Insurance Concepts and Policies Flashcard

Front

What is the primary purpose of umbrella/excess liability insurance for someone with existing standard liability policies?

Back

To offer additional coverage beyond primary policy limits

Answer explanation

The primary purpose of umbrella/excess liability insurance is to offer additional coverage beyond primary policy limits, protecting Ava from claims that exceed her existing liability insurance.

Front

Ava wants to protect her business assets from risks and liabilities. Which type of insurance should she consider?

Back

Commercial umbrella and excess liability insurance

Answer explanation

Ava should consider commercial umbrella and excess liability insurance as it provides additional coverage beyond standard policies, protecting her business assets from various risks and liabilities.

Front

Nora is deciding between purchasing commercial umbrella insurance and commercial excess liability insurance for her business. What is a key difference she should be aware of?

Back

Excess liability insurance follows the same terms as the primary policy

Answer explanation

Excess liability insurance extends the coverage of the primary policy and follows its terms, while umbrella insurance provides additional coverage beyond the limits of existing policies. This distinction is crucial for Nora's decision.

Front

What should Nora consider when advising a small bakery client on liability insurance?

Back

The size and nature of the business

Answer explanation

Nora should consider the size and nature of the bakery when advising on liability insurance, as these factors directly impact the risks involved and the coverage needed to protect the business effectively.

Front

What type of policy is designed to extend liability coverage beyond primary policies?

Back

Extend liability coverage beyond primary policies

Answer explanation

The correct choice is 'Extend liability coverage beyond primary policies' because this type of policy, known as an umbrella policy, provides additional liability coverage that goes beyond the limits of Samuel's auto and homeowners insurance.

Front

What is NOT typically covered by a personal umbrella policy?

Back

Intentional acts

Answer explanation

Intentional acts are not covered by a personal umbrella policy, as these policies are designed to protect against unintentional liabilities. The other options, like worldwide personal liability and personal injury, are typically included.

Front

What insurance principle is illustrated when an insurance company pays an amount that restores the insured to their financial position before a loss, without allowing profit?

Back

To restore the insured to their financial position before the loss

Answer explanation

This scenario illustrates the principle of indemnity, which ensures that Mia is restored to her financial position before the fire without making a profit from the insurance claim.

Front

Insurable interest in car insurance context

Back

Priya has a financial interest in the insured item

Answer explanation

'Insurable interest' means Priya has a financial interest in her car, which is necessary for her to purchase insurance. This ensures that she stands to lose financially if the car is damaged or lost.

Front

Method of loss valuation when insurance payout is based on item's value after accounting for depreciation.

Back

The value considering depreciation

Answer explanation

The method used by the insurance company is called 'the value considering depreciation', as it calculates the payout based on the laptop's current value after accounting for its depreciation over time.

Front

In insurance terms, what does 'replacement cost' mean?

Back

The cost to replace an item without considering depreciation

Answer explanation

In insurance terms, 'replacement cost' refers to the cost to replace an item without considering depreciation. This means the insurer will cover the full cost of a new item similar to the damaged one.