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PSI PRACTICE TEST EXAM PREP P&C QUESTIONS WITH DETAILED VERIFIED ANSWERS
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"Which principle allows insurance companies to accurately estimate losses within large groups of
similar exposures? - CORRECT ANSWER Law of large numbers"
"As an insurance broker , you are working with an insurer that is licensed to operate in the United States and has its main headquarters in another country. This insurer is conducting business in a
state different from where it is domiciled. What type of insurer is this? - CORRECT ANSWER
Foreign" "As an insurance broker , you are advising a client who wants to purchase a policy from an insurer
that is owned by its policyholders. Which type of insurer should they choose? - CORRECT
ANSWER Mutual company"
"As a broker , you've observed two clients with different insurance outcomes : one client paid premiums for 40 years without making a claim , while another collected a large sum after paying just one premium. This unequal exchange of values in insurance contracts is attributed to them
being what type of contracts? - CORRECT ANSWER Aleatory"
"In a Property and Casualty insurance contract , how are ambiguities resolved and why? -
CORRECT ANSWER In favor of the policyowner , Contract of Adhesion"
"In insurance policies , what type of contract acknowledges the potential for one party to benefit
more than the other? - CORRECT ANSWER Aleatory contracts"
"As a property and casualty insurance broker , you know that ambiguous policy wording is
resolved in favor of the insured due to the - CORRECT ANSWER Doctrine of reasonable
expectations"
"In a Law of Agency relationship , who does the Producer represent in insurance transactions? -
CORRECT ANSWER Principal"
"In the event of unclear terms or ambiguities in a Property and Casualty insurance policy , the
resolution will favor the policy owner due to the policy being a : - CORRECT ANSWER Contract
of adhesion"
"In the context of an insurance application , what does a representation primarily focus on? -
CORRECT ANSWER Current conditions at application"
"As an insurance broker , what is your primary goal when applying the principle of indemnity for
your clients? - CORRECT ANSWER Return clients to pre-loss status"
"In the context of insurance , which principle emphasizes the importance of honesty and trust between the insurer and the applicant , with both parties relying on accurate and complete
information? - CORRECT ANSWER Good faith"
"Which of the following situations does NOT represent an insurable interest? - CORRECT
ANSWER Insuring a neighbor's car"
"What is the primary purpose of compensatory damages in a property and casualty insurance
claim? - CORRECT ANSWER Cover financial losses"
"Which of the following businesses would NOT be subject to strict liability rules? - CORRECT
ANSWER Livestock ranchers ."
"In the context of property and casualty insurance , what term refers to the legal responsibility for
damages resulting from the failure to fulfill a duty? - CORRECT ANSWER Liability"
"As an insurance agent , you know that underwriters can utilize various factors to assess the risk of a potential client. Which of the following factors is NOT allowed to be used in the underwriting
process? - CORRECT ANSWER Disability"
"When calculating insurance premiums , which source provides insurers with the necessary loss
cost information? - CORRECT ANSWER Insurance advisory organizations"
"As a broker , which situation would you consider a physical hazard? - CORRECT ANSWER
Burning debris near building"
"What is another term for Open Perils coverage in property insurance? - CORRECT ANSWER
Special Peril coverage"
"As an insurance broker , you are helping a client understand their Homeowners HO - 3 policy.
