2023 Edition

Property and Casualty Insurance Agent Licensing Practice Exam

Take this free practice test to get an idea of what is on your state's property and casualty insurance agent licensing exam.

As an insurance agent, one is allowed to offer many different lines of coverage – provided that the required training and testing qualifications have been met. Those who wish to sell property and casualty insurance are required to possess the proper licensing for each state in which they conduct business. In order to obtain a P&C insurance license, individuals must take and successfully pass an exam that is offered by the state licensing boards.

The actual exam tests your knowledge, skills and abilities in: Types of policies, bonds, and related terms, Insurance terms and related concepts, and Policy provisions and contract law under national and state insurance law.

To prepare for your licensing exam, use our full-length 500 question Property & Casulty Insurance Agent Practice Exam with answers fully explained for ideal study.
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Insurance Terms and Related Concepts

1.	Which of the following statements about personal liability coverage (Coverage E) of an unendorsed HO-3 homeowners policy is true?
		a. Coverage is written on an accident basis.
		b. Coverage is provided for bodily injury liability.
		c. Coverage is provided for business and professional liability.
		d. Coverage is provided for personal injury liability.
Coverage is provided for bodily injury liability. In addition, coverage is written to cover the negligence of the insured. Business and professional liability and personal injury are excluded. Incorrect answer. Please choose another answer.

2.	___________ refers to what had the most significant impact in causing the loss, when two or more perils, independently, bring about the loss at the same time. It also considers whether the insured peril caused it.
		a. Legal liability
		b. Proximate cause
		c. Time element loss
		d. Personal loss
Proximate cause. Legal liability has to do with negligent damages to another party. Time element loss is a type of business income loss. Personal loss is a general term that is not applicable. Incorrect answer. Please choose another answer.

3.	Covered costs under a liability policy aside from the costs paid for any injuries or damages are:
		a. Ancillary costs
		b. Supplemental costs
		c. Consequential costs
		d. Aleatory costs
Supplemental costs are paid to the insured in addition to the policy's liability limits. Examples include: paying for an attorney and lost earnings for appearing in court. The other options A, C, and D are terms not associated with liability policies. Incorrect answer. Please choose another answer.

4.	Michelle, who lives in a subdivision with a Homeowners' Association, had a large living oak tree blow down in a windstorm and damage her neighbor's Porsche. She has an unendorsed Special Form HO-3 homeowners' policy and a $1 million-dollar personal umbrella policy. Under which policy can the neighbor expect to find coverage for his loss?
		a. Michelle's homeowners' policy
		b. Michelle's umbrella policy
		c. The neighbors personal auto policy
		d. The Homeowners' Association commercial general liability policy.
Michelle is not legally liable for damage caused by a windstorm to a living, healthy tree. The neighbor would need to seek relief under the "other than collision" section of his personal auto policy. Incorrect answer. Please choose another answer.

5.	Something that might increase the likelihood that a loss will occur is called a:
		a. Catastrophe
		b. Risk
		c. Hazard
		d. Peril
Hazard. A catastrophe causes sudden damage. A peril is a cause of loss. Risk is the uncertainty arising from the possible occurrence of given events that would result in a loss with no opportunity for gain. Incorrect answer. Please choose another answer.

6.	A device that is used to minimize small claims and lower premiums is called a(n):
		a. Transfer of risk
		b. Deductible
		c. Coinsurance
		d. Arbitration
Deductible. Transfer of risk is transferring the risk to another party, such as an insurance company. Coinsurance requires you to carry coverage for a certain percentage of your property's value. Arbitration is when an independent third party settles a claim dispute. Incorrect answer. Please choose another answer.

7.	Which homeowners policy is not designed for owner-occupied dwellings?
		a. HO-3
		b. HO-8
		c. HO-4
		d. HO-5
HO-4 policies are designed for those renting a dwelling. HO-3, HO-5, and HO-8 policy forms are intended for owner-occupied dwellings. Incorrect answer. Please choose another answer.

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8.	Another name for compensatory damages is:
		a. Punitive
		b. General
		c. Broad
		d. Actual
Compensatory (or Actual) damages reimburse a party for a loss sustained in order to make the party whole. Punitive damages are damages exceeding simple compensation and serve to punish the defendant. General damages are damages which exceed simple compensation and awarded to punish the defendant. Broad damages are not a particular type of legal damage. Incorrect answer. Please choose another answer.

9.	Rex has a personal auto policy with bodily injury liability limits of $100,000 per person, $300,000 per accident, and property damage limit of $100,000. His personal umbrella policy has a limit of $1,000,000 and requires underlying auto limits to be $250,000 per person, $500,000 per accident for bodily injury, and $100,000 for property damage. Rex is found negligent in a car accident. The jury awards the plaintiff a total of $950,000 in damages, of which $150,000 were for the claimant's 2018 Bentley automobile. How much will the umbrella pay for this loss?
		a. $950,000
		b. $800,000
		c. $550,000
		d. $150,000
$800,000. The bodily injury award is $800,000 ($950,000 - $150,000 - the value of the property damaged Bentley) since Rex was supposed to carry a $250,000 BI limit on his auto but only carried $100,000. There is a coverage gap of $150,000 so that brings the BI claim payment to $650,000. Rex carried the required $100,000 PD limit on his auto, so the umbrella pays in full for it. $650,000 + $150,000 = $800,000. Incorrect answer. Please choose another answer.

