50 Property & Casualty Practice Questions & Answers
Every Property & Casualty practice question from the Insurance License Practice Test, with the correct answer and a short explanation.
Start practice test →1. In insurance, what is 'insurable interest'?
- A.A financial stake in the insured item such that a loss would cause the insured financial harm✓ Answer
- B.The insurer's profit margin on a policy
- C.The interest charged when a premium is paid late
- D.The rate of return the insurer pays on premiums
Insurable interest means the insured would suffer a genuine financial loss if the covered property is damaged or destroyed.
2. The principle of indemnity is best described as:
- A.Restoring the insured to the same financial position as before the loss, no better and no worse✓ Answer
- B.Paying the insured double the value of the loss
- C.Guaranteeing the insured a profit after a loss
- D.Paying claims only if the insured has no other coverage
Indemnity aims to make the insured whole, preventing the insured from profiting from a loss.
3. Subrogation allows an insurer to:
- A.Cancel a policy after paying a claim
- B.Deny a claim if the insured was partially at fault
- C.Increase the insured's premium after any loss
- D.Recover its claim payment from the third party who caused the loss✓ Answer
After paying a claim, the insurer 'steps into the shoes' of the insured to pursue the at-fault party.
4. 'Utmost good faith' (uberrimae fidei) in insurance requires that:
- A.Both the insured and insurer deal honestly and disclose all material facts✓ Answer
- B.Only the insurer must act honestly
- C.Neither party has any duty to disclose information
- D.Only the insured must disclose material facts
Utmost good faith imposes a mutual duty of honesty and full disclosure of material facts on both parties.
5. Adverse selection refers to the tendency of:
- A.People with a higher-than-average chance of loss to seek insurance more than average risks✓ Answer
- B.Insurers to select only the safest customers
- C.Agents to sell to family members first
- D.Insureds to file more claims in winter
Adverse selection is the tendency of higher-risk individuals to seek or keep insurance at a greater rate than average.
6. In insurance terminology, a 'peril' is:
- A.The amount the insured pays out of pocket
- B.A condition that increases the chance of a loss
- C.The maximum the policy will pay
- D.The cause of a loss, such as fire, windstorm, or theft✓ Answer
A peril is the direct cause of a loss; a hazard, by contrast, is a condition that increases the likelihood or severity of a peril.
7. A homeowner leaves an oily rag pile in the garage. This is an example of a:
- A.Named peril
- B.Peril
- C.Physical hazard✓ Answer
- D.Indemnity
A physical hazard is a tangible condition that increases the chance or severity of loss, such as flammable materials stored unsafely.
8. What is the key difference between a 'named-peril' and an 'open-peril' (all-risk) policy?
- A.A named-peril policy covers only perils listed in the policy, while an open-peril policy covers all perils except those excluded✓ Answer
- B.A named-peril policy has no deductible
- C.An open-peril policy covers only the perils listed by name
- D.There is no difference; the terms are identical
Named-peril policies cover only the specifically listed perils; open-peril policies cover everything not specifically excluded.
9. In a standard homeowners policy, Coverage A insures:
- A.Loss of use / additional living expenses
- B.The dwelling (the house structure itself)✓ Answer
- C.Personal property (contents)
- D.Personal liability
Coverage A covers the dwelling structure; B covers other structures, C personal property, D loss of use, E personal liability, and F medical payments.
10. In a homeowners policy, Coverage F (Medical Payments to Others) pays for:
- A.Medical expenses of others injured on the insured's premises, regardless of the insured's fault✓ Answer
- B.Damage to the insured's dwelling structure
- C.The insured's own medical bills after any accident
- D.Legal defense costs in a lawsuit
Coverage F pays reasonable medical expenses for others injured on the premises on a no-fault basis, not the insured's own injuries.
11. On a Personal Auto Policy, which coverage pays for damage to your own car from a collision with another vehicle?
- A.Comprehensive coverage
- B.Uninsured motorist coverage
- C.Collision coverage✓ Answer
- D.Bodily injury liability
Collision coverage pays for damage to the insured's own vehicle from impact with another vehicle or object, or from a rollover.
12. Under a Personal Auto Policy, which loss would typically be covered by Comprehensive (Other Than Collision) coverage?
- A.A rollover accident
- B.Hitting a guardrail
- C.Theft of the vehicle or damage from hail✓ Answer
- D.Injuries you cause to another driver
Comprehensive covers non-collision losses such as theft, fire, hail, vandalism, and animal strikes.
13. Uninsured Motorist (UM) coverage protects the insured when:
- A.The insured causes damage to another person's property
- B.The insured's car is damaged by a flood
- C.An at-fault driver who has no liability insurance injures the insured✓ Answer
- D.The insured's own car is stolen
UM coverage pays for the insured's injuries caused by an at-fault driver who lacks liability insurance; UIM applies when the at-fault driver's limits are insufficient.
