Indiana Adjuster Practice Exam

Greg plays trombone in his school band during football games. During a rally song in the stands one day, Greg annoys one of the opposing team's fans, who grabs his $400 trombone and hurls it down the bleachers, completely destroying it. Greg's insurance pays him $400 to replace the trombone, but then the opposing team's coach also offers to replace the instrument, at whatever the cost. So Greg orders a new $3,200 trombone and has the opposing team's athletic department absorb the cost. Which principle has Greg violated? - ANSWER The principle of indemnity Which of the following statements does NOT apply to the Standard Fire Policy? A. It is the basis for all homeowners policies. B. It pays actual cash value. C. It automatically covers wind and vandalism. D. It is a named peril policy. - ANSWER C. It automatically covers wind and vandalism. The Standard Fire Policy is also known by a nickname: The "___ " Policy. - ANSWER 165 Line Stan built a porch for his home three years ago at a cost of $10,000. The value of the porch has depreciated by $6,000, and it would cost $12,000 to replace it today. After Stan's porch burnt down during a BBQ today, how much would a Standard Fire Policy indemnify Stan for his porch? - ANSWER $6,000 (The Standard Fire Policy pays on an ACV basis. Recall from earlier in the course, that the formula for calculating ACV is Replacement Cost minus Depreciation. So, in this case: $12,000 - $6,000 = $6,000.) In an insurance policy, the summary of what the insurer will do in the event of a covered loss is called: - ANSWER the insuring agreement. If an adjuster needs to find clarification about what actually constitutes a collision, in which section of an insurance policy would she find that information? - ANSWER Definitions In which section of an insurance policy might you find the following statement? "Damage to insured property must be reported within 15 days of the damaging occurrence." - ANSWER Conditions All of the following pieces of information can be found in the Conditions section of an insurance policy, EXCEPT: A. anything the insured must do for coverage to remain in effect. B. what the insured must do in the event of a lawsuit. C. the insured's duties after a loss. D. causes of loss that are not covered. - ANSWER D. causes of loss that are not covered. Which of the following statements is true about an insurance policy? - ANSWER It relies on the utmost good faith of both the insured and the insurer. In a __________, only one party is legally obligated to perform. - ANSWER unilateral contract A reciprocal insurer is: - ANSWER an unincorporated organization of subscribers that operates through an attorney-in-fact to provide insurance benefits for its members. Xavier owns a small insurance company. Recently the company won a bid to insure a new housing development in Omaha, NE. His company can handle any claims that arise, but if a series of tornados were to tear through the area and destroy the entire development, Xavier's company would suffer financially. Which type of insurer could help Xavier's company protect itself the most from this potential loss? - ANSWER A re-insurer Which of these is NOT typically excluded from coverage in a property insurance policy? A. Off-premises power failure B. Nuclear events C. Civil confiscation D. Lightning - ANSWER D. Lightning Clark is filling out an application for an insurance policy. The application asks for his birth date, and Clark writes 1-24-67. His actual birthday is 1-24-63, but he likes to appear younger so he uses a different date. This would be called: - ANSWER misrepresentation. Bob has been in the construction business a long time and is ready to retire. He sells the company to his friend Scott and then lets the insurer know that any claims against his policy should be paid to Scott from now on. The insurer informs Bob that they cannot do this due to which condition? - ANSWER Assignment According to the Mortgagee Clause, what is NOT one of the rights of the mortgagee? A. The mortgagee may receive a portion of claim payments. B. The mortgagee may change the coverage amount. C. The mortgagee may be indemnified, even in the event of fraud by the insured. D. The mortgagee will be notified if the insurer intends to cancel the policy. - ANSWER B. The mortgagee may change the coverage amount. Which of the following situations does NOT involve an instance of "pure risk?" A. Loss of a house due to a hurricane B. Loss of money invested in the stock market C. Loss of a company car in an unfortunate accident D. Loss of crops due to an infestation of parasites - ANSWER B. Loss of money invested in the stock market A lightning strike causes one of the storage buildings on John's farm to burn to the ground, aided by the fuel tanks he kept in the building. John knows he wasn't supposed to store any fuel in the building, so he keeps that piece of information to himself when he files a claim. John's insurer may deny his claim based on his: - ANSWER concealment. An insurance company might consider any of the following a risk, EXCEPT: A. a high crime neighborhood. B. an automobile. C. a home. D. a jewelry collection. - ANSWER A. a high crime neighborhood. (A high-crime neighborhood is an example of a hazard, not a risk.) An oral or written statement providing temporary insurance coverage until an insurance policy can be issued is called a: - ANSWER binder. The Severability of Interests condition states that: - ANSWER coverage applies to each insured separately, as if no other insured existed. Steve has just purchased a wedding ring for his new bride. If something were to happen to the ring, he'd be out a lot of money, so he purchases an insurance policy. He is able to do this because: - ANSWER the ring is a pure risk. Agnes purchased a home ten years ago in an up-and-coming neighborhood for $75,000. The home's value has since tripled to $225,000! Agnes still has $25,000 left on her mortgage, but has increased her dwelling coverage to $225,000 to keep up with the home's appreciation. When it burns to the ground in a fire, her mortgage company wants to be indemnified $75,000 because the value of the home has tripled. Which policy condition protects against this claim? - ANSWER Insurable Interest (Agnes' mortgage holder can only be indemnified for his amount of insurable interest in the home—$25,000 at the time of the fire—regardless of the fact that her home has tripled in value) A "hazard" is defined as: - ANSWER something that increases the chance of a loss. The Liberalization Clause in an insurance policy: - ANSWER states that any change to a policy form that broadens coverage without increasing the premium will automatically apply to existing policies. When Sally applies for an auto policy, her agent issues her a ________ so that she can benefit from insurance protection while he underwrites the policy. - ANSWER binder Which of the following statements about the principle of estoppel is TRUE? - ANSWER Estoppel protects the insured party from an insurer who initially approves coverage, but then later denies coverage after the insured pays for repairs. Risk avoidance is a risk management technique that: - ANSWER eliminates risk. Amy needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building safe, so she puts in an alarm system and smoke detectors. By purchasing the alarm system and smoke detectors, Amy is practicing: - ANSWER risk reduction. Arlene's house suffered structural damage in an earthquake last year, but her policy does not cover earthquake damage, so Arlene never got it fixed. When a tornado rips through her neighborhood