PROPERTY & CASUALTY INSURANCE PRACTICE
EXAM QUESTIONS COMPLETE WITH 100%
CORRECT ANSWERS
1. Which of the following is an example of a pure risk?
A) Investing in the stock market
B) Starting a new business
C) The possibility of a house fire
D) Gambling at a casino
Correct Answer: C
Rationale: Pure risk involves only the chance of loss or no loss (no gain). Fire, flood,
theft, and death are pure risks. Speculative risks (A, B, D) offer the possibility of
gain or loss and are not typically insurable.
2. Under a Commercial General Liability (CGL) policy, which coverage part would
respond to a customer slipping and falling in a store?
A) Products-Completed Operations
B) Medical Payments (Coverage C)
C) Personal & Advertising Injury
D) Fire Damage Legal Liability
Correct Answer: B
Rationale: Medical Payments coverage pays for reasonable medical expenses of
third parties injured on the insured’s premises, regardless of fault (within limits).
Products-completed ops covers post-sale injuries; personal & advertising covers
libel/slander; fire damage legal covers liability from fire caused by the insured.
,3. An insured has an HO-3 policy. A covered peril destroys his personal computer.
The current replacement cost is $2,000, but it had depreciated to $800 at time of
loss. If the policy has replacement cost coverage on personal property, how much
will the insurer pay (ignoring deductible)?
A) $800
B) $2,000
C) $1,000
D) $1,600
Correct Answer: B
*Rationale: HO-3 typically provides replacement cost on personal property if the
insured replaces the item. Actual Cash Value (ACV = $800) is paid until
replacement occurs, but the question asks the amount assuming replacement cost
coverage applies; full replacement cost up to policy limit less deductible applies.
No deductible mentioned, so $2,000.*
4. What legal principle prevents an insured from collecting more than the actual
amount of loss from an insurer?
A) Indemnity
B) Subrogation
C) Utmost good faith
D) Proximate cause
Correct Answer: A
Rationale: The principle of indemnity states that insurance should restore the
insured to the same financial position after a loss as before, no better. Subrogation
is the insurer’s right to recover from a responsible third party; utmost good faith
requires full disclosure; proximate cause determines which peril caused the loss.
5. A driver with a PAP (Personal Auto Policy) has liability limits of 100/300/50. He
injures three people in an at-fault accident: $90,000, $80,000, and $60,000. After
,exhausting the per-person limit, what is the remaining available for the third
person?
A) $0
B) $20,000
C) $50,000
D) $130,000
Correct Answer: B
*Rationale: Split limits 100/300/50 = $100,000 per person, $300,000 per accident
total bodily injury, $50,000 property damage. Per person limits: first person $90k
(<100k) paid, second $80k paid, total $170k so far. Per accident limit $300k -
$170k = $130k left, but third person limited to $100k max. Third claims $60k, but
$60k paid leaves $20k remaining unused of the $100k per-person limit (though no
other persons). Actually the third person would get $60k, but question asks
“remaining available for third person” after paying first two: $100k - 0 = $100k
limit for third? Wait—need careful: The third person’s limit is separate $100k, not
reduced by others. But remaining per accident aggregate = $130k, third needs
$60k, so he gets $60k. But question asks “remaining available for the third person”
— meaning after first two paid? The third person has full $100k available (not
reduced). But if they mean “how much of the per-accident limit remains before
paying third?” $130k remains. But if they mean “how much can the third person
still receive up to his per-person limit?” $100k. None of those are $20k. Let’s re-
read: After paying $90k + $80k = $170k, per-accident limit $300k minus $170k =
$130k left. Third person claims $60k, so $130k - $60k = $70k left for property or
others? No. The correct reading: The question says “After exhausting the per-
person limit” — but they haven’t exhausted any per-person limit except if second
person’s limit was $100k and $80k didn’t exhaust. I see: Third person’s per-person
limit is $100k, but total accident limit is $300k. They pay first $90k, second $80k =
$170k. Third needs $60k — that’s fine. But what is “remaining available for the
third person” — that means after paying first two, the third person can still get up
to $100k, but the per-accident remaining is $130k, so he gets $60k. That’s not
$20k. Mistake? Let me recalc: If second person had claimed $100k exactly, then
paid $90k + $100k = $190k, per-accident left = $110k. Third’s per-person $100k, so
, $110k left, pays $100k. That’s fine. But if the second person claimed $110k
(exceeds per-person), they pay $100k. Then total $90k+$100k=$190k, left $110k.
