Personal Insurance – Simulated exam

An occurrence as defined in the HO-3 policy is

Select one:
A. A claim.
B. A loss.
C. An accident.
D. An event.

Correct. An occurrence is an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Angela has a five-year-old pickup truck which she uses to commute from her ranch to her job at a feed store. She recently had a collision with another vehicle, after which both drivers required minor medical treatment. Angela lives in a modified no-fault state. Which one of the following is a primary rating factor in determining the premium for Angela’s automobile insurance?

Select one:
A. The commuting use of the vehicle
B. The accident
C. The vehicle is a truck
D. The modified no-fault state

Correct. The primary rating factor in determining the premium for Angela’s automobile insurance would be the commuting use of the vehicle.

Jim and Sue, a young married couple, are under contract to purchase a condominium unit. Which one of the following ISO policy forms is best designed to meet their homeowners insurance needs?

Select one:
A. HO-2 policy
B. HO-4 policy
C. HO-6 policy
D. HO-8 policy

Correct. The HO-6 policy is the best ISO policy form designed to meet homeowners insurance needs.

Which one of the following is the main component used in determining adequate insurance rates?

Select one:
A. Profit goal
B. Underwriting expenses
C. Incurred losses
D. Investment income

Correct. Incurred losses is the main component used in determining adequate insurance rates.

Which one of the following is charged per exposure unit by estimating the value of projected losses associated with a line of business on past claim data and current trends?

Select one:
A. Rate relativity factors
B. Base premium
C. Pure premium
D. Base rate

Correct. The pure premium is based solely on the value of projected loss costs based on past claim data and current trends. A rate relativity factor is the number by which a base rate may be multiplied to reflect the relatively higher or lower loss exposure of one homogeneous group compared to another.

Bo was injured in an auto accident while using his car as a taxicab. Bo’s car is covered by a Personal Auto Policy (PAP) that included medical payments coverage. Which one of the following statements about Bo’s coverage for the accident is correct?

Select one:
A. Bo will receive medical payments under the PAP under the Public or Livery Conveyance coverage provision.
B. Bo will receive medical payments under the PAP under the Vehicles Used in the Business of an Insured coverage provision.
C. Bo will not receive medical payments under the PAP because of the Public or Livery Conveyance exclusion.
D. Bo will not receive medical payments under the PAP because of the Taxi and Omnibus exclusion.

Correct. An insured injured while occupying a covered auto that is being used as a public or livery conveyance such as a taxi or public bus, or who is logged into a “transportation network platform” as a driver, will not receive medical payments. (The exclusion does not apply to share-the-expense car pools.)

During the last five years, Insurance Company has increased its total policies in force at substantially higher rates than originally anticipated. Which one of the following best describes how Insurance Company should react to this?

Select one:
A. Increase its new business as quickly as possible since this trend demonstrates an opportunity
B. Reduce its writing of new business right away, because this trend demonstrates a threat
C. Analyze this trend carefully, because it could indicate a threat or an opportunity
D. No reaction since it is neither a threat nor an opportunity

Correct. Insurance Company must evaluate this development carefully, to decide if it indicates a threat or an opportunity. This trend could indicate that Insurance Company’s policies are priced too low or that its underwriting guidelines are too broad. Or, it could indicate that Insurance Company has excellent products that are priced very well or that Insurance Company’s service is excellent. Insurance needs to be cautious and evaluate this trend carefully to see what it may reveal about Insurance Company’s business.

The Broadened Home-sharing Host Activities Coverage Endorsement affects liability coverage under the homeowners form by

Select one:
A. Covering incidental exposures associated with occasional rental activities.
B. Providing for losses from theft when a home-sharing occupant has rented the premises.
C. Amending the “business” definition to provide coverage for bodily injury or property damage arising from home-sharing activities.
D. Allowing the insured to select a higher limit for damage to property of others.

Correct. The Broadened Home-sharing Host Activities Coverage Endorsement affects liability coverage under the homeowners form by amending the “business” definition to provide coverage for bodily injury or property damage arising from home-sharing activities.

