USG Part 3 v2 Non CA Specific

The Ultimate Study Guide
Part Three
The Ultimate Study Guide - Part 3

101. Kumar’s BMW M3 overturns on highway 17, resulting in a solo collision
loss. Kumar, along with his two passengers Angela and Eric, suffers minor
injuries. Kumar's injuries are $1,500, Angela's are $2,000 and Erik's are $2,500.
Meanwhile, Kumar’s PAP (personal auto policy) has $2,000 coverage "B"
limits. Which of the following describes Kumar's correct PAP claims settlement?
A. The total amount payable by Kumar's insurer is $2,000 - the per occurrence
policy limit.
B. The total amount payable by Kumar's insurer is $5,500, with the maximum
$2,000 per person policy limit.
C. All injuries are covered under “D” for the full $6,000, as Kumar's loss was the
result of a collision.
D. The total amount payable by Kumar's insurer is $3,500, considering the
maximum $2,000 per person policy limit (and the exclusion of Kumar, as he was
the driver.)

101 (B) The total amount payable by Kumar's insurer is $5,500.
with the maximum $2,000 per person policy limit.
Regarding questions about coverage "B" medical payments in
PAP's, please note that, by definition, coverage "B" claims are
settled on a Per Person basis with no per occurrence limit.
Med Pay in a PAP covers both the driver and passengers. The
reason why Kumar's policy did not pay the full accident BI (Bodily
Injury ) amount was due to Erik's injuries, which exceeded the
$2,000 per person limit.

102. In order to remain financially solvent, an insurer must
maintain an amount of "paid-in-capital" in excess of its liabilities
and outstanding risks.
What term is given to describe an insurer deficient in this fiscal
policy?
A. Non Admitted
B. Penurious
C. Bankrupt
D. Insolvent

102. (D): Insolvent:
Insolvency is the insurance world’s term for Bankruptcy.
An insurance company cannot escape the condition of insolvency
by merely having the financial backing just to cover its liabilities
and to reinsure all outstanding risks.
In order to remain solvent, an insurer must maintain reserves in
excess of its liabilities.

103. Which type of commercial crime coverage form will pay for
losses which "occurred" during the annual policy term, yet were
"discovered" eight months after the policy termination?
A. Outside of premises theft of money and securities
B. Claims Made Form
C. Loss Sustained Form
D. Discovery Form

103. (C) Loss Sustained form:
The Loss Sustained coverage form of a Commercial Crime policy covers
crime losses that occur during the coverage period, regardless of when
they are discovered. (It is important to remember that the crime must
have occurred during the coverage period.)
Note: Loss Sustained is the correct choice for all commercial crime loss
questions that specifically contain the two words “occur” and
“discovered”.
Hint from Insuratest: Crime Forward = Loss Sustained

104. A landslide destroys Brad’s newly constructed Malibu home during
a severe rain storm. The home is insured with an HO3 "special" form
policy. Civil engineers determine that the loss was an indirect result of
pre-construction land grading deficiencies, which was a violation of
multiple city building code specifications. This loss is_______?
A. Excluded, as it is catastrophic in nature. An unendorsed HO3 offers
zero coverage for catastrophic perils.
B. Covered under the ordinance or law coverage that is standard in
"Special" form policies.
C. Excluded under the "Special" form HO3's concurrent causation
exclusion.
D. Covered in good faith by the insurer, who will intern seek financial
recovery from the home builder.

104. (C) Excluded under the HO3's concurrent causation
exclusion:
An Earth Movement Loss* due to insufficient pre-construction
land grading is excluded under the Concurrent Causation
Exclusion.
(* Landslide, flood or water caused earth movement).

105. Which of the following statements is accurate regarding the
"Towing and Labor coverage Endorsement” that was recently
added to Norm Phillips’ PAP (personal auto policy)?
A. The endorsement will pay for the towing of Norm’s
vehicle up to 100 miles.
B. The endorsement will pay to tow Norm’s vehicle to the
nearest service station.
C. The endorsement will cover one hour of miscellaneous
labor charges at the nearest service station.
D. The endorsement will only cover minor auto repairs that
are performed at the site of mechanical breakdown.

105. (D): The "Towing and Labor coverage Endorsement" will only cover minor
mobile-auto repairs that are performed at the site of mechanical breakdown…
The Towing and Labor coverage endorsement only pays for
miscellaneous labor repairs at the site of a breakdown.
Examples:
Only the labor costs were covered for a battery replacement when Norm’s car broke down
on the Interstate. Norm still had to pay for the new battery.
On another occasion, Norm’s breakdown did require towing.
Unfortunately, “Norm’s Big Tow” endorsement didn’t even cover his tow!
Instead, it was Norm who had to foot the bill!

