CRUSH the CA Property Insurance Exam:
Practice Questions with Explanations
Question 1
Which type of property insurance policy covers losses to buildings and personal property caused by fire,
lightning, and removal from premises?
A. Commercial Package Policy (CPP)
B. Dwelling Policy
C. Basic Cause of Loss Form (Fire Policy)
D. Businessowners Policy (BOP)
Correct Answer: C
Rationale: The Basic Cause of Loss Form (formerly the Standard Fire Policy) covers losses from fire,
lightning, and removal from premises. Extended coverage endorsements add wind, hail, explosion, riot,
aircraft, vehicles, and smoke.
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Question 2
Under California law, what is the minimum period for which an insurer must retain records of property
insurance transactions?
A. 2 years
B. 3 years
C. 5 years
D. 7 years
Correct Answer: C
,Rationale: Under California Insurance Code § 1729, insurers must retain records of insurance
transactions for a minimum of 5 years from the date of the transaction.
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Question 3
The principle of "indemnity" in property insurance means that:
A. The insured can profit from a loss
B. The insured is restored to the same financial position as before the loss, without profit
C. The insurer must pay the full policy limit regardless of the loss
D. The insured must bear a portion of the loss
Correct Answer: B
Rationale: Indemnity ensures that the insured is compensated for the actual loss suffered, up to the
policy limits, but does not allow the insured to profit from a loss. The insured is restored to the pre-loss
financial position.
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Question 4
What is "actual cash value" (ACV) in property insurance?
A. The original purchase price of the property
B. The replacement cost minus depreciation
C. The market value of the property
D. The assessed value for tax purposes
Correct Answer: B
Rationale: Actual Cash Value (ACV) is calculated as Replacement Cost minus Depreciation. It is the most
common valuation method for property claims, though some policies use replacement cost.
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Question 5
Which of the following is NOT a standard peril covered under the Basic Cause of Loss Form?
A. Fire
B. Lightning
C. Vandalism
D. Removal from premises
Correct Answer: C
Rationale: The Basic Cause of Loss Form covers fire, lightning, and removal from premises. Vandalism is
not covered under the Basic form; it is added under the Broad or Special Cause of Loss forms.
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Question 6
A commercial property policy includes "Coinsurance" clause requiring 80% coinsurance. If the policy
limit is $100,000 and the property's value is $200,000, what is the maximum recovery for a $50,000
loss?
A. $50,000
B. $40,000
C. $31,250
D. $25,000
Correct Answer: C
Rationale: 80% of $200,000 = $160,000 required insurance. $100,000 carried ÷ $160,000 required =
0.625. $50,000 loss × 0.625 = $31,250 recovery (subject to the policy limit). The insured is a co-insurer
for the underinsured portion.
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, Question 7
Under California Insurance Code § 2051, a policy that covers property in California must include which of
the following?
A. A 30-day grace period for premium payment
B. A provision for payment of claims within 30 days of proof of loss
C. A mandatory arbitration clause
D. A waiver of subrogation clause
Correct Answer: B
Rationale: California Insurance Code § 2051 requires insurance policies to include a provision that claims
will be paid within 30 days of the insurer receiving satisfactory proof of loss.
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Question 8
Which of the following best describes "replacement cost" coverage?
A. The amount the property would sell for on the open market
B. The cost to repair or replace property with new materials of like kind and quality, without deduction
for depreciation
C. The original cost of the property
D. The assessed value for tax purposes
Correct Answer: B
Rationale: Replacement cost is the amount required to repair or replace damaged property with new
materials of like kind and quality, without a deduction for depreciation. It provides more comprehensive
coverage than ACV.
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Practice Questions with Explanations
Question 1
Which type of property insurance policy covers losses to buildings and personal property caused by fire,
lightning, and removal from premises?
A. Commercial Package Policy (CPP)
B. Dwelling Policy
C. Basic Cause of Loss Form (Fire Policy)
D. Businessowners Policy (BOP)
Correct Answer: C
Rationale: The Basic Cause of Loss Form (formerly the Standard Fire Policy) covers losses from fire,
lightning, and removal from premises. Extended coverage endorsements add wind, hail, explosion, riot,
aircraft, vehicles, and smoke.
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Question 2
Under California law, what is the minimum period for which an insurer must retain records of property
insurance transactions?
A. 2 years
B. 3 years
C. 5 years
D. 7 years
Correct Answer: C
,Rationale: Under California Insurance Code § 1729, insurers must retain records of insurance
transactions for a minimum of 5 years from the date of the transaction.
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Question 3
The principle of "indemnity" in property insurance means that:
A. The insured can profit from a loss
B. The insured is restored to the same financial position as before the loss, without profit
C. The insurer must pay the full policy limit regardless of the loss
D. The insured must bear a portion of the loss
Correct Answer: B
Rationale: Indemnity ensures that the insured is compensated for the actual loss suffered, up to the
policy limits, but does not allow the insured to profit from a loss. The insured is restored to the pre-loss
financial position.
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Question 4
What is "actual cash value" (ACV) in property insurance?
A. The original purchase price of the property
B. The replacement cost minus depreciation
C. The market value of the property
D. The assessed value for tax purposes
Correct Answer: B
Rationale: Actual Cash Value (ACV) is calculated as Replacement Cost minus Depreciation. It is the most
common valuation method for property claims, though some policies use replacement cost.
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Question 5
Which of the following is NOT a standard peril covered under the Basic Cause of Loss Form?
A. Fire
B. Lightning
C. Vandalism
D. Removal from premises
Correct Answer: C
Rationale: The Basic Cause of Loss Form covers fire, lightning, and removal from premises. Vandalism is
not covered under the Basic form; it is added under the Broad or Special Cause of Loss forms.
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Question 6
A commercial property policy includes "Coinsurance" clause requiring 80% coinsurance. If the policy
limit is $100,000 and the property's value is $200,000, what is the maximum recovery for a $50,000
loss?
A. $50,000
B. $40,000
C. $31,250
D. $25,000
Correct Answer: C
Rationale: 80% of $200,000 = $160,000 required insurance. $100,000 carried ÷ $160,000 required =
0.625. $50,000 loss × 0.625 = $31,250 recovery (subject to the policy limit). The insured is a co-insurer
for the underinsured portion.
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, Question 7
Under California Insurance Code § 2051, a policy that covers property in California must include which of
the following?
A. A 30-day grace period for premium payment
B. A provision for payment of claims within 30 days of proof of loss
C. A mandatory arbitration clause
D. A waiver of subrogation clause
Correct Answer: B
Rationale: California Insurance Code § 2051 requires insurance policies to include a provision that claims
will be paid within 30 days of the insurer receiving satisfactory proof of loss.
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Question 8
Which of the following best describes "replacement cost" coverage?
A. The amount the property would sell for on the open market
B. The cost to repair or replace property with new materials of like kind and quality, without deduction
for depreciation
C. The original cost of the property
D. The assessed value for tax purposes
Correct Answer: B
Rationale: Replacement cost is the amount required to repair or replace damaged property with new
materials of like kind and quality, without a deduction for depreciation. It provides more comprehensive
coverage than ACV.
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