Chartered Property Casualty
Underwriter Exam Practice Questions
And Correct Answers (Verified Answers)
Plus Rationale 2026 Q&A| Instant
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1.A commercial property insurance policy covers a building under a
replacement cost provision. A fire damages the building, and the insured
decides not to repair or replace it. Which settlement method will the insurer
most likely use?
A. Replacement cost without depreciation deduction
B. Actual cash value based on the building’s current value
C. Agreed value regardless of the insured’s decision
D. Market value including future appreciation
Answer: B
The replacement cost provision generally requires the insured to actually
repair or replace damaged property before receiving replacement cost
benefits. If the insured does not do so, the insurer typically settles based on
actual cash value, which reflects depreciation.
2. The primary purpose of underwriting in property-casualty insurance is
to:
A. Increase claim payments to policyholders
B. Eliminate all insurance losses
,C. Select and classify risks according to expected loss characteristics
D. Guarantee profitability for every policy issued
Answer: C
Underwriting involves evaluating, selecting, and classifying risks so
insurers can charge appropriate premiums and maintain financial stability.
3. Which of the following best describes the principle of indemnity?
A. The insured should profit from a loss
B. The insured should be restored financially to approximately the same
position as before the loss
C. The insurer must always replace damaged property with new property
D. The insured must accept every settlement offered
Answer: B
The principle of indemnity prevents insureds from profiting from insurance
losses and aims to restore them to their pre-loss financial condition.
4. A homeowner intentionally burns down a house to collect insurance
proceeds. This action violates which insurance principle?
A. Contribution
B. Subrogation
C. Utmost good faith
D. Indemnity
Answer: C
Insurance contracts require utmost good faith, meaning parties must act
honestly and disclose material information. Intentional destruction for
financial gain violates this obligation.
5. Which characteristic is most commonly associated with an insurable
risk?
,A. The loss must be intentional
B. The loss must be measurable and accidental
C. The loss must affect only one individual
D. The loss must create speculative profit opportunities
Answer: B
Insurable risks generally involve accidental losses that can be measured
financially and predicted using statistical methods.
6. A liability insurance policy primarily protects an insured against:
A. Damage to the insured’s own property only
B. Losses caused by investment decisions
C. Legal responsibility for injury or damage to others
D. Normal business operating expenses
Answer: C
Liability insurance provides protection when the insured is legally
responsible for bodily injury or property damage suffered by another party.
7. The concept of risk transfer in insurance means:
A. Eliminating all possibility of loss
B. Moving financial consequences of loss from the insured to the insurer
C. Increasing the frequency of losses
D. Preventing insurance contracts from being formed
Answer: B
Insurance transfers the financial burden of covered losses from individuals
or organizations to insurers in exchange for premiums.
8. Which type of risk is generally considered uninsurable?
A. Pure risk
B. Personal risk
, C. Speculative risk
D. Property risk
Answer: C
Speculative risks involve both the possibility of gain and loss, making them
unsuitable for traditional insurance coverage.
9. The principle of subrogation allows an insurer to:
A. Cancel every policy after a claim
B. Recover payments from responsible third parties after paying a claim
C. Increase premiums automatically
D. Avoid investigating losses
Answer: B
Subrogation allows insurers to seek recovery from parties responsible for
causing a loss after the insurer compensates the insured.
10. Which factor is most important when determining an
appropriate property insurance premium?
A. The insured’s preferred settlement amount
B. The expected frequency and severity of losses
C. The insured’s personal opinion of risk
D. The insurer’s advertising budget
Answer: B
Insurance premiums are primarily based on expected losses, including how
often losses may occur and how severe they are likely to be.
11. In property-casualty insurance, a peril is best defined as:
A. A condition increasing the chance of loss
B. The direct cause of a loss
Underwriter Exam Practice Questions
And Correct Answers (Verified Answers)
Plus Rationale 2026 Q&A| Instant
Download Pdf
1.A commercial property insurance policy covers a building under a
replacement cost provision. A fire damages the building, and the insured
decides not to repair or replace it. Which settlement method will the insurer
most likely use?
A. Replacement cost without depreciation deduction
B. Actual cash value based on the building’s current value
C. Agreed value regardless of the insured’s decision
D. Market value including future appreciation
Answer: B
The replacement cost provision generally requires the insured to actually
repair or replace damaged property before receiving replacement cost
benefits. If the insured does not do so, the insurer typically settles based on
actual cash value, which reflects depreciation.
2. The primary purpose of underwriting in property-casualty insurance is
to:
A. Increase claim payments to policyholders
B. Eliminate all insurance losses
,C. Select and classify risks according to expected loss characteristics
D. Guarantee profitability for every policy issued
Answer: C
Underwriting involves evaluating, selecting, and classifying risks so
insurers can charge appropriate premiums and maintain financial stability.
3. Which of the following best describes the principle of indemnity?
A. The insured should profit from a loss
B. The insured should be restored financially to approximately the same
position as before the loss
C. The insurer must always replace damaged property with new property
D. The insured must accept every settlement offered
Answer: B
The principle of indemnity prevents insureds from profiting from insurance
losses and aims to restore them to their pre-loss financial condition.
4. A homeowner intentionally burns down a house to collect insurance
proceeds. This action violates which insurance principle?
A. Contribution
B. Subrogation
C. Utmost good faith
D. Indemnity
Answer: C
Insurance contracts require utmost good faith, meaning parties must act
honestly and disclose material information. Intentional destruction for
financial gain violates this obligation.
5. Which characteristic is most commonly associated with an insurable
risk?
,A. The loss must be intentional
B. The loss must be measurable and accidental
C. The loss must affect only one individual
D. The loss must create speculative profit opportunities
Answer: B
Insurable risks generally involve accidental losses that can be measured
financially and predicted using statistical methods.
6. A liability insurance policy primarily protects an insured against:
A. Damage to the insured’s own property only
B. Losses caused by investment decisions
C. Legal responsibility for injury or damage to others
D. Normal business operating expenses
Answer: C
Liability insurance provides protection when the insured is legally
responsible for bodily injury or property damage suffered by another party.
7. The concept of risk transfer in insurance means:
A. Eliminating all possibility of loss
B. Moving financial consequences of loss from the insured to the insurer
C. Increasing the frequency of losses
D. Preventing insurance contracts from being formed
Answer: B
Insurance transfers the financial burden of covered losses from individuals
or organizations to insurers in exchange for premiums.
8. Which type of risk is generally considered uninsurable?
A. Pure risk
B. Personal risk
, C. Speculative risk
D. Property risk
Answer: C
Speculative risks involve both the possibility of gain and loss, making them
unsuitable for traditional insurance coverage.
9. The principle of subrogation allows an insurer to:
A. Cancel every policy after a claim
B. Recover payments from responsible third parties after paying a claim
C. Increase premiums automatically
D. Avoid investigating losses
Answer: B
Subrogation allows insurers to seek recovery from parties responsible for
causing a loss after the insurer compensates the insured.
10. Which factor is most important when determining an
appropriate property insurance premium?
A. The insured’s preferred settlement amount
B. The expected frequency and severity of losses
C. The insured’s personal opinion of risk
D. The insurer’s advertising budget
Answer: B
Insurance premiums are primarily based on expected losses, including how
often losses may occur and how severe they are likely to be.
11. In property-casualty insurance, a peril is best defined as:
A. A condition increasing the chance of loss
B. The direct cause of a loss
