Property and Casualty Practice Test

Property and Casualty practice questions with answers and explanations:

1. Which of the following characteristics does NOT apply to an insurable loss?
   • Calculable
   • Measurable
   • Catastrophic — Correct answer
   • Unexpected
   Explanation: The six characteristics of insurable loss are the following:

   1. It must be predictable
   2. It must subject a large quantity of people or things to loss
   3. It must be accidental/unintentional loss
   4. It must be determinable and measurable loss
   5. It must be non-catastrophic loss to the insurer
   6. It must be a calculable/affordable premium
2. The maximum amount a company will pay for a loss that occurs at a specific time and place is BEST described as:
   • Per occurrence/accident limit — Correct answer
   • Voluntary liability limit
   • Per person limit
   • Aggregate limit
   Explanation: The per occurrence/accident limit is the maximum an insurance company will pay for a loss event that occurs at a specific time and place. The voluntary liability limit is the maximum amount the insurance company will pay without the company admitting to being liable. The per person limit is the maximum amount the insurance company will pay per each person involved in a claim. The aggregate limit is the maximum amount the insurance company will pay for all claims.
3. What condition allows a company to pursue legal action against a third party found to be at fault?
   • Liberalization condition
   • Concealment fraud condition
   • Subrogation condition — Correct answer
   • Estoppel condition
   Explanation: The subrogation condition allows an insurer to pursue legal action against a third party found to be at fault.
4. Liam is driving when an animal jumps from the ditch hitting the side of his car and causing damage. However, the animal runs off into the woods. What coverage under Liam's personal automobile insurance policy, if purchased, would cover the damage to Liam's car?
   • Comprehension coverage
   • Collision coverage
   • Comprehensive coverage — Correct answer
   • Collider coverage
   Explanation: Comprehensive coverage would cover the damage because even though Liam "collided" with the animal, collision coverage covers Liam if he "collides" with an inanimate object. A car or guardrail is considered an inanimate object because it cannot run under its own power. An animal, however, is an "animate" object, operating under its own power, so coverage would apply under comprehensive.
5. Insurance companies retain the right to recover the damages they paid when a third party is at fault for a loss in a process known as what?
   • Subrogation — Correct answer
   • Reimbursement
   • Supplemental coverage
   • Waiving the deductible
   Explanation: Subrogation occurs when an insurance company pays for a loss that is found to be the fault of a third party and subsequently recoups the money they paid from the third party. Reimbursement means to pay something back. Supplemental coverage is for expenses incurred by the insurance company during the investigation, defense, and settlement of claims. Waiving the deductible is when the insurance company does not require the insured to pay a portion of a claim.
6. An insured rents a room in an owner-occupied home to a non-family member. The insured drains the pool but neglects to tell their renter. The renter runs into the backyard, does a cannon ball into the empty pool, and is injured. How will the insured's property policy deal with the bodily-injury claim?
   • The insurance company will pay the bodily-injury claim and subrogate against the insured.
   • The insurance company will not pay more than the maximum policy limit.
   • The insurance company will only cover the bodily injury if the pool was properly fenced.
   • The insurance company will offer no coverage for the bodily-injury claim. — Correct answer
   Explanation: No coverage will be available for bodily injury as the third-party lives with the insured. The other three answers are not valid responses.