Insurance General Insurance 3

Question 1

Which insurance principle requires that a policyholder must have a financial stake in the insured item?

Accepted Answer

Insurable interest

Answer

Insurable interest means the policyholder must stand to suffer a financial loss if the insured event occurs, preventing speculative policies.

Question 2

What is the purpose of a 'declarations page' in an insurance policy?

Accepted Answer

To summarize key policy details such as coverage limits, premiums, and named insured

Answer

The declarations page (dec page) is a summary sheet at the front of a policy that provides the essential facts of coverage at a glance.

Question 3

In insurance, what is a 'peril'?

Accepted Answer

The cause of a potential loss, such as fire, theft, or wind

Answer

A peril is a specific risk or cause of loss that an insurance policy may or may not cover.

Question 4

What does 'actual cash value' (ACV) mean when settling a property insurance claim?

Accepted Answer

The replacement cost minus depreciation

Answer

ACV is calculated as replacement cost minus depreciation, accounting for the item's age and wear at the time of loss.

Question 5

Which of the following is an example of an 'open perils' (all-risk) policy?

Accepted Answer

A policy that covers all causes of loss except those specifically excluded

Answer

An open perils or all-risk policy covers any cause of loss that is not specifically excluded, offering broader protection than named-peril policies.

Insurance Practice Test