14. A property insured for $80,000 has an 80% coinsurance clause and a replacement cost of $200,000. After a $50,000 loss (ignoring the deductible), how much will the insurer pay?
- A.$40,000
- B.$80,000
- C.$50,000
- D.$25,000✓ Answer
The coinsurance formula (amount carried / amount required) × loss = ($80,000 / $160,000) × $50,000 = $25,000, since the required amount is 80% of $200,000.
15. The principle of contribution applies when:
- A.Two or more policies cover the same loss, so each insurer pays its proportional share✓ Answer
- B.An insurer recovers from the at-fault third party
- C.The insured pays a deductible before coverage applies
- D.A single insurer pays the entire claim without limit
Contribution prevents the insured from collecting more than the loss when multiple policies apply; insurers share the loss proportionally.
16. Which part of an insurance policy contains the named insured, policy period, limits, and premium?
- A.The insuring agreement
- B.The exclusions
- C.The declarations (dec page)✓ Answer
- D.The conditions
The declarations page personalizes the policy with the insured's name, address, coverage limits, deductibles, policy period, and premium.
17. The insuring agreement of a policy does what?
- A.States the insurer's core promise to pay for covered losses✓ Answer
- B.Lists the perils and losses that are NOT covered
- C.Sets out the insured's duties after a loss
- D.Shows only the premium owed
The insuring agreement is the insurer's promise to pay or provide a benefit; exclusions narrow it and conditions govern how it operates.
18. An endorsement (or rider) to a policy is used to:
- A.Cancel the policy immediately
- B.Replace the declarations page each renewal
- C.Amend, add, or delete coverage from the base policy✓ Answer
- D.Serve as the insured's proof of loss
An endorsement modifies the original policy; where it conflicts with the base form, the endorsement controls.
19. Which homeowners form is designed specifically for tenants (renters) to cover their personal property and liability?
- A.HO-3 (special form)
- B.HO-6 (condominium form)
- C.HO-4 (contents broad / renters form)✓ Answer
- D.HO-8 (modified form)
HO-4 is the renters/tenants form, covering personal property on a named-peril basis plus liability, but not the building structure.
20. The HO-3 (special form) insures the dwelling and personal property on what basis?
- A.Dwelling on open-peril basis, personal property on named-peril basis✓ Answer
- B.Both dwelling and personal property on named-peril basis
- C.Both on open-peril basis
- D.Dwelling on named-peril basis, personal property on open-peril basis
The HO-3 covers Coverages A and B (dwelling/other structures) open-peril but Coverage C (personal property) named-peril; the HO-5 covers both open-peril.
21. The HO-8 (modified form) is most appropriate for:
- A.A brand-new luxury home
- B.A condominium unit
- C.A rented apartment
- D.An older home whose market value is far below replacement cost✓ Answer
The HO-8 settles losses on a modified/functional-replacement or ACV basis, suiting older homes where replacement cost greatly exceeds market value.
22. Actual cash value (ACV) is generally calculated as:
- A.Replacement cost with no deduction
- B.Original purchase price plus inflation
- C.The policy limit divided by the deductible
- D.Replacement cost minus depreciation✓ Answer
ACV = replacement cost minus depreciation, so it pays the depreciated value of damaged property rather than the cost of new items.
23. Which of the following are the four required elements of negligence?
- A.Offer, acceptance, consideration, and capacity
- B.Duty, breach of duty, proximate cause, and damages✓ Answer
- C.Peril, hazard, loss, and indemnity
- D.Intent, motive, opportunity, and harm
Negligence requires a legal duty, a breach of that duty, the breach being the proximate cause, and actual damages.
24. Under a Personal Auto Policy, what does 'split limits' of 100/300/50 mean?
- A.$100,000 total per policy, split three ways
- B.$100 deductible, $300 premium, $50 fee
- C.$100,000 bodily injury per person, $300,000 per accident, $50,000 property damage✓ Answer
- D.$100,000 property damage, $300,000 medical, $50,000 collision
Split limits show BI per person / BI per accident / property damage: $100,000 / $300,000 / $50,000.
25. Medical Payments coverage under a Personal Auto Policy primarily pays for:
- A.Property damage to other vehicles
- B.Legal defense in a liability suit
- C.The insured's lost wages only
- D.Medical expenses for the insured and passengers regardless of fault✓ Answer
Med Pay covers reasonable medical (and often funeral) expenses for the insured and passengers on a no-fault basis.
