Other Than Life (OTL) Practice Exam

What is a warranty in insurance context?

1. An insuring agreement

2. A special kind of condition that is a promise

3. A policy exclusion

4. An insurable interest

The correct answer is: A special kind of condition that is a promise

In the context of insurance, a warranty refers to a statement or promise made by the insured regarding certain characteristics of the insured risk or the situation surrounding the insurance policy. This is a type of condition that must be fulfilled for the policy to remain valid. A warranty guarantees that specific facts or circumstances exist, and the assurance is made part of the contract itself. If a warranty is breached, the insurer may have the right to deny a claim or void the policy. This concept is distinct from other elements of an insurance contract. For example, an insuring agreement identifies the coverage provided and what is insured but does not carry the same level of obligation as a warranty. Similarly, a policy exclusion specifies conditions or risks that are not covered under the policy, but again, these don't carry the promise aspect inherent in a warranty. Understanding the nature of warranties and their implications in policy agreements is crucial for both insurers and insured parties in managing risk and expectations.