Which scenario would require the purchase of additional coverage? - CORRECT ANSWER
Flood damage to personal property" "In the context of a homeowners insurance policy , what is the requirement for debris removal
coverage? - CORRECT ANSWER Must follow a covered loss"
"In homeowners insurance , which coverage specifically protects other structures on the property
and requires losses to occur on premises? - CORRECT ANSWER Coverage B - Other
Structures"
"In a Property insurance policy , how is collapse typically covered? - CORRECT ANSWER
Additional coverage" "As a broker , you are explaining the differences between an HO - 2 and an HO - 3 homeowners insurance policy to a client. When discussing Section II Liability Coverages , specifically Coverage
E - Personal Liability , which statement is accurate? - CORRECT ANSWER No differences in
coverage" "In a homeowners policy , how are the liability limits for Coverage E - Personal Liability
determined? - CORRECT ANSWER Per occurrence basis"
"Which of the following medical expenses is covered under Coverage F- Medical Payments to
Others? - CORRECT ANSWER Dental services"
"In an HO - 3 homeowners policy , when does coverage begin for theft of construction materials
for a home under construction? - CORRECT ANSWER When the dwelling is completed and
occupied" "Eloise insures her house for $ 100,000 and sustains a $ 63,000 loss. Under an HO - 3 , she will
collect what percentage of the loss? - CORRECT ANSWER 100%"
"In addition to earthquake coverage , what incident is also covered by the Homeowners
Earthquake endorsement? - CORRECT ANSWER volcanic eruption"
"In a situation where an individual suffers injuries from an auto accident and is unable to utilize the tort liability system regardless of injury severity , which type of no - fault plan is being
applied? - CORRECT ANSWER Pure no - fault plan"
"As a broker , which coverage combination is NOT allowed in a Personal Automobile policy? -
CORRECT ANSWER Bodily injury liability only"
"In a situation where both the insured's appraiser and the insurer's appraiser cannot agree on the
valuation of a loss , what method is used to determine the final settlement amount? - CORRECT
ANSWER Agreement between any two parties"
"Your client's vehicle has been stolen. After how long will the Transportation Expense coverage
start to provide financial assistance for alternate transportation? - CORRECT ANSWER After
48 hours" "Your car has been in an accident and is currently undrivable. When will your Transportation
Expense coverage start to provide you with alternative transportation options? - CORRECT
ANSWER After 24 hours"
"You , as an insured driver , just experienced a severe head - on collision causing injuries and vehicle damage. According to your personal automobile policy , what is your primary obligation?
- CORRECT ANSWER Notify insurer promptly ."
"How is the value of a loss determined under Coverage D ( Damage to Your Auto ) in an auto
insurance policy? - CORRECT ANSWER Actual cash value"
"Which statement about towing and labor costs coverage on a personal auto policy is INCORRECT
? - CORRECT ANSWER Labor cost at the shop are covered"
"As a broker reviewing a commercial auto policy , which item is NOT considered an auto and
covered under this policy? - CORRECT ANSWER Mobile equipment"
"As an insurance broker , you are evaluating a dry cleaning shop's coverage needs. In the case of customers ' cleaned clothing that has not yet been retrieved , does the dry cleaning shop have an
insurable interest? - CORRECT ANSWER Yes , they do"
"Which type of business benefits most from Fire Legal Liability Coverage? - CORRECT
ANSWER Commercial tenants"
"After completing a room addition for the Johnson family , the roof collapses a week later , causing injuries and damages. In this situation , Turnkey Builder's Commercial General Liability
( CGL ) policy will cover every expense except for : - CORRECT ANSWER Fixing the room
addition ." "You , a broker , provided ABC Contractors with a Commercial General Liability insurance policy that includes Completed Operations coverage. After ABC Contractors complete a garage project for Ralph , it collapses , resulting in damages to Ralph's arm , car , and iPhone. Which of the
following is NOT covered by the Completed Operations coverage in this situation? - CORRECT
ANSWER Rebuilding Ralph's garage"
"As a broker , you are explaining to a client which liability is primarily covered by their Commercial
General Liability policy. What type of liability should you mention? - CORRECT ANSWER
Contractual liability" "Which professional is most likely to need errors and omissions insurance to protect their
business from liability risks? - CORRECT ANSWER Attorney"
"In which scenario would a personal umbrella policy provide additional liability coverage? -
CORRECT ANSWER Dog bite injury to neighbors child"
"As a broker , you advise clients on optional coverages for their mobile home policies. Which type
of loss can be specifically added as an endorsement? - CORRECT ANSWER Collision damage"
"What is the minimum deductible in the regular Flood Insurance program? - CORRECT
ANSWER $ 1,000"
"Which type of business is typically ineligible for a businessowners policy due to its scale of
operations? - CORRECT ANSWER manufacturing business"
"If the Liability occurrence limit of a BOP is $ 500,000 , what is the General Aggregate limit and the
