Alabama Insurance: Personal Lines Exams 2025-2026, Exams of Insurance law

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Alabama Insurance Personal Lines Comprehensive Exams 2025-2026 Success Guide

Alabama Insurance Personal Lines Comprehensive Exams 2025-2026 Success Guide What is a hazard? - © ER-An increase in the possibility that a loss might occur onganization to an insurance company that agrees to pay for losses in onhaet for a premium When the policyholder is considered an owner with the right to vote and share in the profits the type of insurance company is a: - Martha's home is insured by Big Insurance Company. Martha has recently made the final mortgage payment to Large Mortgage Company. Martha is contemplating selling her home to her best friend, Bernice. Which of the following has an insurable interest in the home? - ANSWER-Martha Which of the following is not an element of insurability - CORRECT ANSWER-Risk of loss is a speculative risk The principle thal states that an insured should be restored Lo approximately the same financial position after a loss as before is known as - CORRECT. ANSWER-Indemnity An individual who owns and lives ina condominium can obtain broad coverage for personal property in the condo under which homeowners form - -HO-6 And insurance what is the primary purpose for the Fair Credit Reporting Act - GORI Which of the following describes an insurance company doing business in a state other than the one where it is incorporated Foreign The purpose of a binder is to - CQ. SWER-Provide temporary protection for the insured between the time of the application is made in the policy is issued or the binder expires ANSWER-Replacement cost minus appreciation Which of the following can be insured under an unendorsed Homeowners policy? - CORRECT. ANSWER-Private ssidence in which the owner occupant also maintains an office for accounting business Which of the following coverages is included in the Homeowners policy but is NOT included in an under endorsed Dwelling policy? - CORRECT. ANSWER-Liabilily Open peril coverage for both the dwelling and personal property is provided by the: - ANSWER-HO-3 Coverage for which of the following is excluded by a Dwelling policy? - CORRECT. ANSWER- Coin Collection Which of the following perils is covered by the HO-2 and HO-3? Sudden and the accidental rupture of a heating system Under a pure no-fault plan, each party to an auto accident: - CORRECT. ANSWER-Is reimbursed by his or her own insurance company Which one the following list all the required elements for establishing a charge of negligence - Legal duty owed breach of legal duty out proximate cause damages In liability policy supplementary payments are - CORR! ANSWER-Payable in addition to the policy limits of liability Carl’s home sustains $30,000 damage in an electrical fire the home is insured under a e time of loss the homes replacement cost is $125,000 how ANSWER-837 500 homeowners policy for $75,000 at tl much will Carl’s homeowners policy pay for this loss - CORR The insured has a $1 million personal umbrella policy with a retention limit of $1000 the insured suffers a $15,000 loss that is excluded by the underlying policy but not the umbrella how much of ER-$14,000 Mechanical breakdown Which of the following is a correct definition of coinsurance - ( requirement that the insured carry insurance equal to a specific percentage of the properties value 12th offer replacement cost coverage under the policy Nicole has a personal auto policy with limits of 10 2010 for liability coverage she causes an accident that result in $12,000 bottle he inury damages to the othor driver and $5000 in property damage to the other drivers car how much would Nicole’s policy pay for bath the becr and PD losses - CORRECT ANSWER-S15,000 Dwelling special form provides - CORRECT. Pearl coverage on personal propert Ina liability lost the person to whom the insured cause damage is referred to as the - CORRECT Third party Which of these losses CORRECT ANSWER- rill be covered under the personal auto policy is liability coverage - ell falls asleep at the wheel of his car and strikes and injured a The insurance contract is considered a contract of indemnity because - And insured my collect know more than the amount required Lo rcsLore him or her to the same financial condition that existed prior to the loss If the homeowner wants to maximum protection for home and contents which form should be purchased - CORR] ANSWER-HO-5 Which one of the following is nol one of the