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PROPERTY AND CASUALTY INSURANCE LICENSING EXAM
QUESTIONS WITH CORRECT SOLUTIONS GUARANTEED SUCCESS
"The limit of liability of any property insurance contract in a given loss is the: - CORRECT
ANSWER RC settlement"
"Pro Rata - CORRECT ANSWER Each company's amount of insurance/ total amount of
insurance in force"
"coinsurance - CORRECT ANSWER (did/should) x loss sustained= amount paid"
"Loss ratio - CORRECT ANSWER (incurred loss + loss adjusting expense)/ earned premium"
"Loss ratio refers to - CORRECT ANSWER a formula used by insurance companies to compare
premium income to losses"
"insurance rate - CORRECT ANSWER amount charged for a particular amount of coverage"
"physical hazard - CORRECT ANSWER structural defects, occupancy, poor housekeeping or
location increases the chance of a loss"
"moral hazard - CORRECT ANSWER dishonest predisposition that increases the chance of a
loss"
"morale hazard - CORRECT ANSWER careless attitude that increases the chance of a loss"
"legal hazard - CORRECT ANSWER set of legal conditions that affect an insurer's ability to
collect premiums with the exposure to loss that the insurer must bear"
"4 types of negligence - CORRECT ANSWER Legal Duty
Standard of Care Unbroken chain of events actual loss or damage"
"3 types of liability - CORRECT ANSWER Absolute
Strict Vicarious"
"Which of the following is a cause of loss form? a) declarations form b) proof of loss form c) garage keepers' form
d) basic form - CORRECT ANSWER d) Basic form"
"The minimum flood deductible is: a) $ b) $ c) $
d) $1000 - CORRECT ANSWER c) $500"
"The insured intentionally did not inform the insurer that the insured owned only 35% of the property. The insurer can void the policy for: a) conditional coverage b) misrepresentation c) error
d) concealment - CORRECT ANSWER d) concealment"
"A licensee may violate federal law and be subject to a fine and prison for doing which of the following? a) selling insurance w/ a nonresident license b) sending threatening letters to the state insurance regulator c) fraudulently telling an insured a claim isn't covered on the policy
d) murdering an applicant - CORRECT ANSWER b) sending threatening letters to the state
insurance regulator" "Special covers each of the following EXCEPT: a) theft b) mysterious disappearance c) Acts of God
d) floods and earthquakes - CORRECT ANSWER d) floods and earthquakes"
"Sam has underinsured motorist coverage with limits of $100/$300. Sam is injured by Quincy who has limits of $50/$100. Sam's injuries are valued at $125,000. Sam's underinsured motorist coverage will pay; a) $25, b) $50,
"Flood insurance covers each of these except: a) beach erosion b) sewer back up c) overflow of tidal waters
d) mudslides - CORRECT ANSWER b) sewer back up"
"Which of the following statements regarding a contract of good faith is false? a) all parties must rely on each other to be honest b) the insured relies on the insurer's promise to pay claims c) all parties rely on the contract to provide for an equal transfer of value between the parties
d) the insurer relies on the applicant to be truthful - CORRECT ANSWER c) all parties rely on
the contract to provide for an equal transfer of value between the parties" "Which of the following will cover personal injury? a) umbrella b) homeowners c) both A and B
d) none of above - CORRECT ANSWER a) umbrella"
"The joint ownership endorsement would be appropriate for insuring an auto a) owned by the 2 unmarried people living in the same household b) owned by 2 unmarried people in different households c) owned by 2 friends living in different households
d) owned by 2 married people in the same household - CORRECT ANSWER a) owned by the 2
unmarried people living in the same household" "The comprehensive section of an auto policy covers which of the following? a) earthquake damage b) furniture stolen from auto c) road damage to tires
d) a mechanic installs a wrong part in the motor - CORRECT ANSWER a) earthquake damage"
"Insurer - CORRECT ANSWER the insurance company"
"insured - CORRECT ANSWER the policy holder"
"agent (producer) - CORRECT ANSWER acts as a legal representative of the insurance
company"
"broker - CORRECT ANSWER representative of the insured"
"risk - CORRECT ANSWER the chance of loss or the uncertainty of loss"
"speculative risk - CORRECT ANSWER the chance of loss one accepts in hope of realizing a
gain; insurance does NOT cover"
"pure risk - CORRECT ANSWER the chance of experiencing a loss with out the possibility of a
gain. The essence of the insurance industry."
