P&C Trivia 4 — Questions and Answers
Question 1: Which federal program provides flood insurance to property owners in participating communities?
- Federal Emergency Management Agency (FEMA) Disaster Fund
- National Flood Insurance Program (NFIP) (Correct answer)
- Federal Housing Administration (FHA) Flood Plan
- U.S. Army Corps of Engineers Insurance
Correct answer: National Flood Insurance Program (NFIP)
The NFIP, managed by FEMA, offers federally backed flood insurance to homeowners, renters, and businesses in participating communities.
Question 2: An insured has a $200,000 home insured for only $120,000 with an 80% coinsurance requirement. A covered loss of $40,000 occurs. How much will the insurer pay (ignoring deductibles)?
- $40,000
- $30,000 (Correct answer)
- $24,000
- $20,000
Correct answer: $30,000
The coinsurance formula: ($120,000 ÷ $160,000 required) × $40,000 = 0.75 × $40,000 = $30,000.
Question 3: Which coverage on a personal auto policy pays for damage to the insured's own vehicle caused by perils other than collision, such as hail or vandalism?
- Collision
- Comprehensive (Other than Collision) (Correct answer)
- Uninsured Motorist Property Damage
- Medical Payments
Correct answer: Comprehensive (Other than Collision)
Comprehensive (OTC) covers non-collision losses such as fire, theft, hail, flooding, and vandalism to the insured vehicle.
Question 4: What is a 'named insured' on a property and casualty policy?
- Any person covered by the policy
- The person or entity specifically listed on the declarations page as the policyholder (Correct answer)
- A claimant named in a lawsuit against the insured
- A third-party beneficiary added by endorsement
Correct answer: The person or entity specifically listed on the declarations page as the policyholder
The named insured is the person or entity whose name appears on the declarations page and has the broadest rights under the policy.
Question 5: Which of the following best describes 'moral hazard' in insurance?
- The tendency of physical conditions to increase the likelihood of loss
- The tendency of dishonest character to increase the likelihood of fraud or exaggerated claims (Correct answer)
- A government regulation limiting insurer practices
- A policy provision that shifts loss to the insured
Correct answer: The tendency of dishonest character to increase the likelihood of fraud or exaggerated claims
Moral hazard refers to the increased risk of loss due to the dishonest or fraudulent character or intent of the insured.
Question 6: Under a homeowners policy, personal property belonging to the insured is typically covered:
- Only at the described premises
- Worldwide on a named-perils basis under Coverage C (Correct answer)
- Only when scheduled on a floater
- Only against fire and lightning
Correct answer: Worldwide on a named-perils basis under Coverage C
Coverage C of a standard homeowners policy covers personal property on a named-perils basis anywhere in the world.
Question 7: What does 'pro rata cancellation' mean when an insurance policy is cancelled?
- The insurer refunds the full premium regardless of time elapsed
- The refund is calculated based on the exact proportion of the unused policy period (Correct answer)
- The insurer keeps 90 days of premium as a penalty
- The insured forfeits all unearned premium
Correct answer: The refund is calculated based on the exact proportion of the unused policy period
A pro rata cancellation refunds the exact unearned portion of the premium with no penalty.
P&C Trivia 4
Which federal program provides flood insurance to property owners in participating communities?