CMFAS PGI – Personal General Insurance Exam Set Two

Explanation: Negligence is a crucial factor in determining personal liability. If an individual acts negligently, meaning they fail to exercise reasonable care, they may be held liable for any resulting harm or damages.

Explanation: Personal liability insurance typically does not cover intentional wrongdoing or actions that violate the terms of the insurance policy. It is essential to act within the policy’s guidelines to ensure coverage.

Explanation: Personal liability insurance can provide coverage for legal expenses incurred during investigations or legal proceedings, as well as compensation for potential damages arising from covered allegations.

Explanation: Personal liability insurance is primarily designed to protect the personal assets of individuals, such as financial professionals, from legal claims or liabilities arising in the course of their professional activities.

Explanation: Personal liability insurance may be activated when a financial advisor fails to disclose potential conflicts of interest, leading to legal consequences. It highlights the importance of transparency in professional relationships.

Explanation: Personal liability insurance helps protect personal assets by covering legal expenses incurred during investigations or legal proceedings related to professional allegations. It aids in managing the financial burden of legal defense.

Explanation: Occurrence-based personal liability insurance provides coverage for incidents that occur during the policy period, regardless of when the actual claim is made. This ensures that past actions within the policy period are covered.

Explanation: Mr. Lee’s failure to disclose a potential conflict of interest may be considered negligence, as he did not exercise reasonable care in providing complete and accurate information to his client.

Explanation: Exclusions in personal liability insurance refer to situations or circumstances explicitly not covered by the policy. It is essential for individuals to be aware of these exclusions to understand the limitations of their coverage.

Explanation: Personal liability insurance typically does not cover intentional misconduct. If a financial professional is accused of intentional actions, the insurance may deny coverage, and the individual may be personally responsible for any resulting damages.

Explanation: The retroactive date in personal liability insurance specifies the date from which past acts are covered. It helps define the scope of coverage for incidents that occurred before the policy’s effective date.

Explanation: Inadvertently providing incorrect advice may be considered negligence if the financial advisor fails to exercise the reasonable care expected in the profession.

Explanation: A high deductible in personal liability insurance means the insured must bear a significant portion of the losses before the insurer’s obligation to compensate is triggered. This reduces the insurer’s financial responsibility for covered losses.

Explanation: The “duty to defend” clause in personal liability insurance obligates the insurer to cover the insured’s legal defense costs in the event of covered allegations or legal proceedings.

Explanation: Personal liability insurance can provide coverage for legal expenses incurred during investigations or legal proceedings, as well as compensation for potential damages arising from covered allegations, including breaches of industry regulations.

Explanation: Claims-made personal liability insurance provides coverage for incidents that occur and claims made during the policy period. This ensures that only events within the policy period are covered.

Explanation: In the event of a claim, the insured’s responsibility is typically to cooperate with the insurer’s investigation, providing necessary information and assistance.

Explanation: Personal liability insurance can provide coverage for individuals facing vicarious liability claims, which arise when one party is held responsible for the actions of another.

Explanation: Intentionally withholding critical information from a client may be considered fraud, which may not be covered by personal liability insurance. Fraudulent actions typically involve intentional deception or misrepresentation.

Explanation: Professional Indemnity Insurance is designed to protect professionals (such as doctors, lawyers, architects) against legal liability for professional negligence. It covers legal costs and expenses incurred in their defense, as well as any damages or costs that may be awarded.

Explanation: Product Liability Insurance provides coverage for businesses against liability for injuries or damages caused by their products. This includes coverage for legal defense costs, settlements, or judgments in such cases.

Explanation: Professional Indemnity Insurance, also known as Errors and Omissions Insurance, is suitable for professionals like financial advisors. It provides coverage for claims arising from professional negligence, errors, or omissions in the services provided.

Explanation: Directors and Officers Liability Insurance covers the legal liability of directors and officers for decisions made in managing the company. It protects against lawsuits alleging wrongful acts in the course of managing the organization.

Explanation: Liability insurance is designed to protect the insured party against claims resulting from injuries and damage to people or property. It covers legal costs and payouts for which the insured would be responsible if found legally liable. This type of insurance provides financial protection and peace of mind in the event of unforeseen accidents or incidents.

Explanation: Public liability insurance covers injuries and property damage to the general public or third parties, such as customers or visitors, that occur on the insured premises. Product liability insurance, on the other hand, covers injuries or damage caused by products manufactured or sold by the insured. Understanding the distinction between these two types of liability insurance is crucial for businesses to ensure they have comprehensive coverage for potential risks.

Explanation: Public liability insurance is designed to cover injuries and property damage that occur on the insured premises and are caused by the business operations. It provides protection against claims from third parties, such as customers, suppliers, or visitors, who suffer injury or property damage as a result of the business activities. This type of insurance is particularly important for businesses that interact with the public on their premises.

Explanation: Product liability insurance is crucial for businesses that manufacture or sell products to consumers. It provides coverage for claims related to injuries or damage caused by the products, including defects, design flaws, or inadequate warnings. This type of insurance helps protect the business from potential lawsuits and financial liabilities arising from product-related incidents, making it essential for businesses involved in the production or sale of physical goods.

Explanation: Product liability insurance becomes necessary in scenarios where the products manufactured or sold by a company are found to have defects or flaws that cause harm to consumers. In the case of a toy manufacturing company, product liability insurance would provide coverage for claims arising from injuries caused by the defective product. This type of coverage is essential to protect the company from legal and financial consequences associated with product-related incidents.

Explanation: Professional liability insurance, or errors and omissions insurance, is most relevant in situations where professionals, such as doctors, lawyers, or consultants, face legal claims alleging negligence or errors in the performance of their professional services. In the case of a medical professional being sued for medical malpractice, professional liability insurance would provide coverage for legal defense costs and potential settlements or judgments, offering financial protection and peace of mind for the professional.

Explanation: Employers’ liability insurance provides coverage for legal liabilities arising from injuries or illnesses sustained by employees in the course of their employment. It is a legal requirement for businesses with employees. On the other hand, public liability insurance covers injuries or property damage to the general public or third parties that occur on the insured premises. Understanding the distinction between these two types of insurance is crucial for businesses to ensure they have appropriate coverage for different liability risks.