Personal Lines Insurance Practice Exam.
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1. When submitting an application to sit for this exam, what fee must the applicant pay?
- A. $59
- B. $39
- C. $29
- D. $49
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Answer: B
The stated exam fee is $39. The surrounding dollar amounts are plausible-looking distractors.2. During registration, a candidate reviews the exam parameters. Which statement about the examination is accurate based on the official program details?
- A. It has fewer than 100 scoreable questions and a 120-minute limit
- B. It has 100 scoreable questions, a 120-minute limit, and a $39 fee
- C. It has 100 scoreable questions but no fixed time limit
- D. It has 100 scoreable questions, a 120-minute limit, and a $59 fee
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Answer: B
The exam has 100 scoreable questions, a 120-minute time limit, and a $39 fee — the only option consistent with all three stated facts.3. Which of the following correctly pairs the exam's question count with its time allowance?
- A. 100 questions in 120 minutes
- B. 120 questions in 120 minutes
- C. 120 questions in 100 minutes
- D. 100 questions in 90 minutes
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Answer: A
The exam pairs 100 scoreable questions with a 120-minute time limit. The other options transpose or alter one of the two figures.4. A homeowners policy insures the dwelling under Coverage A for $300,000. Based on the typical relationship between coverages, what is the usual limit for Coverage C personal property?
- A. $150,000
- B. $300,000
- C. $30,000
- D. $240,000
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Answer: A
Coverage C personal property is typically set at 50 percent of Coverage A. Fifty percent of $300,000 is $150,000. (Coverage B other structures, by comparison, is typically 10 percent of Coverage A.)5. An insured's parked car is damaged when a hailstorm shatters the windshield and a deer later strikes the vehicle. Which personal auto coverage responds to these losses?
- A. Collision
- B. Uninsured motorists
- C. Part A liability
- D. Comprehensive (other than collision)
Show answer & explanation
Answer: D
Comprehensive (other than collision) pays for losses such as fire, theft, vandalism, glass breakage, flood, and hitting an animal. Collision, by contrast, pays for damage from impact with another vehicle or object or from overturn.6. An insured is injured by an at-fault driver who does carry liability insurance, but whose limits are too low to cover the full loss. Which coverage is designed to respond?
- A. Medical payments coverage
- B. Uninsured motorists coverage
- C. Comprehensive coverage
- D. Underinsured motorists coverage
Show answer & explanation
Answer: D
Underinsured motorists coverage applies when the at-fault driver has insurance but with limits too low to cover the loss. Uninsured motorists coverage instead applies when the at-fault driver has no insurance or is a hit-and-run driver.7. An applicant wants the broadest homeowners protection available, insuring both the dwelling and personal property on an open perils basis. Which form should the producer recommend?
- A. A named perils dwelling form
- B. The HO-2 broad form
- C. The HO-3 form
- D. The HO-5 comprehensive form
Show answer & explanation
Answer: D
The HO-5 comprehensive form insures both the dwelling and personal property on an open perils basis, providing the broadest coverage. The HO-3 insures the dwelling on an open perils basis but personal property only on a named perils basis, and the HO-2 insures both on a named perils basis.8. Under a named perils property policy, who bears the burden of proving that the loss resulted from a covered cause?
- A. A neutral third-party adjuster appointed by the state
- B. Neither party, because coverage is presumed for all direct losses
- C. The insurer, who must demonstrate an exclusion applies
- D. The insured, who must show the loss was caused by a covered peril
Show answer & explanation
Answer: D
In a named perils policy, the burden of proof is on the insured to show the loss was caused by a covered peril. By contrast, an open perils policy covers all direct physical losses except those excluded and shifts the burden to the insurer to demonstrate an exclusion applies.9. A commercial property policy is written with an 80 percent coinsurance requirement. The building is worth $500,000 and the insured carries $300,000 of coverage. A covered loss of $100,000 occurs and the policy has a $1,000 deductible. Applying the coinsurance formula, how much will the insurer pay?
- A. $74,000
- B. $60,000
- C. $100,000
- D. $99,000
Show answer & explanation
Answer: A
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. So ($300,000 / $400,000) × $100,000 = $75,000, minus the $1,000 deductible = $74,000.10. An employee is injured on the job and receives statutory workers compensation benefits on a no-fault basis. In most cases, what has the employee given up in exchange for these guaranteed benefits?
- A. The right to a portion of lost wages
- B. The right to receive rehabilitation and death benefits
- C. The right to have medical expenses paid
- D. The right to sue the employer for the work-related injury
Show answer & explanation
Answer: D
Under the exclusive remedy arrangement, the employee generally gives up the right to sue the employer in exchange for guaranteed benefits. Those guaranteed benefits include medical expenses, a portion of lost wages, rehabilitation, and death benefits, all provided on a no-fault basis.11. A homeowners policy is written with Coverage A (dwelling) set at $300,000. Based on the typical relationships built into the form, what is the customary limit for Coverage B, other structures?
- A. $150,000
- B. $15,000
- C. $30,000
- D. $240,000
Show answer & explanation
Answer: C
Coverage B for other structures is typically set at 10 percent of Coverage A. Ten percent of $300,000 is $30,000. By comparison, Coverage C personal property is typically 50 percent of Coverage A, which would be $150,000.12. Following a covered loss, an insured fails to give prompt notice, does nothing to protect the damaged property from further harm, and never submits a signed proof of loss. Which policy provision has the insured failed to satisfy?
- A. The subrogation condition
- B. The insurable interest requirement
- C. The duties after a loss condition
- D. The principle of indemnity
Show answer & explanation
Answer: C
The insured's duties after a loss include giving prompt notice, protecting property from further damage, and submitting a signed proof of loss. The insurable interest requirement concerns suffering a genuine financial loss, indemnity limits recovery to the actual loss, and subrogation lets the insurer pursue a responsible third party.13. An insured is injured by an at-fault driver who does carry auto insurance, but that driver's liability limits are too low to fully cover the insured's damages. Which coverage is designed to respond in this situation?
- A. Underinsured motorists (UIM) coverage
- B. Uninsured motorists (UM) coverage
- C. Medical payments coverage
- D. Comprehensive coverage
Show answer & explanation
Answer: A
Underinsured motorists coverage applies when the at-fault driver has insurance but with limits too low to cover the loss. Uninsured motorists coverage, by contrast, applies when the at-fault driver has no insurance or is a hit-and-run driver.14. A commercial general liability policy is written on an occurrence form. An injury occurs during the policy period, but the claimant does not file suit until three years later, after the policy has expired. How does the occurrence form respond?
- A. It responds, because the injury occurred during the policy period regardless of when the claim is filed.
- B. It responds only if a retroactive date is added by endorsement.
- C. It responds only if an extended reporting period is purchased.
- D. It does not respond, because the claim was filed after the policy expired.
Show answer & explanation
Answer: A
An occurrence form covers injury or damage that occurs during the policy period regardless of when the claim is filed. The retroactive-date and extended-reporting-period features are associated with claims-made forms, which cover only claims first made during the policy period.15. Under a typical workers compensation arrangement, what does an injured employee generally give up in exchange for guaranteed statutory benefits provided on a no-fault basis?
- A. The right to death benefits for surviving dependents.
- B. The right to sue the employer, an arrangement known as the exclusive remedy.
- C. The right to receive any portion of lost wages.
- D. The right to receive medical expense reimbursement.
Show answer & explanation
Answer: B
Workers compensation provides statutory benefits — including medical expenses, lost wages, rehabilitation, and death benefits — on a no-fault basis. In exchange, the employee generally gives up the right to sue the employer, an arrangement known as the exclusive remedy.16. After paying a claim to its insured for damage caused by a negligent third party, an insurer pursues that third party to recover the amount it paid. This right of the insurer is known as which of the following?
- A. Coinsurance
- B. Insurable interest
- C. Indemnity
- D. Subrogation
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Answer: D
Subrogation allows the insurer, after paying a claim, to pursue any third party responsible for the loss to recover the amount paid. This is distinct from indemnity, which limits an insured's recovery to the actual amount of the loss to prevent profiting from a loss.17. In a named perils property policy, who bears the burden of proving that the loss resulted from a covered cause?
