Insurance Programs and Policies Quiz

What is an example of a situation where a DIC policy would be used?

• To insure a vehicle against collision.

• To cover basic fire damage.

• To pay for earthquake damage excluded from the insured’s commercial property form.

• To provide health insurance for employees.

Answer explanation

A DIC (Difference in Conditions) policy is specifically designed to cover gaps in standard commercial property insurance, such as earthquake damage, which is often excluded. Thus, it is used to pay for earthquake damage excluded from the insured’s commercial property form.

How does a 'Write Your Own' carrier operate under the NFIP?

• It sells flood policies with NFIP forms and servicing, while FEMA underwrites risk.

• It underwrites all risks independently.

• It operates without any government involvement.

• It only provides claims services.

Answer explanation

A 'Write Your Own' carrier sells flood policies using NFIP forms and provides servicing, while FEMA is responsible for underwriting the risk, making this the correct choice.

What is the maximum coverage limit for residential buildings under the NFIP?

• $100,000

• $250,000

• $500,000

• $1,000,000

Answer explanation

The maximum coverage limit for residential buildings under the National Flood Insurance Program (NFIP) is $250,000. This amount is set to help homeowners protect their properties from flood damage.

What is a characteristic of self-insured employers?

• They purchase insurance from private insurers.

• They only insure against natural disasters.

• They rely on government funding for claims.

• They assume direct responsibility for losses and finance claims from internal reserves.

Answer explanation

Self-insured employers take on the financial risk of losses themselves, using their own funds to cover claims, rather than purchasing insurance or relying on external funding.

What is the role of a Liquor Liability Joint Underwriting Association?

• To offer flood insurance to bars and pubs.

• To ensure liquor liability coverage is available to establishments rejected by admitted insurers.

• To provide fire insurance to liquor stores.

• To provide health insurance to bar employees.

Answer explanation

The correct choice highlights that a Liquor Liability Joint Underwriting Association provides coverage for establishments that have been denied by admitted insurers, ensuring they can still obtain necessary liquor liability insurance.

What is a captive insurance company?

• A private insurer specializing in flood insurance.

• A public insurance company offering only auto insurance.

• A government-owned insurance company.

• A customized insurance company wholly owned by the insured parent(s).

Answer explanation

A captive insurance company is a customized insurance entity that is wholly owned by the insured parent(s), allowing them to tailor coverage to their specific needs, unlike standard insurers.

What is the standard range for NFIP deductibles per coverage part?

• $2,000 to $20,000

• $5,000 to $50,000

• $1,000 to $10,000

• $500 to $5,000

Answer explanation

The standard range for NFIP deductibles per coverage part is $1,000 to $10,000. This range applies to various coverage options under the National Flood Insurance Program, making it the correct choice.

What is the purpose of a Difference in Conditions (DIC) policy?

• To provide basic fire coverage.

• To fill gaps in primary policies for risks like flood and earthquake.

• To offer comprehensive auto insurance.

• To provide health insurance for employees.

Answer explanation

A Difference in Conditions (DIC) policy is designed to fill gaps in primary insurance policies, specifically for risks not covered by standard policies, such as flood and earthquake, making it essential for comprehensive risk management.

What is the purpose of pooling in insurance?

• To provide exclusive coverage for high-risk individuals.

• To combine risks and resources to share losses and stabilize premiums.

• To increase premiums for all members.

• To eliminate the need for any insurance.

Answer explanation

The purpose of pooling in insurance is to combine risks and resources, allowing members to share losses and stabilize premiums, making coverage more affordable and manageable for everyone.

What does the FAIR Plan provide?

• Basic property fire coverage for those unable to secure it in the admitted market.

• Comprehensive health insurance.

• Auto insurance for high-risk drivers.

• Flood insurance for high-risk areas.

Answer explanation

The FAIR Plan provides basic property fire coverage specifically for individuals who cannot obtain it through the standard insurance market, making it essential for those at higher risk.