Free Property Casualty Licensing Exam Sample Questions
The absolute BEST way to prepare for the Property Casualty Licensing exam (of any other multiple choice exam for that matter) is practice questions. The TESTivity Virtual Learning Experience has literally thousands of questions in their pre-licensing database and, yes they are VERY representative of what you will see on the actual exam. Think about it, there is nothing difficult about the exam, it is all pretty entry level stuff, the trick is simply to know what to expect. On this page we have posted 50 questions from our database to give you a feel for how the people who write the exam think. Of course 50 free questions in NOT enough to prepare you for the exam, do yourself a favor and enroll in the full Property & Casualty Pre-License Course or at least get the P&C Quizzes and Exam Simulator...and of course, GOOD LUCK ON THE EXAM!
Which of the following insurance concepts makes an insured “whole?”
Which of the following homeowners' policies provide named peril coverage on contents and all risk protection on the entire dwelling?
In a homeowners' policy, a mortgagee must be provided by the insurer with what amount of written notice if an insured's policy is canceled for non-payment of premium?
30 days notice
10 days notice
20 days notice
45 days notice
Once a flood insurance policy is written and approved, coverage will become effective 7 days after the application is received by the National Flood Insurance Program. What is the standard deductible which appears in a flood insurance policy?
Which of the following best defines the liberalization clause?
It is closely related to Subrogation
It provides temporary coverage
It increases coverage, but not the premium
It allows for a claim payment through arbitration
Who is an eligible participant under the National Flood Insurance Program?
A homeowner who has suffered hurricane damage
An insured owning property near a lake
A person residing in a flood zone
A family vacation home near a river
What is the process called that is used to arrive at an agreement when an insured and insurer do not agree with a claim amount?
Which of the following statements is true concerning Extended Business Income coverage?
Extended business income is provided for an additional 7 days once the business resumes.
Extended business income is provided for an additional 15 days once the business resumes.
Extended business income is provided for an additional 30 days once the business resumes.
Extended business income is provided for an additional 60 days once the business resumes.
Under a DP Basic Cause of Loss form, which of the following types of loss is not covered?
Damage caused by windstorm
Loss caused by a vehicle
Partial Loss caused by hail
Which of the following losses will NOT be covered by a flood insurance policy?
Water from a river after a storm
Surface runoff of a lake
Loss caused by mudslide
An insured failing to disclose material information to an agent concerning his/her property exposures has engaged in which of the following?
Zack Luna has an HO-3 with $100,000 of coverage on the dwelling. Coverage B of his policy is $10,000 of protection for his other structures such as the swimming pool. $50,000 of coverage is also provided for damage or loss to personal property. Zack’s home suffers a fire loss of $10,000. It also cost $5,000 to haul debris away following the fire. In addition, Zack incurred $2,000 of additional living expenses since he was forced to stay at a hotel for two weeks. What will Zack’s homeowners' policy pay?
$13,000 less any applicable deductible
Which of the following is NOT covered by Coverage F in a HO policy?
Emergency room charges
Jude owns a Commercial General Liability policy with limits of 250/500 and an aggregate limit of $1,000,000. The premium for this coverage is $1,400 for the year. Jude pays the premium in advance. Until the end of the policy period, a portion of the premium may be referred to as?
Per occurrence premium
Under a Dwelling Property policy containing a broad cause of loss form, which of the following coverages is provided for glass breakage?
$100 per pane up to a maximum of $250
$100 per pane up to a maximum of $500
$250 per pane up to a maximum of $1,000
$500 per pane up to a maximum of $2,500
The principle of indemnity considers which of the following concepts?
Time payment of claim
Proof of loss
Mojo owns a 100 foot yacht which is covered by a $250,000 policy. During the past year Mojo's hull suffered losses of $700, $1000 and $200. His policy includes a $250 deductible. What is the total loss amount Mojo will collect under his policy for all three losses?
An insurer may refuse to settle a claim if an insured “walks away” from his property following a loss. Which of the following property provisions permits the insurer the right to refuse payment?
Rights of transfer
Which of the following best defines risk?
The possibility of financial loss
The probability of loss
Which of the following incorporates depreciation in order to arrive at the value of a loss?
What is the basic limit provided for Fire Department service charges under a HO policy?
What is a one time, unexpected and unintentional event which is fixed in time and place?
What is a continuous exposure to conditions?
What is the transfer to an insurer, by the policy owner, of his/her rights of recovery?
Which of the following is covered under Section II of an HO-3 policy?
25 foot canoe rented to an insured
30 foot sailboat owned by the insured
100 horsepower outboard in the custody of the insured
100 horsepower inboard owned by the insured
An insurer who pays an insurance claim in an amount higher than the value of the building being covered has violated the __________________.
Concept of insurable interest
Principle of indemnity
Actual cash value concept
Which of the following would be considered a named insured under a homeowners' policy?
