Pflood

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Author:
Pflood
ID:
10526
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Pflood
Updated:
2010-03-14 22:34:09
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INS CONTRACT
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ALLSTATE TEST
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  1. The insured is looking for the amount of coverage in a property and casualty policy. This information would be found in the



    A)
    conditions.

    B)
    liberalization clause.

    C)
    declarations.

    D)
    endorsements
    • Answer: C
    • The declarations contain identifying information about the insured, the amount of coverage provided, a description of the property, and the cost of the policy.

    Reference: 2.4.1.2 in the License Exam Manual.
  2. All of the following are basic parts of an insurance policy EXCEPT:



    A)
    declarations.

    B)
    exclusions.

    C)
    conditions.

    D)
    binders.
  3. Answer: D
    The four basic parts of a policy are declarations, insuring agreement, conditions, and exclusions. A binder is an oral or written statement that provides immediate insurance protection for a temporary period.
  4. Jennifer and David signed a homeowners insurance application for coverage on their home. They did not divulge that last year their garage burned down after their 16-year-old son left a cigarette burning. The agent sent in the application and a policy was issued. When another fire occurred 2 months after the policy was issued, the company voided the policy because the agent would not have sent in the application if he had known of the prior loss. Which contract principle does this situation describe?



    A)
    Utmost good faith.

    B)
    Contract of adhesion.

    C)
    Reasonable expectations.

    D)
    Waiver and estoppel.
  5. Answer: A
    The insurance company relied on the facts supplied by Jennifer and David as the truth. Because Jennifer and David did not enter into the agreement in good faith by not divulging the loss, the insurance company may void the contract. Each party must assume that the other party is telling the truth.
  6. Which one of the following is NOT an element of a valid contract?



    A)
    Intent.

    B)
    Legal purpose.

    C)
    Consideration.

    D)
    Competent parties
  7. Answer: A
    A valid contract must involve competent parties. This means the parties to the agreement must have the legal capacity to act. The contract must have a legal purpose. For example, a valid contract could not be undertaken to smuggle illegal drugs. Every contract must contain one party's offer and the other party's acceptance of the offer. Finally, each party must give consideration, something of value. In an insurance policy contract, the insured's consideration is his premium payment, and the insurer's consideration is the promise of indemnity. Intent is not a requirement for a valid contract
  8. The attempt to restore an insured to his preloss condition is known as:



    A)
    indemnification.

    B)
    subrogation.

    C)
    self-insurance.

    D)
    coinsurance.
    View Answer and Explanation
  9. Answer: A
    Indemnification is the process by which an insured is restored to a preloss condition. Indemnity indicates that compensation in the form of payment, repair, or replacement has been given to an insured to make him whole again and to relieve him from his loss. Indemnity, as a legal principle, maintains that a person should not profit or collect more than the value of a loss, but should be restored to approximately the same financial position as existed before the loss.
  10. The limits of liability are found in which of the following sections of a casualty policy?



    A)
    Insuring agreement.

    B)
    Conditions.

    C)
    Declarations.

    D)
    Definitions.
    • Answer: C
    • A policy's declarations page contains information from statements the insured made on the application and information about the risk insured. Specifically, it identifies the persons or entities that are the insureds and includes other pertinent data, such as the effective date of coverage, deductible, premium amounts, coinsurance percentage, location of the property, and the insurer's limits of liability. The declarations page personalizes the insurance policy.

    Reference: 2.4 in
  11. An insurance company issued a homeowners policy that included ambiguous language regarding how a loss was settled. The insured sued the insurance company and won. The judge stated that due to the ambiguous language in the contract the decision must be made in favor of the insured. The judge was basing this decision on which of the following types of insurance contract?



    A)
    Unilateral contract.

    B)
    Conditional contract.

    C)
    Contract of adhesion.

    D)
    Aleatory contract
    • Answer: C
    • The insurance company writes the contract, which is either accepted or rejected by the applicant. Modifications by the applicant cannot be made. As a result, courts generally have held that any ambiguity in the contract should be interpreted in favor of the insured.

    Reference: 2.3.4 in the License Exam Manual.
  12. The principle that restores someone to the condition he enjoyed before a loss is



    A)
    insurance.

    B)
    risk transfer.

    C)
    risk reduction.

    D)
    indemnity.
    View Answer and Explanation
    • Answer: D
    • Insurance is a contract of indemnity. The insurance contract seeks to return the policyholder to substantially the same financial position she enjoyed before the loss.

    Reference: 2.3.1 in the License Exam Manual.
  13. Both parties rely on statements made to each other when writing a contract. This contract is known as a:



    A)
    conditional contract.

    B)
    speculative contract.

    C)
    unilateral contract.

