Insurance Case Studies & Practical Application 5

Question 1

A flood destroys a home in a special flood hazard area (SFHA). The homeowner has a standard homeowners policy but no flood insurance. What is the coverage outcome?

Accepted Answer

Flood damage is excluded from standard homeowners policies; no coverage applies

Answer

Standard homeowners policies universally exclude flood damage; coverage must be purchased separately through the NFIP or a private flood insurer.

Question 2

A software company's data breach exposes 50,000 customers' personal information. The company faces regulatory fines, notification costs, and third-party lawsuits. Which policy is designed to address these exposures?

Accepted Answer

Cyber liability insurance

Answer

Cyber liability insurance covers first-party costs (notification, forensics, credit monitoring) and third-party liability arising from data breaches and cyber incidents.

Question 3

An insured purchases a $500,000 whole life policy with a $50,000 accelerated death benefit rider for terminal illness. Diagnosed as terminal, the insured receives $50,000. Upon death, what does the beneficiary receive?

Accepted Answer

$450,000

Answer

Accelerated death benefit payments reduce the total death benefit dollar-for-dollar; the beneficiary receives the original face amount minus the accelerated benefit paid ($500,000 - $50,000 = $450,000).

Question 4

A restaurant employee is injured by a customer during a robbery. The employee files a workers' compensation claim. The insurer pays the claim and wants to sue the criminal. What doctrine applies?

Accepted Answer

Subrogation

Answer

After paying a workers' compensation claim, the insurer can exercise subrogation rights to pursue the responsible third party (the criminal) for recovery.

Question 5

A car dealership test drives a customer's vehicle for repair, and the mechanic causes an accident. The customer's personal auto policy excludes vehicles used by an auto business. Which policy covers the damage?

Accepted Answer

The dealership's garage keepers liability policy

Answer

Garage keepers liability insurance covers damage to customers' vehicles while in the care, custody, or control of an auto dealer or repair shop.

Insurance Practice Test

Insurance Practice Test

Insurance Case Studies & Practical Application 5