Which of the following best defines premium? - ANSWER Under an insurance contract,
the insured pays a scheduled and affordable fee, called a premium. In return, the insurer
promises to pay for specified losses if they occur.
What are the four requirements of a legally binding contract? - ANSWER agreement, con-
sideration, competent parties, and legal purpose.
Melinda's home sustained $6,500 in damage when Jared ran into it with is truck. Melinda
received $6,500 from her insurance company, and Jared also paid her $5,000. Melinda has
now profited from this loss and is in violation of: - ANSWER The principle of indemnity.
An insurance policy's declarations page contains all of the following, except: - ANSWER
The declarations page is always the first page or section of an insurance policy. It gives a gen-
eral overview of the policy and will include at least 8 details: the names of both parties, the
insurer and the insured; the policy number; the location and description of the insured item;
the value and replacement value of the insured item; the dates that policy coverage starts
and ends (known as the inception and expiration dates); the amount and limit of insurance
coverage; the deductibles on the policy; and the premium that the insured has to pay.
All of the following pieces of information can be found in the Conditions section of an insur-
ance policy, except: - ANSWER conditions section. This is where the policy establishes a
set of conditions that the insured must meet in order for the policy to be valid. If the policy-
holder does not meet the conditions listed here, the insurer has a right to deny coverage.
For example, if a jewelry store owner wants to purchase an insurance policy, the conditions
section may require that a security guard be present whenever the store is open. Other con-
ditions require a claimant to protect damaged property from further losses, and that the
claimant must submit a proof of loss if the insurer requests it. The insured must also cooper-
ate with the insurer during any investigations or lawsuits. These and other conditions are
found in the conditions section of the policy.
1
,Janelle is happy with most of the coverage in her Homeowners policy, but she wants to
change her coverage for personal property from ACV to Replacement Cost. She visits her lo-
cal insurance agent and asks him to make this change to her policy while keeping all the
other details the same. Which section of her policy would the agent use to make this
change? - ANSWER Endorsements. often the last section of an insurance contract. Like
the definitions, this section is optional but very common. An endorsement is a provision that
modifies the coverage of the original contract. It can add or subtract coverage for people,
property, or causes of loss.
Mark belongs to a non-profit organization that engages in charitable activities and provides
Mark with death and disability insurance coverage. To what kind of organization does Mark
likely belong? - ANSWER Fraternal Benefit Societies, or Fraternal Associations, are non-
profit, mutual aid organizations that engage primarily in charitable or benevolent activities.
They offer their members insuranceagainst death, disease, and disability. Members of Frater-
nal Benefit Societies usually share common interests, such as religion, occupation, or ethnic
background. The Elks, the Masons, The Catholic Aid Association, and Sons of Norway are all
examples of fraternal benefit societies.
A non-profit group of people or organizations that insure each other is called a: - AN-
SWER Risk Retention Groups: Groups where the members insure each other, using their
own capital to write insurance policies.
A "binder" is: - ANSWER A binder is a statement providing immediate insurance coverage
for a short period. The binder can be oral or written, and it is meant to give temporary pro-
tection until the final contract is drawn up, or until the insurer decides against issuing a writ-
ten policy.
Which of the following situations does NOT contain an insurable risk? - ANSWER risk is an
item, person, or organization that has been insured. But not everything is insurable.
First determine insurable risk is whether the insurer can collect enough income from premi-
ums to cover its two major expenses: claims against policies and the operating costs. Second
determining whether a risk is insurable is threefold. The insurer must be able to define the
exact conditions of coverage, must know the precise dollar value of the risk, and must be
able to clearly set out the terms under which a claim would be paid. insurable risk is that a
2
, loss must be unpredictable and caused by circumstances no one could reasonably prevent-a
roof blown off in a tornado, a car accident, a third condition of insurable risk is that a loss
must be unpredictable and caused by circumstances no one could reasonably prevent-a roof
blown off in a tornado, a car accident, a theft, or a fire caused by lightning. Fourth condition
of insurable risk is that the loss must cause substantial economic hardship., Fifth condition
for determining insurable risk is that an insurer must be able to exclude coverage for some
disasters considered significantly catastrophic., Sixth and final qualification of an insurable
risk is that an insurer must be able to cover a large number of similar risks.,
Dale just bought 30 shares of a hot new startup company online.
An insurance company may consider each of the following a risk, except: - ANSWER a
school bus.
Risk: In the insurance industry, risk can have two meanings: 1) the potential for financial loss;
being exposed or open to damage, 2) an insured item.
All of the following are true about the Law of Large Numbers in the insurance industry, ex-
cept: - ANSWER The larger the number of units insured, the more an insurer will have to
pay out. Simply put, the Law of Large Numbers says that statistics are more accurate and
predictable when there is a larger group of units involved.
Monica's home is located in a flood zone. In insurance terms, the location of Monica' home
is considered: - ANSWER a hazard: Anything that increases the chance of loss.
Which of the following is true about risk management in the insurance industry? - AN-
SWER Risk management begins before a policy is purchased.
Darla works for XYZ Insurance and has Eddie in her office, who is applying for an auto insur-
ance policy. During the application process, Darla discovers that Eddie has been reported for
fraudulent insurance activity. What risk management technique would Darla most likely use
in this situation? - ANSWER Risk Reduction in three main ways: it can insure a risk but
3
the insured pays a scheduled and affordable fee, called a premium. In return, the insurer
promises to pay for specified losses if they occur.
