State Farm Insurance License Exam with complete solutions

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Abandonment Condition - ANSWER A condition often contained in property insurance policies that states that the insured cannot abandon damaged property to the insurer and demand to be reimbursed for it... s full value. Accident - ANSWER A loss that occurs at a specific time and place Actual Cash Value (ACV) - ANSWER Today's replacement cost minus depreciation. Depreciation from wear and tear, or obsolescence. admitted insurer; authorized insurer - ANSWER Company that meets a state insurance department's standards and is allowed to do business in that state. Adverse Selection - ANSWER the tendency of insureds with a greater than average chance of loss to purchase insurance Annual Transit Policy - ANSWER Nonfiled commercial inland marine transportation form that insures a property owner's incoming or outgoing shipments of goods during a year Appraisal Clause - ANSWER A survey of property to determine the insurable value of the property or the value of the loss sustained. Appraisal Condition - ANSWER Policy condition that outlines a procedure for when the insured and insurer disagree on the amount of a loss Assignment - ANSWER The legal transfer of one's interest in an insurance policy to another person. Aviation Hull Insurance - ANSWER Provides coverage for physical damage to an aircraft. Bailee's Customers Policy - ANSWER Nonfiled commercial inland marine form obtained by a bailee to cover loss or damage to customers' property in the bailee's custody without regard to liability. Appurtenant Structures - ANSWER Buildings of lesser value that are on the same premises as the main building insured under a property policy; they are usually covered by the policy. Assignment Condition - ANSWER Condition in insurance policies that specifies that the policy cannot be transferred to another unless the company consents to the transfer in writing. Bailee - ANSWER A person or organization that has temporary possession of someone else's personal property. Basic Perils in Homeowners Policy - ANSWER There are 14 perils. Fire, lightening, riot, explosion, vehicles, volcanic eruption, civil commotion, smoke, hail, aircraft, windstorm, vandalism, malicious mischief, theft. Basic Property Policy Structure (DICEE) - ANSWER D - Declarations I - Insuring agreement C - Conditions E - Exclusions E – Endorsements Blanket Insurance - ANSWER Type of insurance policy that covers more than one item of property at a single location or one or more items of property at multiple locations Builders Risk Coverage Form - ANSWER Commercial property coverage forms that covers commercial, residential, or farm buildings that are under construction or during remodeling. Cargo Insurance - ANSWER Type of ocean marine insurance that covers goods while they are in transit over water. Binder - ANSWER Oral or written statement that provides immediate insurance protection for a specified period; designed to provide temporary coverage until a policy is issued or denied. BOP - ANSWER Package policy designed to provide broad property and liability coverage for small businesses; eligibility requirements are stricter than the CPP. Business Income Policy - ANSWER Pays for loss of income that the insured sustains due to a direct physical loss from a covered peril that forces the insured to suspend operations until the property can be repaired, rebuilt, or replaced with reasonable speed; available with or without extra expense coverage. Causes of Loss Form - ANSWER Separate form used with the commercial property coverage part of the commercial package policy that lists covered perils and exclusions. Several different versions provide increasingly broader coverage from basic to broad to special. Condominium Association Coverage Form - ANSWER Commercial Property coverage form that covers the buildings in a condominium complex. Does not cover condominium owner's personal property. Coverage D on a HO Policy - Loss of Use - ANSWER If property loss makes the residence premises uninhabitable, the additional living expenses are covered; or if a covered loss to the insured's property makes a part of the residence premises uninhabitable that is rented to others or held for rental by the insured, this coverage will pay the fair rental value. coverages excluded on dwelling policy - ANSWER Theft, vandalism, and malicious mischief excluded on basic policy. Liability excluded on all policies. Coverage B of homeowners policy - ANSWER Other structures; covers building and structures on the premises other than the dwelling set apart by a clear space from the dwelling; 10% of Coverage A. Coverage D on a dwelling policy - ANSWER Fair rental value is covered on a dwelling policy. Coverage limit on money in HO - ANSWER $200 limit on personal property with special limits Coinsurance Clause on Property - ANSWER Insurance carried/Insurance required X amount of loss Coverage F on homeowners policy - ANSWER Medical payments to others; pays all necessary medical expenses for up to three years after an accident. Deductible - ANSWER The amount of expenses that must be paid out of pocket before an insurer will pay any expenses from a covered loss. Direct Loss - ANSWER Financial loss resulting directly from a loss to property Equipment Breakdown Coverage; boiler and machinery coverage - ANSWER Part of the commercial package policy that covers a loss due to breakdown of business equipment due to direct or indirect loss. Excess Insurance - ANSWER When two or more policies or coverage apply to the same loss, the one that applies only after the limits of the primary coverage have been exhausted. Difference in Conditions Insurance (DIC) - ANSWER Type of commercial property policy that covers most insurable perils but excludes basic fire and extended coverage perils . Eligible for Dwelling Policy - ANSWER Provides coverage for the following: -Up to five boarders -Up to four apartments -Mobile home -Residence rented to others -Vacation home -Townhouse/rowhouse -Home under construction Estoppel - ANSWER Principle that states that if one intentionally or unintentionally creates the impression that a certain fact exists, and an innocent party relies on that impression and is injured as a result, the guilty party may be legally prohibited from asserting that the fact does not exist Extra Expense - ANSWER Commercial property coverage form that covers additional expenses incurred by the insured business to continue operations following a direct loss by a peril insured against. Fair Access to Insurance Requirements (FAIR) - ANSWER Program established by law that makes property insurance available to insureds who might otherwise be uninsurable in the standard market. Fiduciary - ANSWER Someone who has undertaken to act for and on behalf of another in a particular matter in circumstance which give rise to a relationship of trust and confidence Flood - ANSWER - an overflow of inland or tidal waves - usual and rapid accumulation of runoff of surface water from any source, unless general flooding exists - mudslides caused by accumulations of water on the ground or underground - collapse of land as a result of excessive erosion due to flood Freight Insurance - ANSWER Type of ocean marine insurance that protects the insured against the loss of shipping costs Farm Policy Coverages - ANSWER Farm property Coverage A - dwelling Coverage B - other structures non-farming Coverage C - household personal property Coverage D - loss of use Farm Property Coverages Coverage E - scheduled farm personal property Coverage F - unscheduled farm personal property Coverage G - barns, outbuildings, other farm structures Farm Liability Coverages Coverage H - BI and PD Coverage I - personal and advertising injury Coverage J - medical payments to others Floater - ANSWER An insurance policy, or an addition to another insurance policy, covering personal property deemed to be easily moveable. It covers property lost, damaged, or destroyed (e.g. jewelry, electronics, and furs.) Fraud - ANSWER A deliberate misrepresentation that causes harm; an all out effort by one party to deceive and cheat the other, must have intent. Functional Replacement Cost - ANSWER Damaged property is repaired or replaced with less expensive, but functionally equivalent, materials HO-3 Policy Perils - ANSWER Dwelling covered for open perils and personal property covered for broad perils in this HO policy. HO-4 Policy - ANSWER Renters policy. Personal property covered for broad perils. Indemnity - ANSWER Restores an insured to the approximate conditions before the loss, no better or worse. Inherent Vice - ANSWER Characteristic in property itself causing it to depreciate, spoil, break, become defective, disintegrate, or destroy itself. Implied Warranties - ANSWER In ocean marine insurance, warranties that are not written into the policy, but have become a part of the policy by custom. Indirect Loss - ANSWER Loss that is the result or consequence of a direct loss Inland Marine Insurance - ANSWER Property insurance coverage designed to insure exposures that cannot be conveniently or reasonably confined to a fixed location or insured under a standard form. Includes coverage for property in transit, overland, moveable property, instruments of transportation and communication (bridges, roads, and television/radio towers), legal liability for bailees coverage, and computerized equipment. Insuring Agreement - ANSWER Section in the policy that describes what property is covered and the perils the policy insures against. Jettison - ANSWER A voluntary action to rid a ship of cargo to prevent further damage or peril. Liberalization Clause - ANSWER Condition found in property insurance contracts that provides that if the insurer broadens coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will be construed to contain the broadened coverage MCS-90 - ANSWER Endorsement attached to the truckers coverage form to provide public liability coverage . Intervening Cause - ANSWER An independent action that breaks the chain of causation and sets in motion a new chain of events; when this occurs, it became the new proximate cause . Legal Liability - ANSWER Commercial property coverage form that covers the insured for liability arising out of negligent damage to the property of others while it is in the insured's care, custody, or control. Market Value - ANSWER The amount property could be sold for at the time of of loss. May be used to determine the amount of reimbursement for a loss. Messenger - ANSWER In a crime policy, defined as an insured , partner, or employee who has care and custody of insured property outside the premises. Morale Hazard - ANSWER Hazard created by an individual's tendency to contribute to a loss through his own irresponsible actions or carelessness . Motor Truck Cargo Policy - ANSWER Commercial inland marine policy that protects a carrier against its liability for