A claim for money damages because of injury to another party or damage to another party’s property best describes

Select one:
A. A tort.
B. Errors and omissions.
C. A liability loss.
D. A property loss exposure.

Correct. A liability loss is a claim for money damages because of injury to another party or damage to another party’s property.

Sammy is the named insured on an HO-3 policy covering his family’s home. Sammy and his wife, Sally, have a young daughter, Suzie, and a grown-up son, Steve, who lives with them, and they own a cocker spaniel puppy. While a neighboring couple and their five-year-old son, Jay, were visiting, the puppy bit Jay. Jay suffered a serious wound and his parents sued Sammy and Sally. All of the following are insureds under the HO-3, EXCEPT:

Select one:
A. Suzie
B. Jay
C. Sally
D. Steve

Correct. Jay does not qualify as an insured. Sally is an insured because she is the spouse of the named insured residing in the same household as her spouse. Steve and Suzie are insureds because they are relatives of the named insured residing in the same household as the named insured.

Elin had a Personal Auto Policy (PAP) with Etchley Insurance Company with a $100,000 combined single limit. Elin had an auto accident with Roy, for which Elin was completely at fault. Roy sued Elin and recovered $100,000 against her. The attorney defending Elin in this lawsuit submitted a fee bill to Etchley totaling $50,000. Which one of the following correctly states the amount properly payable under Elin’s PAP?

Select one:
A. $100,000
B. $0
C. $150,000
D. $50,000

Correct. Etchley must pay $150,000–the defense costs are paid in addition to the combined single limit.

The Dwelling Property 3—Special Form (DP-3) offers coverages for a dwelling and its contents similar to the coverages under Section I of the HO-3—Special Form (HO-3). Which one of the following is a difference in the coverage between these two forms?

Select one:
A. Coverage B is optional and limits are selected under the DP-3 policy.
B. Fair rental value coverage must be separately endorsed onto the DP-3.
C. The DP-3 form is written on a named perils basis rather than all perils.
D. The DP-3 has lower special limits on theft losses to jewelry, furs, and firearms.

Correct. Coverage B is optional and limits are selected under the DP-3 policy.

Which one of the following is true of specialty crop and livestock insurance?

Select one:
A. Animal mortality insurance is limited to loss from accident, injury, sickness, or disease.
B. Crop-hail insurance can be extended to cover additional perils.
C. Feedlot insurance is limited to the bailee liability exposure of the feedlot operator.
D. Livestock policies exclude coverage for loss of gross margin or price increases.

Correct. Crop-hail insurance can be extended to cover additional perils.

Inland marine floaters are flexible and can be used to cover both common and unusual exposures. Inland marine floaters provide the producer with the opportunity to address and sell coverage for

Select one:
A. Increased building values on the homeowners policy.
B. Low-valued personal property.
C. Increased liability limits on the homeowners policy.
D. Property not adequately covered by the homeowners policy.

Correct. Property not adequately covered by the homeowners policy.

Which one of the following is considered real property?

Select one:
A. An automobile
B. A brick storage shed
C. Household appliances
D. A motorhome

Correct. Real property includes tangible property consisting of land and all structures permanently attached to the land, such as storage sheds. Motor vehicles and household appliances are examples of personal property.

The HO-3 policy

Select one:
A. Is assignable only with the insurer’s written consent.
B. May be assigned when the insured makes a written request within 60 days of the assignment.
C. Cannot be assigned to another party.
D. Is fully assignable without the insurer’s consent.

Correct. The HO-3 is assignable only with the insurer’s written consent.

