Arkansas Adjuster License Exam 2026 2027 235+ Practice
Questions with Rationales 90 Quest
Section 1: Brief Introduction
This is an original, unofficial practice resource for study—not an Arkansas Insurance Department
or PSI examination, not legal advice, and not a reproduction of proprietary exam questions. It
combines general, property, casualty, workers’ compensation, Arkansas-law, claims-handling,
catastrophe, FEMA, and flood topics; actual PSI exam categories and application steps can vary by
license line and may change. AID’s currently linked PSI handbook appears to conflict with
Arkansas Rule 31 effective February 14, 2022: the handbook says adjusters need not show
prelicense proof, while Rule 31 generally requires 20 hours before the exam for property,
casualty, and workers’ compensation adjuster applicants, subject to exemptions—confirm
current requirements with AID and PSI before scheduling.
Section 2: The Complete Exam
Insurance foundations and adjusting principles
1. Insurance primarily works by:
A. Pooling similar exposures so losses of a few are funded by premiums from many
B. Replacing prevention with compensation
C. Eliminating all chance of loss
D. Guaranteeing a profit to every insured
Correct Answer: A. Pooling similar exposures so losses of a few are funded by premiums
from many
Rationale: Risk pooling spreads the financial impact of fortuitous losses across a larger group. Apply
the current policy language, governing rules, and verified facts to the individual claim.
2. A peril is:
A. A policy limit
B. A cause of loss
C. A condition increasing loss frequency
D. An insured's share of a loss
Correct Answer: B. A cause of loss
Rationale: Fire, theft, and wind are examples of perils; hazards make losses more likely or severe.
Apply the current policy language, governing rules, and verified facts to the individual claim.
3. A slippery floor is best described as a:
A. Moral hazard
B. Physical hazard
C. Peril
D. Morale hazard
Correct Answer: B. Physical hazard
Unofficial study resource | Page 1
,Rationale: A tangible condition that increases accident likelihood is a physical hazard. Apply the
current policy language, governing rules, and verified facts to the individual claim.
4. A policyholder intentionally burns property to collect insurance proceeds. This is a:
A. Physical hazard
B. Moral hazard
C. Morale hazard
D. Pure risk
Correct Answer: B. Moral hazard
Rationale: Moral hazard involves intentional dishonesty that increases the chance of loss. Apply the
current policy language, governing rules, and verified facts to the individual claim.
5. An insured neglects maintenance because insurance is expected to pay for any damage.
This most closely illustrates:
A. Physical hazard
B. Peril
C. Morale hazard
D. Moral hazard
Correct Answer: C. Morale hazard
Rationale: Morale hazard describes careless indifference to loss because insurance exists; deliberate
fraud is moral hazard. Apply the current policy language, governing rules, and verified facts to the
individual claim.
6. Which is a pure risk?
A. A building may burn or remain undamaged
B. A currency trade may gain or lose
C. A new business may profit or lose
D. A stock may rise or fall
Correct Answer: A. A building may burn or remain undamaged
Rationale: Pure risk involves loss or no loss, unlike speculative risk that may also yield profit. Apply
the current policy language, governing rules, and verified facts to the individual claim.
7. The principle of indemnity generally seeks to:
A. Pay every amount claimed without verification
B. Create a profit from a loss
C. Restore the insured approximately to the pre-loss financial position, subject to the contract
D. Guarantee replacement with superior materials
Correct Answer: C. Restore the insured approximately to the pre-loss financial position,
subject to the contract
Rationale: Indemnity prevents a windfall, although agreed-value or replacement-cost provisions can
modify the measure. Apply the current policy language, governing rules, and verified facts to the
individual claim.
Unofficial study resource | Page 2
,8. For property insurance, insurable interest generally must exist:
A. At the time of loss
B. Only after payment is made
C. Only when the claim is closed
D. Only when a quote is requested
Correct Answer: A. At the time of loss
Rationale: The claimant must generally have a legally recognized financial stake when the property
loss occurs. Apply the current policy language, governing rules, and verified facts to the individual
claim.
9. A $750 deductible on a covered $3,000 loss leaves a preliminary payment of:
A. $3,750
B. $3,000
C. $2,250
D. $750
Correct Answer: C. $2,250
Rationale: Subtract the deductible from the covered amount before applying other policy terms.
Apply the current policy language, governing rules, and verified facts to the individual claim.
10. A policy limit is:
A. The deductible
B. The insured's premium
C. The amount automatically owed for every claim
D. The maximum payable under a particular coverage, subject to terms
Correct Answer: D. The maximum payable under a particular coverage, subject to terms
Rationale: A limit caps payment but does not establish that the claimant is owed the full amount.
Apply the current policy language, governing rules, and verified facts to the individual claim.
