Insurance Concepts and Terminology, Exams of Business Administration

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Texas Insurance License Test with

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2024 / 2025

Susie set fire to her house to collect the insurance. This is an example of a(n) MORAL HAZARDS Henry's tires on his SUV are so worn that the steel belt is showing through the tread. The condition of the tires is known as PHYSICAL HAZARDS When a driver of an auto breaks the posted speed limit, the driver's liability imposed by the law is known as ABOSLUTE LIABILITY Under compensatory damages, medical expenses are an example of SPECIAL damages. Josh attends a hockey game. While at the game he is hit in the head by the hockey puck resulting in a broken cheek bone. Josh immediately sues the hockey team for damages. What might be the most logical defense for the hockey team? ASSUMPTION OF RISK

The Smith family is planning to build a new house. They want the house to be constructed entirely of fire resistance materials. This construction type is an example of a FIRE RESISTIVE building. ________ contracts are written for a specified amount and they list the value of the insured property as agreed to by both the insured and the insurer at policy inception. Susie set fire to her house to collect the insurance. This is an example of a(n) MORAL HAZARDS Henry's tires on his SUV are so worn that the steel belt is showing through the tread. The condition of the tires is known as PHYSICAL HAZARDS When a driver of an auto breaks the posted speed limit, the driver's liability imposed by the law is known as ABOSLUTE LIABILITY Under compensatory damages, medical expenses are an example of SPECIAL damages. Josh attends a hockey game. While at the game he is hit in the head by the hockey puck resulting in a broken cheek bone. Josh immediately sues the hockey team for damages. What might be the most logical defense for the hockey team?

ASSUMPTION OF RISK

The Smith family is planning to build a new house. They want the house to be constructed entirely of fire resistance materials. This construction type is an example of a FIRE RESISTIVE building. ______contracts are written for a specified amount and they list the value of the insured property as agreed to by both the insured and the insurer at policy inception. VALUED The ABC Company has several business locations. They want to cover all the locations under one policy. They should purchase a(n) BLANKET policy A building has a market value of $100,000, a replacement cost of $80,000 and a depreciated amount of $25,000. Based on these factors, what is the ACV amount of the building? ($80,000 - $25,000 = $55,000) Actual cash value, or ACV is usually calculated by determining the item's replacement cost (what it would cost to buy a replacement) and subtracting an amount for depreciation. Here's what it looks like written as a formula: ACV = Replacement Cost - Depreciation Joe has just purchased a new house. He wants to obtain the broadest possible insurance coverage. Joe should purchase a(n)

SPECIAL FORMS policy. Which of the following is NOT a method by which an insured can collect for damages? In general, the insured can collect the lesser of: Insurable interest; Policy limits; Actual cash value; Cost to repair; or Replacement cost. Which one of the following terms can be defined as a policy provision that omits certain risks from coverage? EXCLUSIONS Joe asked his insurance agent to explain the purpose of the conditions section of his insurance policy. Joe's agent stated that it is used to _____. Policy conditions Jane has decided to add towing to her current auto policy with the ABC Insurance Company. What must the ABC Insurance Company do to add the requested change to the policy? ENDORSEMENTS Doug has just received his insurance policy. Where would Doug look to find the applicable deductibles declared in the insurance policy? DECLARATIONS

The XYZ Insurance Company is developing a new auto insurance contract. Which of the following is NOT considered a major component of this insurance contract? The contract does not require the naming of senior officers of the insurance company. Crossroad's commercial insurance coverage is automatically extended to cover newly acquired or constructed locations and personal property covered off-premises within the policy territory. Which is generally NOT covered under the policy territory?. On commercial policies, the policy territory is usually the United States, Canada and Puerto Rico. The State Insurance Company has decided to non-renew Craig's auto insurance policy. The State Insurance Company must GIVE AT LEAST 30 DAYS NOTICE OF NONRENEWAL. The State Insurance Company has decided to non-renew Janet's homeowners' insurance policy. The State Insurance Company must. GIVE AT LEAST 30 DAYS NOTICE OF CANCELLATION FOR ANY REASON Alfred wants to cancel his auto insurance policy. Which of the following is the most appropriate method to accomplish this task? GIVE WRITTEN NOTICE

