Insurance Exam Questions And Answers

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  • 1/25 Questions

    Who is eligible for medical payments under a homeowners policy in case of an injury?

    • The named insured
    • A residence employee
    • A person who is at the insured location without permission
    • Any regular resident of the insured's household who pays rent
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About This Quiz

Get ready to test your knowledge with the Insurance Exam Questions and Answers! This quiz is designed to help you review and understand key concepts essential for general insurance exams. This quiz will give you a solid overview of what to expect in your exam, covering insurance policies, risk management, underwriting, claims processing, and regulatory principles.

These insurance questions See moreand answers for exam are here to challenge your understanding of general insurance fundamentals and provide a comprehensive review of critical areas. Perfect for anyone preparing for their insurance certification or wanting to refresh their knowledge, this quiz will help you identify your strengths and areas needing improvement.

Insurance Exam Questions And Answers - Quiz

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  • 2. 

    Some property insurance policies provide for payment of the full policy limit in the event of a total loss by a covered peril, regardless of the actual value of the property. These policies are known as which of the following?

    • Indemnity policies

    • ACV policies

    • Valued or agreed amount policies

    • Market value policies

    Correct Answer
    A. Valued or agreed amount policies
    Explanation
    Valued or agreed amount policies provide for payment of the full policy limit in the event of a total loss by a covered peril, regardless of the actual value of the property. These policies are different from ACV (actual cash value) policies, which only pay for the depreciated value of the property at the time of the loss. Indemnity policies, on the other hand, reimburse the policyholder for the actual amount of the loss up to the policy limit. Market value policies pay out based on the current market value of the property.

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  • 3. 

    When an uninterrupted chain of events resulting from a negligent act causes a loss, that act is considered to be which of the following?

    • An assumption of risk

    • An intervening cause

    • The proximate cause of loss

    • A matter of strict liability

    Correct Answer
    A. The proximate cause of loss
    Explanation
    The proximate cause of loss refers to a negligent act that directly leads to a loss through an uninterrupted chain of events. It is the primary cause that sets in motion a sequence of events, ultimately resulting in the loss. This concept is important in determining liability and causation in legal cases. It is different from an assumption of risk, which involves voluntarily accepting the potential risks associated with an activity, an intervening cause, which is an unforeseeable event that breaks the chain of causation, and strict liability, which holds a party liable regardless of fault.

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  • 4. 

    For how many days does the coverage apply at another location for property removed to protect it from a flood under the National Flood Insurance Program?

    • 60 days

    • 45 days

    • 30 days

    • 15 days

    Correct Answer
    A. 45 days
    Explanation
    Under the National Flood Insurance Program, if you move your property to protect it from a flood, the insurance will cover it at the new location for up to 45 days. This means that if you take your belongings to a safer place because a flood is coming, the insurance helps cover any damage to them for a month and a half. This coverage is important because it gives people a way to safeguard their property during floods without worrying about the cost of potential damages while temporarily relocated.

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  • 5. 

    In legal terms, when one party's actions result in giving up a known right, what has the party created?

    • Unilateral contract

    • Representation

    • Warranty

    • Waiver

    Correct Answer
    A. Waiver
    Explanation
    A waiver occurs when a person voluntarily gives up a known right, typically through explicit declaration or by some act that implies the intention to relinquish the right. In legal contexts, waivers are significant because they prevent the person who has waived the right from claiming any contrary course of action later on. For instance, if someone signs a document stating they waive the right to sue a company, they cannot legally file a lawsuit against that company regarding the specified matters in the future. Waivers are used to avoid disputes and clarify that certain rights will not be enforced.

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  • 6. 

    What is the purpose of a deductible in an insurance policy?

    • To increase the premium paid by the policyholder

    • To decrease the insurance company's liability for small claims 

    • To provide additional coverage beyond the policy limit

    • To extend the policy term

    Correct Answer
    A. To decrease the insurance company's liability for small claims 
    Explanation
    A deductible is a specific amount that a policyholder must pay out-of-pocket before the insurance company pays a claim. The main purpose of a deductible is to decrease the insurer's liability for small or minor claims, thereby encouraging policyholders to avoid filing frequent, small claims. It also helps in managing the cost of premiums, as generally, higher deductibles lead to lower premium costs. This system allocates some risk back to the policyholder, ensuring they have a financial stake in the risk management process.

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  • 7. 

    An insurer's loss ratio is determined by dividing what?