26. A Commercial General Liability (CGL) policy's Coverage A insures against:
- A.Bodily injury and property damage liability✓ Answer
- B.The insured's own building damage
- C.Employee injuries on the job
- D.Damage to the insured's own products
CGL Coverage A covers bodily injury and property damage liability; Coverage B covers personal and advertising injury; Coverage C covers medical payments.
27. Workers compensation insurance provides benefits that are generally:
- A.Provided on a no-fault basis for job-related injuries and illnesses✓ Answer
- B.Paid only if the employer was negligent
- C.Optional for the injured worker to purchase
- D.Limited to property damage claims
Workers compensation is a no-fault system: employees receive statutory benefits for work-related injury/illness without proving employer negligence.
28. A personal umbrella policy typically:
- A.Provides excess liability limits above underlying auto and homeowners policies✓ Answer
- B.Covers only property damage to the insured's home
- C.Replaces the need for auto insurance
- D.Pays the insured's own medical bills first
An umbrella provides excess liability over required underlying limits and may cover some claims not covered by the underlying policies (subject to a self-insured retention).
29. A deductible in a property policy is:
- A.The insurer's maximum payment
- B.The amount the insured retains and pays before the insurer pays the rest✓ Answer
- C.A fee charged for filing a claim
- D.The premium paid each month
A deductible is the portion of a loss the insured absorbs; it reduces small claims and lowers premiums.
30. A building is insured for $180,000 under an 80% coinsurance clause; its replacement cost is $300,000. A covered loss of $60,000 occurs with a $1,000 deductible. How much does the insurer pay?
- A.$59,000
- B.$45,000
- C.$44,000✓ Answer
- D.$60,000
Required = 80% × $300,000 = $240,000. Payment = (180,000/240,000) × 60,000 − 1,000 = 0.75 × 60,000 − 1,000 = 45,000 − 1,000 = $44,000.
31. The National Flood Insurance Program (NFIP) exists mainly because:
- A.Flood is a standard covered peril on homeowners policies
- B.Floods never cause significant property damage
- C.Only businesses can buy flood coverage
- D.Flood losses are generally excluded by standard homeowners and dwelling policies✓ Answer
Standard homeowners and dwelling policies exclude flood, so the federally backed NFIP provides separate flood coverage.
32. A surety bond involves how many parties, and who are they?
- A.Two parties: insurer and insured
- B.Three parties: principal, obligee, and surety✓ Answer
- C.One party: the principal only
- D.Four parties: agent, broker, insurer, and insured
A surety bond has three parties: the principal (who must perform), the obligee (protected party), and the surety (who guarantees performance).
33. A fidelity bond is designed to protect an employer against:
- A.Fire damage to the building
- B.Customer slip-and-fall injuries
- C.Dishonest acts of employees, such as theft or embezzlement✓ Answer
- D.Product liability lawsuits
A fidelity bond reimburses an employer for losses caused by fraudulent or dishonest acts of covered employees.
34. Inland marine insurance typically covers:
- A.Only ocean-going cargo on the high seas
- B.Movable property and property in transit over land, plus certain instrumentalities of transportation✓ Answer
- C.The insured's primary residence structure
- D.An employer's workers compensation liability
Inland marine covers movable/transportable property and property in transit over land (plus bridges, communication equipment, etc.); ocean marine covers waterborne exposures.
35. In a property claim, a 'proof of loss' is:
- A.The insurer's offer to settle
- B.A police report only
- C.The premium receipt
- D.A sworn statement from the insured detailing the loss and amount claimed✓ Answer
A proof of loss is a formal, usually sworn, statement the insured submits documenting the loss and the amount claimed, typically within a set time after the loss.
36. The appraisal clause in a property policy is used to resolve:
- A.Whether the policy is valid at all
- B.Disputes over the amount (value) of a covered loss✓ Answer
- C.Whether the loss is covered or excluded
- D.The premium owed for the year
Appraisal resolves disputes over the amount of loss (not coverage): each side hires an appraiser and the two select an umpire; agreement by any two is binding on value.
37. A Businessowners Policy (BOP) generally combines:
- A.Workers compensation and health insurance
- B.Life insurance and disability coverage
- C.Personal auto and homeowners coverage
- D.Commercial property and commercial general liability in one package✓ Answer
A BOP packages commercial property and general liability for small-to-medium businesses; it excludes workers comp, professional liability, and auto.
38. Under the ISO commercial property causes-of-loss forms, which form provides the broadest (open-peril) coverage?
- A.The Basic Form
- B.The Broad Form
- C.The Special Form✓ Answer
- D.The Named-Peril Form
The Special causes-of-loss form is open-peril (all risks except those excluded); Basic and Broad are named-peril forms with the Broad covering more perils than Basic.
