APP APP Insurance and Indemnification Strategies 2 — Questions and Answers
Question 1: Which of the following best describes 'insurable interest' as it relates to asset protection insurance?
- A financial stake in the insured subject matter that would cause loss if it were damaged (Correct answer)
- The maximum coverage limit available under a policy
- The deductible amount required before coverage applies
- The exclusion list within an insurance contract
Correct answer: A financial stake in the insured subject matter that would cause loss if it were damaged
Insurable interest requires the policyholder to have a financial stake in what is being insured, ensuring insurance is used for protection rather than speculation.
Question 2: When structuring an LLC for asset protection, which insurance strategy best supplements the entity's liability shield?
- Maintaining adequate commercial general liability coverage for the LLC's operations (Correct answer)
- Canceling all personal insurance policies once the LLC is formed
- Using only a sole proprietorship health plan
- Relying solely on the LLC operating agreement indemnification clause
Correct answer: Maintaining adequate commercial general liability coverage for the LLC's operations
Combining an LLC's statutory liability shield with adequate commercial insurance creates layered protection, as the shield alone may not cover all claims.
Question 3: A mutual indemnification clause requires that:
- Both parties agree to indemnify each other for their respective negligence (Correct answer)
- Only the vendor indemnifies the client for all claims
- The insurer covers all losses without deductible
- The government absorbs liability for business losses
Correct answer: Both parties agree to indemnify each other for their respective negligence
A mutual indemnification clause creates a reciprocal obligation where each party covers the other for losses arising from their own negligence or breach.
Question 4: Which concept describes the maximum amount an insurer will pay under a policy regardless of the actual loss?
- Policy limit (Correct answer)
- Subrogation right
- Coinsurance requirement
- Salvage value
Correct answer: Policy limit
A policy limit is the cap on insurer liability, making it essential in asset protection planning to select limits that adequately cover potential exposures.
Question 5: In asset protection planning, 'subrogation' refers to the insurer's right to:
- Step into the insured's shoes to recover from a negligent third party after paying a claim (Correct answer)
- Cancel a policy if the insured fails to pay premiums
- Increase premiums after a claim is filed
- Deny coverage for pre-existing conditions
Correct answer: Step into the insured's shoes to recover from a negligent third party after paying a claim
Subrogation allows the insurer to pursue a third party that caused the loss after compensating the insured, preventing the insured from receiving a double recovery.
Question 6: An asset protection professional recommending insurance coverage must ensure that the coverage limits are reviewed periodically to:
- Keep pace with inflation and growing asset values (Correct answer)
- Reduce premiums each year regardless of exposure
- Eliminate all exclusions from the policy
- Satisfy only the minimum state requirements
Correct answer: Keep pace with inflation and growing asset values
Asset values and liability exposures change over time, so coverage limits must be periodically reassessed to avoid being underinsured.
APP APP Insurance and Indemnification Strategies 2
Which of the following best describes 'insurable interest' as it relates to asset protection insurance?