Jacob lives in a rural farmhouse which he insures under an unendorsed DP-3 policy because the lack of public fire protection makes it ineligible for homeowners coverage from his insurer. The dwelling policy includes the following limits and coverages:

 Limit

Coverage A
$125,000
Coverage C
$10,000

Jacob recently took an extended tour of Europe, and while he was traveling on a train, luggage with all his clothing, personal effects, and souvenirs was destroyed in a baggage car fire. Jacob values the lost property at $2,000. Ignoring any deductible that may apply, how much of Jacob’s loss will be covered by his DP-3 policy?
Select one:
A. $0
B. $200
C. $1,000
D. $2,000

Correct. $1,000

The conditions under which the insurer can nonrenew a Personal Auto Policy (PAP) vary according to the length of the policy period. If the policy period is less than six months, the insurer

Select one:
A. Has the right to nonrenew every six months, beginning six months after the policy’s original effective date.
B. Has the right to nonrenew every year, beginning twelve months after the policy’s original effective date.
C. Has the right to nonrenew every 60 days.
D. Does not have the right to nonrenew.

Correct. Has the right to nonrenew every six months, beginning six months after the policy’s original effective date.

A statement of facts about a loss for which the insured is making a claim is known as a

Select one:
A. Fact sheet.
B. Proof of loss.
C. Deposition.
D. Appraisal.

Correct. Proof of loss.

Extended Theft Coverage for Residence Premises Occasionally Rented to Others (HO 05 41) amends the wording of the theft peril in certain homeowners forms to extend coverage to which one of the following?

Select one:
A. Landlord’s personal property from theft by an occasional tenant
B. Personal property of the tenant’s guest while at the rented premises
C. An occasional tenant’s personal property while in the rented premises
D. A continuous tenant’s personal property away from the rented premises

Correct. Landlord’s personal property from theft by an occasional tenant

Rosa’s sedan is covered by a Personal Auto Policy (PAP) with split limits for liability coverage of $100/$300/$50. Rosa’s friend, Lamont, owns a sports car that is covered by a PAP with split limits for liability coverage of $25/$50/$10. Rosa borrowed Lamont’s sports car and caused an accident with another vehicle driven by James. James and his passenger, Fred, were injured and they filed suit against Rosa. A court awarded $35,000 to James for his bodily injuries and $110,000 to Fred for his bodily injuries. Which one of the following will be paid under each policy?

Select one:
A. $29,000 under Lamont’s policy and $116,000 under Rosa’s policy
B. $35,000 under Lamont’s policy and $110,00 under Rosa’s policy
C. $50,000 under Lamont’s policy and $95,000 under Rosa’s policy
D. $95,000 under Lamont’s policy and $50,000 under Rosa’s policy

Correct. $50,000 under Lamont’s policy and $95,000 under Rosa’s policy

Johanna owns a large travel trailer, which is equipped with cooking facilities and an awning. Johanna wants to obtain collision and other than collision coverage for her travel trailer. Which one of the following is the best option for Johanna to secure this coverage?

Select one:
A. Personal Auto Policy (PAP)
B. Miscellaneous Type Vehicle Endorsement
C. Trailer/Camper Body Coverage Endorsement
D. Incidental Low Power Recreational Motor Vehicle Endorsement

Correct. Trailer/Camper Body Coverage Endorsement

Which one of the following statements is true regarding Coverage A—Dwelling as it applies to the dwelling on the “residence premises” listed on the HO-3 policy declarations page?

Select one:
A. When buying insurance, a homeowner should determine the Coverage A limit based on the cost to replace the dwelling including the cost of the land.
B. The HO-3 could cover the entire building for a policyholder who owns a four-family home, lives in one unit, and rents the other units to tenants.
C. Coverage A does not apply to structures attached to the dwelling, such as a garage or deck.
D. The land at the residence premises is specifically included in the property coverage.

Correct. The HO-3 could cover the entire building for a policyholder who owns a four-family home, lives in one unit, and rents the other units to tenants.

Which one of the following types of modeling includes a science, engineering, and insurance component?

Select one:
A. Catastrophe
B. Price optimization
C. Variable
D. Predictive

Correct. Catastrophe

Which one of the following is usually excluded under a personal umbrella policy?

Select one:
A. Slander
B. Defense costs
C. False arrest
D. Professional liability

Correct. Professional liability

Which one of the following is an advantage of using credit-based insurance scores in underwriting?