39. Which legal defense argues the injured party's own carelessness contributed to the harm, reducing recovery under a proportional system?
- A.Comparative negligence✓ Answer
- B.Assumption of risk
- C.Res ipsa loquitur
- D.Vicarious liability
Comparative negligence reduces the plaintiff's recovery in proportion to their share of fault; contributory negligence, by contrast, can bar recovery entirely.
40. A dwelling policy (DP) differs from a homeowners policy mainly because it:
- A.Always includes worldwide personal liability
- B.Is often used for non-owner-occupied or rental dwellings and does not automatically include liability✓ Answer
- C.Only covers condominiums
- D.Requires flood coverage to be added
Dwelling policies suit rental or non-owner-occupied homes; liability and theft coverage are typically optional add-ons rather than automatic as in a homeowners policy.
41. Replacement cost coverage on a homeowners policy differs from ACV because it:
- A.Pays to repair or replace with like kind and quality without deducting depreciation, subject to policy limits✓ Answer
- B.Deducts depreciation from every claim
- C.Always pays the market value of the home
- D.Only applies to liability claims
Replacement cost pays to repair/replace with like kind and quality with no depreciation deduction, up to the policy limit; ACV deducts depreciation.
42. In a homeowners policy, Coverage B (Other Structures) covers:
- A.The main dwelling
- B.The insured's personal property
- C.Detached structures such as a garage, shed, or fence✓ Answer
- D.Additional living expenses
Coverage B insures structures separated from the dwelling (detached garages, sheds, fences), commonly at 10% of the Coverage A limit.
43. Loss of Use / Coverage D on a homeowners policy pays for:
- A.Repairs to the dwelling structure
- B.Additional living expenses when the home is uninhabitable due to a covered loss✓ Answer
- C.Injuries to guests
- D.The insured's medical bills
Coverage D pays additional living expenses and/or fair rental value when a covered loss makes the residence uninhabitable.
44. A commercial building is insured for $240,000 under an 80% coinsurance clause; replacement cost is $400,000. A covered loss of $40,000 occurs with a $500 deductible. What does the insurer pay?
- A.$40,000
- B.$39,500
- C.$30,000
- D.$29,500✓ Answer
Required = 80% × $400,000 = $320,000. Payment = (240,000/320,000) × 40,000 − 500 = 0.75 × 40,000 − 500 = 30,000 − 500 = $29,500.
45. The purpose of the coinsurance clause in property insurance is to:
- A.Encourage insureds to carry insurance close to the property's full value✓ Answer
- B.Guarantee the insurer never pays a claim
- C.Eliminate the deductible
- D.Double the amount paid on partial losses
Coinsurance encourages insuring to a stated percentage of value; underinsuring below that percentage triggers a proportional penalty on partial losses.
46. Which condition requires the insured to take reasonable steps to protect covered property from further damage after a loss?
- A.The subrogation condition
- B.The duty to protect property (mitigation of loss)✓ Answer
- C.The appraisal condition
- D.The cancellation condition
After a loss the insured has a duty to protect the property from further damage (mitigate); reasonable protection expenses are usually covered.
47. Bodily Injury Liability coverage on a Personal Auto Policy pays for:
- A.Damage to the insured's own vehicle
- B.The insured's own hospital bills
- C.Injuries the insured is legally liable for causing to others✓ Answer
- D.Theft of the insured's car
BI liability pays for injuries to others for which the insured is legally responsible and typically provides legal defense.
48. An exclusion in an insurance policy functions to:
- A.Expand coverage beyond the insuring agreement
- B.Identify the named insured
- C.State the premium and limits
- D.Remove or limit coverage for certain perils, property, or losses✓ Answer
Exclusions carve out perils, property, or losses the insurer will not cover (e.g., flood, war, wear and tear), clarifying the scope of coverage.
49. The doctrine of 'res ipsa loquitur' (the thing speaks for itself) in a liability claim means:
- A.The insured is automatically not liable
- B.Negligence is inferred because the harm normally would not occur without negligence and the defendant had control✓ Answer
- C.The plaintiff must prove intent to harm
- D.The claim is always dismissed
Res ipsa loquitur lets negligence be inferred from the nature of the accident when the instrumentality was under the defendant's control and the harm would not normally occur without negligence.
50. Ocean marine insurance's 'hull' coverage insures:
- A.The cargo being shipped
- B.Freight charges owed to the carrier
- C.The shipowner's liability to third parties
- D.The vessel itself against physical damage✓ Answer
In ocean marine, hull coverage insures the vessel itself; cargo coverage insures the goods, and protection & indemnity covers the owner's liability.
Practice questions cover general, uniform insurance concepts. State-specific laws and limits vary — study your state's official exam outline before testing. Insurance info (NAIC) →