PFS Risk Management & Insurance Planning 2 — Questions and Answers
Question 1: Which homeowners policy form provides open-perils coverage on both the dwelling AND personal property?
- HO-2 (Broad Form)
- HO-3 (Special Form)
- HO-5 (Comprehensive Form) (Correct answer)
- HO-8 (Modified Coverage)
Correct answer: HO-5 (Comprehensive Form)
The HO-5 comprehensive form is the broadest standard homeowners policy, providing open-perils (all-risk) coverage on both the structure and personal property.
Question 2: The standard coinsurance requirement in commercial property insurance typically requires coverage equal to what percentage of replacement cost?
- 50%
- 70%
- 80% (Correct answer)
- 100%
Correct answer: 80%
Most commercial property policies require the insured to carry coverage equal to at least 80% of replacement cost to avoid a coinsurance penalty at claim time.
Question 3: A personal umbrella liability policy is best described as:
- Primary coverage replacing homeowners and auto liability
- Excess coverage above underlying policy limits (Correct answer)
- Coverage only for automobile liability claims
- Coverage only for professional liability claims
Correct answer: Excess coverage above underlying policy limits
An umbrella policy provides excess liability coverage that activates after the limits of underlying policies (homeowners, auto) are exhausted.
Question 4: Replacement cost coverage differs from actual cash value coverage because replacement cost:
- Pays less for older items due to depreciation
- Does not deduct depreciation when settling claims (Correct answer)
- Only covers structural damage to the dwelling
- Requires a larger deductible
Correct answer: Does not deduct depreciation when settling claims
Replacement cost coverage pays to repair or replace damaged property at current costs without deducting for depreciation, while actual cash value subtracts accumulated depreciation.
Question 5: Which automobile insurance coverage pays for damage to the insured's own vehicle resulting from a collision, regardless of fault?
- Liability coverage
- Uninsured motorist coverage
- Collision coverage (Correct answer)
- Comprehensive coverage
Correct answer: Collision coverage
Collision coverage pays for damage to the insured's own vehicle from a collision with another vehicle or object, regardless of who caused the accident.
Question 6: In property and casualty insurance, 'subrogation' gives the insurer the right to:
- Cancel a policy for non-payment of premium
- Recover a paid loss from the negligent third party responsible (Correct answer)
- Increase premiums retroactively after a large claim
- Reduce policy limits following a loss
Correct answer: Recover a paid loss from the negligent third party responsible
After paying a covered claim, subrogation allows the insurer to step into the insured's legal shoes and pursue recovery from the third party whose negligence caused the loss.
PFS Risk Management & Insurance Planning 2
Which homeowners policy form provides open-perils coverage on both the dwelling AND personal property?