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IN Claims Adjuster practice questions

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Question 1Principles of Insurance

Under the principle of indemnity, what is the primary purpose of a property insurance payment following a covered loss?

  1. To restore the insured to approximately the same financial position held before the loss Correct answer.
  2. To provide a profit opportunity for the insured when a loss occurs
  3. To fund the insured's future premium obligations
  4. To punish the insurer for underwriting errors

Explanation

Indemnity means the insured is made whole financially, no better and no worse, after a covered loss. The payment is measured against the actual value of the loss rather than the policy limit alone. This principle is why most property policies avoid paying more than the loss itself.

Question 2Principles of Insurance

An insured's building is valued at $400,000 and carries a $300,000 policy with an 80% coinsurance clause. A covered loss of $80,000 occurs. Assuming no deductible, what amount does the insured collect?

  1. $80,000
  2. $60,000
  3. $75,000 Correct answer.
  4. $100,000

Explanation

The required insurance is 80% of $400,000, or $320,000. Because the carried limit of $300,000 is below that, the insured is penalized proportionally: ($300,000 / $320,000) x $80,000 = $75,000. The shortfall reduces the recovery below the actual loss amount.

Question 3Principles of Insurance

Which concept describes the relationship in which the insured must have a legitimate interest in the property that would be harmed by its loss?

  1. Insurable interest Correct answer.
  2. Waiver
  3. Utmost good faith
  4. Subrogation

Explanation

Insurable interest requires that the insured suffer genuine economic or legal detriment if the insured property is damaged or destroyed. It is a foundational requirement for an enforceable property policy. Without it, the arrangement would resemble a wager rather than insurance.

Question 4Principles of Insurance

After paying an insured's covered collision claim, an insurer pursues the at-fault driver for reimbursement. Which principle supports this action?

  1. Subrogation Correct answer.
  2. Coinsurance
  3. Abandonment
  4. Indemnity

Explanation

Subrogation transfers the insured's right of recovery against a responsible third party to the insurer once the claim is paid. It prevents the insured from collecting twice and places the ultimate cost on the party at fault. The insured generally must not impair the insurer's subrogation rights.

Question 5Principles of Insurance

In insurance, the term 'risk' most precisely refers to which of the following?

  1. The uncertainty of financial loss from an insured peril Correct answer.
  2. The legal document forming the contract
  3. The insurer's underwriting profit margin
  4. The premium charged for a policy period

Explanation

Risk in insurance means the chance or uncertainty of loss, not the peril itself or the price of coverage. Underwriters evaluate risk to decide whether to accept it and at what terms. The concept underlies rating, retention, and reinsurance decisions.

Question 6Principles of Insurance

Which of the following is generally considered a pure risk rather than a speculative risk?

  1. Purchasing shares of a startup
  2. Investing in a new product line
  3. Fire damaging an insured warehouse Correct answer.
  4. Betting on a sporting event

Explanation

Pure risks involve only the possibility of loss or no loss and are the traditional subject of insurance. Speculative risks involve the chance of gain as well as loss and are generally not insurable. Fire damage is a classic pure risk.

Question 7Principles of Insurance

Which of the following best describes a hazard, as distinguished from a peril?

  1. The insurer's decision to decline a submission
  2. A condition that increases the chance or severity of a loss Correct answer.
  3. The cause of a loss, such as fire or windstorm
  4. The financial measure of the loss sustained

Explanation

A peril is the actual cause of loss, while a hazard is a condition that increases the likelihood or severity of that loss. For example, faulty wiring is a hazard that increases fire peril. Keeping the two concepts distinct matters when evaluating coverage and underwriting.

Question 8Principles of Insurance

An insured leaves oily rags piled in a workshop, increasing the likelihood of a fire loss. This condition is best classified as which type of hazard?

  1. Legal hazard
  2. Moral hazard
  3. Morale hazard
  4. Physical hazard Correct answer.

Explanation

Physical hazards are tangible conditions that increase the chance of loss, such as oily rags, poor wiring, or combustible storage. Moral hazard involves dishonest intent, and morale hazard involves carelessness or indifference. The oily rags are a concrete physical condition.

