P&C Trivia 5 — Questions and Answers
Question 1: Which insurer-initiated cancellation requires a longer notice period and typically involves non-renewal rather than mid-term termination?
- Short-rate cancellation
- Flat cancellation
- Non-renewal (Correct answer)
- Conditional renewal
Correct answer: Non-renewal
Non-renewal is the insurer's decision not to continue coverage at the end of the policy term, requiring advance written notice per state law.
Question 2: A 'vacancy clause' in a commercial property policy typically suspends certain coverages when a building has been vacant for more than:
- 15 days
- 30 days
- 60 days (Correct answer)
- 90 days
Correct answer: 60 days
Standard commercial property policies suspend coverage for vandalism, sprinkler leakage, and glass breakage after 60 consecutive days of vacancy.
Question 3: Which of the following is an example of 'concurrent causation'?
- A single windstorm causes both roof and fence damage
- A flood (excluded) combines with windstorm (covered) to cause a loss (Correct answer)
- Two insurers each cover 50% of the same risk
- An insured has two policies covering the same property
Correct answer: A flood (excluded) combines with windstorm (covered) to cause a loss
Concurrent causation occurs when both a covered and an excluded peril contribute to the same loss, creating coverage disputes.
Question 4: What is the role of an insurance 'underwriter'?
- To sell insurance policies directly to consumers
- To settle claims on behalf of the insurer
- To evaluate and select risks the insurer will accept and at what price (Correct answer)
- To regulate insurance companies on behalf of the state
Correct answer: To evaluate and select risks the insurer will accept and at what price
Underwriters assess risk, decide whether to accept it, and determine the appropriate premium to charge.
Question 5: Under the 'other insurance' provision, when two policies cover the same loss, each typically pays:
- Only the primary policy pays; the excess policy pays nothing
- A pro rata share based on each policy's limit relative to the total (Correct answer)
- The insured chooses which policy responds
- Each policy pays its full limit up to the total loss
Correct answer: A pro rata share based on each policy's limit relative to the total
The pro rata 'other insurance' clause splits the loss proportionally between policies based on each policy's limit relative to the combined limits.
Question 6: A surety bond differs from traditional insurance because:
- Surety bonds cover only property losses
- There are two parties in a surety bond instead of three
- The principal is expected to reimburse the surety for any losses paid (Correct answer)
- Surety bonds are regulated by the federal government, not states
Correct answer: The principal is expected to reimburse the surety for any losses paid
In a surety bond, the principal (bonded party) is ultimately responsible for the obligation; if the surety pays, it seeks reimbursement from the principal.
Question 7: Which of the following best describes 'adverse selection' in insurance?
- Insurers selecting only the safest risks
- High-risk individuals are more likely to seek insurance than low-risk individuals (Correct answer)
- The state mandating coverage for all applicants
- Insurers canceling policies after a single claim
Correct answer: High-risk individuals are more likely to seek insurance than low-risk individuals
Adverse selection occurs when people with higher-than-average risk are disproportionately more likely to purchase insurance, skewing the risk pool.
P&C Trivia 5
Which insurer-initiated cancellation requires a longer notice period and typically involves non-renewal rather than mid-term termination?