Select one:
A. Its use is encouraged by regulators for underwriting insurance policies.
B. It allows insurers to project future loss levels.
C. It is easy for consumers to understand.
D. It allows insurers to develop premiums commensurate with loss levels.

Correct. It allows insurers to develop premiums commensurate with loss levels.

Jack and Linda are meeting with their insurance agent to review their homeowners and auto policies. The agent has suggested that they add an umbrella policy. Which one of the following is the best reason the agent will likely provide for purchasing this coverage?

Select one:
A. To provide an increased limits policy with no exclusions
B. To avoid any retained limits for the broader coverage
C. To offset the deductibles on their other policies
D. To provide increased limits for large jury awards

Correct. To provide increased limits for large jury awards

An insurer can grow

Select one:
A. By lowering expenses.
B. Either by raising rates to generate additional premium or by lowering rates to attract more business.
C. By decreasing the frequency or severity of losses through underwriting action.
D. Only by lowering rates to attract more business.

Correct. Either by raising rates to generate additional premium or by lowering rates to attract more business.

Dane has an unendorsed HO-3 policy to insure his single-family home. He started a small Internet business. Dane publicizes stamp and coin dealers and their inventories over the Internet and keeps the web site inventories and values current for his customers.

As a storm passed over, lightning struck Dane’s house. Dane’s computer was damaged, destroying half the records of his customers’ inventories. He estimates that it will cost $2,000 to reestablish his inventory records. Disregarding any deductible that may apply, what amount, if any, will Dane’s insurer pay for these losses?

Select one:
A. $0
B. $500
C. $1,000
D. $2,000

Correct. $0

The major advantage of the Limited Mexico Coverage endorsement to the Personal Auto Policy (PAP) is that it provides

Select one:
A. Primary liability insurance within twenty-five miles of the United States border.
B. Additional liability insurance as well as providing physical damage coverage.
C. Liability and physical damage coverage for trips to Mexico of more than ten days.
D. All auto insurance coverages required by Mexican law.

Correct. Additional liability insurance as well as providing physical damage coverage.

Executives of Insurance Company (IC) want to review IC’s financial performance. In particular, they want to examine the insurer’s overall underwriting performance, comparing the inflow and outflow of money from insurance operations. Based on the above, IC executives want to review the

Select one:
A. Expense ratio.
B. Loss ratio.
C. Written premium.
D. Combined ratio.

Correct. Combined ratio.

Jill and Tom have a home with a $300,000 replacement cost and an HO-3 policy with a Coverage A limit of $270,000. Lightning strikes the central air conditioning unit and destroys it beyond repair. The unit has a replacement cost of $5,000, is five years old, and has a useful life of 10 years. Ignoring any deductible that might apply, how much will the insurer pay to replace the air conditioning unit?

Select one:
A. $2,500
B. $3,000
C. $4,500
D. $5,000

Correct. $5,000

Which one of the following statements is true regarding watercraft liability coverage under the HO-3 policy?

Select one:
A. Watercraft owned by the insured that is stored at a marina is not covered.
B. Sailboats longer than 26 feet not owned by or rented to an insured are not covered.
C. Sailboats shorter than 26 feet owned by the insured are covered.
D. Inboard watercraft with 50 horsepower engines owned by the insured are covered.

Correct. Sailboats shorter than 26 feet owned by the insured are covered.

Which one of the following statements regarding property exposed to loss is true?

Select one:
A. Real property includes intangible property.
B. Earthquake damage to a swimming pool is an example of a personal property exposure.
C. Personal property includes only tangible property.
D. Lightning damage to a tree is an example of a real property loss exposure.

Correct. Lightning damage to a tree is an example of a real property loss exposure.

Following an auto accident, Jim’s vehicle was towed to a body shop, and it remained there for five days for repairs. The damage was covered under the collision coverage of Jim’s Personal Auto Policy (PAP). During those five days, Jim used public transportation at a cost of $5.00 per day. What amount will Jim’s insurer pay under his PAP for his transportation expenses while his vehicle was being repaired?

