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Q:
Commercial paper may serve as a substitute for money payable immediately, but cannot be used as a means of extending credit.
Q:
A draft is a form of commercial paper that involves a promise to pay money.
Q:
Identify the true statement about cancellation of an insurance policy.
A. Insurance contracts cannot be cancelled by the insured by surrendering the policy to the insurer.
B. Insurance contracts contain a reinstatement clause that allows an insured to reinstate a cancelled policy.
C. Insureds who terminate are entitled to a return of the premium on a short-rate basis.
D. Insurers that cancel need not return the unearned portion of any premiums paid by the insured.
Q:
(p. 755; 756) What are an insurer's obligations in a liability insurance contract?
Q:
Define portable health insurance.
Q:
Why are property insurance policies generally nonassignable?
Q:
(p. 764, 765) Describe the insurable interests required in life and property insurance.
Q:
As a general rule, contracts are assignable:
A. even if the policy's terms limit assignability.
B. if they are not life insurance policies.
C. even without an irrevocably designated beneficiary's consent.
D. if they are not property insurance policies.
Q:
The required insurable interest in life insurance contracts must exist:
A. before the loss occurs.
B. at the time the loss occurs.
C. at the time the policy was issued.
D. throughout the term of the policy.
Q:
Those who have an insurable interest in property must have that interest:
A. before the loss occurs.
B. at the time the loss occurs.
C. within 30 days after the loss occurs.
D. throughout the term of the policy.
Q:
A person who seeks to recover benefits under a life insurance policy:
A. must notify the insured that a loss covered by the policy has occurred.
B. needs to furnish only proof of loss.
C. needs to furnish a sworn statement of loss.
D. must notify the insurer of the loss and furnish proof of loss.
Q:
(p. 765; 766) Under the right of subrogation:
A. the insurer is obliged to pay only the face amount of the policy if the insured dies within a specified period of time; which is the term of the policy.
B. the insurer obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the insured property.
C. the insurer obtains all of the insured's rights to pursue legal remedies only against those persons who have intentionally damaged the insured property.
D. the insurer is obliged to pay the face value of the policy on the death of the insured and the specified premium for the duration of his/her life.
Q:
As a general rule, if an applicant suffers a loss after applying but before the insurer formally accepts the application:
A. the insurer must cover the loss.
B. the applicant and the insured must share the loss.
C. the applicant must bear the loss.
D. the insurer must cover the loss only if there is no binder.
Q:
(p. 760; 761) If Geoff makes a fraudulent statement about his medical history on his application for insurance:
A. the insurance company has a right to cancel Geoff's policy.
B. the insurance company cannot consider the contract voidable.
C. the insurance company can adjust the benefits payable at its discretion.
D. the insurance company cannot cancel the policy unless Geoff misrepresented his age.
Q:
In cases in which the insured has misstated his or her age:
A. the insurer cannot contest its liability at any point of time.
B. the insured can take advantage of a misstatement of age clause.
C. the insurer can use a misstatement of age clause to cancel the policy.
D. the insured can object on the basis of absence of insurable interest.
Q:
This clause bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time.
A. Misstatement of age clause
B. Pro rata clause
C. Incontestability clause
D. Coinsurance clause
Q:
The "incontestability clause" found in life insurance policies:
A. bars the insurer from objecting on the basis of the purchase of the policy with the intent to murder the insured.
B. bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time.
C. bars an insured from reinstating a lapsed policy that has not been surrendered for its cash surrender value.
D. bars the insurer from objecting on the basis of absence of insurable interest.
Q:
Which of the following insurance contracts is enforceable?
A. An insurance policy taken out by a minor.
B. Life insurance contracts in writing.
C. A contract where either party to a contract has the capacity to contract.
D. Breach of warranty by the insured.
Q:
According to the ____, when the insured has purchased insurance policies from more than one insurer, the loss will be apportioned among the insurance companies.
A. coinsurance clause
B. pro rata clause
C. exculpatory clause
D. valued clause
Q:
Simons purchased a home for $120,000, insuring it for $120,000 with Mutual Life. She later purchased a $60,000 policy from Equitable. The home was totally destroyed by fire while it still had a fair market value of $120,000 and the losses amounted to $30,000. Under these circumstances, which of the following statements is true?
A. Simons can claim the damages only from Mutual Life as its policy amount is greater.
B. She cannot claim insurance from either as policies with pro rata clauses cover only partial losses.
C. Simons can recover $180,000the total of both policies, as part of his insurance contract.
D. Simons cannot claim more than $60,000 from Equitable.
Q:
Malpractice insurance is similar to business liability coverage in that it:
A. requires the insured to insure the property to a specified percentage of its fair market value in order to fully recover the value of partial losses.
