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NY Property & Casualty practice questions

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Question 1New York Insurance Law and Regulations

An individual insurance producer license issued by the New York Department of Financial Services must be renewed how often?

  1. Every three years
  2. Every four years
  3. Every year
  4. Every two years Correct answer.

Explanation

New York issues individual producer licenses for a two-year term, and the license must be renewed before it expires. Renewal is conditioned on completing approved continuing education and on the license not being suspended or revoked.

Question 2New York Insurance Law and Regulations

New York requires each licensed property/casualty agent and broker to complete how many hours of approved continuing education every two years?

  1. 24 hours
  2. 15 hours Correct answer.
  3. 10 hours
  4. 20 hours

Explanation

New York requires 15 hours of approved continuing education every two years for property/casualty producers, including at least one hour of ethics. Completing the requirement is a condition of renewing the license.

Question 3New York Insurance Law and Regulations

A producer wants to close a homeowners sale by giving the applicant a $200 gift card. Under New York Insurance Law, this conduct is:

  1. Permitted, because a discount for a protective device appears in the rating plan
  2. Prohibited, because it is an inducement not specified in the policy Correct answer.
  3. Permitted, because a premium reduction was filed with and approved by the Superintendent
  4. Permitted, because the applicant belongs to an approved group program

Explanation

Section 4224 forbids insurers and producers from offering any inducement not stated in the policy, including rebates of premium, gifts, and other valuable consideration, to induce the purchase of insurance. Discounts built into a filed and approved rating plan are not rebates.

Question 4New York Insurance Law and Regulations

A licensed New York broker wants to split the commission on a commercial package policy with an unlicensed friend who referred the client. Under Insurance Law section 2324, the arrangement is:

  1. Permissible if the referral is disclosed to the client in writing
  2. Permissible as long as the split stays under 25 percent
  3. Permissible because a referral alone is not the sale of insurance
  4. Prohibited unless the friend is licensed Correct answer.

Explanation

Section 2324 bars sharing commissions or other compensation for soliciting, negotiating, or selling insurance with a person who is not licensed. Written disclosure or a cap on the percentage does not cure the missing license.

Question 5New York Insurance Law and Regulations

A New York broker deposits client premiums into the same bank account used to pay the agency's rent and payroll. This practice is:

  1. Improper only if the insurer has not yet received its payment
  2. Improper, because premiums must be held in trust Correct answer.
  3. Proper, provided the agency's books show the amount owed to the insurer
  4. Proper, because the broker owns the premium once it is collected

Explanation

Premiums received by a producer are held in a fiduciary capacity and must be kept separate from the producer's own operating funds. Using collected premium for agency expenses is a conversion of trust funds, and commingling is prohibited regardless of how the books are kept.

Question 6New York Insurance Law and Regulations

Under New York Regulation 60, an insurer that receives notification of a claim must acknowledge it within how many business days?

  1. Thirty business days
  2. Twenty business days
  3. Fifteen business days Correct answer.
  4. Five business days

Explanation

Regulation 60 sets a 15-business-day standard for acknowledging notice of a claim and for furnishing claim forms when they are required. Missing the standard can constitute an unfair claim settlement practice.

Question 7New York Insurance Law and Regulations

Under New York's no-fault regulation, an insurer must pay or deny a complete claim for first-party benefits within how many calendar days after receiving it?

  1. Fifteen days
  2. Forty-five days
  3. Thirty days Correct answer.
  4. Ten days

Explanation

Regulation 68 requires the no-fault insurer to pay or deny a complete claim for first-party benefits within 30 calendar days of receipt. An insurer that misses the deadline can owe interest and penalties on the overdue amount.

Question 8New York Insurance Law and Regulations

A New York private passenger auto policy has been in force for eight months. To cancel for nonpayment of premium, the insurer must mail written notice at least how many days before the effective date?

