Property & Casualty Insurance License practice questions and exam guide

Insurable interest in property insurance must exist:

1. At policy inception only for the property to be insured
2. At the time of loss only for the property to be insured
3. At policy inception and at the time the loss occurs
4. Only when a third party consents to the coverage in writing

Answer: C — At policy inception and at the time the loss occurs

A) Half-right — that is the life-insurance rule, not property. B) Half-right — time-of-loss alone omits the inception requirement. C) Correct — property requires interest at both points in time. D) True-but-irrelevant — third-party consent is not the test.

Under a file and use rate regulation regime, an insurer may:

1. Use a rate only after receiving prior written approval from the commissioner
2. File the rate and begin using it, subject to later disapproval by the state
3. Use any rate without any filing to the state department of insurance at all
4. Change rates only if the insurer is organized as a mutual insurance company

Answer: B — File the rate and begin using it, subject to later disapproval by the state

A) Direction reversal — that is prior approval, a separate regime. B) Correct — file and use permits immediate use subject to review. C) Off-by-one — even open-competition still requires some rate filing. D) True-but-irrelevant — corporate form does not gate rate regulation.

The National Association of Insurance Commissioners (NAIC) is best described as:

1. A federal regulator with direct rulemaking authority over insurers nationwide
2. A voluntary body of state regulators that develops model laws and guidance
3. An industry trade association that lobbies Congress on insurance issues
4. A quasi-judicial body that hears producer license appeals from state action

Answer: B — A voluntary body of state regulators that develops model laws and guidance

A) Direction reversal — insurance is state-regulated, not federal. B) Correct — NAIC is a coordinating body of state commissioners. C) Look-alike — that describes trade groups, not the NAIC. D) Off-by-one — appeals go through state administrative processes.

Coverage A (Dwelling) in a standard homeowners policy insures:

1. Personal property of the insured located anywhere in the world
2. Additional living expenses while the residence is uninhabitable
3. Third-party bodily injury the insured negligently causes to a visitor
4. The dwelling structure on the residence premises and attached structures

Answer: D — The dwelling structure on the residence premises and attached structures

A) Look-alike — that is Coverage C, not Coverage A. B) Look-alike — that is Coverage D loss of use, not Coverage A. C) Look-alike — that is Coverage E personal liability, not Coverage A. D) Correct — Coverage A insures the dwelling and attached structures.

Commercial property causes-of-loss forms are typically issued as:

1. Basic, Broad, and Special (open perils) with successively wider coverage
2. Named, Aggregated, and Consolidated with progressively narrower coverage
3. Occurrence, Claims-Made, and Discovery based on trigger of coverage
4. Direct, Consequential, and Indirect based on the type of damage caused

Answer: A — Basic, Broad, and Special (open perils) with successively wider coverage

A) Correct — the three ISO causes-of-loss forms are Basic/Broad/Special. B) Look-alike — those are not the ISO property forms. C) Look-alike — those are liability triggers, not property causes-of-loss. D) Look-alike — that is a damage taxonomy, not the ISO forms.

Coverage F (Medical Payments to Others) under a homeowners policy pays:

1. Reasonable medical expenses of injured third parties, regardless of fault
2. Reasonable medical expenses of the named insured and family members
3. Reasonable medical expenses only if the insured is found legally liable
4. Reasonable medical expenses of employees injured on the residence premises

Answer: A — Reasonable medical expenses of injured third parties, regardless of fault

A) Correct — Coverage F is no-fault, third-party goodwill coverage. B) Direction reversal — the insured is expressly excluded from Coverage F. C) Direction reversal — Coverage F is no-fault; liability is not required. D) Look-alike — that is workers' compensation, not Coverage F.

Inland marine coverage for a contractor's mobile equipment is generally NOT provided by:

1. A contractor's equipment floater written on an inland marine coverage form
2. The BAP physical damage coverage on licensed commercial autos in the fleet
3. The commercial property BPP form for equipment away from scheduled premises
4. An installation floater during construction while the equipment is in transit

Answer: C — The commercial property BPP form for equipment away from scheduled premises

A) Direction reversal — the floater is designed for this exposure. B) Half-right — BAP covers licensed autos, not all mobile equipment. C) Correct — commercial property is location-based; does not follow equipment. D) Direction reversal — installation floaters follow the project site.

