1. What is a common term used to describe liability losses?
A. actual cash value losses
B. first party losses
C. second party losses
D. third party losses Correct
Explanation
Liability losses are commonly referred to as third-party losses because they involve claims made by a third party against the insured for bodily injury or property damage caused by the insured. First-party losses are direct to the insured's property, actual cash value relates to property valuation, and second-party not standard. This distinguishes liability from property coverage. It highlights the external claimant in liability scenarios.
2. Who may cancel an insurance policy, assuming cancellation is not contrary to the law?
A. the insured
B. the insurance company
C. either A or B Correct
D. neither A nor B
Explanation
Both the insured and the insurance company may cancel a policy if permitted by law and policy terms, providing flexibility. Insureds cancel for better options, insurers for risk or nonpayment. This mutual right balances interests. It is subject to notice requirements.
3. An insured is notified the insurance company is unwilling to provide coverage after the present policy expires. This is
A. nonrenewal Correct
B. flat cancellation
C. permitted only if the insured agrees
D. permitted unless the insured is unable to obtain coverage elsewhere
Explanation
Nonrenewal occurs when the insurer declines to renew at expiration, often for underwriting reasons. Flat cancellation mid-term, agreement or replacement not required. This allows risk management. It requires proper notice.
4. To have an insurable interest, an individual must
A. have a chance of suffering a financial loss Correct
B. own the property
C. enter into an insurance contract
D. agree to subrogate recovery rights
Explanation
Insurable interest requires potential financial loss from the insured event, preventing wagering. Ownership helps but not necessary (e.g., creditors), contract/subrogation secondary. This ensures legitimate insurance. It upholds public policy against gambling.
5. Which of the following is true concerning insurable interest in a policy providing property insurance?
A. Insurable interest only exists if you own the property
B. Only one party can have insurable interest in any one property
C. Insurable interest must exist at the time of loss Correct
D. Unlimited insurable interest exists in property for which there is sentimental value
Explanation
In property insurance, insurable interest must exist at loss time to claim indemnity. Ownership not sole, multiple parties possible, sentiment not financial. This prevents profit from loss. It aligns with indemnity principle.