Property & Casualty Insurance Exam
Questions And Correct Answers
(Verified Answers) Plus Rationales 2026
Q&A | Instant Download Pdf
1. A standard homeowners insurance policy typically covers which peril?
A. Wear and tear
B. Fire damage
C. Intentional damage by the insured
D. Flood
Answer: B
Rationale: Standard HO policies cover sudden and accidental perils like fire, but
exclude wear, intentional loss, and flood.
2. Case: A homeowner’s roof is damaged by a hurricane windstorm. Coverage
depends primarily on:
A. Earthquake endorsement
B. Windstorm coverage and policy exclusions
C. Life insurance rider
D. Liability coverage only
Answer: B
Rationale: Windstorm may be covered, but coastal policies often have specific
exclusions or deductibles.
3. The primary purpose of property insurance is to:
A. Increase property value
B. Indemnify the insured after a covered loss
C. Prevent loss entirely
D. Guarantee profit from claims
Answer: B
Rationale: Insurance restores the insured to pre-loss financial condition.
,4. Case: A policyholder intentionally sets fire to their property. The insurer will
most likely:
A. Pay full claim
B. Deny the claim due to fraud
C. Double payout
D. Transfer coverage
Answer: B
Rationale: Intentional acts by the insured are excluded and considered fraud.
5. A deductible in an insurance policy is:
A. Amount insurer pays first
B. Amount insured pays before coverage applies
C. Monthly premium
D. Policy limit
Answer: B
Rationale: Deductible is the insured’s out-of-pocket contribution.
6. Case: A driver causes an accident while intoxicated. Coverage is generally:
A. Fully covered
B. Often excluded or limited depending on policy
C. Automatically increased
D. Guaranteed under liability
Answer: B
Rationale: DUI may void or limit coverage due to illegal activity exclusions.
7. Liability insurance primarily covers:
A. The insured’s property
B. Damage caused to others
C. Natural disasters only
D. Investment losses
Answer: B
Rationale: Liability protects against third-party claims.
8. Case: A guest slips and falls in a homeowner’s house. Coverage applies under:
A. Property coverage
B. Personal liability coverage
C. Earthquake coverage
,D. Life insurance
Answer: B
Rationale: Liability coverage applies to injuries on premises.
9. The principle of indemnity means:
A. Profit from insurance
B. Restoring financial loss without profit
C. Double compensation
D. No claim payments
Answer: B
Rationale: Insurance does not allow insured to profit from loss.
10. Case: Insured receives payment greater than actual loss. This violates:
A. Subrogation
B. Indemnity principle
C. Deductible rule
D. Underwriting rules
Answer: B
Rationale: Overpayment results in unjust enrichment.
11. Subrogation allows the insurer to:
A. Increase premiums
B. Recover losses from responsible third parties
C. Deny claims
D. Cancel policies
Answer: B
Rationale: Insurer steps into insured’s rights after paying claim.
12. Case: Insurer pays claim after fire caused by contractor negligence. Insurer
may:
A. Do nothing
B. Sue contractor for recovery
C. Cancel policy
D. Increase deductible
Answer: B
Rationale: Subrogation allows recovery from negligent party.
, 13. Actual cash value (ACV) is calculated as:
A. Replacement cost + depreciation
B. Replacement cost – depreciation
C. Market value + taxes
D. Fixed policy limit
Answer: B
Rationale: ACV accounts for depreciation.
14. Case: Old roof is damaged. Payment under ACV policy will be:
A. Full replacement cost
B. Reduced due to depreciation
C. Double value
D. No payout
Answer: B
Rationale: Depreciation reduces settlement.
15. Replacement cost coverage pays:
A. Depreciated value
B. Cost to replace with new similar property
C. Loan balance
D. Market speculation value
Answer: B
Rationale: Replacement cost ignores depreciation.
16. Case: Policyholder replaces damaged appliance. Insurer reimburses:
A. Only used value
B. Full replacement cost if policy allows
C. Nothing
D. Loan amount
Answer: B
Rationale: Replacement cost policies reimburse full replacement.