"Risk Avoidance - CORRECT ANSWER staying away from risky activities altogether"
"risk reduction - CORRECT ANSWER taking measures to reduce your risk"
"waiver of liability (hold harmless agreement) - CORRECT ANSWER states you wont be
responsible for any damages"
"risk retention (self insuring) - CORRECT ANSWER client may choose to build up a fund to pay
claims that insurance companies would have paid."
"indemnification - CORRECT ANSWER making a loss a whole"
"Law of large numbers - CORRECT ANSWER the mathematical concept that says its easier to
predict losses based on historical data"
"The USA patriot act deals with: - CORRECT ANSWER money laundering and insurance
companies"
"A dwelling policy may be used if the structure has a max. of how many boarders? - CORRECT
ANSWER 5"
"Methods of risk management include - CORRECT ANSWER Transfer, sharing, avoidance"
"A cost of replacement minus depreciation is: - CORRECT ANSWER actual cash value"
"Which of the following is a method requiring the insured to insure at least 80 percent of the value of the covered commercial property? a) cause of loss form b) standard mortgage clause c) loss payable clause
d) co-insurance clause - CORRECT ANSWER co-insurance clause"
"Which of the following is a basis for insuring property that allows the insurer to report the value of the building contents to the insurance company on a monthly basis? a) blanket basis b) reporting form c) specific basis
d) agreed value - CORRECT ANSWER specific basis"
"Which of the following is not a factor in determining negligence on the part of the insured a) legal duty is owed b) there is a breach of protection c) proximate clause
d) damage - CORRECT ANSWER there is a breach of protection"
"In liability insurance, policy limits that apply one limit to each person injured, another for bodily injury claims of all persons injured in a single accident, and a separate limit for all property
damage arising out of a single accident is - CORRECT ANSWER split limits"
"An insurance contract that is contingent on a uncertain event is referred to as - CORRECT
ANSWER aleatory"
"Mr. Jones is involved in an at-fault accident. The other party was also at fault. The method to
determine damages due each party based on a percentage of negligence is known as: -
CORRECT ANSWER comparative negligence"
"The insured owns a filling station and an employee causes bodily injury to a third party. The
insured is held legally liable for the employee's acts. This is called: - CORRECT ANSWER
vicarious liability"
"One characteristic of an insurance contract is that both parties must preform certain acts to
make a contract legally enforceable. This is called: - CORRECT ANSWER utmost good faith"
"A church has hired a painting contractor to stain and varnish the woodwork in the building. He leaves the rags and brushes used to apply the painting materials in a small storage area. This is an
example of: - CORRECT ANSWER hazard"
"The insurance company is the author of the insurance policy. The insured buys what is offered by
the company and accepts it as is. This is called: - CORRECT ANSWER contract of adhesion"
"An insured carries a DP-2 with $10,000 contents coverage. He owns a canoe and stores it at a lake in a private non-owned garage. Fire destroys the garage and the boat. How much coverage
will his policy provide? - CORRECT ANSWER Nothing"
"An insured's home is covered by the DP-3 form. The policy provides $20,000 in coverage on a home that would cost $50,000 to replace. When high winds destroy the roof, it is determined that it will cost $2,000 to replace it. Assuming the actual cash value of the roof is $750., how much will
the insured collect for this loss? - CORRECT ANSWER $1,000"
"Mr. Simpson owns a dwelling in a rural area close to a small wooded area. He is covered under a DP-3 form. A deer sees it's reflection in a picture window and jumps through and enters the dwelling causing severe wall and floor damages. Some of the furniture is damaged and must be replaced. He is covered for $100,000 on the dwelling and $50,000 on the contents. Which of the following would apply to this loss? A. The entire loss would be denied; B. Pay replacement cost on the dwelling and ACV for the contents loss. ; C. Pay replacement cost on the dwelling and the contents. ; D. Deny the contents
claim and pay the dwelling loss on a replacement cost basis. - CORRECT ANSWER D. Deny the
contents claim and pay the dwelling loss on a replacement cost basis" "The insured is covered under a DP-1 Dwelling policy with coverage on the dwelling in the amount of $100,000. He has a detached garage valued at $10,000. Both structures are destroyed by a fire.