Products and Completed Operations Aggregate limit? - CORRECT ANSWER $ 1 million ; $ 1
million"
"In a standard businessowners policy , what is the multiplier used to determine both aggregate
limits based on the declared limits for liability and medical expenses coverage? - CORRECT
ANSWER Two times"
"Under workers ' compensation benefits , an injured employee is entitled to expenses for which
type of rehabilitation to aid in returning to work? - CORRECT ANSWER Vocational
rehabilitation" "As an agent , you've helped a client complete their application and make a payment for flood insurance under the National Flood Insurance Program ( NFIP ). When will their coverage become
effective? - CORRECT ANSWER 30th calendar day"
"As an insurance broker, when you advise a client to select a higher deductible in their insurance
policy, you are helping them in? - CORRECT ANSWER Retaining Risk"
"In the context of insurance, how is a policy with a deductible best described? - CORRECT
ANSWER Risk Sharing"
"What type of insurance is provided by the government as a safety net when coverage is not
available through private insurers? - CORRECT ANSWER Residual Market"
"In an insurance contract, the insurer's primary obligation is to pay after a loss, while the insured's primary obligations are to pay the premium and cooperate after a loss. What type of contract
does this describe? - CORRECT ANSWER Unilateral"
"In the context of an insurance contract, what element does NOT qualify as Consideration? -
CORRECT ANSWER Agent Commissions"
"In the context of insurance, what does a binder represent? - CORRECT ANSWER Temporary
Coverage Agreement"
"Which activity is NOT subject to strict liability? - CORRECT ANSWER In home child care"
"In the context of actual cash value, who is responsible for calculating the amount of
compensation to be paid to the insured party after a loss? - CORRECT ANSWER Insurer"
"Fred has a $200,000 Coverage A limit on his older home's HO-3 policy. Concerned about the increased rebuilding costs due to local building codes in the event of a total loss, what additional coverage does his current policy provide? Fred has insured his older home with an HO-3 policy, which has a Coverage A limit of $200,000. He is concerned about the increased cost of rebuilding in case of a total loss due to compliance with
local building codes. - CORRECT ANSWER $20,000 for ordinance costs"
"While boating with Ted, his friend's 14-year-old son slips during a storm and loses two teeth on the deck. For how long will Ted's Boatowners Medical Payments coverage cover the dental
expenses? - CORRECT ANSWER Three years"
"Which of the following is NOT a commonly used form in personal inland marine insurance? -
CORRECT ANSWER Builders floater form"
"What does the term 'Life Contingency Options' refer to in the context of annuity payments? -
CORRECT ANSWER The different methods of payout that are dependent on the lifespan of the
annuitant" "A meteorite damages your client's car windshield. Under their Personal Auto policy, this event
would be classified as: - CORRECT ANSWER Other than Collision loss"
"In the context of a Personal Auto policy, which scenario would require Collision coverage in
order to be covered? - CORRECT ANSWER Vehicle upset"
"In which location does a Personal Auto policy NOT provide coverage? - CORRECT ANSWER
Mexico"
"What is the Life Contingency Option in annuity payments? - CORRECT ANSWER It provides a
guaranteed income for the life of the annuitant and a beneficiary"
"In a commercial auto policy, which vehicles are covered by Symbol 8 as hired automobiles? -
CORRECT ANSWER leased, borrowed, or rented autos"
"Which of the following is included in the liability coverage of a commercial auto policy? -
CORRECT ANSWER Supplementary payments"
"Which of the following is NOT excluded under the Businessowners Section II — Liability? -
CORRECT ANSWER Bodily injury caused by an accident on the insured property"
"What does the Businessowners Section II — Liability cover in a Businessowners Policy? -
CORRECT ANSWER It covers legal liability resulting from bodily injury, property damage,
personal injury, and advertising"
"What does a commercial package policy primarily aim to achieve? - CORRECT ANSWER
Eliminate redundant information" "In a commercial package policy, the common policy declarations page provides essential
information, including the who, what, when, where, and: - CORRECT ANSWER Cost"
"As a broker, you're reviewing different Cause of Loss forms for a commercial property insurance policy. Which peril is exclusively covered by the Special Cause of Loss form and not by the Basic or
Broad Cause of Loss forms? - CORRECT ANSWER Theft"
"If a company continues the Building and Business Personal Property coverage in the event of vacancy, and the building sustains a $100,000 loss due to fire, how much will the company pay for the loss? Reduced claim payout = $100,000 - (0.15 x $100,000) Reduced claim payout = $100,000 - $15,
Reduced claim payout = $85,000 - CORRECT ANSWER $85,000"
"As a broker, you are preparing a builders risk insurance policy for a client. When does the
coverage start for this policy? - CORRECT ANSWER Date of legal responsibility"
"Which policy type has coverages that closely resemble the Farm Property Coverage Form's A, B,
C, and D provisions? - CORRECT ANSWER Homeowners"
"In a commercial general liability policy, where can you find the designation of the insured party?
