Principles of Risk Management and Insurance: Principles of Risk Management and Insurance - Chapter 22 Flashcards

Which of the following statements is (are) true regarding renters insurance?

1. Renters insurance is needed if you rent a house, but is not needed if you rent an apartment.
2. The ISO renter's policy provides open perils ("all-risks") coverage on the insured's personal property.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about eligibility requirements for homeowners insurance is (are) true?

1. A contract can be written on a twenty-unit apartment complex as long as the tenants are families.
2. Separate forms are available for renters and condominium owners.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about the Homeowners 6 (unit-owners form) policy is true?

1. A) It includes personal liability coverage.
2. B) It covers personal property on an open-perils basis.
3. C) It covers the dwelling on an open-perils basis.
4. D) It is designed for tenants who rent an apartment or a home.

Which homeowners policy is designed for the tenants of a rented premises?

1. A) Homeowners 2
2. B) Homeowners 4
3. C) Homeowners 6
4. D) Homeowners 8

Which of the following statements about the Homeowners 8 policy is (are) true?

1. Losses to the dwelling are settled on a replacement cost basis if the dwelling is insured for its full market value.
2. It is designed primarily for expensive, newer, dwellings.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about the Homeowners 3 policy is (are) true?

1. Losses to the dwelling are always settled on an actual cash value basis.
2. Coverage on personal property is limited to $5,000.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

The major difference between the dwelling coverage (Part A) of the Homeowners 2 (Broad From) policy and the Homeowners 3 (Special Form) policy is that

1. A) the HO-3 provides open perils ("all risks") coverage and the HO-2 provides named-perils coverage.
2. B) the HO-3 provides actual cash value coverage, the HO-2 provides replacement cost coverage.
3. C) the HO-3 is always written without a deductible, the HO-2 always written with a deductible.
4. D) the HO-3 can be used for any type of construction, the HO-2 is limited to wood frame homes.

Persons insured under Section I of the Homeowners 3 policy include which of the following?

1. A spouse of the named insured if living in the same household
2. The named insured's children who are under age 24 and who are full-time college students
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Section I of the Homeowners 3 policy provides coverage for which of the following?

1. A) loss of use
2. B) personal liability
3. C) disability of the homeowner
4. D) medical payments

All of the following are covered under the dwelling coverage (Coverage A) of the Homeowners 3 policy EXCEPT

1. A) any structure attached to the dwelling.
2. B) the land on which the insured dwelling is located.
3. C) materials and supplies intended for alteration or repair of the dwelling.
4. D) materials and supplies intended for construction of a detached garage.

Which of the following statements about the coverage for other structures (Coverage B) under the Homeowners 3 policy is true?

1. A) The coverage applies to a detached garage or tool shed on the residence premises.
2. B) Structures attached to the dwelling by a fence or utility line are considered to be part of the dwelling rather than other structures.
3. C) Coverage applies even if the other structure is used for business purposes.
4. D) There is no coverage for a private garage if it is rented to a tenant of the dwelling.

All of the following losses are subject to special limits of liability under the Homeowners 3 policy EXCEPT

1. A) theft of firearms.
2. B) destruction by fire of property used for business purposes.
3. C) storm damage to a boat at a marina.
4. D) furniture destroyed by a fire.

Which of the following statements about the personal property coverage (Coverage C) of the Homeowners 3 policy is (are) true?

1. There are special limits of liability that apply to certain types of personal property.
2. The full amount of coverage applies only if the property is permanently located at any residence of the insured.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

The Homeowners 3 policy limits the amount of coverage provided on certain personal property (e.g. coin collections and silverware). This personal property can be adequately insured by

1. A) lowering the deductible which applies to personal property losses.
2. B) storing the property away from the home at another location.
3. C) adding a schedule to the policy listing the property with specific amounts of insurance.
4. D) adding an appraisal clause to the policy.

Which of the following property is covered under the personal property coverage (Coverage C) of the Homeowners 3 policy?

1. A) a pet dog owned by the named insured
2. B) a bicycle owned by a foster child living with the named insured
3. C) a motor vehicle owned by the named insured
4. D) a stamp collection insured under a separate policy

Which of the following statements about coverage for loss of use (Coverage D) under the Homeowners 3 policy is true?

1. A) If a covered loss makes the home unfit for living, the insurer pays additional living expenses the insured may incur as a result of the loss.
2. B) The duration of payments for additional living expenses is limited to a maximum of 30 days.
3. C) There is no coverage for loss of rent if an insured peril makes the part of the premises rented to others uninhabitable.
4. D) There is coverage for loss of business income if an insured peril forces a home business to be terminated.

Which of the following statements about the additional coverages under Section I of the Homeowners 3 policy is true?

