NJ Surplus Lines Certification
1. Which term describes the replacement cost minus depreciation?
A. Actual Cash Value
B. Replacement Cost
C. Agreed Value
D. Coinsurance
Answer: A
Explanation: Actual Cash Value is defined as the replacement cost minus depreciation.
2. In insurance, what does “Actual Cash Value” represent?
A. The original purchase price
B. The depreciated replacement cost
C. The insured value agreed upon
D. The full replacement cost
Answer: B
Explanation: It represents the replacement cost minus depreciation.
3. What term is defined as the replacement cost minus depreciation in insurance?
A. Agreed Value
B. Actual Cash Value
C. Coinsurance
D. Salvage
Answer: B
Explanation: Actual Cash Value is the cost to replace property after subtracting depreciation.
4. Actual Cash Value in an insurance policy is calculated by subtracting depreciation from what?
A. Agreed Value
B. Replacement Cost
C. Loss Value
D. Premium
Answer: B
Explanation: Replacement Cost is used as the base from which depreciation is deducted to arrive at
Actual Cash Value.
5. Which term refers to a policy provision where the insurer and insured agree on the property’s value
at the time of policy issuance?
A. Actual Cash Value
B. Coinsurance
C. Agreed Value
D. Replacement Cost
Answer: C
Explanation: Agreed Value means both parties pre‐determine the property’s value at policy inception.
,6. In an insurance contract, when both parties agree on the property’s value at issuance, which term
applies?
A. Actual Cash Value
B. Agreed Value
C. Salvage
D. Insurable Interest
Answer: B
Explanation: This is the definition of Agreed Value.
7. What is the benefit of using an Agreed Value clause in an insurance policy?
A. It reduces premiums by considering depreciation
B. It avoids disputes during claim settlements
C. It increases the coinsurance requirement
D. It excludes losses from certain perils
Answer: B
Explanation: Pre-agreeing on the value helps avoid disputes when a claim is filed.
8. Which term ensures that both insurer and insured have predetermined the property’s value?
A. Replacement Cost
B. Agreed Value
C. Actual Cash Value
D. Coinsurance
Answer: B
Explanation: An Agreed Value clause fixes the property’s value upfront.
9. What insurance clause requires the policyholder to insure property to a specified percentage of its
value?
A. Coinsurance
B. Salvage
C. Actual Cash Value
D. Agreed Value
Answer: A
Explanation: Coinsurance mandates maintaining insurance at a set percentage of value.
10. Which clause mandates maintaining insurance equal to a specific percentage of the property’s
value for full reimbursement?
A. Underinsurance
B. Coinsurance
C. Insurable Interest
D. Replacement Cost
Answer: B
Explanation: Coinsurance requires the insured to carry coverage proportional to the property’s value.
,11. Failure to meet the required percentage in coinsurance results in what?
A. Full claim payment
B. A deduction in the claim payout
C. Immediate policy cancellation
D. An automatic premium refund
Answer: B
Explanation: Underinsuring typically results in a reduced claim payment.
12. In the context of coinsurance, what is the consequence of underinsuring a property?
A. Full reimbursement of the loss
B. Reduced claim payout proportional to the shortfall
C. Policy termination
D. An increase in the salvage value
Answer: B
Explanation: Underinsuring causes the insurer to pay only a proportionate amount of the loss.
13. What is the term for a financial stake in the property or life insured, necessary for a valid
insurance contract?
A. Insurable Interest
B. Coinsurance
C. Risk
D. Actual Cash Value
Answer: A
Explanation: Insurable Interest confirms that the insured would suffer financially if loss occurs.
14. An insurance contract is valid only if the insured party has what kind of interest?
A. Physical interest
B. Insurable Interest
C. Monetary Interest
D. Replacement Cost
Answer: B
Explanation: Insurable Interest is essential to validate the contract.
15. What does “Insurable Interest” ensure in an insurance contract?
A. The opportunity to profit from the policy
B. A legitimate financial stake in the subject of the insurance
C. A discount on the premium
D. Increased coinsurance benefits
Answer: B
Explanation: It ensures that the insured will face a financial loss if the insured event occurs.
16. Why is insurable interest crucial for insurance validity?
A. It prevents moral hazard
B. It determines the premium exclusively
, C. It allows profit from policy sales
D. It validates that a loss would result in financial impact
Answer: D
Explanation: Insurable interest confirms that a genuine financial loss will occur if the insured event
happens.
17. In insurance terms, what does “Loss” refer to?
A. The policyholder’s financial setback due to an insured event
B. The premium paid for coverage
C. The total insured value
D. The coinsurance requirement
Answer: A
Explanation: Loss is the financial impact or setback resulting from an insured event.
18. Which term best describes the financial setback a policyholder experiences from an insured event?
A. Salvage
B. Loss
C. Risk
D. Negligence
Answer: B
Explanation: Loss refers to the financial damage incurred.
19. The term “Loss” in an insurance claim typically seeks to cover what?
A. Depreciation only
B. The financial impact of the insured event
C. Future profit margins
D. Only replacement costs
Answer: B
Explanation: A claim is designed to compensate for the financial loss sustained.
20. What does an insurance claim typically seek to reimburse?
A. The original purchase price
B. The policyholder’s financial setback
C. The entire insured value regardless of loss
D. The salvage value only
Answer: B
Explanation: Claims are made to reimburse the financial loss suffered.
21. Which term describes the failure to exercise reasonable care, leading to potential harm or
damage?