B. provides an alternative to prohibitively expensive individual health care insurance policies.
C. provides protection for professionals whose negligent professional conduct causes injuries to third persons.
D. requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.
Q:
Which of the following statements is true about health insurance contracts?
A. Health insurance contracts do not provide coverage for medical expenses resulting from preexisting conditions.
B. Most people receive their insurance coverage from individual policies that are provided by employers.
C. The Consolidated Omnibus Budget Reconciliation Act (COBRA) was enacted as a legislative response to the increasing popularity of group health policies.
D. Portable health insurance doesn't require insurance companies to provide coverage to people who have left a job.
Q:
____ generally require that the insured pay a deductible each year before the insurer's payment obligation begins.
A. Property insurance policies
B. Life insurance policies
C. Liability insurance policies
D. Health insurance policies
Q:
(p. 750; 751) Homeowners' insurance policies:
A. often provide coverage under their comprehensive and collision sections for car damages resulting from vandalism.
B. insure both the insured's dwelling and the personal property located on the real property.
C. do not cover personal property that was temporarily removed from the dwelling at the time it was damaged.
D. do not allow property owners to purchase specialized policies to make up for gaps in a standard insurance contract.
Q:
If property covered by a valued policy is totally destroyed:
A. the insured can recover the face amount of the policy only if it does not exceed the fair market value of the building.
B. the insured can recover only the fair market value of the building.
C. the insured can recover the face amount of the policy regardless of the fair market value of the building.
D. the insured can recover the fair market value of the property at the time it was destroyed, up to the limits stated in the policy.
Q:
Open policies allow the insured to recover:
A. the fair market value of the property at the time it was destroyed, up to the limits stated in the policy.
B. the difference between the limits stated in the policy and the fair market value of the property.
C. the fair market value of the property, even if that value exceeds the limits stated in the policy.
D. the fair market value of the property only if the loss is partial.
Q:
The coinsurance clause:
A. requires the insured to insure the property to at least 80 percent of its fair market value in order to fully recover the value of partial losses.
B. usually allows the insured to recover the difference between the limits stated in the policy and the fair market value of the property.
C. places no restriction on the individual's right to recovery.
D. requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.
Q:
Douglas obtained a $100,000 insurance policy on his warehouse. The policy contained an 80 percent coinsurance clause. A fire totally damaged the building that had a fair market value of $250,000 at the time of the loss. How much will Douglas recover from his insurance company?
A. $80,000
B. $100,000
C. $125,000
D. $250,000
Q:
The fire insurance policy on Dullard's home contained a 50 percent coinsurance clause. Dullard's home had a fair market value of $100,000. The face amount of the policy covering the home was $30,000. A hostile fire caused $30,000 worth of damage to the home. To what amount is Dullard entitled?
A. $100,000
B. $9,000
C. $30,000
D. $18,000
Q:
In life insurance contracts:
A. the rate of the premiums to be paid decreases if the face value increases.
B. the loan value decreases as the age of the policy increases.
C. the rate of the premiums to be paid depends on the face value of the policy.
D. the loan value enables the insured to borrow money from the insurer, but at high interest rates.
Q:
Whole life insurance contracts:
A. do not bind the insurer to pay the face value of the policy on the death of the insured.
B. have a convertibility feature that allows the insured to convert the policy to a term life policy.
C. has no cash surrender value if the policy is terminated.
D. require the insured to pay the specified premium for the duration of his/her life.
Q:
A term life insurance contract:
A. obligates the insured to pay the specified premium for the duration of his or her life.
B. obligates the insurer to pay the face amount of the policy if the insured dies within a specified period of time.
C. develops a loan value that the insured can recover if the policy is terminated.
D. develops a cash surrender value that the insured can recover if the policy is terminated.
Q:
Flood-related damage to property is an example of a(n) ____.
A. excluded peril
B. covered peril
C. conditional peril
D. open peril
Q:
Which of the following is not covered by property insurance contracts?
A. Overflows from burst pipes.
B. Loss from vandalism.
C. Loss from hostile fire.
D. Nuclear contamination.
Q:
(p. 765; 766) The insurer may not exercise a right of subrogation if it is required to pay for the loss of property under a fire insurance contract.
Q:
Unearned portions of any premiums paid by the insured need not be returned to the insured at the cancellation of the policy by the insurer.
Q:
The insured must pay all past-due premiums and a stated amount of interest along with proof of insurability to secure reinstatement.
