NEW JERSEY PROPERTY AND CASUALTY
INSURANCE PRACTICE EXAM
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What does the term “insurable interest” mean?
A) The insured has a financial stake in the property or life insured
B) The insured would suffer a financial loss if the insured event occurs
C) The insurance company guarantees a profit
D) The insured must have an attorney
Rationale: Insurable interest means the insured stands to lose financially if the
insured property is damaged or lost.
2. Which of the following is NOT covered under a standard homeowner’s
insurance policy?
, A) Fire damage
B) Theft
C) Flood damage
D) Earthquake damage
Rationale: Standard homeowners policies generally exclude flood and earthquake
damage, which require separate coverage.
3. In a property insurance policy, what is the purpose of the deductible?
A) To increase the policy premium
B) To reduce the insurer's risk by requiring the insured to pay part of a loss
C) To share the loss expense between insurer and insured
D) To cover losses that the insurer refuses to pay
Rationale: Deductibles reduce small claims and share loss costs with the insured.
4. Which of the following best describes “liability insurance”?
A) Insurance that pays for damage to the insured’s own property
B) Insurance that protects the insured against legal responsibility for
injury or damage to others
C) Insurance that reimburses the insured for lost wages
D) Insurance that covers natural disasters
Rationale: Liability insurance covers damages or injuries the insured causes to
others.
, 5. What is the main function of the “Declarations” page in an insurance
policy?
A) Lists all exclusions
B) Provides legal definitions of terms
C) Identifies the insured, property, limits, and premiums
D) Details the claims process
Rationale: The declarations page summarizes key policy information.
6. Which of the following is true about “replacement cost” coverage?
A) It pays the depreciated value of damaged property
B) It excludes damages due to fire
C) It pays the amount necessary to repair or replace the damaged
property without deduction for depreciation
D) It always requires an appraisal
Rationale: Replacement cost covers the cost to replace damaged property with
new, without depreciation.
7. In automobile insurance, what does “liability coverage” typically pay for?
A) Damage to the insured vehicle
B) Bodily injury and property damage to others caused by the insured
C) Medical bills of the insured only
D) Towing and rental reimbursement
INSURANCE PRACTICE EXAM
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What does the term “insurable interest” mean?
A) The insured has a financial stake in the property or life insured
B) The insured would suffer a financial loss if the insured event occurs
C) The insurance company guarantees a profit
D) The insured must have an attorney
Rationale: Insurable interest means the insured stands to lose financially if the
insured property is damaged or lost.
2. Which of the following is NOT covered under a standard homeowner’s
insurance policy?
, A) Fire damage
B) Theft
C) Flood damage
D) Earthquake damage
Rationale: Standard homeowners policies generally exclude flood and earthquake
damage, which require separate coverage.
3. In a property insurance policy, what is the purpose of the deductible?
A) To increase the policy premium
B) To reduce the insurer's risk by requiring the insured to pay part of a loss
C) To share the loss expense between insurer and insured
D) To cover losses that the insurer refuses to pay
Rationale: Deductibles reduce small claims and share loss costs with the insured.
4. Which of the following best describes “liability insurance”?
A) Insurance that pays for damage to the insured’s own property
B) Insurance that protects the insured against legal responsibility for
injury or damage to others
C) Insurance that reimburses the insured for lost wages
D) Insurance that covers natural disasters
Rationale: Liability insurance covers damages or injuries the insured causes to
others.
, 5. What is the main function of the “Declarations” page in an insurance
policy?
A) Lists all exclusions
B) Provides legal definitions of terms
C) Identifies the insured, property, limits, and premiums
D) Details the claims process
Rationale: The declarations page summarizes key policy information.
6. Which of the following is true about “replacement cost” coverage?
A) It pays the depreciated value of damaged property
B) It excludes damages due to fire
C) It pays the amount necessary to repair or replace the damaged
property without deduction for depreciation
D) It always requires an appraisal
Rationale: Replacement cost covers the cost to replace damaged property with
new, without depreciation.
7. In automobile insurance, what does “liability coverage” typically pay for?
A) Damage to the insured vehicle
B) Bodily injury and property damage to others caused by the insured
C) Medical bills of the insured only
D) Towing and rental reimbursement
