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AL Property & Casualty practice questions

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Question 1Alabama Insurance Laws, Rules, and Regulations

Insurance business in Alabama is regulated primarily by which of the following?

  1. The Alabama Department of Revenue's premium tax bureau
  2. The Alabama Secretary of State's business filings division
  3. The Alabama Department of Insurance, led by an appointed Commissioner Correct answer.
  4. The Alabama Public Service Commission, headed by an elected president

Explanation

The Alabama Department of Insurance administers and enforces the state's insurance laws, and its head, the Commissioner of Insurance, is appointed by the Governor. The Department licenses producers and insurers, examines market conduct, and issues orders for violations.

Question 2Alabama Insurance Laws, Rules, and Regulations

Under Alabama's mandatory automobile liability insurance law, the minimum required limits are:

  1. $20,000 per person / $40,000 per accident / $20,000 property damage
  2. $25,000 per person / $50,000 per accident / $25,000 property damage Correct answer.
  3. $50,000 per person / $100,000 per accident / $25,000 property damage
  4. $25,000 per person / $50,000 per accident / $10,000 property damage

Explanation

Alabama requires minimum liability limits of $25,000 for bodily injury per person, $50,000 for bodily injury per accident, and $25,000 for property damage, commonly written as 25/50/25. A policy issued with lower limits does not satisfy the mandatory liability law.

Question 3Alabama Insurance Laws, Rules, and Regulations

Alabama's continuing education requirement for licensed producers is:

  1. 24 hours every year, including 1 hour of ethics
  2. 12 hours every two years, including 2 hours of ethics
  3. 18 hours every two years, including 3 hours of ethics
  4. 24 hours every two years, including 3 hours of ethics Correct answer.

Explanation

Producers must complete 24 credit hours of approved continuing education in each two-year licensing period, and at least 3 of those hours must be in ethics. Failing to complete the requirement can prevent license renewal.

Question 4Alabama Insurance Laws, Rules, and Regulations

An Alabama producer license is renewed every two years and expires on:

  1. June 30 of each odd-numbered year
  2. the last day of the licensee's birth month Correct answer.
  3. December 31 of each even-numbered year
  4. the anniversary of the original issue date

Explanation

Alabama uses a birth-month renewal system, so a producer's license expires on the last day of the licensee's birth month and is renewed on a biennial basis.

Question 5Alabama Insurance Laws, Rules, and Regulations

A licensed Alabama producer who changes mailing address must notify the Department of Insurance within:

  1. 10 days of the change
  2. 90 days of the change
  3. 30 days of the change Correct answer.
  4. 60 days of the change

Explanation

Producers are responsible for keeping their licensing record current and must report an address change to the Department within 30 days.

Question 6Alabama Insurance Laws, Rules, and Regulations

Premiums a producer collects from an insured and holds before remitting them to the insurer are:

  1. the producer's property once collected
  2. outside the reach of Alabama insurance law
  3. payable to the producer immediately as earned commission
  4. held in a fiduciary capacity and never commingled Correct answer.

Explanation

Alabama treats collected premium as trust funds held in a fiduciary capacity for the insurer or insured. The producer must account for and remit the money and may not mix it with personal or operating funds.

Question 7Alabama Insurance Laws, Rules, and Regulations

Which of the following is unlawful rebating under Alabama law?

  1. Offering a policyholder a premium installment plan
  2. Giving a buyer an undisclosed cash inducement to buy Correct answer.
  3. Charging a rate that has been filed with the Department
  4. Explaining policy exclusions to an applicant

Explanation

Rebating is the offer of money or anything of value not specified in the policy to induce a purchase, and Alabama prohibits it. Any inducement outside the policy terms is unlawful even if the buyer welcomes it.

Question 8Alabama Insurance Laws, Rules, and Regulations

Alabama law requires that uninsured motorist coverage be:

  1. provided automatically at the state minimum limits regardless of the liability limits purchased
  2. offered, and waivable only in writing Correct answer.
  3. limited to property damage only
  4. available only when the insured also buys collision coverage

Explanation

Alabama requires insurers to offer uninsured motorist coverage, and the insured may reject it only by signing a written waiver. The coverage is otherwise added to the policy as part of the mandatory offer.

