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State Farm Practice 2024 Exam Review
Questions and Answers 100% Pass
Abandonment - Answer>> The abdication of insured property into the hands of another, or into the possession of no one in particular. Absolute Liability - Answer>> A type of liability that occurs due to extremely dangerous operations, such as the use of explosives or working at extreme heights. Accident - Answer>> An unplanned, unforeseen event which occurs suddenly and at a specific place. Actual Cash Value (ACV) - Answer>> The required amount to pay damages or for property loss, which is calculated based on the property's current replacement value minus depreciation. Additional Coverage - Answer>> A provision in an insurance policy that allows for more coverage for specific loss expense without increase in premium. Additional Insureds - Answer>> Individuals or business that are not named as insured on the declaration page, but are protected by the policy, usually in regard to a specific interest. Adhesion - Answer>> A contract offered on a "take-it-or-leave- it" basis by an insurer, in which the insured's only option is to accept or reject the contract. Any ambiguities in the contract will be settled in favor of the insured. Admitted Insurer - Answer>> An insurance company authorized and licensed to transact business in a particular state.
Adverse Selection - Answer>> The tendency of risks with higher probability of loss to purchase and maintain insurance more often than the risks who present lower probability. Agent - Answer>> An individual who is licensed to sell, negotiate, or effect insurance contracts on behalf of an insurer. Aggregate Limit - Answer>> The maximum limit of coverage available under a liability policy during a policy year regardless of the number of claims that may be made or the number of accidents that may occur. Agreed Value - Answer>> A property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written. Aleatory - Answer>> A contract in which the participating parties agree to exchange unequal amounts. Insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount the insurer will pay in the event of a loss. Alien Insurer - Answer>> An insurance company that is incorporated outside the United States. Apparent Authority - Answer>> The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created. Appraisal - Answer>> An assessment of property to determine either the correct amount of insurance to be written or the amount of loss to be paid.
Blanket Insurance - Answer>> A single property insurance policy that provides coverage for multiple classes of property at one location, or provides coverage for one or more classes of property at multiple locations. Bodily Injury Liability - Answer>> Legal liability arising from death or physical trauma to a person as a result of a negligent or purposeful act and omissions by an insured. Boycott - Answer>> An unfair trade practice in which one person refuses to do business with another until he or she agrees to certain conditions. Builder's Risk Coverage Form - Answer>> A commercial property form that covers buildings under construction. Burglarly - Answer>> The forced entry into another's premises with felonious intent. Cancellation - Answer>> The termination of an in-force insurance policy by either the insured or the insurer prior to the expiration date shown in the policy. Casualty Insurance - Answer>> A type of insurance that covers losses caused by injury to persons or damage to the property of others. Cease and Desist Order - Answer>> A demand of a person to stop committing an action that is in violation of a provision. Certificate of Authority - Answer>> A document that authorizes a company to start conducting business and specifies the kind(s)
of insurance a company can transact. It is illegal for an insurance company to transact insurance without this certificate. Certificate of Insurance - Answer>> A legal document that indicates that an insurance policy has been issued, and that states both the amounts and types of insurance provided. Claim - Answer>> A demand made by the insured to cover a loss protected by the insurance policy. Class Rating - Answer>> The practice of computing a price per unit of insurance that applies to all applicants possessing a given set of characteristics. Coercion - Answer>> An unfair trade practice in which an insurer uses physical or mental force to persuade an applicant to buy insurance. Coinsurance - Answer>> An agreement between an insurer and insured in which both parties are expected to pay a certain portion of the potential loss and other expenses. Combined Single - Answer>> A single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence. Commercial Lines - Answer>> Type of insurance that pertains to business, mercantile or manufacturing establishments. Commissioner (Superintendent, Director) - Answer>> The chief executive and administrative officer of a state insurance department.
advantages, or disadvantages promised under a policy of insurance. Consumer Reports - Answer>> Written and/or oral statements regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources. Contract - Answer>> An agreement between two or more parties enforceable by law. Controlled Business - Answer>> An entity that obtains and possesses a license solely for the purpose of writing business on the owner, immediate family, relatives, employer and employees. Concurrent Causation - Answer>> Multiple events leading to one loss. Death Benefit - Answer>> The amount payable upon the death of the person whose life is insured. Declarations - Answer>> The section of an insurance policy containing the basic underwriting information, such as the insured's name, address, amount of coverage and premiums, and a description of insured locations, as well as any supplemental representations by the insured. Deductible - Answer>> The portion of the loss that is to be paid by the insured before any claim benefits may be paid by the insurer. Defamation - Answer>> An unfair trade practice in which one agent or insurer makes an injurious statement about another with the intent of harming the person's or company's reputation.
