11/14/2018 1/92 FL Certified Adjuster Practice Exam MC Mark incurred $8,000 damage to his car in an accident. He received $8,000 from his insurance company and $4,000 from the other driver. By receiving a profit from the loss, Mark could be in violation of: the principle of financial status. the principle of financial restoration. the principle of profit and loss. the principle of indemnity. MC What is a reserve, in insurance terms? The amount of revenue that the insurer sets aside to pay employee salaries A group of policyholders who pay into the same pool of premiums A set of rules governing how the insurance industry should work A pool of collected premiums that the insurer sets aside to pay claims MC The purpose of the principle of indemnity is: to transfer the risk of financial loss from one party to another. to transfer the right to collect a debt from one party to another. to prevent an insurer from making a profit on a loss. to prevent an insured from making a profit on a loss. MC Greg plays trombone in his school band during football games. During a rally song in the stands one day, Greg annoys one of the opposing team’s fans, who grabs his $400 trombone and hurls it down the bleachers, completely destroying it. Greg’s insurance pays him $400 to replace the trombone, but then the opposing team’s coach also offers to replace the instrument, at whatever the cost. So Greg orders a new $3,200 trombone and has the opposing team’s athletic department absorb the cost. Which principle has Greg violated? The principle of consideration The principle of legal purpose The principal of the opposing team The principle of indemnity MC Which of the following refers to being restored to the financial condition you were in before a loss? Restoration Estoppel Subrogation Indemnification MC Bobby just purchased an insurance policy for his home from XYZ Insurance. Which of the following would be a reason this policy may not be legally binding? . Bobby has an outstanding warrant for selling marijuana. Bobby paid his first premium when he and his agent agreed on a policy, but he is waiting for the policy documents to be prepared so he can sign them Bobby is only 19 years old. 11/14/2018 Bobby has been diagnosed with schizophrenia. MC Indemnification may include all of the following except: reimbursement for hotel costs. reimbursement for rental car costs. payment for repairs to property. payment for pain and suffering. MC Which of the following is NOT a requirement for a legally binding contract? There must be a legal purpose. There must be mutual consent. Both parties must bring something of value. It must be a notarized document. MC The fee paid by the insured in exchange for an insurance policy is called a: legal purpose. binder. contract. premium. MC Which of the following best defines the principle of indemnity? Both parties to an insurance contract must contribute something of value. In order to be legally binding, a contract must have agreement, consideration, competent parties, and legal purpose. In exchange for a premium, the insurer grants peace of mind by reducing the insured’s insecurity about the future. After a loss, the insured should be restored to his approximate financial condition before the loss. MC Which of the following is found in the declarations page of an insurance policy? The perils insured against A description of how to file a claim The obligations of the insured after a loss The name of the insured party MC In which section of an insurance policy might you find the following statement? "'We, us, and our’ refers to ABC Insurance company." Declarations Conditions Exclusions Definitions MC In which section of an insurance policy might you find the following statement? "Damage to insured property must be reported within 15 days of the damaging occurrence." Exclusions Definitions Declarations Page Conditions MC Which section of an insurance policy is designed to OMIT certain risks from coverage? Insuring Agreement 2/92 11/14/2018 3/92 Coverage Forms Definitions Exclusions MC Which of the following would you find in the Conditions section of an insurance policy? The meaning of certain important words in the contract Causes of loss that are not covered Policy limits The insured’s duty after a loss MC All of the following are typical exclusions in an insurance policy, EXCEPT: nuclear hazards. earthquakes. flooding. explosion. MC All of the following pieces of information can be found in the Conditions section of an insurance policy, EXCEPT: what the insured must do in the event of a lawsuit. anything the insured must do for coverage to remain in effect. the insured’s duties after a loss. causes of loss that are not covered. MC Which of the following statements is true about an insurance policy? The insured is obligated to the terms of the contract for the entire policy period. It is transferable if the property is sold to another party. The insured sets the terms of the policy. It relies on the utmost good faith of both the insured and the insurer. MC In an insurance policy, the summary of what the insurer will do in the event of a covered loss is called: the insuring agreement. the dec page. the conditions section. the definitions section. MC In a __________, only one party is legally obligated to perform. conditional contract contract of adhesion contract of utmost good faith unilateral contract MC Insurance policies are unilateral contracts. This means: only one party has an obligation to perform. ambiguities are settled in favor of the insured. they depend on an unknown future event. they rely on the honesty of both parties. MC Which of