A. Proximate Cause
B. Negligence
C. Physical Hazard
D. Loss
1. Which term describes the replacement cost minus depreciation?
A. Actual Cash Value
B. Replacement Cost
C. Agreed Value
D. Coinsurance
Answer: A
Explanation: Actual Cash Value is defined as the replacement cost minus depreciation.
2. In insurance, what does “Actual Cash Value” represent?
A. The original purchase price
B. The depreciated replacement cost
C. The insured value agreed upon
D. The full replacement cost
Answer: B
Explanation: It represents the replacement cost minus depreciation.
3. What term is defined as the replacement cost minus depreciation in insurance?
A. Agreed Value
B. Actual Cash Value
C. Coinsurance
D. Salvage
Answer: B
Explanation: Actual Cash Value is the cost to replace property after subtracting depreciation.
4. Actual Cash Value in an insurance policy is calculated by subtracting depreciation from what?
A. Agreed Value
B. Replacement Cost
C. Loss Value
D. Premium
Answer: B
Explanation: Replacement Cost is used as the base from which depreciation is deducted to arrive at
Actual Cash Value.
5. Which term refers to a policy provision where the insurer and insured agree on the property’s value
at the time of policy issuance?
A. Actual Cash Value
B. Coinsurance
C. Agreed Value
D. Replacement Cost
Answer: C
Explanation: Agreed Value means both parties pre‐determine the property’s value at policy inception.
,6. In an insurance contract, when both parties agree on the property’s value at issuance, which term
applies?
A. Actual Cash Value
B. Agreed Value
C. Salvage
D. Insurable Interest
Answer: B
Explanation: This is the definition of Agreed Value.
7. What is the benefit of using an Agreed Value clause in an insurance policy?
A. It reduces premiums by considering depreciation
B. It avoids disputes during claim settlements
C. It increases the coinsurance requirement
D. It excludes losses from certain perils
Answer: B
Explanation: Pre-agreeing on the value helps avoid disputes when a claim is filed.
8. Which term ensures that both insurer and insured have predetermined the property’s value?
A. Replacement Cost
B. Agreed Value
C. Actual Cash Value
D. Coinsurance
Answer: B
Explanation: An Agreed Value clause fixes the property’s value upfront.
9. What insurance clause requires the policyholder to insure property to a specified percentage of its
value?
A. Coinsurance
B. Salvage
C. Actual Cash Value
D. Agreed Value
Answer: A
Explanation: Coinsurance mandates maintaining insurance at a set percentage of value.
10. Which clause mandates maintaining insurance equal to a specific percentage of the property’s
value for full reimbursement?
A. Underinsurance
B. Coinsurance
C. Insurable Interest
D. Replacement Cost
Answer: B
Explanation: Coinsurance requires the insured to carry coverage proportional to the property’s value.
,11. Failure to meet the required percentage in coinsurance results in what?
A. Full claim payment
B. A deduction in the claim payout
C. Immediate policy cancellation
D. An automatic premium refund
Answer: B
Explanation: Underinsuring typically results in a reduced claim payment.
12. In the context of coinsurance, what is the consequence of underinsuring a property?
A. Full reimbursement of the loss
B. Reduced claim payout proportional to the shortfall
C. Policy termination
D. An increase in the salvage value
Answer: B
Explanation: Underinsuring causes the insurer to pay only a proportionate amount of the loss.
13. What is the term for a financial stake in the property or life insured, necessary for a valid
insurance contract?
A. Insurable Interest
B. Coinsurance
C. Risk
D. Actual Cash Value
Answer: A
Explanation: Insurable Interest confirms that the insured would suffer financially if loss occurs.
14. An insurance contract is valid only if the insured party has what kind of interest?
A. Physical interest
B. Insurable Interest
C. Monetary Interest
D. Replacement Cost
Answer: B
Explanation: Insurable Interest is essential to validate the contract.
15. What does “Insurable Interest” ensure in an insurance contract?
A. The opportunity to profit from the policy
B. A legitimate financial stake in the subject of the insurance
C. A discount on the premium
D. Increased coinsurance benefits
Answer: B
Explanation: It ensures that the insured will face a financial loss if the insured event occurs.
16. Why is insurable interest crucial for insurance validity?
A. It prevents moral hazard
B. It determines the premium exclusively
, C. It allows profit from policy sales
D. It validates that a loss would result in financial impact
Answer: D
Explanation: Insurable interest confirms that a genuine financial loss will occur if the insured event
happens.
17. In insurance terms, what does “Loss” refer to?
A. The policyholder’s financial setback due to an insured event
B. The premium paid for coverage
C. The total insured value
D. The coinsurance requirement
Answer: A
Explanation: Loss is the financial impact or setback resulting from an insured event.
18. Which term best describes the financial setback a policyholder experiences from an insured event?
A. Salvage
B. Loss
C. Risk
D. Negligence
Answer: B
Explanation: Loss refers to the financial damage incurred.
19. The term “Loss” in an insurance claim typically seeks to cover what?
A. Depreciation only
B. The financial impact of the insured event
C. Future profit margins
D. Only replacement costs
Answer: B
Explanation: A claim is designed to compensate for the financial loss sustained.
20. What does an insurance claim typically seek to reimburse?
A. The original purchase price
B. The policyholder’s financial setback
C. The entire insured value regardless of loss
D. The salvage value only
Answer: B
Explanation: Claims are made to reimburse the financial loss suffered.
21. Which term describes the failure to exercise reasonable care, leading to potential harm or
damage?
A. Proximate Cause
B. Negligence
C. Physical Hazard
D. Loss
