PROPERTY AND CASUALTY INSURANCE EXAM PREP QUESTIONS AND ANSWERS 2024

Insurance The transfer of risk through a legal contract Property Covers real property and personal property against damage or loss resulting from covered causes of loss called perils casualty covers non-property losses (3rd Party) Personal lines Insurance for families and individuals Commercial Lines Insurance for Business Risk Uncertainty of financial loss Pure Risk Chance of loss only (insurance only covers) Speculative Risk Chance of loss or gain law of large numbers as the number of homogenous loss exposures increases, the more accurate claims can be predicted from the group Perils causes a loss Named Peril lists the perils that are covered open peril cover all perils except those specifically excluded by the policy hazard Are not causes of loss but are things that increase the chance of a peril happening. Physical Hazard something you can physically look at Moral Hazard dishonest tendencies morale hazard attitude of carelessness Direct Loss immediate physical damage to property indirect loss loss that happens after the direct loss but due to the loss of use of the property. Also called consequential proximate cause the first cause in an unbroken chain of events Elements of a legal contract Competent parties, Agreement, Legal Purpose, consideration Binder temporary contract of insurance. Pending issue of the policy, good for 30 days DICE 4 major parts to an insurance policy Declarations 6 P's policy number, parties, property description, policy term, policy limits, premium Insuring Agreement Promise to Pay, Perils, Liability Conditions Rules of the Game, Insured's duties in a loss, Insurer's subrogation rights, mortgagees rights Exclusions Contains property and perils not covered. Direct Liability Insured is the wrongdoer Vicarious Liability insured is responsible for actions of wrongdoer contractual liability insured assumes another's liability under a written agreement Absolute Liability liability w/o fault strict liability product defect claims Legal Duty Negligence owe an obligation to act or not act breach of duty negligence failure to comply with the duty actual loss negligence another suffers a loss proximate cause negligence the breach of duty is the direct causer of the loss accident event that is sudden and unexpected occurence an event that happens over time Admitted Carrier authorized insurer, issued a certificate of authority to transact business in the state. nonadmitted carrier unauthorized insurer, not regulated to get certificate of authority, can only transact surplus lines insurance Domestic same state foreign another state alien another country State regulation State legislature passes the laws Commissioner Runs Tx Dept of Ins. Appointed by Governor, does not write laws Texas Property and Casualty Insurance Guaranty Association Protects claimants and policy holders in the event of insurer insolvency Board of Directors 5 members from insurers, 4 from the public Assessment authorized insurers in the state are required to pay into the fund. The amount they pay is based upon their share of the market in texas 2 common methods of rate regulation prior approval & file and use DP-1 basic policy, covers fire, lightning, explosion DP-2 Broad, damage by burglars, falling objects, accidental discharge, freezing of home systems, damage caused by ice, sleet, snow Dp-3 Special, all perils except ones specifically excluded HO-2 Broad Named Peril Coverage HO-3 Special and most common coverage HO-4 Renters policy