Question 9Principles of Insurance

Which characteristic is required for a risk to be considered ideally insurable by a private insurer?

  1. The loss must be accidental and measurable in money Correct answer.
  2. The exposure must affect only a single individual
  3. The loss must be certain to occur within the policy period
  4. The loss must be intentional and predictable

Explanation

Insurable risks generally involve accidental losses that can be measured in monetary terms. The loss should be fortuitous from the insured's standpoint and quantifiable so the insurer can price and reserve for it. Certain or intentional losses are not suitable for private insurance.

Question 10Principles of Insurance

Which of the following losses would typically be excluded from a standard property policy because it fails the requirement of fortuity?

  1. Water damage from a burst pipe
  2. Damage caused by an accidental kitchen fire
  3. Destruction by an unexpected tornado
  4. Loss resulting from an insured deliberately burning down the property Correct answer.

Explanation

Insurance is designed to cover accidental, unforeseen events, not losses intentionally caused by the insured. Deliberate destruction is an intentional act and is excluded as a matter of public policy. The other listed perils are accidental and generally covered.

Question 11Principles of Insurance

What is the main function of the law of large numbers in insurance?

  1. It allows insurers to predict aggregate losses more accurately as the number of similar exposures increases Correct answer.
  2. It guarantees that no individual insured will ever suffer a loss
  3. It requires insurers to reinsure all accepted risks
  4. It sets the maximum premium an insurer may charge

Explanation

The law of large numbers holds that as the number of similar independent exposure units grows, actual loss experience tends to approach expected results. This predictability supports accurate rating and adequate reserves. It does not eliminate individual losses or dictate pricing caps.

Question 12Principles of Insurance

An insured's home is destroyed by fire, and the insurer pays the claim. Later, the insurer discovers the insured intentionally set the fire. Which principle most directly supports the insurer's recovery of the payment?

  1. Principle of proximate cause
  2. Principle of indemnity Correct answer.
  3. Doctrine of subrogation
  4. Doctrine of reasonable expectations

Explanation

Indemnity limits recovery to actual fortuitous loss and does not permit the insured to benefit from intentional wrongdoing. Because the insured was never entitled to indemnification for a loss he caused, the payment can be recovered. Subrogation and proximate cause address different relationships.

Question 13Principles of Insurance

Which of the following best describes reinsurance?

  1. Insurance purchased by an individual to supplement a group plan
  2. Insurance purchased by an insurer to transfer part of its risk to another insurer Correct answer.
  3. An agreement in which the insured shares losses with other policyholders
  4. A government program that guarantees all private policies

Explanation

Reinsurance is insurance for insurers, allowing a primary insurer to cede part of its exposure to a reinsurer. It improves capacity and stabilizes results against large or catastrophic losses. It is a transaction between insurers, not between an insured and an insurer.

Question 14Principles of Insurance

Which of the following is the best example of a moral hazard that an underwriter would consider?

  1. An insured with a history of staging property damage claims Correct answer.
  2. An insured who is careless about locking doors
  3. A driver who routinely parks in a high-crime area
  4. A homeowner who stores gasoline in the basement

Explanation

Moral hazard refers to a dishonest tendency, such as fabricating or exaggerating losses, that arises from having insurance. Prior staged claims signal such a tendency. Storage of gasoline is a physical hazard, and carelessness about locks is a morale hazard.

Question 15Principles of Insurance

An insured carries a $200,000 policy on a building worth $500,000 with an 80% coinsurance requirement. A covered loss of $50,000 occurs. What does the insured collect, ignoring any deductible?

  1. $80,000
  2. $40,000
  3. $50,000
  4. $25,000 Correct answer.

Explanation

Required insurance is 80% of $500,000, or $400,000. The insured carried only $200,000, so the penalty ratio is $200,000 / $400,000 = 0.5, and 0.5 x $50,000 = $25,000. The shortfall in carried limits reduces the recovery.

Question 16Principles of Insurance

Which of the following best describes the principle of proximate cause in a property claim?