Deposit Premium Audit - Answer>> A condition that allows the insurer to audit the insured's books or records at the end of the policy term to make sure adequate premium has been collected for the exposure. Depreciation - Answer>> The lessening of value of real and personal property due to age and wear and tear. Direct Losses - Answer>> Physical damage to buildings and/or person property as a result of direct consequence of a particular peril. Director (Commissioner, Superintendent) - Answer>> The head of the state department of insurance. Disability - Answer>> A physical or mental impairment, either congenital or resulting from an injury or sickness. Disclosure - Answer>> An act of identifying the name of the producer, representative or firm, limited insurance representative, or temporary insurance producer on any policy solicitation. Domestic Insurer - Answer>> An insurance company that is incorporated in the state. Domicile of Insurer - Answer>> Insurer's location of incorporation and the legal ability to write business in a state. Economic Loss - Answer>> The estimated total cost (both insured and uninsured) of an accident.
Fiduciary - Answer>> An agent/broker who handles insurer's funds in a trust capacity. First Named Insured - Answer>> The individual whose name appears first on the policy's declaration. Flood - Answer>> A general and temporary condition of partial or complete inundation of normally dry land areas from overflow of inland or tidal waters or from the unusual and rapid accumulation or runoff of surface waters from any source. Foreign Insurer - Answer>> An insurance company that is incporporated in another state. Fraternal Benefit Society - Answer>> A life or health insurance company formed to provide insurance for members of an affiliated lodge, religious, or fraternal organization with a representative form of government. Fraud - Answer>> Intestinal misrepresentation or deceit with the intent to induce a person to part with something of value. Functional Replacement Cost - Answer>> The cost to replace damaged property with less expensive and more modern construction or equipment. Gross Negligence - Answer>> Reckless behavior that shows disregard for the safety or lives of others. Hazard - Answer>> A circumstance that increases the likelihood of a loss.
Hazard, Moral - Answer>> The effect of a person's reputation, character, living habits, etc. on his/her insurability. Hazard, Morale - Answer>> The effect of a person's indifference concerning loss has on the risk to be insured. Hazard, Physical - Answer>> A type of hazard that arises from the physical characteristics of an individual, such as a physical disability due to either current circumstance or a condition present at birth. Implied Authority - Answer>> Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal. Indemnity - Answer>> Compensation to the insured that restorers them to the same financial position that they enjoyed prior to the loss. Independent Agents - Answer>> Agents that sell the insurance products of several companies and work for themselves or other agents. Indirect Losses - Answer>> Losses resulting from a peril, but not directly caused by it. Indirect losses may include business disruption, rent insurance, extra expenses, and other consequences that occur over time. Inflation Guard - Answer>> A coverage extension that automatically increases amounts of insurance on buildings by an agreed upon percentage annually.
Interline Endorsement - Answer>> A written amendment designed to eliminate redundancy and minimize the number of endorsements in the policy. Judgment Rating - Answer>> An approach used when credible statistics are lacking or when the exposure units are so varied that it is impossible to construct a class. Law of Large Numbers - Answer>> A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss. Legal Liability - Answer>> A liability under the law that occurs when a person is responsible for injuries or damages to another due to negligence. Liability - Answer>> Responsibility under the law. Liberalization - Answer>> A property insurance clause that extends broader legislated or regulated coverage to current policies, as long as it does not result in a higher premium. Lien - Answer>> A charge, security or encumbrance on property. Limit of Liability - Answer>> The maximum amount for which an insurer is liable. Lloyd's Associations - Answer>> Organizations that provide support facilities for underwriters or groups of individuals that accept insurance risk.
