STATE FARM PRACTICE TEST EXAM|WITH 100% COMPLETE SOLUTIONS|ALREADY GRADED A

The fee paid by the insured in exchange for an insurance policy is called a: premium. Bobby just purchased an insurance policy for his home from XYZ Insurance. Which of the following would be a reason this policy may not be legally binding? A. Bobby is only 19 years old. B. Bobby paid his first premium when he and his agent agreed on a policy, but he is waiting for the policy documents to be prepared so he can sign them. C. Bobby has an outstanding warrant for selling marijuana. D. Bobby has been diagnosed as mentally incompetent. D. Bobby has been diagnosed as mentally incompetent. Greg plays trombone in his school band during football games. During a rally song in the stands one day, Greg annoys one of the opposing team's fans, who grabs his $400 trombone and hurls it down the bleachers, completely destroying it. Greg's insurance pays him $400 to replace the trombone, but then the opposing team's coach also offers to replace the instrument, at whatever the cost. So Greg orders a new $3,200 trombone and has the opposing team's athletic department absorb the cost. Which principle has Greg violated? A. The principle of indemnity B. The principal of the opposing team C. The principle of consideration D. The principle of legal purpose A. The principle of indemnity If an adjuster needs to find clarification about what actually constitutes a collision, in which section of an insurance policy would she find that information? A. Declarations B. Conditions C. Exclusions D. Definitions D. Definitions Which of the following is NOT a characteristic of insurance contracts? A. Aleatory B. Universal C. Conditional D. Unilateral B. Universal In an insurance policy, the summary of what the insurer will do in the event of a covered loss is called: A. the dec page. B. the conditions section. C. the definitions section. D. the insuring agreement. D. the insuring agreement. When an insurer buys insurance to reduce its exposure to loss, this is called: A. co-insurance. B. mitigation. C. loss reduction. D. re-insurance. D. re-insurance. SureTrust Insurance was founded and operates in Texas. In Texas, SureTrust is considered: A. a domestic insurer. B. a state insurer. C. an alien insurer. D. a foreign insurer. A. a domestic insurer. An insurance company might consider any of the following a risk, EXCEPT: A. a high crime neighborhood. B. an automobile. C. a home. D. a jewelry collection. A. a high crime neighborhood. A "hazard" is defined as: something that increases the chance of a loss. Steve has just purchased a wedding ring for his new bride. If something were to happen to the ring, he'd be out a lot of money, so he purchases an insurance policy. He is able to do this because: A. the ring is a sure risk. B. the ring is a pure risk. C. the ring is a speculative risk. D. the ring is a safe risk. B. the ring is a pure risk. Which of the following is an example of a hazard? A. Sandra's home is in an area of Los Angeles that is often hit by earthquakes. B. Sandra buys a lottery ticket every day. C. Sandra's home is destroyed when a massive earthquake hits. D. Sandra owns an exotic car that is extremely valuable. A. Sandra's home is in an area of Los Angeles that is often hit by earthquakes. An insurance company may consider each of the following a risk, EXCEPT: A. a ruby necklace. B. a race car. C. a school bus. D. a flood zone. D. a flood zone. Jared hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Jared an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing: A. risk retention. B. risk avoidance. C. risk reduction. D. risk transference. C. risk reduction. Amy needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building safe, so she puts in an alarm system and smoke detectors. By purchasing the alarm system and smoke detectors, Amy is practicing: risk reduction. Which of the following is NOT a risk management technique? A. Risk reduction B. Risk equality C. Risk avoidance D. Risk retention B. Risk equality An oral or written statement providing temporary insurance coverage until an insurance policy can be issued is called a: A. binder. B. agreement. C. consideration. D. contract. A. binder. Rachel is filling out an application for a homeowners policy. She is truthfully answering the questions regarding her home's location, size, age, etc. Which of the following is a true statement? A. Rachel is providing binders. B. Rachel is providing factual misrepresentations. C. Rachel is providing representations. D. Rachel is providing warranties. C. Rachel is providing representations. In order to qualify for an insurance policy, Lydia's Fine Jewels must agree to have a security guard on the premises 24/7. This is called a: A. representation. B. warranty. C. waiver. D. binder. B. warranty. Which of the following statements about a moral hazard is FALSE? A. It is the result of an unconscious behavior. B. A moral hazard increases risk. C. It is reckless behavior because of security offered by insurance. D. It is a hazard caused by human behavior. A. It is the result of an unconscious behavior. Lucy has insurance on an expensive necklace she likes to wear to work every day. After work, she takes it off and leaves it in her car's cupholder so she can put it back on in the morning on her way to work. Lucy's behavior would be considered a: morale hazard. Which of the following is an example of a moral hazard? A. Kim is jamming out to her music while driving to work and accidentally runs a red light. B. Nancy falls asleep with a lit cigarette in her hand. C. Ken lights a candle, sets it right next to the window draperies and leaves the house to go to work. D. The road that leads to Mike's house is steep and narrow. C. Ken lights a candle, sets it right next to the window draperies and leaves the house to go to work. When record-breaking rainfall causes severe flooding in Janie's home town, Janie's rental property suffers extensive damage. Which of the following is an indirect loss? A. Janie must hire a contractor to reinforce a damaged retaining wall in the backyard of her rental unit. B. Janie's tenant has to replace his sofa that was damaged by the water. C. Janie loses a month of rental income when her tenant must move out while repairs are made to the home. D. Janie must pay to have the wood floors replaced in her rental unit. C. Janie loses a month of rental income when her tenant must move out while repairs are made to the home. Jane's shed burns to the ground during a tornado, when the high winds break a wall of the shed, knocking over a lantern inside. What is the proximate cause of the loss? A. Fire B. Wind C. The lantern D. Wall collapse B. Wind Sally throws a cigarette butt into Neal's dumpster, starting a fire on Neal's property that costs him $10,000. Neal files a claim with his insurer. The insurer pays Neal and then demands $10,000 from Sally to pay for the loss she caused. What gives the insurer the right to collect payment from Sally? Subrogation Which of the following is most likely a third party claim? A. A man files a homeowners claim when his house is struck by lightning. B. A man files a claim against his health insurer for a surgery to remove his appendix. C. A woman files an insurance claim after she backs her car into a guardrail. D. A woman files an insurance claim when she is injured by an employee at a local bar. D. A woman files an insurance claim when she is injured by an employee at a local bar. James is walking down the street when Andrea, an uninsured motorist, strikes him with her car. James suffers $12,000 in injuries from the accident. He has personal injury protection of $10,000 from his own automobile insurance policy, which immediately pays him the full amount. By accepting $10,000 from his own insurance company, James has waived the right to sue Andrea for more than _____ for personal injury. $2,000 While making a right-hand turn from the right lane, Ben is sideswiped by Roxanne, totaling the car he bought new 12 years ago for $15,000. Roxanne is judged to be at fault. She has an auto policy with limits of 50/100/25 and a $500 deductible on her collision coverage. Assuming Ben's car depreciates at a rate of $1,100 a year, how much will Roxanne have to pay out of pocket when Ben files a claim against her insurer for the damages? C. $0