  1. Forty-five days
  2. Ten days Correct answer.
  3. Twenty days
  4. Thirty days

Explanation

Insurance Law section 3425 permits cancellation of a covered auto policy for nonpayment only after at least ten days' written notice. Cancellation for other permitted reasons after the first 60 days requires twenty days' notice, and nonrenewal requires forty-five days.

Question 9New York Insurance Law and Regulations

A New York homeowners policy has been in force for several years. How much advance written notice of nonrenewal must the insurer give?

  1. Forty-five days Correct answer.
  2. Sixty days
  3. Ten days
  4. Thirty days

Explanation

Insurance Law section 3425 requires at least forty-five but not more than sixty days' written notice before nonrenewing a covered personal lines policy. The notice must state the specific reason and advise the insured of the right to complain to the Department of Financial Services.

Question 10New York Insurance Law and Regulations

A New York commercial general liability policy will not be renewed. Under Insurance Law section 3426, the insurer must mail notice of nonrenewal at least how many days before expiration?

  1. Forty-five days
  2. Sixty days Correct answer.
  3. Thirty days
  4. Ninety days

Explanation

Section 3426 governs commercial lines and requires at least sixty days' notice of nonrenewal, including a conditional renewal that reduces coverage or raises premium beyond the statutory threshold. Cancellation for reasons other than nonpayment requires thirty days, and nonpayment requires ten days.

Question 11New York Insurance Law and Regulations

Under New York's cybersecurity regulation for entities licensed by the Department of Financial Services, a reportable cybersecurity event must be reported to the Superintendent within:

  1. Seventy-two hours Correct answer.
  2. Forty-eight hours
  3. Twenty-four hours
  4. Five business days

Explanation

The cybersecurity regulation requires a covered entity to notify the Superintendent within 72 hours after determining that a reportable cybersecurity event has occurred. Separate obligations govern notice to affected consumers and to other regulators.

Question 12New York Insurance Law and Regulations

Before placing coverage with an unauthorized insurer, a New York excess lines broker must:

  1. Obtain declinations from at least five authorized insurers
  2. Obtain the Superintendent's prior written approval for each placement
  3. Certify that no authorized insurer writes that class of business anywhere in the state
  4. Make a diligent effort with authorized insurers first Correct answer.

Explanation

An excess lines broker may use an unauthorized insurer only after a diligent effort to procure the coverage from authorized insurers. The broker must also give the insured written notice that the insurer is not licensed by New York and is not covered by the state's insolvency fund.

Question 13New York Insurance Law and Regulations

A New York public adjuster settles a fire loss for an insured. In the absence of a declared disaster, the adjuster's compensation may not exceed what percentage of the amount of the claim?

  1. 10 percent
  2. 20 percent
  3. 15 percent
  4. 12.5 percent Correct answer.

Explanation

New York caps a public adjuster's compensation at 12.5 percent of the amount of the claim. When the loss arises from a disaster declared by the President or the Governor, the cap drops to 10 percent.

Question 14New York Insurance Law and Regulations

Under New York Regulation 152, a certificate of insurance may:

  1. Evidence coverage already provided by the policy Correct answer.
  2. Grant the holder additional insured status on its own
  3. Extend the policy's cancellation provisions
  4. Amend the terms of the referenced policy

Explanation

Regulation 152 limits certificates of insurance to evidence of the coverage already contained in the referenced policy. A certificate may not add, amend, or extend coverage, and it may not confer additional insured status unless the policy itself provides that status.

Question 15New York Insurance Law and Regulations

The New York Property Insurance Underwriting Association, known as the FAIR Plan, exists to:

  1. Insure only property owned by the State of New York
  2. Pay claims of insurers that have been declared insolvent
  3. Insure property the voluntary market will not cover Correct answer.
  4. Write windstorm coverage exclusively for coastal properties

Explanation

The FAIR Plan is a residual market that makes basic property insurance available to owners who cannot obtain coverage in the voluntary market. Insurers licensed to write property insurance in New York are members of the association.