- A. The insurer, who must show an exclusion applies
- B. The insured, who must show the loss came from a covered peril
- C. The state insurance department
- D. A neutral third-party adjuster
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. This contrasts with an open perils policy, where the burden shifts to the insurer to demonstrate that an exclusion applies.18. After paying a claim to its insured, an insurer pursues the negligent third party who caused the loss in order to recover the amount it paid. Which policy provision permits this?
- A. Insurable interest
- B. Coinsurance
- C. Indemnity
- D. Subrogation
Show answer & explanation
Answer: D
Subrogation allows the insurer, after paying a claim, to pursue any third party responsible for the loss to recover the amount paid. This works alongside the principle of indemnity, which limits recovery to the actual amount of the loss so the insured does not profit from a loss.19. Under a personal auto policy, the coverage that pays reasonable medical and funeral expenses for the insured and passengers without regard to who was at fault is best described as which of the following?
- A. Medical payments coverage
- B. Part A liability coverage
- C. Uninsured motorists coverage
- D. Collision coverage
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Answer: A
Medical payments coverage pays reasonable medical and funeral expenses regardless of fault for the insured and passengers. Uninsured motorists responds to injury from an at-fault uninsured driver, Part A liability pays for injury or damage the insured is legally responsible to others for, and collision pays for impact or overturn damage to the covered auto.20. An insured leaves the front door of their home unlocked because they figure the insurance company will cover any theft loss anyway. This attitude of carelessness because insurance exists is BEST described as which of the following?
- A. A morale hazard
- B. A moral hazard
- C. A peril
- D. A proximate cause
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Answer: A
A morale hazard reflects indifference or carelessness because insurance exists, such as leaving a door unlocked. A moral hazard, by contrast, involves a dishonest tendency such as intentionally causing a loss.21. Under a named perils homeowners policy, who bears the burden of proof when a claim is filed?
- A. The insurer, who must show that an exclusion applies.
- B. The insured, who must show the loss was caused by a covered peril.
- C. Neither party; named perils policies do not require proof of causation.
- D. A neutral third-party adjuster appointed by the state.
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. The shift of that burden to the insurer is a feature of open perils policies, where the insurer must demonstrate an exclusion applies.22. A personal auto policy shows split limits of 100/300/50. What does the middle number represent?
- A. $300,000 per accident for bodily injury
- B. $300,000 per person for bodily injury
- C. $300,000 total policy aggregate for the year
- D. $300,000 per accident for property damage
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Answer: A
In split limits of 100/300/50, the numbers represent $100,000 per person for bodily injury, $300,000 per accident for bodily injury, and $50,000 per accident for property damage. The middle figure is therefore the per-accident bodily injury limit.23. Under a homeowners policy, which term best describes the actual cause of a loss, such as a fire or windstorm?
- A. An exclusion
- B. A condition
- C. A hazard
- D. A peril
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Answer: D
A peril is the actual cause of loss, such as fire, windstorm, theft, or lightning. A hazard, by contrast, is a condition that increases the likelihood or severity of a loss.24. An insured leaves the front door unlocked because he figures the insurance company will pay for any theft anyway. This attitude of carelessness because coverage exists is an example of what?
- A. A morale hazard
- B. A proximate cause
- C. A moral hazard
- D. A physical peril
Show answer & explanation
Answer: A
A morale hazard reflects indifference or carelessness because insurance exists, such as leaving a door unlocked. A moral hazard, in contrast, involves a dishonest tendency such as intentionally causing a loss to collect proceeds.25. A homeowner wants the broadest possible protection, insuring both the dwelling and personal property on an open perils basis. Which form provides this?
- A. The HO-3 form
- B. The HO-2 broad form
- C. The HO-5 comprehensive form
- D. A named perils dwelling form
Show answer & explanation
Answer: C
The HO-5 comprehensive form insures both the dwelling and personal property on an open perils basis, providing the broadest coverage. The HO-3 insures the dwelling on an open perils basis but personal property only on a named perils basis, and the HO-2 covers both on a named perils basis.26. A personal auto policy shows split limits of 100/300/50. What does the middle figure, 300, represent?
- A. $300,000 per accident for property damage
- B. $300,000 per person for bodily injury
- C. $300,000 total policy aggregate
- D. $300,000 per accident for bodily injury
Show answer & explanation
Answer: D
Split limits of 100/300/50 mean $100,000 per person for bodily injury, $300,000 per accident for bodily injury, and $50,000 per accident for property damage. The middle number is therefore the per-accident bodily injury limit.27. A commercial general liability policy is written on an occurrence form. When is a claim covered?
- A. Only if the claim is first made during the policy period
- B. Only during an extended reporting period
- C. Only if a retroactive date is endorsed
- D. If the injury or damage occurs during the policy period, regardless of when the claim is filed
Show answer & explanation
Answer: D
An occurrence form covers injury or damage that occurs during the policy period regardless of when the claim is filed. A claims-made form, by contrast, covers only claims first made during the policy period, often subject to a retroactive date.28. A homeowner's covered dwelling is destroyed by a fire that a faulty appliance started. After the insurer pays the claim, it seeks reimbursement from the appliance manufacturer that was responsible. Which policy condition permits the insurer to do this?
- A. Indemnity
- B. Insurable interest
- C. Pro rata other insurance
- D. Subrogation
Show answer & explanation
Answer: D
Subrogation allows the insurer, after paying a claim, to pursue any third party responsible for the loss to recover the amount paid. Insurable interest concerns whether the insured suffers a genuine financial loss, indemnity limits recovery to the actual loss, and the pro rata condition divides a loss among multiple insurers.29. A liability policy states that it responds to claims for injury or damage that occurs during the policy period, no matter when the claim is eventually reported. This describes which type of coverage trigger?
- A. An occurrence form
- B. An extended reporting form
- C. A retroactive-date form
- D. A claims-made form
Show answer & explanation
Answer: A
An occurrence form covers injury or damage that occurs during the policy period regardless of when the claim is filed. A claims-made form, by contrast, covers only claims first made during the policy period and is often subject to a retroactive date.30. An insured intentionally sets fire to insured property in order to collect the policy proceeds. This dishonest tendency is an example of which of the following?
- A. A physical peril
- B. A proximate cause
- C. A morale hazard
- D. A moral hazard
Show answer & explanation
Answer: D
A moral hazard arises from a dishonest tendency, such as intentionally causing a loss to collect proceeds. A morale hazard, in contrast, reflects indifference or carelessness because insurance exists, such as leaving a door unlocked; a peril is the actual cause of loss.31. A homeowner has an HO-3 policy. During a covered claim, how does the coverage basis differ between the dwelling (Coverage A) and personal property (Coverage C)?
- A. Both the dwelling and personal property are covered on an open perils basis.
- B. The dwelling is covered on a named perils basis, while personal property is covered on an open perils basis.
- C. Both the dwelling and personal property are covered on a named perils basis.
- D. The dwelling is covered on an open perils basis, while personal property is covered on a named perils basis.
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Answer: D
The HO-3 insures the dwelling and other structures on an open perils basis but insures personal property on a named perils basis. The HO-5 is the form that extends open perils to both.32. A driver's parked car is damaged when a tree branch falls on it during a storm, and separately the vehicle's windshield is cracked by a flying rock. Which personal auto coverage responds to these losses?
- A. Comprehensive (other than collision).
- B. Collision, because the vehicle was struck by objects.
- C. Medical payments coverage.
- D. Part A liability.
Show answer & explanation
Answer: A
Comprehensive (other than collision) pays for losses such as fire, theft, vandalism, glass breakage, flood, and hitting an animal. Collision, by contrast, pays for damage from impact with another vehicle or object or from overturn, which does not describe a falling branch or glass breakage.33. A commercial property policy contains an 80 percent coinsurance clause. The insured carries less than the required amount. Which of the following correctly describes how the coinsurance penalty amount is calculated?
- A. Amount carried divided by amount required, multiplied by the loss, minus the deductible.
- B. The full loss minus the deductible, with no proportional adjustment.
- C. Amount required divided by amount carried, multiplied by the loss, plus the deductible.
- D. Amount carried multiplied by amount required, divided by the loss.
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Answer: A
The coinsurance formula is amount carried divided by amount required, multiplied by the loss, minus the deductible. Commercial property coinsurance commonly requires the insured to carry 80, 90, or 100 percent of the property's value.34. A homeowners policy is written on the HO-3 form. How does it treat the dwelling and personal property differently?
