PERSONAL LINES INSURANCE 2026/2027 QUESTIONS
AND SOLUTIONS RATED A+
✔✔Comprehensive coverage pays for all of the following damages EXCEPT
A) overturning of the auto
B) explosion
C) glass breakage
D) hitting a deer - ✔✔A) overturning of the auto
Explanation: Comprehensive coverage pays for loss to a covered auto or its equipment
for any cause except collision, overturn, or upset.
Reference: 8.12.1 on the License Exam Manual
✔✔A producer offers a prospective buyer $100 basketball game tickets to induce him to
purchase a policy. If the prospect purchases the policy and accepts the tickets, the
producer will be guilty of:
A) twisting
B) conservation
C) rebating
D) defamation - ✔✔C) rebating
Explanation: It is illegal for an insurance producer to offer anything of value not specified
in the contract as an inducement to purchase insurance, such as basketball tickets. This
type of unfair trade practice is called rebating.
Reference: See State Supplement
✔✔In Arizona, an insurer must give notice of its intention to not renew a homeowners
policy at least ___ days before the end of the policy period.
A) 60
B) 20
C) 30
D) 10 - ✔✔C) 30
Explanation: An insurer must give notice of its intention to not renew a homeowners
policy at least 30 days before the end of the policy period.
Reference: See State Supplement
,✔✔Jennifer owns a house valued at $500,000. She purchases a policy insuring it for
$300,000 with an 80% coinsurance clause and a $1,000 deductible. Faulty wiring
causes a fire that results in a loss of $100,000. How much will the policy pay?
A) $239,000
B) $74,000
C) $59,000
D) $399,000 - ✔✔B) $74,000
Explanation: To satisfy the coinsurance clause requirement, the policyholder must carry
coverage in an amount equal to at least the specified percentage of the total value of
the property being insured. In this case, the value of the property is $500,000.
Therefore, the amount of coverage needed to satisfy the 80% coinsurance requirement
is $400,000 ($500,000 * 0.8). However, Jennifer's policy limit is only $300,000. The
following formula is used to determine the amount that the insurer will pay for the loss in
this case.
[ (Amount of insurance carried / amount of insurance required) * amount of loss ] - any
deductible
[ ($300,000 / $400,000) * $100,000 ] - $1,000 = $74,000
[ 0.75 * $100,000 ] - $1,000 = $74,000
[ 75,000 ] - $1,000 = $74,000
Reference: 7.5.4 on the License Exam Manual
✔✔Which homeowners policy would be written to cover personal property only?
A) HO-2
B) HO-3
C) HO-5
D) HO-4 - ✔✔D) HO-4
Explanation: The HO-2, HO-3 and HO-5 all provide coverage on both the dwelling and
personal property. HO-4 (referred to as the Tenants or Renters Form) does not provide
coverage on the dwelling because the insured does not own it.
Reference: 7.5.1 on the License Exam Manual
✔✔The covered auto is defined in the policy as all of the following EXCEPT:
A) any additional auto acquired in the past 30 days.
B) any auto shown in the declarations.
C) any auto used as a temporary substitute while an insured auto is being repaired.
D) any trailer owned by the insured or spouse. - ✔✔D) any trailer owned by the insured
or spouse.
,Explanation: An additional auto acquired during the policy period is considered a
covered auto. However, some restrictions do apply. For example, if the newly acquired
auto is in addition to any vehicle shown on the declarations, it must be insured within 14
days of the purchase date. If it replaces one of the cars, the insured does not need to
add it during that policy period.
Reference: 8.4 on the License Exam Manual
✔✔Which one of the following is NOT an exclusion found in Section I of the
homeowners policies?
A) Power failure occurring away from the insured's premises
B) Water damage from flood or surface water
C) Failure of the insured to care for the property before the loss
D) Earth movement such as earthquake, mudflow, and landslide - ✔✔C) Failure of the
insured to care for the property before the loss
Explanation: Earth movement, water damage and power failure are all standard
exclusions in the homeowners form. Neglect of the insured to care for the property may
be a hazard, but it is not an excluded loss. If a loss has already occurred,m however,
the insured must take reasonable care to protect the property from further damage or
else any additional loss will not be covered.,
Reference: 7.5.2.3 on the License Exam Manual
✔✔Which of these situations would be covered under the homeowners policy?
A) The insured is hosting a client appreciation and new products party at her house and
one of her clients is injured during the product demo. The client incurs $3,000 of
medical expenses.