1. A) There is coverage for the reasonable cost incurred to protect property from further damage after a covered loss occurs.
2. B) There is unlimited coverage for furnishings of the landlord in an apartment on the premises that is rented to others.
3. C) Property removed from the premises because it is endangered by an insured peril is covered on a named-perils basis while it is outside the insured premises.
4. D) There is no coverage for the increased cost of construction or repair to comply with an ordinance or law.

All of the following are additional coverages under Section I of the Homeowners 3 policy EXCEPT

1. A) the reasonable expenses of removing debris after an insured loss.
2. B) fire department service charges for which the insured is liable by contract or agreement.
3. C) damage to trees and shrubs caused by a windstorm.
4. D) losses incurred from the unauthorized use of a stolen credit card.

Which of the following is a covered peril under the personal property coverage (Coverage C) of an unendorsed Homeowners 3 policy?

1. A) earthquake
2. B) nuclear radiation
3. C) windstorm
4. D) flood

Which of the following losses to a dwelling would be covered under an unendorsed Homeowners 3 policy?

1. A) smoke damage resulting from agricultural operations of a neighboring farmer
2. B) damage to the structure caused by a flash flood
3. C) damage to the structure caused by the weight of heavy snow on the roof
4. D) damage to a floor caused by water backing up through a sewer pipe

Which of the following statements about covered perils under the personal property coverage (Coverage C) of the Homeowners 3 policy is true?

1. A) Theft losses to boats and watercraft are covered only if they occur at the insured's residence.
2. B) Damage from an explosion is covered only if the explosion is the result of fire or lightning.
3. C) Property damage from vehicles is covered only if it is caused by the insured.
4. D) Smoke damage is covered only if it arises from agricultural or industrial operations.

Which of the following types of water damage is covered under an unendorsed Homeowners 3 policy?

1. A) damage from a flood caused by torrential rain
2. B) damage from water backing up through a drain
3. C) damage from water below the surface of the ground that seeps into a basement
4. D) damage from water that overflows from a malfunctioning washing machine

Which of the following is a general exclusion under Section I of the Homeowners 3 policy? A) Water damage caused by accidental discharge from a household appliance.

1. B) Losses due to the failure of the insured to use all reasonable means to save and preserve property after the time of a loss.
2. C) Losses resulting from a power failure caused by an insured peril at the residence premises.
3. D) Losses due to a windstorm.

Which of the following is (are) included among the duties of an insured following a loss covered under the Homeowners 3 policy?

1. To file a proof of loss within a specified time period after the insurer's request
2. To prepare an inventory of damaged personal property
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Which of the following statements about the replacement cost provision of the Homeowners 3 policy is true?

1. A) It applies to personal property losses only.
2. B) Except for small losses, the insured must repair or replace the damaged property in order to receive full replacement cost.
3. C) The insured is required to carry an amount of insurance equal to 100 percent of the replacement value of the insured property.
4. D) Loss settlements are equal to 50 percent of the value of the loss if the insured is carrying less than the required amount of insurance.

David has a Homeowners 3 policy that provides $280,000 of insurance on his dwelling, which has a current replacement value of $400,000. Ignoring any deductible, how much will David collect if a roof with a replacement value of $16,000 but an actual cash value of $10,000 is destroyed in a fire?

1. A) $10,000
2. B) $12,000
3. C) $14,000
4. D) $16,000

Which of the following statements about the appraisal clause in the Homeowners 3 policy is (are) true?

1. It is used to determine a value for personal property when the policy is issued.
2. It is used to help settle disputes over the amount of a loss after a loss has occurred.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Under the Homeowners 3 policy, all of the following are options of the insurer for settling claims EXCEPT

1. A) paying the claim in cash.
2. B) replacing the property.
3. C) repairing the property.
4. D) paying the claim with insurance company stock.

All of the following are duties of the mortgagee under the standard mortgage clause EXCEPT

1. A) to reimburse the insurer for any loss payments.
2. B) to notify the insurer of any change in ownership of the property of which the mortgagee is aware.
3. C) to provide a proof of loss form if the insured fails to do so.
4. D) to pay the premium if the insured fails to do so.

All of the following statements about the cancellation of a Homeowners 3 policy are true EXCEPT

1. A) The insurer may cancel a new policy for any reason if it has been in force for less than 60 days and is not a renewal policy.
2. B) At least 100 days' notice of cancellation must be given if an insurer cancels a policy for nonpayment of premium.
3. C) A policy written for longer than 1 year can be cancelled for any reason on the anniversary date by giving the insured at least 30 days' notice of cancellation.
4. D) After a policy has been in force for at least 60 days, it can be cancelled by the insurer if the risk has increased substantially since the policy was issued.

All of the following statements about conditions under a Homeowners 3 policy are true EXCEPT

1. A) If an insurer broadens coverage without an additional premium during the policy period, the broadened coverage applies immediately to the present policy.
2. B) A waiver or change in any policy provision must be approved in writing by the insurer to be valid.
3. C) The insurer must give written consent for an assignment of the policy to be valid.
4. D) If the named insured dies, coverage automatically ceases with respect to any property of the deceased.