106. Which of the following terms describes the procedure insurers
such as State Farm and Farmer’s undertake to determine the
premium rates for their insured policy owners?
A. Actuarial balance procedure
B. Solvency screening
C. Rate-Making
D. Premium finance factoring

106. (C) Rate-Making:
“Rate Making” is the process by which insurers determine the rates
Insureds pay for coverage.
Remember:
Insurance rates are subject to prior approval by the insurance
commissioner.

107. In order to cover an “occurrence" that is discovered by
underwriting (or by an Insured) 75 days after policy termination,
which endorsement must be added to a Claims Made Commercial
General Liability coverage form?
A. Supplemental extended reporting period
B. Midi Tail coverage endorsement
C. Maxi Tail coverage endorsement
D. All of the above are correct

107. (D) All of the above are correct:
A Claims Made Commercial General Liability policy form will automatically
cover losses that occur up to 60 days beyond the policy term.
The midi-tail coverage endorsement will cover losses that occur beyond 60 days,
and will continue coverage up to five years.
The supplemental extended reporting period (also known as a Maxi Tail
Endorsement) covers losses that occur beyond the 60 days and will continue
coverage for an unlimited period of time thereafter.
Therefore, this question’s “75 Days after policy termination” fits the
supplemental extended reporting period (maxi-tail) coverage endorsement as
well as the midi-tail endorsements profile.

108. When Victoria purchased her HO4 policy, she declined the coverage
"C" Replacement cost endorsement that her agent had offered. Victoria
later submitted a claim for personal property stolen from her vehicle that
had been parked outside her apartment building.
Which formula accurately describes the Actual Cash Value (ACV)
settlement Victoria will receive for her loss?
A. ACV = Replacement Cost minus Deductible.
B. ACV = Market Value minus Deductible.
C. ACV = Replacement Cost minus Depreciation.
D. ACV = Stated Value minus Depreciation

108. C: ACV = Replacement Cost - Depreciation:
The formula for Actual Cash Value is:
ACV = RC-DEP (Replacement Cost minus Depreciation.)
Memorize this…
“R.C. Cola minus Johnny Depp = Actual Cash Value.”
Minus
: Equals:

109. A CGL (Commercial General Liability) policy’s declaration
page lists several aggregate limits defined as the cumulative total of
all claims payable in one policy term. All of the following are CGL
aggregate limits except:
A. General Aggregate limit.
B. Products/Completed Operations Limit.
C. Pollution Liability Aggregate Limit.
D. Advertising Injury Limit.

109. (C) Pollution Liability Aggregate limit:
Remember, the Declarations page of a CGL (Commercial General
Liability) policy is the "D" in D.I.C.E. and one of the four elements of a
contract.
The declarations page typically contains three aggregate limits:
1. Products/Completed operations limit
2. Advertising Injury limit
3. General Aggregate Limit
Meanwhile, Pollution Liability is always excluded in CGL policies and is
only available by endorsement.

110. How many days or years will the “Unendorsed claims-made
commercial general liability policy form” extend coverage to
Insureds for losses that occur following policy cancellation by
underwriting or by the Insured?
A. Up to 75 days.
B. Up to five years.
C. Up to six months.
D. Up to 60 days.

110 (D) 60 days:
The Unendorsed Claims Made form of a Commercial General Liability
policy will cover losses up to 60 days after policy termination.

111. Which valuation method is used by insurers to estimate the
80% “insurance to value” ratio that policy holders must maintain in
order to satisfy their coinsurance requirement?
A. Actual Cash Value (ACV).
B. Reconstruction cost method.
C. Fair Market Value.
D. Original sale price plus 6.25% annually, for inflation.

111 (C) Fair Market value:
Insurers use Fair Market Value to determine the 80%
coinsurance requirement on commercial buildings,

112. Tommy rents an office suite for his Chiropractic business and
transforms the building’s bare wall interior into a tranquil luxury
office suite with a budget of $85,000. Tommy’s TIB (Tenant
Improvements and Betterments) is covered by which section of his
BOP (Business Owners Policy)?
A. “A” Dwelling/Structure.
B. “B” Business personal property.
C. “C” Contents coverage.
D. (TIB) Coverage endorsement.

112. (B) "B" Business personal property:
Tenant Improvements and Betterments coverage (T.I.B.) is
included under coverage "B" in commercial policies. The purpose
is to financially protect improvements made on a leased building.
Another example would be the cost to transform a leased stationery
store into a hair salon. T.I.B is covered under business personal
property.

