Personal Lines Property & Casualty (InsTX-PersPC55)
300 QUESTIONS AND ANSWERS
1. Which of the following is a type of risk that insurance typically covers?
A. Speculative risk
B. Pure risk
C. Certain risk
D. Uncertain risk
Answer: B. Pure risk
Explanation: Insurance only covers pure risks—those that involve only the
possibility of loss (e.g., fire, theft), not speculative risks like investing.
2. Which term describes the cause of a loss in insurance terminology?
A. Hazard
B. Peril
C. Risk
D. Liability
Answer: B. Peril
Explanation: A peril is the actual cause of loss (e.g., fire, windstorm). Hazards
increase the chance of a peril occurring.
3. What does “indemnity” mean in insurance?
A. Maximizing the insured's compensation
B. Returning the insured to their original financial position
C. Offering punitive damages
D. Guaranteeing profit from a loss
,Answer: B. Returning the insured to their original financial position
Explanation: The principle of indemnity prevents the insured from profiting
and ensures compensation is only to the extent of loss.
4. A moral hazard is best described as:
A. A person’s careless attitude
B. Physical condition of property
C. Dishonest tendencies
D. Poor maintenance
Answer: C. Dishonest tendencies
Explanation: Moral hazards are related to behavior, such as fraud or intentional
loss.
5. What is the primary purpose of insurance?
A. To increase the risk
B. To eliminate losses
C. To transfer risk
D. To avoid risk
Answer: C. To transfer risk
Explanation: Insurance allows policyholders to transfer the financial burden of
loss to an insurer.
6. Which of the following is NOT an element of an insurable risk?
A. Loss must be accidental
B. Loss must be measurable
C. Loss must be catastrophic
D. Loss must be predictable
Answer: C. Loss must be catastrophic
Explanation: Insurance avoids catastrophic losses, which are hard to predict
and may bankrupt insurers.
7. Which document forms the agreement between an insurer and a
policyholder?
A. Binder
B. Application
,C. Policy
D. Certificate of Insurance
Answer: C. Policy
Explanation: The insurance policy is a legal contract outlining coverage, limits,
and obligations.
8. A temporary insurance agreement providing immediate coverage is
called a:
A. Policy
B. Binder
C. Rider
D. Endorsement
Answer: B. Binder
Explanation: A binder is a temporary agreement providing immediate coverage
until the formal policy is issued.
9. In the insurance industry, the person covered by the policy is the:
A. Insured
B. Underwriter
C. Beneficiary
D. Producer
Answer: A. Insured
Explanation: The insured is the person or entity protected under the terms of
the insurance contract.
10. A physical hazard can be defined as:
A. Dishonest client behavior
B. Poor lighting in a stairwell
C. Careless attitude
D. Legal obligation
Answer: B. Poor lighting in a stairwell
Explanation: Physical hazards are tangible conditions that increase the chance
of a loss, like poor lighting or frayed wiring.
, 11. What is the consideration in an insurance contract?
A. The deductible
B. The premiums paid and the insurer’s promise to pay
C. The claim settlement
D. The underwriter’s approval
Answer: B. The premiums paid and the insurer’s promise to pay
Explanation: Consideration refers to the value exchanged: the insured pays
premiums; the insurer promises to pay for covered losses.
12. Which of the following best describes a unilateral contract?
A. Both parties can cancel at any time
B. Only the insured makes legally enforceable promises
C. Only the insurer makes legally enforceable promises
D. Both parties must perform at the same time
Answer: C. Only the insurer makes legally enforceable promises
Explanation: Insurance contracts are unilateral—only the insurer has a legal
obligation after the insured pays the premium.
13. Which clause specifies the obligations of the insurer and insured in an
insurance policy?
A. Conditions
B. Declarations
C. Insuring agreement
D. Exclusions
Answer: A. Conditions
Explanation: The conditions section defines duties of both parties, including
rules for filing claims and maintaining coverage.
14. What does the declarations page of a policy include?
A. Exclusions
B. Claim procedures
C. Policy limits and named insured
D. Definitions
300 QUESTIONS AND ANSWERS
1. Which of the following is a type of risk that insurance typically covers?
A. Speculative risk
B. Pure risk
C. Certain risk
D. Uncertain risk
Answer: B. Pure risk
Explanation: Insurance only covers pure risks—those that involve only the
possibility of loss (e.g., fire, theft), not speculative risks like investing.
2. Which term describes the cause of a loss in insurance terminology?
A. Hazard
B. Peril
C. Risk
D. Liability
Answer: B. Peril
Explanation: A peril is the actual cause of loss (e.g., fire, windstorm). Hazards
increase the chance of a peril occurring.
3. What does “indemnity” mean in insurance?
A. Maximizing the insured's compensation
B. Returning the insured to their original financial position
C. Offering punitive damages
D. Guaranteeing profit from a loss
,Answer: B. Returning the insured to their original financial position
Explanation: The principle of indemnity prevents the insured from profiting
and ensures compensation is only to the extent of loss.
4. A moral hazard is best described as:
A. A person’s careless attitude
B. Physical condition of property
C. Dishonest tendencies
D. Poor maintenance
Answer: C. Dishonest tendencies
Explanation: Moral hazards are related to behavior, such as fraud or intentional
loss.
5. What is the primary purpose of insurance?
A. To increase the risk
B. To eliminate losses
C. To transfer risk
D. To avoid risk
Answer: C. To transfer risk
Explanation: Insurance allows policyholders to transfer the financial burden of
loss to an insurer.
6. Which of the following is NOT an element of an insurable risk?
A. Loss must be accidental
B. Loss must be measurable
C. Loss must be catastrophic
D. Loss must be predictable
Answer: C. Loss must be catastrophic
Explanation: Insurance avoids catastrophic losses, which are hard to predict
and may bankrupt insurers.
7. Which document forms the agreement between an insurer and a
policyholder?
A. Binder
B. Application
,C. Policy
D. Certificate of Insurance
Answer: C. Policy
Explanation: The insurance policy is a legal contract outlining coverage, limits,
and obligations.
8. A temporary insurance agreement providing immediate coverage is
called a:
A. Policy
B. Binder
C. Rider
D. Endorsement
Answer: B. Binder
Explanation: A binder is a temporary agreement providing immediate coverage
until the formal policy is issued.
9. In the insurance industry, the person covered by the policy is the:
A. Insured
B. Underwriter
C. Beneficiary
D. Producer
Answer: A. Insured
Explanation: The insured is the person or entity protected under the terms of
the insurance contract.
10. A physical hazard can be defined as:
A. Dishonest client behavior
B. Poor lighting in a stairwell
C. Careless attitude
D. Legal obligation
Answer: B. Poor lighting in a stairwell
Explanation: Physical hazards are tangible conditions that increase the chance
of a loss, like poor lighting or frayed wiring.
, 11. What is the consideration in an insurance contract?
A. The deductible
B. The premiums paid and the insurer’s promise to pay
C. The claim settlement
D. The underwriter’s approval
Answer: B. The premiums paid and the insurer’s promise to pay
Explanation: Consideration refers to the value exchanged: the insured pays
premiums; the insurer promises to pay for covered losses.
12. Which of the following best describes a unilateral contract?
A. Both parties can cancel at any time
B. Only the insured makes legally enforceable promises
C. Only the insurer makes legally enforceable promises
D. Both parties must perform at the same time
Answer: C. Only the insurer makes legally enforceable promises
Explanation: Insurance contracts are unilateral—only the insurer has a legal
obligation after the insured pays the premium.
13. Which clause specifies the obligations of the insurer and insured in an
insurance policy?
A. Conditions
B. Declarations
C. Insuring agreement
D. Exclusions
Answer: A. Conditions
Explanation: The conditions section defines duties of both parties, including
rules for filing claims and maintaining coverage.
14. What does the declarations page of a policy include?
A. Exclusions
B. Claim procedures
C. Policy limits and named insured
D. Definitions