Question 9Alabama Insurance Laws, Rules, and Regulations

When an insurer appoints an Alabama-licensed producer to write business for it, the insurer must notify the Department of Insurance within:

  1. 5 business days
  2. 30 days Correct answer.
  3. 120 days
  4. 60 days

Explanation

The appointing insurer must file notice of the appointment with the Department within 30 days after the agency contract is executed or the first application is submitted.

Question 10Alabama Insurance Laws, Rules, and Regulations

If a licensed Alabama producer dies or becomes incapacitated, the Department may issue a temporary license to continue the business for up to:

  1. 180 days Correct answer.
  2. 60 days
  3. 1 year
  4. 3 years

Explanation

Alabama allows a temporary license, typically for a surviving spouse, executor, or designee, so the book of business can be serviced for up to 180 days after the producer's death or disability.

Question 11Alabama Insurance Laws, Rules, and Regulations

A producer who is licensed and in good standing in another state and wants to write Alabama business generally must:

  1. live in Alabama for at least one year
  2. obtain an Alabama nonresident license through reciprocity Correct answer.
  3. maintain a physical office in Alabama
  4. complete a 40-hour Alabama prelicensing course

Explanation

Alabama issues nonresident producer licenses on a reciprocal basis to individuals licensed in good standing in their home state, without requiring the Alabama examination.

Question 12Alabama Insurance Laws, Rules, and Regulations

An Alabama producer may share a commission from an insurance sale with:

  1. any clerical employee of the agency
  2. another Alabama-licensed producer Correct answer.
  3. a bank loan officer who referred the client
  4. an unlicensed referral source

Explanation

Alabama prohibits paying commissions to unlicensed persons, so a producer may split commissions only with another properly licensed producer. Paying an unlicensed referral source would itself be an unlawful inducement.

Question 13Alabama Insurance Laws, Rules, and Regulations

An individual life insurance policy delivered in Alabama must give the owner the right to return the policy for a full premium refund within:

  1. 10 days of delivery Correct answer.
  2. 3 days of delivery
  3. 6 months of delivery
  4. 45 days of delivery

Explanation

Alabama requires a free-look period of at least 10 days after delivery of an individual life policy, during which the owner may return the policy for a full refund of premium.

Question 14Alabama Insurance Laws, Rules, and Regulations

The grace period for payment of premium that Alabama requires in an individual life insurance policy is at least:

  1. 10 days
  2. 15 days
  3. 7 days
  4. 30 days Correct answer.

Explanation

Alabama requires individual life policies to include a grace period of at least 30 days for payment of premium, during which the coverage remains in force.

Question 15Alabama Insurance Laws, Rules, and Regulations

The Alabama Insurance Guaranty Association exists to:

  1. pay covered claims of insolvent property and casualty insurers Correct answer.
  2. guarantee insurers a minimum profit on Alabama business
  3. pay all claims of any insurer doing business in the state
  4. replace Department of Insurance solvency regulation

Explanation

The association is a statutory safety net that pays covered claims of insolvent member property and casualty insurers, up to statutory limits. It neither guarantees profits nor takes over the Department's solvency oversight.

Question 16Alabama Insurance Laws, Rules, and Regulations

The Alabama Insurance Underwriting Association, often called the wind pool, mainly provides:

  1. flood coverage statewide
  2. workers' compensation for coastal employers
  3. auto liability for high-risk drivers
  4. coastal wind and hail coverage Correct answer.

Explanation

The AIUA is a residual market mechanism that offers basic property coverage, including wind and hail, in Alabama's designated coastal areas where the voluntary market is limited.

Question 17Alabama Insurance Laws, Rules, and Regulations

Before placing a risk with an eligible nonadmitted insurer, an Alabama surplus lines broker must:

  1. file the policy for prior approval
  2. verify the insurer holds an Alabama certificate of authority
  3. obtain the mortgagee's written consent
  4. document a diligent search of authorized insurers Correct answer.