required cloments of a legal contract. - CORRECT ANSWER-written instrument When the policyholder is considered an owner with the right to vote and share in the profits, the type of insurance company is a: - Which one of the following is NOT an element of insurability? - CORRECT ANSWER-Risk of loss is a speculative risk What part of an insurance policy personalized the policy as to who and what are insured? - CORRECT ANSWER-Declarations An insured purchased new furniture for $6,000. At the time of a fire loss, it has depreciated $2,000. The same furniture will casts $7,000 to replace. What is the actual cash value of the The homeowners form that provides open peril coverage on the dwelling and broad coverage on personal property is the: - CORRECT. ANSWER-HO-3 In PURE contributory negligence states, when an individual is found to have contributed to his or her own loss in any way, another party: - Open peril coverage for both the dwelling and personal property is provided by the a CORRECT ANSWER-HO-3 The insureds home is covered by a DP-3. Two ycars ago the insured bought the home Lor $38,000. Today it’s replacement value is $60,000. How much coverage A does the insured need to qualify Coverage for which of the following is excluded by a dwelling policy - CORRECT ANSWER- Coin collection Which of the following perils is covered by the HO-2 and HO-3 - CORRECT. ANSWER-Sudden and accident rupture of a healing system Who of the following would be considered an insured for liability coverage under the personal auto policy? - CORRECT ANSWER-The named insureds son who lives with the insured while driving a neighbors car An additional loss that results fram a direct loss of property is called a/an - CORRECT. ANSWER-Indirect consequential loss Assume the following items were stolen from the insureds home which one of these losses would be fully covered under Coverage C of the homeowners policy assuming the loss was for the full valuc of the properly described - CORRECT ANSWER-/ used for her in home accounting business 2,000 laptop computer the insured Which one of the following losses would be paid under Part D of the personal auto policy? - Cc aliomplod Lo remove it from the car The personal auto policy’s medical payments coverage would not provide protection for which one of the following? - COR WER-Occupants of a car that was struck by the insured. Which of the following is responsible for the licensing of insurance agent - CORRECT ANSWER-Individual state department of insurance Policy A for 30k and Policy B for 60k. The insured has a 12k loss. If both policies use the pro rata method to The insured has two separate Dwelling policies that cover the same proper’ handle other insurance, how much will Policy B pay for this loss? - CORRECT ANSWER-$8,000 Which one of these homeowners endorsements is used to schedule separate coverage for one or more of nine categories of personal property - CORRECT ANSWER-Scheduled personal properly The insured has a Personal Auto policy with all cars insured by onc company. He sells one of the cars and buys a new one to replace it. Must the insured take any action for the Liability portion The type of authority an agent has that may lead the public to the reasonably believe the agent ANSWER-Implied authority Which of the following would be covered property under a homeowners policy - CORRECT. ANSWER-Musie CDs Coverage for the fair rental value of insured property can be found in which homeowners policy coverage section «Coverage D- loss of use Which one of the following is NOT a possible defense against negligence? - CORRECT ANSWER-Doctrine of reasonable expectations A binder: - CORRECT. ANSWER None of the above Which dwelling forms include the glass or safely glazing matcrial other coverage - CORRECT ANSWER-DP-2 and DP-3 All of the folowing are incorree!. conecrning insurance binders EXCEPT: - CORRECT. -Are short term interim agreements Tt will cost Gary $3,090 to put a new roof on his home to replace a roof destroyed in a windstorm. Assume that the original roof, which Gary paid $3,500 for 10 years ago, depreciated $300 per year. What was the actual cash value of the roof that was destroyed? A) $5,000 B) $3,500 €) $3,000 DB) $2,000 - CORRECT. ANSWER-82,000 All of the folowing are incorrect concerning insurance binders EXCEPT: - CORRECT. re short term interim agreements The part of a policy that contains provisions which qualify or place limitations on the insurers promise to pay or perform is the - ‘onditions Which of the following statements