- A. The dwelling and other structures are covered on an open perils basis while personal property is covered on a named perils basis
- B. The dwelling is named perils and personal property is open perils
- C. Both are covered on a named perils basis
- D. Both the dwelling and personal property are covered on an open perils basis
Show answer & explanation
Answer: A
The HO-3 is the standard owner-occupied form precisely because of this split, giving broad protection to the structure while listing the perils covering contents. The HO-5 extends open perils to personal property as well, which is the principal reason a buyer would pay more for it.35. A homeowners policy insures the dwelling for $300,000. What is the typical automatic limit for other structures such as a detached garage?
- A. There is no automatic limit for other structures
- B. $150,000, being 50 percent of the dwelling
- C. $30,000, being 10 percent of the dwelling limit
- D. $300,000, the same as the dwelling
Show answer & explanation
Answer: C
Coverage B for other structures is typically set at 10 percent of Coverage A, so 300,000 times 0.10 gives 30,000. Coverage C for personal property is customarily 50 percent of the dwelling limit and Coverage D for loss of use is commonly 20 to 30 percent, all adjustable by endorsement where the standard proportions do not fit.36. A homeowner's residence is uninhabitable after a covered fire. Which coverage pays for a hotel and the increase in meal costs?
- A. Personal liability coverage
- B. Other structures coverage
- C. Loss of use, which pays additional living expense above the household's normal standard of living costs
- D. Personal property coverage
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Answer: C
Loss of use pays the increase in living costs, not the total cost, so it funds the difference between hotel meals and what the family normally spent on groceries. It also includes fair rental value where part of the home was rented out, and civil authority provisions can extend it when access is barred even without damage to the insured's own home.37. A homeowners policy contains special limits on certain classes of personal property. What does this mean for a $9,000 stolen jewellery collection under a $1,500 jewellery theft sublimit?
- A. The insurer pays nothing, since jewellery is excluded
- B. The insurer pays $1,500, and scheduling the jewellery on a personal articles endorsement is the remedy
- C. The insurer pays half the value as a compromise
- D. The insurer pays $9,000, since it is within the overall personal property limit
Show answer & explanation
Answer: B
Special limits cap categories such as jewellery, furs, silverware, firearms and cash, and they operate within the overall personal property limit rather than in addition to it. Scheduling the items removes the sublimit, typically adds open perils coverage including mysterious disappearance, and often waives the deductible for the scheduled items.38. A homeowners policy pays personal property on an actual cash value basis. What does replacement cost coverage on contents change?
- A. It pays the cost to replace with new property of like kind without deduction for depreciation, typically requiring actual replacement before full payment
- B. It converts named perils coverage to open perils
- C. It doubles the personal property limit
- D. It removes all special limits on categories of property
Show answer & explanation
Answer: A
Replacement cost on contents avoids the steep depreciation that makes actual cash value settlements disappointing on household goods, and insurers typically advance the depreciated amount and pay the balance once replacement occurs. It does not change limits, sublimits or the perils insured, each of which requires its own endorsement.39. A renter buys an HO-4 policy. What does it cover that an HO-3 owner's policy also includes, and what does it omit?
- A. It covers the dwelling but omits personal property
- B. It covers the same items as an HO-3 with lower limits
- C. It covers only personal liability
- D. It covers personal property, loss of use and personal liability, but omits dwelling coverage since the tenant does not own the structure
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Answer: D
The tenant form drops the structure the landlord insures and keeps contents, additional living expense and liability. Tenants routinely underestimate the liability component, which responds when the tenant negligently damages the building or injures a guest, and the landlord's policy does not protect the tenant at all.40. A condominium unit owner buys an HO-6 policy. What determines how much building property coverage they need?
- A. The number of units in the building
- B. The market value of the unit
- C. The association's master policy form, since a bare walls policy leaves the owner responsible for interior fixtures and improvements that an all-in policy covers
- D. The association's annual budget
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Answer: C
The division of responsibility between the master policy and the unit owner's policy depends entirely on which master form the association bought, so a bare walls master policy requires substantially more Coverage A on the HO-6. Loss assessment coverage is the related feature responding when the association levies a charge on unit owners after a loss.41. How does a dwelling policy differ from a homeowners policy in scope?
- A. The dwelling policy may be used only for owner-occupied homes
- B. The dwelling policy always includes broader liability coverage
- C. The dwelling policy covers the structure and contents without automatically including liability, and it can cover non-owner-occupied and rental dwellings that homeowners forms exclude
- D. The two forms are identical in eligibility and scope
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Answer: C
Dwelling forms are property-only packages with liability added by endorsement, and their eligibility extends to rental properties, seasonal dwellings and homes that fail homeowners underwriting. That flexibility is why a landlord insuring a rental house uses a dwelling form rather than a homeowners policy.42. A homeowners policy excludes flood. What is the source of residential flood coverage for most homeowners?
- A. An endorsement that any homeowners insurer must add on request
- B. Federal disaster assistance, which functions as insurance
- C. The homeowners policy itself, once the deductible is raised
- D. A separate flood policy through the National Flood Insurance Program or a private flood insurer, with a waiting period before coverage takes effect
Show answer & explanation
Answer: D
Flood is written separately because it is a catastrophic correlated peril that ordinary homeowners pricing cannot absorb, and the waiting period prevents buying coverage as a storm approaches. Disaster assistance is limited, often a loan, and available only after a declaration, so it is not a substitute for coverage.43. A flood policy covers a home's basement. What limitation typically applies to basement contents?
- A. Basement contents are covered on the same basis as the rest of the home
- B. Basement coverage requires a separate policy
- C. Basements are covered only when the home has no other floors
- D. Coverage below the lowest floor is sharply restricted, with most personal property in a basement excluded and building coverage limited to specified items
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Answer: D
Flood policies restrict coverage below the lowest elevated floor because that space floods first and most often, covering utility equipment and structural elements but excluding most stored personal property. Homeowners routinely misunderstand this, which is why the limitation is one of the most important disclosures at the point of sale.44. A homeowners policy excludes earth movement. What does that exclusion typically encompass?
- A. Only earthquake, with landslide covered as standard
- B. Only damage in designated seismic zones
- C. Earthquake, landslide, mudflow, sinkhole collapse and similar earth shifting, with coverage available by separate endorsement or policy
- D. Nothing, since earth movement is a covered peril
Show answer & explanation
Answer: C
The exclusion is written broadly to capture the whole family of ground movement perils, which share the catastrophic correlated character that makes them unsuited to standard pricing. Earthquake endorsements typically carry a percentage deductible rather than a flat dollar amount, which produces a much larger retention on a high-value home.45. A personal auto policy has split limits of 50/100/25. Two people are injured in one accident with damages of $60,000 and $45,000, and property damage is $30,000. What does the insurer pay?
- A. $135,000, the full amount of all three claims
- B. $125,000, applying only the per-occurrence and property limits
- C. $75,000, the per-person limit plus property damage
- D. $120,000, being $50,000 and $45,000 for injuries and $25,000 for property damage
Show answer & explanation
Answer: D
The first figure caps each person at 50,000, so the 60,000 claim is limited to 50,000 while the 45,000 claim is paid in full. Those total 95,000, which is within the 100,000 per-occurrence cap, and property damage is capped at 25,000, giving 120,000 in all. The insured personally owes the uncovered 15,000.46. What does the personal auto policy's uninsured motorist coverage protect against?
- A. The insured's liability to others when at fault
- B. Damage to the insured's own vehicle from any cause
- C. Bodily injury caused by an at-fault driver who carries no liability insurance or who cannot be identified in a hit and run
- D. Injury to the insured when the insured is at fault
Show answer & explanation
Answer: C
Uninsured motorist stands in for the missing liability coverage of the at-fault driver, so the insured must still establish that the other driver was legally responsible. Underinsured motorist is the companion coverage responding when the at-fault driver has insurance but not enough, and both address injury rather than vehicle damage.47. How do collision and other than collision coverages divide the causes of damage to the insured's own vehicle?
- A. Other than collision covers only mechanical breakdown
- B. Collision covers theft and vandalism while other than collision covers impacts
- C. Both cover identical causes with different deductibles
- D. Collision covers impact with another object or upset, while other than collision covers causes such as theft, fire, hail, glass breakage and contact with an animal
Show answer & explanation
Answer: D
The division determines which deductible applies, and striking a deer falls under other than collision rather than collision, which usually carries the lower deductible. Neither coverage responds to mechanical breakdown or wear, which are maintenance costs rather than fortuitous losses.48. A personal auto policy's medical payments coverage is described as no-fault in operation. What does that mean?