damage to domestic shipments in its custody. Named (specified) Peril Policy - ANSWER Insurance policy that insures only against perils specifically listed in the policy. National Flood Insurance Program (NFIP) - ANSWER Program run by the federal government that makes flood insurance available to eligible communities at subsidized rate; includes coverage for both building and personal property with separate deductible for each. Motor Carrier Coverage Form - ANSWER commercial auto coverage form that is an alternate to the truckers coverage form; it can be used to cover anyone who transports property by auto in a commercial enterprise Mysterious Disappearance - ANSWER Loss of property due to unknown cause; theft must be ruled out. Named Insured - ANSWER Person, business, or other entity named in the declarations to whom the policy is issued. Nonconcurrency - ANSWER Situation that exists when the same property is covered by more than one policy, but the policies are not identical as to the extent of coverage provided. Ocean Marine - ANSWER Insurance designed to provide broad coverage for cargo and ships in transit over sea; includes cargo insurance, hull insurance, freight insurance, and protection and indemnity insurance. Pair and Set Provision - ANSWER Found in some property and inland marine policies stating the company will pay for loss of part of a set by either repairing or replacing the damaged article or paying the difference between the ACV of the intact set and the ACV of the articles remaining after the loss. Parts of a legal contract (CLOC/CLAC) - ANSWER Competent parties Lawful objective Offer and acceptance Consideration Personal effects form - ANSWER Inland marine form that covers an insured's personal belongings, such as baggage, while traveling. Open Peril; all risk; special coverage - ANSWER Insurance policy that protects the insured from losses caused by any peril that is not specifically excluded by the policy Parts of a Homeowners Policy - ANSWER Coverage A - dwelling Coverage B - other structures Coverage C - personal property/contents Coverage D - loss of use/additional living expenses Coverage E - personal liability Coverage F - medical payments to others Personal Articles Form - ANSWER Inland marine form that provides scheduled coverage for nine optional classes of personal property: jewelry, furs, cameras, musical instruments, silverware, golf equipment, fine arts, stamp collections, and coin collections. Primary Insurance - ANSWER When two or more coverage or policies apply to the same loss, the one that pays first, up to its limit of liability or the amount of the loss, whichever is less. Pro Rata Basis - ANSWER Insurance company cancels the policy; unearned premium is returned to the insured. No penalty is applied to this method of cancellation. Protection and Indemnity - ANSWER Form of ocean marine liability insurance that covers a variety of types of liability, such as a damage to cargo through negligence and damage to other property or another boat resulting from collision. Pure Risk - ANSWER A risk in which there in no chance of gain, only loss; only risk that is insurable. Repair Cost - ANSWER The cost to fix a damaged or destroyed item of property; may be the basis of reimbursement for a loss. Pro Rata other insurance; contribution by limits - ANSWER Method of handling insurance when more than one coverage applies to a loss; each coverage pays a portion of the loss in proportion to the relationship its limit of liability bears to the total limit of liability under all applicable insurance Proximate Cause - ANSWER An action that, in a natural and continuous sequence produces a loss. "If it had not been for..." Recovery Clause - ANSWER In a property form, if the property is recovered after the insured have received payment for the loss the insured must notify the insurance company. The insured must make a decision either to keep property or the settlement amount but not both. Replacement Cost - ANSWER The cost to replace the lost or damaged property with property of like, kind, and quality without a deduction for depreciation Representation - ANSWER Statements on an insurance application that the applicant believes are true; not considered a matter to which the parties contract, so a policy cannot be voided on this basis. Scheduled Coverage - ANSWER Property that is specifically listed in the declarations and covered for a specific amount; also called specific insurance. Short Rate - ANSWER When an insured cancels a policy before the expiration date, the insurance company keeps the premium for insurance already provided (called earned premium), but also keeps an allowance (called penalty or surcharge) for expenses on the unearned premium. Subrogation - ANSWER Prevents double recovery by assigning or substituting the right of one party (insured) to another (insurer) to collect damages from another party. Salvage - ANSWER Insured property that is damaged by a covered peril; the insured is paid by the insurance company who may take possession of the property. Self-insurance - ANSWER alternative to purchasing insurance where a company or individual assumes the risk of paying for its losses and sets aside the necessary funds to pay for such losses Stated-value Policy - ANSWER Insurance contract written to insure property or a piece of property for specific amount. Fine arts, collectibles, and other hard-to-value assets [Show More]

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