Property and Casualty practice exam

Maria purchases an insurance policy and pays her premium on time each month. The policy states that the insurer will pay covered benefits if a qualifying loss occurs. Maria is not legally required to file a claim or continue coverage beyond paying the premium. This policy structure best illustrates which feature of insurance contracts?

Tasha's insurance plan includes a $1,000 deductible. Which best explains why this feature is included in her policy?

Emily frequently leaves her F-150 truck unlocked with the keys in the ignition because she "doesn't think much" about the risk of theft since she has insurance. This indifference represents which type of hazard?

Which of the following is not a criterion for a risk to be considered insurable by a conventional insurance company?

A customer asks why insurers don’t offer coverage for minor inconveniences, like losing a pair of headphones. Why must a loss pose an economic hardship to be insurable?

After a series of hurricanes causes major claims, a regional insurer avoids collapse because another company had agreed in advance to take on a portion of those losses. What arrangement did the first insurer use to protect itself?

A company based in Switzerland is licensed to sell policies in Texas but is regulated under Swiss law. What type of insurer is this?

Dylan reads about insurance in a magazine and uses a prepaid postcard to apply for coverage without ever speaking to an agent. What type of marketing is this?

Maria is a property and casualty agent whose contract does not specifically mention ordering property inspections. However, she routinely orders inspections when submitting applications for commercial property coverage, and the insurer regularly accepts the inspection reports without objection. What type of authority is Maria exercising in this situation?

Jacob is 17 years old and wants to buy an insurance policy on his own. He completes the application and pays the premium. Why might this contract be considered invalid?

An insurance policy includes wording that is vague about what types of water damage are covered. The insured files a claim that falls into this gray area. How would the ambiguity be resolved under the Doctrine of Adhesion?

A student is reviewing the requirements for a valid insurance contract. She lists: agreement, legal capacity, consideration, and ambiguity in terms. Which item on her list does NOT belong?

What must exist for a conditional or binding receipt to be effective?

Elena applies for a commercial property insurance policy. She submits the application and first premium, and the producer issues a binder. Two weeks later, the building is damaged by fire while underwriting is still in progress. Which of the following is TRUE?

What type of refund is due if the insured cancels a policy midterm?

What type of insurance is referred to as third-party coverage?

What is the purpose of subrogation?

Which of the following is NOT a factor used to assess a property insurance application?

An insurer receives an AAA rating from a financial rating service. What does this rating communicate to policyholders and regulators?

A property insurer notices that homeowners in high wildfire-risk areas apply for coverage more frequently than homeowners in low-risk areas. What is this situation an example of?

A collector insures a rare painting. The insurer and collector agree in advance on the exact amount that will be paid if the painting is destroyed in a covered loss, regardless of replacement cost or actual cash value.

What type of policy is this?

After a covered loss, an older commercial building is repaired using modern, less expensive materials that perform the same function as the original materials that were damaged. The insurer pays based on this type of settlement.

What method of settlement is being used?

An insurance agent tells his client, Joe, that he should insure his commercial building for at least 80% of its total value. The agent explains that carrying less coverage could result in reduced claim payments if Joe has a partial loss. Why is the agent giving this advice?

A property owner purchases a dwelling policy to insure a residential rental property. The policy provides property coverage only and does not include liability or other lines of insurance.

How is this type of policy classified?

Which of the following losses is covered under the DP2 Broad Form but not under DP1?

A landlord insures a rental dwelling under a DP2 policy. A detached garage on the residence premises is damaged by a covered peril. The dwelling is insured for $300,000.

How much coverage is automatically available for the detached garage under Coverage B?

A landlord owns an older rental dwelling with custom woodwork and plaster walls. After a covered loss, the insurer pays to repair the home using modern drywall and standard trim instead of restoring the original custom materials.

Which loss settlement method is being used?

A homeowner insured under a DP3 policy stores several items inside the home. Which item would NOT be covered under Coverage C?

The BIG AFFECT acronym helps to remember which of the following perils?

An insured sells their dwelling and wants to transfer the existing dwelling policy to the buyer. Under the Assignment Clause, what must occur for the transfer to be valid?

An insured disagrees with the insurer's denial of a covered dwelling claim and wants to file a lawsuit against the insurer. Under the Suit Against Insurer condition, how long after meeting all policy conditions does the insured have to bring suit?

Tim purchases a dwelling policy from ABC Insurance in January. In June, ABC Insurance broadens coverage in the dwelling policy form without charging an additional premium. How will this change affect Tim’s existing policy?

