P&C License TEST 2025 QUESTIONS AND
CORRECT ANSWERS
Insurance binders are
A) Valid for 30 days.
B) Limited to personal lines risks.
C) Temporary or interim insuring agreements.
D) required to be written. - CORRECT ANSWERS Answer C is correct.
An insurance binder is considered to be an interim insuring agreement, which is basically a
temporary policy. It may be oral or written and is generally valid for up to 90 days. It does not
guarantee the issue of the policy and may be cancelled at anytime by the insurer.
A demolition company is using dynamite to destroy an old downtown building. Which the
following applies?
A) Attractive Nuisance
B) Absolute Liability
C) Strict Liability
D) Liberalization - CORRECT ANSWERS Answer B is correct.
Absolute liability is a doctrine that applies on activities that present an extreme likelihood of
harm to others when mishaps occur. For example, contractors in blasting operations, owners of
wild animals held in captivity, etc.
An insurance policy has a $25,000 per occurrence limit. If the insured has a $5,000 covered loss
during the policy period, how much coverage is available for other covered losses that occur
during the remainder of the policy period?
,A) $25,000
B) $20,000
C) $15,000
D) $10,000 - CORRECT ANSWERS Answer A is correct.
With the exception of an aggregate limit, most policy limits are restored after payment of a loss.
The per occurrence limit applies only for each separate occurrence. Therefore, the full $25,000
is reset and available for future occurrences.
A morale hazard
A) arises through an individual's carelessness or irresponsible actions.
B) is a physical condition that increases the probability of loss.
C) is the extent to which one may be affected by a peril.
D) is being dishonest on an application or claim form. - CORRECT ANSWERS Answer A is
correct.
A morale hazard refers to a person's behavior, or a person's morale. It refers to an increase in
the possibility of loss through an individual's carelessness or irresponsible actions. B is
describing a physical hazard, C is describing exposure, and D is describing a moral hazard.
An insured purchased new furniture for $6,000. At the time of a fire loss, it has depreciated
$2,000. The same furniture will cost $7,000 to replace. What is the actual cash value of the
destroyed furniture?
A) $7,000
B) $6,000
C) $5,000
D) None of the above - CORRECT ANSWERS Answer C is correct.
,Actual Cash Value (ACV) is determined by taking the property's current replacement cost and
subtracting the depreciated value of the destroyed furniture. In this case the current
replacement cost of $7,000 - $2,000 depreciated value = $5,000.
In a liability loss, the person to whom the insured caused damage is referred to as the
A) first party
B) second party
C) third party
D) fourth party. - CORRECT ANSWERS Answer C is correct.
Liability insurance is considered a third party contract. The insured or defendant is the first
party, the party that is considered liable for the loss. The insurance company is the second
party, and the plaintiff or claimant is the third party.
Which of the following is not negligence?
A) Ignorance
B) Inaction
C) Carelessness
D) A deliberate act. - CORRECT ANSWERS Answer D is correct.
Negligence is considered to be any Unintentional Tort or Act. Anything deliberate would be
considered an intentional tort.
In which of the following would you have an insurable interest?
A) The house you own but have rented to a tenant
B) The car on which you are still paying
, C) Both A and B
D) None of the above - CORRECT ANSWERS Answer C is correct.
To have an insurable interest, a party must have a chance of financial loss or a financial interest
in the property.
The purpose of insurance is to
A) transfer risk from a person, business or organization to an insurance company that agrees to
pay for losses in exchange for a premium.
B) protect the insured against the certainty of a future loss.
C) provide protection against speculative risks.
D) eliminating the risk entirely by engaging in reinsurance. - CORRECT ANSWERS Answer
A is correct.
Insurance is the transfer of risk. It protects against uncertainty and shares the loss. The principle
of insurance is the substitution of a small certain expense (premium) for a large uncertain loss
(claim payment).
Personal Injury includes all of the following, except:
A) Bodily injury
B) Libel
C) Slander
D) False arrest - CORRECT ANSWERS Answer A is correct.
Bodily Injury is physical injury, not personal injury. Personal Injury and Bodily Injury can never be
used together. One is attacking the character and reputation and the other is physical injury to
an individual.
