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AL Claims Adjuster practice questions

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Question 1Insurance Principles and Concepts

The principle of indemnity is best described as which of the following?

  1. Requiring payment of the full policy limit after any loss
  2. Allowing the insured to collect more than the actual loss
  3. Shifting every loss onto the party who caused the damage
  4. Restoring the insured's pre-loss financial position Correct answer.

Explanation

Indemnity aims to place the insured in roughly the same financial position after a loss as before it, with no profit and no betterment. Policy valuation methods, limits, and deductibles are all mechanisms for measuring that indemnity. The principle distinguishes insurance from a wager.

Question 2Insurance Principles and Concepts

Insurable interest in property insurance generally requires that the insured do which of the following?

  1. Name a mortgagee as an additional insured on the policy
  2. Hold legal title to the property at the time the policy is issued
  3. Occupy the insured property as a primary residence
  4. Have a financial stake that would be harmed by a loss Correct answer.

Explanation

Insurable interest is a financial relationship such that the insured would suffer a loss if the property were damaged. Legal title is one way to establish it, but tenants, bailees, and mortgagees can also have an insurable interest. In property insurance, the interest generally must exist at the time of loss.

Question 3Insurance Principles and Concepts

A $1,000 deductible applies to a covered loss of $4,500. Assuming no other limits or clauses apply, what amount does the insurer pay?

  1. $4,500
  2. $5,500
  3. $1,000
  4. $3,500 Correct answer.

Explanation

A deductible is the amount of a covered loss the insured retains before the insurer pays. Subtracting the $1,000 deductible from the $4,500 covered loss leaves $3,500. No other limits or clauses are assumed to change that result.

Question 4Insurance Principles and Concepts

After paying an insured for damage caused by a negligent third party, an insurer may pursue subrogation in order to do what?

  1. Avoid paying the claim until the third party is identified
  2. Cancel the policy without providing notice to the insured
  3. Recover the paid amount from the responsible party Correct answer.
  4. Increase the insured's recovery beyond the actual loss

Explanation

Subrogation transfers the insured's right to recover from a responsible third party to the insurer after the insurer pays the claim. It prevents the insured from collecting twice and places the cost of the loss on the party at fault. The insurer can recover only up to the amount it paid.

Question 5Insurance Principles and Concepts

A claim in which the insured seeks payment from their own insurer for damage to their own property is best classified as what?

  1. Liability claim
  2. Third-party claim
  3. First-party claim Correct answer.
  4. Subrogation claim

Explanation

A first-party claim is brought by the insured against their own insurer for their own loss. A third-party claim is brought by someone who alleges the insured caused them harm. Liability claims are typically third-party claims.

Question 6Insurance Principles and Concepts

An insurance binder provides which of the following?

  1. Temporary evidence of coverage pending policy issuance Correct answer.
  2. A permanent policy that cannot be cancelled by the insurer
  3. A written promise to insure only after a medical exam
  4. A guarantee that the quoted premium will never change

Explanation

A binder is temporary evidence that coverage is in force while the permanent policy is being issued. It is subject to the terms of the policy to be issued and can be cancelled according to policy provisions. It is not a promise of permanent coverage or a fixed premium.

Question 7Insurance Principles and Concepts

A policy pays actual cash value on a ten-year-old roof. The adjuster determines replacement cost is $12,000 and the roof has depreciated 60 percent. What payment is indicated?

  1. $4,800 Correct answer.
  2. $7,200
  3. $12,000
  4. $6,000

Explanation

Actual cash value is typically replacement cost minus depreciation. The roof has 40 percent of its value remaining, so $12,000 multiplied by 0.40 equals $4,800. The $12,000 figure would be replacement cost, not actual cash value.

Question 8Insurance Principles and Concepts

A property policy has an 80 percent coinsurance clause, a building replacement cost of $500,000, a policy limit of $300,000, and a covered loss of $100,000. Ignoring deductibles, what is the maximum payment under the coinsurance formula?

