OR Property and Casualty Insurance Producer Exam
Question 1. Which of the following is NOT a necessary element of an insurable risk?
A) The risk must be catastrophic in nature
B) The loss must be definite and measurable
C) The loss must be accidental
D) The loss exposure must be large
Answer: A
Explanation: Insurable risks should NOT be catastrophic; insurers prefer risks that are predictable and
not likely to cause massive simultaneous losses.
Question 2. What is the primary purpose of the National Association of Insurance Commissioners
(NAIC)?
A) To enforce federal insurance laws
B) To establish uniform insurance regulations among states
C) To sell insurance policies
D) To license insurance agents directly
Answer: B
Explanation: The NAIC helps coordinate regulation and promote uniformity among states, but does not
enforce laws or license agents itself.
Question 3. Which of the following best defines a peril in insurance terminology?
A) The cause of a loss
B) The likelihood of a loss
C) Something that increases the chance of loss
D) The monetary value of a loss
Answer: A
Explanation: A peril is the specific cause of a loss, such as fire, theft, or windstorm.
Question 4. What type of risk is insurable by property and casualty insurance companies?
A) Pure risk
B) Speculative risk
C) Investment risk
D) Market risk
Answer: A
Explanation: Only pure risks, which involve the chance of loss but no gain, are insurable.
Question 5. Under the law of large numbers, what happens as the number of exposure units increases?
A) The predictability of future losses decreases
B) The predictability of future losses increases
C) Premiums must increase
D) The risk of catastrophic loss increases
Answer: B
Explanation: The law of large numbers states that as the sample size grows, actual results more closely
approximate expected results, making losses more predictable.
Question 6. Which of the following is NOT a primary method of handling risk?
A) Avoidance
B) Retention
, OR Property and Casualty Insurance Producer Exam
C) Transfer
D) Speculation
Answer: D
Explanation: Speculation is not a risk management method; the main methods are avoidance, retention,
transfer, and reduction.
Question 7. Which of the following is an example of a physical hazard?
A) Dishonest employees
B) Faulty wiring in a building
C) A business in a flood zone
D) Poor management decisions
Answer: B
Explanation: Physical hazards are tangible conditions that increase loss likelihood, such as faulty wiring.
Question 8. What does the principle of indemnity require in property insurance?
A) The insured should profit from a loss
B) The insured should be restored to the same financial position as before the loss
C) The premium must equal the loss amount
D) The insurer must always pay the policy limit
Answer: B
Explanation: Indemnity means restoring the insured to their pre-loss condition without profit.
Question 9. Which section of an insurance policy lists the policyholder’s name, address, and policy
limits?
A) Insuring Agreement
B) Conditions
C) Declarations
D) Exclusions
Answer: C
Explanation: The Declarations page contains the basic facts about the insured and the policy.
Question 10. Which of the following is considered a contract of adhesion?
A) The contract is negotiated equally by both parties
B) The insurer drafts the contract, and the insured must accept it as is
C) The contract is voidable at the insurer’s option
D) The insured can change the terms of the contract
Answer: B
Explanation: Insurance policies are contracts of adhesion because they are drafted by the insurer and
accepted or rejected by the insured.
Question 11. What is the purpose of the Conditions section of an insurance policy?
A) To describe who is insured and the policy period
B) To state the perils covered
C) To outline the obligations of both parties under the policy
D) To list the specific exclusions from coverage
Answer: C
, OR Property and Casualty Insurance Producer Exam
Explanation: The Conditions section sets forth the duties, rights, and obligations of both the insurer and
the insured.
Question 12. Which of the following best describes the insurable interest requirement for property
insurance?
A) The insured must own the property at the time of application
B) The insured must have a legitimate financial interest in the property at the time of loss
C) The insured must always be the property’s legal owner
D) The insured must have an interest at the policy expiration
Answer: B
Explanation: Insurable interest must exist at the time of the loss for property insurance.
Question 13. What does "subrogation" allow an insurer to do?
A) Increase the policy premium after a loss
B) Sue the insured for negligence
C) Pursue recovery from a third party responsible for the insured’s loss
D) Cancel the policy at any time
Answer: C
Explanation: Subrogation gives the insurer the right to recover from a responsible third party after
paying the insured’s claim.
Question 14. A representation in insurance is:
A) An absolute guarantee of truth
B) A statement believed to be true by the applicant
C) A policy exclusion
D) An insurance policy endorsement
Answer: B
Explanation: A representation is a statement made by the applicant believed to be true to the best of
their knowledge.
