AD Banker Property & Casualty Test
Exam with questions and verified answers
with rationale graded A+
General Insurance Concepts and Principles
1. What is the definition of risk?
A. The cause of a loss
B. The uncertainty or chance of a loss occurring
C. The termination of an insurance policy
D. The amount paid for an insurance policy
Answer: B
Rationale: Risk is defined as the uncertainty or chance of a loss occurring. It is not the cause of loss
(that is a peril), nor is it the policy premium or termination-16.
2. Which risk management technique involves accepting the consequences of a risk?
A. Avoidance
B. Transfer
C. Retention
D. Reduction
Answer: C
Rationale: Retention involves accepting the consequences of a risk and not transferring it to an
insurer or avoiding the exposure altogether. Transfer is purchasing insurance; avoidance is
eliminating the exposure-16.
3. What is the term for a condition that increases the likelihood of a loss?
A. Peril
B. Hazard
C. Risk
D. Exposure
Answer: B
Rationale: A hazard is a condition that increases the chance or severity of a loss. A peril is the actual
cause of the loss (e.g., fire, windstorm)-16.
4. The principle of Indemnity states that:
A. The insured should not profit from a loss.
B. The insurer must defend the insured in all cases.
C. The insured must have a financial interest in the property.
D. The contract must be in writing.
,Answer: A
Rationale: The principle of indemnity ensures that the insured is restored to approximately the same
financial position as before the loss, without profiting from it-16.
5. What is the purpose of a deductible in an insurance policy?
A. To eliminate all risk for the insurer
B. To reduce moral hazard and share costs with the insured
C. To pay the agent's commission
D. To increase the policy limits
Answer: B
Rationale: Deductibles reduce moral hazard by requiring the insured to bear a portion of the loss,
and they also reduce the insurer's cost of handling small claims-16.
6. A representation in an insurance application is considered:
A. A guaranteed statement of fact.
B. A statement that is believed to be true.
C. A fraudulent statement.
D. A legally binding amendment to the policy.
Answer: B
Rationale: A representation is a statement made by the applicant that is believed to be true to the
best of their knowledge. A warranty, by contrast, is a statement guaranteed to be true-16.
7. Concealment is best defined as:
A. An unintentional oversight on the application.
B. An intentional failure to disclose a material fact.
C. A legal defense for the insured.
D. A type of warranty.
Answer: B
Rationale: Concealment is the intentional withholding or failure to disclose a material fact that
would affect the insurer's decision to issue coverage-16.
8. What element is necessary for a risk to be ideally insurable?
A. The loss must be intentional.
B. The loss must be catastrophic to the entire economy.
C. The loss must be measurable and definite.
D. The chance of loss must be 100%.
Answer: C
Rationale: Ideally insurable risks involve losses that are measurable and definite, accidental, and not
catastrophic to the entire economy. The chance of loss cannot be 100%-16.
9. An insurance contract is considered a contract of adhesion. This means:
,A. It is negotiated equally by both parties.
B. One party (the insurer) prepares the contract, and the other (the insured) must accept it as is.
C. It is only valid if signed by all parties.
D. It requires consideration to be valid.
Answer: B
Rationale: A contract of adhesion is prepared by one party (the insurer), and the other party (the
insured) has little to no ability to negotiate terms. Ambiguities are interpreted in favor of the
insured-16.
10. What is the term for the exchange of value in an insurance contract?
A. Offer and Acceptance
B. Consideration
C. Legal Purpose
D. Competent Parties
Answer: B
Rationale: Consideration is the value each party gives the other: the insured pays premium, and the
insurer promises to pay covered claims-2-10.
Policy Structure and Provisions
11. Which of the following personalizes an insurance policy?
A. The Mortgage Clause
B. The Insuring Agreement
C. The Declarations
D. The Definitions
Answer: C
Rationale: The Declarations page contains specific information about the insured, the property, the
limits, and other information that personalizes the policy to the particular risk-17.
12. In property and casualty insurance, when a form is attached to alter or add to policy provisions
or conditions, it is known as:
A. An exclusion
B. A consideration
C. A warranty
D. An endorsement
Answer: D
Rationale: Endorsements modify the policy by broadening or restricting coverage, or further
defining conditions-17.
13. Which part of a property insurance policy describes the perils?
A. Declarations
B. Insuring Agreement
, C. Conditions
D. Exclusions
Answer: B
Rationale: The Insuring Agreement is the insurer's promise to pay and describes the perils insured
against-2-10.
14. The formal statement that verifies details so the insurer can determine liability is called:
A. Proof of Loss
B. Notice of Claim
C. Appraisal
D. Subrogation
Answer: A
Rationale: A Proof of Loss is a formal statement submitted by the insured that verifies the details of
a claim so the insurer can determine its liability-2-10.
15. In property insurance, the clause that prevents the insured from relinquishing ownership and
leaving damaged property to the insurer and claiming a total loss is the:
A. Abandonment Clause
B. Property Assignment Clause
C. Claim Settlement Clause
D. Loss Payable Clause
Answer: A
Rationale: The Abandonment Clause states that the insured cannot abandon damaged property to
the insurer-1-17.
16. The most a policy will pay for a loss arising out of any one accident, regardless of overall policy
limits, is known as the:
A. Split limit
B. Per person limit
C. Per occurrence limit
D. Aggregate limit
Answer: C
Rationale: The per occurrence limit is the maximum amount a policy will pay for all claims arising
from any one accident or occurrence-1.
