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HI Claims Adjuster practice questions

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Question 1Hawaii Insurance Laws, Rules, and Regulations

Under Hawaii's motor vehicle no-fault law, personal injury protection (PIP) benefits are payable to an injured occupant of an insured vehicle in which manner?

  1. Only when the injured person files suit within thirty days.
  2. Without regard to fault, up to the policy's PIP limit. Correct answer.
  3. Only if the injured person has no other health insurance.
  4. Only after the other driver has been shown to be at fault.

Explanation

Hawaii's no-fault system requires PIP benefits to be paid promptly to the insured's own injured occupants regardless of who caused the accident. Fault and tort liability are deferred and generally restricted by the statutory tort threshold.

Question 2Hawaii Insurance Laws, Rules, and Regulations

What is the minimum personal injury protection coverage limit required of a Hawaii motor vehicle insurance policy?

  1. $10,000 Correct answer.
  2. $5,000
  3. $20,000
  4. $25,000

Explanation

Hawaii's motor vehicle insurance law requires every policy to provide personal injury protection benefits of at least $10,000 per person for each accident. Higher limits may be purchased as optional additional coverage.

Question 3Hawaii Insurance Laws, Rules, and Regulations

The Hawaii Insurance Division, which regulates insurers and producers, operates within which department?

  1. Labor and Industrial Relations
  2. Taxation
  3. Health
  4. Commerce and Consumer Affairs Correct answer.

Explanation

The Insurance Division is part of the Department of Commerce and Consumer Affairs (DCCA), headed by a director. The Insurance Commissioner administers the Division and enforces the state's insurance code.

Question 4Hawaii Insurance Laws, Rules, and Regulations

Who appoints the Hawaii Insurance Commissioner?

  1. The Chief Justice of the Hawaii Supreme Court
  2. The Insurance Division's advisory board
  3. The Governor Correct answer.
  4. The Director of Health

Explanation

The Insurance Commissioner is a gubernatorial appointee who heads the Insurance Division of the Department of Commerce and Consumer Affairs. The Commissioner serves as the chief regulatory officer for insurance in the state.

Question 5Hawaii Insurance Laws, Rules, and Regulations

Hawaii's minimum required motor vehicle liability limits for bodily injury and property damage, expressed as per person / per accident / property damage, are:

  1. $10,000 / $20,000 / $5,000
  2. $25,000 / $50,000 / $20,000
  3. $20,000 / $40,000 / $10,000 Correct answer.
  4. $15,000 / $30,000 / $10,000

Explanation

Hawaii requires owners to maintain liability coverage of at least $20,000 per person and $40,000 per accident for bodily injury, plus $10,000 for property damage. Higher limits may be purchased voluntarily.

Question 6Hawaii Insurance Laws, Rules, and Regulations

In addition to liability and personal injury protection coverage, Hawaii law requires that every motor vehicle policy include which coverage at the minimum limits?

  1. Rental reimbursement
  2. Uninsured and underinsured motorist coverage Correct answer.
  3. Comprehensive and collision
  4. Towing and roadside assistance

Explanation

Hawaii requires uninsured motorist coverage, and insurers must also offer underinsured motorist coverage, at limits matching the policy's liability limits. Physical damage and convenience coverages are optional.

Question 7Hawaii Insurance Laws, Rules, and Regulations

Under Hawaii's no-fault law, an injured person may recover non-economic damages such as pain and suffering in a tort action only when:

  1. The injured person's own insurer has denied the PIP claim
  2. The injured person has exhausted the full PIP benefit limit for the accident
  3. The other driver was cited for a moving violation arising from the accident
  4. The injury meets the statutory threshold amount of medical expenses Correct answer.

Explanation

Hawaii's no-fault law abolishes tort liability for non-economic loss unless the injury crosses a statutory threshold, principally medical expenses exceeding $5,000 or specified serious injuries. Exhausting PIP benefits or a traffic citation alone does not open the door to such a claim.

Question 8Hawaii Insurance Laws, Rules, and Regulations

What is the minimum age for an individual to hold a Hawaii insurance producer license?

  1. 16
  2. 18 Correct answer.
  3. 25
  4. 21

Explanation

An applicant for a Hawaii producer license must be at least 18 years old, complete the required prelicensing education and examination, and meet the Commissioner's other licensing requirements. There is no upper age limit.

