STATE FARM FIRE INDEPENDENT POLICY EXAM
STUDY GUIDE 2026 QUESTIONS WITH
ANSWERS GRADED A+
◉ Mutual Company. Answer: Owned by the policyowner and issue
participating policies. Policy owners are entitled to dividends, which
are a return of excess premiums and are therefore non-taxable.
Dividends are not guaranteed.
◉ Sharing. Answer: A method of dealing with risk for a group of
individual persons or businesses with the same or similar exposure
to loss to share the losses that occur within that group. A
RECIPROCAL insurance exchange is a form of risk-sharing
arrangement.
◉ Retention. Answer: Is the planned assumption of risk by the
insured through the use of deductibles, co-payments, or self-
insurance. It is also known as self-insurance when the insured
accepts the responsibility for the loss before the insurance company
pays.
◉ Express Authority. Answer: Is the AUTHORITY a principal intends
to grant to an agent by means of the agent's contract. It is the
authority that is written in the contract.
,◉ Insurable Risk. Answer: In order to be characterized as a pure
risk, the loss must be due to chance, definite, measurable, and
predictable, but not catastrophic.
◉ Insurance Policy Conditions. Answer: Section of an insurance
policy that indicates the general rules or procedures that the insurer
and insured agree to follow under the terms of the policy. Examples:
Inspection may be made as needed/ Changes to the policy must be
made by insurer and be in writing/ Liberalization clause/ Return of
premiums, which dictates methods used.
◉ Loss Costs Rating. Answer: Type of rating: Method developed by
the insurance services office Inc. (ISO) that provides an insurer with
that portion of a rate that does not include provisions of expenses or
profit and are based on historical aggregate loss and loss adjustment
expenses projected through development to their ultimate value and
through trending to a future point in time.
◉ Strict Liability. Answer: Is commonly applied in product liability
cases. The business is then liable for defective products, regardless
of fault or negligence.
◉ Insuring Agreement. Answer: The part of the policy structure that
describes the insured perils and the method of indemnification.
, ◉ Conditions. Answer: States the legal obligations and duties of the
parties to the contract.
◉ Valued Policy. Answer: Provides for payment of the full policy
amount in the event of a total loss WITHOUT regard to actual value
or depreciation.
◉ Contributory Negligence. Answer: In states that have this, the
defendant must have been 100% at fault for an accident and the
claimant free of fault if the claimant is to be successful in collecting
damages.
◉ Agreed Value. Answer: A property policy with provisions agreed
upon by the insurer and insured as to the amounts of insurance that
represents a fair valuation for the property at the time the insurance
is written. The amount is paid in a loss, regardless of the insured
property's appreciation or depreciation.
◉ Occurance. Answer: Includes those losses caused by continuous
or repeated exposure to conditions resulting in injury or damage to
property that is neither intended nor expected.
◉ Consequential loss. Answer: Also known as an indirect loss, is a
second financial loss caused by a covered direct loss.
STUDY GUIDE 2026 QUESTIONS WITH
ANSWERS GRADED A+
◉ Mutual Company. Answer: Owned by the policyowner and issue
participating policies. Policy owners are entitled to dividends, which
are a return of excess premiums and are therefore non-taxable.
Dividends are not guaranteed.
◉ Sharing. Answer: A method of dealing with risk for a group of
individual persons or businesses with the same or similar exposure
to loss to share the losses that occur within that group. A
RECIPROCAL insurance exchange is a form of risk-sharing
arrangement.
◉ Retention. Answer: Is the planned assumption of risk by the
insured through the use of deductibles, co-payments, or self-
insurance. It is also known as self-insurance when the insured
accepts the responsibility for the loss before the insurance company
pays.
◉ Express Authority. Answer: Is the AUTHORITY a principal intends
to grant to an agent by means of the agent's contract. It is the
authority that is written in the contract.
,◉ Insurable Risk. Answer: In order to be characterized as a pure
risk, the loss must be due to chance, definite, measurable, and
predictable, but not catastrophic.
◉ Insurance Policy Conditions. Answer: Section of an insurance
policy that indicates the general rules or procedures that the insurer
and insured agree to follow under the terms of the policy. Examples:
Inspection may be made as needed/ Changes to the policy must be
made by insurer and be in writing/ Liberalization clause/ Return of
premiums, which dictates methods used.
◉ Loss Costs Rating. Answer: Type of rating: Method developed by
the insurance services office Inc. (ISO) that provides an insurer with
that portion of a rate that does not include provisions of expenses or
profit and are based on historical aggregate loss and loss adjustment
expenses projected through development to their ultimate value and
through trending to a future point in time.
◉ Strict Liability. Answer: Is commonly applied in product liability
cases. The business is then liable for defective products, regardless
of fault or negligence.
◉ Insuring Agreement. Answer: The part of the policy structure that
describes the insured perils and the method of indemnification.
, ◉ Conditions. Answer: States the legal obligations and duties of the
parties to the contract.
◉ Valued Policy. Answer: Provides for payment of the full policy
amount in the event of a total loss WITHOUT regard to actual value
or depreciation.
◉ Contributory Negligence. Answer: In states that have this, the
defendant must have been 100% at fault for an accident and the
claimant free of fault if the claimant is to be successful in collecting
damages.
◉ Agreed Value. Answer: A property policy with provisions agreed
upon by the insurer and insured as to the amounts of insurance that
represents a fair valuation for the property at the time the insurance
is written. The amount is paid in a loss, regardless of the insured
property's appreciation or depreciation.
◉ Occurance. Answer: Includes those losses caused by continuous
or repeated exposure to conditions resulting in injury or damage to
property that is neither intended nor expected.
◉ Consequential loss. Answer: Also known as an indirect loss, is a
second financial loss caused by a covered direct loss.
