Property and Casualty Insurance Practice Exam

In insurance terms, what does a warranty signify?

1. A way to alter a policy after it is issued

2. A confirmation that a condition exists or will exist

3. A financial penalty for non-compliance

4. A request for additional coverage

The correct answer is: A confirmation that a condition exists or will exist

A warranty in insurance is a statement or promise made by the insured about a particular fact or condition that is essential to the risk being covered. It signifies a confirmation that a condition exists or will exist as part of the insurance contract. Warranties can be about the operational status of a property, such as maintaining a certain level of security, or adhering to specific practices that mitigate risk. If the warranty is found to be untrue when the policy is underwritten or when a claim is made, it can result in the denial of coverage. This concept is crucial because it highlights the importance of truthful representation and compliance with conditions that influence the insurability of a risk. Understanding warranties helps policyholders appreciate the obligations they are assuming and the significance of maintaining those conditions to ensure coverage.