The Big A Computer Store's commercial policy has a limit of liability that applies to all losses occurring within any one policy period. This liability limit is an example of a(n) AGGREGATE limit. Mike trips over a tricycle in his neighbor's driveway. According to the Limits of Liability section of the neighbor's homeowners' policy, Mike's accident is an example of a(n) OCCURRENCE. Ron sold his house to Connor. Ron calls his agent to inform him to assign the homeowners' policy to Connor. What should Ron's agent do? Assignment is a condition in insurance policies that specifies that the policy cannot be transferred to another unless the company consents to the transfer in writing. Mark's liability policy has separate limits of liability for both BI and PD. This liability type is an example of SPLIT LIMITS.

Earl lives in Iowa. On November 1st, he drives his motor home to Pharr, Texas to reside. He lives in the motor home until March 15th, then returns to his house in Iowa. According to the policy his insured house during his absence is an example of a(n) UNOCCUPIED property. Jack sends in an auto insurance application with the required premium. The submission of the premium is an example of _CONSIDERATION. Tom has completed an auto insurance application and sent it to the insurance company. Under contract law, the submission of the auto application is a(n) INITIAL OFFER. The ABC Insurance Company has agreed to pay for any auto losses that Bill might have for a one year period in exchange for $1,000 in premium. This is an example of a(n) CONTRACT. Valid contracts must have a legal purpose and be consistent with public policy. Which of the following situations lacks a legal purpose?

Valid contracts must have a legal purpose and be consistent with public policy. This is why insurance does not cover intentional or criminal actions, why every insured must have an insurable interest, and why a thief cannot insure stolen property. Under the law, a party to a contract must give something of value to the other party Which of the following is NOT an example of consideration? GIFT Kathy, a 16 year old high school student, just purchased a new car. She went to her dad's insurance agent and made an application for her own auto insurance policy. The insurance company's underwriter noted Kathy's age and it caused him to reject her application. The rejection was based on the fact that NOT LEGALLY COMPETENT TO ENTER INTO CONTRACT. A(n) _________is a legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration. CONTRACT Sam has a fire insurance policy on his house. He sold the house to Jack. His fire policy is a personal contract. If the house is destroyed after the sale what will Sam receive from his fire policy? NOTHING, NO INSURABLE INTEREST

Cory has submitted an application for auto coverage to the Texas Auto Insurance Company. The Texas Auto Insurance Company issues Cory their standard auto policy. Cory accepts the policy and pays the required premium. This policy is considered to be aleatory because PERFORMANCE DEPENDS ON THE OCCURRENCE OF AN UNCERTAIN EVENT. Insurance contracts are conditional contracts because when a loss occurs certain conditions must be met to make the contract legally enforceable. Which of the following examples would satisfy this test? CERTAIN CONDITIONS MUST BE MET TO MAKE THE CONTRACT LEGALLY ENFORCEABLE In a coverage dispute, the court grants coverage to the insured on the basis that the insurance policy language is ambiguous. This illustrates that the insurance contract is ADHESION. Under the insurance policy, the Texas Auto Insurance Company agrees to pay for all of Cory's future auto losses in exchange for Cory's premiums. This agreement makes the auto policy a unilateral contract because AN ACT IS EXCHANGESD FOR A PROMISE.

Which one of the following legal principles allows the ABC Insurance Company to collect from Tom, a negligent third party, damages it paid to Sam, its insured? A loss victim usually has legal recourse against a party at fault. Subrogation transfers this right to the insurer when a loss is paid, but only to the extent of the insurance payment. Which of the following is a concept of indemnity in insurance? Most property and liability insurance is written on an indemnity basis - the intent being to make someone "whole" again by paying actual losses while preventing any gain. The legal definition of _________is the intentional relinquishment of a known right. WAIVER When Bob, the insurance applicant, was asked about his driving record, he intentionally withheld his arrest for manslaughter. This is an example of CONCEALMENT. Tim called his agent, Todd, to inform him that he had an auto accident. Todd told Tim not to worry, that his insurance company would take care of everything and cover his

loss. Todd's statements could result in the insurance company having to pay the claim. This is an example of ESTOPPEL. The insurance contract requires "utmost good faith." This is taken to mean _____. each party should have a reasonable expectation that the other is acting in good faith without attempts to conceal or deceive. Jack had to answer several personal questions when completing an auto insurance application. His answers to these questions will be part of the insurance contract when issued. These answers, when made part of the contract, are considered WARRANTY. Mary filed a lawsuit against Helen and claims to have suffered financial damages. Mary is an example of a PLAINTIFF An auto insurance policy is an example of a contract governed by COMMON LAW.

