Insurance Insurance Contracts & Policy Interpretation

Question 1

What is the principle of 'utmost good faith' (uberrimae fidei) in insurance contracts?

Accepted Answer

It requires both parties to disclose all material facts relevant to the insurance contract

Answer

It requires the insurer to pay all claims without investigation

Answer

It limits the insured's liability to the policy premium

Answer

It guarantees the insured will receive payment for all losses

Question 2

Which element is NOT required for a valid insurance contract?

Accepted Answer

A government-issued license number for the insured

Answer

An offer and acceptance

Answer

Consideration

Answer

Legal purpose

Question 3

After paying a claim, what does 'subrogation' allow an insurer to do?

Accepted Answer

Pursue recovery from a third party responsible for the loss

Answer

Cancel the insured's policy without a refund

Answer

Increase the insured's premiums retroactively

Answer

Require the insured to pay an additional deductible

Question 4

A policy that covers claims arising from incidents that occurred during the policy period, regardless of when the claim is filed, is known as a:

Accepted Answer

Occurrence policy

Answer

Claims-made policy

Answer

Open-perils policy

Answer

Blanket policy

Question 5

What is an 'endorsement' in an insurance policy?

Accepted Answer

A written modification that changes the terms of the original policy

Answer

The insured's signature on the application form

Answer

The insurer's guarantee of timely claim payment

Answer

A standard exclusion included in all policies by law

Question 6

Which provision outlines the conditions under which an insurer has the right to terminate coverage?

Accepted Answer

Cancellation and nonrenewal provision

Answer

Subrogation clause

Answer

Insuring agreement

Answer

Coinsurance clause

Question 7

What does 'pro-rata cancellation' of an insurance policy mean?

Accepted Answer

The unearned premium is refunded based on the exact unused days of the policy period

Answer

The insurer retains a short-rate penalty and refunds the remainder

Answer

The insured receives a full refund of all premiums paid

Answer

The policy is renewed at a prorated lower premium rate