PSI - Exams Insurance and Risk Management Questions and Answers

Question 1

A client trips over a painter's toolbox left in a hallway and breaks their arm. Which type of insurance policy is designed to cover the client's medical expenses and related damages?

Accepted Answer

General Liability Insurance

Answer

General Liability Insurance protects a business against claims of bodily injury or property damage to third parties (such as clients) caused by the business's operations. Workers' Compensation covers employee injuries, Errors and Omissions covers professional mistakes, and Builder's Risk covers damage to the structure during construction.

Question 2

A general contractor for a new home construction project hires a licensed and insured electrical subcontractor to perform all wiring work. This decision is an example of which risk management strategy?

Accepted Answer

Risk Transference

Answer

Risk transference is a strategy that shifts potential financial liability from one party to another. By hiring a qualified and insured subcontractor, the general contractor transfers the financial risk associated with the electrical work to that subcontractor and their insurance provider.

Question 3

Which of the following situations would typically be covered under a mandatory workers' compensation insurance policy?

Accepted Answer

An employee develops carpal tunnel syndrome from repetitive data entry tasks.

Answer

Workers' compensation insurance provides benefits for employees who suffer work-related injuries or illnesses. Carpal tunnel syndrome developed due to job duties is a classic example of a covered occupational illness. The other options relate to property theft, third-party liability, or unemployment, which are not covered by workers' comp.

Question 4

A real estate agent mistakenly informs a buyer that a property is zoned for commercial use, but it is actually zoned residential. After the sale, the buyer discovers the error and sues the agent for financial losses. Which type of insurance is specifically designed to protect the agent in this situation?

Accepted Answer

Errors and Omissions (E&O) Insurance

Answer

Errors and Omissions (E&O) insurance, also known as professional liability insurance, protects professionals against claims of negligence, misrepresentation, or mistakes in the professional services they provide. This scenario involves a professional error in providing information, which is the core coverage of an E&O policy.

Question 5

What is the primary purpose of a Certificate of Insurance (COI) when requested by a client before a contractor begins work?

Accepted Answer

To provide verifiable proof that the contractor has active insurance coverage with specific limits.

Answer

A Certificate of Insurance (COI) is a document that serves as proof of insurance coverage at a specific point in time. It summarizes the types of coverage, policy limits, and effective dates, giving the client assurance that the contractor is adequately insured before starting the project.

PSI - Exams Practice Test

PSI - Exams Practice Test

PSI - Exams Insurance and Risk Management Questions and Answers