Question 15. Which of the following is true about warranties in insurance contracts?
A) They are always implied, never written
B) They are statements guaranteed to be true
C) They are not required in any contract
D) They can be changed by the insured at any time
Answer: B
Explanation: Warranties are statements that are guaranteed to be true and, if breached, can void the
contract.
Question 16. Which type of property valuation pays the cost to replace the damaged property without
deduction for depreciation?
A) Actual cash value
B) Replacement cost
C) Market value
D) Stated amount
Answer: B
, OR Property and Casualty Insurance Producer Exam
Explanation: Replacement cost coverage pays the amount needed to repair or replace property without
considering depreciation.
Question 17. What is the main purpose of the Exclusions section in an insurance policy?
A) To explain the insurer’s obligations
B) To describe covered perils
C) To specify what is NOT covered by the policy
D) To set forth the policy limits
Answer: C
Explanation: The Exclusions section lists causes of loss, persons, or property not covered by the policy.
Question 18. Which of the following best describes a unilateral contract?
A) Both parties make legally enforceable promises
B) Only the insured is legally bound to perform
C) Only the insurer is legally bound to perform if the insured pays the premium
D) Either party can cancel at any time for any reason
Answer: C
Explanation: In a unilateral contract, only the insurer makes a legally enforceable promise (to pay claims
if the premium is paid).
Question 19. What is the purpose of the Insuring Agreement in a policy?
A) To provide details of policy exclusions
B) To specify the parties to the contract
C) To outline the insurer’s promise to pay and the perils covered
D) To state the premium amount
Answer: C
Explanation: The Insuring Agreement contains the insurer’s promise to pay and describes the covered
perils.
Question 20. Which of the following describes a moral hazard?
A) Icy sidewalks
B) The insured's dishonesty or intentional loss
C) Uninsured drivers
D) A home located in a high-crime area
Answer: B
Explanation: Moral hazards arise from the insured’s character, like dishonesty or intent to cause a loss.
Question 21. Under the Fair Credit Reporting Act (FCRA), what must insurers do before obtaining a
consumer report?
A) Obtain written consent from the applicant
B) Notify the applicant in writing
C) Wait until after issuing the policy
D) Notify the state insurance department
Answer: B
Explanation: FCRA requires insurers to notify applicants that a consumer report may be obtained.
Question 1. Which of the following is NOT a necessary element of an insurable risk?
A) The risk must be catastrophic in nature
B) The loss must be definite and measurable
C) The loss must be accidental
D) The loss exposure must be large
Answer: A
Explanation: Insurable risks should NOT be catastrophic; insurers prefer risks that are predictable and
not likely to cause massive simultaneous losses.
Question 2. What is the primary purpose of the National Association of Insurance Commissioners
(NAIC)?
A) To enforce federal insurance laws
B) To establish uniform insurance regulations among states
C) To sell insurance policies
D) To license insurance agents directly
Answer: B
Explanation: The NAIC helps coordinate regulation and promote uniformity among states, but does not
enforce laws or license agents itself.
Question 3. Which of the following best defines a peril in insurance terminology?
A) The cause of a loss
B) The likelihood of a loss
C) Something that increases the chance of loss
D) The monetary value of a loss
Answer: A
Explanation: A peril is the specific cause of a loss, such as fire, theft, or windstorm.
Question 4. What type of risk is insurable by property and casualty insurance companies?
A) Pure risk
B) Speculative risk
C) Investment risk
D) Market risk
Answer: A
Explanation: Only pure risks, which involve the chance of loss but no gain, are insurable.
Question 5. Under the law of large numbers, what happens as the number of exposure units increases?
A) The predictability of future losses decreases
B) The predictability of future losses increases
C) Premiums must increase
D) The risk of catastrophic loss increases
Answer: B
Explanation: The law of large numbers states that as the sample size grows, actual results more closely
approximate expected results, making losses more predictable.
Question 6. Which of the following is NOT a primary method of handling risk?
A) Avoidance
B) Retention
, OR Property and Casualty Insurance Producer Exam
C) Transfer
D) Speculation
Answer: D
Explanation: Speculation is not a risk management method; the main methods are avoidance, retention,
transfer, and reduction.
Question 7. Which of the following is an example of a physical hazard?
A) Dishonest employees
B) Faulty wiring in a building
C) A business in a flood zone
D) Poor management decisions
Answer: B
Explanation: Physical hazards are tangible conditions that increase loss likelihood, such as faulty wiring.
Question 8. What does the principle of indemnity require in property insurance?