The insured's spouse
The 22 year old brother of the insured living in the household
A 16 year old friend of the named insured, in the named insured’s care
A domestic employee
The Commercial Package Policy includes a common conditions and a common declarations page. Which of the following does NOT appear on the common declarations page?
The named insured
The transfer of rights and duties
The policy period
The annual premium
Which of the following is NOT excluded under Coverage A of the commercial general liability coverage form?
Bodily injury to an employee
Bodily injury to an insured
Damage to impaired property of others
BI to a customer off premise
Which of the following is not covered by an HO-6 policy?
Personal liability of an insured
Property removed for up to 5 days
Theft of a bicycle
A loss assessment to members of an HOA to repave the complex’ streets of $1,000
Which of the following is covered by a homeowners' policy?
Damage caused by sewer backup
Loss as a result of war
Improvements to the property up to coverage A limits
Personal liability resulting from negligence
Kent owns a Dwelling Property Broad form. A fire starts and Kent removes some of his property to the yard to protect it from damage. For how long will his policy cover his removed property?
Under a Builders’ form, which of the following is covered?
Theft of cash
Materials within 500 feet of the insured premises
Supplies within 100 feet of the premises
There are three sections of coverage found in a Commercial General Liability coverage form. Coverage B provides liability coverage for personal and advertising injury. Which of the following is NOT insured by this coverage section?
Invasion of privacy
Bodily injury to a customer on the premises
When a total loss is paid by the insurer, according to the concept of salvage, which of the following will the insurer likely do?
Allow an insured to retain the damaged property
Double the claim payment
Require the insured submit to a physical exam
Take possession of the totaled property
Which of the following accurately depicts the coinsurance clause?
Insurance Carried / Insurance Required X Loss = Payment
Insurance Required / Insurance Carried X Loss = Payment
Insurance Carried / Insurance Required X 80% = Payment
Insurance Carried X Loss = Payment
A Dwelling Special form provides coverage for which of the following?
Borrowed lawn mower
None of the above
Chad owns an HO-3 policy. His policy lapsed, but was reinstated once back premiums were paid. Chad would be protected by his homeowners' policy for bodily injury to others for which of the following?
A rented rowboat
Intentionally inflected BI
An owned speed boat
Nothing due to the reinstatement clause
Which of the following is an example of an indirect loss under a homeowners' policy?
Personal property loss
Damage to the dwelling
Which of the following may be classified as a type of indirect loss?
Unscheduled personal property loss
Loss to a detached structure
Additional living expenses
Which of the following may be provided by a Business Income coverage form?
Coverage for extra expense
Coverage for completed operation liability
Coverage for accounts payable
Coverage for condominium owners
Which of the following dictates that a consumer report may be requested by an insurer when an individual applies for insurance protection?
Fair credit reporting act
Notice regarding insurance information practices
Privacy Act of 1974
Under a Commercial Property form, newly acquired property purchased during the policy period is protected automatically for up to ______________.
Under an HO policy, how much coverage for damage to trees, shrubs and plants is provided for loss caused by a fire?
5% of Coverage A
5% of Coverage A, not to exceed $500 per item
10% Coverage A, not to exceed $500 per item
Which of the following is accomplished by the Law of Large Numbers?
Future losses are paid without deduction for depreciation
Future losses are more predictable
Future losses are pro-rated
Future losses are avoidable
When must insurable interest in property insurance exist for a claim to be paid?
At the time of application
At the time of loss
At the time the claim is paid
Insurable interest is only applicable to Life Insurance
When an insured who owns an HO policy dies, which of the following is covered by the policy?
Business partner of the deceased insured
Spouse of the deceased insured
Minor child of the deceased insured
Legal representative of the deceased insured
The address of the named insured and the amount of premium is found in which of the following sections of a property insurance policy?
Extended reporting periods are found in commercial liability coverage forms. What is the function of these “tail” coverages?
Extend the claim reporting period
Extend the policy period
Allow a decrease in premium
Change the policy from a claims made to an occurrence form
What best defines a condition that increases the chance of loss?
Answers & Rationals
Property and liability insurance policies are contracts of indemnity. This means that an insured is only entitled to recover payment to the extent of the economic loss incurred. The principle of indemnity states that no one should profit from an insurance claim. This principle prevents an insured from profiting from an insurance policy. The purpose of buying insurance is not to make a profit, but to restore the insured to the same financial condition that was in existence prior to the loss (make them whole).
The HO-3 policy form provides open-peril coverage on Coverages A, B and D. Coverage C, however, is protected on a named peril basis. The HO3 policy provides the broadest scope of coverage since it provides all-risk insurance protection.
If the insurer cancels, it must provide 10 days written notice to the first named insured and the mortgagee if the reason for cancellation is non-payment of premium. For any other reason, the insurer must provide 30 days written notice.