Question 16New York Insurance Law and Regulations

The New York Property and Casualty Insurance Security Fund is used to:

  1. Fund the operating expenses of the Department of Financial Services
  2. Provide catastrophe reinsurance to domestic property insurers
  3. Reimburse insureds for losses caused by unauthorized insurers
  4. Pay covered claims of insolvent property/casualty insurers Correct answer.

Explanation

The Security Fund pays covered claims against property/casualty insurers that have been declared insolvent, within statutory limits. Unauthorized insurers, life insurance, and the Department's budget are outside the fund.

Question 17New York Insurance Law and Regulations

An agent falsely tells a policyholder that her current insurer is going out of business so that she will drop her policy and buy a replacement. This practice is known as:

  1. Rebating
  2. Twisting Correct answer.
  3. Coercion
  4. Defamation

Explanation

Twisting is a misrepresentation made to induce a policyholder to lapse, surrender, or replace existing coverage. Coercion involves pressure or threats, rebating involves inducements outside the policy, and defamation involves false statements about an insurer's financial condition to the public.

Question 18New York Insurance Law and Regulations

Under New York Insurance Law, the Superintendent's examination of an insurer's books and records may occur:

  1. Only with the insurer's prior written consent
  2. At the Superintendent's discretion, at the insurer's expense Correct answer.
  3. Only after a formal complaint has been filed by a policyholder
  4. Only as part of the periodic examination once every three years

Explanation

The Superintendent may examine any licensed insurer whenever it is deemed necessary to determine solvency and compliance, and the insurer bears the cost of the examination. A pending complaint is not a precondition.

Question 19New York Insurance Law and Regulations

An insurer wants to pay commission to a newly licensed producer for New York business. Before paying, the insurer must:

  1. Obtain the producer's written acceptance of the commission schedule
  2. Confirm that the producer has completed continuing education
  3. Receive the Superintendent's approval of the producer's qualifications
  4. File a notice of appointment with the Superintendent Correct answer.

Explanation

An insurer may not pay commission to a producer for New York business unless the producer has been appointed by that insurer through a filing with the Superintendent. The appointment is filed by the insurer, typically within the statutory period after the producer first submits business.

Question 20New York Insurance Law and Regulations

An insurance agency organized as a New York corporation applies for a producer license. Which statement about the application is correct?

  1. Every shareholder of the corporation must hold an individual producer license
  2. The corporation must be owned entirely by licensed producers
  3. The corporation must designate a licensed individual sublicensee Correct answer.
  4. The corporation may not receive commissions during its first year of operation

Explanation

A licensed business entity must designate an individual licensed producer as its sublicensee, who is responsible for the entity's insurance activities and compliance with the Insurance Law. Ownership of the entity need not be limited to licensed producers.

Question 21New York Insurance Law and Regulations

Under New York claim settlement rules, an insurer that denies a claim must:

  1. Give the insured a written explanation for the denial Correct answer.
  2. Report the denial to the Superintendent within five business days
  3. Obtain the insured's written acknowledgment of the denial
  4. Retain the claim file for ninety days before closing it

Explanation

When a claim or any element of it is denied, the insurer must provide a written explanation of the basis so the insured can understand and respond to the decision. An unexplained denial is an unfair claim settlement practice.

Question 22New York Insurance Law and Regulations

Which statement correctly describes the New York Free Trade Zone?

  1. All policies written in the zone are exempt from the state's unfair claim practice rules.
  2. Coverage in the zone must first be declined by the FAIR Plan.
  3. Rates and forms for large commercial risks need not be filed. Correct answer.
  4. Only domestic insurers may write business in the zone.

Explanation

The Free Trade Zone relieves insurers of rate and form filing and prior approval requirements for qualifying large commercial risks. Insurers writing in the zone remain fully subject to market conduct, claim practice, and solvency regulation.