    • Premiums by combined losses and expenses

    • Premiums by underwriting losses

    • Operating expenses by total premiums

    • Underwriting losses by total premiums

    Correct Answer
    A. Underwriting losses by total premiums
    Explanation
    The loss ratio is used to compare the company's loss experience from year to year. It is calculated by dividing the amount of incurred underwriting losses by the earned premium. It can be calculated separately for individual lines of insurance or the company's entire operations.

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  • 8. 

    Under most property insurance policies, the policy territory includes which of the following?

    • Only the United States

    • The United States, its territories and possessions, and Canada

    • The United States, Canada, and Mexico

    • All of North America and Europe

    Correct Answer
    A. The United States, its territories and possessions, and Canada
    Explanation
    Under most property insurance policies, the policy territory typically includes the United States, its territories and possessions, and Canada. This means that coverage extends to properties located within the United States, its territories (such as Puerto Rico, Guam, etc.), possessions (such as American Samoa), and Canada. Including these areas in the policy territory ensures that properties situated within these regions are covered by the insurance policy, providing broader protection for policyholders.

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  • 9. 

    Claims-made general liability coverage does not apply to bodily injury or property damage that occurs when?

    • On the policy's retroactive date

    • Before the policy's retroactive date

    • After the policy's retroactive date

    • Before the effective date, if there is no retroactive date

    Correct Answer
    A. Before the policy's retroactive date
    Explanation
    Claims-made general liability coverage only applies to bodily injury or property damage that occurs after the policy's retroactive date. This means that any claims arising from incidents that happened before the retroactive date are not covered by the policy.

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  • 10. 

    Under liability insurance policies, what does an "aggregate limit" mean?

    • It is the most the insurer will pay for any one accident.

    • It is the most the insurer will pay for all losses during any one policy period.

    • It is the maximum limit for each claim when multiple claimants arise out of the same occurrence.

    • It is the single largest limit that applies when a loss is covered by two or more policies issued by the same insurer.

    Correct Answer
    A. It is the most the insurer will pay for all losses during any one policy period.
    Explanation
    An "aggregate limit" under liability insurance policies refers to the maximum amount that the insurer will pay for all losses that occur during a specific policy period. This means that regardless of the number of claims or accidents that take place within that period, the insurer will only pay up to the aggregate limit. Once that limit is reached, the insurer will not provide any further coverage for losses.

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  • 11. 

    In the event of a physical damage loss that makes a covered auto unavailable for a period of time, a personal auto policy will provide coverage for transportation expenses at the rate of $20 per day up to how much?

    • A maximum payment of $300

    • A maximum payment of $460

    • A maximum payment of $600

    • A maximum payment of $740

    Correct Answer
    A. A maximum payment of $600
    Explanation
    In addition to collision and other than collision coverage, if a covered loss makes an insured auto unavailable, a personal auto policy will provide coverage for transportation expenses up to $20 per day, subject to a maximum payment of $600.

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  • 12. 

    Under the business auto coverage part, each of the following is true about the classifications of covered autos, which are designated by numerical symbols shown in the declarations, except for which of the following?

    • All classes of newly acquired autos are automatically covered.

    • An insured can select different classifications for various coverages.

    • "Any auto" is the broadest coverage classification.

    • "Hired autos" include autos the insured leases, hires, rents, or borrows.

    Correct Answer
    A. All classes of newly acquired autos are automatically covered.
    Explanation
    Under the business auto coverage part, all classes of newly acquired autos are automatically covered. This means that when a business acquires a new vehicle, it is automatically covered under the policy without the need for any additional action or endorsement. This is different from the other statements, which discuss the ability to select different classifications for various coverages, the broadest coverage classification being "any auto," and the inclusion of leased, hired, rented, or borrowed autos under the classification of "hired autos."

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  • 13. 

    What is called something that might increase the likelihood that a loss will occur?

    • Peril

    • Hazard

    • Risk

    • Catastrophe

    Correct Answer
    A. Hazard
    Explanation
    A hazard is something that increases the likelihood that a loss will occur. It is a condition or circumstance that makes it more probable for a peril (a specific event that causes loss, like a fire or flood) to cause damage or loss. For instance, storing flammable materials improperly is considered a hazard because it increases the chance of a fire, which is the peril. Understanding hazards is crucial in both everyday risk management and in designing insurance policies to ensure that risks are appropriately identified and mitigated.

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  • 14. 

    Tom Baxter has an automobile insured by a personal auto policy. He trades in his car and purchases a new private passenger auto as a replacement vehicle. If he does not notify the insurance company, the liability coverage for his replacement vehicle will apply automatically for how long?

