General Insurance Questions And Answers — Questions and Answers
Question 1: What is used to divide an insurer's loss ratio?
- Premiums by underwriting losses
- Operating expenses by total premiums
- Underwriting losses by total premiums (Correct answer)
- Premiums by combined losses and expenses
Correct answer: Underwriting losses by total premiums
An insurer's loss ratio is a key measure of profitability, calculated by dividing the total underwriting losses (claims paid and loss adjustment expenses) by the total earned premiums. This ratio indicates how much of the premium income is used to pay claims, reflecting the insurer's claims experience.
Question 2: Which of the following perils is excluded from a commercial property coverage component that has the basic causes of loss form attached?
- Explosion
- Sprinkler leakage
- Windstorm
- Volcanic eruption (Correct answer)
Correct answer: Volcanic eruption
The basic causes of loss form in commercial property insurance typically covers a limited set of perils, such as fire, lightning, windstorm, and sprinkler leakage. Volcanic eruption, which involves the discharge of lava, ash, or gases, is generally an excluded peril under this basic form, although volcanic action (ground tremors) might be covered.
Question 3: In terms of law, one party's actions could have the effect of waiving a recognized right. Which of the following has the party generated when this happens?
- Waiver (Correct answer)
- Warranty
- Unilateral contract
- Representation
Correct answer: Waiver
A waiver in insurance law occurs when one party voluntarily gives up a known right or privilege. This action can be express or implied, and once a right is waived, the party cannot later assert that right, effectively relinquishing their claim to it.
Question 4: How long will the time for reporting claims under the policy be prolonged if general liability "claims-made" coverage is renewed by "occurrence" coverage and the insured purchases a supplemental extended reporting period (ERP)?
- 2 months
- Indefinitely (Correct answer)
- 7 years
- 2 years
Correct answer: Indefinitely
When a 'claims-made' general liability policy is renewed by an 'occurrence' policy, and the insured purchases a supplemental extended reporting period (ERP), the ERP extends the time for reporting claims indefinitely. This provides long-term protection for incidents that occurred during the claims-made policy period but were reported after its expiration, ensuring continuous coverage.
Question 5: Which of the following describes the policy territory under the majority of property insurance policies?
- The United States, its territories and possessions, and Canada (Correct answer)
- All of North America and Europe
- Only the United States
- The United States, Canada, and Mexico
Correct answer: The United States, its territories and possessions, and Canada
Most standard property insurance policies, including both commercial and personal lines, define the policy territory as the United States of America, its territories and possessions, and Canada. This specifies the geographical area where the insurance coverage applies for covered losses.
Question 6: What kind of marketing system allows agents or agencies to operate independently while agreeing to exclusively promote one insurance provider?
- Direct response system
- Independent agency system
- Direct writer system
- Exclusive of the captive agency system (Correct answer)
Correct answer: Exclusive of the captive agency system
An exclusive or captive agency system involves agents who represent and sell policies for only one specific insurance company. While they may operate independently in some aspects, their primary allegiance and sales efforts are dedicated solely to that single insurer, distinguishing them from independent agents who represent multiple companies.
Question 7: A personal auto policy will pay transportation costs at the rate of $20 per day up to how much in the event of a physical damage loss that renders a covered auto unusable for a period of time?
- A maximum payment of $460
- A maximum payment of $740
- A maximum payment of $300
- A maximum payment of $600 (Correct answer)
Correct answer: A maximum payment of $600
A standard personal auto policy typically provides coverage for transportation expenses, such as rental car costs, if a covered vehicle is unusable due to a physical damage loss. The common limit for this coverage is $20 per day, up to a maximum total payment of $600.
General Insurance Questions And Answers
What is used to divide an insurer's loss ratio?