- CORRECT ANSWER Declarations section"
"Under the Businessowners Section II — Liability coverage, medical expenses are paid -
CORRECT ANSWER irrespective of fault"
"What is the maximum limit of liability coverage under the Businessowners Section II — Liability
of a Businessowners Policy? - CORRECT ANSWER The limit of insurance stated in the
Declarations" "In the context of insurance contracts, how can fraud be distinguished from misrepresentation?
CORRECT ANSWER Intentional Deception"
"What does 'Apparent Authority' refer to in the context of insurance producers? - CORRECT
ANSWER The power a producer seems to have to the public, as a result of the actions of the
insurer"
"Which of these is NOT classified as a special damage in casualty insurance? - CORRECT
ANSWER Emotional Distress"
"What type of injury is caused by false statements harming someone's reputation? - CORRECT
ANSWER Personal Injury"
"As a broker, you are assessing activities for absolute liability coverage. Which of these activities
would most likely NOT require absolute liability coverage? - CORRECT ANSWER Transporting
construction materials"
"As an insurance agent, you issue a binder to a client. What is NOT true about this binder? -
CORRECT ANSWER Guarantees policy issuance"
"In the context of insurance, how is damage caused by dry rot categorized? - CORRECT
ANSWER Occurrence"
"In a Commercial Line insurance policy, who has the authority to modify coverage, handle claim
settlements, and make premium payments? - CORRECT ANSWER First Named Insured"
"You have a client with a $250,000 home insured under an HO-5 policy. Which of the following
statements regarding their coverage is incorrect? - CORRECT ANSWER Replacement Cost for
personal property losses"
"Which personal property item is NOT covered under Coverage C? - CORRECT ANSWER Motor
Vehicles" "The homeowners policy provides only limited coverage for watercraft. Property coverage for
watercraft is subject to a special limit of what amount? - CORRECT ANSWER $1,500"
"Though they can be raised, what are the standard Homeowners limits for Coverage E Personal
Liability and Coverage F Med Pay to Others? - CORRECT ANSWER $100,000 and $1,000"
"A swimmer is injured by Jackie's boat at the lake. Will her homeowners insurance policy cover
the injuries? - CORRECT ANSWER Sailboat under 26 feet long"
"In a Homeowners Earthquake endorsement, within what time frame are the earthquake and its
aftershocks considered as a single occurrence? - CORRECT ANSWER 72 hours"
"Ann owns a complete collection of the 50 calendar drawings that Norman Rockwell did for the Boy Scouts from 1925 to 1975. She keeps 40 of the drawings in a metal cabinet and displays 10 in her living room. Though each calendar is worth only $250, the complete collection is valued at $100,000 and is insured for that amount under a Personal Articles endorsement. When a fire breaks out in her kitchen, the 10 calendars she has on display are destroyed. The remaining 40 calendars are valued at $25,000. How much will her Personal Articles endorsement pay using the
Pair and Set clause? - CORRECT ANSWER $75,000"
"In a Personal Automobile policy with limits of 100/300/50, what does the number 100
specifically refer to regarding an accident caused by the policyholder? - CORRECT ANSWER
Maximum bodily injury per person" "An insured driver accidentally collides with a pedestrian, resulting in the pedestrian losing $6,200 in wages during recovery. Which Personal Auto policy coverage would compensate for
this loss? - CORRECT ANSWER Liability"
"As an insurance agent, which coverage option will you recommend to a client for financial protection against medical expenses, lost wages, and damages caused by an accident, but not
property damage? - CORRECT ANSWER Bodily Injury Coverage"
"As a broker, you are reviewing Kevin's Personal Automobile Policy. He recently had an accident where he ran a stop sign and collided with Calvin and Clara, causing injuries and damages to both
"What is NOT covered under the Commercial Inland Marine Insurance? - CORRECT ANSWER
Import taxes"
"Which of the following is NOT included in a Farm Property Coverage Form? - CORRECT
ANSWER Growing Crops"
"In a commercial general liability policy, which provision determines the order of coverage when
there are multiple applicable policies? - CORRECT ANSWER Other insurance"
"In a commercial general liability policy, the general aggregate limit encompasses the combined
total of which specific coverages during the policy period? - CORRECT ANSWER Coverages A, B