11. Actual cash value is often calculated as:
A. Original price less deductible
B. Market value plus depreciation
C. Salvage value plus tax
D. Replacement cost less depreciation
Correct Answer: D. Replacement cost less depreciation
Rationale: ACV commonly reflects replacement cost minus depreciation, but a policy may define
another method. Apply the current policy language, governing rules, and verified facts to the
individual claim.
12. Replacement-cost valuation generally means:
A. Original purchase price only
B. Market value of land and building combined
C. Unlimited upgrades at insurer expense
D. Cost to repair or replace with comparable property without depreciation, subject to the
contract
Unofficial study resource | Page 3
, Correct Answer: D. Cost to repair or replace with comparable property without
depreciation, subject to the contract
Rationale: Replacement-cost provisions generally omit depreciation but remain subject to limits,
conditions, and like-kind scope. Apply the current policy language, governing rules, and verified
facts to the individual claim.
13. Salvage value means:
A. The amount of coverage remaining
B. Residual value remaining in damaged property
C. The cost of new materials
D. The policy deductible
Correct Answer: B. Residual value remaining in damaged property
Rationale: Salvage is the remaining value after damage and should be supported in any settlement
deduction. Apply the current policy language, governing rules, and verified facts to the individual
claim.
14. Subrogation generally allows the insurer to:
A. Collect a deductible from every insured
B. Settle without reviewing liability
C. Cancel the policy retroactively
D. Pursue a responsible third party after paying a covered claim
Correct Answer: D. Pursue a responsible third party after paying a covered claim
Rationale: Subrogation permits recovery against a responsible party to the extent of insurer
payment, subject to law and policy terms. Apply the current policy language, governing rules, and
verified facts to the individual claim.
15. Contribution is most relevant when:
A. An insured has no deductible
B. Multiple policies cover the same loss
C. A claim involves no other insurer
D. A loss has no policy
Correct Answer: B. Multiple policies cover the same loss
Rationale: Contribution allocates a covered loss among insurers according to the contracts and
applicable rules. Apply the current policy language, governing rules, and verified facts to the
individual claim.
16. A binder is best described as:
A. Temporary evidence of coverage pending issuance of the policy
B. A final denial letter
C. A release of all claims
D. An adjuster's estimate
Correct Answer: A. Temporary evidence of coverage pending issuance of the policy
Rationale: The binder's actual terms, dates, limits, and covered interests must be checked. Apply the
current policy language, governing rules, and verified facts to the individual claim.
Unofficial study resource | Page 4
Questions with Rationales 90 Quest
Section 1: Brief Introduction
This is an original, unofficial practice resource for study—not an Arkansas Insurance Department
or PSI examination, not legal advice, and not a reproduction of proprietary exam questions. It
combines general, property, casualty, workers’ compensation, Arkansas-law, claims-handling,
catastrophe, FEMA, and flood topics; actual PSI exam categories and application steps can vary by
license line and may change. AID’s currently linked PSI handbook appears to conflict with
Arkansas Rule 31 effective February 14, 2022: the handbook says adjusters need not show
prelicense proof, while Rule 31 generally requires 20 hours before the exam for property,
casualty, and workers’ compensation adjuster applicants, subject to exemptions—confirm
current requirements with AID and PSI before scheduling.
Section 2: The Complete Exam
Insurance foundations and adjusting principles
1. Insurance primarily works by:
A. Pooling similar exposures so losses of a few are funded by premiums from many
B. Replacing prevention with compensation
C. Eliminating all chance of loss
D. Guaranteeing a profit to every insured
Correct Answer: A. Pooling similar exposures so losses of a few are funded by premiums
from many
Rationale: Risk pooling spreads the financial impact of fortuitous losses across a larger group. Apply
the current policy language, governing rules, and verified facts to the individual claim.
2. A peril is:
A. A policy limit
B. A cause of loss
C. A condition increasing loss frequency
D. An insured's share of a loss
Correct Answer: B. A cause of loss
Rationale: Fire, theft, and wind are examples of perils; hazards make losses more likely or severe.
Apply the current policy language, governing rules, and verified facts to the individual claim.
3. A slippery floor is best described as a:
A. Moral hazard
B. Physical hazard
C. Peril
D. Morale hazard
Correct Answer: B. Physical hazard
Unofficial study resource | Page 1
,Rationale: A tangible condition that increases accident likelihood is a physical hazard. Apply the
current policy language, governing rules, and verified facts to the individual claim.
4. A policyholder intentionally burns property to collect insurance proceeds. This is a:
A. Physical hazard
B. Moral hazard
C. Morale hazard
D. Pure risk
Correct Answer: B. Moral hazard
Rationale: Moral hazard involves intentional dishonesty that increases the chance of loss. Apply the
current policy language, governing rules, and verified facts to the individual claim.
