P&C Insurance Practice Exam.
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1. A candidate wants to know the minimum percentage of questions they must answer correctly to pass the licensing exam. What is the passing score?
- A. 60%
- B. 65%
- C. 70%
- D. 75%
Show answer & explanation
Answer: C
A passing score of 70% is typically required. The other percentages are common distractors but do not match the stated requirement.2. Two exam attributes are the fee to register and the passing-score percentage. Which pairing correctly matches each attribute to its value?
- A. Fee = $70; Passing score = 49%
- B. Fee = $49; Passing score = 70%
- C. Fee = $130; Passing score = 150%
- D. Fee = $49; Passing score = 49%
Show answer & explanation
Answer: B
The exam fee is $49 and the passing score is 70%. Option B is the only pairing that matches both stated values; the others swap or invent numbers.3. To obtain a passing result on the licensing examination, what minimum score must a candidate achieve?
- A. 60 percent
- B. 65 percent
- C. 70 percent
- D. 75 percent
Show answer & explanation
Answer: C
A passing score of 70 percent is typically required to pass the licensing exam.4. A candidate wants to know the minimum percentage of correct answers needed to pass the licensing examination. What is the required passing score?
- A. 60%
- B. 65%
- C. 70%
- D. 75%
Show answer & explanation
Answer: C
A passing score of 70% is typically required for this examination. The other percentages do not match the published passing threshold.5. A prospective agent must submit payment when applying to sit for the licensing exam. What is the fee to take the exam?
- A. $39
- B. $49
- C. $59
- D. $69
Show answer & explanation
Answer: B
The state licensing authority sets the exam fee at $49.6. Which of the following statements about the licensing exam's structure and standards is accurate?
- A. The exam has 130 scoreable questions and a passing standard of 70 percent
- B. The exam has 150 scoreable questions and a passing standard of 65 percent
- C. The exam has 130 scoreable questions and a passing standard of 75 percent
- D. The exam has 100 scoreable questions and a passing standard of 70 percent
Show answer & explanation
Answer: A
The exam contains 130 scoreable questions, and a passing score of 70 percent is typically required.7. A warehouse is covered by two property policies: Policy 1 with a $200,000 limit and Policy 2 with a $100,000 limit. A $60,000 covered loss occurs. Under the pro rata other insurance condition, how is the loss divided?
- A. Policy 1 pays $40,000 and Policy 2 pays $20,000
- B. Each policy pays $30,000
- C. Policy 1 pays the entire $60,000 because it has the higher limit
- D. Policy 2 pays first and Policy 1 pays only the excess
Show answer & explanation
Answer: A
When more than one policy covers the same loss, the other insurance and pro rata conditions divide the loss among insurers in proportion to their limits. Policy 1 carries two-thirds of the total limits ($200,000 of $300,000) and Policy 2 one-third, so Policy 1 pays two-thirds of $60,000 ($40,000) and Policy 2 pays one-third ($20,000).8. An insured's property is covered by two policies when a single covered loss occurs. Under the other insurance condition with a pro rata provision, how is the loss handled?
- A. The insured chooses one insurer to pay the entire loss.
- B. Each insurer pays the full loss, allowing the insured to recover twice.
- C. The loss is divided among the insurers in proportion to their limits.
- D. The policy with the earlier effective date pays the entire loss.
Show answer & explanation
Answer: C
When more than one policy covers the same loss, the other insurance and pro rata conditions divide the loss among insurers in proportion to their limits. Choice B would let the insured recover more than the loss, which conflicts with the principle of indemnity, which limits recovery to the actual amount of the loss.9. An insurance producer is explaining loss-related terminology to a new client. Which statement correctly distinguishes a peril from a hazard?
- A. A peril is the actual cause of loss, while a hazard is a condition that increases the likelihood or severity of a loss.
- B. A peril is a condition that increases the chance of loss, while a hazard is the event that directly causes the loss.
- C. Perils and hazards are interchangeable terms for any event that damages covered property.
- D. A peril applies only to liability insurance, while a hazard applies only to property insurance.
Show answer & explanation
Answer: A
A peril is the actual cause of loss, such as fire, windstorm, theft, or lightning. A hazard, by contrast, is any condition that increases the likelihood or severity of a loss. Choice B reverses the two definitions, and choices C and D misstate the relationship between the terms.10. A policyholder stops locking the back door of her insured home, reasoning that her insurance will pay if anything is stolen. This attitude BEST illustrates which concept?
- A. Moral hazard
- B. Morale hazard
- C. Physical peril
- D. Proximate cause
Show answer & explanation
Answer: B
A morale hazard reflects indifference or carelessness because insurance exists, such as leaving a door unlocked. It differs from a moral hazard, which arises from a dishonest tendency such as intentionally causing a loss to collect proceeds. The scenario describes carelessness, not dishonesty, so morale hazard is correct.11. Under a named perils policy, who bears the burden of proof after a loss, and how does that change under an open perils policy?