A covered fire damages an insured dwelling. The actual cash value of the loss is calculated at $14,000, but the cost necessary to repair the damage is only $11,000. Under the dwelling policy's Loss Settlement Condition, how much will the insurer pay?

After a covered fire loss, Marcus’s home becomes uninhabitable. He must temporarily rent an apartment while repairs are completed. Which homeowners coverage would help pay this rental cost?

Evan files a claim under his homeowners policy after several items are damaged in a covered loss. Which of the following items would most likely NOT be covered under Coverage C?

During a backyard gathering, a guest is injured and files a liability claim against Jordan. Jordan reviews his homeowners policy and sees he has not increased his liability limits. What is the standard starting liability limit under Coverage E?

After heavy rain, rising surface water floods Olivia’s home and damages her flooring and walls. Olivia files a claim under her standard homeowners policy. Which of the following exclusions would most likely apply to this loss?

Nicole owns a condominium unit and insures it with an HO-6 policy. She asks her agent whether a detached storage shed on the condo grounds is automatically covered under Coverage B. What should the agent tell her?

Kevin owns a home with a detached garage and a storage shed on his property. A windstorm damages both detached structures. Under which homeowners coverage area would these structures most likely be insured?

Ryan keeps several types of personal property insured under his homeowners policy. After a loss, he files claims for multiple items. Which of the following losses would most likely be excluded from Coverage C?

Carla is purchasing a policy for a home she plans to live in as her primary residence. Which of the following characteristics is most important for qualifying for a standard homeowners insurance policy?

Samantha rents an apartment and wants coverage for her personal belongings and additional living expenses if the unit becomes uninhabitable. Which homeowners form should she purchase?

A guest is injured while visiting Olivia’s home and requires ongoing medical treatment related to the injury. Olivia submits the medical expenses under Coverage F (Medical Payments to Others). If the accident occurred during the policy period, for how long after the accident can necessary medical expenses be covered?

Which of the following is NOT covered by the Personal Injury endorsement?

A salaried employee is sued for bodily injury arising out of her job duties performed away from her residence premises. Which endorsement extends liability coverage for this exposure?

A homeowner begins operating a small daycare from her residence. Which endorsement would provide liability coverage for this activity?

Which of the following is NOT a reason to purchase a Scheduled Personal Property endorsement?

A homeowner owns a $20,000 fine art collection that exceeds the special limits in her homeowners policy. Which endorsement allows her to individually list the items for enhanced coverage?

A homeowner purchases a manufactured home and wants her homeowners policy modified to provide coverage for it. Which endorsement accomplishes this for exam purposes?

Kevin regularly drives a company car provided by his employer but does not own a personal automobile. He wants liability protection while driving that vehicle for personal use. Which endorsement would provide this coverage?

Jason is injured when struck by a driver who carries no auto liability insurance. He files a claim under his own policy. Under Part C, what does the policy provide?

Ethan enters his covered auto in an organized racing event and damages the vehicle during the competition. Will the PAP provide coverage?

Which of the following is NOT covered under Part A Liability Coverage?

While driving, Danielle loses control of her vehicle and it overturns in a ditch. She files a claim for damage to the vehicle under her PAP. Which coverage applies?

Lena is injured in an accident caused by a vehicle owned by a government agency. She files under Uninsured Motorist coverage. How is the vehicle classified?

Maria carries liability limits of 15/30/10 and injures one person in an accident. What is the maximum the policy will pay for that one injured person?

Marcus’s car engine fails due to internal mechanical failure. He files a claim under Other Than Collision coverage. How will the insurer respond?

An insured accidentally injures a neighbor while hosting a gathering at home. Which type of policy would cover the insured’s legal liability for bodily injury arising from personal activities?

After a river overflows, an NFIP policyholder's yard is covered in mud and silt from the flood, and several trees and shrubs are uprooted and must be hauled away. Under the flood policy's debris removal coverage, which removal cost is covered?

An insured carries homeowners and auto liability policies but wants additional protection in case a major lawsuit exceeds those policy limits. Which policy provides excess liability protection above underlying policies and may broaden coverage?

A homeowner purchases a large recreational boat and wants insurance that covers both the boat itself and liability for injuries or property damage caused while operating it. Which policy would provide this coverage?

Which of the following properties is NOT covered under the Building and Personal Property Coverage Form?

Which of the following causes of loss is NOT covered under the Basic Causes of Loss Form?

A company wants to purchase a single insurance policy that combines several types of commercial coverages, including property, liability, and crime coverage. Which policy allows a business to combine multiple coverage parts into one flexible contract?

A grocery store experiences a refrigeration failure that causes its frozen food inventory to spoil due to temperature changes. Which endorsement would provide coverage for this type of loss?