- A. It pays only when the other driver is at fault
- B. It pays reasonable medical expenses for the insured and passengers regardless of who caused the accident, up to a modest limit per person
- C. It pays only when the insured is at fault
- D. It pays the medical expenses of the other driver only
Show answer & explanation
Answer: B
Medical payments provides prompt funds without a liability determination, which avoids delay while fault is sorted out and often prevents small claims from becoming lawsuits. Personal injury protection in no-fault states is the broader analogue, adding lost wages and essential services to the medical component.49. A vehicle with an actual cash value of $9,000 is damaged, with repairs estimated at $8,200 and a $500 deductible. Why might the insurer declare it a total loss?
- A. Because the insurer may always elect to total any damaged vehicle
- B. Because the deductible exceeds a stated percentage of the repair
- C. Because repair cost approaches actual cash value, and the insurer's obligation is capped at the lesser of repair cost or the vehicle's value
- D. Because collision coverage never pays for repairs
Show answer & explanation
Answer: C
Physical damage coverage pays the lesser of repair cost or actual cash value, so once repairs approach value, settling at value costs less and avoids the risk of hidden damage exceeding the estimate. Insurers apply a total loss threshold below 100 percent for that reason, and state salvage title rules may also force the outcome.50. A personal auto policy covers a newly acquired vehicle. What is the general rule?
- A. Coverage applies only after the insurer is notified and issues an endorsement
- B. Automatic coverage applies for a limited number of days, with the breadth depending on what coverage the insured already carried on other vehicles
- C. Newly acquired vehicles are never covered until the next renewal
- D. Coverage applies indefinitely with no notification required
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Answer: B
The newly acquired auto provision bridges the gap between purchase and endorsement, but its scope tracks existing coverage, so an insured carrying liability only on every other vehicle generally does not get physical damage on the new one automatically. Notification within the stated window is required to keep the coverage in force beyond it.51. The personal auto policy excludes vehicles used to carry persons or property for a fee. Why does this matter for a driver doing rideshare work?
- A. Because the exclusion applies only to vehicles over a certain weight
- B. Because the personal policy may not respond during commercial use, leaving gaps the platform's coverage or a rideshare endorsement must fill
- C. Because rideshare driving voids the policy entirely and permanently
- D. Because rideshare driving is covered as ordinary personal use
Show answer & explanation
Answer: B
Livery use falls outside personal auto rating, so a claim during commercial activity can be denied, and the platform's own coverage typically varies by phase between waiting for a request and carrying a passenger. A rideshare endorsement fills the phase gaps, and the exclusion suspends coverage during the activity rather than voiding the policy.52. A homeowners policy's personal liability coverage responds to a guest's injury. What does the accompanying medical payments to others coverage do differently?
- A. It pays the insured household's own medical expenses
- B. It pays modest medical expenses for injured non-residents without regard to the insured's legal liability
- C. It provides defense costs in a liability suit
- D. It pays only after liability has been legally established
Show answer & explanation
Answer: B
Medical payments to others is a goodwill coverage settling small injuries without a liability finding, which frequently prevents a neighbourly incident from becoming a lawsuit. It excludes the insured and regular residents of the household, whose injuries belong to their own health coverage, and defense costs sit within the liability coverage in addition to the limit.53. A homeowners liability section excludes business pursuits. How does this affect a homeowner running a small consulting practice from the house?
- A. The exclusion voids the entire homeowners policy
- B. The exclusion applies only to businesses with employees
- C. Liability arising from the business is not covered, requiring an endorsement or a separate business policy
- D. The business is covered because it operates at the residence
Show answer & explanation
Answer: C
Homeowners pricing contemplates residential exposure, so business liability, business property beyond a small sublimit and clients visiting the premises all fall outside the policy. A home business endorsement or a separate commercial policy is required, and the gap commonly surfaces only when a claim is denied.54. A personal umbrella policy requires specified underlying limits on the homeowners and auto policies. What happens if the insured reduces the auto liability limit below the requirement without telling the umbrella insurer?
- A. The umbrella drops down and pays from the reduced limit
- B. The umbrella is void from inception
- C. The umbrella still attaches at the required underlying limit, leaving the insured personally responsible for the shortfall
- D. The auto insurer must make up the difference
Show answer & explanation
Answer: C
The umbrella prices its attachment point on the assumption the scheduled underlying limits are in force, so it responds as if they were and the insured absorbs the gap. This is why umbrella insurers require notice of underlying changes, and why reducing a primary limit to save premium can be an expensive false economy.55. Why does a personal umbrella policy typically cover personal injury offenses such as libel and slander that the underlying homeowners policy may not?
- A. Because the umbrella pays only after a court judgment
- B. Because such offenses are always covered by homeowners policies
- C. Because the umbrella is written broader than the underlying policies and responds after a self-insured retention where no underlying coverage exists
- D. Because personal injury offenses carry no financial exposure
Show answer & explanation
Answer: C
Breadth beyond the underlying policies is a defining umbrella feature, so where an underlying policy is silent the umbrella responds after the insured absorbs a retention. Defamation, false arrest and invasion of privacy are commonly listed offenses, and the coverage has become more relevant as social media has multiplied the exposure.56. A watercraft is damaged and the owner claims under a homeowners policy. What is the general position?
- A. Watercraft are covered only when stored off the residence premises
- B. Watercraft damage is always covered under the auto policy
- C. Homeowners coverage for watercraft is narrowly limited by size, horsepower and value, so larger boats need a separate boatowners or yacht policy
- D. Homeowners policies cover watercraft of any size at full value
Show answer & explanation
Answer: C
Homeowners forms accommodate small craft such as canoes and modest outboards through sublimits and narrow liability provisions, and larger or faster boats fall outside on both property and liability. A boatowners or yacht policy adds hull coverage, protection and indemnity liability, and often wreck removal and pollution provisions.57. A homeowner is offered a percentage windstorm deductible instead of a flat dollar deductible on a $400,000 dwelling. At 2 percent, what is the retention for a hurricane loss?
- A. 2 percent of the loss, whatever that turns out to be
- B. $40,000, being 10 percent of the dwelling limit
- C. $8,000, calculated on the dwelling limit rather than the loss amount
- D. $2,000, a flat amount unrelated to the limit
Show answer & explanation
Answer: C
Percentage deductibles apply to the dwelling limit, so 400,000 times 0.02 gives 8,000 regardless of loss size, which is far larger than the typical flat deductible. Homeowners in coastal areas frequently discover the difference only after a storm, which makes disclosure of the trigger and calculation basis an important point of sale obligation.58. A homeowners policy includes an ordinance or law provision by endorsement. What does it address?
- A. The added cost of rebuilding to current building codes, and the loss of the undamaged portion a code may require to be demolished
- B. Legal defense costs in a liability suit
- C. Fines imposed by a homeowners association
- D. The cost of a building permit for routine renovations
Show answer & explanation
Answer: A
Standard property coverage pays to restore what existed, not to meet codes enacted since construction, which can leave a substantial gap on an older home. The endorsement addresses three elements: demolition of undamaged portions, increased cost of construction, and the loss in value of the undamaged part.59. A homeowners policy is written with an inflation guard endorsement. What does it do?
- A. It guarantees the insurer will rebuild regardless of the limit
- B. It adjusts the deductible for inflation
- C. It increases the dwelling limit automatically over the policy term to keep pace with construction cost changes
- D. It reduces the premium as inflation rises
Show answer & explanation
Answer: C
Inflation guard raises the limit incrementally so a policy written years ago does not become badly underinsured, which matters because underinsurance interacts with replacement cost conditions. Guaranteed replacement cost is the stronger and separate feature under which the insurer rebuilds even if the cost exceeds the stated limit.60. A homeowner reports water damage from a pipe that burst suddenly. A separate area shows long-term seepage damage. How does the policy typically respond?
- A. Neither is covered, since all water damage is excluded
- B. Both are excluded unless a flood policy is in force
- C. Both are covered as water damage
- D. The sudden and accidental discharge is covered while the gradual seepage is excluded as a maintenance issue
Show answer & explanation
Answer: D
Homeowners forms distinguish fortuitous water escape from continuous or repeated seepage over time, which is treated as a failure to maintain rather than an insured loss. Water backup from sewers and drains is a third category, excluded by the base form and available by endorsement, which is why the source of the water drives the outcome.61. A mortgagee clause appears on a homeowners policy. What protection does it give the lender?