Cal is renting an apartment. Which homeowners policy is specially designed to insure renters?

1. A) HO-2
2. B) HO-3
3. C) HO-4
4. D) HO-6

Shauna purchased a condominium unit. Which homeowners policy is specially designed for condominium unit owners?

1. A) HO-2
2. B) HO-3
3. C) HO-4
4. D) HO-6

Michelle had four matching end tables in her home. A fire damaged the home, destroying two of the end tables. Michelle's home was covered by an unendorsed Homeowners 3 policy. Which of the following is true with regard to the settlement for the end tables in this case?

1. A) Loss to a pair or set is excluded under the policy.
2. B) The insurer will pay the difference in actual cash value of the property before and after the loss.
3. C) The insurer will pay the replacement cost of the loss.
4. D) If a partial loss to a pair or set occurs, the insurer is liable for replacement of the entire pair or set.

Betty's personal property is insured for $100,000 under her Homeowners 3 policy. If she usually keeps some personal property at a mountain cabin that she owns, how much coverage for this property is available under her homeowners policy?

1. A) $10,000
2. B) $20,000
3. C) $40,000
4. D) $50,000

Linda wants to purchase a homeowners policy. She has some valuable personal property to which internal policy limits apply. Her agent said that she could obtain coverage under her homeowners policy by attaching a list of this valuable property with specific amounts of insurance. Such a listing is called a(n)

1. A) binder.
2. B) schedule.
3. C) application.
4. D) warranty.

Which of the following is an additional coverage provided under Section I of the Homeowners 3 policy?

1. A) medical payments to others
2. B) debris removal
3. C) personal liability
4. D) intentional property damage caused by an insured

Darla purchased an unendorsed Homeowners 3 policy. While the policy was in force, a fire occurred that destroyed a living room set. The living room set cost $4,000 new, but was 25 percent depreciated when the loss occurred. Replacement furniture will cost $4,400. Assuming no deductible, how much will Darla receive from her insurer?

1. A) $3,000
2. B) $3,300
3. C) $3,400
4. D) $4,400

A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $9,000, but it will cost $12,000 to replace the roof. Ignoring any deductible, what will the insurer pay to settle this loss?

1. A) $8,000
2. B) $9,000
3. C) $10,000
4. D) $12,000

Ellen believes the value of the loss to her home is $30,000. The insurer has offered $18,000 to settle the loss. If Ellen and the insurer cannot agree on the value of the loss, which homeowners policy provision specifies how this dispute will be settled?

1. A) insurer's option
2. B) appraisal clause
3. C) loss payment clause
4. D) mortgage clause

Ted borrowed $140,000 from ABC Bank to purchase a home and pledged the home as collateral for the loan. Shortly after purchasing the home, Ted lost his job. He could not find another job and could not pay the monthly mortgage. Ted set fire to the home. The claims adjuster suspected arson, and an investigation proved that Ted intentionally caused the loss. Under the mortgage clause of the Homeowners 3 policy, how will this loss be settled?

1. A) The insurer has no liability because the loss was intentional.
2. B) The insurer will pay Ted the actual cash value of the loss as intentional loss is not excluded.
3. C) The insurer will pay ABC the value of its insurable interest and pay Ted the value of his insurable interest.
4. D) The insurer will pay ABC the value of its insurable interest and then attempt to recoup the loss payment from Ted.

Mike and Susan built their "dream home." They insured their home for its full replacement cost. They also added an endorsement that will pay up to an additional 20 percent of the policy limit in case the cost of rebuilding the home after a loss is greater than the policy limit. The basis under which Mike and Susan insured their home is called

1. A) actual cash value.
2. B) valued policy coverage.
3. C) extended replacement cost.
4. D) guaranteed replacement cost.

Jose and Maria would like "open-perils" coverage on their home and their personal property. Which unendorsed homeowners form provides this coverage?

1. A) Homeowners 2
2. B) Homeowners 3
3. C) Homeowners 4
4. D) Homeowners 5

Which of the following statements about covered perils and loss settlement under an unendorsed Homeowners 3 policy is true?

1. A) The dwelling is covered on a named-perils basis.
2. B) Personal property losses are settled on an actual cash value basis.
3. C) Losses to the dwelling are always settled on an actual cash value basis.
4. D) Personal property is covered on an open-perils basis.

Which of the following statements is (are) true regarding how the Homeowners 3 policy handles the peril of collapse?