Explanation

Surplus lines placement is permitted only when authorized insurers have declined or cannot cover the risk, so the broker must document a diligent effort in the admitted market before using a nonadmitted insurer.

Question 18Alabama Insurance Laws, Rules, and Regulations

Which of the following is an unfair claims settlement practice under Alabama law?

  1. Requesting a signed proof of loss
  2. Assigning an independent adjuster to inspect the loss
  3. Failing to act promptly on claim communications Correct answer.
  4. Requiring documentation of a covered loss

Explanation

Alabama's unfair trade practice law makes it unlawful to fail to acknowledge and act reasonably promptly on communications about a claim. Unreasonable delay and similar tactics in claim handling are prohibited.

Question 19Alabama Insurance Laws, Rules, and Regulations

Alabama's Insurance Fraud Unit, housed in the Department of Insurance, is responsible for:

  1. auditing insurer financial statements
  2. licensing bail bond agents
  3. investigating suspected insurance fraud Correct answer.
  4. setting auto insurance rates

Explanation

The Department's fraud unit investigates suspected fraudulent insurance acts and refers cases for criminal prosecution. It also works with insurers that are required to report suspected fraud.

Question 20Alabama Insurance Laws, Rules, and Regulations

An Alabama producer must notify the Department when another state's insurance regulator takes administrative action against the producer within:

  1. 15 days of the action
  2. 30 days of the action Correct answer.
  3. 90 days of the action
  4. 45 days of the action

Explanation

Producers must report administrative actions taken against them by any other insurance regulator, generally within 30 days of the final disposition of the matter.

Question 21Alabama Insurance Laws, Rules, and Regulations

An Alabama producer holds a valid property and casualty license but has never been appointed by XYZ Insurance Company, and submits an application to XYZ for a homeowners policy. Which statement is correct?

  1. The producer may not submit business to XYZ until appointed Correct answer.
  2. The producer may write for XYZ because the license covers all insurers
  3. The producer may write the policy if the applicant signs a disclosure
  4. The producer may write the policy while an appointment is pending

Explanation

Alabama separates the license, which shows the producer is qualified, from the appointment, which authorizes the producer to act for a particular insurer. Submitting business before the appointment is filed violates the appointment requirement.

Question 22Alabama Insurance Laws, Rules, and Regulations

A producer's Alabama license expired 14 months ago, was never renewed, and the producer has continued selling policies. Which is correct?

  1. The producer has been transacting insurance without a license Correct answer.
  2. The license was automatically renewed when the insurer paid fees
  3. The license stays in effect while appointments remain on file
  4. The producer is protected by a 24-month reinstatement grace period

Explanation

Once a license expires and is not renewed, the producer loses the authority to transact insurance, and outstanding appointments do not keep a lapsed license alive. Selling without a license exposes the producer to fines, denial of a new license, and possible criminal penalties.

Question 23Alabama Insurance Laws, Rules, and Regulations

An Alabama policyholder's life insurance company is declared insolvent. Which statement is correct?

  1. The Alabama Insurance Guaranty Association pays the claim up to $300,000
  2. The claim is paid from the state's general revenue fund
  3. Alabama life policyholders have no insolvency protection
  4. A separate life and disability guaranty association handles the claim Correct answer.

Explanation

The Alabama Insurance Guaranty Association covers property and casualty claims, while life and disability claims fall under the separate Alabama Life and Disability Insurance Guaranty Association. The claim is therefore handled by that association within its own statutory limits.

Question 24Alabama Insurance Laws, Rules, and Regulations

An Alabama personal lines licensee is asked to write a commercial general liability policy for a local contractor. Which is correct?

  1. The producer may write it because a personal lines license covers all liability
  2. The producer may write it after notifying the Department in writing
  3. The producer may write it because the contractor is a sole proprietor
  4. The producer may not write it, as personal lines covers only personal risks Correct answer.