Select one:
A. $0
B. $15
C. $20
D. $25

Correct. $20

The HO-5 policy is designed to meet the risk management needs of

Select one:
A. Owner-occupants of dwellings who would like the broadest coverage available among ISO’s forms for their property.
B. Owners of condominium units.
C. Owner-occupants of dwellings who may not meet insurer underwriting standards required for other policy forms.
D. Tenants of apartments or dwellings.

Correct. Owner-occupants of dwellings who would like the broadest coverage available among ISO’s forms for their property.

Which one of the following is an example of an ensuing loss?

Select one:
A. A gas leak following an earthquake caused a fire that damaged a house.
B. An explosion at a chemical plant cracked the foundation of a house.
C. The insured’s cat chewed through the electrical cord to a lamp which damaged the lamp and caused a hazardous condition in the house.
D. The insured improperly stacked wood in the fireplace and failed to open the damper in the chimney. The house was damaged by smoke, and a log that rolled out of the fireplace burned the wood floor.

A gas leak following an earthquake caused a fire that damaged a house.

Benjamin visited his insurance agent, Lily, about his insurance coverage limits under the ISO Mobilehome Endorsement. Benjamin was particularly concerned about having adequate coverage for various items of property that were built into his mobile home, including floor coverings, appliances, dressers, and cabinets. Which one of the following coverages should Lily review in order to assist Benjamin in determining adequate limits for these mobile home property items?

Select one:
A. Coverage D—Loss of Use
B. Coverage B—Other Structures
C. Coverage A—Dwelling
D. Coverage C—Personal Property

Correct. Coverage A—Dwelling

Which one of the following is correct regarding the Insurance Services Office (ISO) mobilehome policy?

Select one:
A. It is a special ISO stand-alone policy.
B. It provides broader liability coverage than an ISO homeowners policy.
C. It usually has a higher Coverage C—Personal Property limit than an ISO homeowners policy.
D. It is created by attaching the Mobilehome Endorsement to an ISO homeowners policy.

Correct. It is created by attaching the Mobilehome Endorsement to an ISO homeowners policy.

Actuary Smith has been reviewing the data below that he has received regarding the loss frequency of his company’s homeowners portfolio.

Losses House -Years
Freq./ 100 House -Years

Year 1
401

10,000

4.01%

Year 2
487

10,500

4.64%

Year 3
529

11,000

4.80%

Which one of the following is a conclusion that Smith is likely to come to regarding this data and the affect it will have for Year 4?
Select one:
A. Losses will begin to go down in year 4.
B. Frequency/House-Years will remain flat for year 4.
C. Year 4 is likely to have a higher loss frequency.
D. Year 4 will likely have 12,000 House-Years.

Correct. Year 4 is likely to have a higher loss frequency.

The calculation of a base rate for an insurance class or product assumes certain things. Which one of the following explains how class relativity factors apply to these base rates?

Select one:
A. Class relativity reduces the severity variations in the pure premium calculation.
B. Class relativity adjusts the frequency of loss to match that in other classes.
C. Class relativity pools loss cost data to provide additional experience to the insurer.
D. Class relativity adjusts pricing to respond to levels of risk within the portfolio.

Correct. Class relativity adjusts pricing to respond to levels of risk within the portfolio.

The Coverage for Damage to Your Auto (Maximum Limit of Liability endorsement) covers each described vehicle for

Select one:
A. A specified limit for bodily injury and property damage liability coverage.
B. A specified limit for medical payments and uninsured motorists coverage.
C. A stated amount of insurance that applies to collision but not to other than collision losses.
D. A stated amount of insurance that applies to collision and other than collision losses.

Correct. A stated amount of insurance that applies to collision and other than collision losses.

Under the HO-3 policy Section I—Conditions, the Appraisal condition

Select one:
A. Outlines a method for resolving disagreements between the insured and the insurer.
B. Provides that if the insured abandons the property after it is damaged, the insurer need not take over responsibility for it.
C. States that the insurer will adjust all losses with the insured or the insured’s spouse, if a resident in same household.
D. Bars an insured from bringing legal action against the insurer unless the insured has complied with all policy provisions.

