ARKANSAS PROPERTY AND CASUALTY
INSURANCE PRACTICE EXAM
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of insurance?
A. To avoid risk
B. To transfer risk
C. To reduce claims
D. To increase liability
Insurance is a risk transfer mechanism where risk is transferred from the
insured to the insurer.
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,2. Which of the following is considered a speculative risk?
A. Fire damage to a home
B. Theft of personal property
C. Gambling at a casino
D. Car accident
Speculative risks involve the possibility of both gain and loss and are not
insurable.
3. In a property insurance policy, what does the declarations section
contain?
A. Policy exclusions
B. Definitions
C. The insured's information and coverage limits
D. Claims procedures
The declarations page lists key policy information such as the insured,
coverage limits, and the policy period.
4. What is an example of a named peril policy?
A. A policy that covers only listed perils
B. A policy that covers all risks unless excluded
C. A policy that covers bodily injury
D. A policy that pays for medical expenses
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, Named peril policies only provide coverage for specific perils listed in the
policy.
5. Which type of insurance company is owned by its policyholders?
A. Stock company
B. Mutual company
C. Reciprocal insurer
D. Lloyd’s association
Mutual insurers are owned by policyholders and may pay dividends.
6. What is the purpose of coinsurance in property insurance?
A. To exclude certain perils
B. To encourage the insured to carry insurance close to full value
C. To reduce premiums
D. To avoid deductibles
Coinsurance requires the insured to maintain a specified percentage of
insurance relative to the property's value.
7. Which of the following is NOT covered under a standard
homeowner’s policy?
A. Fire
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INSURANCE PRACTICE EXAM
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of insurance?
A. To avoid risk
B. To transfer risk
C. To reduce claims
D. To increase liability
Insurance is a risk transfer mechanism where risk is transferred from the
insured to the insurer.
1|Page
,2. Which of the following is considered a speculative risk?
A. Fire damage to a home
B. Theft of personal property
C. Gambling at a casino
D. Car accident
Speculative risks involve the possibility of both gain and loss and are not
insurable.
3. In a property insurance policy, what does the declarations section
contain?
A. Policy exclusions
B. Definitions
C. The insured's information and coverage limits
D. Claims procedures
The declarations page lists key policy information such as the insured,
coverage limits, and the policy period.
4. What is an example of a named peril policy?
A. A policy that covers only listed perils
B. A policy that covers all risks unless excluded
C. A policy that covers bodily injury
D. A policy that pays for medical expenses
2|Page
, Named peril policies only provide coverage for specific perils listed in the
policy.
5. Which type of insurance company is owned by its policyholders?
A. Stock company
B. Mutual company
C. Reciprocal insurer
D. Lloyd’s association
Mutual insurers are owned by policyholders and may pay dividends.
6. What is the purpose of coinsurance in property insurance?
A. To exclude certain perils
B. To encourage the insured to carry insurance close to full value
C. To reduce premiums
D. To avoid deductibles
Coinsurance requires the insured to maintain a specified percentage of
insurance relative to the property's value.
7. Which of the following is NOT covered under a standard
homeowner’s policy?
A. Fire
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