the following is NOT a characteristic of insurance contracts? Conditional Unilateral 11/14/2018 4/92 Aleatory Universal MC If an adjuster needs to find clarification about what actually constitutes a collision, in which section of an insurance policy would she find that information? Declarations Exclusions Conditions Definitions MC Which of the following best describes a Fraternal Benefit Society? A fraternal benefit society is a for-profit provider of insurance. A fraternal benefit society uses investors' money to pay claims. A fraternal benefit society pays dividends to its stockholders. A fraternal benefit society is a social organization based around common interests and beliefs. MC Which of the following is NOT a characteristic of social insurance programs? Social insurance programs are designed to meet the needs of the general public as a whole. The benefits of a social insurance program may be prescribed by federal law. Social insurance programs involve mandatory participation. Social insurance programs are for-profit programs. MC When an insurer buys insurance to reduce its exposure to loss, this is called: mitigation. loss reduction. co-insurance. re-insurance. MC Frank purchases an automobile policy from publicly-traded XYZ Insurance. He pays regular monthly premiums, and also purchases stock in XYZ and receives dividends when the company turns a profit. From which type of company has Frank purchased insurance? Re-Insurer Reciprocal insurer Mutual insurer Stock insurer MC Xavier owns a small insurance company. Recently the company won a bid to insure a new housing development in Omaha, NE. His company can handle any claims that arise, but if a series of tornados were to tear through the area and destroy the entire development, Xavier’s company would suffer financially. Which type of insurer could help Xavier’s company protect itself the most from this potential loss? A fraternal benefits society A stock insurer A reciprocal insurance group A re-insurer MC Cindy holds an insurance policy from Sine Nomine Insurance. This is not a publicly traded company, and Cindy can participate in the election of the board, receiving dividends if the company does well. Sine Nomine Insurance could be best described as a: a risk retention group. fraternal benefits society. stock insurance company. 11/14/2018 5/92 mutual insurance company. MC Edward is a member of the Knights of Columbus, a religious group dedicated to voluntary service to the benefit of society. He also recently purchased a $100,000 life insurance policy from the organization. This was possible because the Knights of Columbus is: a risk retention group. a mutual insurer. a reciprocal insurer. a fraternal benefit society. MC An insurer that adheres to the laws of a state but is located outside of that state is called a(n) ___________ insurer. national alien domestic foreign MC SureTrust Insurance was founded and operates in Texas. In Texas, SureTrust is considered: a state insurer. an alien insurer. a foreign insurer. a domestic insurer. MC A reciprocal insurer is: a publicly-traded insurance company owned by stockholders, which provide capital and participate in the insurer’s profits and losses. an insurance company that is owned by its policyholders, is not traded publicly, and is governed by a board of directors elected by the policyholders. a non-profit mutual aid organization that engages in charitable or benevolent activities and provides insurance to its members. an unincorporated organization of subscribers that operates through an attorney-in-fact to provide insurance benefits for its members. MC A captive insurance company: provides insurance that is designed to meet the needs of the general public. provides insurance for insurers. operates through an attorney-in-fact to provide insurance benefits for its members. exists solely to provide insurance for its parent company. MC An insurance company might consider any of the following a risk, EXCEPT: a jewelry collection. an automobile. a home. a high crime neighborhood. MC Which of the following would be considered an insurable risk? The gold stored in Fort Knox A high-crime area A riverbank A squadron of police cars 11/14/2018 6/92 MC Which of the following is a hazard? A skiing accident Vandalism Lightning A driver’s tendency to text while driving MC Which of the following situations does NOT involve an insurable risk? Melody just bought a gas station and convenience store. Christine just bought her husband an expensive new watch. Hank just bought a new outboard motor for his fishing boat. Dale just bought 30 shares of a hot new startup company online. MC An insurance company may consider each of the following a risk, EXCEPT: a race car. a ruby necklace. a school bus. a flood zone. MC Which of the following is an example of a hazard? Sandra buys a lottery ticket every day. Sandra’s home is destroyed when a massive earthquake hits. Sandra owns an exotic car that is extremely valuable. Sandra’s home is in an area of Los Angeles that is often hit by earthquakes. MC Steve has just purchased a wedding ring for his new bride. If something were to happen to the ring, he’d be out a lot of money, so he purchases an insurance policy. He is able to do this because: the ring is a safe risk. the ring is a sure risk. the ring is a speculative risk. the ring is a pure risk. MC Which of the following would be considered an insurable risk? A partnership A suburb A mountain range A football stadium MC A “hazard” is defined as: the likelihood of experiencing a loss. an unexpected event that causes loss. an insured item. something that increases the