5. An insured neglects maintenance because insurance is expected to pay for any damage.
This most closely illustrates:
A. Physical hazard
B. Peril
C. Morale hazard
D. Moral hazard
Correct Answer: C. Morale hazard
Rationale: Morale hazard describes careless indifference to loss because insurance exists; deliberate
fraud is moral hazard. Apply the current policy language, governing rules, and verified facts to the
individual claim.
6. Which is a pure risk?
A. A building may burn or remain undamaged
B. A currency trade may gain or lose
C. A new business may profit or lose
D. A stock may rise or fall
Correct Answer: A. A building may burn or remain undamaged
Rationale: Pure risk involves loss or no loss, unlike speculative risk that may also yield profit. Apply
the current policy language, governing rules, and verified facts to the individual claim.
7. The principle of indemnity generally seeks to:
A. Pay every amount claimed without verification
B. Create a profit from a loss
C. Restore the insured approximately to the pre-loss financial position, subject to the contract
D. Guarantee replacement with superior materials
Correct Answer: C. Restore the insured approximately to the pre-loss financial position,
subject to the contract
Rationale: Indemnity prevents a windfall, although agreed-value or replacement-cost provisions can
modify the measure. Apply the current policy language, governing rules, and verified facts to the
individual claim.
Unofficial study resource | Page 2
,8. For property insurance, insurable interest generally must exist:
A. At the time of loss
B. Only after payment is made
C. Only when the claim is closed
D. Only when a quote is requested
Correct Answer: A. At the time of loss
Rationale: The claimant must generally have a legally recognized financial stake when the property
loss occurs. Apply the current policy language, governing rules, and verified facts to the individual
claim.
9. A $750 deductible on a covered $3,000 loss leaves a preliminary payment of:
A. $3,750
B. $3,000
C. $2,250
D. $750
Correct Answer: C. $2,250
Rationale: Subtract the deductible from the covered amount before applying other policy terms.
Apply the current policy language, governing rules, and verified facts to the individual claim.
10. A policy limit is:
A. The deductible
B. The insured's premium
C. The amount automatically owed for every claim
D. The maximum payable under a particular coverage, subject to terms
Correct Answer: D. The maximum payable under a particular coverage, subject to terms
Rationale: A limit caps payment but does not establish that the claimant is owed the full amount.
Apply the current policy language, governing rules, and verified facts to the individual claim.
11. Actual cash value is often calculated as:
A. Original price less deductible
B. Market value plus depreciation
C. Salvage value plus tax
D. Replacement cost less depreciation
Correct Answer: D. Replacement cost less depreciation
Rationale: ACV commonly reflects replacement cost minus depreciation, but a policy may define
another method. Apply the current policy language, governing rules, and verified facts to the
individual claim.
12. Replacement-cost valuation generally means:
A. Original purchase price only
B. Market value of land and building combined
C. Unlimited upgrades at insurer expense
D. Cost to repair or replace with comparable property without depreciation, subject to the
contract
Unofficial study resource | Page 3
, Correct Answer: D. Cost to repair or replace with comparable property without
depreciation, subject to the contract
Rationale: Replacement-cost provisions generally omit depreciation but remain subject to limits,
conditions, and like-kind scope. Apply the current policy language, governing rules, and verified
facts to the individual claim.
13. Salvage value means:
A. The amount of coverage remaining
B. Residual value remaining in damaged property
C. The cost of new materials
D. The policy deductible
Correct Answer: B. Residual value remaining in damaged property
Rationale: Salvage is the remaining value after damage and should be supported in any settlement
deduction. Apply the current policy language, governing rules, and verified facts to the individual
claim.
14. Subrogation generally allows the insurer to:
A. Collect a deductible from every insured
B. Settle without reviewing liability
C. Cancel the policy retroactively
D. Pursue a responsible third party after paying a covered claim
Correct Answer: D. Pursue a responsible third party after paying a covered claim
Rationale: Subrogation permits recovery against a responsible party to the extent of insurer
payment, subject to law and policy terms. Apply the current policy language, governing rules, and
verified facts to the individual claim.
15. Contribution is most relevant when:
A. An insured has no deductible
B. Multiple policies cover the same loss
C. A claim involves no other insurer
D. A loss has no policy
Correct Answer: B. Multiple policies cover the same loss
Rationale: Contribution allocates a covered loss among insurers according to the contracts and
applicable rules. Apply the current policy language, governing rules, and verified facts to the
individual claim.
16. A binder is best described as:
A. Temporary evidence of coverage pending issuance of the policy
B. A final denial letter
C. A release of all claims
D. An adjuster's estimate
Correct Answer: A. Temporary evidence of coverage pending issuance of the policy
Rationale: The binder's actual terms, dates, limits, and covered interests must be checked. Apply the
current policy language, governing rules, and verified facts to the individual claim.
Unofficial study resource | Page 4
