State: Illinois | Category: Property and Casualty Insurance | All tests in this Category:
Practice Test 1 Practice Test 21. The exclusive remedy rule in workers' compensation means:
In most systems, workers' compensation is the exclusive remedy for work-related injuries, barring most civil lawsuits against the employer for the same injury.
2. Which statement about insurable interest is correct?
For property insurance, insurable interest must generally exist at the time of loss. For life insurance, insurable interest must exist at policy inception. This prevents wagering on losses.
3. In a hull policy with a 80% coinsurance requirement and a loss of 40 on a hull valued at 100, how much does the insurer pay?
Under coinsurance, payout = loss × (amount of insurance carried / value). Here, 40 × (80/100) = 32.
4. Disputes about the amount of loss are typically resolved through which mechanism?
The appraisal process is designed to resolve disagreements about loss amounts via appraisers and an umpire.
5. Misrepresentation occurs when the applicant provides information that is:
Misrepresentation involves false statements that are material and relied upon by the insurer when issuing the policy. It can lead to denial of coverage or rescission.
6. Which clause requires the insurer to obtain the insured's consent before accepting a settlement that could impose obligations on the insured?
Consent to settle provisions protect the insured from settlements that may admit fault or impose obligations beyond coverage. Without consent, the insurer may not settle a claim on behalf of the insured.
7. How is the Director of the Illinois Department of Insurance selected?
The Director is appointed by the Governor with the advice and consent of the Senate, not elected.
8. A supply bond guarantees that a supplier will:
A supply bond guarantees that the supplier will provide the goods or materials as specified in the contract, or the surety will cover the losses up to the bond amount.
9. Which statement best describes the indemnity principle in property & casualty insurance?
Indemnity aims to restore the insured to the financial position they had before the loss. It should not allow profit or windfalls beyond the actual loss.
10. What does a Combined Single Limit (CSL) mean in auto liability?
CSL sets one single limit per accident for both bodily injury and property damage, rather than separate BI and PD limits.
11. Salvage is used in loss adjustment to:
Salvage allows the insurer to recover some value from damaged property, reducing the net amount paid for the loss.
12. Which of the following is a named peril commonly covered for personal property under HO-2?
Theft is a named peril that is typically covered for personal property under HO-2; floods and earthquakes are usually excluded unless endorsed.
13. Which characteristic is essential for an insurer to adequately price risk in property/casualty lines?
A large pool of similar exposure units provides data to predict losses and set premiums accurately.
14. If a building has an 80% coinsurance requirement and replacement cost is $200,000, but the insured carries $120,000, a loss of $20,000 occurs. How much will be paid under coinsurance?
Required amount = 0.80 × 200,000 = 160,000. Payout = (120,000 / 160,000) × 20,000 = 0.75 × 20,000 = 15,000.
15. Bodily Injury (BI) liability coverage in an auto policy primarily pays for injuries to which of the following?
BI liability pays for injuries or death suffered by others in an accident for which the insured is legally responsible, not for the insured's own injuries.
16. Supplementary Payments under CGL typically include which of the following?
Supplementary Payments cover defense costs and certain bonds; they are paid in addition to the policy limits.
17. Waiver in an insurance contract is best described as:
Waiver occurs when a party voluntarily gives up a known right, which may affect future enforcement of that right.
18. Which statement about the exclusive remedy in workers' compensation is true?
The exclusive remedy doctrine generally prevents the employee from pursuing a civil action for damages for the same work-related injury.
19. Property Damage (PD) liability coverage pays for damage to:
PD liability covers damage to third-party property caused by an at-fault insured, not damage to the insured's own property or personal belongings.
20. Which form provides open peril coverage for the dwelling and other structures, while personal property is insured on a named-peril basis?
The Special Form (HO-3) provides open peril coverage for the dwelling and other structures, while personal property (Coverage C) is insured on a named-peril basis.
21. A material fact is a fact that:
A material fact is information a reasonable insurer would consider important in making underwriting or coverage decisions.
22. Replacement Cost vs Actual Cash Value in a Commercial Property policy is generally:
Most CP policies default to Actual Cash Value unless Replacement Cost coverage is added by endorsement; RC coverage is common for buildings and can be extended to personal property with the right endorsements.
23. Which power does the Director have to compel testimony during investigations?
The Director has subpoena power and can administer oaths in investigations under the Illinois Insurance Code to obtain necessary information.
24. Products-Completed Operations Hazard provides coverage for claims arising from which of the following?
This hazard covers injuries or damages arising from products or completed work after the product has been sold or work completed.
25. A policy shows BI limits of 50/100 and a PD limit of 50,000. What does the middle number (100) represent?
In a split limit notation, the first number is BI per person, the second is BI per accident (total for all injured in the accident), and the third (if present) is PD per accident.