Explanation

Alabama's personal lines license authorizes only personal insurance such as homeowners and personal auto, not commercial liability coverage. Writing commercial general liability requires property and casualty authority.

Question 25Alabama Insurance Laws, Rules, and Regulations

After a hearing, the Commissioner finds that an Alabama producer violated the Insurance Code. Which action may the Commissioner take?

  1. Suspend or revoke the license and impose a fine Correct answer.
  2. Only send a warning letter
  3. Only refer the matter to the Attorney General
  4. Only fine the insurer involved

Explanation

The Commissioner has broad enforcement authority, including suspending or revoking licenses, imposing monetary penalties, and issuing orders. A hearing is required first so the licensee has an opportunity to respond.

Question 26Alabama Insurance Laws, Rules, and Regulations

How is the Commissioner of Insurance of Alabama selected?

  1. Elected by licensed Alabama producers
  2. Elected by the voters to a four-year term
  3. Chosen by a joint vote of the legislature
  4. Appointed by the Governor Correct answer.

Explanation

Alabama's Commissioner of Insurance is a gubernatorial appointee who heads the Alabama Department of Insurance and serves at the pleasure of the Governor. The position is not filled by a statewide election, by the legislature, or by a vote of licensees.

Question 27Alabama Insurance Laws, Rules, and Regulations

Under Alabama's motor vehicle financial responsibility law, a private passenger auto liability policy must provide at least which minimum limits?

  1. $25,000 per person / $50,000 per accident / $25,000 property damage Correct answer.
  2. $15,000 per person / $30,000 per accident / $5,000 property damage
  3. $50,000 per person / $100,000 per accident / $50,000 property damage
  4. $20,000 per person / $40,000 per accident / $10,000 property damage

Explanation

Alabama requires bodily injury liability limits of at least $25,000 per person and $50,000 per accident, plus at least $25,000 for property damage. Higher limits may be purchased, but they are not the statutory minimum.

Question 28Alabama Insurance Laws, Rules, and Regulations

An Alabama resident producer licensed for property and casualty must complete how much continuing education to renew the license?

  1. 16 hours every two years, including 1 hour of ethics
  2. 30 hours every two years, including 6 hours of ethics
  3. 24 hours every two years, including 3 hours of ethics Correct answer.
  4. 12 hours every year, with no ethics component

Explanation

Alabama requires producers to complete 24 credit hours of continuing education every two years, at least 3 of which must be in ethics. Hours must come from approved courses and be reported before the license renewal deadline.

Question 29Alabama Insurance Laws, Rules, and Regulations

A producer falsely tells a client that her existing whole life policy 'has no cash value and will never pay a death benefit' in order to persuade her to surrender it and buy a new policy. This conduct is best identified as:

  1. Twisting Correct answer.
  2. Coercion
  3. Defamation
  4. Rebating

Explanation

Twisting is inducing a policyholder to lapse, surrender, or replace existing coverage by misrepresenting the terms of the old policy or making an incomplete comparison. The false statement about the existing policy's value and death benefit is the core of the violation.

Question 30Alabama Insurance Laws, Rules, and Regulations

How many employees must an Alabama employer regularly employ before the Alabama Workers' Compensation Act requires it to provide workers' compensation coverage?

  1. Three or more
  2. Five or more Correct answer.
  3. Ten or more
  4. One or more

Explanation

The Alabama Workers' Compensation Act applies to employers who regularly employ five or more employees in the state. Smaller employers are not mandated to carry coverage under the Act, although they may elect to do so.

Question 31General Insurance Concepts and Principles

Which method of handling risk involves purchasing an insurance policy?

  1. Avoiding the activity that creates the risk
  2. Reducing how often the risk occurs
  3. Retaining the risk and paying losses directly
  4. Transferring the risk to an insurer Correct answer.

Explanation

Insurance transfers the financial consequences of a pure risk from the insured to the insurer in exchange for a premium. The insured keeps the risk of small, uninsured losses but shifts the large, uncertain loss to the insurer.