Question 23New York Insurance Law and Regulations

Under New York's supplementary uninsured/underinsured motorists endorsement, the insurer must offer SUM coverage at limits:

  1. Equal to the policy's bodily injury liability limits Correct answer.
  2. Equal to the policy's property damage limits
  3. Equal to the state's minimum financial responsibility limits only
  4. Equal to one-half of the bodily injury limits

Explanation

Insurers must offer SUM coverage at limits equal to the policy's bodily injury liability limits. The insured may elect lower limits in writing, but the SUM limit may not fall below the statutory minimum.

Question 24New York Insurance Law and Regulations

A producer licensed and residing in another state wants a New York producer license. Which statement is correct?

  1. No examination is required where the home state is reciprocal. Correct answer.
  2. The producer must first be licensed as an excess lines broker.
  3. The producer must maintain a staffed office within New York State.
  4. The producer must pass the New York licensing examination.

Explanation

New York grants nonresident producer licenses on a reciprocal basis, so a producer in good standing in a reciprocal state may be licensed without sitting for the New York examination. The license is still issued by the Department of Financial Services and the producer remains subject to New York law.

Question 25General Insurance Principles and Concepts

Insurance is best described as a mechanism that:

  1. transfers pure risk from an individual to a group Correct answer.
  2. guarantees a profit for the insured after every loss
  3. shifts investment risk from insurers to policyholders
  4. eliminates the chance that a covered loss will occur

Explanation

Insurance transfers the financial consequences of pure risk from an individual or business to an insurer that pools many similar exposures. Because losses are shared across the pool, no single member bears the full cost. Insurance does not remove the physical possibility of loss, nor does it guarantee a gain.

Question 26General Insurance Principles and Concepts

Which type of risk is insurable by a private insurer?

  1. Speculative risk, because it can produce either gain or loss
  2. Pure risk, because it can produce only loss or no loss Correct answer.
  3. Market risk, because prices move in predictable cycles
  4. Business risk, because it is always within the insured's control

Explanation

Private insurers generally insure pure risk, which involves only the chance of loss or no loss. Speculative risk involves the chance of gain as well as loss and is not insurable because it is voluntarily assumed in pursuit of profit. Market and business risks are forms of speculative risk.

Question 27General Insurance Principles and Concepts

In property insurance, insurable interest must exist:

  1. only if the policy is written on a valued basis
  2. at the time of the loss Correct answer.
  3. only at the policy's inception date
  4. only when the application is signed

Explanation

In property and casualty insurance, insurable interest must exist at the time of loss, because the insured must suffer a genuine financial detriment to collect. Life insurance uses a different rule: insurable interest must exist when the policy is issued. Interest at application or inception alone does not satisfy the property requirement.

Question 28General Insurance Principles and Concepts

The principle of indemnity provides that an insured should be restored to:

  1. the full replacement cost of all damaged property
  2. the same financial position as before the loss Correct answer.
  3. whatever amount the insured states in the proof of loss
  4. a better position than before the loss

Explanation

Indemnity means the insured is restored to roughly the same financial position held before the loss, no better and no worse. This is why actual cash value, policy limits, and valuation clauses apply instead of unlimited payment of any claimed amount. Paying more would create a moral hazard and violate the principle.

Question 29General Insurance Principles and Concepts

Which section of an insurance policy identifies the named insured, the property or activity covered, the policy period, and the limits of liability?

  1. exclusions
  2. conditions
  3. insuring agreement
  4. declarations Correct answer.

Explanation

The declarations page supplies the who, what, where, when, and how much: named insured, covered property or activity, locations, policy period, and limits. The insuring agreement contains the insurer's promise to pay, conditions state each party's duties, and exclusions remove coverage.

Question 30General Insurance Principles and Concepts

An insurance contract is aleatory because:

  1. the insured may cancel at any time without notice
  2. the exchange of value depends on an uncertain event Correct answer.
  3. both parties exchange promises of exactly equal value
  4. it is prepared by one party and accepted by the other

Explanation

An aleatory contract is one in which the dollar amounts exchanged are unequal and depend on an uncertain event. The insured pays a modest premium and may receive a large claim payment or may receive nothing. Equal exchange and one-sided drafting describe other contract characteristics.