What is the total amount recoverable under the policy? - CORRECT ANSWER $100,000"
"An insured lives close to Mount St. Helens and carried a DP-2 policy. When the volcano erupted, the movement of the earth caused his home to collapse. He reported the claim as a volcanic
eruption loss. What do you feel would be the result of this claim? - CORRECT ANSWER The
claim would be denied"
"An apartment dweller would be in the market for a: - CORRECT ANSWER HO-4"
"The personal liability coverage for Mr. Jones' Homeowner Policy would cover Jones if: -
CORRECT ANSWER his dog bit his neighbor on the nose"
"Coverage F of the homeowner policy applies to: - CORRECT ANSWER social invitees"
"Coverage E of the homeowner policy involves premises liability, personal activities and: -
CORRECT ANSWER acts of residence employees"
"Which of the following Homeowner forms provides the least amount of perils coverage? A. HO- B. HO- C. HO-
D. HO-8 - CORRECT ANSWER D. HO-8"
"Coverage D- loss of use provides what percentage of Coverage A under the HO-2 - CORRECT
ANSWER 30%"
"The homeowner policy excludes which of the following types of property? a. the insured's dog b. the insured's motorbike c. silverware
d. all of the above - CORRECT ANSWER a. the insured's dog"
"Under the HO-3, what percentage of the amount of insurance written for Coverage A applies to
Coverage C for a one or two family dwelling - CORRECT ANSWER 50%"
"Under coverage B- other structures of the homeowner policy, which of the following structures are not covered? a. structures used for business purposes b. structures rented to a non-tenant for other than a private garage c. attached garage
d. all of the above - CORRECT ANSWER d. all of the above"
"Homeowner medical payments coverage does not apply to bodily injury to which of the following? a. the insured's seven year old son who fell down the front stairs
b. an appliance repairman working on the insured's premises c. an insured boarder who trips in her apartment over a rug
d. all of the above - CORRECT ANSWER a. the insured's seven year old son who fell down the
front stairs"
“To prevent recovery beyond the amount of the insured's actual loss, the policy will contain: -
CORRECT ANSWER An Other Insurance Clause"
"Collision coverage of an auto policy covers: a) road damage to the tires b) upset of the vehicle c) frozen engine block
d) falling objects - CORRECT ANSWER B) upset of the vehicle"
"The maximum amount of payable for all losses resulting from one event is known as the: a) occurrence limit
b) aggregate limit - CORRECT ANSWER a) occurrence limit"
"Which of the following is NOT a defense against negligence? a) contributory negligence b) statues of limitations c) presumption of negligence
d) assumption of risk - CORRECT ANSWER c) presumption of negligence"
"The presumed authority necessary to carry out the producer's routine tasks is known as: a) expressed authority
b) implied authority - CORRECT ANSWER b) implied authority"
"Which of the following statements regarding the Towing and Labor endorsement is false? a) it will pay to the limit stated in the endorsement each time a covered vehicle is disabled b) there is no coverage for roadside labor costs c) there is no deductible
d) none of the above - CORRECT ANSWER b) there is no coverage for roadside labor costs"
"Which of the following is not an insured location for liability coverage under the homeowners policy? a) a restaurant party room the insured has rented for a business meeting
a) pays regardless of coverages in other policies b) pays medical and funeral expenses for the insured and any passengers in the insured's auto c) is required by both federal and state law
d) covers any pedestrians hit by the insured's auto - CORRECT ANSWER b) pays medical and
funeral expenses for the insured and any passengers in the insured's auto" "Concealment involves: a) intentionally failing to disclose an immaterial fact b) unintentionally failing to disclose a material fact c) unintentionally failing to disclose an immaterial fact
d) intentionally failing to disclose a material fact - CORRECT ANSWER d) intentionally failing to
disclose a material fact" "Which of the following is not one of the components used to develop rates? a) loss reserves b) loss costs c) business expenses
d) profits - CORRECT ANSWER a) loss reserves"
"Personal injury liability covers each of the following except: a) slander b) discrimination c) malicious prosecution
d) wrongful eviction - CORRECT ANSWER b) discrimination"
"General damages are: a) intangible b) specific c) exemplary
d) economic - CORRECT ANSWER a) intangible"
"Participation in the NFIP is: a) usually required by the government but sometimes voluntary b) always required by the government c) always voluntary
d) usually voluntary but sometimes required by the government - CORRECT ANSWER d)
usually voluntary but sometimes required by the government."