113. Daniele and Bridgette own a bridal boutique. In order to receive the best
coverage "B" for the lowest premium price, the two purchased a "Value
Reporting Form Endorsement." This endorsement allows the values of their
inventory coverage to fluctuate throughout the year. Additionally, the
endorsement requires Daniele (as the first named insured) to provide
stringent reporting of inventory values each month.
Without these proper inventory reports, what is the maximum amount this
endorsement will cover?
A. 85%
B. 65%
C. 75%
D. 50%

113 (C) 75% of the limit:
Remember “Victoria’s Secret” from an earlier question? In
anticipation of Valentine’s Day, Victoria’s Secret increases its
inventory earlier in the year. If the company does not report this
fluctuation, the maximum reimbursement Victoria’s Secret can
receive is 75%

114. Which of the following coverages are included in a Broad
form Dwelling policy DP2 (as opposed to a Basic form Dwelling
policy DP1)?
A. Personal Injury Protection (PIP).
B. Tenants Improvements and Betterments (TIB).
C. Additional Living Expenses.
D. Protection and Indemnity coverage (P&I).

114 (C) Additional Living Expenses:
Again, this is a popular question:
“Additional Living Expenses” is covered in a DP 2 Broad Form policy, but is
not covered in the DP1 Basic Form.
Repeated Tip from Insuratest:
This question will be asked three times, and each question will have a different
correct answer.
• If “Collapse” is an answer choice, choose it!
• If “Falling Objects” is an answer choice, choose it!
• If “Additional Living Expenses” is a choice, choose it!

115. Employee benefit plans classified as "Self Funded" may not
be used for which of the following?
A. Vision and Dental coverage.
B. Hospital and physician services.
C. Health and Disability coverage.
D. Life Insurance or Death benefit including burial allowance.

115 (D) Life Insurance or Death benefit including burial
allowance:
Please not that Self-Funding of employee benefit plans cannot be
used for life insurance (or death benefits that are included in life
insurance policies).

116. Following a fraudulent fire claim submitted for $80,000 in damages to
his furniture warehouse, Russell is convicted of arson. Which of the
following statements is true regarding Russell's coverage conditions and
fine?
A. Russell will be fined $160,000 and will face a minimum one year
prison sentence. His mortgage holder will recover from the $80,000 fire
loss.
B. Russell will be fined $150,000 and will face a minimum two year
prison sentence. His mortgage holder will not recover from the $80,000
fire loss.
C. Russell will be fined $80,000 and will face a minimum three year
loss.
D. Russell will be fined $100,000 and will face a minimum two year
loss.

116: (A) Russell will be fined $160,000 and will face a minimum one year
loss.
In the Conditions section (the "C" in D.I.C.E) the mortgage holder
(Bank) is able to recover from financial loss - even in the event the
insured is convicted of arson.
The minimum fine for submitting a fraudulent claim is up to one year in
prison and or twice the dollar amount of the false claim or $150,000 -
whichever is greater.
Yikes. Kids, do not do this at home!

117. When Patty and Selma moved from Springfield to Los Angeles, they
needed to show proof of insurance in order to register their blue station
wagon with the DMV.
Which of the following figures represents their per person BI (Bodily
Injury limit) in the following coverage sequence 25/50/100 ?
A. 100
B. 50
C. 25
D. None of the above

117 (C) 25:
Don't let the 50 confuse you (“25” represents the $25,000 per person
limit that covers an injured individual for a maximum of $25,000 in
an accident.) The 50 is for the total amount for all injures suffered in
an accident/occurrence

118. The Loma Prieta quake of ‘89 caused a rupture to the natural gas line just
outside of Mark and Cindy’s Scott’s Valley home. Fortunately, the two were
able to escape before the gas exploded and destroyed the entire house.
Adjusters determined that the earthquake caused $60,000 worth of structural
damage before the explosion occurred. Mark and Cindy’s home was insured with
an unendorsed HO3 policy. What did the insurer pay?
A. Actual cash value for the home’s structure, minus $60,000 for
earthquake loss.
B. Replacement cost for the home’s structure, minus $60,000 for
earthquake loss.
C. Actual cash value for the home’s structure, including $60,000 for
earthquake loss.
D. Replacement cost for the home’s structure, including $60,000 for
earthquake loss.

118: B. Replacement cost for the home’s structure, minus $60,000 for earthquake loss.
This question tests your knowledge of:
Catastrophic Coverage Exclusions (the “E” in “DICE”).
The standard H03 policy covers fire and internal explosions and does not have a
concurrent causation exclusion. However, earthquake damage is excluded unless
earthquake coverage is added either by endorsement or by a completely separate policy.
Remember:
Exclusions = Earthquakes (and other “Catastro Fees”!)

119. A condition known as ________ ________ is unique to
Property and Casualty insurance, and states that a prospective
policy owner must show proof of ownership for proposed insured
items at both the time of policy inception and claim settlement.
A. Insurance Provision
B. Standard Operations
C. Insurable Interest
D. Claims Provision

119 (C) Insurable interest:
“Insurable Interest”, as a property and casualty insurance term (and not a
life insurance term), means that in order for an item to be insured, it must
be owned by the Insured client.