Question 31General Insurance Principles and Concepts

As an insurer adds more similar, independent exposures to its book of business, actual loss experience tends to:

  1. vary widely from year to year without any pattern
  2. rise in direct proportion to the number of exposures
  3. approach the expected loss more closely Correct answer.
  4. become less predictable because errors accumulate

Explanation

The law of large numbers holds that as the number of similar independent exposure units grows, actual results cluster more closely around the expected value. Greater predictability is what allows an insurer to forecast losses and set adequate rates. Adding exposures does not change the expected loss per unit.

Question 32General Insurance Principles and Concepts

A representation made by an applicant in an application for insurance is:

  1. irrelevant unless it concerns a prior loss
  2. binding only if it is copied into the policy itself
  3. a guarantee that a stated fact is absolutely true
  4. a statement the applicant believes to be true Correct answer.

Explanation

A representation is a statement the applicant believes to be true to the best of their knowledge; it is not a warranty of absolute accuracy. Only material misrepresentations, meaning those that would have affected the insurer's decision to issue the policy or set the rate, generally allow the insurer to avoid the policy or deny a claim.

Question 33General Insurance Principles and Concepts

After paying a covered loss, an insurer's right of subrogation allows it to:

  1. recover from the responsible party the amount it paid Correct answer.
  2. keep any recovery from the insured beyond the amount paid
  3. deny coverage to other insureds on the same policy
  4. cancel the policy back to its inception date

Explanation

Subrogation lets an insurer that has paid a loss stand in the insured's shoes and pursue the party that caused the loss. The insured cannot recover twice for the same loss, and any recovery beyond the insurer's payment belongs to the insured. Subrogation supports the indemnity principle.

Question 34General Insurance Principles and Concepts

An insurer's claim representative tells an insured in writing that a late proof of loss will be accepted, and the insurer later denies the claim for lateness. The insured can best argue that the insurer:

  1. is protected by its right of subrogation
  2. waived the timeliness requirement by its written statement Correct answer.
  3. was entitled to enforce every policy condition exactly as written
  4. may reform the policy to correct a clerical mistake

Explanation

Waiver is the voluntary surrender of a known right, and estoppel prevents the insurer from asserting a right after the insured has relied on the insurer's conduct to their detriment. A written statement that a late proof of loss will be accepted waives the timeliness condition. The later denial is barred.

Question 35General Insurance Principles and Concepts

An insured who intentionally sets fire to an unprofitable building in order to collect insurance presents a:

  1. morale hazard
  2. moral hazard Correct answer.
  3. speculative risk
  4. physical hazard

Explanation

Moral hazard is a condition of dishonesty or intent in which the insured would benefit from a loss and may cause one. Morale hazard is carelessness or indifference toward loss, and physical hazard is a tangible condition such as faulty wiring. Insurers screen for moral hazard through underwriting and claim investigation.

Question 36General Insurance Principles and Concepts

A building has a replacement value of $500,000. The policy carries an 80% coinsurance clause and a limit of $300,000. A covered loss is $100,000 and no deductible applies. What does the insurer pay?

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

Explanation

The coinsurance requirement is 80% of $500,000, or $400,000. Because the $300,000 limit is below that requirement, payment is reduced proportionally: $300,000 divided by $400,000 equals 0.75, and 0.75 times the $100,000 loss is $75,000. Any applicable deductible would then be subtracted.

Question 37General Insurance Principles and Concepts

Policy A has a $200,000 limit and Policy B has a $100,000 limit covering the same property on the same basis with identical terms. A covered loss of $60,000 occurs. Under pro rata liability, what does Policy A pay?

