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Arizona Property and Casualty Insurance Exam — 100 Practice Questions & Answers
(2026–2027)
Section 1: General Insurance Principles (Questions 1–20)
1. In insurance, what is the principle of indemnity?
A) The insured should profit from a loss
B) The insured should be restored to approximately the same financial position as before the
loss
C) The insurer always pays the full policy limit
D) The insured must pay a penalty for filing claims
Answer: B. Indemnity means the insured is restored to the same financial condition enjoyed
prior to the loss — no better, no worse .
2. An insurance contract is considered "unilateral" because:
A) Both parties make equal promises
B) Only the insurer makes a legally enforceable promise
C) Only the insured makes a legally enforceable promise
D) The contract is enforced by a court
Answer: B. An insurance contract is unilateral — only the insurer makes an enforceable
promise to pay for covered losses .
3. What does the principle of "utmost good faith" require?
A) Only the insurer to be honest
B) Only the insured to be honest
C) Both parties to act with honesty and disclose all material facts
D) No disclosure of any facts
Answer: C. Utmost good faith imposes a heightened duty of honesty and disclosure on both
the applicant and the insurer .
4. A warranty in insurance is best described as:
A) A statement of opinion
B) A specific answer that becomes part of the contract, and a breach can void coverage
C) A mere representation
D) A marketing claim
Answer: B. A warranty is an answer to a specific question on the application that becomes
part of the contract, and a breach can void coverage .
5. The voluntary relinquishment of a known right is called:
A) Estoppel
B) Waiver
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C) Concealment
D) Warranty
Answer: B. A waiver is the voluntary relinquishment of a known right. If an insurer waives a
right, it may be estopped from asserting it later .
6. What does the acronym DICE represent in policy structure?
A) Deductible, Insurance, Coverage, Endorsement
B) Declarations, Insuring agreement, Conditions, Exclusions
C) Damage, Indemnity, Claim, Expense
D) Duty, Intent, Cause, Effect
Answer: B. DICE stands for Declarations, Insuring agreement, Conditions, and Exclusions .
7. The Declarations section of a policy contains:
A) Exclusions
B) Who, what, limits, and premium
C) The insurer's promise to pay
D) The insured's duties
Answer: B. The Declarations page contains the "who, what, limits, and premium"
information .
8. What is a "peril" in insurance?
A) A condition that increases the chance of loss
B) The cause of a loss (e.g., fire, wind, theft)
C) A type of deductible
D) A policy limit
Answer: B. A peril is the cause of a loss — a direct event such as fire, wind, or theft .
9. What is a "hazard" in insurance?
A) The cause of a loss
B) A condition that increases the chance of a loss
C) A policy exclusion
D) A type of coverage
Answer: B. A hazard is a condition that increases the chance or severity of a loss .
10. Actual Cash Value (ACV) is calculated as:
A) Replacement cost plus depreciation
B) Replacement cost minus depreciation
C) Market value
D) Original purchase price
Answer: B. ACV = replacement cost minus depreciation .
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11. Replacement Cost Value (RCV) pays:
A) Replacement cost minus depreciation
B) Full replacement cost without depreciation deduction, subject to policy limits
C) Market value only
D) Original cost only
Answer: B. RCV pays to rebuild or replace without depreciation deduction, subject to policy
limits .
12. Insurable interest requires:
A) The insured to own the property outright
B) The insured to have a financial stake in the property at the time of loss
C) The insurer to own the property
D) No relationship to the property
Answer: B. Insurable interest requires a financial stake at the time of loss .
13. Subrogation allows:
A) The insured to collect twice
B) The insurer to recover payments from a third party who caused the loss
C) The insurer to deny all claims
D) The insured to waive all rights
Answer: B. Subrogation allows the insurer to pursue recovery from the responsible third
party .
14. A "valued policy" pays:
A) ACV at the time of loss
B) The agreed value stated in the policy at the time of loss
C) Market value
D) Replacement cost
Answer: B. A valued policy pays the agreed value stated in the policy .
15. Coinsurance in commercial property insurance is designed to:
A) Penalize underinsurance
B) Reward full-value insurance and proportionally reduce claims when underinsured
C) Eliminate deductibles
D) Increase premiums
Answer: B. Coinsurance encourages insuring to full value; if underinsured below the
coinsurance percentage, claims are reduced proportionally .