    • 10 days

    • 30 days

    • 60 days

    • Until the end of the policy period

    Correct Answer
    A. Until the end of the policy period
    Explanation
    Under a personal auto policy, if a newly acquired auto replaces another auto, the new vehicle automatically has the broadest coverage for liability, medical payments, and uninsured motorists coverage for any auto shown in the declarations until the end of the policy period.

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  • 15. 

    What is a device used to minimize small nuisance claims and help keep insurance premiums down called?

    • Arbitration

    • Deductible

    • Valued policy

    • Coinsurance

    Correct Answer
    A. Deductible
    Explanation
    A deductible is a specific amount that the policyholder must pay out-of-pocket before the insurance company pays a claim. By having a deductible, insurance policies discourage small nuisance claims because the policyholder has to consider whether the cost of repairing the damage is worth more than the deductible they would have to pay. This system helps reduce the number of minor claims that insurance companies have to handle, which can lead to lower overall costs for the insurer. As a result, this helps keep insurance premiums more affordable for everyone.

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  • 16. 

    Which type of insurance professional sells advice about insurance coverage but does not actually sell insurance coverage?

    • Excess and surplus lines agent

    • Solicitor

    • Consultant

    • Producer

    Correct Answer
    A. Consultant
    Explanation
    An insurance consultant is a type of insurance professional who provides expert advice about insurance coverage but does not sell insurance policies. Unlike agents or brokers who are involved in the selling of insurance products, consultants focus on analyzing existing insurance policies, assessing risks, and advising clients on the most suitable coverage options based on their specific needs. This role is crucial for businesses and individuals who require specialized knowledge to navigate complex insurance decisions, ensuring that they make informed choices without the pressure of purchasing from a specific provider.

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  • 17. 

    Under the NCCI worker's compensation and employers liability policy form, what is the basic, or minimum, limit for employer's liability coverage per accident?

    • $50,000 per accident

    • $100,000 per accident

    • $250,000 per accident

    • $500,000 per accident

    Correct Answer
    A. $100,000 per accident
    Explanation
    Under the NCCI (National Council on Compensation Insurance) worker's compensation and employer's liability policy form, the basic or minimum limit for employer's liability coverage per accident is $100,000. This amount represents the minimum financial protection provided for each accident under the employer’s liability section of the policy. This coverage helps protect employers against lawsuits filed by employees for work-related injuries or diseases that are not covered under the worker’s compensation part of the policy. The $100,000 limit helps ensure that employers have a foundational level of financial protection against potential claims.

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  • 18. 

    Which dwelling policy forms are named peril forms?

    • All dwelling forms

    • The basic and broad forms

    • The basic form only

    • The special form only

    Correct Answer
    A. The basic and broad forms
    Explanation
    The correct answer is the basic and broad forms. In dwelling insurance, the Basic Form (DP-1) and Broad Form (DP-2) are named peril forms, meaning they only cover specific perils explicitly listed in the policy. The Basic Form covers limited perils like fire, lightning, and internal explosion, with options to add more through endorsements. The Broad Form expands on this by including additional named perils such as falling objects, burglary damage, and freezing of pipes. In contrast, the Special Form (DP-3) is an open peril form that covers all perils except those explicitly excluded, providing broader protection. Thus, only the Basic and Broad Forms are considered named peril forms.

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  • 19. 

    If general liability "claims-made" coverage is renewed by "occurrence" coverage and the insured purchases a supplemental extended reporting period (ERP), for how long will the period for reporting claims under the policy be extended?

    • Indefinitely

    • 5 years

    • 3 years

    • 60 days

    Correct Answer
    A. Indefinitely
    Explanation
    When a general liability "claims-made" coverage is switched to "occurrence" coverage and the insured opts to purchase a supplemental extended reporting period (ERP), the period for reporting claims under the policy can be extended indefinitely. This option allows the insured to report claims that are related to incidents that occurred during the claims-made policy period, even if the claims themselves are made after the policy has expired. This indefinite extension is critical for protecting the insured against late-coming claims that arise from incidents that happened during the active period of the claims-made policy.

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  • 20. 

    Under liability insurance policies, what does the term "personal injury" usually mean?

    • Injury for such things as libel, slander, false arrest, or invasion of privacy.

    • Only bodily injuries are suffered by individuals.

    • Any form of injury that affects a person, including bodily injury, property damage, financial injury, and damage to one's reputation.