120. The Coinsurance clause provides a method of risk sharing used
by insurers to encourage policy owners to cover their real property
coverage "A" for at least ____% of _____ _____ value, in order
ensure adequate protection in the event of a partial loss.
A. 80% of Actual Cash
B. 100% of Replacement Cost
C. 80% of Fair Market
D. 100% of Builders Risk

120. (C) 80 of Fair Market:
Note that the purpose of Coinsurance is for risk sharing.
(The "S" stands for Share in S.T.A.R.R.)
The Coinsurance provision encourages the Insured to insure his/her property
for an amount near the actual property value.

121. Daisy has a standard BOP (Business Owner Policy for her
flower shop. Her policy includes Business Income coverage. In
which of the following scenarios is Daisy covered?
A. An earthquake that causes structural damage sufficient enough to cease Daisy’s
business operations for 60 days.
B. A flood that causes structural damage sufficient enough to cease Daisy’s
business operations for 60 days.
C. A fire that causes structural damage sufficient enough to cease Daisy’s
business operations for 12 months.
D. The cost to move Daisy’s shop to another location, after a fire causes structural
damage sufficient enough to cease her entire operation for 12 months.

121 C:. A fire that causes structural damage sufficient enough to cease Daisy’s
business operations for 12 months
In order for a loss to be covered under the Business Income Coverage form, the
loss must have occurred due to a covered peril.
The Business Income Coverage form provides funds to replace the insured’s
business income during the period of restoration. It covers all expenses to restore
the business to the original state prior to the loss.
Remember the formula:
Revenue minus All Expenses, Including Payroll
Business Income coverage will replace an insured’s business income
for a maximum 12 months.

122. Trump Towers, a luxury waterfront hotel, is worth $50,000,000 fair
market value. The Trumpster’s motto of "risk equals reward" applies, and
he insures his building for just $30,000,000.
"The Donald" then self-insures the other $20,000,000. Later, a significant
fire causes $2,000,000 in damage. Meanwhile, Mr. Trump’s policy
contains an 80% coinsurance clause with a $10,000 deductible. How
much will the insurer pay?
A. $1,450,000
B. $1,500,000
C. $1,490,000
D. $1,690,000

122. (C) $1,490,000:
In order to solve this question, please first write these four variables and deductible down on your
scratch paper.
W/V =
D =
S =
L =
DED =
Now, let's fill in the blanks: The variable "W/V" stands for Worth or Value. The question states that
the apartment house is Worth $50,000,000.
Now, let’s plug that in our variable list: "W/V" = $50,000,000. OK, let's find the "D", which stands
for the amount carried or what the insured "Did" insure it for.
D = $30,000,000. Now to find the "S" we're going to have to do a little bit of math together. Please
note that the "S" is always 80% of the W/V so to compute the unknown value of "S" for this
question, just multiply .80 x $50,000,000.
(Continued on next slide)

($1,500,000 - $10,000) = $1,490,000 the correct answer!
It is easier to look at 80% as four fifths or four out of five. If you take four fifths of $50,000,000, you have
$40,000,000. This is your third variable - the "S." for Should have insured for.
S = $40,000,000.
The last variable you will need to write down on your scratch paper is the "L" which stands for Loss. The question
tells you that there's a $2,000,000 loss. So let's look at our four variables and then plug them into the coinsurance
formula. And don't forget to write down the given DEDuctible $10,000.
W/V = $50,000,000, D = $30,000,000, S = $40,000,000, L = $2,000,000 DED = $10,000
Now its time to seal the deal. To do that, we’ll plug our variables into the coinsurance formula. Although the
formula is officially verbalized as: "The amount of insurance carried divided by the amount of insurance required
multiplied by the loss minus/less any deductible" there is a better way to remember! For your exam just remember:
“Did over Should times the Loss” minus any deductible.
(Did ÷ Should x Loss) - Deductible = Amount Paid (by insurer in a partial loss).
$30,000,000
$40,000,000 x $2,000,000 - $10,000 = ????
Now it's time to reduce this fraction. You can cross those zeros out to give you three fourths of $2,000,000.
One fourth of $2,000,000 is $500,000. Therefore Three times $500,000 is $1,500,000. Which represents 3/4 of the
loss. Now you have come this far please do not forget to subtract the $10,000 deductible which gives you.

123. An armed and masked parking lot thief demanded his victim James
relinquish his wallet, watch, shopping bags and cell phone.
Which of the following choices best describes James' loss?
A. Burglary
B. Personal Injury
C. Theft
D. Robbery

123 (D)Robbery:
Please note that Robbery, a sub-category of theft, only becomes robbery
when the act occurred by "threat of or fear of bodily injury and or
physical harm."