  1. The cause that is closest in time to the damage
  2. The last event in a chain of events leading to a loss
  3. The dominant or efficient cause that sets the loss in motion Correct answer.
  4. The cause the insured names on the claim form

Explanation

Proximate cause is the dominant, efficient cause that directly sets a loss in motion, even if other events follow. It helps determine whether a loss falls within a covered peril when a chain of events is involved. Courts often ask whether the covered peril was the efficient cause of the loss.

Question 17Principles of Insurance

An insured fails to disclose a prior fire loss when applying for property coverage, and the insurer would have declined the risk had it known. Which principle is most directly implicated?

  1. Utmost good faith Correct answer.
  2. Doctrine of contributory negligence
  3. Doctrine of subrogation
  4. Principle of indemnity

Explanation

Utmost good faith requires applicants to disclose material facts the insurer needs to evaluate the risk. Concealment or misrepresentation of a material fact can allow the insurer to rescind or deny coverage. Subrogation and indemnity address different aspects of the insurance relationship.

Question 18Principles of Insurance

Which of the following statements about representations in an insurance application is most accurate?

  1. Representations apply only to life insurance, not property insurance
  2. Representations are binding only if notarized
  3. Every representation must be literally and perfectly true in all respects
  4. A representation is a statement believed true to the best of the applicant's knowledge Correct answer.

Explanation

A representation is a statement of fact the applicant believes to be true, not a guarantee of absolute accuracy. Material misrepresentations can affect coverage, but immaterial or innocent inaccuracies generally do not void a policy. Warranties, by contrast, are stricter promises or conditions.

Question 19Principles of Insurance

Which of the following best describes the role of a warranty in an insurance policy?

  1. A promise or condition that the insured must satisfy for coverage to apply Correct answer.
  2. A statement of opinion that has no effect on the contract
  3. A guarantee that the insurer will never cancel the policy
  4. A payment made by the insured to the insurer after a loss

Explanation

A warranty is a promise or condition in the policy that the insured must comply with, and breach may affect coverage. It is more than a belief or opinion because it forms part of the contract's conditions. Modern policies often soften warranty terms to require material breach before coverage is affected.

Question 20Principles of Insurance

Which of the following best describes the concept of 'adverse selection' in insurance underwriting?

  1. The tendency of higher-risk applicants to seek or retain insurance more than lower-risk applicants Correct answer.
  2. The insurer's practice of selecting only the most profitable agents
  3. The tendency of insurers to lower premiums after a good loss year
  4. The process of declining all applications from new customers

Explanation

Adverse selection occurs when those with greater loss potential are more likely to buy or keep coverage, which can skew the risk pool. Underwriters use classification, exclusions, and pricing to control it. Effective underwriting promotes a balanced spread of risk.

Question 21Principles of Insurance

An insured's policy covers windstorm but excludes flood. A hurricane causes wind damage to the roof, and subsequent flooding damages the interior. Under a policy with an anti-concurrent causation clause, how is the interior flood damage typically treated?

  1. It is covered because wind was the initiating cause
  2. It is covered only if the insured pays a higher deductible
  3. It is covered because hurricane losses are always treated as wind losses
  4. It is excluded because the flood peril contributed concurrently to the loss Correct answer.

Explanation

Anti-concurrent causation clauses exclude losses in which an excluded peril contributes concurrently, regardless of the sequence of events. Because flooding combined with wind to cause the interior damage, that portion is typically excluded. The wind-damaged roof portion may still be covered under the windstorm peril.

Question 22Principles of Insurance

Which of the following best describes the principle of 'indemnity' as it applies to a total loss of a building under an actual cash value policy?

  1. The insured receives the original purchase price of the building
  2. The insured receives the policy limit regardless of the building's value
  3. The insured receives the outstanding mortgage balance
  4. The insured receives replacement cost minus depreciation, capped by the policy limit Correct answer.

Explanation

Actual cash value equals replacement cost less depreciation, and payment is capped by the policy limit. This approach reflects indemnity by restoring the insured to the pre-loss financial position. It does not guarantee the full policy limit for a total loss.

