Insurance Concepts and Policy Structure Quiz

What is the purpose of the declarations page in an insurance policy?

• Lists key facts like insured’s name, address, policy period, limits, and premium.

• Defines key terms used throughout the policy.

• Specifies what is not covered under the policy.

• Outlines the insurer’s promise to pay for covered losses.

Answer explanation

The declarations page is essential as it lists key facts such as the insured’s name, address, policy period, coverage limits, and premium, providing a summary of the policy's main details.

What is the agreed value method in insurance?

• Value is stated by the insured.

• Value is based on market fluctuations.

• Value is determined at the time of loss.

• Insurer and insured agree on the value in advance, no depreciation applied.

Answer explanation

The agreed value method means that the insurer and insured set a specific value for the insured item in advance, ensuring that no depreciation is applied at the time of a claim. This provides clarity and certainty for both parties.

What is the purpose of the 'conditions' section in an insurance policy?

• Lists the key facts like insured’s name, address, policy period, limits, and premium.

• Defines the meaning of key terms used throughout the policy.

• Specifies what is not covered under the policy.

• Outlines the obligations of both parties, such as premium payment and proof of loss.

Answer explanation

The 'conditions' section outlines the obligations of both parties, detailing requirements like premium payment and proof of loss, which are essential for the enforcement of the policy.

What is the coinsurance clause in an insurance policy?

• Defines the insurer’s rights and responsibilities.

• Specifies the geographic area where coverage applies.

• Allows the insured to abandon damaged property to the insurer.

• Requires the insured to carry a minimum percentage of coverage or face a penalty.

Answer explanation

The coinsurance clause requires the insured to maintain a minimum level of coverage, typically a percentage of the property's value. Failing to do so can result in penalties, such as reduced claims payments.

What does the liberalization clause in an insurance policy entail?

• Insurer can cancel the policy at any time.

• Insurer can increase premiums without notice.

• Insured automatically receives broadened coverage without additional premium.

• Insured can change the policy terms at will.

Answer explanation

The liberalization clause ensures that if the insurer broadens coverage for a specific risk, the insured automatically benefits from this enhancement without paying an additional premium.

What is the 'primary and excess' concept in insurance?

• Excess pays first; primary pays after excess limits are exhausted.

• Both primary and excess pay simultaneously.

• Neither primary nor excess pays.

• Primary pays first; excess pays after primary limits are exhausted.

Answer explanation

In insurance, the primary policy pays first for covered losses, while the excess policy kicks in only after the primary policy's limits are exhausted. Thus, the correct choice is that primary pays first; excess pays after primary limits are exhausted.

What is the 'market value' of a property in insurance terms?

• The price a willing buyer would pay and a willing seller would accept for a property in its current condition.

• The cost to rebuild the property after a total loss.

• The agreed value between insurer and insured.

• The stated amount by the insured.

Answer explanation

The 'market value' refers to the price a willing buyer would pay and a willing seller would accept for a property in its current condition, reflecting its true worth in the market.

What is the role of endorsements in an insurance policy?

• Specify the geographic area where coverage applies.

• List the obligations of both parties.

• Add, remove, or modify policy coverage.

• Define the insurer’s rights and responsibilities.

Answer explanation

Endorsements in an insurance policy serve to add, remove, or modify coverage. This flexibility allows policyholders to tailor their insurance to better meet their needs, making this the correct choice.

What does the replacement cost method cover?

• Market value of the property.

• Agreed value of the property.

• Stated amount of the property.

• Full cost to repair or replace with new materials without depreciation.

Answer explanation

The replacement cost method covers the full cost to repair or replace a property with new materials, without accounting for depreciation. This ensures that the property can be restored to its original condition.

What is the purpose of a deductible in an insurance policy?

• The geographic area where coverage applies.

• The time frame during which coverage applies.

• The maximum amount the insurer will pay for a covered loss.

• The amount the insured must pay before the insurer covers a loss.

Answer explanation

The deductible is the amount the insured must pay out-of-pocket before the insurer starts covering a loss. This means the insured is responsible for this initial cost, which helps lower the insurer's risk.