17. Which of the following most accurately describes the Abandonment condition?
A. The insured must cooperate with the company in the investigation of a claim.
B. The insured must make reasonable and necessary repairs to protect the property.
C. Abandoned property must be protected from further damage.
D. The insured cannot abandon damaged property to the insurer.
Answer: D
Exam with questions and verified answers
with rationale graded A+
General Insurance Concepts and Principles
1. What is the definition of risk?
A. The cause of a loss
B. The uncertainty or chance of a loss occurring
C. The termination of an insurance policy
D. The amount paid for an insurance policy
Answer: B
Rationale: Risk is defined as the uncertainty or chance of a loss occurring. It is not the cause of loss
(that is a peril), nor is it the policy premium or termination-16.
2. Which risk management technique involves accepting the consequences of a risk?
A. Avoidance
B. Transfer
C. Retention
D. Reduction
Answer: C
Rationale: Retention involves accepting the consequences of a risk and not transferring it to an
insurer or avoiding the exposure altogether. Transfer is purchasing insurance; avoidance is
eliminating the exposure-16.
3. What is the term for a condition that increases the likelihood of a loss?
A. Peril
B. Hazard
C. Risk
D. Exposure
Answer: B
Rationale: A hazard is a condition that increases the chance or severity of a loss. A peril is the actual
cause of the loss (e.g., fire, windstorm)-16.
4. The principle of Indemnity states that:
A. The insured should not profit from a loss.
B. The insurer must defend the insured in all cases.
C. The insured must have a financial interest in the property.
D. The contract must be in writing.
,Answer: A
Rationale: The principle of indemnity ensures that the insured is restored to approximately the same
financial position as before the loss, without profiting from it-16.
5. What is the purpose of a deductible in an insurance policy?
A. To eliminate all risk for the insurer
B. To reduce moral hazard and share costs with the insured
C. To pay the agent's commission
D. To increase the policy limits
Answer: B
Rationale: Deductibles reduce moral hazard by requiring the insured to bear a portion of the loss,
and they also reduce the insurer's cost of handling small claims-16.
6. A representation in an insurance application is considered:
A. A guaranteed statement of fact.
B. A statement that is believed to be true.
C. A fraudulent statement.
D. A legally binding amendment to the policy.
Answer: B
Rationale: A representation is a statement made by the applicant that is believed to be true to the
best of their knowledge. A warranty, by contrast, is a statement guaranteed to be true-16.
7. Concealment is best defined as:
A. An unintentional oversight on the application.
B. An intentional failure to disclose a material fact.
C. A legal defense for the insured.
D. A type of warranty.
Answer: B
Rationale: Concealment is the intentional withholding or failure to disclose a material fact that
would affect the insurer's decision to issue coverage-16.
8. What element is necessary for a risk to be ideally insurable?
A. The loss must be intentional.
B. The loss must be catastrophic to the entire economy.
C. The loss must be measurable and definite.
D. The chance of loss must be 100%.
Answer: C
Rationale: Ideally insurable risks involve losses that are measurable and definite, accidental, and not
catastrophic to the entire economy. The chance of loss cannot be 100%-16.
9. An insurance contract is considered a contract of adhesion. This means:
,A. It is negotiated equally by both parties.
B. One party (the insurer) prepares the contract, and the other (the insured) must accept it as is.
C. It is only valid if signed by all parties.
D. It requires consideration to be valid.
Answer: B
Rationale: A contract of adhesion is prepared by one party (the insurer), and the other party (the
insured) has little to no ability to negotiate terms. Ambiguities are interpreted in favor of the
insured-16.
10. What is the term for the exchange of value in an insurance contract?
A. Offer and Acceptance
B. Consideration
C. Legal Purpose
D. Competent Parties
Answer: B
Rationale: Consideration is the value each party gives the other: the insured pays premium, and the
insurer promises to pay covered claims-2-10.
Policy Structure and Provisions
11. Which of the following personalizes an insurance policy?
A. The Mortgage Clause
B. The Insuring Agreement
C. The Declarations
D. The Definitions
Answer: C
Rationale: The Declarations page contains specific information about the insured, the property, the
limits, and other information that personalizes the policy to the particular risk-17.
12. In property and casualty insurance, when a form is attached to alter or add to policy provisions
or conditions, it is known as:
A. An exclusion
B. A consideration
C. A warranty
D. An endorsement
Answer: D
Rationale: Endorsements modify the policy by broadening or restricting coverage, or further
defining conditions-17.
13. Which part of a property insurance policy describes the perils?
A. Declarations
B. Insuring Agreement
, C. Conditions
D. Exclusions
Answer: B
Rationale: The Insuring Agreement is the insurer's promise to pay and describes the perils insured
against-2-10.
14. The formal statement that verifies details so the insurer can determine liability is called:
A. Proof of Loss
B. Notice of Claim
C. Appraisal
D. Subrogation
Answer: A
Rationale: A Proof of Loss is a formal statement submitted by the insured that verifies the details of
a claim so the insurer can determine its liability-2-10.
15. In property insurance, the clause that prevents the insured from relinquishing ownership and
leaving damaged property to the insurer and claiming a total loss is the:
A. Abandonment Clause
B. Property Assignment Clause
C. Claim Settlement Clause
D. Loss Payable Clause
Answer: A
Rationale: The Abandonment Clause states that the insured cannot abandon damaged property to
the insurer-1-17.
16. The most a policy will pay for a loss arising out of any one accident, regardless of overall policy
limits, is known as the:
A. Split limit
B. Per person limit
C. Per occurrence limit
D. Aggregate limit
Answer: C
Rationale: The per occurrence limit is the maximum amount a policy will pay for all claims arising
from any one accident or occurrence-1.
17. Which of the following most accurately describes the Abandonment condition?
A. The insured must cooperate with the company in the investigation of a claim.
B. The insured must make reasonable and necessary repairs to protect the property.
C. Abandoned property must be protected from further damage.
D. The insured cannot abandon damaged property to the insurer.
Answer: D