- A. The lender's interest is protected even where the borrower's act would bar the borrower's own recovery, and the lender receives notice of cancellation
- B. The lender may collect the full policy limit regardless of the debt
- C. The lender becomes the sole owner of the policy
- D. The lender's protection ends when the borrower defaults
Show answer & explanation
Answer: A
The standard mortgage clause creates a separate contract with the lender, so borrower arson or misrepresentation does not defeat the lender's claim, and the insurer must give the lender independent notice of cancellation. Recovery is capped at the outstanding balance, and the insurer gains subrogation rights against the borrower when it pays the lender on a claim the borrower could not have made.62. A homeowner increases the deductible from $500 to $2,500. What is the trade-off?
- A. Higher premium in exchange for broader coverage
- B. Lower premium in exchange for retaining more of each loss, which suits a household able to absorb the retention and avoids small claims affecting renewal
- C. No premium change, since deductibles do not affect rating
- D. Lower premium with no change in what the insured pays at claim time
Show answer & explanation
Answer: B
Raising the deductible removes the frequent small losses that drive a disproportionate share of claims cost, which is why the premium saving can be substantial. The secondary benefit is that small claims never get filed, avoiding the claims history that leads to surcharges or nonrenewal, which is often worth more than the premium difference.63. A homeowner files a claim and the insurer requests a sworn proof of loss and an examination under oath. What is the insured's position?
- A. They may be required only after litigation begins
- B. These are policy duties after loss, and failure to comply can bar recovery
- C. They are optional requests the insured may decline
- D. They apply only to commercial policies
Show answer & explanation
Answer: B
Duties after loss include prompt notice, protecting property from further damage, preparing an inventory, submitting a proof of loss and cooperating with the investigation including an examination under oath. These are conditions precedent to recovery, so refusing to comply can defeat an otherwise valid claim.64. A personal lines producer recommends declining uninsured motorist coverage to reduce a client's premium. What consideration should govern that advice?
- A. That the client would bear their own injury costs when struck by an uninsured driver, and many states require a written rejection precisely because the exposure is significant
- B. That the coverage is rarely used and therefore low value
- C. That health insurance always covers the same exposure fully
- D. That the coverage is redundant with liability coverage
Show answer & explanation
Answer: A
Liability coverage protects others rather than the insured, so declining uninsured motorist leaves the insured exposed to a driver with no assets to pursue. Health insurance may pay medical costs but not lost wages or general damages, and the written rejection requirement in many states exists because the coverage is easy to drop and hard to replace after a loss.65. An insurer uses a credit-based insurance score in personal lines rating. What is the general regulatory position?
- A. It is permitted in many states subject to restrictions, including limits on using it as the sole basis for adverse action and requirements to notify the consumer
- B. It may be used only for commercial lines
- C. It may be used without any restriction or disclosure
- D. It is prohibited in every state
Show answer & explanation
Answer: A
Credit-based scoring is regulated rather than banned in most jurisdictions, with statutes restricting sole reliance, requiring adverse action notices and prohibiting certain factors. A handful of states restrict or prohibit the practice entirely, so the correct answer for any given transaction depends on the state where the risk is located.66. A homeowners applicant is placed in a state-run FAIR plan. What does that indicate?
- A. The applicant qualified for a state discount program
- B. The risk could not obtain coverage in the voluntary market, and the plan provides basic property coverage as a market of last resort
- C. The applicant's coverage is broader than a standard homeowners policy
- D. The state has assumed the applicant's liability exposure
Show answer & explanation
Answer: B
FAIR plans exist so property in areas the voluntary market avoids can still be insured, typically with narrower coverage and higher cost. Coverage is often basic named perils on the structure with liability unavailable or limited, so a producer placing a risk there should explain what the client is not getting.67. An insurer denies a homeowners claim without conducting a reasonable investigation. Which category of violation does this fall into?
- A. Twisting
- B. Redlining
- C. Rebating
- D. An unfair claims settlement practice, which state law defines and the insurance department enforces
Show answer & explanation
Answer: D
Unfair claims settlement practices statutes list conduct such as failing to investigate promptly, misrepresenting policy provisions, failing to explain a denial and offering substantially less than the claim's value. They govern claims handling specifically, whereas rebating and twisting concern sales conduct and redlining concerns discriminatory underwriting by geography.68. A homeowner sells their house on March 1 but forgets to cancel the homeowners policy. A fire destroys the home on March 15. Can the former owner collect under the policy?
- A. No, because the former owner no longer has an insurable interest in the property
- B. Yes, because the policy was still in force and premiums had been paid
- C. No, because homeowners policies automatically terminate at the closing of a sale
- D. Yes, but only if the new owner assigns their rights to the seller
Show answer & explanation
Answer: A
Property insurance requires the policyholder to have an insurable interest in the covered property at the time of the loss, not merely at the policy's inception; a financial stake based purely on premium payment or a still-active policy number does not substitute for actual ownership or a legal interest, so the seller cannot recover for a loss to a property they no longer own.69. An insured's older, worn kitchen cabinets are destroyed in a covered fire and are replaced with brand-new cabinets under an actual cash value settlement. What principle limits the insured to a depreciated payout rather than the full cost of new cabinets?
- A. The principle of utmost good faith, which requires full disclosure of property condition
- B. The principle of subrogation, which transfers recovery rights to the insurer
- C. The principle of indemnity, which restores the insured to their pre-loss financial position without profit
- D. The principle of contribution, which divides payment among multiple insurers
Show answer & explanation
Answer: C
Indemnity means the insurer's payment should put the insured back in the same financial position they were in immediately before the loss, no better and no worse; because the old cabinets had already depreciated through use, an actual cash value payment reflecting that wear avoids giving the insured a windfall of brand-new property for old.70. On an insurance application, an applicant states they have never been convicted of a felony when in fact they have. The insurer later discovers this after a claim is filed. How is this false statement most accurately classified?
- A. A waiver, which permanently surrenders the insurer's right to contest the claim
- B. A material misrepresentation, which the insurer may use to deny the claim or rescind the policy
- C. A warranty, which if breached automatically voids the entire policy regardless of relevance
- D. An estoppel, which prevents the insurer from asserting any defense to coverage
Show answer & explanation
Answer: B
Statements made on an insurance application are generally treated as representations rather than warranties; when a representation is false and material to the insurer's decision to issue the policy or set its price, the insurer can rescind the contract or deny the resulting claim, whereas a mere immaterial inaccuracy typically would not support such action.71. A homeowners policy contains an ambiguous clause that could reasonably be read two different ways, one favoring the insurer and one favoring the insured. Because the insurer drafted the policy, how will a court most likely resolve the ambiguity?
- A. The ambiguity will be construed against the insurer as the party that drafted the contract
- B. The state Department of Insurance will rewrite the clause before the claim can proceed
- C. The insured must obtain independent legal counsel before the ambiguity can be resolved
- D. The clause will be struck from the policy entirely and treated as if it never existed
Show answer & explanation
Answer: A
Because insurance policies are contracts of adhesion drafted entirely by the insurer with no opportunity for the insured to negotiate terms, courts apply the doctrine of contra proferentem and resolve genuine ambiguities in favor of the insured, since the drafting party is in the best position to have written clearly.72. An insured pays a modest annual premium and, if no loss occurs, receives no policy benefits in return that year. If a covered loss does occur, the insurer may pay out far more than all premiums collected from that insured combined. Which contract characteristic does this illustrate?
- A. A conditional contract, in which coverage depends on satisfying stated conditions
- B. A unilateral contract, in which only the insurer makes an enforceable promise
- C. A contract of adhesion, in which one party dictates the terms
- D. An aleatory contract, in which the values exchanged by each party are unequal and depend on chance
Show answer & explanation
Answer: D
Insurance contracts are aleatory, meaning the dollar values exchanged between the parties are inherently unequal and depend on an uncertain future event; a policyholder may pay small premiums for years and receive nothing, or may pay a single premium and receive a payout many times larger, unlike contracts where the exchanged values are roughly equivalent.73. A business owner becomes indifferent about fire safety because a policy will fully reimburse any loss, and stops replacing worn extension cords or maintaining smoke detectors. What type of hazard does this carelessness represent?