There are two minimum deductibles available for the NFIP policy. If the exposure is considered by the NFIP to be low risk, the standard deductible is $500. If the exposure is considered high risk, the standard deductible is $750.
The liberalization clause is a provision present in property insurance policies which provides that if an insurer adopts new policy forms which broaden coverage during the policy term (or within 60 days prior to the effective date) existing policies will have the broadened coverage without an extra premium.
Cities, towns and counties generally submit a request to the FIA for consideration to be included in the program. Only those persons in an area prone to floods and designated as such by the NFIP may purchase flood coverage. The federal government has designated various areas as those located in a “flood plain” or “flood zone.”
With P&C insurance, when it is understood between the insured and insurer that coverage exists but they do not agree on the amount of the loss, the policy provides that each party shall select an appraiser who will represent them and attempt to arrive at an agreement. The appraisal procedure is not utilized when an insurer and insured disagree over whether a loss is actually covered under the policy. In this case, a process known as arbitration is used.
Extended business income provides 30 days of automatic coverage for continued loss of business income once restoration is complete. The thirty day period begins on the date when the property is actually repaired, rebuilt or replaced.
A DP1 (Basic Form) covers:
Riot or civil commotion
Volcanic eruption (but not earthquake)
Explosion (does not have to be internal)
The flood must be a condition of that geographical area. The policy does not cover water damage coming from the insured's own property. In addition, the policy will not cover damage caused by: a broken or stopped up sewer; a faulty sump pump; earthquake damage; landslide damage; or accumulation of water on an insured's property due to the formation of the land.
If a statement is made on an application that the applicant knows is false, it is a misrepresentation, and MAY constitute fraud. If the insurer can prove that the misrepresentation was made intentionally, it may void the contract. Concealment or omission of a material fact constitutes misrepresentation.
The damage to the home ($10,000) is covered up to coverage A limits.
The additional living expense ($2,000) is an indirect loss due to a covered peril and is covered up to coverage A limits.
However, the debris removal is only covered up to 10% of what was paid for direct loss (10% of $10,000 is $1,000).
$10,000 + $2,000 + $1,000 = $13,000
And of course, with property damage the deductible is always applicable.
Coverage C will provide protection, up to the coverage amount selected by the insured, against loss to personal property owned or used by the named insured or resident family members while on the insured premises. A limited amount (10% of the contents limit) is provided for personal property away from the premises (anywhere in the world). The others would be covered under coverage F
Premiums paid in advance are “unearned”. When a policy is canceled midterm, unearned premiums must be refunded to a policy owner.
Glass or safety glazing material coverage covers breakage of glass or safety glazing material which is part of a covered building, storm door or storm window. Standard coverage is $100 per pane up to a maximum of $500.
Some insureds may have coverage through two or more policies. If so, the claim examiners must know this and must communicate with each other to make sure that the combined amount of money paid on the claim does not exceed 100% of the actual loss. Most insurance policies include a clause or provision relating to coverage by other insurance which is designed to prevent an insured from profiting due to the ownership of a policy or to prevent a violation of the principle of indemnity.
Property damage deductibles are per occurrence. The policy would pay $450 of the first claim, $750 of the second claim, and $0 of the third, because the claim did not exceed the deductible.
Abandoning property may invalidate the claim.
In the insurance business, risk is the possibility of financial loss. Risk is the basic issue with which insurance deals; it is why insurance exists.
Actual cash value is a method of loss valuation which states that no matter how much insurance is purchased, the recovery amount is limited to the amount of the actual loss incurred. ACV is defined, more specifically, as replacement cost minus depreciation. Depreciation is the reduction in the value of property over time due to use, wear and tear and obsolescence.
All HO policies include Fire department service charge of $500.
P&C policies sometimes provide coverage based on a maximum limit of liability "per accident" or "per occurrence." An accident is a single unexpected and unintentional event whereas an occurrence involves a continued exposure.
P&C policies sometimes provide coverage based on a maximum limit of liability "per accident" or "per occurrence." An accident is a single unexpected and unintentional event whereas an occurrence involves a continued exposure.
This concept is especially applicable in auto insurance. When an insured enters into an insurance contract with the insurer, he/she assigns to the insurer their right of action against an at-fault party. This is also known as the transfer of rights of recovery requirement.
BI or PD to others if resulting from the use by the insured of any watercraft owned, operated by, rented to or loaned to any insured is excluded from Section II coverage. However, this exclusion does not apply to watercraft less than 26 feet long.
Property and liability insurance policies are contracts of indemnity. This means that an insured is only entitled to recover payment to the extent of the economic loss incurred. The principle of indemnity states that no one should profit from an insurance claim.
On an HO policy, the named insured’s spouse is considered to be a named insured. The others are “insureds”, but not named insureds.
