STATE FARM INSURANCE LICENSE EXAM
Actual Questions and Answers
Expert-Verified Explanation
This Exam contains:
✪ Multiple-choice and True/False Format
✪ Expert-Verified Explanations
✪ Verified with Trusted Textbooks
1. What is the Abandonment Condition in property insurance policies?
A) The insured can abandon damaged property and receive full reimbursement
B) The insured cannot abandon damaged property and demand full reimbursement
C) The insurer automatically replaces damaged property
D) The insurer pays for property replacement regardless of damage
Answer: B
EXPLANATION: The abandonment condition prevents insureds from abandoning damaged
property to the insurer and demanding full value payment.
2. What defines an Accident in insurance terms?
A) A gradual loss occurring over time
B) A loss that occurs at a specific time and place
C) Damage caused intentionally by the insured
D) Loss due to wear and tear
Answer: B
EXPLANATION: An accident is a sudden, unexpected loss happening at a definite time and place.
3. What is Actual Cash Value (ACV)?
A) Replacement cost without deductions
B) Purchase price of the property
C) Today's replacement cost minus depreciation due to wear and tear or obsolescence
D) Market value of the property
Answer: C
EXPLANATION: ACV reflects the replacement cost minus depreciation, accounting for property
aging and condition.
4. What is an admitted insurer?
A) A company operating without state approval
B) A company meeting state standards and authorized to do business
C) A company specializing in life insurance only
D) A non-profit insurance company
Answer: B
EXPLANATION: An admitted insurer is licensed and authorized to operate by the state insurance
department.
,5. What is Adverse Selection?
A) Insureds with low risk buying insurance
B) Insureds with higher-than-average risk buying insurance
C) Insurers rejecting high-risk applicants
D) Insureds refusing to pay premiums
Answer: B
EXPLANATION: Adverse selection occurs when higher-risk individuals are more likely to
purchase insurance.
6. What does an Annual Transit Policy cover?
A) Property owners' incoming or outgoing shipments over a year
B) Single shipment of goods only
C) Damage to airplanes
D) Liability for bodily injury
Answer: A
EXPLANATION: Annual transit policies insure multiple shipments of goods throughout the year.
7. What is the purpose of an Appraisal Clause?
A) To cancel the policy
B) To survey property value or loss amount
C) To increase premiums
D) To extend policy coverage
Answer: B
EXPLANATION: The appraisal clause allows determination of insurable value or settlement of
loss disagreements.
8. What is an Appraisal Condition?
A) A policy section requiring arbitration on claims
B) A policy part for automatic claim denial
C) A condition for property inspections only
D) A procedure when insurer and insured disagree on loss amount
Answer: D
EXPLANATION: It establishes steps for resolving disputes over claim amounts through appraisal.
9. What is Assignment in insurance?
A) Transfer of legal interest in a policy to another person
B) Cancellation of insurance
C) Adjustment of premiums
D) Denial of claim
Answer: A
EXPLANATION: Assignment legally transfers policy rights to another party.
10. What does Aviation Hull Insurance cover?
A) Liability for passengers
B) Damage to aircraft physical structure
C) Cargo loss on flights
D) Flight delay compensation
, Answer: B
EXPLANATION: It insures physical damage to aircraft.
11. What is a Bailee's Customers Policy?
A) Insurance for goods in a bailee’s temporary custody, regardless of liability
B) Liability insurance for bailees only
C) Insurance for bailee’s own property
D) Workers’ compensation insurance
Answer: A
EXPLANATION: It protects customers’ property while in custody of bailees without considering
liability.
12. What are Appurtenant Structures?
A) Main dwelling buildings
B) Buildings of lesser value on same premises, covered under the main policy
C) Detached garages only
D) Buildings not covered under the policy
Answer: B
EXPLANATION: These are smaller buildings on the insured property covered alongside the main
structure.
13. What is an Assignment Condition?
A) Specifies that a policy cannot be transferred without written insurer consent
B) Allows transfer of policy anytime
C) Cancelation clause
D) Coverage extension clause
Answer: A
EXPLANATION: The condition restricts policy transfer unless approved by the insurer.
14. Who is a Bailee?
A) The property owner
B) One with temporary possession of someone else's property
C) The insurance company
D) The property claimant
Answer: B
EXPLANATION: A bailee holds property temporarily for another person.
15. What are Basic Perils in a Homeowners Policy?
A) Fire, lightning, riot, explosion, vehicles, volcanic eruption, civil commotion, smoke, hail,
aircraft, windstorm, vandalism, malicious mischief, theft
B) Flood and earthquake only
C) Fire and theft only
D) Liability coverage only
Answer: A
EXPLANATION: These 14 perils are covered under the basic homeowners policy.