124. Which of the following choices best describes the "Supplemental
Extended Reporting Period Endorsement" that can be attached to the
Claims Made Professional Liability policy form.
A. The period extends professional liability coverage beyond the
unendorsed 60 day time period to a maximum of five years.
B. The period extends professional liability coverage beyond the
unendorsed 60 day time period to a maximum of twelve months.
C. The period extends professional liability coverage beyond the
unendorsed 60 day time period for an unlimited period of time.
D. The period extends professional liability coverage beyond the
unendorsed 60 day time period to a maximum ten years.

124 (C) The Supplemental Extend Reporting Period extends professional
liability coverage beyond the unendorsed 60 day time period for an
unlimited period of time.
The Supplemental Extended Reporting Period of a Claims Made Commercial
General Liability policy form (A.K.A. the Maxi Tail Endorsement) extends
coverage beyond the unendorsed period and automatically increases a 60 day
reporting period to an unlimited period of time.

125. Which term describes the automatic 60 day coverage
extension found in an unendorsed Claims Made professional
liability insurance form?
A. Mini-Tail or Basic extended reporting period.
B. Midi-Tail or Broad extended reporting period.
C. Maxi-Tail or Comprehensive extended reporting period.
D. Retroactively extended reporting period.

125 (A) Mini tail or Basic extended reporting period:
The basic extended reporting period of 60 days beyond the policy
termination date is automatically included in a basic Claims-Made
Commercial General Liability form policy.

126. Each of the following statements describe various advantages
of a CPP (Commercial Package Policy), as opposed to a Single
Form or Mono-Line policy, except:
A. Extra expense coverage is automatically included with the purchase of
Business Income coverage in a (CPP).
B. The policy reduces gaps in coverage.
C. The policy language is less redundant and the number of required
signature forms will be reduced.
D. Commercial Package Policies offer package discounts, as well as a
simplified billing plan.

126 (A) Extra expense coverage comes automatic with the purchase of
Business Income coverage in a (CPP):
Commercial Package Policies offer many perks to the insured. These
policies contain all of the necessary coverages in one package. The
advantages are a reduction in coverage gaps and simplified billing.
Extra Expense coverage complements Business Income coverage but is
purchased as a separate endorsement.

127. Which of the following Commercial Property coverage forms
includes coverage for damage caused by a windstorm?
A. Basic, Broad and Special forms.
B. Comprehensive form.
C. Broad and Special forms.
D. Special form and Comprehensive form.

127 (A) Basic, Broad, and Special:
Windstorms are among the most basic perils (causes of loss) to
insure. Therefore, windstorms are covered in the following forms:
Basic, Broad and Special Causes of Loss.

128. Theresa purchases a pink Vespa motor scooter for pleasure
use. She asks her agent, Dennis, how to go about covering the new
Vespa under the existing policy for her Mazda Miata.
Which endorsement should Dennis recommend to Theresa?
A. Two wheel vehicle endorsement.
B. Drive other vehicle endorsement.
C. The insured must purchase a motorcycle policy; no such
endorsement is available.
D. Miscellaneous type vehicle endorsement.

128 (D) Miscellaneous type vehicle endorsement:
Unendorsed personal auto policies exclude coverage for two wheel
vehicles, and therefore motorcycles are excluded.
The most cost effective way to insure a two wheeled vehicle is to add a
Miscellaneous Type Vehicle Endorsement.
However, many Insureds prefer a separate Motorcycle policy to cover
motorcycles that are their primary mode of transportation.

129. Roxanne manages a title company and asks for a quote for a
new Business Owner’s Policy. In your quote, which additional
coverage would you recommend in order to cover the maps,
abstracts and mortgage documents in her possession?
A. Personal Articles Floater
B. Personal Property Floater
C. Inland Marine Floater
D. Valuable Papers and Records

129 (D.) Valuable Papers and Records:
Valuable Papers and Records coverage is used to insure Maps,
Drawings, Abstracts and Mortgage documents.
The re-creation of valuable documents can be very expensive and
sometimes impossible.

130. Jack Arnold owns a commercial office building near the
airport. His primary tenant, a flight school, moves to a newer
building nearby. When is Jack’s building considered vacant?
A. When less than 25% of the building is used for normal business
operations or rented to others.
B. When there is an insufficient amount of Business Personal property
(covered under coverage "B”) to conduct customary business
operations within the insured building.
C. During a 45 day restoration period, in preparation for a new tenant.
D. When less than 31% of the building is used for normal business
operations or rented to others.

130 (D): When less than 31% of the building is used for normal business
operations or rented to others:
Questions that relate to Commercial Property vacancy, will most likely show up
twice on the exam. It is important to identify them.
Within the two questions, please note the words "Property Owner" & "Vacant"
in the question. When those words appear, the answer will contain the phrase:
"Less than 31% of the building is used for normal business operations or
rented to others.”
On the other hand, if "Tenant" had appeared in the question instead of "property
owner", the answer would have contained the phrase: "An insufficient amount of
Business Personal property coverage "B" required to conduct customary business
operations”. (This was selection B for this question.)