B) A small business owner forgot some critical work documents at home. He asks one
of his employees to go to his house and pick them up. The employee falls down the
steps at the house. He incurs $499 of medical expenses.
C) The insured is playing golf (away from the premises described on the declarations
page) and on his back swing accidentally hits a person in the head. The other person
incurs $5,000 of medical expenses.
D) The insured is an attorney. For his convenience, he asks a claimant and her attorney
to meet him at his house. After a heated discussion, things get physical and the
claimant breaks the attorney's jaw. The attorney incurs $7,000 of medical - ✔✔C) The
insured is playing golf (away from the premises described on the declarations page) and
on his back swing accidentally hits a person in the head. The other person incurs
$5,000 of medical expenses.
, Explanation: Although there are limited exceptions, such as certain permitted incidental
occupancies, personal lines policies (homeowners) typically exclude losses related to
business activities, professional services, and work-related injuries.
Reference: 7.6.4 on the License Exam Manual
✔✔ABC State Insurance Company has agents who are under a contract that allows
them to sell only ABC State Insurance Company policies. Which distribution system
describes ABC State Insurance Company's organization?
A) Independent
B) Group
C) Captive
D) Direct - ✔✔C) Captive
Explanation: The exclusive, or captive, agency system is one where the agent
represents only one company. The insurer owns policies sold by exclusive agents.
Reference: 1.8.1 on the License Exam Manual
✔✔Bob has a liability policy in the amount of 300/500/100. How much coverage does
he have per occurrence for property damage liability?
A) $50,000
B) 300,000
C) $100,000
D) $500,000 - ✔✔C) $100,000
Explanation: The limits of liability in an insurance policy may be expressed as a split
limit. 300/500/100 indicates that Bob has $300,000 per person, $500,000 per
occurrence for bodily injury liability, and $100,000 per occurrence for property damage
liability. Limits of liability may also be expressed as a combined single limit; for example,
$300,000 per occurrence for bodily injury, property damage, or both combined.
Reference: 5.3.8 on the License Exam Manual
✔✔Which one of the following terms indicates that an insurance contract contains the
enforceable promises of only one party?
A) Aleatory
B) Adhesion
C) Unilateral
D) Conditional - ✔✔C) Unilateral
Explanation: Unilateral means one-sided. Insurance contracts are unilateral in that only
one party (the insurer) makes any kind of enforceable promise. Insurers promise to pay
AND SOLUTIONS RATED A+
✔✔Comprehensive coverage pays for all of the following damages EXCEPT
A) overturning of the auto
B) explosion
C) glass breakage
D) hitting a deer - ✔✔A) overturning of the auto
Explanation: Comprehensive coverage pays for loss to a covered auto or its equipment
for any cause except collision, overturn, or upset.
Reference: 8.12.1 on the License Exam Manual
✔✔A producer offers a prospective buyer $100 basketball game tickets to induce him to
purchase a policy. If the prospect purchases the policy and accepts the tickets, the
producer will be guilty of:
A) twisting
B) conservation
C) rebating
D) defamation - ✔✔C) rebating
Explanation: It is illegal for an insurance producer to offer anything of value not specified
in the contract as an inducement to purchase insurance, such as basketball tickets. This
type of unfair trade practice is called rebating.
Reference: See State Supplement
✔✔In Arizona, an insurer must give notice of its intention to not renew a homeowners
policy at least ___ days before the end of the policy period.
A) 60
B) 20
C) 30
D) 10 - ✔✔C) 30
Explanation: An insurer must give notice of its intention to not renew a homeowners
policy at least 30 days before the end of the policy period.
Reference: See State Supplement
,✔✔Jennifer owns a house valued at $500,000. She purchases a policy insuring it for
$300,000 with an 80% coinsurance clause and a $1,000 deductible. Faulty wiring
causes a fire that results in a loss of $100,000. How much will the policy pay?
A) $239,000
B) $74,000
C) $59,000
D) $399,000 - ✔✔B) $74,000
Explanation: To satisfy the coinsurance clause requirement, the policyholder must carry
coverage in an amount equal to at least the specified percentage of the total value of
the property being insured. In this case, the value of the property is $500,000.
Therefore, the amount of coverage needed to satisfy the 80% coinsurance requirement
is $400,000 ($500,000 * 0.8). However, Jennifer's policy limit is only $300,000. The
following formula is used to determine the amount that the insurer will pay for the loss in
this case.