Question 9Hawaii Insurance Laws, Rules, and Regulations

After an insurer enters into a contract with a licensed producer to act on its behalf, what must the insurer do under Hawaii law?

  1. Publish the appointment in a newspaper of general circulation
  2. Post a surety bond equal to the producer's annual commissions
  3. File notice of the appointment with the Insurance Commissioner Correct answer.
  4. Obtain the Commissioner's advance approval of the producer's sales materials

Explanation

A producer must hold an appointment from an insurer in order to act for it, and the insurer must notify the Commissioner of the appointment through the required filing. The appointment is terminated by the insurer's notice when the relationship ends.

Question 10Hawaii Insurance Laws, Rules, and Regulations

A Hawaii producer collects premium payments from applicants before the policy is issued. How must those funds be handled?

  1. Deposited in the producer's general operating account until the policy is issued
  2. Held in a fiduciary capacity and kept separate from the producer's own funds Correct answer.
  3. Held by the Commissioner in escrow until the insurer requests payment
  4. Retained by the producer as an advance commission until the end of the quarter

Explanation

Premiums collected on behalf of an insurer are trust funds held in a fiduciary capacity. Commingling them with the producer's personal or general business funds is prohibited.

Question 11Hawaii Insurance Laws, Rules, and Regulations

Which practice by a Hawaii producer is prohibited when selling an insurance policy?

  1. Explaining the policy's exclusions to the applicant
  2. Offering the buyer a share of the commission as an inducement Correct answer.
  3. Comparing the policy's premium with a competitor's premium
  4. Delivering the policy to the insured within a reasonable time

Explanation

Rebating - giving any part of the premium or commission, or anything of value not stated in the policy, to induce the purchase of insurance - is an unfair trade practice in Hawaii. Comparing coverage and explaining exclusions are proper parts of a sale.

Question 12Hawaii Insurance Laws, Rules, and Regulations

In Hawaii insurance regulation, which practice is described as twisting?

  1. Submitting a claim for a loss that occurred before the policy was issued
  2. Misrepresenting an existing policy to induce its replacement Correct answer.
  3. Charging a premium different from the one filed with the Commissioner
  4. Sharing commissions with a person who holds no license

Explanation

Twisting is a misrepresentation or incomplete comparison that induces a policyholder to lapse, surrender, or replace existing coverage. It is treated as an unfair method of competition and an unfair trade practice.

Question 13Hawaii Insurance Laws, Rules, and Regulations

Under Hawaii's unfair claim settlement practices law, an insurer acts improperly when it:

  1. Sends the claimant a written reservation of rights
  2. Schedules an independent medical examination of the claimant
  3. Denies a claim without conducting a reasonable investigation Correct answer.
  4. Requests a recorded statement from the claimant during the investigation

Explanation

Hawaii prohibits refusing to pay claims without a reasonable investigation based on all available information. Investigative tools such as recorded statements, independent medical examinations, and reservation-of-rights letters are permitted when used reasonably.

Question 14Hawaii Insurance Laws, Rules, and Regulations

An adjuster receives a complete proof of loss and hears nothing further for ninety days, despite the claimant's repeated written inquiries. The insurer's conduct most likely constitutes:

  1. No violation, because the policy allows the insurer a full year to respond
  2. A violation of Hawaii's unfair claim settlement practices law Correct answer.
  3. No violation, because PIP disputes are resolved only by arbitration
  4. A violation only if the claimant can prove the insurer acted in bad faith

Explanation

Failing to acknowledge and act reasonably promptly on communications about a claim is expressly identified as an unfair claim settlement practice in Hawaii. The violation does not depend on proof of an independent bad-faith tort.

Question 15Hawaii Insurance Laws, Rules, and Regulations

The Hawaii Insurance Guaranty Association exists primarily to:

  1. Guarantee that every licensed insurer remains financially solvent
  2. Pay covered claims of insolvent member insurers, up to statutory limits Correct answer.
  3. Provide hurricane coverage when the voluntary market declines to write it
  4. Reimburse insurers for claims paid above the policy limit

Explanation

The guaranty association protects policyholders when a member insurer becomes insolvent by paying covered claims, subject to the statutory limits and exclusions. It is funded through assessments on member insurers and does not prevent insolvency.

Question 16Hawaii Insurance Laws, Rules, and Regulations

Before an insurer may transact insurance business in Hawaii, it must obtain from the Insurance Commissioner a:

  1. Surety bond
  2. Certificate of authority Correct answer.
  3. General business registration
  4. Letter of credit

Explanation

An insurer must hold a certificate of authority issued by the Insurance Commissioner in order to be an authorized insurer in Hawaii. Transacting insurance without one constitutes an unauthorized insurance business.