Question 32General Insurance Concepts and Principles

Insurable interest in property generally must exist at which point?

  1. Only when a claim is filed
  2. At both application and renewal
  3. Only when the policy is issued
  4. At the time of the loss Correct answer.

Explanation

Property insurance requires insurable interest at the time of loss so that the insured suffers actual financial detriment. Life insurance differs because insurable interest is tested when the policy is purchased.

Question 33General Insurance Concepts and Principles

The principle of indemnity is intended to do which of the following?

  1. Guarantee full replacement cost for every damaged item
  2. Let the insured profit from a covered loss
  3. Restore the insured to pre-loss financial position Correct answer.
  4. Penalize the party that caused the loss

Explanation

Indemnity puts the insured back in approximately the same financial position as before the loss, no better and no worse. It prevents recovery that exceeds the actual value of the loss.

Question 34General Insurance Concepts and Principles

Which policy section identifies the named insured, the property covered, and the policy period?

  1. Declarations Correct answer.
  2. Exclusions
  3. Conditions
  4. Insuring agreement

Explanation

The declarations page personalizes the policy by listing the named insured, the covered property or locations, the limits, and the effective dates. The other sections state what is covered, what is excluded, and what duties apply.

Question 35General Insurance Concepts and Principles

A person who deliberately sets fire to insured property to collect the proceeds presents what type of hazard?

  1. A moral hazard Correct answer.
  2. A physical hazard
  3. A speculative risk
  4. A morale hazard

Explanation

A moral hazard arises from dishonesty or intentional conduct that increases the chance or size of a loss. Deliberately causing a fire to collect insurance is the classic example.

Question 36General Insurance Concepts and Principles

Which of the following is a pure risk?

  1. Buying stock in a startup company
  2. Damage to a warehouse from a fire Correct answer.
  3. Launching a business in a new market
  4. Investing in a new product line

Explanation

Pure risk offers only the possibility of loss or no loss, with no chance of gain, which is why it is insurable. Fire damage to a warehouse fits that description.

Question 37General Insurance Concepts and Principles

After paying an insured's covered auto claim caused by another driver, the insurer may pursue the at-fault driver. This right is known as which of the following?

  1. Coinsurance
  2. Subrogation Correct answer.
  3. Indemnification
  4. Contribution

Explanation

Subrogation lets the insurer step into the insured's legal position and recover claim payments from the party responsible for the loss. It supports the principle of indemnity by preventing double recovery.

Question 38General Insurance Concepts and Principles

A building worth $500,000 is insured for $300,000 under a policy with an 80% coinsurance clause. Ignoring any deductible, how much will the insurer pay on a $100,000 covered loss?

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

Explanation

The coinsurance requirement is 80% of $500,000, or $400,000. The insured carries $300,000, so the payment ratio is 300,000 divided by 400,000, or 0.75. Applying that ratio to the $100,000 loss gives $75,000.

Question 39General Insurance Concepts and Principles

What is a primary purpose of a deductible?

  1. Transfer risk to a reinsurer
  2. Reduce small claims and lower premium Correct answer.
  3. Increase the policy limit
  4. Satisfy the coinsurance requirement in the policy

Explanation

A deductible makes the insured bear a stated initial portion of each loss, which removes small claims and lowers the insurer's expenses. Those savings are passed along as a lower premium.

Question 40General Insurance Concepts and Principles

An applicant intentionally fails to disclose a material fact that the applicant knows. This conduct is called which of the following?

  1. Waiver
  2. Warranty
  3. Estoppel
  4. Concealment Correct answer.

Explanation

Concealment is the intentional withholding of a material fact that would affect the insurer's decision to issue coverage or set its terms. It breaches the duty of utmost good faith and may allow the insurer to void the policy.

Question 41General Insurance Concepts and Principles

An insurance policy is generally treated as a contract of adhesion because of which of the following?

  1. Both parties negotiate every term equally
  2. A court rewrites the policy terms at each renewal date
  3. The insurer must accept the insured's terms
  4. The insured accepts terms drafted by the insurer Correct answer.