  1. $80,000
  2. $75,000 Correct answer.
  3. $100,000
  4. $50,000

Explanation

The coinsurance formula compares the limit carried with the limit required. The required limit is 80 percent of $500,000, or $400,000; $300,000 divided by $400,000 is 0.75. Multiplying the $100,000 loss by 0.75 yields $75,000, which is within the policy limit.

Question 9Insurance Principles and Concepts

In property insurance, proximate cause is best understood as which of the following?

  1. Any cause that contributed in even a minor way to the loss
  2. The dominant cause that sets the loss in motion Correct answer.
  3. The cause the insured identifies first in the proof of loss
  4. The last event in time before the damage becomes visible

Explanation

Proximate cause is the dominant, efficient cause that sets the loss in motion without an intervening break in the chain. It is not necessarily the last event in time or the first cause the insured mentions. The concept matters when covered and excluded causes combine.

Question 10Insurance Principles and Concepts

An applicant for insurance states that a vehicle is kept in a garage when it is actually parked on the street. The insurer would most likely treat this statement as what?

  1. A material misrepresentation that may support rescission Correct answer.
  2. A warranty breach that automatically voids all coverage
  3. A binder condition that lapses when the policy is issued
  4. An immaterial opinion that cannot affect the policy

Explanation

A misrepresentation is material when it would have affected the insurer's decision to accept the risk or set the premium. Garage versus street parking can be material for auto underwriting. Depending on the jurisdiction and intent, the remedy may be rescission or denial rather than automatic voiding.

Question 11Insurance Principles and Concepts

Under a claims-made liability policy, coverage is generally triggered by which of the following?

  1. The date the injury or damage first occurs
  2. The date the policy period ends, regardless of notice
  3. The date a claim is first made against the insured Correct answer.
  4. The date the insured first learned of a potential claim

Explanation

A claims-made policy responds to claims first made against the insured during the policy period, subject to any retroactive date. An occurrence policy, by contrast, responds based on when the injury or damage occurred. The end of the policy period alone does not trigger coverage.

Question 12Insurance Principles and Concepts

An adjuster accepts late notice without objection and continues to investigate the claim. Which doctrine most directly prevents the insurer from later denying the claim solely for late notice?

  1. Estoppel Correct answer.
  2. Indemnity
  3. Contribution
  4. Subrogation

Explanation

Waiver is the voluntary relinquishment of a known right, and estoppel prevents an insurer from taking a position inconsistent with earlier conduct when the insured relied on it. An adjuster's unqualified acceptance of late notice can therefore bar a later late-notice denial. The other doctrines address recovery from third parties or allocation among insurers.

Question 13Insurance Principles and Concepts

After paying a total loss on a cargo shipment, the insurer takes possession of the damaged goods and sells them. The recovery is best described as what?

  1. Abandonment
  2. Contribution
  3. Subrogation
  4. Salvage Correct answer.

Explanation

Salvage is the residual value of damaged property that remains after a loss. When the insurer pays a total loss, it may take the salvage and sell it to offset the claim payment. Subrogation, by contrast, is recovery from a third party who caused the loss.

Question 14Insurance Principles and Concepts

A policy has a $200,000 per-occurrence limit and a $500,000 aggregate limit. Two covered occurrences each produce $180,000 in damages. What is the total the insurer pays, assuming no other limits apply?

  1. $400,000
  2. $360,000 Correct answer.
  3. $500,000
  4. $200,000

Explanation

Each occurrence is subject to the $200,000 per-occurrence limit, and neither loss exceeds it. Two payments of $180,000 total $360,000. That total remains below the $500,000 aggregate limit.

Question 15Insurance Principles and Concepts

Two property policies cover the same loss on a primary basis. Contribution allows the insurers to do which of the following?

  1. Share the loss so neither pays more than its fair share Correct answer.
  2. Require the insured to select one policy and forfeit the other
  3. Recover the entire loss from the party who caused it
  4. Deny the claim because coverage is duplicated

Explanation

Contribution applies when two or more insurers cover the same loss on the same basis. It allows them to allocate the loss so that no insurer pays more than its share and the insured does not recover twice. It does not eliminate coverage or shift the entire loss to a third party.