Question 17Hawaii Insurance Laws, Rules, and Regulations

For most property and casualty lines, Hawaii's rate regulation follows which approach?

  1. Rates set by the Commissioner and binding on all insurers
  2. Prior approval, with no rate effective until the Commissioner formally approves it
  3. File and use, with rates usable upon filing and subject to later review Correct answer.
  4. No filing, with rates set solely by each insurer's underwriters

Explanation

Hawaii uses a file-and-use system for most property and casualty rates: the insurer files its rates and supporting information, and may use them when filed while the Commissioner retains authority to review and disapprove. This reflects the state's competitive rating approach.

Question 18Hawaii Insurance Laws, Rules, and Regulations

Under the Hawaii Prepaid Health Care Act, the requirement to provide health coverage to eligible employees applies to employers with how many employees?

  1. 10 or more
  2. 20 or more Correct answer.
  3. 100 or more
  4. 50 or more

Explanation

The Prepaid Health Care Act requires employers with twenty or more employees to provide qualifying employees with health care coverage, with the employer paying a share of the premium. Eligible employees generally must work at least twenty hours per week.

Question 19Hawaii Insurance Laws, Rules, and Regulations

A Hawaii producer is convicted of a misdemeanor involving dishonesty. What does the law require of the producer?

  1. Notify only the appointing insurers, not the Commissioner
  2. Nothing, because only felony convictions affect a license
  3. Surrender the license permanently within thirty days
  4. Notify the Insurance Commissioner as required by law Correct answer.

Explanation

Producers must report to the Commissioner administrative actions and criminal convictions as prescribed by statute and rule. Failure to report is itself a ground for license discipline.

Question 20Hawaii Insurance Laws, Rules, and Regulations

To keep a Hawaii producer license in force through renewal, a licensee generally must:

  1. Complete the required continuing education and pay the renewal fee Correct answer.
  2. Retake the state licensing examination each renewal cycle
  3. Submit a new set of fingerprints every year
  4. Obtain a new written guarantee from a sponsoring insurer

Explanation

Hawaii renews producer licenses on a biennial cycle conditioned on the licensee's compliance with continuing education requirements and payment of the renewal fee. Retaking the qualifying examination is not part of renewal.

Question 21Hawaii Insurance Laws, Rules, and Regulations

Absent a valid contractual limitation period, the general statute of limitations in Hawaii for a lawsuit on a written insurance contract is:

  1. Ten years
  2. Two years
  3. Three years
  4. Six years Correct answer.

Explanation

Hawaii's general limitations statute allows six years to bring an action founded on a written contract, which includes an insurance policy. A policy may contain a shorter suit-limitation clause only where the law permits it.

Question 22Hawaii Insurance Laws, Rules, and Regulations

An insurer denies a claim by letter that cites no policy provision and gives no reason. Which statement best describes the insurer's obligation under Hawaii law?

  1. It must submit every denial to the Commissioner for approval
  2. It must state the policy provisions and facts on which the denial rests Correct answer.
  3. It may withhold its reasoning until the claimant files suit
  4. It may deny orally and explain only if the claimant asks in writing

Explanation

Hawaii's unfair claim settlement practices law requires an insurer that denies a claim to explain the basis for the denial in writing, including the policy provisions and facts relied upon. A bare denial deprives the claimant of the information needed to evaluate the decision.

Question 23Hawaii Insurance Laws, Rules, and Regulations

Before placing a Hawaii risk with a non-admitted surplus lines insurer, a surplus lines broker must:

  1. Confirm that the risk is located in a county with no admitted market
  2. Obtain the Commissioner's written pre-approval for each individual placement
  3. Collect a deposit equal to half of the surplus lines premium
  4. Show that authorized insurers declined or could not write the coverage Correct answer.

Explanation

Surplus lines placement is permitted only after a diligent effort to procure the coverage from authorized insurers has failed, which is typically documented by declinations. This preserves the admitted market as the primary source of coverage.