Question 23Principles of Insurance

Which of the following best describes the doctrine of 'reasonable expectations' in interpreting insurance contracts?

  1. Ambiguous policy language is interpreted in favor of the coverage a reasonable insured would expect Correct answer.
  2. The insurer's interpretation always prevails in a dispute
  3. The policy is interpreted strictly against the insured
  4. The insured's expectations are always enforced regardless of policy language

Explanation

The reasonable expectations doctrine holds that ambiguous policy language is construed in favor of the coverage a reasonable insured would anticipate. It is a consumer-protective interpretive rule applied when wording is unclear. It does not override clear, unambiguous exclusions.

Question 24Principles of Insurance

Which of the following is the best example of a 'speculative risk' that private insurers generally do not insure?

  1. A business's exposure to employee theft
  2. An investor's exposure to stock market losses Correct answer.
  3. A homeowner's exposure to lightning damage
  4. A driver's exposure to at-fault liability claims

Explanation

Speculative risks involve the possibility of gain as well as loss, and private insurance is generally limited to pure risks. Stock market losses offer the potential for profit and are therefore not insurable as a pure risk. The other examples involve only downside potential.

Question 25Principles of Insurance

Which of the following best describes the purpose of a deductible in an insurance policy?

  1. To increase the policy limit automatically
  2. To eliminate the insurer's duty to investigate claims
  3. To transfer the entire loss to the insurer
  4. To require the insured to share in the initial portion of a loss Correct answer.

Explanation

A deductible makes the insured retain the first portion of a covered loss, which reduces small claims and encourages loss prevention. It is a form of coinsurance of the loss itself, distinct from proportional coinsurance. The insurer remains responsible for losses above the deductible up to the limit.

Question 26Principles of Insurance

An adjuster is reviewing a homeowner's policy and notes that the insurer may not cancel the policy after it has been in force for 60 days except for specific reasons such as nonpayment of premium. Which policy provision controls this restriction?

  1. The cancellation provision Correct answer.
  2. The insuring agreement
  3. The appraisal provision
  4. The subrogation clause

Explanation

The cancellation provision states the circumstances and notice required for an insurer or insured to end coverage mid-term. Many jurisdictions limit the insurer's ability to cancel after a stated period, often restricting it to grounds such as nonpayment. The insuring agreement, subrogation clause, and appraisal provision address entirely different matters.

Question 27Principles of Insurance

A policy contains a clause stating that coverage does not apply to loss caused by earth movement, but an endorsement later adds limited coverage for earthquake. Which principle determines the effect of these two provisions?

  1. The two provisions cancel each other, leaving the loss uncovered
  2. The base policy exclusion always prevails because it appears first in the contract
  3. The insured chooses which provision applies at the time of loss
  4. The endorsement modifies the base policy, and specific provisions control over general ones Correct answer.

Explanation

An endorsement is a later, more specific document that amends the original policy terms, so it controls over conflicting general language. Courts generally read specific provisions as prevailing over general ones. The insured does not select which clause applies after a loss occurs.

Question 28Principles of Insurance

An insured's building is damaged when a contractor negligently welds near combustible material. The insurer pays the insured and then seeks recovery from the contractor. This right of the insurer is known as:

  1. Salvage
  2. Subrogation Correct answer.
  3. Contribution
  4. Abandonment

Explanation

Subrogation allows the insurer, after paying a covered loss, to step into the insured's shoes and pursue recovery from the party legally responsible. Contribution involves sharing a loss among insurers, abandonment concerns surrendering damaged property, and salvage refers to recovered property value.

Question 29Principles of Insurance

An adjuster is asked whether a loss is covered when the policy's insuring agreement grants coverage for 'direct physical loss' and a listed peril occurs. Which element must the adjuster confirm first before applying exclusions?