chance of a loss. MC Which of the following situations does NOT involve an instance of “pure risk?” Loss of a house due to a hurricane Loss of crops due to an infestation of parasites Loss of a company car in an unfortunate accident Loss of money invested in the stock market 11/14/2018 MC When an insurer issues an insurance policy, the actual item, person, or organization that is being insured is called the: hazard. loss. peril. risk. MC Each of the following would classify as an insurable risk, except: a brick patio. a rocket. a barn. a marriage. MC Six Stars Development Company has just been offered a great deal on ten large properties in Las Vegas. The economy in Las Vegas has been declining recently, but the CEO of Six Stars expects it to recover soon. This could be an exceptional opportunity for Six Stars, but it's also pretty risky. Ultimately, the Six Stars executive team decides not to purchase the properties. This is an example of: risk transference. risk reduction. risk retention. risk avoidance. MC Jared hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Jared an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing: risk avoidance. risk retention. risk transference. risk reduction. MC Six Stars Development Company has just been offered a great deal on a bulk purchase of dishwashers from a new company called Clean Machines. They've never purchased appliances from Clean Machines, so they're hesitant to make such a large purchase. Finally, Clean Machines offers to provide 10-year warranties for each of the dishwashers. This is an example of: risk avoidance. risk reduction. risk retention. risk transference. MC Which of the following is NOT a risk management technique? Risk retention Risk avoidance Risk reduction Risk equality MC Six Stars Development Company has just purchased several large properties in Las Vegas. As a result of this large purchase, they are a little short on money and decide to save money by not purchasing insurance on their new properties. Six Stars is practicing: risk avoidance. risk reduction. 7/92 11/14/2018 8/92 risk transference. risk retention. MC Risk avoidance is a risk management technique that: counterbalances risk. increases risk. reduces risk. eliminates risk. MC Amy needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building safe, so she puts in an alarm system and smoke detectors. By purchasing the alarm system and smoke detectors, Amy is practicing: risk avoidance. risk transference. risk retention. risk reduction. MC In order to qualify for an insurance policy, Lydia’s Fine Jewels must agree to have a security guard on the premises 24/7. This is called a: binder. waiver. representation. warranty. MC Jason’s auto policy states that the insurer may cancel coverage if a premium is more than 30 days late. However, Jason is currently more than 30 days late, and has been so five times in the last year, and his insurer has done nothing about it. When Jason gets into an accident and files a claim, which of the following is most likely to happen? The insurer will deny the claim and cancel Jason’s policy because of the implied waiver they have made by not canceling his policy the previous times he was late with his payments. The insurer will pay the claim because of the express waiver they have made by not canceling Jason’s policy the previous times he was late with his payments. The insurer will deny the claim and cancel Jason’s policy because he is more than 30 days late with his payment. The insurer will pay the claim because of the implied waiver they have made by not canceling Jason’s policy the previous times he was late with his payments. MC Which of the following statements about the principle of estoppel is TRUE? Estoppel essentially guarantees no increases in the policyholder premiums after a policy term expires. Estoppel protects the insurer from the effects of a warranty. Estoppel allows an insurer to change the coverage in an insurance policy without the policyholder's consent. Estoppel protects the insured party from an insurer who initially approves coverage, but then later denies coverage after the insured pays for repairs. MC The factual statements of the insured upon which an insurance policy is based are called: allegations. utmost good faith. misrepresentations. representations. 11/14/2018 9/92 MC An insurance contract is an agreement between two parties where each side promises to be truthful, factual, and honest about their respective positions. Therefore, an insurance contract is said to be a contract of: promises. truthfulness. warranties. utmost good faith. MC Clark is filling out an application for an insurance policy. The application asks for his birth date, and Clark writes 1-24-67. His actual birthday is 1-24-63, but he likes to appear younger so he uses a different date. This would be called: representation. concealment. warranty. misrepresentation. MC An oral or written statement providing temporary insurance coverage until an insurance policy can be issued is called a: contract. agreement. consideration. binder. MC Rachel is filling out an application for a homeowners policy. She is truthfully answering the questions regarding her home’s location, size, age, etc. Which of the following is a true statement? Rachel is providing factual misrepresentations. Rachel is providing binders. Rachel is providing warranties. Rachel is providing representations. MC When Sally applies for an auto policy, her agent issues her a ________ so that she can benefit from insurance protection while he underwrites the policy. waiver representation warranty binder MC What is a binder? A legal principle