  1. $60,000
  2. $20,000
  3. $40,000 Correct answer.
  4. $30,000

Explanation

Under pro rata liability, each policy pays the share of the loss that its limit bears to the total of all applicable limits. Total limits are $300,000, so Policy A's share is $200,000 divided by $300,000, or two-thirds. Two-thirds of $60,000 is $40,000, and Policy B pays the remaining $20,000.

Question 38General Insurance Principles and Concepts

In an insurance contract, the consideration furnished by the insured is:

  1. the insurer's promise to pay covered claims
  2. the legal capacity to enter into a contract
  3. the premium paid and the statements in the application Correct answer.
  4. the promise to notify the insurer of every claim promptly

Explanation

Consideration is the value each party gives in exchange for the other's promise. The insured gives the premium and the representations in the application; the insurer gives the promise to pay covered claims. Capacity and prompt notice are separate contract elements or conditions.

Question 39General Insurance Principles and Concepts

Because an insurance policy is a contract of adhesion, ambiguous policy wording is generally construed:

  1. only after the state insurance department reviews it
  2. in favor of the insured Correct answer.
  3. against the insured, who accepted the wording
  4. in favor of the insurer that drafted the policy

Explanation

A contract of adhesion is drafted by one party and accepted or rejected by the other, so genuine ambiguities are resolved in favor of the insured. This rule offsets the unequal bargaining power between insurer and applicant. Clear, unambiguous language is still enforced as written.

Question 40General Insurance Principles and Concepts

Premium that a producer collects from an insured is held by the producer:

  1. as personal funds once the policy is issued
  2. in trust for the insured until a claim is paid
  3. as commission until the policy period ends
  4. in a fiduciary capacity for the insurer Correct answer.

Explanation

A producer who collects premium acts in a fiduciary capacity and holds those funds for the insurer, or for the insured when a refund is owed. Commingling premium with personal or general business funds is prohibited. Commission is earned under the agency agreement and is not the same as premium held in trust.

Question 41General Insurance Principles and Concepts

Under a claims-made liability policy, coverage is triggered by the date on which:

  1. the insured pays the deductible
  2. the insured first learns of the injury
  3. the claim is first made against the insured Correct answer.
  4. the injury or damage first occurs

Explanation

A claims-made policy responds to claims first made during the policy period or an extended reporting period, regardless of when the injury occurred, provided any retroactive date is satisfied. An occurrence policy, by contrast, is triggered by the date of injury or damage. The insured's discovery date and the deductible payment date do not trigger coverage.

Question 42General Insurance Principles and Concepts

An insurer ends its agency agreement with a producer but leaves the producer's supplies and signage in place and sends no notice to the public. The producer continues to submit applications and collect premiums. A new insured, unaware of the termination, buys a policy and pays premium. The insurer is:

  1. bound, because the producer had apparent authority Correct answer.
  2. not bound, because the agency agreement had already ended
  3. not bound until the state insurance department approves the policy
  4. bound only if the insured can prove the producer acted in good faith

Explanation

Apparent authority arises when an insurer's conduct leads a reasonable third party to believe the producer still acts for it, even though actual authority has ended. Because the insurer left the producer equipped and gave no notice, the new insured may hold the insurer to the policy. Termination of the agency agreement alone does not protect the insurer against third parties who lacked notice.

Question 43General Insurance Principles and Concepts

Which statement about reinsurance is accurate?

  1. A reinsurer pays covered claims directly to the original insured party
  2. Reinsurance removes the ceding insurer's reserve requirements
  3. The ceding insurer remains liable to its insured for the full limit Correct answer.
  4. Reinsurance is purchased by insureds to raise their policy limits

Explanation

Reinsurance is insurance for insurers: the ceding insurer transfers part of its risk to a reinsurer but remains fully liable to its own policyholders under the original policy. Reinsurers indemnify the ceding insurer rather than the original insured. Reinsurance reduces net risk but does not eliminate reserve or solvency obligations.