10.	Jeff Smith has a personal auto policy. Select the coverage that would apply when a deer leaps in front of his car and causes damage.
		a. Comprehensive/other than collision
		b. Collision
		c. Medical payments
		d. Liability
Comprehensive, also known as 'other than collision,' is the part of the policy that responds to damage from birds or animals. The collision portion of the policy responds to collisions that are not bird or animal-related. Medical payments pay for a medical expense, not physical damage to the auto. Likewise, liability pays for damage to another party, not the insured vehicle. Incorrect answer. Please choose another answer.

11.	A hazard where a party protected from risk acts differently than if they did not have protection is called what?
		a. Moral hazard
		b. Legal hazard
		c. Morale hazard
		d. Physical hazard
Moral hazard. Legal hazards could cause a loss due to legal issues. Morale hazard relates to a person's attitude about their belongings. Physical hazards are conditions, behaviors, or actions that contribute to a loss. Incorrect answer. Please choose another answer.

Types of Policies

12.	All of the following are basic perils covered under all Homeowners' policies except:
		a. Fire or smoke
		b. Vandalism
		c. Riots and civil commotion
		d. Falling objects
Falling objects are not a covered peril under a basic HO-1 policy form. A,B, and C are listed perils covered under the HO-1 policy form. Incorrect answer. Please choose another answer.

13.	George's rental home is covered under a basic dwelling form DP-1 policy. The weight of snow and ice causes $15,000 of damage to his roof, $10,000 of damage to his interior walls, and $2,000 of damage to the tenants' contents. George has a $1,000 deductible. What is the total dollar amount of damage covered under his policy?
		a. $15,000
		b. $10,000
		c. $27,000
		d. This is not a covered peril under DP-1.
Weight of snow or ice is not a covered peril under a basic form DP-1. Incorrect answer. Please choose another answer.

14.	Jenny's Flower Shop has an unendorsed Business Owners Policy (BOP), and an unendorsed commercial auto policy in force. Deb, one of Jenny's employees, takes her personal vehicle to the bank to make a deposit for Jenny's Flowers. En route, Deb hits a pedestrian in the bank parking lot while the pedestrian is getting out of her car, causing permanent bodily injury to the pedestrian. Which policy will respond to the loss?
		a. The pedestrian's personal auto policy
		b. Jenny's Business Owners Policy
		c. Jenny's commercial auto policy
		d. The bank's commercial liability policy
The medical or no-fault section of the pedestrian's personal auto policy will respond. Because Jenny's BOP and commercial auto policy were not endorsed to extend coverage to non-owned auto exposures, neither will respond. The bank had no contributing factors that led to the accident, and is therefore not negligent. If it were winter in Fargo, ND, for example, and the bank parking lot was covered in ice and contributed to the accident, the bank may be found negligent. Incorrect answer. Please choose another answer.

15.	The ABC Construction Company is transporting a crane to a building under construction in the city. While en route, the boom hits a utility pole, knocking out power to a popular steakhouse restaurant and causing it to close and suffer a loss of income. Which one of ABC's insurance policies will respond to the loss?
		a. Commercial Auto
		b. Commercial Inland Marine
		c. Commercial General Liability
		d. Contractors Bond
The property damage section of a commercial general liability policy will respond to the loss. Property damage means physical injury to tangible property, including the loss of use of property. Commercial inland marine policies respond to the theft of scheduled equipment. Commercial property responds to property losses at the business location only. Commercial Auto responds to commercial auto only. Incorrect answer. Please choose another answer.

16.	Under an HO-3 homeowners policy coverage, C - personal property is covered in which countries?
		a. North America
		b. United States
		c. United States, Canada, and Mexico
		d. Worldwide
Personal property is covered worldwide. For example, if your personal property is stolen while on vacation in Italy, it is covered as if it were stolen from your home in the United States. Incorrect answer. Please choose another answer.

17.	Hank's Excavating Company has a bulldozer worth $200,000 which is stolen off the back of one of the company's flatbed trailers parked overnight at a job site. Which one of Hank's insurance policies will respond to the loss?
		a. Commercial Inland Marine
		b. Commercial Property
		c. Commercial General
		d. Commercial Auto
Commercial inland marine policies respond to theft of scheduled equipment. Commercial inland marine policies respond to the theft of scheduled equipment. Commercial property responds to property losses at the business location only. Commercial General Liability does not respond to property losses. Commercial Auto responds to commercial auto, not equipment. Incorrect answer. Please choose another answer.

Policy Provisions and Contract Law

18.	What is a statement of fact given to an insurer by the insured concerning the insured's risk, which, if untrue, voids the policy?
		a. Warranty
		b. Waiver of subrogation
		c. Representation
		d. Estoppel
Warranty. Waiver of subrogation is giving up a right to recovery. Representation is a statement made on an application that the application is accurate to the best of the insured's knowledge. Incorrect answer. Please choose another answer.