Question 16Insurance Principles and Concepts

An insurer that is unsure whether a claim falls within coverage may send a reservation of rights letter primarily to do what?

  1. Extend the policy period while the claim is pending
  2. Preserve its right to deny coverage later Correct answer.
  3. Guarantee that coverage will be provided in full
  4. Transfer the defense of the claim to the insured

Explanation

A reservation of rights letter tells the insured that the insurer is investigating coverage and is not yet waiving any coverage defenses. It preserves the insurer's right to deny coverage later while it defends or investigates. It does not itself grant coverage or transfer the defense.

Question 17Insurance Principles and Concepts

A policy covers windstorm but excludes flood. A windstorm causes a building to collapse, and rising floodwater subsequently damages the already collapsed structure. Under the efficient proximate cause rule, how is the loss most likely treated?

  1. Coverage may apply because wind was the dominant cause Correct answer.
  2. No coverage applies because two causes acted at the same time
  3. The loss is divided equally between covered and excluded causes
  4. The entire loss is excluded because flood contributed at some point

Explanation

Under the efficient proximate cause rule, the loss is covered if the dominant cause is covered, even if an excluded cause follows or contributes. Here, wind is the efficient cause and flood merely affects property already damaged. Some jurisdictions apply different concurrent causation rules, so the analysis can vary.

Question 18Insurance Principles and Concepts

A court interprets an ambiguous exclusion in a standard-form policy against the insurer primarily because of which principle?

  1. The doctrine of subrogation
  2. The rule of contra proferentem Correct answer.
  3. The doctrine of proximate cause
  4. The principle of contribution

Explanation

Standard-form insurance policies are contracts of adhesion drafted by the insurer. Under contra proferentem, ambiguities are construed against the drafter. The reasonable expectations doctrine may also protect the insured's expectations in some jurisdictions.

Question 19Insurance Principles and Concepts

An insured fails to submit a sworn proof of loss within the policy deadline, but the insurer already has sufficient information to evaluate the claim. What is the most likely modern result?

  1. The claim must be denied because the duty is a condition precedent
  2. Coverage is automatically void with no further analysis
  3. The insurer may deny only if the insured acted in bad faith
  4. Denial may fail unless the insurer was prejudiced by the delay Correct answer.

Explanation

Many modern courts treat post-loss duties as conditions that require the insurer to show prejudice before denying coverage. If the insurer already has enough information to evaluate the claim, a technical late proof of loss may not defeat coverage. The strict condition-precedent approach is less favored but still exists in some jurisdictions.

Question 20Insurance Principles and Concepts

A homeowner intentionally burns a building to collect insurance money. This behavior is best characterized as which of the following?

  1. Salvage
  2. Contributory negligence
  3. Moral hazard Correct answer.
  4. Adverse selection

Explanation

Moral hazard is the increased likelihood of loss because insurance reduces the financial consequence of risky or dishonest behavior. Intentional arson to collect insurance is an extreme example. Adverse selection concerns the tendency of higher-risk applicants to seek coverage.

Question 21Insurance Contracts and Policy Provisions

Which characteristic describes an insurance policy as a contract of adhesion?

  1. The insured writes the policy language and the insurer accepts it unchanged.
  2. Both parties negotiate each policy term in detail before the contract takes effect.
  3. The policy becomes enforceable only after every page is signed by both parties.
  4. The insurer drafts the terms and the applicant usually accepts or rejects them. Correct answer.

Explanation

A contract of adhesion is prepared by one party, usually the insurer, and presented to the other on a take-it-or-leave-it basis. Because the insured has little bargaining power over the wording, ambiguities are commonly construed against the insurer.

Question 22Insurance Contracts and Policy Provisions

What is the main function of the declarations page in an insurance policy?

  1. It states the insurer's promise to pay covered losses under the policy.
  2. It identifies the insured, policy period, limits, and covered property. Correct answer.
  3. It lists the policy exclusions and the conditions for cancellation.
  4. It explains the process for resolving disagreements over the loss amount.

Explanation

The declarations page supplies the specific facts of the risk: named insured, policy period, limits, deductibles, and property or operations covered. It is not the section that grants coverage or lists every exclusion.