Question 44General Insurance Principles and Concepts

A policy provides a $2,000 deductible per occurrence and a $10,000 limit per occurrence, with no aggregate limit stated. Two separate covered occurrences each cause $10,000 of damage during the policy period. What does the insurer pay in total?

  1. $10,000
  2. $14,000
  3. $20,000
  4. $16,000 Correct answer.

Explanation

Each occurrence is handled separately: the $10,000 loss falls within the $10,000 per-occurrence limit, then the $2,000 deductible is subtracted, leaving $8,000 per occurrence. With no aggregate limit stated, the two occurrences produce $16,000. A deductible reduces the payment but is not subtracted from the limit itself.

Question 45Property Insurance Basics and Policy Provisions

For a property insurance claim to be payable, the insured must have an insurable interest in the property:

  1. Throughout the entire policy period
  2. At the time of the loss Correct answer.
  3. When the policy was issued
  4. When the premium is paid

Explanation

Property insurance is a contract of indemnity, so the insured must stand to suffer a financial loss from the damaged property at the moment the loss occurs. A person who has already sold or otherwise parted with the property has nothing to be indemnified for. Interest at some other time does not substitute for interest at the time of loss.

Question 46Property Insurance Basics and Policy Provisions

The section of a property policy that names the insured, describes the covered property and its location, and shows the policy period, limits, and deductibles is the:

  1. conditions section
  2. insuring agreement
  3. exclusions section
  4. declarations page Correct answer.

Explanation

The declarations page is the identifying section of the policy: it sets out who is insured, what and where the property is, the dates of coverage, and the dollar amounts that apply. The other sections describe the promise to pay, the duties of the parties, and the causes of loss that are not covered.

Question 47Property Insurance Basics and Policy Provisions

The principle of indemnity provides that a property insurer will pay:

  1. the full policy limit for every covered occurrence
  2. a fixed benefit unrelated to the size of the loss
  3. no more than the insured's actual financial loss Correct answer.
  4. enough to replace the damaged property with new property

Explanation

Indemnity means the insured is restored to approximately the same financial position held before the loss, no better and no worse. Payment is therefore measured by the actual amount of the loss, subject to policy limits. Paying more than the loss would create a profit from insurance and invite fraud.

Question 48Property Insurance Basics and Policy Provisions

A coinsurance clause in a commercial property policy requires the insured to:

  1. accept a reduced limit if the policy is cancelled mid-term
  2. insure the property to at least a stated percentage of its value Correct answer.
  3. share a stated percentage of every covered loss with the insurer
  4. buy coverage from at least two different insurers

Explanation

Coinsurance is an agreement to carry insurance equal to a specified percentage of the property's value, commonly 80 or 90 percent. If the insured carries less than that amount, a penalty is applied in the loss settlement. The clause encourages insurance to value rather than splitting losses with the insured.

Question 49Property Insurance Basics and Policy Provisions

Under most property policies, transferring a policyholder's rights under the policy to another person requires:

  1. Approval by the state insurance department
  2. The written consent of the insurer Correct answer.
  3. An additional premium paid by the new owner
  4. Nothing more than a verbal agreement between the parties

Explanation

A property policy is a personal contract, so the insured may not assign it without the insurer's written consent. The insurer underwrote the named insured and is not obligated to extend coverage to an unknown party. Assignment without consent generally does not bind the insurer.

Question 50Property Insurance Basics and Policy Provisions

The abandonment condition in a property policy means that the insured:

  1. may not force the insurer to take title to damaged property Correct answer.
  2. must remove all debris before the claim can be settled
  3. must sell the damaged property to recover part of the loss
  4. may surrender the damaged property and collect the full limit

Explanation

The abandonment condition bars the insured from turning damaged property over to the insurer and demanding payment as if it were a total loss. The insurer is not required to accept title to or dispose of the property. Settlement is based on the covered loss, while salvage belongs to the insured unless the insurer takes it.