A) The insured should profit from a loss
B) The insured should be restored to the same financial position as before the loss
C) The premium must equal the loss amount
D) The insurer must always pay the policy limit
Answer: B
Explanation: Indemnity means restoring the insured to their pre-loss condition without profit.
Question 9. Which section of an insurance policy lists the policyholder’s name, address, and policy
limits?
A) Insuring Agreement
B) Conditions
C) Declarations
D) Exclusions
Answer: C
Explanation: The Declarations page contains the basic facts about the insured and the policy.
Question 10. Which of the following is considered a contract of adhesion?
A) The contract is negotiated equally by both parties
B) The insurer drafts the contract, and the insured must accept it as is
C) The contract is voidable at the insurer’s option
D) The insured can change the terms of the contract
Answer: B
Explanation: Insurance policies are contracts of adhesion because they are drafted by the insurer and
accepted or rejected by the insured.
Question 11. What is the purpose of the Conditions section of an insurance policy?
A) To describe who is insured and the policy period
B) To state the perils covered
C) To outline the obligations of both parties under the policy
D) To list the specific exclusions from coverage
Answer: C
, OR Property and Casualty Insurance Producer Exam
Explanation: The Conditions section sets forth the duties, rights, and obligations of both the insurer and
the insured.
Question 12. Which of the following best describes the insurable interest requirement for property
insurance?
A) The insured must own the property at the time of application
B) The insured must have a legitimate financial interest in the property at the time of loss
C) The insured must always be the property’s legal owner
D) The insured must have an interest at the policy expiration
Answer: B
Explanation: Insurable interest must exist at the time of the loss for property insurance.
Question 13. What does "subrogation" allow an insurer to do?
A) Increase the policy premium after a loss
B) Sue the insured for negligence
C) Pursue recovery from a third party responsible for the insured’s loss
D) Cancel the policy at any time
Answer: C
Explanation: Subrogation gives the insurer the right to recover from a responsible third party after
paying the insured’s claim.
Question 14. A representation in insurance is:
A) An absolute guarantee of truth
B) A statement believed to be true by the applicant
C) A policy exclusion
D) An insurance policy endorsement
Answer: B
Explanation: A representation is a statement made by the applicant believed to be true to the best of
their knowledge.
Question 15. Which of the following is true about warranties in insurance contracts?
A) They are always implied, never written
B) They are statements guaranteed to be true
C) They are not required in any contract
D) They can be changed by the insured at any time
Answer: B
Explanation: Warranties are statements that are guaranteed to be true and, if breached, can void the
contract.
Question 16. Which type of property valuation pays the cost to replace the damaged property without
deduction for depreciation?
A) Actual cash value
B) Replacement cost
C) Market value
D) Stated amount
Answer: B
, OR Property and Casualty Insurance Producer Exam
Explanation: Replacement cost coverage pays the amount needed to repair or replace property without
considering depreciation.
Question 17. What is the main purpose of the Exclusions section in an insurance policy?
A) To explain the insurer’s obligations
B) To describe covered perils
C) To specify what is NOT covered by the policy
D) To set forth the policy limits
Answer: C
Explanation: The Exclusions section lists causes of loss, persons, or property not covered by the policy.
Question 18. Which of the following best describes a unilateral contract?
A) Both parties make legally enforceable promises
B) Only the insured is legally bound to perform
C) Only the insurer is legally bound to perform if the insured pays the premium
D) Either party can cancel at any time for any reason
Answer: C
Explanation: In a unilateral contract, only the insurer makes a legally enforceable promise (to pay claims
if the premium is paid).
Question 19. What is the purpose of the Insuring Agreement in a policy?
A) To provide details of policy exclusions
B) To specify the parties to the contract
C) To outline the insurer’s promise to pay and the perils covered
D) To state the premium amount
Answer: C
Explanation: The Insuring Agreement contains the insurer’s promise to pay and describes the covered
perils.
Question 20. Which of the following describes a moral hazard?
A) Icy sidewalks
B) The insured's dishonesty or intentional loss
C) Uninsured drivers
D) A home located in a high-crime area
Answer: B
Explanation: Moral hazards arise from the insured’s character, like dishonesty or intent to cause a loss.
Question 21. Under the Fair Credit Reporting Act (FCRA), what must insurers do before obtaining a
consumer report?
A) Obtain written consent from the applicant
B) Notify the applicant in writing
C) Wait until after issuing the policy
D) Notify the state insurance department
Answer: B
Explanation: FCRA requires insurers to notify applicants that a consumer report may be obtained.