is incorrect regarding the liability coverage part ofa homeowners policy? - CORRECT ANSWER-If the lawsuit is groundless the insurance company has no obligation to defend All of the following are not additional coverages found in the HO-2 except - CORRECT. s arc 25/50/25 a driver wilh limils of 10/20/10 is Uninsured motorist slates minimum auto liability limi considered to be a uninsured motorist Which policy would provide the most comprehensive coverage for a 26 foot 200 horsepower bass boat. - Boat owners policy A boat owners policy will cover all of the following EXCEPT: - CORRECT ANSWER-Water skis Joe can obtain earthquake coverage for his home by purchasing which of the following - CORRECT ANSWER-An earthquK endorsement Joe decides to give up his two favorite hobbies, skydiving, and scuba diving, because they are too risky and could lead to his premature death. The method of dealing with risk is called: - CORRECT. ANSWER-Risk Avoidance A peril is defined as: - CORRECT. ANSWER-The cause of loss Anthony is severely injured in an automobile accident because he refused to wear his seat belt. NSWER-Morale Hazard This is an example of a: - C A mechanism used to spread the potential financial losses of an individual among a large number of people describes: - COR. ‘ ANSWER-Insurance The law of large numbers is primarily used for what purpose by insurance companies? - Cc “R-To estimate the future losses of a particular group A\s a captive agent, who do you reprosent in an insurance transaction? - CORRECT ANSWER- The insurer Of the following. Which is not considered to be a risk management tool? - CORRECT. ANSWER- Obligatory The tendency for people with a greater than average risk to purpose insurance is called: - CORRECT. ANSWER-Adverse selection A morale hazard is defined as - CORRECT. ANSWER-Something that occurs through an individuals carelessness or irrespob A written modification that either adds or deletes coverage in a policy is called- CORRECT ANSWER-An exclusion A continuous or repeated exposure which results in bodily injury or property damage which is es what? - CORRECT. ANSWER-Occurren not expected or intended defi Vacancy means only the absence of peolel - CORRECT ANSWER-False Specific insurance provides coverage for different classes of property under on policy - False The value that the insurance company would pay to replace a structure at its pre-loss condition is called: - CO NSW. R-Replacement value and individual who underwrite in syndicates on whose cept risk is called: - CORRECT ANSWER-Lloyd's A society of meme cra both corpore behalf of progressional underwrites associations What exposure unit is used in calculating property insurance rates?- CORRECT ANSWER S100 A term that represents an insurers average future claim costs and loss adjustment expenses would be called: - CORRECT ANSWER-Lass costs Joe and Jane own Tightwad Hardware Store. They are both listed in the business policy declarations. The declarations also list Big Money Bank which loaned Joe and Jane money to start the business. Who is considered a named insured on the policy? - Joe and Jane When insurers are required to receive approval from the department of insurance for a rate can change it describes: - CORRECT ANSWER-Prior approval change before possibility of a loss Awritten modification that either adds or deletes coverage in a policy is called: - CORRECT. ANSWER-An endorsement A contract in which only one party makes an enforceable promise is a(n): Inilateral contract Which principle holds that both parties to an insurance contract have a responsibility to be honest and truthful to the other? - CORRECT ANSWER-Utmost good Iaith In completing an application for auto coverage, Joc Lold his agent that he had not reecived any speeding tickets in the last 5 years. In truth, Joe received a ticket 2 years ago. Joe is guilty of: - CORRECT ANSWER-Misrepresentation An insurance binder can provide temporary insurance coverage while an application is being underwritten. Which of the following statements is incorrect regarding binders? - CORRECT. ANSWER-A binder cxpires when the initial premium is paid One week ago, Joc accidentally ran olf the road and clipped 3 of Farmer John’s fence pasts. Hidden by small print located in the middle of an obscure paragraph in John’s lengthy auto policy was one sentence that stated accidents occurring on dirt reads would not be covered. Which of the following would probably be most helpful in gclung Joo’s claim paid? - CORR) ANSW. 