P&C General Practice 5 — Questions and Answers
Question 1: Under the personal auto policy, 'underinsured motorist coverage' (UIM) responds when:
- The at-fault driver's liability limits are insufficient to cover the insured's damages (Correct answer)
- The at-fault driver has no insurance at all
- The insured's vehicle is damaged in a hit-and-run accident
- The insured causes an accident while driving a rental car
Correct answer: The at-fault driver's liability limits are insufficient to cover the insured's damages
UIM coverage pays the difference between the at-fault driver's liability limits and the insured's actual damages when those limits are too low to fully compensate the insured.
Question 2: An agent who has the authority to bind coverage, issue policies, and adjust claims on behalf of an insurer is known as a/an:
- General agent (Correct answer)
- Broker
- Surplus lines agent
- Captive agent
Correct answer: General agent
A general agent has broad authority granted by the insurer, including binding coverage, issuing policies, and sometimes settling claims within defined limits.
Question 3: Which of the following losses would MOST LIKELY be covered under the 'comprehensive' portion of a personal auto policy?
- A tree falls on the insured's parked car during a windstorm (Correct answer)
- The insured's car is damaged when it rear-ends another vehicle
- The insured's car is damaged when it rolls into a ditch
- A passenger is injured when the insured's car collides with a guardrail
Correct answer: A tree falls on the insured's parked car during a windstorm
Comprehensive coverage pays for damage from causes other than collision, including fire, theft, vandalism, and falling objects such as trees.
Question 4: The 'vacancy clause' in a commercial property policy typically suspends or limits certain coverages if a building has been vacant for more than:
- 60 consecutive days (Correct answer)
- 30 consecutive days
- 90 consecutive days
- 120 consecutive days
Correct answer: 60 consecutive days
Most commercial property policies reduce or suspend coverage for certain perils (vandalism, sprinkler leakage, glass breakage, theft, water damage) if the building has been vacant for more than 60 consecutive days.
Question 5: A surety bond that guarantees a contractor will complete a project according to contract terms is called a:
- Performance bond (Correct answer)
- Payment bond
- License and permit bond
- Fidelity bond
Correct answer: Performance bond
A performance bond guarantees that the principal (contractor) will fulfill the terms and conditions of a contract, protecting the obligee (project owner) if the contractor defaults.
Question 6: Under the HO-3 homeowners policy, Coverage C (personal property) is written on which basis?
- Named perils only (Correct answer)
- Open perils (all-risk)
- Agreed value
- Replacement cost automatically
Correct answer: Named perils only
Under the HO-3, Coverage C (personal property) is written on a named-perils basis, covering only losses caused by the perils specifically listed in the policy.
Question 7: Which of the following is an example of a 'condition' in an insurance policy?
- The insured must notify the insurer of a loss as soon as practicable (Correct answer)
- Fire and lightning are covered perils
- The policy does not cover intentional acts
- The policy limit for Coverage A is $300,000
Correct answer: The insured must notify the insurer of a loss as soon as practicable
Conditions are duties and obligations required of both the insured and insurer; prompt loss notification is a standard condition the insured must satisfy to maintain coverage.
P&C General Practice 5
Under the personal auto policy, 'underinsured motorist coverage' (UIM) responds when: