Insurance General Insurance 2

Question 1

What is the primary purpose of an insurance deductible?

Accepted Answer

To share risk between the insured and insurer and deter small claims

Answer

A deductible is the amount the insured pays out-of-pocket before insurance coverage kicks in, which discourages minor claims and shares risk.

Question 2

Which term describes the maximum amount an insurer will pay for a covered loss during a policy period?

Accepted Answer

Policy limit

Answer

The policy limit is the cap on the insurer's liability for covered losses during the policy period.

Question 3

An insured misrepresents information on an insurance application. What is the likely consequence?

Accepted Answer

Policy rescission or denial of claims

Answer

Material misrepresentation on an application can void the policy, as insurance contracts require utmost good faith and accurate disclosure.

Question 4

What does 'occurrence-based' coverage mean in a liability policy?

Accepted Answer

Coverage applies when the injurious event occurred during the policy period, regardless of when the claim is filed

Answer

Occurrence-based policies cover events that happen during the policy period even if the claim is filed after the policy expires.

Question 5

Which of the following best describes 'moral hazard' in insurance?

Accepted Answer

The tendency of insured parties to take greater risks because they are covered

Answer

Moral hazard refers to the behavioral change where insured individuals may act less carefully because they know losses will be covered.

Insurance Practice Test