- A. The insurer must prove coverage under named perils; the insured must prove an exclusion under open perils.
- B. The insured must prove the loss was caused by a covered peril under named perils; under open perils, the insurer must demonstrate that an exclusion applies.
- C. The burden of proof always rests with the insured under both forms.
- D. The burden of proof always rests with the insurer under both forms.
Show answer & explanation
Answer: B
In a named perils policy, the burden of proof is on the insured to show the loss was caused by a covered peril. An open perils policy covers all direct physical losses except those specifically excluded, which shifts the burden of proof to the insurer to demonstrate that an exclusion applies.12. Which of the following BEST defines proximate cause in property insurance?
- A. Any condition that makes a loss more severe once it has begun
- B. The final event in a series of events that damages the property
- C. The primary event that sets in motion an unbroken chain of events leading to the loss
- D. A cause of loss that is specifically excluded from the policy
Show answer & explanation
Answer: C
Proximate cause is the primary event that sets in motion an unbroken chain of events leading to the loss. Choice A describes a hazard, which increases the likelihood or severity of a loss, and choices B and D do not describe proximate cause.13. The principle of indemnity is designed to accomplish which of the following?
- A. Guarantee the insured a profit whenever a covered loss occurs
- B. Limit recovery to the actual amount of the loss so the insured cannot profit from a loss
- C. Require the insured to pay a portion of every claim out of pocket
- D. Allow the insurer to recover claim payments from a responsible third party
Show answer & explanation
Answer: B
The principle of indemnity limits recovery to the actual amount of the loss, preventing the insured from profiting from a loss. Choice C describes a deductible, and choice D describes subrogation — related conditions, but not the principle of indemnity itself.14. For a property insurance claim to be payable, when must the insured's insurable interest exist?
- A. Only when the policy is first purchased
- B. At the time of loss
- C. Only when the claim payment is issued
- D. Insurable interest is never required in property insurance
Show answer & explanation
Answer: B
Insurable interest requires that the insured suffer a genuine financial loss if the covered property is damaged, and in property insurance this interest must exist at the time of loss. The other choices misstate the timing requirement.15. After paying a covered claim, an insurer pursues the negligent third party who caused the damage in order to recover the amount it paid. Which policy condition permits this?
- A. Subrogation
- B. Coinsurance
- C. Proof of loss
- D. Pro rata other insurance
Show answer & explanation
Answer: A
Subrogation allows the insurer, after paying a claim, to pursue any third party responsible for the loss to recover the amount paid. Coinsurance concerns the percentage of value the insured must carry, proof of loss is one of the insured's duties after a loss, and the pro rata condition divides a loss among multiple insurers.16. Which statement BEST describes the purpose of a deductible in an insurance policy?
- A. It is the maximum amount the insurer will ever pay for a single claim.
- B. It is the amount the insured pays out of pocket before the insurer pays, which reduces small claims and lowers premiums.
- C. It is a penalty applied only when the insured fails to carry adequate limits.
- D. It is the portion of every claim the insurer recovers from a third party.
Show answer & explanation
Answer: B
A deductible is the amount the insured pays out of pocket before the insurer pays, and it reduces small claims and lowers premiums. Choice A describes a policy limit, choice C alludes to a coinsurance penalty, and choice D describes subrogation recovery.17. A commercial building has a replacement value of $100,000 and the policy contains an 80 percent coinsurance clause, so the insured is required to carry $80,000 of coverage. The insured carries only $60,000. A covered loss of $20,000 occurs, and the policy has a $1,000 deductible. Applying the coinsurance formula, how much will the insurer pay?
- A. $14,000
- B. $15,000
- C. $19,000
- D. $20,000
Show answer & explanation
Answer: A
The coinsurance formula is: amount carried divided by amount required, multiplied by the loss, minus the deductible. Here, $60,000 divided by $80,000 equals 0.75; 0.75 multiplied by the $20,000 loss equals $15,000; subtracting the $1,000 deductible leaves $14,000. Choice B omits the deductible, and choices C and D ignore the coinsurance penalty.18. After paying a covered fire claim, Meridian Insurance discovers the fire was caused by a negligent contractor and sues the contractor to recover the amount it paid its insured. Which policy provision permits this action?
- A. Salvage
- B. Subrogation
- C. Appraisal
- D. Abandonment
Show answer & explanation
Answer: B
Subrogation allows the insurer, after paying a claim, to pursue any third party responsible for the loss to recover the amount paid. Here the insurer paid the claim and is pursuing the negligent contractor, which is exactly the subrogation mechanism.19. A windstorm damages an insured's roof. Under the policy conditions describing the insured's duties after a loss, all of the following are required of the insured EXCEPT:
- A. Giving prompt notice of the loss
- B. Protecting the property from further damage
- C. Submitting a signed proof of loss
- D. Determining which third party was legally at fault for the loss
Show answer & explanation
Answer: D
The insured's duties after a loss include giving prompt notice, protecting property from further damage, and submitting a signed proof of loss. Establishing a third party's legal fault is not among these duties; pursuing responsible third parties is the insurer's role through subrogation after it pays the claim.20. Dana sells her house in March but forgets to cancel the homeowners policy. In June, the house burns down while owned by the new buyer. Why would Dana's claim under the old policy fail?