Correct. Outlines a method for resolving disagreements between the insured and the insurer.

Which one of the following is a disadvantage of the automation changes being made by insurers?

Select one:
A. Development costs
B. Automated insure-producer interface
C. Enormous amounts of data to analyze
D. Regulatory requirements

Correct. Development costs

Harry is the named insured shown on the Declarations page of a Personal Auto Policy (PAP). Harry is married to Ida. Ida received a 60-day job assignment in the next town so one month ago, Ida moved out of their mutual home, to a new temporary residence. Neither Harry nor Ida are named on any other PAPs. Which one of the following correctly states who falls within the policy definition of “you and your” under Harry’s PAP?

Select one:
A. Harry, Ida, and any other residents of their household
B. Harry only
C. Harry and Ida
D. Neither Harry nor Ida

Correct. Harry and Ida

Lori has a company car with insurance coverage provided by her employer and she does not own a car. On occasion, Lori helps her elderly grandmother, Nell. Lori occasionally drives Nell’s car to pick up prescriptions. Lori knows that Nell has low limits of liability and is afraid that Nell might allow the insurance on her car to lapse. What coverage can Lori purchase to provide insurance for herself when she drives Nell’s car?

Select one:
A. A Personal Auto Policy (PAP) covering her company car
B. Miscellaneous Type Vehicle endorsement attached to a PAP
C. Extended Non-Owned Coverage for Named Individual endorsement attached to a PAP
D. Named Non-Owner Coverage endorsement attached to a PAP

Correct. Named Non-Owner Coverage endorsement attached to a PAP

Last year, Insurance Company had 460 hail losses and total paid hail losses of $2 million on a book of business comprised of 5,000 homes. The components of Insurance Company’s hail loss severity are

Select one:
A. The total paid losses ($2 million) and the number of years under review (1).
B. The total paid losses ($2 million) and the number of homes ($5,000).
C. The number of losses (460) and the total paid losses ($2 million).
D. The number of homes ($5,000) and the number of losses (460).

Correct. The number of losses (460) and the total paid losses ($2 million).

Which one of the following is a common provision in boatowners and yacht policies that provides that the insured promises not to operate the boat during a specified period?

Select one:
A. Protection and indemnity warranty
B. Navigational limits warranty
C. Lay-up period warranty
D. Seaworthiness warranty

Correct. Lay-up period warranty

The Richleys have an HO-3 policy. A deliveryman cut across the grass, rather than using the walk to the Richleys’ front door, and twisted his ankle on the unlevel surface. He had to go to the emergency room and incurred medical expenses of $750. Which one of the following coverages, if any, would pay for the $750 in expenses?

Select one:
A. Coverage F—Medical Payments to Others
B. No coverage
C. Section II—Additional Coverages
D. Coverage E—Personal Liability

Correct. Coverage F—Medical Payments to Others

A named insured owns two cars, one covered by a Personal Auto Policy (PAP) and one with no insurance at all. Which one of the following is a correct statement regarding the medical payments coverage provided by the PAP if the insured is injured in a collision while driving the uninsured auto?

Select one:
A. The exclusion of other vehicles owned by the insured or available for insured’s regular use applies.
B. The exclusion of vehicles owned by or available for family member’s regular use applies.
C. The PAP will provide medical payments coverage for medical care for the injuries under the insuring agreement.
D. The PAP will provide medical payments coverage for medical care for the injuries because the insured was driving a vehicle other than a covered auto.

Correct. The exclusion of other vehicles owned by the insured or available for insured’s regular use applies.

Is collapse a peril insured against under Coverages A and B of the HO-3 policy?

Select one:
A. No, but coverage for collapse that results from some other causes of loss is provided under the Section I—Property Coverages.
B. No, collapse is not covered even if it results from some other cause of loss.
C. Yes, it is a covered peril.
D. Yes, it is a covered peril but it is subject to special sublimits.

