Property and Casualty Practice Exam from PSI

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As a broker, you know that Property and Casualty policies typically cover what type of loss?

Regularly occurring loss

Loss covered by health insurance

Financially significant loss

Widespread, catastrophic loss

Financially significant loss

In the context of insurance agreements, which principle emphasizes the mutual obligation of both parties to act honestly and fairly?

Warranties Doctrine

Utmost Good Faith Doctrine

Reasonable Expectations Doctrine

Representations Doctrine

Utmost Good Faith Doctrine

In the context of insurance, a condition that increases the likelihood or severity of a loss is known as a

law of large numbers.

insurable risk.

peril.

hazard.

hazard

A group of small business owners decide to manage their potential losses 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?

Retention

Reduction

Transfer

Sharing

Sharing

Which principle allows insurance companies to accurately estimate losses within large groups of similar exposures?

Doctrine of Reasonable Expectations

Law of Implied Warranties

Law of Large Numbers

Doctrine of Utmost Good Faith

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?

Domestic

Foreign

Alien

Interstate

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?

Mutual company

Monoline company

Stock company

Fraternal benefit society

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?

conditional

gambling

aleatory

unilateral

aleatory

In a Property and Casualty insurance contract, how are ambiguities resolved and why?

In favor of the policyowner, Conditional contract

In favor of the insurer, Aleatory contract

In favor of the insurer, Unilateral contract

In favor of the policyowner, Contract of Adhesion

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?

personal contracts

aleatory contracts

unilateral contracts

adhesive contracts

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

doctrine of reasonable expectations.

principle of indemnity.

aleatory contracts.

contract of utmost good faith.

doctrine of reasonable expectations.

As a broker, you know that a contract involving illegal activities is unenforceable due to which essential element of a valid contract?

Legal purpose

statute of limitations

competent parties

consideration

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?

apparent authority

As an insurance broker, what type of authority is explicitly granted to you through a written contract or agreement with the insurer?

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?

insurance binder

In a Law of Agency relationship, who does the Producer represent in insurance transactions?

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:

Contract of adhesion.

In the context of an insurance application, what does a representation primarily focus on?

Current conditions at application.

As an insurance broker, what is your primary goal when applying the principle of indemnity for your clients?

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?

Good faith

Which of the following situations does NOT represent an insurable interest?

Insuring a neighbor's car

What is the primary purpose of compensatory damages in a property and casualty insurance claim?

Cover financial losses

Which of the following businesses would NOT be subject to strict liability rules?

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?

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?

Disability

When calculating insurance premiums, which source provides insurers with the necessary loss cost information?

Insurance advisory organizations

As a broker, which situation would you consider a physical hazard?

Burning debris near building

What is another term for Open Perils coverage in property insurance?

Special Peril coverage

After a windstorm damages a homeowner's property, which type of loss refers to the additional living expenses incurred during the temporary relocation?

indirect loss

When a hailstorm damages Fred's decade-old roof, and he receives a brand-new replacement, what loss valuation method was used?

Replacement Cost

Which construction type is not subject to functional replacement cost basis when estimating replacement costs?

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.

proximate cause

As a broker, you are reviewing a negligence case and need to identify the elements that must be established for the claim. Which of the following is NOT an element of a negligent act?

Cost of damages

While driving late at night, a car filled with people unknowingly turns onto train tracks and gets struck by an oncoming train. What is the most appropriate term to describe this event?

accident

You, as a broker, are handling a client's claim after their car was involved in an accident. The adjuster determines the car to be a total loss and approves the actual cash value payment to the client. According to the property insurance policy's salvage condition, who has the right to keep the salvage?

Insurer

Why is the insuring agreement considered the core component of an insurance policy?

Outlines property covered and perils insured

As a broker, it is essential to know who has the authority to make changes to a Personal Lines policy, handle claim settlements, and manage premium payments. These individuals are called:

Named Insureds

When a policy term concludes and either party chooses not to continue coverage, which term is used?

Nonrenewal

In a commercial general liability policy, where can you find the per accident limit of liability?

declarations page

As an insurance broker, the maximum amount your client's policy will cover for all losses resulting from a single incident, regardless of other policy limits, is known as the:

per occurrence limit.

Mandy insures a commercial building worth $500,000 for $300,000 even though there is a coinsurance requirement of 80%. If she sustain a $100,000 loss, how much will she be paid?

$75,000

In property insurance, which type of coverage offers flexibility by not needing specific limits for each insured item or location?

Blanket

You are assessing the risks between two buildings: an unoccupied Building A and a vacant Building B. Which building presents a higher risk?