Question 24Hawaii Insurance Laws, Rules, and Regulations

The Hawaii Hurricane Relief Fund was established primarily to:

  1. Provide hurricane coverage when the voluntary market is unavailable Correct answer.
  2. Pay the claims of insolvent property and casualty insurers
  3. Fund the day-to-day operating expenses of the Insurance Division
  4. Reimburse insurers for assessments paid to the guaranty association

Explanation

The Hawaii Hurricane Relief Fund makes hurricane insurance available for property in the state when coverage is not readily obtainable in the voluntary market. It is a residual-market mechanism, distinct from the guaranty association.

Question 25Hawaii Insurance Laws, Rules, and Regulations

The Hawaii Insurance Commissioner's examination authority allows the Commissioner to:

  1. Examine only the records of insurers domiciled in Hawaii
  2. Search an insured's home without a warrant during a claim investigation
  3. Examine insurers' books and records, with the cost borne by the insurer Correct answer.
  4. Inspect records only after a policyholder files a written complaint

Explanation

The Commissioner may examine the affairs, books, and records of authorized insurers and other licensees, and the examined insurer is generally responsible for the expense of the examination. Examinations may be conducted without waiting for a consumer complaint.

Question 26Hawaii Insurance Laws, Rules, and Regulations

Within which department of Hawaii state government is the Insurance Division, headed by the Insurance Commissioner, located?

  1. The Department of Health
  2. The Department of Labor and Industrial Relations
  3. The Department of Taxation
  4. The Department of Commerce and Consumer Affairs Correct answer.

Explanation

The Hawaii Insurance Division is an agency within the Department of Commerce and Consumer Affairs, and the Insurance Commissioner heads that division. The other departments listed have separate regulatory missions.

Question 27Hawaii Insurance Laws, Rules, and Regulations

Hawaii's general insurance code is primarily codified in which chapter of the Hawaii Revised Statutes?

  1. Chapter 386
  2. Chapter 103D
  3. Chapter 571
  4. Chapter 431 Correct answer.

Explanation

Hawaii's insurance code is codified in Chapter 431 of the Hawaii Revised Statutes. Chapter 386 addresses workers' compensation, while the other chapters cited do not contain the general insurance code.

Question 28Hawaii Insurance Laws, Rules, and Regulations

Hawaii employers are generally required to secure workers' compensation coverage for employees by which method?

  1. By enrolling every employee in a federal disability program
  2. By posting a surety bond with the state treasury
  3. By paying premiums into the state unemployment trust fund
  4. By insuring or qualifying as a self-insurer Correct answer.

Explanation

Hawaii employers must secure workers' compensation benefits by purchasing insurance from an authorized carrier or by qualifying as a self-insurer. Contributions to unemployment funds or federal disability programs do not satisfy this requirement.

Question 29Hawaii Insurance Laws, Rules, and Regulations

Who has authority to issue a Hawaii insurance producer license?

  1. The director of the Department of Health
  2. The Hawaii Employers Council
  3. The Insurance Commissioner Correct answer.
  4. The circuit court of the county where the applicant resides

Explanation

The Insurance Commissioner, through the Insurance Division, issues and administers Hawaii producer licenses. Courts, health officials, and private councils do not issue insurance licenses.

Question 30Hawaii Insurance Laws, Rules, and Regulations

A Hawaii producer licensed for life and health lines is renewing a two-year license term. How many continuing education credit hours must the producer generally complete?

  1. 24 hours, including at least 3 hours of ethics Correct answer.
  2. 30 hours, with no ethics requirement
  3. 40 hours, including at least 10 hours of ethics
  4. 12 hours, including at least 6 hours of ethics

Explanation

Hawaii generally requires producers to complete 24 continuing education credit hours every two years, including at least 3 hours of ethics. The requirement applies to the license term being renewed.

Question 31Hawaii Insurance Laws, Rules, and Regulations

An applicant for an initial Hawaii producer license must generally submit fingerprints so that the Insurance Division may:

  1. confirm the applicant's credit score and net worth
  2. verify the applicant's employment history with prior insurers
  3. check the applicant's attendance at a prelicensing course
  4. obtain a criminal history record check Correct answer.

Explanation

Hawaii requires producer license applicants to submit fingerprints so the Insurance Division can obtain state and federal criminal history record information. This check supports the determination of fitness for licensure.

Question 32Hawaii Insurance Laws, Rules, and Regulations

A producer licensed in good standing in another state wants to write Hawaii business. Under Hawaii's reciprocity rules, the producer may generally obtain a nonresident license if:

  1. the producer's home state grants reciprocity Correct answer.
  2. the producer passes the Hawaii examination for each line
  3. the producer has five years of claims experience
  4. the producer maintains an office in Honolulu

Explanation

Under reciprocity, a nonresident producer in good standing may be licensed in Hawaii without passing the Hawaii examination if the producer's home state grants comparable privileges to Hawaii producers. A physical office in Hawaii is not required.