The transfer of rights and duties (subrogation) appears on the conditions page.
Products and Completed Operations Liability Coverage protects the insured for bodily injury and property damage occurring away from premises owned or rented to the insured and arising out of the insured's products. An injured person can sue manufacturers, wholesalers and retailers due to their negligence that can be based on Breach of Warranty, Strict Liability or Negligence. Completed operations coverage is similar to products coverage, but involves liability for work that has been completed for others such as operations completed away from the premises of the company performing these operations and warranties or representations regarding these operations.
In all HO policies, the insurer will cover property against direct loss from any cause while being removed from a premises endangered by a covered peril. The policy will provide coverage under this extension for up to 5 days. This coverage does not change the limit of liability that applies to the property being removed. Theft of personal property and personal liability are also included in HO policies. The assessment would be covered if it was imposed against the condo owner for the actions of his/her minor child or pet, but it would not be covered if all owners were assessed.
Section II of a homeowners’ policy form provides personal liability protection and medical payments to others. Section II of all homeowners’ forms are identical in the scope of coverage provided.
In all HO policies, the insurer will cover property against direct loss from any cause while being removed from a premises endangered by a covered peril. The policy will provide coverage under this extension for up to 5 days. This coverage does not change the limit of liability that applies to the property being removed.
Materials and supplies used for additions, alterations or repairs of the covered building as long as they are on or within 100 feet of the described premises.
BI (Bodily Injury) is covered under Coverage section A.
Salvage is concept allows the insurer to take title to the damaged property and recoup some of the money paid resulting from a covered peril if a total loss is paid. In other words, this principle allows the insurer to sell all or part of the totaled auto for salvage to recoup part of the amount paid to the insured.
Insurance Carried / Insurance Required X Loss = Amount paid by the insurer
An auto would never be covered under a dwelling form, nor would damage to property in the insured's care, custody or control is not covered.
Boats that are owned, operated by, rented to or loaned to any insured are excluded. However, this exclusion does not apply to watercraft of less than 26 feet with low or no power.
An indirect loss is an additional form of loss that results from a direct physical loss to property. For example, if an insured's rental is damaged by fire and is unlivable for 6 weeks following the direct loss, the insured loose rental income until repairs are complete.
An indirect loss is an additional form of loss that results from a direct physical loss to property. For example, if an insured's home is damaged by fire and is unlivable for 6 weeks following the direct loss, the insured may incur additional living expenses if he/she must live in a motel until repairs are complete.
Extra expense coverage insures against the necessary extra expenses during the period of restoration that would not have been incurred had there been no underlying property loss. This coverage includes expenses incurred to avoid or minimize the suspension of operations, at either the described location or at a replacement premises or a temporary location.
This regulation was established to provide a system for the collection, use, and dissemination of information gathered during the underwriting process. When an applicant for insurance signs the application, they give the insurer the right to check driving records, MIB, credit reports, and consumer investigative reports.
Alterations and New Buildings coverage extends coverage to buildings under construction at the described location. Coverage is also provided for newly acquired locations up to a maximum of $100,000.
The insured may extend the insurance on the building to apply to a new building while being built on the described premises and buildings acquired at other locations intended for similar use or as a warehouse. Insurance under this extension for each newly acquired or constructed property will end when:
The policy expires
30 days after the insured acquires or begins construction on the property
HO policies cover outdoor trees, shrubs, plants up to 5% of Coverage A, not to exceed $500 per item.
The law of large numbers enables an insurance company to predict losses of a group. The basic principle of this law is that the larger the number of separate risks of a like nature combined into one group, the more predictable the number of future losses of that group will be.
A basic rule governing insurance states that before an individual can benefit from insurance, he/she must have must have a legitimate interest in the preservation of the life or property insured. This requirement is called insurable interest.
With life insurance, insurable interest need only exist at time of application. This differs from property insurance, which holds that an insurable interest must exist at the time of loss.
At the Death of the insured, the policy will transfer to the insured’s legal representative
The declarations page provides information regarding the property or exposures being insured. Much of the information in the declarations section is taken directly from the application and include, but are not limited to:
Name and address of the named insured
A description of the type of property to be insured
The location of the property
The coverage limit provided
The amount of the annual premium
Amount of the deductible, if any
The policy period (inception and expiration dates)
The name of a mortgagee, if any
A company officer name, signature or stamp
The Commercial General Liability (CGL) policy has three extended reporting periods available. Two are built into the policy itself. These are known as the "basic extended reporting periods." The basic periods begin when the policy period ends and are activated if there is a break in coverage.
Perils and hazards are related to the concept of risk. A peril is the specific cause of a loss and is the event being insured against. A hazard is a condition or factor that promotes the peril. Under inflated tires, for example, is a hazard that promotes the peril of an auto accident.
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