  1. That the loss exceeds the policy deductible
  2. That the insured has paid all future premiums
  3. That the loss falls within the insuring agreement's grant of coverage Correct answer.
  4. That no other insurer exists on the risk

Explanation

Coverage analysis begins with the insuring agreement, which defines the scope of what the insurer promised to cover. Only after a loss falls within that grant do exclusions, conditions, and deductibles come into play. Future premiums, deductibles, and other insurance do not establish initial coverage.

Question 30Principles of Insurance

A policyholder misstates the age of a building on an application, but the misstatement is minor and does not affect the insurer's acceptance of the risk. This misstatement is best described as:

  1. A fraudulent misrepresentation
  2. An immaterial representation Correct answer.
  3. A concealment
  4. A warranty

Explanation

A representation is a statement of fact made by the applicant, and it must be material to affect coverage. A minor error that does not influence the insurer's decision to accept the risk is an immaterial representation. A warranty is a promise that a condition exists, and concealment involves intentional withholding.

Question 31Principles of Insurance

An insured's policy includes a $5,000 deductible and a $250,000 limit. A covered loss is $18,000. Absent other provisions, what amount will the insurer pay?

  1. $13,000 Correct answer.
  2. $23,000
  3. $5,000
  4. $18,000

Explanation

A deductible is subtracted from the covered loss before the insurer pays, so $18,000 minus $5,000 equals $13,000. The deductible represents the portion of the loss retained by the insured. The limit is not reached, so it does not affect the calculation.

Question 32Principles of Insurance

An insured owns a policy with a $300,000 limit on a building valued at $400,000, and the policy includes an 80% coinsurance clause. A covered loss of $80,000 occurs. What is the insurer's payment, assuming no deductible?

  1. $64,000
  2. $80,000
  3. $60,000
  4. $75,000 Correct answer.

Explanation

The coinsurance requirement is 80% of $400,000, or $320,000. The insured carried $300,000, so the payment is ($300,000 ÷ $320,000) × $80,000, which equals $75,000. The shortfall in carried insurance reduces the recovery proportionally.

Question 33Principles of Insurance

An adjuster is evaluating a claim where the insured's negligence contributed to a loss but the policy contains no exclusion for insured negligence. In general, how does ordinary negligence affect coverage?

  1. Ordinary negligence does not defeat coverage unless the policy excludes it Correct answer.
  2. Negligence converts the loss into a speculative risk
  3. Any negligence voids coverage automatically
  4. Negligence shifts the loss to the insured entirely

Explanation

Insurance is designed to protect against fortuitous loss, and ordinary negligence by an insured is generally covered unless a specific exclusion applies. Intentional acts are treated differently from careless ones. The policy language, not a general rule, determines whether negligence is excluded.

Question 34Principles of Insurance

Which of the following best describes the purpose of the 'declarations' page in a property insurance policy?

  1. It lists the exclusions that limit coverage
  2. It sets out the insured's duties after a loss
  3. It states the insurer's promise to pay for covered losses
  4. It identifies the insured, the property, the limits, and the policy period Correct answer.

Explanation

The declarations page provides the specific facts of the individual policy, including named insureds, covered property, limits, deductibles, and effective dates. The insuring agreement, exclusions, and conditions appear elsewhere in the policy form. Adjusters rely on the declarations to confirm what is insured and for how much.

Question 35Principles of Insurance

A policyholder intentionally burns down a building to collect insurance money. Aside from criminal exposure, what is the primary insurance-law consequence?

  1. The claim is denied because the loss was intentional and not fortuitous Correct answer.
  2. The claim is transferred to the mortgagee in full
  3. The claim is paid at half the policy limit
  4. The claim is paid but the insured must repay the insurer later

Explanation

Insurance covers fortuitous loss, and intentional destruction by the insured is not fortuitous. Insurers also commonly exclude intentional acts and fraud, so the claim is denied. The mortgagee may have separate rights, but the insured's own recovery is barred.

Question 36Principles of Insurance

Which of the following best distinguishes a 'condition' in an insurance policy from an 'exclusion'?