Question 33Hawaii Insurance Laws, Rules, and Regulations

A Hawaii producer wants to attract a new client by returning part of the commission to the client as an inducement to buy a policy. This conduct is:

  1. permitted for policies sold to family members only
  2. prohibited as an illegal inducement or rebate Correct answer.
  3. permitted if the rebate is disclosed to the insurer
  4. permitted if the client signs a written consent

Explanation

Hawaii prohibits rebating or offering an inducement not specified in the policy contract to persuade a person to buy insurance. Returning commission to the client as an inducement is an illegal rebate even if the client consents or the insurer knows.

Question 34Hawaii Insurance Laws, Rules, and Regulations

A Hawaii producer may share a commission from the sale of insurance with which person?

  1. An unlicensed marketing consultant paid per policy sold
  2. An unlicensed office assistant who mailed the application
  3. A licensed producer who participated in the sale Correct answer.
  4. A friend who referred the client but holds no license

Explanation

A producer may share commissions only with another properly licensed producer who participated in the sale. Paying commissions or per-policy compensation to unlicensed persons is prohibited.

Question 35Hawaii Insurance Laws, Rules, and Regulations

The Hawaii Property Insurance Association (HPIA) was created mainly to:

  1. offer basic property insurance to owners unable to buy it Correct answer.
  2. regulate property insurance rates for all admitted carriers
  3. provide hurricane coverage through the Hawaii Hurricane Relief Fund
  4. guarantee payment of claims of insolvent life insurers

Explanation

HPIA is a residual-market mechanism that makes basic property insurance available to owners who cannot obtain coverage in the voluntary market. It is not the Hurricane Relief Fund, a life guaranty association, or a rate regulator.

Question 36Hawaii Insurance Laws, Rules, and Regulations

Which person generally must hold a Hawaii adjuster license?

  1. An attorney representing a claimant in a lawsuit
  2. A producer who only sells policies and never handles claims
  3. A salaried employee of an insurer who only processes routine paperwork
  4. An independent contractor who investigates claims for pay Correct answer.

Explanation

Hawaii requires persons who investigate or settle claims for compensation as independent adjusters to be licensed. Salaried clerical employees, attorneys litigating claims, and producers who do not handle claims generally are not required to hold an adjuster license.

Question 37Hawaii Insurance Laws, Rules, and Regulations

Under Hawaii law, an individual life insurance policy must generally give the owner a free-look period of at least:

  1. 3 days
  2. 20 days
  3. 10 days Correct answer.
  4. 5 days

Explanation

Hawaii law gives an individual life insurance policy owner at least 10 days after delivery to return the policy for a full premium refund. This free-look right allows the buyer to reconsider the purchase.

Question 38Hawaii Insurance Laws, Rules, and Regulations

After a Hawaii motor vehicle accident, an injured person seeking no-fault benefits must generally submit a claim for benefits to the insurer within:

  1. 1 year of the accident
  2. 60 days of the accident
  3. 30 days of the accident Correct answer.
  4. 2 years of the accident

Explanation

Hawaii's no-fault law requires a claim for personal injury protection benefits to be submitted within 30 days of the accident. This deadline is much shorter than the statute of limitations for a tort lawsuit.

Question 39Hawaii Insurance Laws, Rules, and Regulations

An insurer wants to acquire control of a Hawaii domestic insurer. Under Hawaii's insurance holding company law, the acquisition generally requires:

  1. no regulatory approval if the purchase price exceeds $1 million
  2. only a filing with the National Association of Insurance Commissioners
  3. prior approval by the Insurance Commissioner Correct answer.
  4. approval by the state legislature in a joint resolution

Explanation

Acquiring control of a Hawaii domestic insurer requires prior approval by the Insurance Commissioner under the insurance holding company law. An NAIC filing alone, legislative approval, or a dollar threshold does not substitute for that regulatory approval.

Question 40Hawaii Insurance Laws, Rules, and Regulations

An insurer reports suspected insurance fraud to the Hawaii Insurance Division in good faith. Under Hawaii law, the insurer is generally:

  1. liable for defamation if the suspect is not charged
  2. prohibited from sharing claim information with regulators
  3. required to prove the fraud before reporting it
  4. immune from civil liability for the good-faith report Correct answer.