that binds the insurer to its guarantees A voluntary surrender of a privilege A promise or guarantee that certain conditions will be met Temporary coverage for an insurance applicant until the policy is issued MC Adam has a treacherous drive to work every day. Not only does he have to drive down the pothole-strewn access road to the highway, but he also must traverse several icy bridges on the way to work. Why does the insurance company call these hazards “physical hazards”? Adam doesn't consciously choose to take this route. They take a toll on Adam physically, increasing the chance of a loss. Adam is indifferent to any losses he may suffer. The roads present a physical condition that increases the chance of a loss. 11/14/2018 MC John owes a lot more on his car than it is worth. He figures he would be better off if he burned the car and collected an insurance settlement. He has someone set fire to his garage to destroy the car. John’s behavior would be considered a: hazard. physical hazard. morale hazard. moral hazard. MC Lucy has insurance on an expensive necklace she likes to wear to work every day. After work, she takes it off and leaves it in her car's cupholder so she can put it back on in the morning on her way to work. Lucy’s behavior would be considered a: physical hazard. moral hazard. hazard. morale hazard. MC Which of the following statements about a moral hazard is FALSE? A moral hazard increases risk. It is reckless behavior because of security offered by insurance. It is a hazard caused by human behavior. It is the result of an unconscious behavior. MC Arlene's house suffered structural damage in an earthquake last year, but her policy does not cover earthquake damage, so Arlene never got it fixed. When a tornado rips through her neighborhood, it causes some roof damage totalling $2,000, and Arlene sees an opportunity in the situation. She files a claim for the roof damage, but also claims that the tornado caused the structural damage to her house that was actually caused by the earthquake last year. Which of the following statements is true? Arlene has just created a physical hazard. Arlene has just created a morale hazard. Arlene has just committed hard fraud. Arlene has just committed soft fraud. MC Lewis owns a computer store, and he spends many hours a day on the sales floor demonstrating his products to customers. He often gets very animated when showing the electronics and, although he does not intend for anything bad to happen, he doesn’t worry too much about handling them carefully, since he knows that his insurance policy will cover any damages. This behavior would be called a: physical hazard. fraud. moral hazard. morale hazard. MC Which of the following is an example of a moral hazard? Kim is jamming out to her music while driving to work and accidentally runs a red light. The road that leads to Mike’s house is steep and narrow. Nancy falls asleep with a lit cigarette in her hand. Ken lights a candle, sets it right next to the window draperies and leaves the house to go to work. MC Jane’s shed burns to the ground during a tornado, when the high winds break a wall of the shed, knocking over a lantern inside. What is the proximate cause of the loss? Fire 10/92 11/14/2018 11/92 Wall collapse The lantern Wind MC An “occurrence” is defined as: an insured item. something that increases the chance of a loss. the likelihood of experiencing a loss. an unexpected event that causes loss. MC Driving home after a 14-hour shift, Sam falls asleep at the wheel and plows into Sandra’s home, causing extensive damage to the East wall and roof. As a result, Sandra and her family must move into a hotel until the repairs are completed. The cost of staying in a hotel is: a physical hazard. the proximate cause. a direct loss. an indirect loss. MC Driving home after a 14-hour shift, Sam falls asleep at the wheel and plows into Sandra’s home, causing extensive damage to the East wall and roof. As a result, Sandra and her family must move into a hotel until the repairs are completed. Sam's car crashing into the house would be considered: an out-of-pocket expense. an indirect loss. a physical hazard. an occurrence. MC When record-breaking rainfall causes severe flooding in Janie's home town, Janie's rental property suffers extensive damage. Which of the following is an indirect loss? Janie's tenant has to replace his sofa that was damaged by the water. Janie must pay to have the wood floors replaced in her rental unit. Janie must hire a contractor to reinforce a damaged retaining wall in the backyard of her rental unit. Janie loses a month of rental income when her tenant must move out while repairs are made to the home. MC A power surge sparks a small electrical fire in an office building. The electrical fire triggers the automatic sprinkler system. The water from the sprinklers soak the carpets and short-out all the computers, causing thousands of dollars in damage. What is the proximate cause of the loss? The water from the sprinklers The automatic sprinkler system The electrical fire The power surge MC During a storm, lightning strikes a tree in Harry’s yard and starts a fire that spreads to his shed where he keeps all his equipment for his landscaping business. In addition to the shed, Harry has to purchase all new equipment to stay in business. The cost to replace the equipment would be considered: a peril. an occurrence. an indirect loss. a direct loss. 11/14/2018 12/92 MC As Jonathan was driving through an intersection, another driver ran a red light and crashed into the side of Jonathan’s car, which caused significant physical damage to