Which of the following statements best illustrates the principle of stare decisis? Matters that are decided by a state's highest court become the common law of that state and set a precedent for later decisions in lower courts in similar cases. The principle that lower courts must follow precedents set by higher courts is known as stare decisis. The Texas district court refused to hear a case because the plaintiff resides and does business only in Oklahoma. This refusal refers to JURISDICTION. When a judge decides individual claims under the laws that he/she is entrusted to enforce and interpret, the judge is exercising JUDICIAL POWER. John is the attorney for Holly, the plaintiff. John has decided to take his compensation as a percentage of the settlement. This is an example of CONTINGENT FEE. The sheriff of Travis County in Texas delivers the court's summons to Bill, the defendant. This is an example of an act called SERVICE OF PROCESS.

The court has requested that Tina, the defendant, respond to Brenda's allegations within 30 days. This court request is known as a SUMMONS Texas lawyers must follow the state's rules that govern the litigation process and the form and substance of all documents that must be filed with the court. This is known as THE RULES OF CIVIL PROCEDURE. Carol discussed her situation with her attorney, Janet. Janet is not allowed to discuss Carol's situation with others without Carol's permission. This is an example of ATTORNEY-CLIENT PRIVILEGE. In a trial, facts that are indisputable should be ADMITTED. Mr. Schulz, Ted's attorney, is preparing for Ted's trial. He needs to know what the other party knows about the subject of the lawsuit. What should Mr. Schulz do to obtain the other party's knowledge of certain specific issues of the lawsuit? REQUEST FOR PRODUCTION OF DOCUMENTS

The Texas Hat Shop is being sued by a customer. The customer stated that he fell and hurt his back while in the store. Which of the following pieces of evidence is NOT considered tangible evidence? Tangible evidence includes photographs, videotapes, diagrams, computer records, and any other media that are used to transmit or preserve information. The only exceptions are documents created for or communicated to that party's lawyer in anticipation of litigation. Karen observed Joe's auto accident. She will testify for Joe, the plaintiff, at his trial. Karen is an example of a NONPARTY WITNESS. Mr. Jones has filed a personal injury lawsuit against the XYZ Clothing Store. Mr. Henderson, the XYZ Clothing Store's attorney, needs the most current and unbiased details about Mr. Jones' injuries. How can he obtain this unbiased information during discovery? INDEPENDENT MEDICAL EXAMINATION (IME) The title of an auto was used in the trial to prove ownership of the auto. This auto title is considered DOCUMENTARY evidence.

The plaintiff's attorney does not want several documents held by the defendant to be allowed into evidence during the trial. Which of the following is a general method to resolve this issue? BENCH CONFERENCE WITH THE JUDGE. A photograph of an accident scene is admitted as evidence in a trial. This is an example of DEMONSTARTIVE To clarify fault in an auto accident, a weather report for that day and time of the accident was entered into evidence at a trial. This weather report is an example of DIRECT evidence. Alfred, an auto accident expert, gives his opinion on the cause of an accident during a trial. His opinion is considered TESTIMONIAL EVIDENCE. Doug, the plaintiff, is faced with the burden of proof in his civil case. Which of the following statements best summarizes this burden?

