Property And Casualty Insurance License Policy Provisions and Concepts 2 — Questions and Answers
Question 1: What is 'insurable interest' and when must it exist for property insurance?
- The insured's desire to protect property; must exist only at time of loss
- A financial stake in the property; must exist at the time the policy is issued and at the time of loss (Correct answer)
- Ownership of property; must exist only at policy inception
- A lien on the property; must exist only at time of loss
Correct answer: A financial stake in the property; must exist at the time the policy is issued and at the time of loss
Insurable interest means the insured would suffer a financial loss if the property is damaged; it must exist at both the time the policy is purchased and when a loss occurs.
Question 2: What is the 'other insurance' clause designed to do?
- Require the insured to carry multiple policies
- Prevent the insured from collecting more than the actual loss when multiple policies cover the same risk (Correct answer)
- Allow the insured to stack coverage limits
- Require notification of other insurers
Correct answer: Prevent the insured from collecting more than the actual loss when multiple policies cover the same risk
The other insurance clause coordinates benefits when more than one policy covers a loss, ensuring the insured is indemnified but does not profit from duplicate coverage.
Question 3: What does 'pro-rata cancellation' mean?
- The insured receives a full premium refund upon cancellation
- The unearned premium is returned based on the exact portion of the policy period remaining (Correct answer)
- A penalty is assessed for early cancellation
- The insurer retains a flat cancellation fee
Correct answer: The unearned premium is returned based on the exact portion of the policy period remaining
Pro-rata cancellation returns the exact unearned portion of the premium with no penalty, calculated on a daily basis for the remaining policy term.
Question 4: What is a 'short-rate cancellation'?
- Cancellation of a short-term policy (less than 6 months)
- Cancellation by the insured where the return premium is less than the pro-rata amount due to an earned penalty (Correct answer)
- Cancellation due to nonpayment of premium
- Cancellation of a binder before the policy is issued
Correct answer: Cancellation by the insured where the return premium is less than the pro-rata amount due to an earned penalty
Short-rate cancellation occurs when the insured cancels the policy mid-term; the insurer retains more than the earned pro-rata premium as compensation for expenses.
Question 5: What is 'waiver' in the context of insurance?
- The insurer's right to cancel the policy
- The voluntary relinquishment of a known right by either party (Correct answer)
- The insured's duty to mitigate losses
- The insurer's right to inspect the property
Correct answer: The voluntary relinquishment of a known right by either party
A waiver is the intentional surrender of a known legal right; in insurance, an insurer may waive a policy condition, preventing it from later using that condition to deny a claim.
Question 6: What is 'estoppel' in insurance law?
- A mandatory waiting period before filing a claim
- A legal doctrine preventing a party from asserting a right after conduct that led the other party to rely on a contrary position (Correct answer)
- The process for resolving disputed claim amounts
- A state-mandated policy renewal requirement
Correct answer: A legal doctrine preventing a party from asserting a right after conduct that led the other party to rely on a contrary position
Estoppel prevents an insurer from denying coverage if its prior actions or statements led the insured to reasonably believe coverage existed.
Property And Casualty Insurance License Policy Provisions and Concepts 2
What is 'insurable interest' and when must it exist for property insurance?