131. Kevin’s daughter Savannah just turned 16 and is now driving for the first
time (that is, as far as Kevin knows). As Kevin’s insurance agent you
recommend a $1,000,000 personal liability umbrella to cover the significantly
increased BI (bodily injury) risk exposure, and to protect his net worth.
In order to meet eligibility requirements for umbrella coverage, which of the
following choices represents the underlying (BI) limits that Kevin’s
Homeowner’s and personal auto policies must contain?
A. HO. (BI) $300,000 : PAP. (BI) $500,000.
B. HO. (BI) $500,000 : PAP. (BI) $500,000.
C. HO. (BI) $100,000 : PAP. (BI) $300,000.
D. HO. (BI) $250,000 : PAP. (BI) $500,000.

131 (A) HO. (BI) $300,000 : PAP. (BI) $500,000.
Before an Insured is eligible to purchase an Excess Liability
Umbrella policy, the minimum underlying coverage limits must
first be purchased. Customarily, the Insured must have $300,000
per accident liability minimum on their homeowner’s contract and
$500,000 personal liability minimum on their auto policies.

132. Which of the following phrases best describes both the medical service and
income benefits of Oracle’s Worker’s Compensation policy?
A. Injured workers will have first dollar coverage with all medical treatment
expenses paid. They are also eligible to receive up to 66.66% of lost wages for
one year.
B. Injured workers will have all medical treatment expenses paid without a
dollar or time limit. They will also receive up to 66.66% of lost wages
during a period of recovery.
C. Injured workers’ medical bills will be paid without a dollar or time limit. They
will also receive up to 75% of wages lost during a period of recovery.
D. Injured workers will have first dollar coverage with all medical treatment
expenses paid. They are also eligible to receive up to 66.66% of lost wages for a
period of up to 16 months.

132 B. Injured workers will have all medical treatment expenses paid without a
dollar or time limit. They will also receive up to 66.66% of lost wages
during a period of recovery.
The coverage benefits in Worker’s Compensation policies have no dollar
or time limit.
One key fact regarding Worker’s Comp policies is that proof of
negligence is not required for coverage to begin. An injured worker will
receive an income benefit of 66.66% of wages lost during the recovery
period.

133. The "Special form" Commercial Package Policy covers water
damage losses in which of the following scenarios?
A. Sewer backup
B. Fire sprinkler system leakage
C. Flooding due to improper grading
D. Wave action during a Hurricane

133 (B) Fire Sprinkler system leakage:
From the answer choices, “Fire Sprinkler system leakage” is the only
item covered under coverage for water damage in a "Special form"
commercial package policy.
(A backed up sewer or flood / wave action and are all excluded
from this policy.)

134. San Diego residents Enrique and Anna purchase the "Mexico Coverage
Endorsement" recommended by their agent prior to driving to Tijuana Mexico.
Which of the following statements is true regarding this coverage’s limitations?
A. Endorsement conditions limit Enrique and Anna's auto coverage to 50
miles past the U.S/Mexico border for a maximum of 25 days.
B. Endorsement conditions limit Enrique and Anna's auto coverage to 25
C. Endorsement conditions limit Enrique and Anna's auto coverage to 25
D. Endorsement conditions limit Enrique and Anna's auto coverage to 50
miles past the U.S./Mexico border for a maximum of 10 days.

134 (C) Endorsement conditions limit Enrique and Anna's auto coverage to 25
miles past the U.S/Mexico border for a maximum of 10 days:
Regarding Mexico Coverage Endorsement questions, the numbers you need to
remember are “10 days or less” and “25 miles past the U.S. -Mexico Border”.

135. The ___________ involves a method of risk sharing used by
insurers to encourage insured policy owners to cover their "real property"
coverage "A" for at least 80% of fair market value, in order ensure
adequate protection it in the event of a partial loss.
A. Risk Retention Clause
B. Value Reporting form
C. Coinsurance Clause
D. Santa Claus

135. (C) Coinsurance clause:
(Sorry, Santa!)
An insured is encouraged to carry a
minimum of 80% insurance to market
value, in order to avoid a coinsurance
penalty (when an insurer underpays a claim
after an Insured suffers a partial loss.)

136 Which of the following are covered by a GCL (Commercial
General Liability) policy?
A. Personal Injury loss
B. Pollution Liability loss
C. An employee’s minor bodily injury from an accident
that occurred while he was driving a company
delivery van.
D. Advertising Injury loss

136 (D) Advertising injury loss:
Choices (A) (B) and (C) represent coverages that are only available
through the purchase of extra separate policies.
Advertising Injury is automatically covered in a Commercial
General Liability contract.