- A. She no longer has an insurable interest, which in property insurance must exist at the time of loss
- B. She failed to submit a signed proof of loss within the policy period
- C. The insurer's right of subrogation was impaired by the sale
- D. Fire is an excluded peril once a property changes ownership
Show answer & explanation
Answer: A
Insurable interest requires that the insured suffer a genuine financial loss if the covered property is damaged, and in property insurance that interest must exist at the time of loss. Because Dana sold the house before the fire, she suffers no financial loss from its destruction and cannot recover.21. Which statement best describes the purpose of the principle of indemnity in a property policy?
- A. It guarantees the insured receives the full policy limit for any covered loss
- B. It restores the insured to the same financial position as before the loss, preventing profit from a loss
- C. It requires the insured to carry a stated percentage of the property's value
- D. It divides a loss among multiple insurers in proportion to their limits
Show answer & explanation
Answer: B
The principle of indemnity limits recovery to the actual amount of the loss so the insured is restored to the same financial position as before, preventing profit from a loss. Coinsurance requirements and pro rata sharing among insurers are separate conditions, and indemnity limits recovery to the actual loss rather than guaranteeing the policy limit.22. An agent explains to a client why her policy includes a deductible. Which explanation is accurate?
- A. It is the amount the insurer pays before the insured's obligation begins
- B. It is the amount the insured pays out of pocket before the insurer pays, which reduces small claims and lowers premiums
- C. It is a penalty applied only when the insured underinsures the property
- D. It is the portion of the loss transferred to a third party through subrogation
Show answer & explanation
Answer: B
A deductible is the amount the insured pays out of pocket before the insurer pays, and it reduces small claims and lowers premiums. It is not a penalty for underinsurance (that describes a coinsurance penalty) and it has nothing to do with subrogation, which is the insurer's recovery from responsible third parties.23. A commercial building valued at $500,000 is insured for $300,000 under a policy with an 80 percent coinsurance clause and a $1,000 deductible. A covered loss of $40,000 occurs. Using the coinsurance formula, how much will the insurer pay?
- A. $40,000
- B. $39,000
- C. $30,000
- D. $29,000
Show answer & explanation
Answer: D
The coinsurance formula is amount carried divided by amount required, multiplied by the loss, minus the deductible. The amount required is 80 percent of $500,000, or $400,000. The insured carried $300,000, so $300,000 ÷ $400,000 = 0.75; 0.75 × $40,000 = $30,000; and $30,000 − $1,000 deductible = $29,000.24. An insured's personal property is written on a named perils basis, while a neighbor's is written on an open perils basis. After each suffers a loss, who bears the burden of proof, and for what?
- A. Both insureds must prove an exclusion does not apply
- B. The named perils insured must show the loss was caused by a covered peril; under the open perils form, the insurer must demonstrate an exclusion applies
- C. Both insurers must prove the cause of loss before denying any claim
- D. The open perils insured must show the loss was caused by a listed peril; the named perils insurer must prove an exclusion
Show answer & explanation
Answer: B
In a named perils policy, the burden of proof is on the insured to show the loss was caused by a covered peril. An open perils policy covers all direct physical losses except those specifically excluded, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The burdens therefore run in opposite directions for the two insureds.25. A manufacturer's CGL policy is written on an occurrence form. A customer is injured by the manufacturer's product during the policy period but does not file a claim until three years after the policy expires. How does the occurrence form respond?
- A. The claim is covered because the injury occurred during the policy period, regardless of when the claim is filed
- B. The claim is denied because it was not first made during the policy period
- C. The claim is covered only if it falls after the policy's retroactive date
- D. The claim is denied unless an extended reporting period was purchased
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Answer: A
An occurrence form covers injury or damage that occurs during the policy period regardless of when the claim is filed, so the late-filed claim is covered. Choices B, C, and D describe features of a claims-made form, which covers only claims first made during the policy period and is often subject to a retroactive date and extended reporting periods.26. A homeowner insured under an open perils dwelling form asks which causes of loss could still be denied. Which of the following is commonly excluded even under an open perils form?
- A. Flood
- B. Fire
- C. Windstorm
- D. Lightning
Show answer & explanation
Answer: A
Common exclusions found even in open perils forms include flood, earthquake, war, nuclear hazard, wear and tear, and intentional acts. Fire, windstorm, and lightning are classic examples of covered perils — actual causes of loss — rather than standard exclusions.