Question 23Insurance Contracts and Policy Provisions

The insuring agreement in a policy typically does what?

  1. Describes the property and limits shown on the declarations page.
  2. Promises to pay covered losses or occurrences. Correct answer.
  3. Sets the deadline for the insured to report a claim.
  4. Lists situations in which coverage is removed or restricted.

Explanation

The insuring agreement is the coverage grant; it states what the insurer promises to pay or defend. Exclusions, conditions, and declarations serve different functions.

Question 24Insurance Contracts and Policy Provisions

How does a deductible generally operate in a property insurance claim?

  1. It increases the policy limit by the amount of the loss.
  2. It is the amount the insured bears before insurer payment. Correct answer.
  3. It cancels coverage for the remainder of the policy period after a loss.
  4. It requires the insurer to pay the loss before the insured pays.

Explanation

A deductible is the amount of a covered loss the insured retains before the insurer begins to pay. It does not enlarge the limit or cancel the policy.

Question 25Insurance Contracts and Policy Provisions

What is the purpose of a proof of loss in a property claim?

  1. To appoint an independent appraiser when the parties dispute the loss amount.
  2. To give the insurer sworn details that support the claimed amount. Correct answer.
  3. To raise the policy limit so it matches the contractor's repair estimate.
  4. To transfer the insured's right of recovery against a third party to the insurer.

Explanation

A proof of loss is a formal, usually sworn statement that gives the insurer the date, cause, and amount of loss with supporting detail. It helps the insurer verify the claim before payment.

Question 26Insurance Contracts and Policy Provisions

A binder issued by an insurer or agent generally serves what purpose?

  1. It waives the insured's duty to pay the premium.
  2. It permanently replaces all policy conditions with a summary.
  3. It provides temporary evidence of coverage until the policy is issued. Correct answer.
  4. It limits coverage to the exact terms of a lapsed policy.

Explanation

A binder is temporary evidence of insurance that bridges the gap until the formal policy is issued. Coverage under a binder is still subject to the eventual policy terms.

Question 27Insurance Contracts and Policy Provisions

A building owner insures a warehouse and later sells it. A fire damages the warehouse after the sale but before the policy expires. What does the insurable interest requirement generally mean for the former owner's claim?

  1. The former owner generally lacks insurable interest at the time of loss. Correct answer.
  2. The former owner may recover because the policy was in force when the fire occurred.
  3. The former owner may recover only if the buyer assigned the policy back.
  4. The former owner may recover the full policy limit regardless of ownership.

Explanation

Property insurance requires insurable interest at the time of loss, meaning the insured must suffer a financial loss from the damage. After selling the warehouse, the former owner no longer bears that loss.

Question 28Insurance Contracts and Policy Provisions

An insured's policy includes a printed limit of $100,000 and a later issued endorsement that changes the limit to $150,000 for the same coverage. How is the conflict generally resolved?

  1. Neither limit applies until the insurer issues a corrected policy.
  2. The lower limit controls because insurance contracts are construed strictly.
  3. The printed limit controls because it appears in the original policy form.
  4. The later endorsement controls as the more recent expression of intent. Correct answer.

Explanation

Endorsements amend the policy, and a later endorsement generally prevails over conflicting original printed wording. The endorsement reflects the parties' most recent agreement on that term.

Question 29Insurance Contracts and Policy Provisions

Insurer and insured agree the fire was covered but disagree on the repair cost. Which policy provision is designed for this dispute?

  1. The subrogation provision.
  2. The appraisal provision. Correct answer.
  3. The cancellation provision.
  4. The assignment provision.

Explanation

Appraisal is the policy mechanism for resolving a disagreement about the amount of a covered loss, not whether coverage exists. Each side typically selects an appraiser, and the appraisers may choose an umpire.

Question 30Insurance Contracts and Policy Provisions

After paying a covered collision claim, an insurer learns the other driver caused the damage. What does subrogation allow the insurer to do?

