AIC 304 EXAM 200 QUESTIONS WITH CORRECT
ANSWERS & DETAILED RATIONALES
1. What is the primary purpose of the claims function within an
insurance company?
A. To generate new business leads through customer interactions
B. To fulfill the insurer's promise to pay covered losses promptly and
fairly
C. To minimize the insurer's tax liability through strategic claim denials
D. To provide legal defense for policyholders in third-party lawsuits
Correct Answer: B
Rationale: The claims function exists to fulfill the insurer's contractual
promise to indemnify insureds for covered losses. It serves as the
primary touchpoint for policyholders during a loss and must balance
prompt, fair payment with protecting the insurer against fraudulent or
inflated claims.
2. A claims adjuster receives a claim for damage to a commercial
building. Before investigating the loss, the adjuster's first action
should be to:
A. Contact the insured to schedule a site inspection
B. Review the policy to confirm coverage and identify applicable
deductibles
C. Obtain a police report of the incident
D. Hire an independent contractor to secure the property from further
damage
,Correct Answer: B
Rationale: Before any investigation, the adjuster must review the policy
to determine whether the loss is covered, identify any exclusions or
limitations, and determine the applicable deductible. Investigating a
loss without first confirming coverage can lead to unnecessary expense
and potential errors.
3. A commercial property policy contains an $10,000 deductible. The
insured sustains a covered loss of $45,000. How much will the insurer
pay, assuming no other coverage issues?
A. $45,000
B. $10,000
C. $35,000
D. $55,000
Correct Answer: C
Rationale: The deductible is subtracted from the covered loss before
payment. $45,000 (loss) - $10,000 (deductible) = $35,000 payable by
the insurer.
4. An adjuster discovers that an insured intentionally set fire to their
own building. What is the appropriate action?
A. Pay the claim and investigate later
B. Deny the claim based on the intentional acts exclusion and refer the
matter to the special investigations unit (SIU)
C. Pay only 50% of the claim as a compromise
D. Deny the claim but offer to pay the mortgage company directly
Correct Answer: B
Rationale: Intentional acts are excluded under property policies. The
,adjuster should deny the claim and refer the matter to the SIU for
further investigation, as this may constitute insurance fraud.
5. Which one of the following best describes the difference between a
first-party claim and a third-party claim?
A. First-party claims involve bodily injury; third-party claims involve
property damage
B. First-party claims are filed by the insured against their own policy;
third-party claims are filed against another party's policy
C. First-party claims are always fraudulent; third-party claims are
legitimate
D. First-party claims require a police report; third-party claims do not
Correct Answer: B
Rationale: A first-party claim occurs when the policyholder makes a
claim on their own insurance policy. A third-party claim occurs when
someone files a claim against another person's policy.
6. A policyholder reports a water leak that occurred six months ago
but was never reported. The policy requires prompt notice of loss.
What is the adjuster's most appropriate first step?
A. Deny the claim immediately based on late notice
B. Investigate the reason for the delay and determine if the insurer was
prejudiced
C. Pay the claim in full to avoid a bad faith lawsuit
D. Refer the claim to the state insurance department
Correct Answer: B
Rationale: While late notice can be grounds for denial, the adjuster
must investigate the reason for the delay and determine whether the
, insurer was prejudiced. Many jurisdictions require prejudice before
denying a claim for late notice.
7. A property claim involves damage from a hurricane. The policy has
a named storm deductible. Who is responsible for explaining the
deductible application to the insured?
A. The insured's attorney
B. The claims adjuster
C. The insurance agent who sold the policy
D. The state insurance department
Correct Answer: B
Rationale: The claims adjuster is responsible for clearly explaining how
the deductible applies, including named storm, hurricane, or
percentage deductibles. Failure to explain can lead to confusion and
potential bad faith claims.
8. Which of the following is an example of a "direct loss" under a
property policy?
A. Loss of rental income after a fire
B. Physical damage to a building caused by a fire
C. Extra expense incurred to operate from a temporary location
D. Loss of customer goodwill after a business interruption
Correct Answer: B
Rationale: Direct loss is physical damage to the insured property itself.
Indirect or consequential losses (business income, extra expense, loss of
use) are covered separately, often under time element coverages.
