Property and Casualty Policy Provisions Quiz

What does a coinsurance clause require?

• Transferring policy rights to someone else

• Insuring property to a set percentage of its value

• Paying premiums monthly, quarterly, or annually

• Providing false information on an application

Answer explanation

A coinsurance clause requires insuring property to a set percentage of its value, ensuring that the insured amount reflects a portion of the property's actual value to avoid penalties in case of a claim.

What happens to an insurance policy upon the death of the insured?

• It is immediately canceled

• Coverage extends to the legal representative or estate

• The insurer automatically cancels the policy

• It is transferred to the nearest relative

Answer explanation

Upon the death of the insured, the insurance policy does not get canceled. Instead, coverage extends to the legal representative or estate, ensuring that any benefits are properly managed and distributed.

What is a binder in insurance terms?

• A payment made to keep coverage active

• A clause that requires insuring property to a set percentage

• A temporary coverage agreement

• A transfer of policy rights to someone else

Answer explanation

A binder in insurance is a temporary coverage agreement that provides immediate protection until a formal policy is issued. It ensures that coverage is in place while the details are finalized.

What is insurable interest?

• The chance that a peril will cause a loss

• The temporary coverage agreement

• The financial stake in the insured property

• The requirement to insure property to a set percentage

Answer explanation

Insurable interest refers to the financial stake in the insured property. It means that the policyholder must have a legitimate interest in the property being insured, ensuring they would suffer a loss if it were damaged.

Which of the following best describes risk in insurance terms?

• The actual damage caused by a covered event

• The payment you make to keep coverage active

• The chance that a peril will cause a loss

• The hazard you insure against

Answer explanation

In insurance, risk refers to the likelihood that a peril (an event causing loss) will occur. Thus, the correct choice is 'The chance that a peril will cause a loss', as it captures the essence of risk in this context.

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

• To outline the core promise of coverage

• To provide temporary coverage

• To list the rules both parties must follow

• To calculate the deductible

Answer explanation

The conditions section in an insurance policy outlines the rules both parties must follow, ensuring clarity on obligations and rights, which is essential for the enforcement of the policy.

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

• The temporary coverage agreement

• The percentage of property value insured

• The full new-item cost

• The amount you pay out of pocket before benefits apply

Answer explanation

The deductible is the amount you pay out of pocket before your insurance benefits kick in. It is a key feature of an insurance policy that determines your initial financial responsibility in a claim.

What does subrogation allow an insurer to do?

• Cancel a policy before its expiration date

• Recover from the party responsible for a loss

• Transfer policy rights to another party

• Provide temporary coverage

Answer explanation

Subrogation allows an insurer to recover from the party responsible for a loss after they have compensated the insured. This process helps insurers recoup costs and maintain financial stability.

What is the purpose of an appraisal in insurance?

• To determine the premium amount

• To settle a disagreement on a loss amount

• To calculate the deductible

• To assess the risk of a peril

Answer explanation

The purpose of an appraisal in insurance is to settle a disagreement on a loss amount. It helps both parties agree on the value of a claim, ensuring fair compensation for the insured.

What is a peril in the context of insurance?

• The payment you make to keep coverage active

• The hazard you insure against

• The actual damage caused by a covered event

• The chance of a loss occurring

Answer explanation

In insurance, a peril refers to the specific hazard or risk that is covered by the policy. This means it is the event or circumstance that the insurance protects against, making 'the hazard you insure against' the correct choice.