Q:
In an insurance contract, the payment of consideration is called a(n):
A. issue.
B. negotiable instrument.
C. premium.
D. valued policy.
Q:
An important distinction between valid insurance contracts and wagering contracts is that:
A. insurance contracts create a new risk that did not previously exist while wagering contracts don't.
B. wagering contracts are not contrary to public policy while insurance contracts are.
C. insurance contracts transfer existing risks while wagering contracts create new ones.
D. unlike insurance contracts, wagering contracts are indemnity contracts.
Q:
A warranty is an implied condition of an insurance contract.
Q:
An insurance policy taken out by a minor is not voidable at the election of the minor.
Q:
Property insurance policies are generally nonassignable.
Q:
In life insurance policies, the person who purchases the policy must have an insurable interest in the life being insured at the time the loss occurs, not at the time the policy was issued.
Q:
Fire insurance contracts generally cover losses only from hostile fires.
Q:
Some fire insurance policies contain a coinsurance clause that can operate to limit the insured's right to recovery.
Q:
Malpractice insurance provides protection for professionals whose negligent professional conduct causes injuries to third persons.
Q:
Insurance companies do not permit the insurer to seek voluntary settlements of liability claims against the insured.
Q:
Health insurance contracts normally do not cover preexisting health conditions.
Q:
Health insurance policies may require the insured to pay up to a certain amount each year before the insurer's payment obligation begins.
Q:
Property insurance contracts are indemnity contracts.
Q:
Under the doctrine of cy pres, when property is given in trust to be applied to a particular charitable purpose that becomes impossible, impracticable, or illegal to carry out and the settler has not specifically provided for a substitute beneficiary:
A. the trust will automatically fail.
B. the court will direct the application of the property to some charitable purpose that falls within the settlor's general charitable intention.
C. the court will direct that the property be directed to the state for use in a socially-responsible and "reasonably prudent" manner.
D. the original beneficiaries can use the property for a charitable purpose.
Q:
Which of the following is one of the requirements for forming an express trust?
A. The settlor need not necessarily attain the age required by state law for the creation of valid wills and contracts.
B. The trust cannot be created for a reason that is contrary to public policy.
C. The settler must name a trustee for the trust and a substitute trustee in the event the named trustee refuses to act.
D. The beneficiaries cannot be members of a specific class, such as "my children."
Q:
Which of the following creates a revocable living trust?
A. Doctrine of cy pres
B. Express trust
C. Spendthrift trust
D. Totten trust
Q:
A whole life policy may develop either a cash surrender value or a loan value, but not both.
Q:
"Domicile" refers to a person's:
A. permanent home.
B. permanent and temporary residences.
C. state, where he probates his will.
D. a person's necessity to make a particular state, home.
Q:
When a person dies intestate, the property the person owns:
A. is distributed to the people designated as the intestate's heirs.
B. will be distributed according to the law of the state in which the person is domiciled.
C. escheats to the state.
D. will go to the biological children, not the adopted children.
Q:
In terms of intestacy statutes, adopted children:
A. will inherit from their biological parents.
B. will inherit from their adopted parents.
C. will inherit from their adopted parents but a share lesser than the adopted parents' biological children.
D. will not inherit anything from anyone.
Q:
Under the Uniform Simultaneous Death Act, if a husband and wife die under circumstances that make it difficult or impossible to determine who died first:
A. the husband's property will go to his relatives and the wife's property to her relatives.
B. the property will automatically be distributed among the husband's siblings.
C. the property will revert to the state.
D. the property will automatically be distributed among the husband's relatives.
Q:
Who among these is responsible for administering a person's will and settling their estate?
A. An arbitrator
B. The attorney general
C. A Probate court
D. A Family court
Q:
Benny is the sole beneficiary of Paul's trust. In this trust, Benny can:
A. also serve as the sole trustee.
B. not serve as the sole trustee.
C. serve as both trustee and testator.
D. serve as trustee during the trustor's lifetime.
Q:
If a person wants to make a change to their will, the person can do so by:
A. appearing in court.
B. executing a codicil.
C. by posting legal notice of amendment.
D. by striking out objectionable provisions.
Q:
A codicil is a(n):
A. amendment to a will.
B. automatic revocation of a will.
C. trust.
D. creditor's claim against the estate.
Q:
Which of the following is an example of advance directives?
A. Intestacy
B. Codicil
C. Escheat
D. Living will
Q:
Under the Patient Self-Determination Act, health care providers must:
A. provide oral information to adults receiving medical care about their rights to accept or refuse medical treatment.
B. document in the patient's medical record whether the patient has executed an advance directive.
C. must ensure compliance with federal laws concerning advance directives.
D. contact the patient's attorney for consenting or withholding consent to surgery.
Q:
Children, born or adopted after a will has been executed are called:
A. presumptive heirs.
B. pretermitted children.
C. illegitimate children.
D. nuncupative heirs.
Q:
Which of the following is true of the right of a widow on a life estate?