In a civil case, the plaintiff has to prove all of the essential elements of its case by a preponderance of the evidence. Josh lost his case against Susan. Josh is unsatisfied with the court's ruling. What should Josh do next? FILE AN APPEAL Emily, the plaintiff's attorney, is very concerned that the jurors in her client's case could be biased in favor of the defendant. Emily wants the jurors to be carefully screened. Which of the following statements best describes what Emily can do in the selection of the jurors? Voir dire is the process of examining potential jurors concerning their possible interest in the matters presented at trial, their ability to decide the case fairly and without prejudice, and their overall competence to serve as jurors. The jury has assembled in the court room and the judge has ordered the trial to start. The attorneys for both parties will immediately be granted a right to MAKE AN OPENING STATEMENT. Daniel, the defendant's attorney, is very concerned that the jurors in this case could be biased in favor of the plaintiff. Daniel does not believe his client can receive a fair trial

using the jury system. Which of the following statements is the best solution to this problem? Not all civil trials are held before a jury. A bench trial, also called a trial by court or judge, is a trial that a judge hears without a jury. The judge has granted a motion in limine. Which of the following statements best describes what the judge did? A motion in limine is a pretrial request to the court by one party to the lawsuit that certain evidence be excluded from the trial. A complaint brought by Sam, the defendant, against Janet, the plaintiff, is an example of a(n) ____. A counterclaim is a complaint brought by the defendant against the plaintiff. Janet decides to file a suit against Tim for breach of an agreement. She claims that Tim had breached their agreement three years ago. The statute of limitations for this type of complaint is one year. What will the legal system conclude about this case? To toll means that the time period specified in a statute of limitations has run out. The movement and location of evidence from the time it is gathered to the time it is in court is known as the _____.

The chain of custody is the movement and location of evidence from the time it is gathered to the time it is in court. The trial judge finds that no factual issue exists in the case and makes a final judgment in favor of the defendant. The judge's decision is known as a(n) _____. A summary judgment is a final judgment for one side made before trial when the judge finds that no factual issue exists in the case. That decision is based on pleadings and discovery. When Greg suffers a loss his insurer restores him to the same financial position he was prior to the loss. This is an example of PRINCIPLE OF INDEMNITY. In insurance transactions, people and organizations (insureds) transfer the possible financial risks of loss to INSURERS. Todd's insurance policy provides many benefits. Which of the following is NOT a category that directly benefits Todd? Insurance provides the following benefits for insureds and society: Payment for Losses; Peace of Mind; Support for Credit; Funds for Loans and Investments; Loss Control;

Efficient Use of Resources; Reduction of Social Burdens; Satisfaction of Legal and Business Requirements; and source of Employment and Tax Revenue The principle of indemnity is reinforced by the requirement that a party have an insurable interest to purchase insurance. Which of the following is most correct about insurable interest? An insurable interest exists when the party would suffer a financial loss as a result of damage to or loss of the insured item. Misti pays $123 per month for her auto insurance provided by ABC County Mutual Insurance Company. These payments are known to be PREMIUMS. Insurance benefits are not provided free. Insurers charge premiums to cover their administrative costs, to have funds to pay claims, and to try to earn a profit. The additional cost created by insurance is the portion of premium that is used to pay insurers' expenses. Tom wants to calculate his company's pure loss ratio. The company's incurred losses are $900,000 and the earned premiums are $1,000,000. What is the pure loss ratio? Insurers use the loss ratio as a tool to measure their profitability. The pure loss ratio is expressed as a percentage, as shown below: (Incurred losses / Earned premium) x 100 = Pure loss ratio

Which of the following would be considered a claim handler? People who handle claims might be staff claim representatives, independent adjusters, employees of third-party administrators, or producers who sell policies to insureds. The XYZ Insurance Company estimates the amount of money that it expects to pay in the future for a loss that has already occurred. This is known as calculating its LOSS RESERVES. Which of the following individuals generally does NOT represent or help the insurer in a routine claim? INDEPENDENT ADJUSTERS Tom wants to calculate his company's loss ratio. The company's incurred losses are $900,000, adjustment expenses are $50,000 and the earned premiums are $1,000,000. What is the loss ratio? Incurred losses represent losses that have been paid plus losses for which the insurer is liable, although the insurer has not yet paid them. The loss ratio adds loss adjustment expenses to incurred losses: ((Incurred losses + Loss adjustments expenses) / Earned premium) x 100% = Loss ratio The ABC Insurance Company's medical expenses are sky-rocketing. In order to get control of its medical expenses, it might use the technique of