137. Eddie submits a claim for $16,500 in order to replace items stolen from his
residence: a $3,500 Fender Telecaster guitar, a $3,900 Tag Heuer watch, and a
$9,100 entertainment system. It is later discovered that Eddies' claim is
fraudulent, as police found these items in a storage unit rented to Eddie’s
brother-in-law. What penalty will Eddie face for submitting a fraudulent claim to
his insurer?
A. $16,500
B. $33,000
C. $150,000
D. $50,000

137 (C) $150,000:
“Either $150,000 or Twice the dollar amount of the claim submitted -
whichever is greater.”
Let's first add up the dollar amounts and multiply them by two:
($3,500 + $3,900 + $9,100) x 2 = $33,000. Now the rule states that the
fine is "Twice the value of the claim submitted or $150,000; which ever
is greater". Therefore choice (C) is the correct answer.
Be sure to double check against the $150,000, as the questions sometimes
use higher dollar amounts. Essentially, the fine actually has a minimum
of $150,000.

138. A (or an) ________ has the capacity to hire, train, terminate
and collect premiums from producing broker-agents. This person
can also assist in the claims payment process as well as bind
reinsurance coverage for an insurer.
A. District Manager
B. TPA (Third Party Administrator)
C. Managing General Agent
D. Actuarial

138 (C) Managing General Agent:
An M.G.A has the contractual authority to bind reinsurance coverage for
an insurer, as well as assist in the claims payment process.
The answer to another common question covers the fact that M.G.A.’s
can collect premiums from producing broker/agents.

139. Under tort law, skating rink owner Chazz Michaels will be
found legally liable for all of the following, except…
A. Gross Negligence
B. Vicarious Liability
C. Breach of Contractual agreement
D. Libel & Slander

139 (C) Breach of a contractual agreement:
A Tort is "A legal wrong other than a crime or a breach of
contract."
(This is purely a definition question.)

140. The taking of one’s property, evident by physical signs of
forcible entry or exit into a closed premises, describes which type
of loss?
A. Theft
B. Robbery
C. Burglary
D. Breaking and Entering

140 (C) Burglary:
The trick with this question is to note
the key words and connect them in
your memory: "Forcible Entry or Exit”
is the hint you need to choose Burglary.
The most common characteristic of
Burglary is "physical signs of forcible
entry or exit into a closed premises."

141. Burton’s snowboard factory is destroyed by an electrical fire.
Contractors estimate it will take eight months to rebuild Burton’s
commercial property. Which coverage endorsement will replace
the lost revenue for the anticipated eight months?
A. Personal Injury Protection endorsement.
B. Protection and Indemnity protection endorsement.
C. Business Income Coverage endorsement.
D. Extra Expense Coverage endorsement.

141 (C) Business income Coverage Endorsement:
Business income coverage pays for loss of business income due to a covered
peril (such as damage caused by fire) for a maximum 12 months.
Other questions will test your memory for the formula for calculating lost
business income.
Business Income = Total Revenue minus (Payroll and all Expenses)
or:
Business Income = Net Income Before Taxes

142. Which of the following accurately describes an HO5 policy owner's
"Replacement Cost" claims settlement for coverage “C” (damage to
personal property) in a covered fire loss?
A. An amount sufficient to replace damaged property at today’s prices
without depreciation.
B. An amount equivalent to the fair market value of the damaged property
with depreciation.
C. An amount equivalent to actual cash value of the damaged property.
D. An amount matching the appraised value of the damaged property.

142 A. An amount sufficient to replace damaged property at today’s prices
without depreciation.
This question tests your knowledge of the two most common claim settlement
options: 1) Replacement Cost (RC), and 2) Actual Cash Value (ACV).
Replacement Cost coverage will replace items of personal property with "new
property" that has not depreciated. Meanwhile, ACV settlements only pay for
the depreciated value of personal property.
Although Replacement Cost coverage appears to be better for the Insured, it
comes at a higher price. HO5 policies are always more expensive than HO3
policies.

143. Which of the following covers Liz Taylor’s jewelry on a
"scheduled" basis?
A. Personal Property Floater
B. Personal Articles Floater
C. Protection and Indemnity endorsement
D. Personal Umbrella policy

143 (B) Personal Articles floater:
The trick for this question is to remember that “Article” = “Schedule”.
Personal article floaters cover items of personal property that are specifically
itemized in an article or are scheduled as an endorsement on a homeowner’s
policy.
To ease your memorization, remember that Article and Schedule in the question
and answer connect.
Again: Article = Schedule.