Which of the following is a liability loss?
CORRECT ANSWERS
Insurance binders are
A) Valid for 30 days.
B) Limited to personal lines risks.
C) Temporary or interim insuring agreements.
D) required to be written. - CORRECT ANSWERS Answer C is correct.
An insurance binder is considered to be an interim insuring agreement, which is basically a
temporary policy. It may be oral or written and is generally valid for up to 90 days. It does not
guarantee the issue of the policy and may be cancelled at anytime by the insurer.
A demolition company is using dynamite to destroy an old downtown building. Which the
following applies?
A) Attractive Nuisance
B) Absolute Liability
C) Strict Liability
D) Liberalization - CORRECT ANSWERS Answer B is correct.
Absolute liability is a doctrine that applies on activities that present an extreme likelihood of
harm to others when mishaps occur. For example, contractors in blasting operations, owners of
wild animals held in captivity, etc.
An insurance policy has a $25,000 per occurrence limit. If the insured has a $5,000 covered loss
during the policy period, how much coverage is available for other covered losses that occur
during the remainder of the policy period?
,A) $25,000
B) $20,000
C) $15,000
D) $10,000 - CORRECT ANSWERS Answer A is correct.
With the exception of an aggregate limit, most policy limits are restored after payment of a loss.
The per occurrence limit applies only for each separate occurrence. Therefore, the full $25,000
is reset and available for future occurrences.
A morale hazard
A) arises through an individual's carelessness or irresponsible actions.
B) is a physical condition that increases the probability of loss.
C) is the extent to which one may be affected by a peril.
D) is being dishonest on an application or claim form. - CORRECT ANSWERS Answer A is
correct.
A morale hazard refers to a person's behavior, or a person's morale. It refers to an increase in
the possibility of loss through an individual's carelessness or irresponsible actions. B is
describing a physical hazard, C is describing exposure, and D is describing a moral hazard.
An insured purchased new furniture for $6,000. At the time of a fire loss, it has depreciated
$2,000. The same furniture will cost $7,000 to replace. What is the actual cash value of the
destroyed furniture?
A) $7,000
B) $6,000
C) $5,000
D) None of the above - CORRECT ANSWERS Answer C is correct.
,Actual Cash Value (ACV) is determined by taking the property's current replacement cost and
subtracting the depreciated value of the destroyed furniture. In this case the current
replacement cost of $7,000 - $2,000 depreciated value = $5,000.
In a liability loss, the person to whom the insured caused damage is referred to as the
A) first party
B) second party
C) third party
D) fourth party. - CORRECT ANSWERS Answer C is correct.
Liability insurance is considered a third party contract. The insured or defendant is the first
party, the party that is considered liable for the loss. The insurance company is the second
party, and the plaintiff or claimant is the third party.
Which of the following is not negligence?
A) Ignorance
B) Inaction
C) Carelessness
D) A deliberate act. - CORRECT ANSWERS Answer D is correct.
Negligence is considered to be any Unintentional Tort or Act. Anything deliberate would be
considered an intentional tort.
In which of the following would you have an insurable interest?
A) The house you own but have rented to a tenant
B) The car on which you are still paying
, C) Both A and B
D) None of the above - CORRECT ANSWERS Answer C is correct.
To have an insurable interest, a party must have a chance of financial loss or a financial interest
in the property.
The purpose of insurance is to
A) transfer risk from a person, business or organization to an insurance company that agrees to
pay for losses in exchange for a premium.
B) protect the insured against the certainty of a future loss.
C) provide protection against speculative risks.
D) eliminating the risk entirely by engaging in reinsurance. - CORRECT ANSWERS Answer
A is correct.
Insurance is the transfer of risk. It protects against uncertainty and shares the loss. The principle
of insurance is the substitution of a small certain expense (premium) for a large uncertain loss
(claim payment).
Personal Injury includes all of the following, except:
A) Bodily injury
B) Libel
C) Slander
D) False arrest - CORRECT ANSWERS Answer A is correct.
Bodily Injury is physical injury, not personal injury. Personal Injury and Bodily Injury can never be
used together. One is attacking the character and reputation and the other is physical injury to
an individual.
Which of the following is a liability loss?