Building B

In a Commercial Lines policy, who holds the most responsibility for policy management and communicates directly with the insurance company?

First Named Insured

What is the primary purpose of a Liberalization Clause in a Commercial Property policy?

Increase coverage

In a Dwelling Property 1 (DP-1) policy, which coverage applies to a detached garage?

Coverage B

In dwelling property conditions, how does an insurer typically settle a covered loss?

Deductible met, up to liability limit

Which of the following is NOT an exclusion in dwelling policies?

Damage caused during a burglary.

Which statement about homeowners policies is incorrect?

Effective time starts at 12:01 P.M.

As a broker, you are discussing Broad Form (HO-2) coverage with a client. Which peril falls under this policy?

Weight of ice and snow

Which homeowners policy provides all-risk coverage for a first home and is known as the Special Form?

HO-3

As a broker, you are explaining the HO-4 policy to a client. What is the main coverage provided by this policy?

Personal Property 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?

Flood damage to personal property

In the context of a homeowners insurance policy, what is the requirement for debris removal coverage?

Must follow a covered loss

In homeowners insurance, which coverage specifically protects other structures on the property and requires losses to occur on premises?

Coverage B - Other Structures

In a Property insurance policy, how is collapse typically covered?

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?

No differences in coverage.

In a homeowners policy, how are the liability limits for Coverage E - Personal Liability determined?

Per occurrence basis

Which of the following medical expenses is covered under Coverage F - Medical Payments to Others?

Dental services

In an HO-3 homeowners policy, when does coverage begin for theft of construction materials for a home under construction?

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?

100%

In addition to earthquake coverage, what incident is also covered by the Homeowners Earthquake endorsement?

volcanic eruption

Under a personal injury endorsement in a homeowner's policy, coverage is provided for liability in which situation?

Violating a tenant's privacy

What feature is NOT provided by a Personal Articles Floater policy?

Overlapping primary coverage

In the context of a Personal Auto policy, which of the following individuals would NOT be classified as a "family member" for coverage purposes?

An adult sibling living separately from the insured

Which individual is NOT considered insured under Part A - Liability coverage of a personal auto policy?

Company car-using employee.

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?

Pure no-fault plan

As a broker, which coverage combination is NOT allowed in a Personal Automobile policy?

Bodily Injury Liability only

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?

Maximum payment for an occurrence's 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?

Nonresident relative's bodily injury

Under the liability coverage of a personal auto insurance policy, who would not be considered an insured?

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?

Yes, both are covered

In which scenario would Personal Auto Policy Medical Payments coverage NOT apply?

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 30/60/25. How much will the Underinsured Motorist coverage pay?

$70,000

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?

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?

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?

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?

Notify insurer promptly.

How is the value of a loss determined under Coverage D (Damage to Your Auto) in an auto insurance policy?

Actual Cash Value

Which statement about towing and labor costs coverage on a personal auto policy is INCORRECT?

Labor costs at the shop are covered.

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?

Garagekeepers 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?

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?

Garagekeepers 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?

Workers Comp primary, Commercial Auto excess

As a broker reviewing a commercial auto policy, which item is NOT considered an auto and covered under this policy?

A) Delivery vans

B) Customer-shuttle buses

C) Employee-owned autos insured for business use

D) Mobile equipment

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?

Yes, they do

As a broker for a dry cleaning business, which type of policy should you recommend to protect customers' clothing from potential damage while under the shop's care?

Property policy

In the context of a commercial property policy, why does an insurer conduct inspections and surveys?

Underwriting and rating

Which action is permitted by an insurance company for an unoccupied commercial building after 60 days?

A) Increase the building limit by 10%
B) Automatically add replacement cost coverage
C) Expand coverage to include theft
D) None of the above

None of the above.

As a broker, which peril is considered a Basic Peril in a commercial property basic cause of loss form?

Civil Commotion

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?

$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?

Broad Form

The Fire Department Service Charge addition to Building and Business Personal Property coverage will pay up to what amount?

$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?

Value Reporting Form

As a broker, which type of coverage is unavailable as an endorsement to a Commercial Property policy?

Flood coverage

What does a commercial articles floater primarily protect against for items used in a business setting?

Theft

In the Farm Property Coverage Form, which Cause of Loss form provides coverage for livestock losses due to flood or earthquake?

Basic Form

In a Commercial General Liability policy, the aggregate limit represents the insurer's maximum financial exposure during a

policy period.

A business renews its Commercial General Liability policy with an Occurrence limit of $100,000 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?

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?

Occurrence Limit $100K, General Aggregate $450K, Products and Completed Operations Aggregate $1M