'R-Insurance policies are contracts of adhesion Statements made by an applicant in an application for insurance are generally considered to be: - CORRECT. ANSWER-Representation With an insurance contract, the uncertainty of events can lead to unequal financial results for the . This means that insurance is what kind of contract? - CORRECT. ANSWER- two part: Aleatory Which of the following statements is incorrect regarding consideration in a property and casualty contract Statements the agent makes in the agent report are part of (he insure: In a logal situation any wording that is ambiguous (confusing) in an insurance contract will be Interpreted as favorable to the policyholder, not the insurer. This describes a(n) - CORRECT. ANSWER-Contract of adhesion Which dwelling form(s) pay losses to the dwelling on an actual cash value basis? - ANSWER-Basic DP-1 If an insured increases the deductible on their homeowner insurance policy from $230 to $300, SORRECT. educe! this will help Li claims to (he insurer Joe has $30,000 of coverage under and HO loss has an actual cash value of $10,000 and a replacement cost value of $12,000. How much will policy. After a fire. it was determined that the ihe insurer pay for the loss if the full replacement. cost. of the home was $10,000 at the time of the loss? Ignore any deductible that may apply. - CORRECT ANSWER-S10,000 Which of the following losses is covered under the Physical Damage coverage of a Personal Auto Policy? - Damage to a CD player installed in the dash of the auto Under a personal auto policy, all of the following would be an insured for liability coverage EXCEPT - CORRECT. ANSWER-An employee of the named insured while transporting passengers for a If an insured is required to attend a hearing or trial related to a covered accident, the personal auto policy provides supplementary payments Lor loss of earnings of - CORR! $200 a day Under a personal auto policy, which of the following is NOT a collision loss? - While driving to work one day, Roy was hit by a car that ran a stop sign. Roy’s medical bills were $40,000 as a result of the accident. The other driver, who was at fault, carries the state’s required limit of $25,000. Roy carries $100,000 of underinsured motorist coverage. How will Roy's medical bills be paid? - C4 R-The other driver's insurer will pay $25,000; Roy’s underinsured motorist coverage will pay $15,000 Which of the following would be covered under the personal auto policy liability coverage? - Jolin looks away from the road for a [ow seconds and accidentally strikes Which of the following losses would be covered under a Part A liability Coverage of a personal - CORRECT. ANSWER-Bodily injury arising out of the use of a rented golf cart auto policy? When automobile limits of liability are expressed as 13/30/10, this describes what type of CORRECT ANSWER-S15,000 bodily injury for each person, $30,000 bodily injury each accident, $1 coverage? - rty damage each accident The minimum auto bodily injury liability limits for a particular state are 20/40. Janie is driving with the minimum limits of 20/40. She causes an accident with John in which he suffers bodily injury in the amount of $120,000. John has non-stacked underinsured motorists limits of 100/300. $80,000 How much will his policy toward his injuries? - Of the following vehicles, which is considered a temporary substitute auto under a personal auto R-/An atta rented by an insured aficr the insurers Iell his car ata While Joe is driving to the grocery store, a dog runs across the street. Joe swerves to avoid the dog but hits the car in the lane next to him. He also hit and knocked down the street sign at the intersection. Joe had the state minimum liability coverage which is 10/15/23 and is at fault. What will Joo’s insurance cover if the driver of the other car has $35,000 bodily injury and $1,000 property damage coverage and the street sign has $300 worth of damage - Both A and B Which of the following coverages are subject to a deductible - CORRECT ANSWER-Both A and B Sami runs a stop sign. hitting a car driven by joe. Joe sustains injuries that cost $20,000 in medical bills while his passengers have medical bills of $15,000. Joe sustained damage to his car Ignoring any deductible, what is the total amount Sam's insurance company will pay for this accident? - CORRECT ANSWER- $44,000 in the amount of $9,000. Sam's liability limits are Allof the following arc CORRECT concerning Med Pay EXCEPT: - CORRECT ANSWERMed Pay covers the other driver’s badily injury and property damage