An applicant engages in a hazardous hobby, and the insurer is willing to issue the policy but does not want to cover the extra hazard at standard rates. The insurer will most likely:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
When an applicant presents a hazardous occupation or hobby, the insurer may issue the policy with an endorsement that excludes coverage for losses arising from that specific activity, rather than declining the policy entirely. The endorsement narrows the risk to what the insurer is willing to insure, and the premium is adjusted accordingly. As with other policy exclusions, the endorsement must be communicated to the applicant, and any premium charged for the excluded risk is returned. This approach keeps the policy in force while protecting the insurer from the disproportionate hazard.
Why the other options are wrong
- B) Ignoring a known hazardous activity would expose the insurer to a risk that was not priced. The standard approach is to exclude the activity by endorsement or to rate the policy for the extra hazard.
- C) An endorsement exclusion does not require the applicant to surrender the policy. The policy continues in force with a narrowed scope of coverage for the excluded activity.
- D) The endorsement excludes only losses arising from the hazardous activity. Claims that are unrelated to the excluded risk remain covered under the policy as issued.
Memory hook
Hazardous hobby? Endorse it out. Exclude the risky activity, keep the rest of the coverage intact.