State Farm Insurance License Practice Exam

Insurance under the Terrorism Risk Insurance Act can be reimbursed by the federal government after what?

1. Insurers reaching a specific loss limit

2. Claims submitted after a terrorist attack

3. A waiting period of 60 days

4. A certification from local authorities

The correct answer is: Insurers reaching a specific loss limit

Under the Terrorism Risk Insurance Act (TRIA), the correct condition for federal reimbursement to insurers is when insurers reach a specific loss limit. This act was established to ensure the availability of insurance coverage for acts of terrorism and to provide a backstop for insurers in the event of significant losses due to such acts. The specific loss limit refers to a threshold that, once met, triggers the federal government’s involvement in covering a portion of the insured losses. This mechanism encourages insurers to provide coverage for terrorism in the market, knowing that they will not bear the entire financial burden if their losses meet or exceed the established limit. Claims submitted after a terrorist attack, while part of the claims process, do not automatically guarantee reimbursement; they must relate to losses exceeding that specific limit. The waiting period of 60 days and certification from local authorities are procedural elements that do not directly address the activation of federal funds for losses incurred by insurers. Thus, the condition of reaching a defined loss limit is crucial for the reimbursement framework provided by the TRIA.