies to personal property.
- “All risks” – coverage applies to both
- Broad form named perils – coverage applies to both
42B. Under a standard (ISO) homeowner’s HO-5, real property and personal property are covered for the perils of
- Broad form named perils – coverage applies to personal property. There is no coverage for real property since this is a tenant’s form
- “All risks” – coverage applies to real property, broad form named perils coverage applies to personal property.
- “All risks” – coverage applies to both
- Broad form named perils – coverage applies to both
43. What is the primary reason for co-insurance clauses in property policies?
- To establish a method for evaluating the value of the property
- To require the insured to always pay a portion of every loss
- To create a means of sharing the risk with another company
- To encourage insureds to purchase coverage near the value of the property
44. A commercial property causes of loss forms do not cover any losses caused by
- Lightning
- Smoke damage from industrial operations
- Explosions
- Loss by removal from premises when insured perils endanger covered property
45. What does a supplemental extended reporting period endorsement provide?
- Extends the filing reporting period indefinitely
- Extension of claims reporting period to 120 days
- Extends claims coverage to 120 days
- Extends expiration of policy indefinitely
46. 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
- Only on the below average business submitted to them, keeping the good business for themselves
- To avoid capacity problems by reducing the amount of unearned premium
- To more safely insure an exceptionally large account
- For protection from catastrophe exposures such as hurricanes or earthquakes
47. Coverages A and/or B of the commercial general liability (CGL) contract contain coverage for
- Professional liability
- Advertising injury
- Losses arising from the ownership, maintenance or use of automobiles
- Workers Compensation
48. Coverages A and/or B of the commercial general liability (CGL) contract contain coverage for
- Professional liability
- Bodily injury and property damage
- Losses arising from the ownership, maintenance or use of automobiles
- Workers Compensation
49. What must a licensee do in order to surrender for cancellation a license in their possession?
- Give the Commissioner at least 60 days written notice prior to the effective date of termination
- Destroy the original, and advise the State of California
- Notify any insurer the agent has transacted business with in writing at least 60 days prior to the effective date of termination
- Deliver the document itself to the Commissioner
50. 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)
- $25,000
- $60,000
- $85,000
- $170,000
51. What is revenue minus expense?
- net loss
- net income
- gross income
- net profit
52. An insurer’s loss reserve for a claim is
- Equal to claims paid divided by earned premium reserve, not including loss adjustment expense
- The maximum amount the insurer will have to pay to close the claim
- The exact amount the insurer will have to pay to close the claim
- An estimate of the amount that the insurer will pay
53A. Where do most states require insurers to file policy forms?
- The Insurance Services Office
- The Independent Insurance Association of America
- The Federal Government Insurance Regulatory Committee
- The Insurance Department
53B. Which of the following is responsible for creating policy forms?
- ISO and NAIC
- WCIRB
- The Federal Government Insurance Regulatory Committee
- The Insurance Department
54. All of the following acts or practices are prohibited by the Unfair Practices Act, except:
- Advising claimants not to engage attorneys
- 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
- Advising clients that an insurer is protected from insolvency by the California Insurance Guarantee Association
- Charging a different rate for males and females for life or annuity policies based on data in mortality tables that is segregated by sex
55. When a state program is a company’s only option available for the purchasing of workers compensation insurance, it is called:
- A competitive state fund
- A shared market fund
- A monopolistic state fund
- A guaranty fund
56. Livery conveyance is best described as a:
- Vehicle for hire to transport people
- Vehicle for hire to transport property
- Commercial vehicle with more than 4 wheels
- Share-the-expense carpool
57. 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?
- Immediately
- 4 days
- 14 days
- 30 days
58. Tort law provides protection against which of the following?
- Criminal Law
- Contract Law
- Negligence
- Fraudulent Claims
59. What is the difference between a loss and a loss exposure?
- Both terms mean the same thing
- Losses involve more uncertainty than loss exposures
- Losses actually happen, whereas loss exposures could happen
- It costs less to insure loss exposures than it does to insure actual losses