Loss - Answer>> The reduction, decrease, or disappearance of value of the person or property insured in a policy, by a peril insurered against. Loss Payable Clause - Answer>> A provision in property insurance that is used to cover the interest of a secured lender in personal property. Loss Ratio - Answer>> A calculation used by insurance companies to relate income from loss expenses: loss ration = (incurred losses + loss adjusting expense) / earned premium. Loss Valuation - Answer>> A factor in determining the premium charged and the amount of insurance required. Market Value - Answer>> A seldom used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss. Misrepresentation - Answer>> A false statement or lie that can render the contract void. Monoline Policy - Answer>> A policy written separately as a single coverage. Mutual Assessment Insurer - Answer>> A mutual insurance company with the right to assess policyholder's additional amounts of premium to meet operational needs. Mutual Companies - Answer>> Insurance organizations that have no capital stock, but are owned by the policyholders.
Occurrence - Answer>> A broader definition of loss, which differs from accident in that it includes losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected. Open Peril - Answer>> Term used in property insurance to describe the breadth of coverage provided under an insurance policy form that insures against "any risk of loss" that is not specifically excluded. Pair and Set Clause - Answer>> A clause included in many property and inland marine policies, which provides that the insurer is not obligated to pay for the total value of a set of items if only one item has been lost, damaged, or destroyed. Partnership - Answer>> A legal entity in which 2 or more persons agree to share the profits and losses of the business. Passive - Answer>> A description of an anti-theft device or system for autos which is activiated automatically when the driver turns the ignition key to the off position and the key is removed. Peril - Answer>> The cause of a possible loss. Personal Injury Liability - Answer>> Legal responsibility for an injury to the character of another person caused by libel, slander, false arrest, invasion of privacy and other acts. Personal Lines Insurance - Answer>> Type of coverage available to individuals and families for non-business risks.
Policy Limits - Answer>> The maximum amount an insured may collect, or for which an insured is protected under the terms of the policy. Policy Period - Answer>> A period of time a policy is in effect (also known as Policy Term) Policyholder - Answer>> The person in possession of an insurance policy; may or may not be the policyowner and/or insured. Policyowner - Answer>> The person who is entitled to exercise the rights and privileges in the policy. This person may or may not be the insured. Premium - Answer>> A periodic payment to the insurance company to keep the policy in force. Primary Policy - Answer>> A basic, fundamental insurance policy which pays first with respect to other outstanding policies. Pro Rata - Answer>> Proportional distribution of shares of the loss for each insurance policy written on a piece of property. Producer - Answer>> A person who acts on the behalf of the insurer to sell, negotiate, or effect insurance contracts; also known as an agent. Proof of Loss - Answer>> A sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid.
Retention - Answer>> A method of dealing with risk by intentially or unintentionally keeping a portion of it for the insured's account; the amount of responsibility assumed but not reinsured by the insurance company. Retrospective Rating - Answer>> A self-rating plan under which the actual losses during the policy period determine the final premium (subject to a minimum and maximum premium). Right of Salvage - Answer>> A provision in property insurance policies requiring that after payment of a total loss to insured property, the insured must transfer the title (or ownership) to the property to the insurer. Risk - Answer>> Uncertainty as to the outcome of an event when two or more possibilities exist. Risk, Pure - Answer>> The uncertainity or chance of a loss occurring in a situation that can only result in a loss or no change. Risk, Speculative - Answer>> The uncertainty or chance of a loss occurring in a situation that involves the opportunity for either loss or gain. Robbery - Answer>> The taking of property from another by using violence or the threat of violence. Salvage - Answer>> The amount of money realized from the sale of damaged merchandise or property. A salvage clause is found in ocean marine insurance and usually states that the rescuers of a ship are entitled to the salvage of the ship and cargo.
Settlement - Answer>> The process by which an agreement is reached and a claim is resolved in liability insurance. Severability of Interests - Answer>> A provision that insurance applies separately to each insured in a policy, treating each individual as the only insured. Sharing - Answer>> A method of dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss who share the losses that occur within that group. Specific Insurance - Answer>> A property insurance policy that covers a specific kind or unit of property for a specific amount of insurance. Speculative Risk - Answer>> The uncertainty or chance of a loss occurring in a situation that involves the opportunity for either loss or gain. Split - Answer>> Separately stated limits of liability for different coverages, which may be stated on a per person, per occurrence, per policy period basis, or can be divided between bodily injury and property damage. Stated Amount - Answer>> An amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss. Statute Law - Answer>> The written law as enacted by a legislative body (i.e. the laws of the state), which generally takes precedence in cases where both common law and statute law apply.
