PSI Insurance and Risk Management 3

Question 1

Which component of a fire insurance premium reflects the unique characteristics of a specific building?

Accepted Answer

Schedule rate

Answer

Schedule rating adjusts the base class rate up or down based on specific characteristics of the individual building being insured.

Question 2

What does 'pro rata' cancellation mean in insurance?

Accepted Answer

The unearned premium is returned in exact proportion to the unexpired policy period

Answer

Pro rata cancellation returns premium exactly proportional to the remaining policy period with no penalty.

Question 3

An umbrella policy provides coverage that is:

Accepted Answer

Excess over the underlying primary limits and may drop down to fill certain gaps

Answer

An umbrella policy sits above underlying liability limits and can drop down to cover some gaps not covered by the primary policy.

Question 4

What is 'moral hazard' in the context of insurance?

Accepted Answer

The increased risk arising from an insured's dishonest or fraudulent character

Answer

Moral hazard refers to the increased chance of loss caused by an insured's dishonest tendencies or intention to defraud the insurer.

Question 5

Which insurance concept requires that an insured have a financial interest in the insured property at the time of loss?

Accepted Answer

Insurable interest

Answer

Insurable interest requires the insured to face actual financial loss if the insured property is damaged or destroyed.

PSI - Exams Practice Test