and C" "Jane suffers a severe injury while using a defective blender purchased from Easy Home Appliances. If Easy Home is held liable, which of their coverages would handle the $5,000 hospital
bill? - CORRECT ANSWER Products Liability Coverage"
"While visiting Calvin's Hardware, you witness David accidentally lose three fingers on his right hand when trying out a chainsaw in the tool rental department. What kind of liability claim does
this incident represent? - CORRECT ANSWER Premises Liability"
"Which characteristic of excess lines carriers is inaccurate? - CORRECT ANSWER Lower rates
and better contracts" "What is the maximum limit for Businessowners Section II — Liability insurance under a standard
Businessowners Policy? - CORRECT ANSWER $1 million per occurrence and $2 million
aggregate" "What is the maximum limit of insurance under the Businessowners Section II — Liability policy?
CORRECT ANSWER The limit is specified in the declarations of the policy"
"As an insurance broker, you know that certain risks are typically insured by government programs. Which of the following types of insurance is more likely to be provided by private
insurers? - CORRECT ANSWER Employers liability insurance"
"In a workers' compensation claim, wage replacement benefits provide - CORRECT ANSWER a
percentage of lost wages"
“As a broker , you know that Property and Casualty policies typically cover what type of loss? -
CORRECT ANSWER Financially significant loss"
"In the context of insurance agreements , which principle emphasizes the mutual obligation of
both parties to act honestly and fairly? - CORRECT ANSWER Upmost good faith doctrine"
"In the context of insurance , a condition that increases the likelihood or severity of a loss is
known as a - CORRECT ANSWER Hazard"
"A group of small business owners decide to manage their potential by agreeing that each member will contribute to covering any loss faced by any member of the group. What risk
handling method are they using? - CORRECT ANSWER Sharing"
"As a broker , you know that a contract involving illegal activities is unenforceable due to which
essential element of a valid contract? - CORRECT ANSWER legal purpose"
"As a life insurance agent , what type of authority allows you to act on behalf of an insurer based
on the assumption that you possess the necessary powers to do so? - CORRECT ANSWER
Apparent authority" "As an insurance broker , what type of authority is explicitly granted to you through a written
contract or agreement with the insurer? - CORRECT ANSWER Express"
"As a property and casualty insurance agent , which document would you issue to a client for
temporary coverage while waiting for the underwriting process to be completed? - CORRECT
ANSWER insurance binder"
"After a windstorm damages a homeowner's property , which type of loss refers to the additional
living expenses incurred during the temporary relocation? - CORRECT ANSWER indirect loss"
"When a hailstorm damages Fred's decade - old roof , and he receives a brand - new
replacement , what loss valuation method was used? - CORRECT ANSWER Replacement Cost"
"Which construction type is not subject to functional replacement cost basis when estimating
replacement costs? - CORRECT ANSWER Modern"
"As a broker , you must identify which element is crucial in connecting an individual's negligent
act to the damage incurred in order to establish negligence. - CORRECT ANSWER proximate
cause"
"Which individual is NOT considered insured under Part A - Liability coverage of a personal auto
policy? - CORRECT ANSWER Company car using employee"
"In a Personal Auto policy with limits of 100/300/50 , what is the significance of the number 50 if
the policy owner is responsible for an auto accident? - CORRECT ANSWER Maximum payment
for an occurrences property damage" "As a broker , you know that the personal auto policy Part A - Liability coverage includes several
exclusions. Which of the following situations is NOT excluded from the coverage? - CORRECT
ANSWER Nonresident relatives bodily injury"
"Under the liability coverage of a personal auto insurance policy , who would not be considered
an insured? - CORRECT ANSWER Stranger without permission"
"Randy and his daughter were hit by a negligent driver while walking. Will their injuries be
covered by Randy's Personal Auto policy Medical Payments coverage? - CORRECT ANSWER
Yes , both are covered"
"In which scenario would Personal Auto Policy Medical Payments coverage NOT apply? -
CORRECT ANSWER Spouse injured in neighbor's car"
"A Personal Auto policy has Uninsured / Underinsured limits of 100/300/100. The policy owner is injured to the extent of $ 110,000 by a negligent driver with minimum state limits of 30/60/.
