PROPERTY AND CASUALTY INSURANCE
EXAM PART ONE COMPLETE SOLUTION
GUIDE ALREADY GRADED A+ 2026
⩥ Which of the following insurance principles permits a policyholder to
be reimbursed for losses experienced?
A. Subrogation
B. Insurable interest
C. Direct loss
D. Indemnification. Answer: A. Subrogation
Indemnity means placing an insured in the same financial position
following a loss that existed before the loss occurred. This is the
principle that allows reimbursement for loss. Subrogation is the principle
allowing an insurance company to use the insured's legal right of
recovery against an at-fault party for the purpose of recovering the
amount it has paid out for the loss. Insurable interest is a relationship
between a person and a property such that if a loss occurs, the person is
harmed financially. A direct loss means that property was damaged or
destroyed by the peril insured against without any intervening cause. All
of these principles rely on the principle of indemnity to allow recovery.
⩥ Deductibles are used in all of the following purposes EXCEPT
,A. to reduce the cost of insurance
B. to eliminate small losses
C. to increase the insured's caution
D. to eliminate nuisance claims. Answer: B. to eliminate small losses
The deductible is intended in part to reduce small claims, since the
insured has a reduced incentive to file. However the loss is still suffered
by the insured. The deductible does not do anything to reduce the
insured's risk.
⩥ Uncertainty concerning financial loss best describes the concept of
A. indemnity
B. insurance
C. risk
D. hazards. Answer: C. risk
The definition of risk is uncertainty regarding financial loss. Insurance
and indemnity are concepts that mitigate risk. Hazards may contribute to
risk but do not describe the uncertainty itself.
⩥ Collision insurance covers which of the following perils?
,A. All damage to an auto struck by the insured, if the insured is legally
liable
B. Upset of the auto without a deductible applying
C. Direct loss to the auto caused by collision with another object
D. Collision of the covered vehicle with a large animal. Answer: C.
Direct loss to the auto caused by collision with another object
Collision coverage pays for direct and accidental loss due to upset or
collision of the vehicle with another object. Losses are subject to a
deductible. Animals are a peril covered by other than collision
(comprehensive) coverage. Collision does not cover BI and PD liability.
⩥ All of the following are perils covered by a basic fire insurance policy
EXCEPT
A. fire
B. explosion
C. lightning
D. removal. Answer: B. explosion
The SFP perils include only fire, lightning, and removal. Explosion is an
extended coverage.
, ⩥ By entering into an insurance contract, a policyholder transfers the
right of legal action against a responsible third party to the insurer. This
process is known as
A. insurable interest
B. coinsurance
C. subrogation
D. abandonment. Answer: C. subrogation
Insureds are required to assign their right of recovery against a negligent
third party that caused the loss for the amount the insurer paid the
insured for the loss to the insurer. This is called subrogation. Insurable
interest is a condition in which an individual or entity may suffer
economic loss if property is damaged or destroyed. Coinsurance clauses
stipulate that if an insured does not carry a specified percentage of
coverage in relation to the value of the property, the insured will not
collect the entire amount of a partial loss. Abandonment is a condition
imposed upon the insured stating that he may not abandon damaged
property to the insurance company.
⩥ A condition creating or increasing the chance for loss is known as a
A. peril
B. hazard
C. loss
EXAM PART ONE COMPLETE SOLUTION
GUIDE ALREADY GRADED A+ 2026
⩥ Which of the following insurance principles permits a policyholder to
be reimbursed for losses experienced?
A. Subrogation
B. Insurable interest
C. Direct loss
D. Indemnification. Answer: A. Subrogation
Indemnity means placing an insured in the same financial position
following a loss that existed before the loss occurred. This is the
principle that allows reimbursement for loss. Subrogation is the principle
allowing an insurance company to use the insured's legal right of
recovery against an at-fault party for the purpose of recovering the
amount it has paid out for the loss. Insurable interest is a relationship
between a person and a property such that if a loss occurs, the person is
harmed financially. A direct loss means that property was damaged or
destroyed by the peril insured against without any intervening cause. All
of these principles rely on the principle of indemnity to allow recovery.
⩥ Deductibles are used in all of the following purposes EXCEPT
,A. to reduce the cost of insurance
B. to eliminate small losses
C. to increase the insured's caution
D. to eliminate nuisance claims. Answer: B. to eliminate small losses
The deductible is intended in part to reduce small claims, since the
insured has a reduced incentive to file. However the loss is still suffered
by the insured. The deductible does not do anything to reduce the
insured's risk.
⩥ Uncertainty concerning financial loss best describes the concept of
A. indemnity
B. insurance
C. risk
D. hazards. Answer: C. risk
The definition of risk is uncertainty regarding financial loss. Insurance
and indemnity are concepts that mitigate risk. Hazards may contribute to
risk but do not describe the uncertainty itself.
⩥ Collision insurance covers which of the following perils?
,A. All damage to an auto struck by the insured, if the insured is legally
liable
B. Upset of the auto without a deductible applying
C. Direct loss to the auto caused by collision with another object
D. Collision of the covered vehicle with a large animal. Answer: C.
Direct loss to the auto caused by collision with another object
Collision coverage pays for direct and accidental loss due to upset or
collision of the vehicle with another object. Losses are subject to a
deductible. Animals are a peril covered by other than collision
(comprehensive) coverage. Collision does not cover BI and PD liability.
⩥ All of the following are perils covered by a basic fire insurance policy
EXCEPT
A. fire
B. explosion
C. lightning
D. removal. Answer: B. explosion
The SFP perils include only fire, lightning, and removal. Explosion is an
extended coverage.
, ⩥ By entering into an insurance contract, a policyholder transfers the
right of legal action against a responsible third party to the insurer. This
process is known as
A. insurable interest
B. coinsurance
C. subrogation
D. abandonment. Answer: C. subrogation
Insureds are required to assign their right of recovery against a negligent
third party that caused the loss for the amount the insurer paid the
insured for the loss to the insurer. This is called subrogation. Insurable
interest is a condition in which an individual or entity may suffer
economic loss if property is damaged or destroyed. Coinsurance clauses
stipulate that if an insured does not carry a specified percentage of
coverage in relation to the value of the property, the insured will not
collect the entire amount of a partial loss. Abandonment is a condition
imposed upon the insured stating that he may not abandon damaged
property to the insurance company.
⩥ A condition creating or increasing the chance for loss is known as a
A. peril
B. hazard
C. loss