19.	All of the following are excluded under a HO-3 homeowners' policy, except:
		a. Theft
		b. Earth movement
		c. Neglect
		d. War
Theft is covered under an HO-3 policy. Earth movement, neglect, and war are all excluded. Incorrect answer. Please choose another answer.

20.	Joey did not pay his auto insurance premium and as a result, his coverage lapsed. This is an example of what policy provision?
		a. Cancelation
		b. Non-renewal
		c. Punitive
		d. Comprehensive
Cancelation. The insurance company has the right to cancel for nonpayment of premium. Non-renewal is when the insurance carrier sends out advance warning that they will no longer offer coverage, effective on the next renewal date. Punitive and comprehensive to not apply to this scenario. Incorrect answer. Please choose another answer.

21.	This form states that you own a specific item or items.
		a. Loss cost
		b. Policy record
		c. Proof of loss
		d. Supplementary
Proof of loss. Loss cost is a term used in determining a loss ratio. Policy record and supplementary do not apply. Incorrect answer. Please choose another answer.

22.	Sam was stopped at a traffic light and was rear ended by another driver. The driver of the other vehicle was given a citation by police. Sam turned in a claim with his insurance company and they paid to repair Sam's car. The insurance company can recoup its claim cost by what policy provision?
		a. Subrogation
		b. Proof of loss
		c. Declaration
		d. Estoppel
Subrogation. Proof of loss is a form filed with the insurance company after a loss. Declaration is the page of the policy with the insured's name, address, and coverage limits. Estoppel is when you go against what you previously stated. Incorrect answer. Please choose another answer.

23.	A form that documents damaged or destroyed items is:
		a. A list of Contents
		b. Proof of loss
		c. Conditions
		d. Declarations
Proof of loss. A list of contents is often used to determine the amount of coverage needed. Conditions lists general requirements that the insured must meet. Declarations lists name, address, and coverage amounts. Incorrect answer. Please choose another answer.

24.	Which part of an insurance policy lists the name and address of the named insured on the policy?
		a. Conditions
		b. Exclusions
		c. Insuring agreement
		d. Declarations
The declarations page lists the name and address of the named insured. Typically, states will declare the requirements that must be met for the coverage to be valid. The Exclusions section lists what is not covered under the policy. The Insuring Agreement is where the insurer agrees to certain conditions, like pay for claims. Incorrect answer. Please choose another answer.

25.	An insurance policy is a contract between:
		a. The insured, the insurer, and the agent
		b. The insured and the insurer
		c. The insured and the agent
		d. The insured and all third parties
Insurance contracts are between an insured and an insurer. Incorrect answer. Please choose another answer.

Types of Policies, Bonds, and Related Items

26.	Eric's bike shop has a business owner's policy (BOP). Eric runs an ad in the local newspaper indicating that Mike's Bikes sells inferior products. As a result, Mike's Bikes sues Eric's bike shop. Which of the following will provide coverage for any liability incurred by Eric's bike shop?
		a. Loss of Income
		b. Professional liability
		c. Copyright coverage
		d. Advertising injury
Advertising injury liability provides coverage for insured expenses, such as defense costs as well as damages if an insured is found liable for libel or slander. Loss of income is property coverage, not liability coverage. Professional liability coverage covers professionals like doctors, lawyers, architects, and others for errors caused while performing their occupation. There is no copyright infringement in this scenario. Incorrect answer. Please choose another answer.

27.	When a covered automobile is damaged in an accident which causes it to be unusable for a period of time, a personal auto policy will provide coverage for transportation expenses at the rate of $20 per day for up to how much total?
		a. $300
		b. $500
		c. $750
		d. $1,000
A personal auto policy pays up to $20 per day for 15 days for the loss of use of a covered auto. Incorrect answer. Please choose another answer.

28.	If an insurer decides not to renew a Commercial General Liability policy, how many days' notice must they give the first named insured?
		a. 14 days
		b. 30 days
		c. 60 days
		d. 90 days
30 days Incorrect answer. Please choose another answer.

29.	This employer coverage pays wage and medical benefits to workers who become injured or ill while on the job. Each state mandates coverage and the wages and medical benefits differ from state to state.
		a. Group medical
		b. General liability
		c. Workers' compensation
		d. Loss of use
Workers' compensation. Group medical does not respond to work related injuries or sickness, nor does it pay lost wages. General liability pays for damage to another party when the insured is negligent. Loss of use is paid when you cannot use your vehicle. Incorrect answer. Please choose another answer.

30.	A new insurance agent tells his client that he has bound coverage on his home. However, he did not follow through with binding coverage making it an ineligible risk. His home burns down. Where can the homeowner seek coverage?
		a. The agent's professional liability policy
		b. The agent's general liability policy
		c. The agent's personal umbrella policy
		d. The mortgage company who required home insurance
The agent's professional liability policy, aka the "errors and omissions policy." General liability and personal liability policies do not respond to professional liability claims. The mortgage company has no negligence in this situation and is not responsible. Incorrect answer. Please choose another answer.

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