9. An insured's home is damaged by a fire. The policy has a
replacement cost value (RCV) provision. The adjuster should:
A. Pay the actual cash value (ACV) of the damage regardless of repair
ANSWERS & DETAILED RATIONALES
1. What is the primary purpose of the claims function within an
insurance company?
A. To generate new business leads through customer interactions
B. To fulfill the insurer's promise to pay covered losses promptly and
fairly
C. To minimize the insurer's tax liability through strategic claim denials
D. To provide legal defense for policyholders in third-party lawsuits
Correct Answer: B
Rationale: The claims function exists to fulfill the insurer's contractual
promise to indemnify insureds for covered losses. It serves as the
primary touchpoint for policyholders during a loss and must balance
prompt, fair payment with protecting the insurer against fraudulent or
inflated claims.
2. A claims adjuster receives a claim for damage to a commercial
building. Before investigating the loss, the adjuster's first action
should be to:
A. Contact the insured to schedule a site inspection
B. Review the policy to confirm coverage and identify applicable
deductibles
C. Obtain a police report of the incident
D. Hire an independent contractor to secure the property from further
damage
,Correct Answer: B
Rationale: Before any investigation, the adjuster must review the policy
to determine whether the loss is covered, identify any exclusions or
limitations, and determine the applicable deductible. Investigating a
loss without first confirming coverage can lead to unnecessary expense
and potential errors.
3. A commercial property policy contains an $10,000 deductible. The
insured sustains a covered loss of $45,000. How much will the insurer
pay, assuming no other coverage issues?
A. $45,000
B. $10,000
C. $35,000
D. $55,000
Correct Answer: C
Rationale: The deductible is subtracted from the covered loss before
payment. $45,000 (loss) - $10,000 (deductible) = $35,000 payable by
the insurer.
4. An adjuster discovers that an insured intentionally set fire to their
own building. What is the appropriate action?
A. Pay the claim and investigate later
B. Deny the claim based on the intentional acts exclusion and refer the
matter to the special investigations unit (SIU)
C. Pay only 50% of the claim as a compromise
D. Deny the claim but offer to pay the mortgage company directly
Correct Answer: B
Rationale: Intentional acts are excluded under property policies. The
,adjuster should deny the claim and refer the matter to the SIU for
further investigation, as this may constitute insurance fraud.
5. Which one of the following best describes the difference between a
first-party claim and a third-party claim?
A. First-party claims involve bodily injury; third-party claims involve
property damage
B. First-party claims are filed by the insured against their own policy;
third-party claims are filed against another party's policy
C. First-party claims are always fraudulent; third-party claims are
legitimate
D. First-party claims require a police report; third-party claims do not
Correct Answer: B
Rationale: A first-party claim occurs when the policyholder makes a
claim on their own insurance policy. A third-party claim occurs when
someone files a claim against another person's policy.
6. A policyholder reports a water leak that occurred six months ago
but was never reported. The policy requires prompt notice of loss.
What is the adjuster's most appropriate first step?
A. Deny the claim immediately based on late notice
B. Investigate the reason for the delay and determine if the insurer was
prejudiced
C. Pay the claim in full to avoid a bad faith lawsuit
D. Refer the claim to the state insurance department
Correct Answer: B
Rationale: While late notice can be grounds for denial, the adjuster
must investigate the reason for the delay and determine whether the
, insurer was prejudiced. Many jurisdictions require prejudice before
denying a claim for late notice.
7. A property claim involves damage from a hurricane. The policy has
a named storm deductible. Who is responsible for explaining the
deductible application to the insured?
A. The insured's attorney
B. The claims adjuster
C. The insurance agent who sold the policy
D. The state insurance department
Correct Answer: B
Rationale: The claims adjuster is responsible for clearly explaining how
the deductible applies, including named storm, hurricane, or
percentage deductibles. Failure to explain can lead to confusion and
potential bad faith claims.
8. Which of the following is an example of a "direct loss" under a
property policy?
A. Loss of rental income after a fire
B. Physical damage to a building caused by a fire
C. Extra expense incurred to operate from a temporary location
D. Loss of customer goodwill after a business interruption
Correct Answer: B
Rationale: Direct loss is physical damage to the insured property itself.
Indirect or consequential losses (business income, extra expense, loss of
use) are covered separately, often under time element coverages.
9. An insured's home is damaged by a fire. The policy has a
replacement cost value (RCV) provision. The adjuster should:
A. Pay the actual cash value (ACV) of the damage regardless of repair