**16. If a building has a replacement cost of $500,000, is insured for $300,000 with an 80%
coinsurance clause, and sustains a $50,000 loss, what is the claim payment?**
A) $50,000
Arizona Property and Casualty Insurance Exam — 100 Practice Questions & Answers
(2026–2027)
Section 1: General Insurance Principles (Questions 1–20)
1. In insurance, what is the principle of indemnity?
A) The insured should profit from a loss
B) The insured should be restored to approximately the same financial position as before the
loss
C) The insurer always pays the full policy limit
D) The insured must pay a penalty for filing claims
Answer: B. Indemnity means the insured is restored to the same financial condition enjoyed
prior to the loss — no better, no worse .
2. An insurance contract is considered "unilateral" because:
A) Both parties make equal promises
B) Only the insurer makes a legally enforceable promise
C) Only the insured makes a legally enforceable promise
D) The contract is enforced by a court
Answer: B. An insurance contract is unilateral — only the insurer makes an enforceable
promise to pay for covered losses .
3. What does the principle of "utmost good faith" require?
A) Only the insurer to be honest
B) Only the insured to be honest
C) Both parties to act with honesty and disclose all material facts
D) No disclosure of any facts
Answer: C. Utmost good faith imposes a heightened duty of honesty and disclosure on both
the applicant and the insurer .
4. A warranty in insurance is best described as:
A) A statement of opinion
B) A specific answer that becomes part of the contract, and a breach can void coverage
C) A mere representation
D) A marketing claim
Answer: B. A warranty is an answer to a specific question on the application that becomes
part of the contract, and a breach can void coverage .
5. The voluntary relinquishment of a known right is called:
A) Estoppel
B) Waiver
, 2
C) Concealment
D) Warranty
Answer: B. A waiver is the voluntary relinquishment of a known right. If an insurer waives a
right, it may be estopped from asserting it later .
6. What does the acronym DICE represent in policy structure?
A) Deductible, Insurance, Coverage, Endorsement
B) Declarations, Insuring agreement, Conditions, Exclusions
C) Damage, Indemnity, Claim, Expense
D) Duty, Intent, Cause, Effect
Answer: B. DICE stands for Declarations, Insuring agreement, Conditions, and Exclusions .
7. The Declarations section of a policy contains:
A) Exclusions
B) Who, what, limits, and premium
C) The insurer's promise to pay
D) The insured's duties
Answer: B. The Declarations page contains the "who, what, limits, and premium"
information .
8. What is a "peril" in insurance?
A) A condition that increases the chance of loss
B) The cause of a loss (e.g., fire, wind, theft)
C) A type of deductible
D) A policy limit
Answer: B. A peril is the cause of a loss — a direct event such as fire, wind, or theft .
9. What is a "hazard" in insurance?
A) The cause of a loss
B) A condition that increases the chance of a loss
C) A policy exclusion
D) A type of coverage
Answer: B. A hazard is a condition that increases the chance or severity of a loss .
10. Actual Cash Value (ACV) is calculated as:
A) Replacement cost plus depreciation
B) Replacement cost minus depreciation
C) Market value
D) Original purchase price
Answer: B. ACV = replacement cost minus depreciation .
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11. Replacement Cost Value (RCV) pays:
A) Replacement cost minus depreciation
B) Full replacement cost without depreciation deduction, subject to policy limits
C) Market value only
D) Original cost only
Answer: B. RCV pays to rebuild or replace without depreciation deduction, subject to policy
limits .
12. Insurable interest requires:
A) The insured to own the property outright
B) The insured to have a financial stake in the property at the time of loss
C) The insurer to own the property
D) No relationship to the property
Answer: B. Insurable interest requires a financial stake at the time of loss .
13. Subrogation allows:
A) The insured to collect twice
B) The insurer to recover payments from a third party who caused the loss
C) The insurer to deny all claims
D) The insured to waive all rights
Answer: B. Subrogation allows the insurer to pursue recovery from the responsible third
party .
14. A "valued policy" pays:
A) ACV at the time of loss
B) The agreed value stated in the policy at the time of loss
C) Market value
D) Replacement cost
Answer: B. A valued policy pays the agreed value stated in the policy .
15. Coinsurance in commercial property insurance is designed to:
A) Penalize underinsurance
B) Reward full-value insurance and proportionally reduce claims when underinsured
C) Eliminate deductibles
D) Increase premiums
Answer: B. Coinsurance encourages insuring to full value; if underinsured below the
coinsurance percentage, claims are reduced proportionally .
**16. If a building has a replacement cost of $500,000, is insured for $300,000 with an 80%
coinsurance clause, and sustains a $50,000 loss, what is the claim payment?**
A) $50,000
