Property & Casualty Insurance License Test Property & Casualty Insurance License Test Surety Bonds and Specialty Lines Questions and Answers

Question 1

Which three parties are involved in every surety bond arrangement?

Accepted Answer

Principal, obligee, and surety

Answer

Insured, insurer, and beneficiary

Answer

Contractor, subcontractor, and owner

Answer

Borrower, lender, and guarantor

Question 2

A performance bond guarantees which of the following?

Accepted Answer

That a contractor will complete a project according to the contract terms

Answer

That a contractor will submit the lowest bid on a project

Answer

That an employee will not steal from the employer

Answer

That a court judgment will be satisfied if the defendant loses

Question 3

What is the primary purpose of a bid bond in the construction industry?

Accepted Answer

To guarantee that a contractor who wins a bid will enter into the contract and provide required performance and payment bonds

Answer

To guarantee that a contractor will pay all subcontractors and suppliers

Answer

To guarantee that the contractor's employees are covered by workers' compensation

Answer

To guarantee that the project will be completed on time

Question 4

A fidelity bond differs from a surety bond primarily in that a fidelity bond protects against which type of loss?

Accepted Answer

Dishonest acts of employees such as theft or embezzlement

Answer

A contractor's failure to complete a project

Answer

Failure to obtain required government permits

Answer

A court-ordered financial obligation not being paid

Question 5

A license and permit bond is typically required by which party?

Accepted Answer

A government entity as a condition of granting a business license or permit

Answer

A private employer before hiring a new employee

Answer

A lending institution before approving a business loan

Answer

An insurance company before issuing a commercial policy

Question 6

In surety bond underwriting, the surety has the right to seek reimbursement from the principal for losses paid. This right is known as what?

Accepted Answer

Right of indemnity (subrogation against the principal)

Answer

Right of first refusal

Answer

Duty to defend

Answer

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