Insurance Case Studies & Practical Application 3

Question 1

A life insurance applicant discloses a history of high blood pressure but omits a recent diabetes diagnosis. The insurer issues the policy. The insured dies two years later. What is the likely outcome?

Accepted Answer

The insurer must pay because the contestability period has passed

Answer

Most life insurance policies have a two-year contestability period; after it expires, the insurer generally cannot contest the policy for misrepresentation and must pay the full death benefit.

Question 2

A small business experiences a fire that shuts down operations for three months, resulting in $150,000 in lost income. Which coverage responds to this loss?

Accepted Answer

Business income (interruption) insurance

Answer

Business income insurance (also called business interruption insurance) covers lost profits and continuing expenses when operations are suspended due to a covered loss.

Question 3

A contractor accidentally damages a client's expensive flooring while installing new cabinets. The contractor's CGL policy has a 'your work' exclusion. Will the policy cover the damage?

Accepted Answer

No, damage to the work itself is typically excluded under CGL

Answer

CGL policies typically exclude property damage to 'your work,' meaning damage caused to work the insured performed is not covered, though completed operations coverage may apply in some cases.

Question 4

An auto insured is hit by an uninsured driver and suffers $35,000 in medical bills. The insured's UM coverage limit is $25,000. What is the maximum the insured recovers from their own insurer?

Accepted Answer

$25,000

Answer

Uninsured motorist (UM) coverage pays up to its policy limit; the insured can recover a maximum of $25,000 regardless of the actual loss amount.

Question 5

A policyholder files a claim and later discovers the adjuster significantly undervalued the loss. The statute of limitations in their state for insurance bad faith is 3 years. The claim was settled 4 years ago. What is the likely outcome?

Accepted Answer

The insured is likely barred from suing due to the statute of limitations

Answer

Statutes of limitations set hard deadlines for filing lawsuits; once expired, the insured's legal remedy is generally barred even if the claim was mishandled.

Insurance Practice Test

Insurance Practice Test

Insurance Case Studies & Practical Application 3