CIA Insurance Policies & Coverage Analysis 2 — Questions and Answers
Question 1: An insured's homeowner policy includes an 'other structures' coverage limit of 10% of the dwelling limit. If the dwelling is insured for $300,000, what is the maximum coverage for a detached garage?
- $15,000
- $30,000 (Correct answer)
- $45,000
- $60,000
Correct answer: $30,000
Other structures coverage under standard homeowner policies is typically 10% of the dwelling limit, so 10% of $300,000 equals $30,000.
Question 2: Which clause in an insurance policy requires the insured to maintain coverage at a specified percentage of the property's value to avoid a penalty at the time of loss?
- Subrogation clause
- Coinsurance clause (Correct answer)
- Appraisal clause
- Pro rata clause
Correct answer: Coinsurance clause
The coinsurance clause requires insureds to carry insurance equal to a set percentage of property value or bear a proportional share of any loss.
Question 3: A business owner's policy (BOP) typically combines which two primary coverages?
- Workers' compensation and commercial auto
- Commercial property and general liability (Correct answer)
- Professional liability and cyber liability
- Inland marine and crime coverage
Correct answer: Commercial property and general liability
A BOP bundles commercial property insurance and commercial general liability into a single policy designed for small to medium-sized businesses.
Question 4: Under a standard auto policy, uninsured motorist (UM) coverage primarily protects the insured when:
- The insured's vehicle is stolen
- The at-fault driver carries no liability insurance (Correct answer)
- The insured drives without a license
- The vehicle sustains mechanical failure
Correct answer: The at-fault driver carries no liability insurance
UM coverage compensates the insured for bodily injury or property damage caused by a driver who has no liability insurance.
Question 5: What is 'subrogation' in the context of insurance?
- The insurer's right to cancel a policy mid-term
- The insurer's right to pursue a third party responsible for a loss after paying the insured (Correct answer)
- The insured's right to assign the policy to another party
- The process of adjusting the policy premium at renewal
Correct answer: The insurer's right to pursue a third party responsible for a loss after paying the insured
Subrogation allows the insurer, after compensating the insured, to pursue the negligent third party to recover the amount paid.
Question 6: A property insured on a 'replacement cost value' (RCV) basis differs from 'actual cash value' (ACV) in that RCV:
- Deducts depreciation before payment
- Pays to restore property without depreciation deduction (Correct answer)
- Applies only to personal property, not structures
- Requires the insured to pay a higher deductible
Correct answer: Pays to restore property without depreciation deduction
RCV policies pay the cost to repair or replace damaged property with new materials of like kind and quality, without subtracting depreciation.
Question 7: Which type of insurance policy endorsement broadens coverage beyond the base policy's terms?
- Exclusionary endorsement
- Restrictive endorsement
- Extended coverage endorsement (Correct answer)
- Named peril endorsement
Correct answer: Extended coverage endorsement
An extended coverage endorsement adds perils or increases limits beyond what the base policy provides, expanding the insured's protection.
CIA Insurance Policies & Coverage Analysis 2
An insured's homeowner policy includes an 'other structures' coverage limit of 10% of the dwelling limit.
If the dwelling is insured for $300,000, what is the maximum coverage for a detached garage?