A business insured under a CGL policy is sued under Coverage B for copyright infringement in one of its advertisements. Which policy limit caps the amount payable for this claim?

A manufacturer sells a component that causes a finished product to malfunction. The product itself is not physically damaged, but it cannot be used because of the defective component. Under a CGL policy, what does this situation describe?

A manufacturer is sued after a defective product causes injuries to a customer months after the product was sold. Which aggregate limit under a Commercial General Liability policy applies to claims arising from products and completed operations?

A retailer's Commercial General Liability (CGL) policy premium was initially estimated at the start of the policy term. According to the policy's Premium Audit condition, which factors does the auditor use to determine the final premium after the policy expires?

A bar serves alcohol to a customer who later causes an accident that injures another person. Which exclusion in a CGL policy would apply to this situation?

An insurer wants to remove coverage for liability claims arising from a specific product line sold by a business insured under a claims-made liability policy. Which endorsement allows the insurer to exclude coverage for specific exposures such as products or locations?

A delivery van insured under a Business Auto policy is stolen from a parking lot overnight. If the policy includes Specified Causes of Loss coverage, which peril would be covered?

A business owner reviews the Business Auto Coverage Form to determine which vehicles are insured under the policy. Which section of the form identifies the categories of covered autos such as owned, hired, and non-owned autos?

A trucking company transports goods for hire across state lines. Federal law requires the company to demonstrate proof of liability coverage before operating. Which endorsement satisfies this requirement?

A company vehicle is struck by another driver who does not carry auto liability insurance. Which coverage under the Business Auto policy would help pay for the losses caused by the uninsured driver?

A manufacturer ships electronics overseas by cargo vessel. During the voyage, several crates are damaged by seawater and the owner of the goods suffers a loss. Which ocean marine coverage protects the value of these goods while they are being transported?

An inland marine policy covers structures such as bridges and pipelines because they are essential to transportation systems. These structures fall under which inland marine category?

A retail store has a large neon sign mounted outside its building. During the night, the sign is vandalized and broken. Which inland marine coverage form is designed to insure against this type of loss?

A shipping company transports goods between the United States and Europe by cargo vessel. The owner wants coverage for damage to the property while it is being transported across the ocean. Which type of policy provides this protection?

A store employee is responsible for handling company cash while working inside the business premises. Under commercial crime policy definitions, how is this person classified?

A retirement plan administrator is sued by employees who claim the administrator mismanaged the plan's assets. Which type of professional liability insurance would protect the administrator against this claim?

An employee fraudulently alters company checks and withdraws funds from the business account. Which commercial crime form would cover this loss?

A factory boiler suddenly explodes due to a mechanical failure, damaging nearby equipment. Under Boiler and Machinery coverage, what must occur for the loss to be covered?

Which of the following is NOT covered under Workers Compensation insurance?

Which of the following businesses is NOT eligible for a BOP?

Which of the following perils is NOT covered under the Standard Property Form of the BOP?

An employee uses his personal car to deliver supplies for a small business insured under a Business Owners Policy. The business adds an endorsement to protect against liability from vehicles it does not own but uses for business purposes. Which endorsement provides this protection?

A railroad employee working on an interstate rail line is injured due to the employer’s negligence and files a lawsuit against the railroad company. Which law allows interstate railroad workers to sue their employer for negligence?

A customer slips on a wet floor inside a small bakery insured under a Business Owners Policy and sues the business owner for bodily injury. Which section of the BOP would provide liability protection for this claim?

A crew member working aboard a commercial fishing vessel is injured at sea due to the employer's negligence. The worker decides to sue the employer for damages and request a jury trial. Which federal law gives him this right?

Danielle runs a seafood processing shop insured under a BOP with the spoilage endorsement. Local fishermen drop off their daily catch for her to clean and package for a fee; she never takes ownership of the fish. A refrigerant leak inside her walk-in cooler contaminates the stored catch, ruining it before it can be processed. Which covered cause of loss under the spoilage endorsement applies to this loss?

Which of the following is NOT covered under the BOP?

A court appoints a guardian to manage the property and finances of a minor whose parents are deceased. What type of bond guarantees the guardian performs these duties properly?

A company purchases a fidelity bond that protects the business if any employee commits theft or fraud. The bond does not list employees by name and automatically applies to everyone working for the company. What type of bond is this?

A contractor fails to complete a city construction project. The surety company pays the city for the financial damages caused by the contractor's failure to perform. According to the terms of the bond, what right does the surety have after making this payment?

A construction company purchases a bond guaranteeing it will complete a government project. If the contractor fails to complete the work, which party is protected by the bond?