both vehicles. Jonathan must now rent a car while his is being repaired. The rental car expense would be considered a: physical hazard. proximate cause. indirect loss. direct loss. MC Adam is shopping for a car in a local automobile dealership. While visiting the showroom, he trips over a rug that has folded over and breaks his arm in the fall. Which of the following is true? The automobile dealership may file a first party claim with its own insurance company. Adam may file a first party claim with the dealership's insurance company. The automobile dealership may file a third party claim with its own insurance company. Adam may file a third party claim with the dealership's insurance company. MC Which of the following is most likely a third party claim? A woman files an insurance claim after she backs her car into a guardrail. A man files a claim against his health insurer for a surgery to remove his appendix. A man files a homeowners claim when his house is struck by lightning. A woman files an insurance claim when she is injured by an employee at a local bar. MC Flora is driving in the rain when she skids off the road and slams into Cam's billboard, totaling her car and causing $2,000 in damage to the billboard. Flora has an auto policy with ABC Insurance, and both Cam and Flora submit claims against this policy for their damages. Which of the following is TRUE? Flora will file a first-party claim for the damage to Cam's billboard and a third-party claim for the damage to her car. Flora will file a third-party claim for the damage to Cam's billboard and a first-party claim for the damage to her car. Flora will file a third-party claim for the damage to her car, and Cam will file a first-party claim for the damage to his billboard. Flora will file a first-party claim for the damage to her car, and Cam will file a third-party claim for the damage to his billboard. MC An insurance adjuster will do all of the following regarding a claim EXCEPT: determine if the claim falls under the coverage of the insurance policy. decide whether the claim has any merit. investigate the claim. protect the insurer from the claim. MC Sam suffers $6,000 in injuries when Nicole runs a red light and crashes her uninsured car into Sam’s. Sam's own insurance company, ABC Insurance, immediately pays him $5,000 for his injuries. Sam then ponders whether to file a $6,000 lawsuit against Nicole. Why can't Sam sue Nicole for the full amount of his injuries? Once ABC Insurance indemnifies Sam for $5,000, Sam is blocked from any further legal action. Sam first needs to wait to see how much Nicole pays to ABC Insurance. Nicole has already subrogated her rights to Sam's insurance company. By accepting payment from ABC Insurance, Sam subrogated a portion of his rights against Nicole to ABC Insurance. 11/14/2018 13/92 MC Sally throws a cigarette butt into Neal’s dumpster, starting a fire on Neal’s property that costs him $10,000. Neal files a claim with his insurer. The insurer pays Neal and then demands $10,000 from Sally to pay for the loss she caused. What gives the insurer the right to collect payment from Sally? Vicarious liability Right of recovery Estoppel Subrogation MC Which of the following statements about insurable interest is FALSE? When a renter leases your house, your insurable interest in the home remains. Insurable interest reduces the incentive for someone to cause damages intentionally to insured property. Purchasing an insurance policy on your home helps protect your insurable interest in a home. Maintaining property values allows your neighbor to have an insurable interest in your house. MC James is walking down the street when Andrea, an uninsured motorist, strikes him with her car. James suffers $12,000 in injuries from the accident. He has personal injury protection of $10,000 from his own automobile insurance policy, which immediately pays him the full amount. By accepting $10,000 from his own insurance company, James has waived the right to sue Andrea for more than _____ for personal injury. $12,000 $5,000 $10,000 $2,000 MC Which of the following does NOT have an insurable interest in Big Ed’s Steak House, a local restaurant? Ed’s partner, Bill, who owns 49% of the restaurant. Ed, who owns 51% of the restaurant. ABC Bank, which holds the mortgage on Big Ed’s Steak House. Jim, who regularly eats at Big Ed’s Steak House because it’s his favorite restaurant. MC When Zach purposefully burned down Matt’s restaurant, Matt’s insurer paid the claim and then went after Zach for the damages. Matt is furious about what Zach did and wants to sue him as well. Why is it NOT possible for Matt to sue Zach? Zach is protected by the Statute of Limitations. Zach may not be tried for the same thing twice. Matt was not present at the time of the fire. Matt has already received indemnification from his insurer. MC Jerry is using an expensive video recorder near the family pool when he slips and falls in, destroying the camera. Jerry bought the camera three years ago for $4,000, and it depreciates at $500 per year. A new, similar camera costs $5,000 today. Assuming the loss is covered, if Jerry had a replacement cost policy, how much would Jerry's insurer indemnify Jerry for the destroyed camera? $4,000 $2,500 $3,500 $5,000 MC Sue decides to get a valued insurance policy on her antique car. She and her insurance company agree to a value of $85,000. Three years later, the car is destroyed when a tree falls on it in a parking lot. The car depreciates at $2,000 a year, and its replacement cost is $100,000. Ignoring any deductible, how much can Sue expect her insurer to indemnify her?