Correct. No, but coverage for collapse that results from some other causes of loss is provided under the Section I—Property Coverages.

Which one of the following statements is true regarding no-fault automobile insurance?

Select one:
A. Under a no-fault system, an injured person does not need to establish fault, but must prove negligence in order to collect payment for damages.
B. Most no-fault laws apply only to bodily injury and not to property damage.
C. No-fault laws typically provide no benefits for loss of earnings for an injured person.
D. An injured party must sue to obtain medical expenses above a particular monetary threshold in all no-fault plans.

Correct. Most no-fault laws apply only to bodily injury and not to property damage.

Although rate regulatory systems vary by state, rates in all states must meet specific criteria. When a rate charged for a particular rating class is not sufficient to cover all anticipated losses and expenses associated with that class, the specific criteria that needs to be met would be that

Select one:
A. The rate is unaffordable.
B. The rate is unfairly discriminatory.
C. The rate is excessive.
D. The rate is inadequate.

Correct. The rate is inadequate.

Multiple Peril Crop Insurance (MPCI) which insures farmers against unexpected production losses as measured against the farmer’s production history

Select one:
A. Covers perils such as vandalism to crops.
B. Provides pollution damage coverage to crops.
C. Is offered by the federal government.
D. Provides coverage for loss of livestock.

Correct. Is offered by the federal government.

Inland marine floaters typically share which one of the following characteristics?

Select one:
A. They are written for docks, watercraft, and related marine structures.
B. They usually cover unique perils not addressed by “traditional” insurance policies. Examples include wear and tear, insect damage, and mechanical breakdown.
C. They generally provide special form (open perils) coverage on a worldwide basis.
D. They are always written with a deductible.

Correct. They generally provide special form (open perils) coverage on a worldwide basis.

An insured has an HO-3 policy covering his home. While he was away during a special athletic tournament in his town, he rented his home for a week to one of the athletes. During that week, the mail carrier was injured on a loose floorboard on the porch of the home. A claim was made against the insured. Does the Coverage E business exclusion apply?

Select one:
A. Yes, because renting property to others qualifies as a business as defined by the policy.
B. It depends on whether a dollar threshold for the amount of rent charged is met.
C. No, because home rental is not considered a business activity.
D. No, because rental of an insured location on an occasional basis is a covered loss exposure if the location is used only as a residence.

Correct. No, because rental of an insured location on an occasional basis is a covered loss exposure if the location is used only as a residence.

John was driving his owned vehicle that was insured under a Personal Auto Policy (PAP). John had stopped for a red light and was rearended by Bob who was driving his own vehicle, also insured under a PAP. Each of the PAP policy coverages is shown below. Which one of the following statements regarding coverage under the two PAP’s is true?

John’s PAP

Bob’s PAP

Part A
$100,000/person

 $300,000/person

Liability $300,000/accident $500,000/accident
Part B
Med Pay $1000/person $1000/person
Part D $500 deductible OTC $500 deductible OTC
Damage to your auto $1000 deductible Collision No Collision Coverage
Underinsured Motorist $100,000 No Coverage
Select one:
A. Bob’s Part D coverage will cover the full amount of the damage to John’s vehicle.
B. John’s Part D coverage will respond to damages to his vehicle less his $1000 deductible
C. John’s Part A $300,000 limit will respond for his damage to his own vehicle.
D. Bob’s Part D $500 deductible will apply to the damage to John’s vehicle.

Correct. John’s Part D coverage will respond to damages to his vehicle less his $1000 deductible

Bert and Maggie insure their house with an unendorsed HO-3 policy with a Coverage A—Dwelling limit of $300,000, which is the replacement cost of the house. A fire destroys their detached garage. The cost to replace the garage is $35,000. How much will Bert and Maggie’s insurer pay to replace the detached garage?