  1. A condition is optional, while an exclusion is mandatory by law
  2. A condition sets forth duties or requirements, while an exclusion removes specified perils from coverage Correct answer.
  3. A condition removes perils, while an exclusion sets forth duties
  4. A condition applies only to liability policies, while an exclusion applies only to property policies

Explanation

Policy conditions establish obligations such as notice, proof of loss, and cooperation, and failure to meet them can affect the claim. Exclusions define perils or losses that are not covered. The two serve different functions within the policy structure.

Question 37Principles of Insurance

An insured has two policies covering the same property on the same risk. Policy A has a $100,000 limit and Policy B has a $300,000 limit, and both contain a pro rata other-insurance clause. For a $40,000 covered loss, what does Policy A pay?

  1. $10,000 Correct answer.
  2. $40,000
  3. $20,000
  4. $30,000

Explanation

Under a pro rata clause, each policy pays its share of the loss in proportion to its limit. Policy A's share is $100,000 ÷ $400,000, or 25%, of $40,000, which equals $10,000. Policy B would pay the remaining $30,000.

Question 38Principles of Insurance

Which of the following best describes the role of 'utmost good faith' in the insurance relationship?

  1. The insured may withhold information to obtain lower premiums
  2. Both parties must deal honestly and disclose material facts relevant to the risk Correct answer.
  3. The insurer must always pay claims without investigation
  4. The insurer may change policy terms after a loss occurs

Explanation

Insurance is a contract of utmost good faith, requiring both parties to act honestly and to disclose material information. The insured must not conceal material facts, and the insurer must deal fairly in underwriting and claims. This principle underlies doctrines such as misrepresentation and concealment.

Question 39Principles of Insurance

An adjuster receives a claim where the insured's loss is covered under the policy, but the insured failed to submit a proof of loss within the period required by the policy conditions. What is the most accurate statement about the effect of this failure?

  1. The failure converts the claim into a third-party liability claim
  2. The failure automatically voids the entire policy from inception
  3. The insurer must pay the claim in full regardless of the failure
  4. The insurer may deny the claim if the failure prejudiced its investigation, subject to any legal excuse Correct answer.

Explanation

Proof-of-loss provisions are conditions precedent to payment, and noncompliance can justify denial when it prejudices the insurer. Courts often excuse late filing where the insurer had actual notice and was not harmed, or where the insured had a reasonable excuse. The policy is not voided from inception, and the claim does not change type.

Question 40Principles of Insurance

Which of the following best describes the effect of a 'liberalization' clause in an insurance policy?

  1. It permits the insured to cancel at any time without notice
  2. It extends to the insured any broader coverage the insurer later adopts in a revised form of the same policy Correct answer.
  3. It requires the insured to accept all future endorsements
  4. It allows the insurer to reduce coverage retroactively

Explanation

A liberalization clause provides that if the insurer broadens coverage in a later edition of the same policy form without additional premium, the broader coverage applies to existing policies. It protects insureds from being disadvantaged by form revisions. It does not reduce coverage or force acceptance of unrelated endorsements.

Question 41Practice of General Insurance

Under the principle of indemnity, what is the maximum amount an insurer will normally pay for a loss under a fire policy covering a building?

  1. The market value of the property at the time of purchase
  2. The actual amount of the loss, subject to the sum insured Correct answer.
  3. A fixed percentage of the premium paid
  4. The full sum insured regardless of the actual loss

Explanation

Indemnity means the insured is restored to the financial position held immediately before the loss, no better and no worse. Payment is therefore limited to the actual loss suffered, and the sum insured operates as a ceiling on that payment. The insured cannot profit from a loss.

Question 42Practice of General Insurance

A property policy contains an average (underinsurance) condition. The building is insured for 80,000 while its value at the time of loss is 100,000, and damage of 20,000 occurs. Applying the average clause, what will the insurer pay?

  1. 18,000
  2. 16,000 Correct answer.
  3. 10,000
  4. 20,000

Explanation

The average clause applies the ratio of sum insured to value: 80,000 divided by 100,000 equals 0.8. The loss of 20,000 is multiplied by 0.8, giving 16,000. The insured bears the remaining 4,000 as the penalty for underinsurance.