  1. Increase the policy limit by the amount recovered from the driver.
  2. Require the insured to pay a second deductible before any recovery.
  3. Cancel the insured's policy without notice for the remaining term.
  4. Step into the insured's legal position and pursue the responsible driver. Correct answer.

Explanation

Subrogation lets the insurer stand in the insured's shoes after paying the claim and pursue the party legally responsible. This prevents the insured from recovering twice and helps hold the responsible party accountable.

Question 31Insurance Contracts and Policy Provisions

An insured wants to transfer a commercial general liability policy to another business. What is the general rule for assignment of the policy?

  1. Assignment is automatic because policies follow the insured's business.
  2. Assignment is permitted whenever the new business pays the premium.
  3. Assignment is prohibited only after a covered loss occurs.
  4. Assignment requires the insurer's written consent. Correct answer.

Explanation

Insurance policies are generally personal contracts, so assignment requires the insurer's written consent because a new insured may present a different risk. Assignment is not automatic merely because a premium is paid.

Question 32Insurance Contracts and Policy Provisions

A building with a replacement cost of $500,000 is insured for $300,000 under an 80% coinsurance clause. A covered $100,000 loss occurs, and the policy has a $1,000 deductible. Ignoring any policy limit issue, what is the insurer's payment?

  1. $75,000
  2. $99,000
  3. $100,000
  4. $74,000 Correct answer.

Explanation

The coinsurance formula is carried insurance divided by required insurance, multiplied by the loss, then reduced by the deductible. Required insurance is 80% of $500,000, or $400,000; $300,000 divided by $400,000 equals 0.75; 0.75 times $100,000 is $75,000; less the $1,000 deductible leaves $74,000.

Question 33Insurance Contracts and Policy Provisions

An applicant for property insurance falsely states that a prior fire loss never occurred. The insurer issues the policy and later discovers the false statement after a fire. What must the insurer generally show to rescind the policy for misrepresentation?

  1. The loss occurred within the first policy year.
  2. The applicant intended to pay premiums with a personal check.
  3. The false statement was written in the applicant's own handwriting.
  4. The false statement was material to issuing the policy. Correct answer.

Explanation

A misrepresentation must generally be material, meaning it would have affected the insurer's decision to issue the policy or set its terms. A false statement about a prior fire loss is often material because it bears directly on underwriting.

Question 34Insurance Contracts and Policy Provisions

An adjuster tells the insured in writing that a late-reported claim will be accepted, and the insured relies on that statement to miss a deadline. Which doctrine may prevent the insurer from later denying the claim?

  1. Subrogation
  2. Abandonment
  3. Coinsurance
  4. Estoppel Correct answer.

Explanation

Estoppel may prevent an insurer from enforcing a right when its own conduct induced the insured's reliance and the insured would be harmed by allowing the insurer to change position. Waiver is the voluntary relinquishment of a known right.

Question 35Insurance Contracts and Policy Provisions

A liability policy requires the insured to notify the insurer promptly and cooperate in defending a claim. The insured receives a lawsuit and delays for several months without explanation. What is the insurer's most likely argument?

  1. The claim is automatically covered because a lawsuit was filed.
  2. The insured breached a condition that may bar coverage. Correct answer.
  3. The insurer must pay without any investigation to avoid bad faith.
  4. The policy limit is doubled because notice was late.

Explanation

Notice and cooperation clauses are policy conditions, and a material breach can give the insurer a defense to coverage, especially if the delay prejudiced the investigation or defense. The insurer must still evaluate the facts and applicable law.

Question 36Insurance Contracts and Policy Provisions

A covered fire leaves a severely damaged building. The insured tells the insurer to keep the building and pay the full policy limit. Which policy provision addresses this demand?

  1. The other insurance clause.
  2. The appraisal clause.
  3. The abandonment clause. Correct answer.
  4. The liberalization clause.

Explanation

An abandonment clause typically states that the insurer is not obligated to accept the insured's property in exchange for paying the full loss. Salvage may still be handled under the policy, but the insured cannot force the insurer to take title.

Question 37Insurance Contracts and Policy Provisions

A claims-made liability policy is in force when an act occurs, but the claim is reported after the policy expires and after the retroactive date. Absent an extended reporting period, what is the likely coverage result?