A. The widow gets a one-third interest in fee simple, only in the real property owned by the testator during their marriage.
B. The widow has the right to a life estate in two-third of the lands owned by her husband at the time of his death.
C. The widow has the right to a life estate in one-third of the lands owned by her husband during their marriage.
D. The widow gets a one-third interest in fee simple in the real and personal property owned by her husband at the time of his death.
Q:
A will, might be recognized by the state even if it does not meet the formalities required by law, if it is a:
A. holographic will.
B. living will.
C. joint will.
D. mutual will.
Q:
(p. 727- 728) Alma was suffering from a terminal disease. Because she distrusted attorneys, she wrote a statement in her own handwriting, labeling it "My Last Will and Testament." The statement contained a provision specifying that Alma wanted all of her property to go to her church at her death. She signed the statement, stored it in her jewelry box and she told her friend Willa of its location. When Alma died, Willa produced Alma's statement. Willa is now attempting to have the statement admitted to probate as Alma's will. Alma's grown children claim that Alma died intestate and that they should inherit her property. If Alma's state recognizes holographic wills:
A. Alma's will is void and her children will inherit.
B. the church will inherit Alma's property.
C. Alma's children and the church will split Alma's property under the doctrine of nuncupative.
D. the will can be declared void and the property can go to the state.
Q:
(p. 727- 728) In the states that recognize holographic wills, such wills will be valid:
A. if they do not evidence testamentary intent.
B. if they are in the handwriting of the testator.
C. if only the material portions in the will are typed.
D. if they are typed and evidence testamentary intent.
Q:
(p. 724- 725) While on his deathbed, Larry's grandfather revoked all his prior wills and wrote out a new will in his own handwriting, leaving everything to the local animal shelter in trust for his dog, Fido. Grandfather signed the will and mailed it to the animal shelter before he died. Larry wants to challenge the new will. Which of the following statements is true?
A. Grandfather did not have the legal right to revoke his prior will without notice to Larry and the other beneficiaries.
B. If his grandfather lacked the mental capacity to understand his actions, the new will is invalid.
C. The holographic will would not be valid in any state because it was executed without the presence of witnesses.
D. The will would be treated as valid only if signed by two or more interested witnesses.
Q:
The "execution of a will":
A. must strictly meet all the formalities required by state law, or it is void.
B. must partially meet general requirements of state law, or it is void.
C. must strictly meet all the formalities required by federal law, or it is void.
D. must partially meet the general requirements of federal law, or it is void.
Q:
Which of the following is a formality usually required by state law for the creation of a valid will?
A. The will must be witnessed and signed by at least two persons who stand to inherit under the will.
B. Notice of the making of the will must be published in the newspaper.
C. The will must be signed by the testator or by someone else at the testator's direction.
D. The testator should declare, after the signing, that the instrument is his will.
Q:
Which of the following is true of a joint will?
A. Whether a joint will is revocable depends only on the language of the will.
B. The mere fact that a joint will has been executed creates the presumption of a contract not to revoke the will.
C. Underlying a joint will is an agreement on a common plan.
D. A testator who has made a joint will cannot change the will later under any circumstances.
Q:
A nuncupative will:
A. must be in writing.
B. is valid to transfer personal and real property.
C. must be signed by the testator.
D. is valid when made by soldiers or sailors.
Q:
A constructive trust is created by operation of law to avoid fraud.
Q:
Life insurance proceeds are usually controlled by:
A. statutes.
B. the provisions of a will.
C. the insured's designation of beneficiaries.
D. the right of survivorship.
Q:
Jim and Terry were married and had three children. Jim and Terry owned their home together as tenants in the entirety. If Jim dies intestate, under the laws of most states, who owns the home?
A. Terry owns one-half and the children each own a one-sixth share of the home.
B. Terry and each of the children own one-fourth share of the home.
C. Each of the children own one-third of the home.
D. Terry owns the home by right of survivorship.
Q:
"Testamentary capacity" refers to:
A. the legal capacity to make a valid will.
B. the limit on how much property can be inherited by a given individual.
C. the ability to give gifts to the testator's issues or descendants.
D. the lack of awareness of the value of the property by the testator.
Q:
To have testamentary capacity, a person must:
A. not move in and out of periods of lucidity.
B. not be less than 20 years of age.
C. be in perfect mental health.
D. be of sound mind and of legal age.
Q:
Federal inheritance taxes are imposed on a person who receives a statutory share from an estate.