UTILIZATION REVIEWS (URs). Doug had a very serious claim. His negotiations with the insurer are not progressing to his satisfaction. What should Doug do? HIRE A PUBLIC ADJUSTER Janet's house burns down. She files a claim under her homeowners' insurance policy for the loss of her property. This is an example of FIRST-PARTY LOSS. Tim is injured in an auto accident. Sally, the other driver, was at fault and was ticketed. Tim filed a claim against Sally's insurer. Sally's insurer considers Tim a CLAIMANT. The ABC Insurance Company hires a(n) __________to project future income loss based on an evaluation of economic trends in the job market, demography's, incomes, and business opportunities. ACCOUNTANT

Upon the filing of a claim with the ABC Insurance Company, Connor, the assigned adjuster, begins the process of determining whether the claim is covered by carefully reading the policy form and all endorsements. For Connor to determine whether a loss is covered, all the following issues EXCEPT _____ must be resolved. Upon the filing of a claim with the insurer, an adjuster begins the process of determining whether the claim is covered by carefully reading the policy form and all endorsements. To determine whether a loss is covered, the following issues must be resolved: people, time of the loss, cause of loss, and property. Which of the following is NOT an example of how Coverage Exclusions restrict the broad terms of the insuring agreement by stating limitations to coverage? Exclusions restrict the broad terms of the insuring agreement by stating limitations to coverage such as; activities, causes of loss, types of property, persons, and places for which the insurer does not provide coverage. Connor, an adjuster, needs to start paying for a claimant's loss but he requires more time to fully investigate the claim. If Connor starts paying the claim, he must avoid creating a waiver of the company's right to deny the claim. Connor could use a(n) RESERVATION OF RIGHTS to eliminate the problem. RESERVATION OF RIGHTS Connor, an adjuster for ABC Insurance Company, agreed to pay the claimant within three weeks. The ABC Insurance Company may be prevented from asserting a right that has already been waived. This is an example of ESTOPPEL.

Bill Jones, wants the ABC Insurance Company to pay for damages he suffered. He also wants the insured, who is the at-fault party, to be financially punished for his actions. This financial punishment is an example of PUNITIVE DAMAGES. Connor, an adjuster, has just received a claim from Bill Jones, an insured. Connor's first task is to CONFIRM OR DENY. The policy has territorial limits. This means that ____________must be within the policy's territorial limits. LOCATION WHERE THE LOST OCCURRED Sam poisons his neighbor's purebred pit bull dog after months of excessive barking and damage to Sam's property. A civil trial follows and Bill, the neighbor, wants $50,000 for his loss. Which of the following is correct about this tort case? SAM IS THE TORTFEASOR Imputed liability arises when a person is legally liable for an injured party's loss even though he or she was not directly negligent. This is an example of

VICARIOUS liability. The _________ person standard determines the amount of care that a person must use in any given situation by determining what a reasonably cautious person would or would not do under similar circumstances. REASONABLY PRUDENT The Texas Feed Company failed to deliver the feed grain per their agreement with the Texas Cattleman's Feedlot. The Texas Cattleman's Feedlot was forced to purchase the needed grain at a substantially higher price, resulting in a $100,000 loss. The Texas Cattleman's Feedlot sues the Texas Feed Company for its loss. This is an example of CONTRACT LIABILITY. The Auto Add-on Company states in their advertisements that their equipment is absolutely safe. When Carol has an auto accident due to the failure of the Auto Add-on Company's equipment she files suit against the Auto Add-on Company based on their ________warranty that was stated in their advertisement. EXPRESSED Sally became very upset with the BBB Clothing store for not taking her return after she damaged the item. She decided to get even with the store, so she took out a full page ad

in the local paper denouncing the store as crooks. The BBB Clothing store could file a suit against Sally based on INTENTIONAL TORT. The ABC Insurance Company has trained its adjusters to try to settle their claims outside the traditional court system of litigation. This method of reaching a claim agreement is known as ALTERNATIVE DISPUTE RESOLUTION (ADR). Which of the follow is most accurate about a mini-trial? test the validity of their positions in a trial setting and continue negotiations Jane, the injured person, is willing to settle the claim with the ABC Insurance Company but only with a specific allowance for future medical care. ABC Insurance Company can accomplish this demand with a special release called a(n) OPEN END RELEASE AGREEMENT. When Cameron, an adjuster, handles a third-party claim, he must determine ________, which is not a consideration in first-party claims. COMPENSATORY DAMAGES