1. Collapse is specifically excluded, and there are no exceptions to the exclusion.
2. Collapse that is caused by a Coverage C peril is covered.
3. A) I only
4. B) II only
5. C) both I and II
6. D) neither I nor II

Following catastrophic hurricane losses, South Coast Insurance Company changed its deductible provision. Rather than using a specified dollar value, $250 for example; the dollar value of the deductible increases with the size of the loss. The type of deductible that South Coast changed to is called a(n)

1. A) calendar-year deductible.
2. B) aggregate deductible.
3. C) straight deductible.
4. D) percentage deductible.

If there is a conflict between state law and a provision in a homeowners policy,

1. A) the policy wording takes precedence.
2. B) the state law takes precedence.
3. C) the policyholder is entitled to whichever provides broader coverage.
4. D) the policy is null and void.

A fire destroyed the home next door to Brad's home. The fire department chief was concerned that the damaged home would collapse on to Brad's home, so he ordered Brad to evacuate his home. Which of the following statements is true concerning the cost of Brad's hotel room while he is complying with the fire chief's order?

1. A) The cost of the hotel room is not covered, as Brad's home was not directly damaged.
2. B) The cost of the hotel room is covered under the "fair rental value" coverage of Part D.
3. C) The cost of the hotel room is covered under the "prohibited use" coverage of Part D.
4. D) The cost of the hotel room is covered under the dwelling coverage of Part A.

The homeowners policy excludes a loss brought about by two or more perils where one peril is covered under the policy and the other perils are excluded. This situation is called

1. A) ordinance or law.
2. B) proximate cause.
3. C) concurrent causation.
4. D) nullification.

One additional coverage under the homeowners policy makes available up to 10 percent of the Coverage A limit to cover increased repair costs after a loss in order to comply with a stricter building code. This additional coverage is called

1. A) ordinance or law.
2. B) reasonable repairs.
3. C) concurrent causation.
4. D) debris removal.

Brian purchased an unendorsed Homeowners 3 policy. Under the policy, Brian's detached garage is also covered. Which of the following statements regarding coverage on the garage is true?

1. A) The garage is covered on a named-perils basis.
2. B) Any losses to the garage are settled on an actual cash value basis.
3. C) The cost of removing debris is included in the policy limit on the garage, but if the damage and cost of removing debris exceed the limit, an additional five percent of the policy limit is available.
4. D) The garage is covered under the dwelling coverage, Part A.

Which of the following statements concerning the coverage of collapse of the dwelling under an unendorsed Homeowners 3 policy is true?

1. A) There is no coverage for collapse, regardless of the cause of the collapse.
2. B) Collapse is covered if it is caused by one of the Coverage C perils.
3. C) If collapse is caused by an earthquake, the loss is covered.
4. D) There is no coverage for collapse unless the proper endorsement is added to the policy.

If the insurer broadens coverage during the policy period without an increase in premium, and the broadened coverage is not part of a general program revision, the insured is entitled to the broadened coverage under which policy provision?

1. A) waiver of policy provisions
2. B) subrogation
3. C) liberalization clause
4. D) pair or set clause

Several different values can be considered when determining how much insurance should be carried on a dwelling (the Coverage A limit of the Homeowners 3 policy). The appropriate value that should be used is:

1. A) the home’s market value.
2. B) the home’s actual cash value.
3. C) the home’s appraised value for property tax purposes.
4. D) the home’s replacement cost.

The concurrent causation exclusion in the Homeowners 3 policy specifies that:

1. A) if two or more perils jointly cause a loss, there is no coverage if one of the perils is excluded.
2. B) if the insured has two or more policies in force at the time of the loss, the loss is not covered.
3. C) if the insured has two or more policies in force at the time of the loss, the loss is pro-rated between the insurers.
4. D) if two or more perils jointly cause a loss, there is coverage as long as one of the perils is covered.

The purpose of the appraisal clause in the Homeowners 3 policy is to

1. A) determine the appropriate amount of homeowners insurance to purchase.
2. B) set a value on the home for estate purposes if the homeowner dies.
3. C) settle valuation disputes between the insurer and insured after a loss has occurred.
4. D) determine a mortgage lender’s insurable interest after a loss has occurred.

Glenda insured her home for its full replacement cost under an unendorsed Homeowners 3 policy. Which of the following statements is true?

1. A) The dwelling and other structures are covered on a named-perils basis.
2. B) Losses to personal property are settled on a replacement cost basis.
3. C) The personal property is covered on an open-perils basis.
4. D) Losses to the dwelling and other structures are settled on a replacement cost basis.

Which of the following statements concerning coverage under the Homeowners 3 policy is true?

1. A) If a power failure away from the insured dwelling causes a loss, the loss is covered.
2. B) If a Coverage C peril causes a collapse, the resulting damage is covered.
3. C) If an insured peril damages a portion of a pair or set (e.g. matching lamps or end tables), the insurer must pay the full value of the entire pair or set.
4. D) If a discharge from a home appliance causes the home to flood, the loss is excluded. .