Select one:
A. $20,000
B. $25,000
C. $30,000
D. $35,000

Correect. $30,000

The Muller family owns a house with a current replacement cost of $250,000. They purchased the house for $275,000. The Mullers have an unendorsed HO-3 policy with a Coverage A limit of $180,000. A fire totally destroys their home. Ignoring any deductible that may apply, how much will the Muller’s insurer pay for their destroyed house under the policy?

Select one:
A. $130,000
B. $162,000
C. $180,000
D. $225,000

Correct. $180,000

Which one of the following is an exception to the Coverage E and F Business exclusion to the HO-3 policy?

Select one:
A. A plumbing business operated from the home
B. Activities generating income of $10,000 or less during the year preceding the policy period
C. Volunteer activities
D. Home daycare services performed for neighbors for a fee

Correct. Volunteer activities

Small boat policies are designed to cover boats up to a certain size. Most of these policies

Select one:
A. Provide coverage for small personal watercraft such as jet skis.
B. Are written on an actual cash value basis.
C. Are written on a named perils basis only.
D. Exclude coverage for equipment and trailers.

Correct. Are written on an actual cash value basis.

The Subrogation condition in the HO-3 policy allows the insured to waive all rights to recover against any person provided the

Select one:
A. Waiver is in writing and made before a loss.
B. Insured acts in its best interests.
C. Insured acts in good faith.
D. Waiver is in writing and made after a loss.

Correct. Waiver is in writing and made before a loss.

The Dwelling Policy Form is issued to provide flood insurance for which one of the following properties?

Select one:
A. Nursing home
B. Apartment building
C. Residential cooperative building
D. Manufactured mobile homes

Correct. Manufactured mobile homes

Which one of the following sections of the Personal Auto Policy (PAP) would provide coverage for medical costs and loss of wages when the insured is injured by a hit-and-run driver?

Select one:
A. Part C—Uninsured Motorists Coverage
B. Part D—Coverage for Damage to Your Auto
C. Part B—Medical Payments Coverage
D. Part A—Liability Coverage

Correct. Part C—Uninsured Motorists Coverage

Martin has a Personal Auto Policy (PAP) and an unendorsed HO-3 policy. Martin is an avid golfer who frequently uses golf carts at various golf facilities. Martin’s HO-3

Select one:
A. Provides coverage for his legal liability while using a golf cart within the legal boundaries of a golfing facility.
B. Does not provide coverage for liability arising out of a golf cart on a golf course unless he purchases the Golf Cart Liability Endorsement for his HO-3 policy.
C. Does not provide coverage for liability arising out of a golf cart on a golf course unless he purchases the Miscellaneous Type Vehicle Endorsement for his PAP.
D. Provides coverage for all uses of a golf cart.

Correct. Provides coverage for his legal liability while using a golf cart within the legal boundaries of a golfing facility.

An insured under a personal auto policy with liability limits of $100,000/$300,000/$25,000 is responsible for an auto accident that resulted in $90,000 in damages for bodily injury. The costs incurred by the insurer to defend the insured were $20,000. What amount did the insurer pay as a result of the accident?

Select one:
A. $20,000
B. $90,000
C. $100,000
D. $110,000

Correct. $110,000

Joe keeps a tiger cub as a pet in his fenced-in backyard. The tiger escapes and bites a neighbor’s child who requires stitches. Joe argues that keeping the tiger violated no law and that he took every precaution to restrain the tiger. Even if Joe is correct, he might face a claim for damages based upon which one of the following?

Select one:
A. Absolute liability
B. Negligence
C. Statutory liability
D. Trespass

Correct. Absolute liability

According to Part D—Coverage for Damage to Your Auto of a Personal Auto Policy (PAP), the insurer’s limit of liability for a physical damage loss to a covered auto is

Select one:
A. The lower of the actual cash value or the amount necessary to repair or replace the property with other property of like kind and quality.
B. The estimated value as established by at least two auto appraisers.
C. The lower of the cost to repair the vehicle or the total loss value.
D. The “blue book” value of the vehicle, taking into consideration the odometer reading and the vehicle condition.

Correct. The lower of the actual cash value or the amount necessary to repair or replace the property with other property of like kind and quality.