UPDATED 2024 INSURANCE PRACTICE TEST EXAM 100% SOLUTIONS

The fee paid by the insured in exchange for an insurance policy is called a: - ANSWER 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. - ANSWER 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 - ANSWER 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 - ANSWER D. Definitions Which of the following is NOT a characteristic of insurance contracts? A. Aleatory B. Universal C. Conditional D. Unilateral - ANSWER 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. - ANSWER 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. - ANSWER 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. - ANSWER 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. - ANSWER A. a high crime neighborhood. A "hazard" is defined as: - ANSWER 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. - ANSWER 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. - ANSWER 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. - ANSWER 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. - ANSWER 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: - ANSWER risk reduction. Which of the following is NOT a risk management technique? A. Risk reduction B. Risk equality C. Risk avoidance D. Risk retention - ANSWER 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. - ANSWER 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. - ANSWER C. Rachel is providing representations.