Explanation

In a contract of adhesion, one party drafts the terms and the other party takes them or leaves them. Because the insurer writes the policy, ambiguous language is generally construed in favor of the insured.

Question 42General Insurance Concepts and Principles

An insurance contract is aleatory because of which of the following?

  1. The parties exchange promises of equal value
  2. It is formed without any consideration
  3. The amounts exchanged may be unequal Correct answer.
  4. The insured may cancel the policy at any time

Explanation

An aleatory contract depends on an uncertain event, so the value exchanged can be very unequal. The insured may pay modest premiums and later collect a large loss payment, or collect nothing at all.

Question 43General Insurance Concepts and Principles

The law of large numbers helps an insurer do which of the following?

  1. Set rates from one large past claim
  2. Eliminate the need to purchase any reinsurance
  3. Predict losses accurately as exposures increase Correct answer.
  4. Guarantee that no covered losses will ever occur

Explanation

As the number of similar exposure units grows, actual loss experience tends to approach the expected loss level. That predictability allows the insurer to set rates and reserves with more confidence.

Question 44General Insurance Concepts and Principles

Adverse selection refers to which of the following?

  1. The random fluctuation of losses over time
  2. The tendency of high-risk insureds to seek insurance Correct answer.
  3. The insurer's process for selecting agents
  4. The tendency of low-risk insureds to buy more coverage

Explanation

Adverse selection occurs when people with the greatest likelihood of loss are the most eager to buy or keep coverage. Underwriting and policy design help insurers avoid being overpopulated by poor risks.

Question 45General Insurance Concepts and Principles

A document attached to a policy that changes its terms is called which of the following?

  1. A certificate
  2. A declaration
  3. An endorsement Correct answer.
  4. A binder

Explanation

An endorsement, also called a rider, is attached to the policy to add, delete, or modify coverage. Its terms control over the original policy language when the two conflict.

Question 46General Insurance Concepts and Principles

A binder provides which of the following?

  1. Proof that a policy has been cancelled
  2. Temporary coverage until the policy is issued Correct answer.
  3. Permanent coverage that lasts for one full year
  4. A list of the policy exclusions

Explanation

A binder is temporary evidence that coverage is in force while the insurer completes underwriting and issues the policy. It is subject to the terms of the policy that will be issued.

Question 47General Insurance Concepts and Principles

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

  1. The claim being reported during the policy period Correct answer.
  2. The policy being renewed after the loss
  3. The injury or damage occurring during the policy period
  4. The insured notifying the agent at any time

Explanation

A claims-made form responds to claims first made or reported during the policy period, subject to any retroactive date. An occurrence form, by contrast, is triggered by when the injury or damage happens.

Question 48General Insurance Concepts and Principles

A five-year-old machine has a replacement cost of $20,000 and depreciation of $8,000. What is the actual cash value loss payment?

  1. $20,000
  2. $28,000
  3. $8,000
  4. $12,000 Correct answer.

Explanation

Actual cash value is replacement cost minus depreciation. Subtracting $8,000 from $20,000 produces an actual cash value of $12,000.

Question 49General Insurance Concepts and Principles

An insurer's agent knows a policy condition has not been met but tells the insured the claim will be paid. The insurer is later barred from denying coverage under which doctrine?

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

Explanation

Estoppel prevents a party from asserting a right after its conduct led another party to rely on it to that party's detriment. If an authorized agent leads the insured to believe a claim will be paid, the insurer may be stopped from denying coverage.

Question 50General Insurance Concepts and Principles

Reinsurance primarily benefits the ceding insurer by doing which of the following?

  1. Eliminating all of its underwriting risk
  2. Setting the rates charged by competitor insurers
  3. Increasing its advertising and marketing budget
  4. Spreading large losses and raising capacity Correct answer.

Explanation

Reinsurance shifts part of the insurer's risk to another insurer, which limits the impact of large or catastrophic losses. It also frees capacity so the ceding insurer can write more business.