  1. The claim is void because claims-made policies never cover acts before inception.
  2. The claim is covered because the covered act occurred during the policy period.
  3. The claim is covered because the retroactive date always extends reporting.
  4. The claim is likely not covered because it was reported too late. Correct answer.

Explanation

Claims-made coverage generally requires the claim to be reported during the policy period or an applicable extended reporting period. The retroactive date limits how far back covered acts may reach, but it does not extend the reporting period.

Question 38Insurance Contracts and Policy Provisions

A standard mortgage clause in a property policy provides that the mortgagee's rights are not affected by the insured's acts. If the insured intentionally burns the building, what is the mortgagee's position generally?

  1. The mortgagee loses all rights because the insured's intentional act voids the entire policy.
  2. The mortgagee may recover its interest, subject to policy terms and subrogation. Correct answer.
  3. The mortgagee may recover the full policy limit without regard to its loan balance.
  4. The mortgagee must pay the insured's deductible before receiving any payment.

Explanation

A standard mortgage clause protects the mortgagee's separate interest in the property, so the mortgagee may recover up to its interest even if the insured's conduct would defeat the insured's own claim. The insurer may then subrogate against the responsible insured.

Question 39Insurance Contracts and Policy Provisions

A policy term is genuinely ambiguous, and the insured and insurer offer reasonable but conflicting readings after a loss. How do courts generally resolve the ambiguity in a standard insurance policy?

  1. In favor of the insured, as the insurer drafted the language. Correct answer.
  2. By applying the reading that produces the lowest claim payment.
  3. In favor of the insurer, because it bears the financial risk of the policy.
  4. By voiding the policy and returning the premium to the insured.

Explanation

Under contra proferentem, a genuinely ambiguous policy term is construed against the party that drafted it, usually the insurer. This rule applies when the competing readings are both reasonable, not when the policy language is clear.

Question 40Insurance Contracts and Policy Provisions

Two property policies cover the same loss on a primary basis and contain identical pro rata other insurance clauses. Policy A has a $200,000 limit and Policy B has a $300,000 limit. How is a covered $100,000 loss allocated under the usual pro rata method, ignoring deductibles?

  1. Each policy pays $50,000 regardless of limits.
  2. Policy A pays $60,000 and Policy B pays $40,000.
  3. Policy A pays $100,000 and Policy B pays $0.
  4. Policy A pays $40,000 and Policy B pays $60,000. Correct answer.

Explanation

When identical pro rata other insurance clauses apply, each insurer pays its limit divided by the total limits, multiplied by the loss. Policy A's share is $200,000 divided by $500,000 times $100,000, or $40,000; Policy B pays the remaining $60,000.

Question 41Property Insurance

Under an HO-3 special form homeowners policy, how are the dwelling and personal property perils treated?

  1. Both dwelling and personal property are broad named peril.
  2. Dwelling is broad named peril; personal property is open peril.
  3. Dwelling is open peril; personal property is broad named peril. Correct answer.
  4. Both dwelling and personal property are open peril.

Explanation

The HO-3 provides open-peril coverage on the dwelling and other structures but limits personal property to the broad named perils listed in the form. This split is a defining feature of the HO-3 compared with the HO-5, which covers both on an open-peril basis.

Question 42Property Insurance

What is the primary purpose of a coinsurance clause in a commercial property policy?

  1. It deters underinsurance by tying recovery to limit versus value. Correct answer.
  2. It lowers the deductible as insured property values rise over time.
  3. It requires the insurer to buy reinsurance for large property losses.
  4. It caps the amount paid for theft at a percentage of the policy limit.

Explanation

A coinsurance clause requires the insured to carry a limit equal to a stated percentage of the property's value to receive full recovery. If the limit is lower, the insurer applies a penalty proportional to the shortfall. The clause protects the insurer against premium erosion from chronic underinsurance.

Question 43Property Insurance

In property claims, actual cash value is ordinarily determined as:

  1. Replacement cost minus depreciation. Correct answer.
  2. Replacement cost plus salvage value.
  3. Market value plus depreciation.
  4. Original purchase price minus the deductible.