- A. A speculative hazard, arising from a chance of gain or loss
- B. A moral hazard, arising from dishonest intent to profit from a loss
- C. A morale hazard, arising from an insured's indifference to loss because of the existence of insurance
- D. A physical hazard, arising from tangible conditions of the property itself
Show answer & explanation
Answer: C
Morale hazard describes a change in an insured's behavior caused by the mere existence of insurance, leading to carelessness rather than dishonesty; the business owner is not intentionally trying to cause a fire, but coverage has made them lax about routine safety, which is distinct from moral hazard's dishonest intent to profit.74. An insurer collects premiums from a very large pool of similar policyholders, knowing only a small percentage will experience a loss in any given year. What statistical principle allows the insurer to predict aggregate losses and set premiums accordingly?
- A. The principle of subrogation
- B. The law of large numbers
- C. The doctrine of reasonable expectations
- D. The principle of utmost good faith
Show answer & explanation
Answer: B
The law of large numbers holds that as the number of similar, independently exposed units in a pool grows, the actual loss experience of the group becomes more predictable and converges toward the expected probability, letting insurers price premiums for the pool as a whole even though no individual loss can be foreseen.75. An insured and insurer disagree on the dollar amount of a covered fire loss but do not dispute that the loss is covered. Which policy provision allows each side to select an appraiser, who together choose an umpire, to resolve just the amount of the loss?
- A. The appraisal clause
- B. The arbitration clause
- C. The subrogation clause
- D. The loss settlement clause
Show answer & explanation
Answer: A
The appraisal provision is specifically designed to resolve disputes over the dollar amount of a covered loss, not whether coverage applies; each party selects its own competent appraiser, the two appraisers select a neutral umpire, and any two of the three can agree on a binding valuation, keeping the disagreement out of court.76. A building is insured by two separate property policies with different insurers, each covering the full value of the building. A covered loss occurs. How will the two insurers typically share payment of the claim?
- A. Both insurers pay the full claim amount independently, doubling the insured's recovery
- B. Each insurer pays its pro rata share based on the proportion of total coverage it provides
- C. The insured chooses freely which single insurer must pay the full loss
- D. The insurer that issued the earlier policy pays the entire loss alone
Show answer & explanation
Answer: B
When more than one policy covers the same property against the same loss, the other insurance clause typically directs the insurers to share payment on a pro rata basis according to each policy's proportion of the total coverage in force, preventing the insured from collecting more than the actual loss from multiple policies.77. An insurer decides not to renew a homeowners policy at the end of its term due to an increase in claims frequency in the area. What is generally required of the insurer before nonrenewal takes effect?
- A. Advance written notice to the insured within a state-specified timeframe before the renewal date
- B. Nothing, since nonrenewal requires no notice unlike mid-term cancellation
- C. Approval from a court before the policy can lapse
- D. Consent from the mortgagee named on the policy
Show answer & explanation
Answer: A
Most states require insurers to give policyholders advance written notice of nonrenewal before the current policy term expires, giving the insured time to seek replacement coverage; simply letting the policy lapse without notice would leave the insured unexpectedly uninsured and is generally not permitted.78. A homeowners policy states that no lawsuit may be brought against the insurer unless filed within a specified period after the date of loss. What is the purpose of this provision?
- A. To transfer the insured's right to sue to a state guaranty fund
- B. To permanently bar all claims regardless of circumstances
- C. To require the insurer to pay claims immediately without any investigation
- D. To set a reasonable deadline for insureds to pursue legal action, encouraging timely resolution of disputes
Show answer & explanation
Answer: D
A suit-against-us provision sets a defined window after a loss within which the insured must file any lawsuit challenging the insurer's handling of the claim; this encourages prompt resolution of disputes while evidence and witnesses are still fresh, rather than allowing claims to be revived years after the fact.79. A homeowner moves out and leaves a dwelling unoccupied for several months while it is listed for sale. During this period, a pipe bursts and floods the home. How might an unendorsed vacancy provision affect this claim?
- A. Coverage for certain causes of loss, such as vandalism or water damage, may be suspended or restricted once the home has been vacant beyond a specified period
- B. The claim is unaffected, since vacancy has no bearing on homeowners coverage
- C. The policy automatically converts to a commercial property form
- D. The insured forfeits the entire policy retroactive to its inception date
Show answer & explanation
Answer: A
Many homeowners policies contain a vacancy provision that suspends or limits coverage for certain perils, such as vandalism, malicious mischief, or water damage, once a dwelling has stood vacant beyond a stated number of consecutive days, because an unoccupied home carries elevated risk that nobody is present to catch and limit damage early.80. After a covered burglary, an insured intentionally inflates the value of stolen items on the claim submitted to the insurer. What is the likely consequence under the policy's concealment or fraud condition?
- A. The entire claim, and potentially the policy itself, may be voided due to the fraudulent act
- B. The insured is referred to arbitration to determine an average settlement figure
- C. Only the inflated portion of the claim is denied, with the rest paid as submitted
- D. The insurer must still pay the original, accurate value of the stolen items
Show answer & explanation
Answer: A
Property policies typically include a concealment or fraud condition stating that the insurer will not pay any loss in which the insured has intentionally concealed or misrepresented a material fact or engaged in fraud, even a fraudulent element of an otherwise valid claim; deliberately inflating claimed values is exactly the kind of dishonesty this condition is meant to void.81. To close a sale, an insurance producer offers a prospective client a cash rebate equal to part of the first year's commission if the client purchases the policy. How is this practice generally treated under state insurance law?
- A. It is prohibited rebating, an unfair trade practice in most states
- B. It is permitted as long as it is disclosed in writing to the insurer
- C. It is only prohibited for life insurance, not for property and casualty lines
- D. It is a legitimate marketing discount available to any licensed producer
Show answer & explanation
Answer: A
Rebating, giving a prospective policyholder money, gifts, or other inducements not specified in the policy in order to influence the sale, is prohibited as an unfair trade practice in most states because it undermines fair competition among producers and can pressure consumers into buying coverage that is not actually suited to their needs.82. A producer persuades a client to cancel an existing homeowners policy and replace it with a new one from a different insurer by misrepresenting the old policy's terms, resulting in the client losing valuable coverage features. This practice is best described as which of the following?
- A. Twisting
- B. Coordination of benefits
- C. Reformation
- D. Reinstatement
Show answer & explanation
Answer: A
Twisting occurs when a producer induces a policyholder to drop an existing policy and replace it with a new one through misrepresentation or incomplete comparison, often to the client's disadvantage and to generate a new commission; it is prohibited because it can strip consumers of coverage they had, such as accrued benefits or lower premiums, without a genuine improvement.83. An insurance producer collects premium payments from clients before forwarding them to the insurer. How are these funds generally treated under state insurance law?
- A. As the producer's personal operating income once received
- B. As an interest-free loan from the client to the producer
- C. As unclaimed property to be reported to the state treasury
- D. As trust funds that the producer must hold and remit on behalf of the insurer and insured
Show answer & explanation
Answer: D
Premiums collected by a producer are considered fiduciary or trust funds belonging to the insurer and insured, not the producer's own money; producers have a legal duty to keep these funds properly accounted for and remit them promptly, and commingling or using premium funds for personal expenses is a serious licensing violation.84. A licensed personal lines producer wants to keep their license active and in good standing over time. What is generally required to accomplish this?
- A. Maintaining a minimum personal sales volume set by the Department of Insurance
- B. Completing continuing education hours within each renewal period as required by the state
- C. Obtaining sponsorship from a second insurer in addition to the original appointment
- D. Passing the state licensing exam again every single year
Show answer & explanation
Answer: B
Most states require licensed producers to complete a set number of continuing education hours during each license renewal period in order to keep their license active, ensuring producers stay current on policy changes, regulations, and ethical obligations, rather than requiring them to retake the full licensing exam repeatedly.85. An insurer routinely denies valid claims without conducting any investigation and offers settlements far below the reasonable value of losses, hoping most insureds will not challenge it. Under state law, this pattern of conduct is most likely to be classified as which of the following?
