Insurance Insurance Contracts & Policy Interpretation 2 — Questions and Answers
Question 1: What is an 'exclusion' in an insurance policy?
- A provision that extends coverage to additional insureds
- A specific condition, peril, or circumstance not covered by the policy (Correct answer)
- A premium discount applied for a good claims history
- A mandatory government-required coverage add-on
Correct answer: A specific condition, peril, or circumstance not covered by the policy
Exclusions are specific risks, perils, persons, or circumstances that the policy explicitly does not cover.
Question 2: What information is typically found on the 'declarations page' of an insurance policy?
- Detailed exclusions and conditions of coverage
- Named insured, policy period, coverage limits, and premium amount (Correct answer)
- Legal definitions of all terms used in the policy
- Step-by-step claims filing procedures
Correct answer: Named insured, policy period, coverage limits, and premium amount
The declarations page ('dec page') is a summary identifying the insured, coverage dates, limits, deductibles, and premium.
Question 3: In property insurance, a coinsurance clause requires the policyholder to:
- Share claims costs equally with the insurer on every loss
- Insure the property for at least a specified percentage of its value to receive full reimbursement (Correct answer)
- Purchase coverage from two separate insurers simultaneously
- Pay 20% of every claim out of pocket regardless of coverage
Correct answer: Insure the property for at least a specified percentage of its value to receive full reimbursement
Coinsurance clauses (typically requiring 80% of property value) require the insured to carry adequate coverage or face a penalty at claim time for being underinsured.
Question 4: Which statement best describes a policy 'deductible'?
- The maximum amount the insurer will pay for any single loss
- The amount the insured must pay out of pocket before the insurer pays a claim (Correct answer)
- The annual premium the insured pays for coverage
- A penalty charged when the insured files too many claims
Correct answer: The amount the insured must pay out of pocket before the insurer pays a claim
A deductible is the portion of a covered loss the insured must pay first before insurance benefits apply.
Question 5: What is the key difference between a 'claims-made' policy and an 'occurrence' policy?
- Claims-made policies are always less expensive than occurrence policies
- Claims-made policies require the claim to be reported while the policy is active; occurrence policies cover incidents that happen during the policy period regardless of when reported (Correct answer)
- Occurrence policies exclude professional liability claims entirely
- Claims-made policies pay higher benefit amounts than occurrence policies
Correct answer: Claims-made policies require the claim to be reported while the policy is active; occurrence policies cover incidents that happen during the policy period regardless of when reported
Claims-made policies require both the incident and the claim report to occur during the active policy period, while occurrence policies only require the incident to happen during coverage.
Question 6: A 'named perils' property insurance policy:
- Covers all risks of loss except those specifically excluded
- Only covers losses caused by perils explicitly listed in the policy (Correct answer)
- Provides broader coverage than an open-perils (all-risk) policy
- Names the insured on a supplemental endorsement form
Correct answer: Only covers losses caused by perils explicitly listed in the policy
Named perils policies provide coverage only for the specific causes of loss listed in the policy, and the insured bears the burden of proving the loss falls under a listed peril.
Question 7: 'Actual Cash Value' (ACV) in property insurance is calculated as:
- The original purchase price of the damaged property
- The cost to replace the property with a brand-new item of like kind and quality
- Replacement cost minus accumulated depreciation (Correct answer)
- The appraised fair market value at the time of the loss
Correct answer: Replacement cost minus accumulated depreciation
ACV equals the cost to replace the damaged property with a similar item, minus accumulated depreciation, reflecting the item's real-world value at the time of loss.
Insurance Insurance Contracts & Policy Interpretation 2
What is an 'exclusion' in an insurance policy?