Explanation

Actual cash value generally reflects the cost to replace damaged property with new property of like kind and quality, less an allowance for depreciation. Depreciation accounts for age, wear, and obsolescence. Market value and original purchase price are not the standard ACV measure.

Question 44Property Insurance

A covered dwelling loss is $8,500, and the policy has a $1,000 flat deductible. What amount is payable before any other adjustments?

  1. $1,000
  2. $8,500
  3. $9,500
  4. $7,500 Correct answer.

Explanation

A flat deductible is subtracted from the covered loss before payment. The calculation is $8,500 minus $1,000, which equals $7,500. Other adjustments, such as depreciation or salvage, would be applied separately if applicable.

Question 45Property Insurance

Additional living expenses coverage ordinarily applies when:

  1. A mortgagee demands immediate repayment of the loan.
  2. A covered peril makes the residence uninhabitable. Correct answer.
  3. The insured chooses to move closer to a new job.
  4. The home's market value declines after a covered loss.

Explanation

Additional living expenses coverage reimburses necessary increases in living costs when a covered loss makes the residence unfit to occupy. The coverage is tied to the physical loss and the period of time reasonably required to repair or replace the dwelling. Voluntary moves and financial events unrelated to a covered loss do not trigger it.

Question 46Property Insurance

What is the function of a sworn proof of loss in a property claim?

  1. It authorizes the insurer to start subrogation.
  2. It fixes the market value of the dwelling.
  3. It is the insured's signed statement of claim details. Correct answer.
  4. It transfers ownership of damaged property to the insurer.

Explanation

A proof of loss is a formal, signed statement in which the insured sets out the amount claimed and supporting information about the loss. It assists the insurer in evaluating the claim and is often required by the policy conditions. It does not itself transfer property or establish market value.

Question 47Property Insurance

In property loss adjusting, salvage refers to:

  1. Penalty applied for late claim reporting.
  2. Amount the insured owes for debris removal.
  3. Recoverable value of damaged property that offsets the loss. Correct answer.
  4. Insurer's legal right to recover from a third party.

Explanation

Salvage is the remaining value of damaged property that can be sold or reused. The insurer may take salvage into account to reduce the net loss payment. Subrogation, by contrast, is the insurer's right to pursue a responsible third party.

Question 48Property Insurance

Subrogation gives an insurer the right to:

  1. Deny a claim without conducting an inspection.
  2. Increase the policy deductible after a claim payment.
  3. Pursue a liable third party after paying the insured. Correct answer.
  4. Cancel the policy after a loss is reported by the insured.

Explanation

Subrogation allows the insurer, after paying a covered loss, to stand in the insured's shoes and seek recovery from a party legally responsible for the damage. It prevents the insured from collecting twice and helps allocate the cost to the responsible party. It does not create a right to cancel or increase the deductible.

Question 49Property Insurance

A building has a replacement cost of $500,000. The policy carries an 80% coinsurance clause and a $300,000 limit. A covered loss causes $100,000 of damage. Ignoring the deductible, what is the coinsurance-penalized payment?

  1. $100,000
  2. $75,000 Correct answer.
  3. $80,000
  4. $60,000

Explanation

The required limit is 80% of $500,000, or $400,000. Because only $300,000 was carried, the payment is $300,000 divided by $400,000, multiplied by $100,000, which equals $75,000. The payment cannot exceed the policy limit or the loss.

Question 50Property Insurance

An HO-3 insured has a covered partial loss and wants replacement-cost settlement on personal property. What must generally happen first?

  1. The insured repairs or replaces the property within the policy time limit. Correct answer.
  2. The insured lists every item at its original purchase price.
  3. The insured must first accept actual cash value as full settlement of the claim.
  4. The insurer obtains a salvage bid before making payment.

Explanation

Replacement-cost coverage on personal property is generally conditioned on the insured repairing or replacing the damaged item within a specified period after the loss. Until that condition is met, the insurer may settle on an actual cash value basis. The insured may later claim the additional replacement-cost amount if the condition is satisfied.