- A. A form of concealment by the insured
- B. An unfair claims settlement practice, subject to regulatory penalty
- C. A permissible cost-control strategy protected by the business judgment rule
- D. A breach of warranty by the insurer
Show answer & explanation
Answer: B
State unfair claims settlement practices laws prohibit insurers from engaging in patterns such as failing to investigate claims promptly and reasonably or offering settlements substantially less than what is owed, since these practices harm consumers and undermine the good-faith claims handling insurers are expected to provide; regulators can penalize insurers for such conduct.86. A driver insured under a personal auto policy negligently causes an accident that injures a pedestrian. Which part of the personal auto policy responds to pay damages the driver is legally obligated to pay the pedestrian?
- A. Part D, Coverage for Damage to Your Auto
- B. Part C, Uninsured Motorists Coverage
- C. Part B, Medical Payments
- D. Part A, Liability Coverage
Show answer & explanation
Answer: D
Part A of the personal auto policy is the liability section, which pays damages the insured becomes legally obligated to pay because of bodily injury or property damage to others caused by an auto accident for which the insured is at fault, distinguishing it from coverages that pay the insured's own medical bills or vehicle repairs.87. A named insured's adult child, who lives at home, has a poor driving record and is specifically excluded by endorsement from coverage under the parent's personal auto policy. If the excluded child drives the insured vehicle and causes an accident, what is the typical result?
- A. Coverage applies only to property damage, not to bodily injury claims
- B. The insurer must provide coverage but may later seek reimbursement from the child directly
- C. Part A liability coverage still applies fully because the child resides in the same household
- D. There is no liability coverage available under the policy for that accident because the excluded driver caused it
Show answer & explanation
Answer: D
A named driver exclusion endorsement removes coverage entirely for a specific individual, meaning the insurer has no obligation to provide liability or other coverage for any accident that driver causes while operating a covered vehicle, regardless of household residency; this differs from merely excluding coverage while driving other vehicles.88. An insured has collision coverage with a $500 deductible and comprehensive coverage with a $250 deductible. Their vehicle sustains $3,000 in collision damage from hitting a guardrail. How much will the insurer pay?
- A. $2,500, applying the collision deductible to the collision loss
- B. $250, treating the loss as comprehensive because no other vehicle was involved
- C. $2,750, applying the comprehensive deductible instead
- D. $3,000, since deductibles do not apply to single-vehicle accidents
Show answer & explanation
Answer: A
Striking a stationary object like a guardrail is a collision loss, not a comprehensive (other than collision) loss, so the collision deductible applies rather than the comprehensive deductible; the insurer pays the covered repair cost of $3,000 minus the applicable $500 collision deductible, leaving $2,500.89. An insured owns a $12,000 engagement ring, well above the homeowners policy's standard theft sublimit for jewelry. What is the most effective way to secure adequate coverage for this item against all covered risks, including mysterious disappearance?
- A. Rely on the standard Coverage C limit, since it already covers the full value of any single item
- B. Purchase a separate homeowners policy solely for the ring
- C. Add a scheduled personal property endorsement specifically listing and insuring the ring
- D. Request that the insurer waive the special limits verbally at renewal
Show answer & explanation
Answer: C
Homeowners policies impose special sublimits on categories like jewelry that are far below typical replacement values, so a scheduled personal property endorsement, which lists a specific item and insures it for an agreed or appraised value, is the standard way to secure full coverage, often including broader perils such as mysterious disappearance that the base form excludes.90. An insured's parked, unattended vehicle is struck and damaged by an unidentified driver who flees the scene before anyone can identify them. Which coverage is most likely to respond, since there is no identifiable at-fault driver to pursue?
- A. Uninsured motorists property damage coverage, if elected, or collision coverage under Part D
- B. Medical payments coverage, since no injury occurred
- C. Part A liability coverage, since the insured did nothing wrong
- D. No coverage applies because the responsible party cannot be identified
Show answer & explanation
Answer: A
A hit-and-run loss to a parked vehicle results from physical impact with another vehicle, which is a collision loss under Part D regardless of whether the insured was driving or which vehicle was at fault, since collision coverage is not contingent on fault. Where available and elected, uninsured motorists property damage coverage may also respond, since it treats an unidentified hit-and-run driver as an uninsured motorist and can spare the insured the collision deductible.91. A guest sues an insured homeowner for a serious injury sustained on the property. The homeowner's Coverage E liability limit is $300,000, and the insurer hires an attorney to defend the claim. How are the defense costs generally treated?
- A. Defense costs are deducted from the $300,000 liability limit before any judgment is paid
- B. Defense costs are only covered if the insured is found not liable
- C. Defense costs are typically paid in addition to the liability limit, not subtracted from it
- D. The insured must pay defense costs out of pocket and seek reimbursement later
Show answer & explanation
Answer: C
Under most homeowners liability sections, the insurer's duty to defend a covered claim is separate from and in addition to its duty to pay damages up to the liability limit, meaning the cost of legal defense generally does not erode the available limit of insurance, unlike some commercial liability forms that use a shrinking limit structure.92. A rental property owner's tenant-occupied home is damaged by a covered fire, making it uninhabitable. The owner does not live there but loses the rental income while repairs are made. Which homeowners coverage addresses this lost income?
- A. Personal property coverage, since rental income is intangible property
- B. Fair rental value coverage, which reimburses lost rental income during the restoration period
- C. Additional living expense, since the owner incurs increased costs
- D. Personal liability coverage, since the tenant could sue for lost housing
Show answer & explanation
Answer: B
Fair rental value coverage, a companion to additional living expense within the loss of use section, reimburses the amount of rental income an owner loses while a tenant-occupied portion of the property is uninhabitable due to a covered loss, whereas additional living expense applies specifically to the insured's own increased costs of living elsewhere.93. A parked vehicle is stolen from a driveway overnight. Under a personal auto policy, which coverage would typically respond to this loss?
- A. Medical payments coverage under Part B
- B. Liability coverage under Part A
- C. Collision coverage under Part D
- D. Comprehensive (other than collision) coverage under Part D
Show answer & explanation
Answer: D
Theft of a vehicle is a loss caused by something other than a collision with another object or vehicle, so it falls under the comprehensive, or other than collision, portion of Part D physical damage coverage, which addresses causes such as theft, fire, vandalism, and falling objects rather than impact-based losses.94. A five-year-old roof with an expected useful life of 20 years and a replacement cost of $20,000 is destroyed in a covered windstorm. Under an actual cash value settlement using the replacement-cost-less-depreciation method, approximately how much depreciation would be deducted?
- A. None, since actual cash value equals full replacement cost
- B. A fixed $5,000 regardless of the roof's age or expected life
- C. The full replacement cost, since actual cash value equals zero for any aged property
- D. About one-quarter of the replacement cost, reflecting five of the roof's twenty expected years of useful life already used
Show answer & explanation
Answer: D
One common method of calculating actual cash value is replacement cost minus depreciation, where depreciation is estimated based on the proportion of the item's useful life already consumed; with 5 of 20 expected years used, roughly 25 percent of the replacement cost would be deducted as depreciation, reducing the payout below the full cost of a new roof.95. A commercial property policy is written on an open perils, or 'special form,' basis rather than a named perils basis. What practical difference does this make for the insured when filing a claim?
- A. Open perils forms require the insured to identify the exact cause of the loss before any claim can be paid
- B. Open perils forms cover fewer causes of loss than named perils forms
- C. Open perils forms cover any cause of loss not specifically excluded, generally easing the insured's burden of proof
- D. Open perils forms eliminate the need for the insured to report a loss at all
Show answer & explanation
Answer: C
Under an open perils or special form policy, coverage applies to any direct physical loss that is not specifically excluded, so the insured generally only needs to show that a covered type of property sustained a loss, while the insurer bears the burden of proving an exclusion applies, which is the reverse of the burden under named perils forms.96. A commercial building owner carries property insurance equal to only 60 percent of the coinsurance percentage required by the policy. A covered loss occurs that is less than the building's total value. Compared to carrying the full required amount, how is the insurer's payment affected?
- A. The insurer pays proportionally less than the full loss, with the insured absorbing the shortfall as a coinsurance penalty
- B. The insurer pays more than the loss amount to compensate for the increased risk
- C. The insurer pays nothing at all until the insured purchases additional coverage
- D. The insurer pays the full loss regardless of the shortfall, since coinsurance only applies to total losses
Show answer & explanation
Answer: A
When an insured carries less than the percentage of value required by the coinsurance clause, the coinsurance formula reduces the claim payment proportionally, meaning the insured effectively becomes a co-insurer and bears part of every partial loss out of pocket, not just total losses; the shortfall is often called the coinsurance penalty for underinsuring the property.97. A homeowner's policy has a flat $1,000 deductible. A covered windstorm causes $15,000 in damage to the roof and separately damages a fence in the same storm. How is the deductible typically applied?