What are the four requirements of a legally binding contract? - ANSWER agreement, con-
sideration, competent parties, and legal purpose.
Melinda's home sustained $6,500 in damage when Jared ran into it with is truck. Melinda
received $6,500 from her insurance company, and Jared also paid her $5,000. Melinda has
now profited from this loss and is in violation of: - ANSWER The principle of indemnity.
An insurance policy's declarations page contains all of the following, except: - ANSWER
The declarations page is always the first page or section of an insurance policy. It gives a gen-
eral overview of the policy and will include at least 8 details: the names of both parties, the
insurer and the insured; the policy number; the location and description of the insured item;
the value and replacement value of the insured item; the dates that policy coverage starts
and ends (known as the inception and expiration dates); the amount and limit of insurance
coverage; the deductibles on the policy; and the premium that the insured has to pay.
All of the following pieces of information can be found in the Conditions section of an insur-
ance policy, except: - ANSWER conditions section. This is where the policy establishes a
set of conditions that the insured must meet in order for the policy to be valid. If the policy-
holder does not meet the conditions listed here, the insurer has a right to deny coverage.
For example, if a jewelry store owner wants to purchase an insurance policy, the conditions
section may require that a security guard be present whenever the store is open. Other con-
ditions require a claimant to protect damaged property from further losses, and that the
claimant must submit a proof of loss if the insurer requests it. The insured must also cooper-
ate with the insurer during any investigations or lawsuits. These and other conditions are
found in the conditions section of the policy.
1
,Janelle is happy with most of the coverage in her Homeowners policy, but she wants to
change her coverage for personal property from ACV to Replacement Cost. She visits her lo-
cal insurance agent and asks him to make this change to her policy while keeping all the
other details the same. Which section of her policy would the agent use to make this
change? - ANSWER Endorsements. often the last section of an insurance contract. Like
the definitions, this section is optional but very common. An endorsement is a provision that
modifies the coverage of the original contract. It can add or subtract coverage for people,
property, or causes of loss.
Mark belongs to a non-profit organization that engages in charitable activities and provides
Mark with death and disability insurance coverage. To what kind of organization does Mark
likely belong? - ANSWER Fraternal Benefit Societies, or Fraternal Associations, are non-
profit, mutual aid organizations that engage primarily in charitable or benevolent activities.
They offer their members insuranceagainst death, disease, and disability. Members of Frater-
nal Benefit Societies usually share common interests, such as religion, occupation, or ethnic
background. The Elks, the Masons, The Catholic Aid Association, and Sons of Norway are all
examples of fraternal benefit societies.
A non-profit group of people or organizations that insure each other is called a: - AN-
SWER Risk Retention Groups: Groups where the members insure each other, using their
own capital to write insurance policies.
A "binder" is: - ANSWER A binder is a statement providing immediate insurance coverage
for a short period. The binder can be oral or written, and it is meant to give temporary pro-
tection until the final contract is drawn up, or until the insurer decides against issuing a writ-
ten policy.
Which of the following situations does NOT contain an insurable risk? - ANSWER risk is an
item, person, or organization that has been insured. But not everything is insurable.
First determine insurable risk is whether the insurer can collect enough income from premi-
ums to cover its two major expenses: claims against policies and the operating costs. Second
determining whether a risk is insurable is threefold. The insurer must be able to define the
exact conditions of coverage, must know the precise dollar value of the risk, and must be
able to clearly set out the terms under which a claim would be paid. insurable risk is that a
2
, loss must be unpredictable and caused by circumstances no one could reasonably prevent-a
roof blown off in a tornado, a car accident, a third condition of insurable risk is that a loss
must be unpredictable and caused by circumstances no one could reasonably prevent-a roof
blown off in a tornado, a car accident, a theft, or a fire caused by lightning. Fourth condition
of insurable risk is that the loss must cause substantial economic hardship., Fifth condition
for determining insurable risk is that an insurer must be able to exclude coverage for some
disasters considered significantly catastrophic., Sixth and final qualification of an insurable
risk is that an insurer must be able to cover a large number of similar risks.,
Dale just bought 30 shares of a hot new startup company online.
An insurance company may consider each of the following a risk, except: - ANSWER a
school bus.
Risk: In the insurance industry, risk can have two meanings: 1) the potential for financial loss;
being exposed or open to damage, 2) an insured item.
All of the following are true about the Law of Large Numbers in the insurance industry, ex-
cept: - ANSWER The larger the number of units insured, the more an insurer will have to
pay out. Simply put, the Law of Large Numbers says that statistics are more accurate and
predictable when there is a larger group of units involved.
Monica's home is located in a flood zone. In insurance terms, the location of Monica' home
is considered: - ANSWER a hazard: Anything that increases the chance of loss.
Which of the following is true about risk management in the insurance industry? - AN-
SWER Risk management begins before a policy is purchased.
Darla works for XYZ Insurance and has Eddie in her office, who is applying for an auto insur-
ance policy. During the application process, Darla discovers that Eddie has been reported for
fraudulent insurance activity. What risk management technique would Darla most likely use
in this situation? - ANSWER Risk Reduction in three main ways: it can insure a risk but
3
