Quiz IIC - C11 - Principles and Practice of Insurance Latest Latest Dumps
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IIC Principles and Practice of Insurance Sample Questions (Q64-Q69):
NEW QUESTION # 64
If one in every five houses suffers a $50,000 loss each year, and all houses have the same value, what would the pure premium be for each homeowner?
- A. $5,000
- B. $2,500
- C. $10,000
- D. $100,000
Answer: A
Explanation:
Thepure premiumrepresents theexpected loss costper exposure unit. It is calculated as:
Pure Premium=Probability of Loss×Severity of Loss ext{Pure Premium} = ext{Probability of Loss} imes
ext{Severity of Loss}Pure Premium=Probability of Loss×Severity of Loss Here:
Probability of loss = 1 in 5 homes =0.20
Severity (loss amount) =$50,000
0.20×50,000=10,0000.20 imes 50,000 = 10,0000.20×50,000=10,000
But here is the key detail: one loss of $50,000 spread overfive homesmeans:
50,0005=10,000rac{50,000}{5} = 10,000550,000=10,000
But the answer choices do not include $10,000 except option C, yet the correct pure premium per homeownerwith equal distribution per yearequals:
$10,000 per home per year
Thus the correct answer isC: $10,000.
NEW QUESTION # 65
Which scenario is an example of insurable interest?
- A. An employer's interest in the life of their employee
- B. The interest an underwriter has in writing profitable business
- C. An employee's interest in the life insurance policy of a fellow employee
- D. The interest an insurance company earns on its premiums
Answer: A
Explanation:
Insurable interest exists when someone would suffer a financial loss if a person or property were damaged, lost, or deceased. Employers have a legitimate, recognized insurable interest in the lives of key employees, as their death or disability could result in financial loss-for example, reduced productivity, training costs, or loss of specialized expertise. Therefore, A represents a valid and legally recognized insurable interest.
Option B involves investment income earned by insurers-this is not an insurable interest but a financial outcome of operations. Option C reflects a business motive but not an insurable interest because an underwriter does not stand to personally lose financially if a policyholder dies or property is damaged. Option D is generally invalid unless the employee can demonstrate a direct financial dependency, which is typically not the case.
Thus, the only clear example of insurable interest is A: the employer's interest in the life of an employee.
NEW QUESTION # 66
Which insurance term is defined as providing compensation for losses or expenses that have been incurred?
- A. Salvage
- B. Utmost good faith
- C. Pure captive
- D. Indemnify
Answer: B,D
Explanation:
Comprehensive Explanation (150-250 words):
The termindemnifyis fundamental in insurance. To indemnify means tocompensate an insured party for actual losses or expenses incurred, restoring them as closely as possible to the financial position they occupied immediately before the loss. This principle ensures that insurance does not create profit or gain for the insured but instead acts as a financial safety mechanism to cover legitimate losses.
Indemnity is applied across many types of policies-property, automobile, liability, and more-and forms the basis of how claims are settled. When an insurer indemnifies an insured, the insurer may pay for repairs, replacement, medical expenses, or financial judgments depending on the policy coverage.
Option A,Salvage, is the insurer's right to recover value from damaged property after paying a claim.
Option C,Pure captive, refers to an insurance company created by a parent company to insure its own risks.
Option D,Utmost good faith, is the legal duty requiring both insurer and insured to disclose all material facts.
Only"indemnify"directly describes providing compensation for an incurred loss.
NEW QUESTION # 67
A company suffers a $100,000 property loss at its commercial location. If Insurer X and Insurer Y have policies subject to the same terms and conditions, and there is no deductible, what will each insurer pay based on the information below?
Insurer X insured amount: $400,000
Insurer Y insured amount: $100,000
- A. Insurer X pays $50,000; Insurer Y pays $50,000
- B. Insurer X pays $80,000; Insurer Y pays $20,000
- C. Insurer X pays $0; Insurer Y pays $100,000
- D. Insurer X pays $100,000; Insurer Y pays $0
Answer: B
Explanation:
When more than one insurer covers the same property under policies with identical terms, the loss is often shared according to the proportion of insurance each company provides. This is commonly referred to as contribution "pro rata by limits." First, determine the total amount of insurance:
Insurer X: $400,000
Insurer Y: $100,000
Total insurance: $500,000
Next, determine each insurer's percentage of the total:
Insurer X: 400,000 ÷ 500,000 = 80%
Insurer Y: 100,000 ÷ 500,000 = 20%
The total loss is $100,000, so each insurer pays its proportion of the loss:
Insurer X: 80% × $100,000 = $80,000
Insurer Y: 20% × $100,000 = $20,000
There is no deductible to adjust these amounts. Thus, Insurer X pays $80,000 and Insurer Y pays $20,000, making Option C correct.
NEW QUESTION # 68
What is stated in the insuring agreements of a policy?
- A. Signature clause
- B. Lienholder
- C. Premium
- D. Description of the property covered
Answer: D
NEW QUESTION # 69
......
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