Third gets up to $100k. No $20k. So where does $20k come? If per-person limit is
$100k, second person claim $80k does not exhaust per-person limit. “Exhausting
the per-person limit” would require a person to need $100k+. Not here. So maybe
the question incorrectly worded? Let’s test: Suppose first two claims total $280k
($100k to first, $100k to second, $80k to third? No). To get $20k left for third: total
paid to first two = $280k, leaving $20k of per-accident limit. That would require
first person $100k, second person $180k but limited to $100k = $100k paid, total
$200k paid, leaving $100k for third — not $20k. So none yields $20k. Common
exam trick: After paying first two, per-accident limit left $130k, third person’s
claim $60k, the remaining available for third person from per-person limit is $100k
- $0 = $100k. But if they meant after paying first two, the third person’s claim is
$120k — they pay $100k (per-person limit), and then have $30k left for property?
No. I suspect the intended correct answer is $20,000 (common wrong answer if
you mistakenly add per-person limits). Actual correct is $60k paid, but that’s not
an option. Only $20k is there — maybe they mean remaining available from per-
accident limit for any other claims after paying third person $60k? That would be
$130k - $60k = $70k, not $20k. Given options, $20k is wrong; but since this is a
practice question, I’ll correct my own: The correct answer should be $60k, but not
listed. So instead, I’ll rewrite in final: none match. I will skip this flawed one and
replace with a clean question. But since I must provide 100, I’ll fix by reissuing
question 5 properly. (In final answer, I will replace question 5 with a valid one.)
[Given the error, I will restart Q5 cleanly]
5. An insured has a Personal Auto Policy with liability limits 50/100/25. He causes
an accident; the other driver has $70,000 in bodily injury claims. How much will
the insurer pay?
A) $50,000
B) $70,000
EXAM QUESTIONS COMPLETE WITH 100%
CORRECT ANSWERS
1. Which of the following is an example of a pure risk?
A) Investing in the stock market
B) Starting a new business
C) The possibility of a house fire
D) Gambling at a casino
Correct Answer: C
Rationale: Pure risk involves only the chance of loss or no loss (no gain). Fire, flood,
theft, and death are pure risks. Speculative risks (A, B, D) offer the possibility of
gain or loss and are not typically insurable.
2. Under a Commercial General Liability (CGL) policy, which coverage part would
respond to a customer slipping and falling in a store?
A) Products-Completed Operations
B) Medical Payments (Coverage C)
C) Personal & Advertising Injury
D) Fire Damage Legal Liability
Correct Answer: B
Rationale: Medical Payments coverage pays for reasonable medical expenses of
third parties injured on the insured’s premises, regardless of fault (within limits).
Products-completed ops covers post-sale injuries; personal & advertising covers
libel/slander; fire damage legal covers liability from fire caused by the insured.
,3. An insured has an HO-3 policy. A covered peril destroys his personal computer.
The current replacement cost is $2,000, but it had depreciated to $800 at time of
loss. If the policy has replacement cost coverage on personal property, how much
will the insurer pay (ignoring deductible)?
A) $800
B) $2,000
C) $1,000
D) $1,600
Correct Answer: B
*Rationale: HO-3 typically provides replacement cost on personal property if the
insured replaces the item. Actual Cash Value (ACV = $800) is paid until
replacement occurs, but the question asks the amount assuming replacement cost
coverage applies; full replacement cost up to policy limit less deductible applies.
No deductible mentioned, so $2,000.*
4. What legal principle prevents an insured from collecting more than the actual
amount of loss from an insurer?
A) Indemnity
B) Subrogation
C) Utmost good faith
D) Proximate cause
Correct Answer: A
Rationale: The principle of indemnity states that insurance should restore the
insured to the same financial position after a loss as before, no better. Subrogation
is the insurer’s right to recover from a responsible third party; utmost good faith
requires full disclosure; proximate cause determines which peril caused the loss.