How much will the Underinsured Motorist coverage pay? - CORRECT ANSWER $ 70,000"
"As a broker , you are helping insure a daily parking service that takes care of 1,800 customer vehicles without owning any of their own. Which insurance coverage is most suitable for this
business? - CORRECT ANSWER Garage keepers coverage"
"As a broker , you are assisting a client with selecting coverage for their commercial automobile policy. What type of coverage will the client have if they select Symbol 7 on the declarations page
? - CORRECT ANSWER Specifically described autos ."
"During a brake replacement at a local garage , the mechanic test drives Jane's car and causes an accident by not stopping at a red light. Which policy primarily covers the damages to Jane's
vehicle? - CORRECT ANSWER Garage keepers liability policy"
"An employee of Calvin's Hardware gets injured while driving a company vehicle during a delivery
. How will the employee's injury claim be handled between the company's Commercial Auto
policy and Workers Comp policy? - CORRECT ANSWER Workers Comp primary , Commercial
Auto excess" "Skip insures his furniture repair shop under a Building and Personal Property Coverage Form with limits of $ 100,000 on the building and $ 50,000 on business personal property. A fire causes $ 10,000 of damage to the building and $ 20,000 in damage to the contents. Skip also has to pay $ 1,000 for debris removal. If the policy has a deductible of $ 500 , Skip will receive a maximum of
how much? - CORRECT ANSWER $ 30,500"
"As a broker , you need to recommend the minimum Cause of Loss form for a client's Commercial Property Policy that covers leaking and freezing of pipes and plumbing fixtures. Which form
should you suggest? - CORRECT ANSWER Broad Form"
"The Fire Department Service Charge addition to Building and Business Personal Property
coverage will pay up to what amount? - CORRECT ANSWER $ 1,000"
"As a broker , you have a client with fluctuating inventory values , and they need coverage that adapts to these changes at different locations and times. Which endorsement should you
recommend for their commercial property policy? - CORRECT ANSWER Value reporting form"
"As a broker , which type of coverage is unavailable as an endorsement to a Commercial Property
policy? - CORRECT ANSWER Flood coverage"
"A business renews its Commercial General Liability policy with an Occurrence limit of $ 100, and a General Aggregate of $ 1,000,000. Two months later , a claim is paid in the amount of $
50,000. What are the current limits under the CGL? - CORRECT ANSWER Occurrence limit of
$100,000 and aggregate limit of $950,000" "Calvin's Hardware has a Commercial General Liability policy with an Occurrence limit of $ 100,000 , a General Aggregate limit of $ 500,000 and a Products and Completed Operations
Aggregate limit of $ 1M. Following a $ 50,000 Premises loss , what are Calvin's limits? -
CORRECT ANSWER Occurrence Limit $ 100K , General Aggregate $ 450K , Products and
Completed Operations Aggregate $ 1 M" "Who qualifies for coverage under medical payments for accidental injuries occurring on the
insured's premises in a commercial general liability policy? - CORRECT ANSWER Volunteer
worker"
"Under a Businessowners Policy , property coverage typically protects which item? - CORRECT
ANSWER Permanently installed carpeting"