Question 43Practice of General Insurance

Which insurable interest must exist at the time of the loss for a marine cargo policy to respond?

  1. The insured must have an insurable interest in the goods at the time of loss Correct answer.
  2. The insured must hold a bill of lading in their own name
  3. The insured must have paid the premium before the voyage began
  4. The insured must have owned the goods when the policy was issued

Explanation

For indemnity insurance such as marine cargo, insurable interest must exist at the time of the loss, not necessarily when the policy was arranged. Cargo cover is typically written so that interest can attach later as risk passes. Ownership at inception is not required.

Question 44Practice of General Insurance

A proposer fails to disclose a past declined application when completing a proposal form that specifically asks about declines. The insurer would most likely rely on which ground to avoid the policy?

  1. Breach of warranty
  2. Innocent misrepresentation
  3. Waiver by the insurer
  4. Non-disclosure of a material fact Correct answer.

Explanation

The duty of utmost good faith requires disclosure of material facts that would influence a prudent underwriter's decision. A directly asked question about declined applications makes the omission clearly material. A deliberate omission of this kind supports avoidance for non-disclosure.

Question 45Practice of General Insurance

What is the main purpose of the Financial Ombudsman Service for insurance customers?

  1. To prosecute insurers for fraud
  2. To license insurance brokers
  3. To set premium rates for the market
  4. To provide free independent resolution of eligible complaints against insurers Correct answer.

Explanation

The ombudsman provides a free, independent dispute-resolution route for eligible complaints about firms. It does not regulate prudentially or set prices. Awards are binding on the firm if accepted by the complainant.

Question 46Practice of General Insurance

An insured deliberately sets fire to their own insured stock to claim the money. What is the correct term for this conduct?

  1. Fraudulent claim Correct answer.
  2. Contribution
  3. Salvage
  4. Subrogation

Explanation

Deliberately causing a loss to obtain a payout is a fraudulent claim, which entitles the insurer to reject it and may allow recovery of sums already paid. It is distinct from the doctrines that allocate losses between insurers. Such conduct may also be a criminal offence.

Question 47Practice of General Insurance

Two liability policies cover the same loss on the same basis. Insurer A has a limit of 60,000 and insurer B a limit of 40,000. Under contribution by independent liability, how is the loss shared?

  1. Whichever policy was issued first pays in full
  2. Equally, 50 percent each
  3. The insured chooses which insurer pays
  4. In proportion to the limits, 60 percent and 40 percent Correct answer.

Explanation

Where policies share a loss on the same basis, contribution is normally in proportion to the independent liability each insurer would have borne. With limits of 60,000 and 40,000, the split is 60 percent and 40 percent. This prevents double recovery and shares the burden fairly.

Question 48Practice of General Insurance

What does the doctrine of subrogation allow an insurer to do after paying a claim?

  1. Increase the premium at renewal
  2. Pursue the negligent third party in the insured's name to recover the loss Correct answer.
  3. Sell the damaged property for profit
  4. Cancel the policy without notice

Explanation

Subrogation transfers to the insurer the insured's right to recover from the party responsible for the loss, once the claim has been paid. Recovery is limited to the amount paid out. It supports the principle of indemnity by preventing the insured from recovering twice.

Question 49Practice of General Insurance

A policyholder's buildings and contents are insured under a household policy. Which of the following is a peril normally excluded rather than covered?

  1. Fire
  2. Storm damage
  3. Wear and tear Correct answer.
  4. Theft

Explanation

Insurance covers fortuitous events, not the inevitable deterioration of property through use and age. Wear and tear is therefore excluded because it is certain to occur over time. Fire, theft and storm are classic insured perils.

Question 50Practice of General Insurance

An insured holds a policy with a 500 excess. A covered loss of 2,000 occurs. How much will the insurer pay?

  1. 1,500 Correct answer.
  2. 2,000
  3. 500
  4. 2,500

Explanation

The excess is deducted from the loss before payment, so the insurer pays 2,000 minus 500, which is 1,500. The insured bears the first 500 of each loss. The excess is not added to the claim.