Free Property & Casualty Insurance License Questions and Answers — Questions and Answers
Question 1: Can a warranty that isn't expressly stated in the contract nevertheless be considered enforceable?
- Yes, a warranty written out is never a requirement
- No, warranties always must be written-out, signed contracts by both parties
- No, a warranty must be written out in all cases
- Sometimes a warranty only need be expressed or implied (Correct answer)
Correct answer: Sometimes a warranty only need be expressed or implied
Warranties can be either express, meaning explicitly stated verbally or in writing, or implied, meaning understood to exist by law without being written. For example, the implied warranty of merchantability ensures a product is fit for its ordinary purpose. Therefore, a warranty does not always need to be a written, signed contract to be enforceable.
Question 2: Through her neighborhood agent, Anna has an insurance policy. A buddy of Anna's started his own insurance company and offered Anna lower rates if she changed her policy to his business. Which method of cancellation will Anna's existing agent employ after receiving her request to cancel her coverage?
- He would not be allowed to cancel and would have to continue to write her policy
- Short rate method (Correct answer)
- Mid-term method
- Pro rata method
Correct answer: Short rate method
The short rate method of cancellation is used when the insured cancels the policy before its expiration date. Under this method, the insurer retains a larger portion of the premium than the pro rata method, often including a penalty. This accounts for the administrative costs incurred by the insurer for issuing and then prematurely canceling the policy.
Question 3: Coverage for commercial exposures that move around is called a "commercial property floater." Which kind of commercial exposure might you be interested in purchasing a floater policy on?
- A food cart that travels to a different location each week (Correct answer)
- An office printer
- Office fixtures
- An auto gifted to an employee as part of her benefits package
Correct answer: A food cart that travels to a different location each week
A commercial property floater is designed to cover property that is mobile or frequently changes location, and therefore isn't adequately covered by a standard commercial property policy. A food cart that travels to a different location each week is a perfect example of such an exposure, as its location is not fixed, requiring flexible coverage.
Question 4: In the department of personal lines, Paul worked as an underwriter. He was given an application for a personal umbrella that was filled out completely but was not signed. Paul could offer a provisional notice of coverage in accordance with departmental regulations, but he could not completely issue the policy until the insured had signed the application. What is the full name of this temporary notice of coverage?
- A pre-policy form
- A short-form policy
- A binder (Correct answer)
- An endorsement
Correct answer: A binder
A binder is a temporary insurance contract that provides immediate coverage until the actual policy can be issued. It serves as proof of insurance and is typically issued when an application is complete but requires further processing or a signature before the full policy can be finalized.
Question 5: Due to a deer darting out into the road in front of John and colliding with the front of his car, John was in an accident. The first $250 of any loss incurred must be covered by John as part of his other-than-collision insurance policy. In the world of insurance, what is John's $250 payment demand known as?
- Deductible (Correct answer)
- Retention
- Policy premium
- First-party payment
Correct answer: Deductible
A deductible is the amount of money the insured must pay out-of-pocket before their insurance coverage begins to pay for a loss. In this scenario, John's $250 payment for the deer collision is his deductible, a common feature in many insurance policies, including other-than-collision coverage, which helps manage risk and premiums.
Question 6: Which kind of homeowners insurance is intended for people whose residences are listed on the town's historic registry?
- HO-3
- HO-8 (Correct answer)
- HO-4
- HO-2
Correct answer: HO-8
The HO-8 (Modified Coverage Form) homeowners policy is specifically designed for older homes, often those with historical significance, where the replacement cost may exceed the market value. It provides coverage on an actual cash value basis and may have special limitations, making it suitable for properties that are difficult to insure under standard forms.
Question 7: The following exposures can all be covered by a personal articles floater, which can be a standalone insurance or an endorsement to a homeowners policy, EXCEPT:
- Stamps
- Fixtures (Correct answer)
- Jewelry
- Fine arts
Correct answer: Fixtures
A personal articles floater (PAF) is designed to provide broader coverage for specific, high-value personal property items like jewelry, fine arts, or stamps, which may have limited coverage under a standard homeowners policy. Fixtures, however, are items permanently attached to the dwelling (like built-in cabinets or plumbing) and are covered under the dwelling portion of a homeowners policy, not a personal articles floater.
Free Property & Casualty Insurance License Questions and Answers
Can a warranty that isn't expressly stated in the contract nevertheless be considered enforceable?