Explanation

Hawaii encourages reporting of suspected insurance fraud by granting immunity from civil liability for good-faith reports to the Insurance Division. The insurer need not prove fraud before reporting and may share claim information with regulators.

Question 41Insurance Principles and Policy Provisions

Which insurance principle holds that a property claim payment should place the insured in the same financial position as before the loss, no better and no worse?

  1. Subrogation
  2. Utmost good faith
  3. Indemnity Correct answer.
  4. Contribution

Explanation

The principle of indemnity limits recovery to the actual value of the loss so the insured cannot profit from insurance. The other doctrines named are separate concepts that either support indemnity or govern the conduct of the parties.

Question 42Insurance Principles and Policy Provisions

For property insurance, when must insurable interest generally exist?

  1. At the time of the loss Correct answer.
  2. Only at the time the application is signed
  3. Only at the policy inception date
  4. Continuously from application through the date of loss

Explanation

Property insurance indemnifies actual loss, so the insured must have an insurable interest in the property when the loss occurs. A lapse in interest before the loss would mean the insured suffered no financial detriment.

Question 43Insurance Principles and Policy Provisions

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

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

Explanation

The declarations page is the policy's informational summary, listing who is insured, what is insured, the limits, the term, and the premium. The insuring agreement, conditions, and exclusions set out the promise, the duties, and the limitations.

Question 44Insurance Principles and Policy Provisions

A policy carries a $1,000 deductible. A covered loss of $5,000 occurs. Ignoring all other provisions, how much does the insurer pay?

  1. $4,000 Correct answer.
  2. $6,000
  3. $1,000
  4. $5,000

Explanation

A deductible is subtracted from the covered loss, and the insurer pays the balance. The insured retains the first $1,000 of the loss, leaving $4,000 payable.

Question 45Insurance Principles and Policy Provisions

What is the insured's formal, and often sworn, statement describing the loss, the damaged property, and the amount claimed?

  1. Binder
  2. Notice of cancellation
  3. Proof of loss Correct answer.
  4. Certificate of insurance

Explanation

A proof of loss is the insured's documented, usually sworn, claim submission supporting the amount requested. Most property forms make its timely submission a condition of coverage.

Question 46Insurance Principles and Policy Provisions

After paying a covered loss, an insurer acquires the insured's legal right to recover from the party that caused the damage. That right is called:

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

Explanation

Subrogation lets the insurer stand in the insured's shoes against the responsible third party after paying the claim. It prevents the insured from collecting twice and shifts the loss to the party at fault.

Question 47Insurance Principles and Policy Provisions

A claims-made liability policy generally responds to claims for bodily injury or property damage that are:

  1. Discovered during the policy period regardless of when reported
  2. Caused by an occurrence during the policy period regardless of when made
  3. Reported to the insurer within 30 days of the injury
  4. First made against the insured during the policy period Correct answer.

Explanation

A claims-made form is triggered by the date the claim is first asserted against the insured, not by the date of the injurious act. Occurrence forms, by contrast, are triggered by the date of injury or damage.

Question 48Insurance Principles and Policy Provisions

What is the primary function of an exclusion in an insurance policy?

  1. To remove specified exposures from coverage Correct answer.
  2. To set the premium for the coverage
  3. To broaden the insuring agreement
  4. To describe the insured's duties after a loss

Explanation

Exclusions carve out causes of loss, property, or persons that the insurer does not intend to cover. They work with the insuring agreement to define the outer edges of the coverage grant.

Question 49Insurance Principles and Policy Provisions

A building with a replacement value of $500,000 is insured for $300,000 under a policy containing an 80% coinsurance clause and no deductible. A covered loss of $100,000 occurs. What does the insurer pay?

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

Explanation

The coinsurance requirement is 80% of $500,000, or $400,000, and the insured carried only $300,000. The payment is therefore $100,000 multiplied by 300,000/400,000, which equals $75,000.

Question 50Insurance Principles and Policy Provisions

Actual cash value is best described as:

  1. The policy limit shown on the declarations
  2. Replacement cost plus depreciation
  3. Replacement cost minus depreciation Correct answer.
  4. The original purchase price of the property

Explanation

Actual cash value reflects the property's value at the time of loss, commonly computed as replacement cost less depreciation. It is a valuation method rather than a policy limit or a historical price.