144. Which of the following perils is covered by Crystal’s
Stemware Shop’s Inland Marine policy form?
A. Mechanical breakdown
B. Voltage surge
C. Earthquake
D. None of the above

144 (C) Earthquake:
Inland Marine policies cover Earth Movement as a peril (cause of
loss). The primary example of coverage is damaged glassware
caused by an earthquake.

145. Each of the following are covered by the Wendell Jordan
Brewery’s Commercial Package Policy’s Boiler and Machinery
(AKA Equipment Breakdown) coverage section, except…
A. Commercial heating & air conditioning equipment unit.
B. Commercial refrigeration & freezer equipment unit.
C. Central vacuum equipment unit.
D. Aircraft equipment unit.

145 (D) Aircraft equipment unit:
Damage to aircraft equipment is not covered under an Equipment
Breakdown policy form (known as Boiler and Machinery
coverage). Remember: “Boiler” is the "B" in BACFLIP - one of
the seven commercial package lines.

146. Which specific form of liability insurance does Dr. Mark
Sloan need to cover the risk exposures unique to his surgical
practice?
A. Commercial General Liability
B. Professional Liability
C. Medical Malpractice
D. Surgical Liability

146 (C) Medical Malpractice:
Physicians must purchase
medical malpractice insurance.
It is a form of professional liability
insurance that covers the risk
exposure to lawsuits regarding all
practices of medicine, including
plastic surgery.

147. Ben’s home is covered with an HO3 policy. During an electrical storm, (1)
lightning strikes and causes a (2) fire, rendering the home uninhabitable for three
months. Ben claims $5,000 in (3) “loss of use” expenses for hotel and apartment
rental costs during the period of restoration.
Place the following loss descriptions in order listed:
A. (1) Consequential loss, (2) Direct loss, (3) Indirect loss.
B. (1) Direct loss, (2) Indirect loss (3) Non-time Elemental Consequential loss.
C. (1) Indirect loss, (2) Direct loss, (3) Non-time Elemental Consequential loss.
D. (1) Direct loss, (2) Indirect loss (3) Consequential loss.

147 (D) (1) Direct loss (2) Indirect loss (3) Consequential loss:
In a sequence of losses, a Direct Loss is defined by the first covered peril.
In this case, the first (or “immediate”) peril is lightning.
Remember:
The first peril is called "immediate” in the insurance business.
Second example:
A kitchen fire causes a direct loss to an Insured’s home that is covered by an HO3 policy.
The direct loss is the portion of the home that requires repair and replacement.
This situation had no secondary peril and therefore no indirect loss. However, the
consequential loss includes hotel expenses during the period of restoration.

© 2010 D. Mastrantonio, J. Oliver
148. Surety bonds are three party contracts and insurance policies
are two party contracts. All of the following are party members to a
surety bond contract, except…
A. Insurer.
B. Principal.
C. Surety/Guarantor.
D. Obligee.

148. Surety bonds are three party contracts and insurance policies
are two party contracts. All of the following are party members to a
surety bond contract, except…
A. Insurer.
B. Principal.
C. Surety/Guarantor.
D. Obligee.

148 (A) Insurer:
Surety bonds are Three party contracts and the three people invited to the
party are: The Principal, the Guarantor and the Obligee.
Meanwhile, the Insurer is not part of the Surety Bond three party
agreement. Surety bonds are not insurance policies - instead they
are financial guarantees. Therefore, the answer to this question is the
insurer.

149. There are two main types of risks (1)_____ and (2)_____.
Meanwhile, the acceptable risk type for an insurer is ______?
A. (1) Catastrophic Risk, (2) Stagnation Risk, Stagnation Risk.
B. (1) Speculative Risk, (2) Pure Risk, Speculative Risk.
C. (1) Pure Risk, (2) Speculative Risk, Pure Risk.
D. (1) Transition Risk, (2) Pure Risk, Pure Risk.

149 (C) (1) Pure risk (2) Speculative Risk, Pure Risk:
By definition, Pure Risk involves the possibility of loss, without
any chance for financial gain. (This differs from speculative risks,
which are not insurable.)
Pure Risk = Chance of Loss only - no chance of gain.

150. There are two main types of risks: (1)_____ and: (2)______.
The unacceptable risk type for an insurer is _____________?
A. (1) Catastrophic Risk, (2) Stagnation Risk, Stagnation Risk.
B. (1) Speculative Risk, (2) Pure Risk, Speculative Risk.
C. (1) Pure Risk, (2) Speculative Risk, Speculative Risk.
D. (1) Transition Risk, (2) Pure Risk, Pure Risk.

150 C. (1) Pure Risk, (2) Speculative Risk, Speculative Risk:
Speculative Risks involve the possibility both of a loss and a gain.
Speculative Risks are not insurable.

End of Part Three!
If you're ready to continue,
Please move on to part four.

USG Part 3 v2 Non CA Specific

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