Actual Questions and Answers
Expert-Verified Explanation
This Exam contains:
✪ Multiple-choice and True/False Format
✪ Expert-Verified Explanations
✪ Verified with Trusted Textbooks
1. What is the Abandonment Condition in property insurance policies?
A) The insured can abandon damaged property and receive full reimbursement
B) The insured cannot abandon damaged property and demand full reimbursement
C) The insurer automatically replaces damaged property
D) The insurer pays for property replacement regardless of damage
Answer: B
EXPLANATION: The abandonment condition prevents insureds from abandoning damaged
property to the insurer and demanding full value payment.
2. What defines an Accident in insurance terms?
A) A gradual loss occurring over time
B) A loss that occurs at a specific time and place
C) Damage caused intentionally by the insured
D) Loss due to wear and tear
Answer: B
EXPLANATION: An accident is a sudden, unexpected loss happening at a definite time and place.
3. What is Actual Cash Value (ACV)?
A) Replacement cost without deductions
B) Purchase price of the property
C) Today's replacement cost minus depreciation due to wear and tear or obsolescence
D) Market value of the property
Answer: C
EXPLANATION: ACV reflects the replacement cost minus depreciation, accounting for property
aging and condition.
4. What is an admitted insurer?
A) A company operating without state approval
B) A company meeting state standards and authorized to do business
C) A company specializing in life insurance only
D) A non-profit insurance company
Answer: B
EXPLANATION: An admitted insurer is licensed and authorized to operate by the state insurance
department.
,5. What is Adverse Selection?
A) Insureds with low risk buying insurance
B) Insureds with higher-than-average risk buying insurance
C) Insurers rejecting high-risk applicants
D) Insureds refusing to pay premiums
Answer: B
EXPLANATION: Adverse selection occurs when higher-risk individuals are more likely to
purchase insurance.
6. What does an Annual Transit Policy cover?
A) Property owners' incoming or outgoing shipments over a year
B) Single shipment of goods only
C) Damage to airplanes
D) Liability for bodily injury
Answer: A
EXPLANATION: Annual transit policies insure multiple shipments of goods throughout the year.
7. What is the purpose of an Appraisal Clause?
A) To cancel the policy
B) To survey property value or loss amount
C) To increase premiums
D) To extend policy coverage
Answer: B
EXPLANATION: The appraisal clause allows determination of insurable value or settlement of
loss disagreements.
8. What is an Appraisal Condition?
A) A policy section requiring arbitration on claims
B) A policy part for automatic claim denial
C) A condition for property inspections only
D) A procedure when insurer and insured disagree on loss amount
Answer: D
EXPLANATION: It establishes steps for resolving disputes over claim amounts through appraisal.
9. What is Assignment in insurance?
A) Transfer of legal interest in a policy to another person
B) Cancellation of insurance
C) Adjustment of premiums
D) Denial of claim
Answer: A
EXPLANATION: Assignment legally transfers policy rights to another party.
10. What does Aviation Hull Insurance cover?
A) Liability for passengers
B) Damage to aircraft physical structure
C) Cargo loss on flights
D) Flight delay compensation
, Answer: B
EXPLANATION: It insures physical damage to aircraft.
11. What is a Bailee's Customers Policy?
A) Insurance for goods in a bailee’s temporary custody, regardless of liability
B) Liability insurance for bailees only
C) Insurance for bailee’s own property
D) Workers’ compensation insurance
Answer: A
EXPLANATION: It protects customers’ property while in custody of bailees without considering
liability.
12. What are Appurtenant Structures?
A) Main dwelling buildings
B) Buildings of lesser value on same premises, covered under the main policy
C) Detached garages only
D) Buildings not covered under the policy
Answer: B
EXPLANATION: These are smaller buildings on the insured property covered alongside the main
structure.
13. What is an Assignment Condition?
A) Specifies that a policy cannot be transferred without written insurer consent
B) Allows transfer of policy anytime
C) Cancelation clause
D) Coverage extension clause
Answer: A
EXPLANATION: The condition restricts policy transfer unless approved by the insurer.
14. Who is a Bailee?
A) The property owner
B) One with temporary possession of someone else's property
C) The insurance company
D) The property claimant
Answer: B
EXPLANATION: A bailee holds property temporarily for another person.
15. What are Basic Perils in a Homeowners Policy?
A) Fire, lightning, riot, explosion, vehicles, volcanic eruption, civil commotion, smoke, hail,
aircraft, windstorm, vandalism, malicious mischief, theft
B) Flood and earthquake only
C) Fire and theft only
D) Liability coverage only
Answer: A
EXPLANATION: These 14 perils are covered under the basic homeowners policy.