- A. The deductible is waived entirely for windstorm losses
- B. A separate $1,000 deductible is subtracted for the roof and another for the fence
- C. No deductible applies because two different structures were damaged
- D. A single $1,000 deductible is subtracted once from the total covered loss for that occurrence
Show answer & explanation
Answer: D
Deductibles under most property policies apply on a per-occurrence basis, meaning all covered damage arising from a single storm or event is combined and the deductible is subtracted just once from the total loss, rather than being applied separately to each individual item or structure damaged in that same event.98. A business owner insures two separate warehouses under a single limit of insurance that applies collectively to both buildings, rather than assigning a separate fixed limit to each. What type of coverage arrangement is this?
- A. Layered insurance, which stacks multiple policies for the same risk
- B. Reinsurance, which spreads risk among insurers
- C. Blanket insurance, which applies one limit across multiple items or locations
- D. Specific insurance, since each building is separately identified in the policy
Show answer & explanation
Answer: C
Blanket insurance applies a single limit of coverage across two or more items, buildings, or locations, giving the insured flexibility since the full limit is available to any one location if needed, in contrast to specific insurance, which assigns a separate fixed limit to each individual item or location that cannot be exceeded even if underused elsewhere.99. A commercial general liability insurer determines that a lawsuit against its insured includes at least one allegation that could potentially fall within the policy's coverage, even though other allegations clearly would not. What is the insurer's obligation regarding defense of the lawsuit?
- A. The insurer may refuse to defend since some allegations are outside coverage
- B. The insurer may split defense costs with the insured based on the ratio of covered to uncovered allegations
- C. The insurer must pay the judgment in full but need not provide a defense
- D. The insurer generally must defend the entire lawsuit, since the duty to defend is broader than the duty to indemnify
Show answer & explanation
Answer: D
The duty to defend under a liability policy is generally broader than the duty to pay a judgment, known as the duty to indemnify; if any allegation in a complaint potentially falls within the scope of coverage, the insurer typically must defend the entire suit, even claims that ultimately prove not covered, until it is clear no covered claim remains.100. An employee is injured on the job due to a defective piece of equipment made by an outside manufacturer, not the employer. The employee accepts workers compensation benefits from the employer's carrier. Can the employee separately pursue the equipment manufacturer?
- A. No, because workers compensation is designed to be the sole remedy for any party connected to the injury
- B. Yes, workers compensation's exclusive remedy protects the employer, but generally does not bar a suit against a negligent third party like the manufacturer
- C. No, accepting workers compensation benefits waives all rights to sue anyone else involved
- D. Yes, but only if the employer consents in writing to the third-party lawsuit
Show answer & explanation
Answer: B
The exclusive remedy doctrine bars an injured employee from suing their own employer in tort once workers compensation benefits are accepted, but it does not extend that protection to unrelated third parties, such as an equipment manufacturer whose defective product caused the injury, against whom the employee may still pursue a separate liability claim.101. For an insurance application to result in a legally binding contract once accepted by the insurer, several basic contract law elements must be present. Which of the following is one of those required elements?
- A. A notarized signature witnessed by a licensed attorney
- B. Consideration, meaning something of value exchanged by both parties, such as the premium
- C. Approval by the applicant's mortgage lender
- D. A minimum policy term of at least one full year
Show answer & explanation
Answer: B
Like any legally enforceable contract, an insurance policy requires offer, acceptance, consideration, competent parties, and a legal purpose; consideration is satisfied on the insured's side by the premium, or a promise to pay it, and on the insurer's side by the promise to pay covered losses, and without this exchange of value there is no binding contract.102. After a personal auto policy is issued, only the insurer has made an enforceable promise to pay covered losses; the insured can stop paying premiums at any time without being sued for breach of contract, though coverage would then lapse. What characteristic of insurance contracts does this illustrate?
- A. The contract is unilateral, since only one party makes a legally enforceable promise
- B. The contract is illusory and therefore unenforceable by either side
- C. The contract is bilateral, since both parties are equally bound to perform
- D. The contract is void for lack of consideration
Show answer & explanation
Answer: A
Insurance contracts are unilateral because only the insurer makes a legally enforceable promise to perform, to pay covered losses if they occur, while the insured's premium payment is a condition for keeping coverage in force rather than an enforceable promise, meaning the insured cannot be sued for simply stopping payment and letting the policy lapse.103. A producer recommends that a client surrender an existing policy with substantial accrued value and purchase a new one, generating a fresh commission for the producer, without a genuine coverage benefit to the client. This practice, when it involves excessive or unnecessary policy replacement for commission purposes, is best described as which of the following?
- A. Subrogation
- B. Coinsurance
- C. Churning
- D. Reformation
Show answer & explanation
Answer: C
Churning refers to inducing a client to replace an existing policy with a new one primarily to generate additional commissions for the producer, rather than to provide a genuine improvement in coverage or value to the client; it is considered an unethical and often illegal practice because it can cost the client accrued benefits or increase costs without real justification.104. A personal lines producer gives negligent advice that results in a client having inadequate coverage for a major loss. What type of insurance is designed to protect the producer's own business against this kind of claim?
- A. Workers compensation insurance
- B. Errors and omissions insurance
- C. Personal umbrella insurance
- D. Fidelity bond coverage
Show answer & explanation
Answer: B
Errors and omissions insurance is a form of professional liability coverage designed specifically to protect insurance producers and agencies against claims arising from negligent acts, errors, or omissions in the course of providing professional advice or service, such as failing to procure coverage a client requested or reasonably expected.
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Key facts: Personal Lines Insurance exam
The Personal Lines Insurance is administered by State DOI, with 100 scored questions, a 2 hours time limit and a 70% (varies by state) result.
This free Personal Lines Insurance practice test has 104 original questions written to State DOI's official content outline, last checked against it on July 18, 2026. Every question shows a worked explanation, and nothing here requires a signup.
As of 2026, the Personal Lines Insurance exam fee is $39 (typical, varies by state).
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Official sources
Primary documents used to verify the exam details shown on this page.
- General Lines - Property and Casualty License ApplicationTexas Department of Insurancetdi.texas.gov
- Texas Personal Lines Insurance HandbookTexas DOI / Pearson VUEtdi.texas.gov
- NIPR Producer LicensingNational Insurance Producer Registrynipr.com
- State Insurance Departments DirectoryNational Association of Insurance Commissionerscontent.naic.org
- PSI Exams - Insurance LicensingPSI Servicespsiexams.com
- Agent and Adjuster LicensingTexas Department of Insurancetdi.texas.gov
Last verified against the official exam content outline:
Frequently asked questions
Do these free practice questions match the real Personal Lines exam?
Yes, the questions are written to mirror the topics and question style you will see on the actual licensing exam. They cover the same ground as the state outlines: personal auto coverages, homeowners forms, perils and hazards, and policy conditions like deductibles, coinsurance, and subrogation. Question wording will never be identical to the real exam, but the concepts and difficulty are designed to feel familiar on test day.
How many practice questions should I do before test day?
Most candidates benefit from working through several hundred practice questions spread across a few weeks rather than cramming them all at once. Aim for a daily set of 20 to 30 questions early in your prep, then move to full-length timed sets in your final week. Repetition matters because the exam rewards fast recognition of coverage definitions and policy conditions.
How should I use the answer explanations?
Read the explanation for every question, including the ones you got right, since a lucky guess is a gap in disguise. When you miss a question, identify whether the problem was a definition you did not know, such as confusing collision with comprehensive, or a rule you misapplied, such as the coinsurance calculation. Keep a running list of missed concepts and re-test yourself on them a few days later.
How do I know when I'm ready to take the real exam?
You are likely ready when you consistently score comfortably above your state's passing standard on full-length timed practice sets, not just on short untimed drills. Consistency matters more than a single good run, so look for stable scores across at least two or three complete practice exams. If you are still confusing core distinctions like named perils versus open perils or uninsured versus underinsured motorists coverage, keep drilling those areas first.
Are these Personal Lines practice questions really free?
Yes, the practice questions on this page are completely free, and you do not need to create an account or hand over an email address to use them. You can start answering immediately and come back as often as you like. Free access lets you build a study baseline before deciding whether you want any paid materials.