    D)
    contract of utmost good faith.
    View Answer and Explanation

    Answer: D
    The principle of utmost good faith imposes a higher degree of honesty on parties to an insurance contract. Both parties must know all material facts and relevant information; neither may attempt to conceal facts or deceive the other party. A unilateral contract is one in which only one party makes a legally enforceable promise. In a conditional contract, the insurer's consideration is a promise to pay only if a certain condition is met. If the condition is not met, the insurer does not have to pay.

    Reference: 2.3.6 in the License Exam Manual.
    View Answer and Explanation

    • Answer: D
    • The principle of utmost good faith imposes a higher degree of honesty on parties to an insurance contract. Both parties must know all material facts and relevant information; neither may attempt to conceal facts or deceive the other party. A unilateral contract is one in which only one party makes a legally enforceable promise. In a conditional contract, the insurer's consideration is a promise to pay only if a certain condition is met. If the condition is not met, the insurer does not have to pay.

    Reference: 2.3.6 in the License Exam Manual.
  14. Which of the following describes a personal contract?



    A)
    The contract is a promise made only by one party.

    B)
    The contract protects the individual who owns the property.

    C)
    The contract is subject to numerous conditions.

    D)
    The persons involved may void the contract.
    View Answer and Explanation

    Answer: B
    Insurance policies are considered to be personal because they protect the individual who owns the property. It is made between the insured and the insurer and cannot be transferred to another person.

    Reference: 2.3.2 in the License Exam Manual.
  15. Answer: B
    Insurance policies are considered to be personal because they protect the individual who owns the property. It is made between the insured and the insurer and cannot be transferred to another person.
  16. Ann and her agent meet to discuss automobile insurance. The agent completes an application for coverage, takes Ann's check for $200, and mails the application to the insurance company. Two weeks later Ann receives the policy in the mail. When did the consideration take place?



    A)
    When Ann wrote the premium check.

    B)
    When the agent submitted the application.

    C)
    When the agent quoted the premium.

    D)
    When the company mailed the application.
    View Answer and Explanation

    Answer: A
    The consideration is the exchange of value. In insurance, the insured's consideration is paying the premium. The insurance company's consideration is the promise to pay in case of a covered loss.

    Reference: 2.2.4 in the License Exam Manual.
  17. The insuring agreement section of a policy describes:



    A)
    perils insured against.

    B)
    losses excluded.

    C)
    description of the property insured.

    D)
    duties of the insured after a loss.
    View Answer and Explanation

    Answer: A
    The insuring agreement is the section of an insurance contract containing the obligation of the insurer to pay covered claims, subject to specified conditions and exclusions. It contains the insurance company's promise to pay for loss, if it should result from the perils insured against.

    Reference: 2.4 in the License Exam Manual.
  18. Bryce owns a $50,000 lake cabin that he has insured for $40,000. He sustains a $5,000 covered loss. According to the principle of indemnity, how much will his insurer pay?

    A)
    $40,000.00

    B)
    $50,000.00

    C)
    $5,000.00

    D)
    $4,000.00
    View Answer and Explanation

    Answer: C
    Under the principle of indemnity, a person should not profit from his loss or collect more than the actual cash value of a loss. The insured should be restored to approximately the same financial position as existed before the loss. In the example, Bryce's loss is $5,000, and he is limited to a $5,000 recovery.

    Reference: 2.3.1 in the License Exam Manual.
  19. A policy may be amended only with a(n):

    A)
    condition.

    B)
    warranty.

    C)
    declaration.

    D)
    endorsement.
    View Answer and Explanation
  20. Answer: D
    An endorsement is a form attached to the policy that changes the policy to fit special circumstances. Such modification of the contract is not permitted unless the insurance company approves it in writing. The endorsement may be attached at the beginning of the policy or added during the policy's term.
  21. Which one of the following components of an insurance contract contains information about the risk, the effective date of coverage, deductible, premium amounts, coinsurance percentage, and location of the insured property?



    A)
    Conditions.

    B)
    Definitions.

    C)
    Insuring agreement.

    D)
    Declarations page.
    View Answer and Explanation
    • Answer: D
    • The declarations page of an insurance policy contains statements made by the insured on the application, information about the risk, and other pertinent data, such as insured's name, effective date of coverage, deductible, premium amounts, coinsurance percentage, and location of the property. The declarations page personalizes the policy.

    Reference: 2.4 in the License Exam Manual.
  22. Which one of the following terms indicates that an insurance contract contains the enforceable promises of only one party?



    A)
    Adhesion.

    B)
    Conditional.

    C)
    Unilateral.

    D)
    Aleatory.
    View Answer and Explanation
  23. Answer: C
    Insurance contracts are unilateral in that only one party (the insurer) makes any kind of enforceable promise. Insurers promise to pay benefits when a certain event occurs, such as death or disability. The applicant makes no such promise. He does not even promise to pay premiums, and the insurer cannot require that they be paid. In contrast with a bilateral contract, each contracting party makes enforceable promises

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