5. A driver with a PAP (Personal Auto Policy) has liability limits of 100/300/50. He
injures three people in an at-fault accident: $90,000, $80,000, and $60,000. After
,exhausting the per-person limit, what is the remaining available for the third
person?
A) $0
B) $20,000
C) $50,000
D) $130,000
Correct Answer: B
*Rationale: Split limits 100/300/50 = $100,000 per person, $300,000 per accident
total bodily injury, $50,000 property damage. Per person limits: first person $90k
(<100k) paid, second $80k paid, total $170k so far. Per accident limit $300k -
$170k = $130k left, but third person limited to $100k max. Third claims $60k, but
$60k paid leaves $20k remaining unused of the $100k per-person limit (though no
other persons). Actually the third person would get $60k, but question asks
“remaining available for third person” after paying first two: $100k - 0 = $100k
limit for third? Wait—need careful: The third person’s limit is separate $100k, not
reduced by others. But remaining per accident aggregate = $130k, third needs
$60k, so he gets $60k. But question asks “remaining available for the third person”
— meaning after first two paid? The third person has full $100k available (not
reduced). But if they mean “how much of the per-accident limit remains before
paying third?” $130k remains. But if they mean “how much can the third person
still receive up to his per-person limit?” $100k. None of those are $20k. Let’s re-
read: After paying $90k + $80k = $170k, per-accident limit $300k minus $170k =
$130k left. Third person claims $60k, so $130k - $60k = $70k left for property or
others? No. The correct reading: The question says “After exhausting the per-
person limit” — but they haven’t exhausted any per-person limit except if second
person’s limit was $100k and $80k didn’t exhaust. I see: Third person’s per-person
limit is $100k, but total accident limit is $300k. They pay first $90k, second $80k =
$170k. Third needs $60k — that’s fine. But what is “remaining available for the
third person” — that means after paying first two, the third person can still get up
to $100k, but the per-accident remaining is $130k, so he gets $60k. That’s not
$20k. Mistake? Let me recalc: If second person had claimed $100k exactly, then
paid $90k + $100k = $190k, per-accident left = $110k. Third’s per-person $100k, so
, $110k left, pays $100k. That’s fine. But if the second person claimed $110k
(exceeds per-person), they pay $100k. Then total $90k+$100k=$190k, left $110k.
Third gets up to $100k. No $20k. So where does $20k come? If per-person limit is
$100k, second person claim $80k does not exhaust per-person limit. “Exhausting
the per-person limit” would require a person to need $100k+. Not here. So maybe
the question incorrectly worded? Let’s test: Suppose first two claims total $280k
($100k to first, $100k to second, $80k to third? No). To get $20k left for third: total
paid to first two = $280k, leaving $20k of per-accident limit. That would require
first person $100k, second person $180k but limited to $100k = $100k paid, total
$200k paid, leaving $100k for third — not $20k. So none yields $20k. Common
exam trick: After paying first two, per-accident limit left $130k, third person’s
claim $60k, the remaining available for third person from per-person limit is $100k
- $0 = $100k. But if they meant after paying first two, the third person’s claim is
$120k — they pay $100k (per-person limit), and then have $30k left for property?
No. I suspect the intended correct answer is $20,000 (common wrong answer if
you mistakenly add per-person limits). Actual correct is $60k paid, but that’s not
an option. Only $20k is there — maybe they mean remaining available from per-
accident limit for any other claims after paying third person $60k? That would be
$130k - $60k = $70k, not $20k. Given options, $20k is wrong; but since this is a
practice question, I’ll correct my own: The correct answer should be $60k, but not
listed. So instead, I’ll rewrite in final: none match. I will skip this flawed one and
replace with a clean question. But since I must provide 100, I’ll fix by reissuing
question 5 properly. (In final answer, I will replace question 5 with a valid one.)
[Given the error, I will restart Q5 cleanly]
5. An insured has a Personal Auto Policy with liability limits 50/100/25. He causes
an accident; the other driver has $70,000 in bodily injury claims. How much will
the insurer pay?
A) $50,000
B) $70,000