    • Injuries suffered by named insureds or family members who are insured under personal lines policies.

    Correct Answer
    A. Injury for such things as libel, slander, false arrest, or invasion of privacy.
    Explanation
    The term "personal injury" under liability insurance policies usually refers to injury for things such as libel, slander, false arrest, or invasion of privacy. This means that if someone is harmed due to any of these actions, they may be covered under the liability insurance policy. It does not solely refer to bodily injuries, but includes other forms of injury that affect a person, such as damage to reputation or financial injury.

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  • 21. 

    Under a personal auto policy, if an insured already has physical damage coverage for at least one vehicle, how many days does the insured have to notify the insurer and request coverage for a new vehicle from the date it is acquired to ensure automatic coverage?

    • 30 days

    • 14 days

    • 10 days

    • 7 days

    Correct Answer
    A. 14 days
    Explanation
    Under a personal auto policy, if an insured already has physical damage coverage for at least one vehicle, any newly acquired vehicle will automatically have the same level of coverage for 14 days from the date it is acquired. During this 14-day period, the insured must notify the insurer about the new vehicle and request the continuation of coverage. This provision ensures that the insured has immediate protection for the new vehicle while providing a reasonable timeframe to update their policy formally. This auto-coverage extension is crucial for maintaining uninterrupted insurance protection when switching or adding vehicles.

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  • 22. 

    Which of the following is not true about difference in conditions (DIC) insurance?

    • DIC policies provide property and liability coverages

    • Traditional perils (such as fire, lightning, and so on) are usually excluded by DIC policies

    • DIC supplements other coverages and fills insurance gaps

    • DIC can provide considerable protection at a reasonable cost

    Correct Answer
    A. DIC policies provide property and liability coverages
    Explanation
    DIC policies do provide broad property coverage intended to supplement other coverages and fill insurance gaps. For this reason, DIC policies typically exclude coverage for traditional perils such as fire, lightning, and extended coverage perils. DIC policies do not provide any liability coverage.

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  • 23. 

    If coverage for personal liability and medical payments is attached to a dwelling policy, what basic limit of coverage applies to medical payments unless a higher amount is purchased?

    • $500 per person

    • $1,000 per person

    • $2,500 per person

    • $5,000 per person

    Correct Answer
    A. $1,000 per person
    Explanation
    When a dwelling policy includes coverage for personal liability and medical payments, the basic limit of coverage for medical payments is typically $1,000 per person. This amount serves as the default coverage limit, providing financial assistance for medical expenses incurred by someone injured on the insured's property, regardless of fault. The insured has the option to purchase higher coverage limits, but unless specified, $1,000 per person is the standard provision. This helps ensure quick and straightforward financial help to cover necessary medical costs, fostering goodwill and potentially preventing more costly liability claims.

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  • 24. 

    Under which type of marketing system do agents or agencies operate as independent businesses but agree to represent only one insurance company?

    • Direct writer system

    • Exclusive of the captive agency system

    • Direct response system

    • Independent agency system

    Correct Answer
    A. Exclusive of the captive agency system
    Explanation
    In an exclusive or captive agency system, agents operate as independent businesses but commit to representing only one insurance company. They sell policies exclusively for that insurer and do not offer competing products. This system provides agents with training, marketing support, and financial incentives, ensuring brand loyalty and consistent sales. Unlike independent agents, who work with multiple insurers, captive agents focus on promoting a single company's policies. The direct writer system involves salaried employees selling insurance, while the direct response system relies on marketing via mail or online. Independent agencies, in contrast, offer products from multiple insurers.

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  • 25. 

    Which peril is not covered under a commercial property coverage part with the basic causes of loss form attached?

    • Windstorm

    • Explosion

    • Volcanic eruption

    • Sprinkler leakage

    Correct Answer
    A. Sprinkler leakage
    Explanation
    Under a commercial property coverage part with the basic causes of loss form attached, perils such as windstorm, explosion, and volcanic eruption are typically covered. However, sprinkler leakage is not included in the list of covered perils in the basic form. Coverage for sprinkler leakage usually requires a more comprehensive form or a specific endorsement to be added to the policy. The basic form primarily covers the most direct and common types of physical damage but does not extend to more specific risks like those caused by accidental activation or malfunction of a sprinkler system.

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  • Current Version
  • Feb 10, 2025
    Quiz Edited by
    ProProfs Editorial Team
  • Feb 24, 2009
    Quiz Created by
    Fsspc

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