Directors and Officers (D&O) Side A coverage protects:

1. The corporate entity for securities claims made against the company itself
2. Individual directors and officers when the corporation cannot or does not indemnify
3. Employees for wage-and-hour and overtime class-action claims against the employer
4. Third parties from data breach exposure caused by the corporation's operations

Answer: B — Individual directors and officers when the corporation cannot or does not indemnify

A) Look-alike — Side C covers the entity, not Side A. B) Correct — Side A is the personal-assets shield for D&Os. C) Look-alike — that is EPLI/wage-and-hour specialty coverage. D) Look-alike — that is cyber liability, not D&O Side A.

Personal Injury Protection (PIP) under a PAP typically covers:

1. Third-party bodily injury caused by the insured's negligent operation
2. Property damage the insured causes to another driver's vehicle in a wreck
3. Physical damage to the insured's covered auto from a covered peril
4. Medical expenses and lost wages of insured and passengers, no-fault basis

Answer: D — Medical expenses and lost wages of insured and passengers, no-fault basis

A) Look-alike — that is Part A liability coverage. B) Look-alike — that is Part A property damage liability. C) Look-alike — that is Part D physical damage coverage. D) Correct — PIP is a no-fault first-party medical/wage-loss coverage.

The declarations page of a property and casualty policy typically shows:

1. Named insured, address, policy period, coverages, limits, and premiums
2. Only the exclusions section that limits coverage under the policy
3. Only the insuring agreement stating the core promise of the insurer
4. Only the state statutory endorsement required by the insurance code

Answer: A — Named insured, address, policy period, coverages, limits, and premiums

A) Correct — declarations summarize the essential deal terms. B) Direction reversal — exclusions are in a separate section. C) Direction reversal — the insuring agreement is a separate section. D) Off-by-one — statutory endorsements are attached separately.

The conditions section of a policy generally sets forth:

1. Duties of both parties, including notice of loss and cooperation clauses
2. The specific perils, property, and losses excluded from any coverage
3. The rate factors that determine the annual premium for the policy
4. The named insured, mailing address, and policy period for the contract

Answer: A — Duties of both parties, including notice of loss and cooperation clauses

A) Correct — conditions bind duties like notice, cooperation, subrogation. B) Look-alike — that is the exclusions section, a different part. C) True-but-irrelevant — rating information is not in conditions. D) Look-alike — that information is on the declarations page.

A first-party bad-faith claim generally requires proof that the insurer:

1. Delayed payment by more than 24 hours after receiving a covered claim from insured
2. Requested a recorded statement from the insured during claim investigation activities
3. Denied or delayed a valid claim without a reasonable basis, knowing or reckless
4. Referred the pending claim to coverage counsel for a coverage-position analysis

Answer: C — Denied or delayed a valid claim without a reasonable basis, knowing or reckless

A) Off-by-one — statutory prompt-pay windows are distinct from bad faith. B) True-but-irrelevant — recorded statements are a lawful investigation tool. C) Correct — dual standard: no reasonable basis + knowledge or recklessness. D) True-but-irrelevant — coverage counsel is standard, lawful practice.

Earthquake endorsement deductible?

Typically a percentage deductible (often 10-25% of the coverage limit), applied per loss. Masonry veneer often subject to further limits or exclusion.

Deductible?

Amount the insured pays out of pocket on a covered loss before insurance pays. Reduces premium and discourages small claims.

Coinsurance clause on commercial property?

Requires insured to carry at least a specified percentage (often 80%, 90%, or 100%) of the property's insurable value. Underinsurance triggers a penalty on partial losses: payment = (carried / required) × loss − deductible.

Personal Injury Protection (PIP) / Medical Payments?

Pays medical expenses (and in PIP, also lost wages and other) for the insured and passengers regardless of fault — no-fault states require PIP.

What is insurance?

A risk-transfer mechanism by which the insurer agrees, in exchange for premium, to indemnify the insured for covered losses — pooling risk across many policyholders.

Businessowners Policy (BOP)?

Packaged policy for small/medium businesses — combines property and general liability. Streamlined underwriting. Includes business interruption. Eligibility limited by class and size.