17. A peril is:
A. Insurance contract
B. Cause of loss
C. Policy limit
D. Deductible
Questions And Correct Answers
(Verified Answers) Plus Rationales 2026
Q&A | Instant Download Pdf
1. A standard homeowners insurance policy typically covers which peril?
A. Wear and tear
B. Fire damage
C. Intentional damage by the insured
D. Flood
Answer: B
Rationale: Standard HO policies cover sudden and accidental perils like fire, but
exclude wear, intentional loss, and flood.
2. Case: A homeowner’s roof is damaged by a hurricane windstorm. Coverage
depends primarily on:
A. Earthquake endorsement
B. Windstorm coverage and policy exclusions
C. Life insurance rider
D. Liability coverage only
Answer: B
Rationale: Windstorm may be covered, but coastal policies often have specific
exclusions or deductibles.
3. The primary purpose of property insurance is to:
A. Increase property value
B. Indemnify the insured after a covered loss
C. Prevent loss entirely
D. Guarantee profit from claims
Answer: B
Rationale: Insurance restores the insured to pre-loss financial condition.
,4. Case: A policyholder intentionally sets fire to their property. The insurer will
most likely:
A. Pay full claim
B. Deny the claim due to fraud
C. Double payout
D. Transfer coverage
Answer: B
Rationale: Intentional acts by the insured are excluded and considered fraud.
5. A deductible in an insurance policy is:
A. Amount insurer pays first
B. Amount insured pays before coverage applies
C. Monthly premium
D. Policy limit
Answer: B
Rationale: Deductible is the insured’s out-of-pocket contribution.
6. Case: A driver causes an accident while intoxicated. Coverage is generally:
A. Fully covered
B. Often excluded or limited depending on policy
C. Automatically increased
D. Guaranteed under liability
Answer: B
Rationale: DUI may void or limit coverage due to illegal activity exclusions.
7. Liability insurance primarily covers:
A. The insured’s property
B. Damage caused to others
C. Natural disasters only
D. Investment losses
Answer: B
Rationale: Liability protects against third-party claims.
8. Case: A guest slips and falls in a homeowner’s house. Coverage applies under:
A. Property coverage
B. Personal liability coverage
C. Earthquake coverage
,D. Life insurance
Answer: B
Rationale: Liability coverage applies to injuries on premises.
9. The principle of indemnity means:
A. Profit from insurance
B. Restoring financial loss without profit
C. Double compensation
D. No claim payments
Answer: B
Rationale: Insurance does not allow insured to profit from loss.
10. Case: Insured receives payment greater than actual loss. This violates:
A. Subrogation
B. Indemnity principle
C. Deductible rule
D. Underwriting rules
Answer: B
Rationale: Overpayment results in unjust enrichment.
11. Subrogation allows the insurer to:
A. Increase premiums
B. Recover losses from responsible third parties
C. Deny claims
D. Cancel policies
Answer: B
Rationale: Insurer steps into insured’s rights after paying claim.
12. Case: Insurer pays claim after fire caused by contractor negligence. Insurer
may:
A. Do nothing
B. Sue contractor for recovery
C. Cancel policy
D. Increase deductible
Answer: B
Rationale: Subrogation allows recovery from negligent party.
, 13. Actual cash value (ACV) is calculated as:
A. Replacement cost + depreciation
B. Replacement cost – depreciation
C. Market value + taxes
D. Fixed policy limit
Answer: B
Rationale: ACV accounts for depreciation.
14. Case: Old roof is damaged. Payment under ACV policy will be:
A. Full replacement cost
B. Reduced due to depreciation
C. Double value
D. No payout
Answer: B
Rationale: Depreciation reduces settlement.
15. Replacement cost coverage pays:
A. Depreciated value
B. Cost to replace with new similar property
C. Loan balance
D. Market speculation value
Answer: B
Rationale: Replacement cost ignores depreciation.
16. Case: Policyholder replaces damaged appliance. Insurer reimburses:
A. Only used value
B. Full replacement cost if policy allows
C. Nothing
D. Loan amount
Answer: B
Rationale: Replacement cost policies reimburse full replacement.
17. A peril is:
A. Insurance contract
B. Cause of loss
C. Policy limit
D. Deductible