[ (Amount of insurance carried / amount of insurance required) * amount of loss ] - any
deductible
[ ($300,000 / $400,000) * $100,000 ] - $1,000 = $74,000
[ 0.75 * $100,000 ] - $1,000 = $74,000
[ 75,000 ] - $1,000 = $74,000
Reference: 7.5.4 on the License Exam Manual
✔✔Which homeowners policy would be written to cover personal property only?
A) HO-2
B) HO-3
C) HO-5
D) HO-4 - ✔✔D) HO-4
Explanation: The HO-2, HO-3 and HO-5 all provide coverage on both the dwelling and
personal property. HO-4 (referred to as the Tenants or Renters Form) does not provide
coverage on the dwelling because the insured does not own it.
Reference: 7.5.1 on the License Exam Manual
✔✔The covered auto is defined in the policy as all of the following EXCEPT:
A) any additional auto acquired in the past 30 days.
B) any auto shown in the declarations.
C) any auto used as a temporary substitute while an insured auto is being repaired.
D) any trailer owned by the insured or spouse. - ✔✔D) any trailer owned by the insured
or spouse.
,Explanation: An additional auto acquired during the policy period is considered a
covered auto. However, some restrictions do apply. For example, if the newly acquired
auto is in addition to any vehicle shown on the declarations, it must be insured within 14
days of the purchase date. If it replaces one of the cars, the insured does not need to
add it during that policy period.
Reference: 8.4 on the License Exam Manual
✔✔Which one of the following is NOT an exclusion found in Section I of the
homeowners policies?
A) Power failure occurring away from the insured's premises
B) Water damage from flood or surface water
C) Failure of the insured to care for the property before the loss
D) Earth movement such as earthquake, mudflow, and landslide - ✔✔C) Failure of the
insured to care for the property before the loss
Explanation: Earth movement, water damage and power failure are all standard
exclusions in the homeowners form. Neglect of the insured to care for the property may
be a hazard, but it is not an excluded loss. If a loss has already occurred,m however,
the insured must take reasonable care to protect the property from further damage or
else any additional loss will not be covered.,
Reference: 7.5.2.3 on the License Exam Manual
✔✔Which of these situations would be covered under the homeowners policy?
A) The insured is hosting a client appreciation and new products party at her house and
one of her clients is injured during the product demo. The client incurs $3,000 of
medical expenses.
B) A small business owner forgot some critical work documents at home. He asks one
of his employees to go to his house and pick them up. The employee falls down the
steps at the house. He incurs $499 of medical expenses.
C) The insured is playing golf (away from the premises described on the declarations
page) and on his back swing accidentally hits a person in the head. The other person
incurs $5,000 of medical expenses.
D) The insured is an attorney. For his convenience, he asks a claimant and her attorney
to meet him at his house. After a heated discussion, things get physical and the
claimant breaks the attorney's jaw. The attorney incurs $7,000 of medical - ✔✔C) The
insured is playing golf (away from the premises described on the declarations page) and
on his back swing accidentally hits a person in the head. The other person incurs
$5,000 of medical expenses.
, Explanation: Although there are limited exceptions, such as certain permitted incidental
occupancies, personal lines policies (homeowners) typically exclude losses related to
business activities, professional services, and work-related injuries.
Reference: 7.6.4 on the License Exam Manual
✔✔ABC State Insurance Company has agents who are under a contract that allows
them to sell only ABC State Insurance Company policies. Which distribution system
describes ABC State Insurance Company's organization?
A) Independent
B) Group
C) Captive
D) Direct - ✔✔C) Captive
Explanation: The exclusive, or captive, agency system is one where the agent
represents only one company. The insurer owns policies sold by exclusive agents.
Reference: 1.8.1 on the License Exam Manual
✔✔Bob has a liability policy in the amount of 300/500/100. How much coverage does
he have per occurrence for property damage liability?
A) $50,000
B) 300,000
C) $100,000
D) $500,000 - ✔✔C) $100,000
Explanation: The limits of liability in an insurance policy may be expressed as a split
limit. 300/500/100 indicates that Bob has $300,000 per person, $500,000 per
occurrence for bodily injury liability, and $100,000 per occurrence for property damage
liability. Limits of liability may also be expressed as a combined single limit; for example,
$300,000 per occurrence for bodily injury, property damage, or both combined.
Reference: 5.3.8 on the License Exam Manual
✔✔Which one of the following terms indicates that an insurance contract contains the
enforceable promises of only one party?
A) Aleatory
B) Adhesion
C) Unilateral
D) Conditional - ✔✔C) Unilateral
Explanation: Unilateral means one-sided. Insurance contracts are unilateral in that only
one party (the insurer) makes any kind of enforceable promise. Insurers promise to pay
