MARYLAND PROPERTY AND CASUALTY
INSURANCE PRACTICE EXAM
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of insurance?
A. To create wealth
B. To transfer risk
C. To eliminate risk
D. To avoid risk
Insurance transfers the financial burden of risk from the insured to the
insurer in exchange for a premium.
,2. An insured cancels a policy before the expiration date. This type of
cancellation is known as:
A. Short-rate cancellation
B. Pro rata cancellation
C. Flat cancellation
D. Automatic termination
Pro rata cancellation returns the unearned premium without penalty
when the insurer initiates cancellation.
3. What is a binder in property and casualty insurance?
A. A receipt for premium payment
B. A schedule of losses
C. A temporary contract of insurance
D. A policy endorsement
A binder provides immediate coverage until the formal policy is issued.
4. Which of the following is NOT an element of a valid contract?
A. Offer and acceptance
B. Legal purpose
C. Competent parties
D. Representation
Representations are part of underwriting, not a required contract element.
, 5. The Maryland Insurance Administration (MIA) is responsible for:
A. Setting insurance rates
B. Enforcing state insurance laws
C. Paying out claims
D. Representing policyholders in court
The MIA regulates the insurance industry in Maryland and enforces
compliance.
6. Under the standard homeowners policy, which peril is NOT covered
under the HO-3 form for personal property?
A. Fire
B. Theft
C. Vandalism
D. Earthquake
Earthquake coverage must be added by endorsement.
7. A deductible in an insurance policy is:
A. A penalty
B. The amount the insured must pay before the insurer pays
C. The commission paid to agents
D. A surcharge
INSURANCE PRACTICE EXAM
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of insurance?
A. To create wealth
B. To transfer risk
C. To eliminate risk
D. To avoid risk
Insurance transfers the financial burden of risk from the insured to the
insurer in exchange for a premium.
,2. An insured cancels a policy before the expiration date. This type of
cancellation is known as:
A. Short-rate cancellation
B. Pro rata cancellation
C. Flat cancellation
D. Automatic termination
Pro rata cancellation returns the unearned premium without penalty
when the insurer initiates cancellation.
3. What is a binder in property and casualty insurance?
A. A receipt for premium payment
B. A schedule of losses
C. A temporary contract of insurance
D. A policy endorsement
A binder provides immediate coverage until the formal policy is issued.
4. Which of the following is NOT an element of a valid contract?
A. Offer and acceptance
B. Legal purpose
C. Competent parties
D. Representation
Representations are part of underwriting, not a required contract element.
, 5. The Maryland Insurance Administration (MIA) is responsible for:
A. Setting insurance rates
B. Enforcing state insurance laws
C. Paying out claims
D. Representing policyholders in court
The MIA regulates the insurance industry in Maryland and enforces
compliance.
6. Under the standard homeowners policy, which peril is NOT covered
under the HO-3 form for personal property?
A. Fire
B. Theft
C. Vandalism
D. Earthquake
Earthquake coverage must be added by endorsement.
7. A deductible in an insurance policy is:
A. A penalty
B. The amount the insured must pay before the insurer pays
C. The commission paid to agents
D. A surcharge
