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ID Property & Casualty practice questions

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Question 1Insurance Regulation and Licensing

Which state agency is responsible for licensing insurance producers and issuing certificates of authority to insurers in Idaho?

  1. Idaho Department of Insurance Correct answer.
  2. Idaho Attorney General's Consumer Protection Division
  3. Idaho Department of Finance
  4. Idaho Secretary of State

Explanation

Idaho's insurance laws are administered by the Idaho Department of Insurance, which is headed by a Director. The Department licenses producers, issues certificates of authority to insurers, and examines insurers for solvency and market conduct.

Question 2Insurance Regulation and Licensing

The official who heads the Idaho Department of Insurance and administers the state's insurance laws is

  1. selected by the National Association of Insurance Commissioners
  2. appointed by the Governor of Idaho Correct answer.
  3. chosen by a vote of the Idaho Legislature
  4. elected by Idaho voters to a four-year term

Explanation

The Director of the Idaho Department of Insurance is a gubernatorial appointee who oversees the Department and enforces the insurance code. The position is not filled through a statewide election or a legislative vote.

Question 3Insurance Regulation and Licensing

Before a person may solicit, negotiate, or sell insurance in Idaho, that person must

  1. join a statewide association of insurance producers
  2. register with the county recorder where the office is located
  3. post a surety bond with the state treasurer
  4. hold a current insurance producer license for that line of authority Correct answer.

Explanation

Idaho requires a person to hold a current producer license for the line of authority before soliciting, negotiating, or selling insurance. Acting without the license is unlicensed activity subject to penalties.

Question 4Insurance Regulation and Licensing

An insurer that wants to transact insurance business in Idaho must first obtain from the Department of Insurance a

  1. letter of consent
  2. certificate of authority Correct answer.
  3. producer license
  4. surplus lines permit

Explanation

An insurer must hold a certificate of authority before it may legally transact insurance in Idaho. An insurer without one is an unauthorized insurer, and its business may generally be placed only through surplus lines channels.

Question 5Insurance Regulation and Licensing

Premiums that a producer collects from insureds are held by the producer in which capacity?

  1. In a fiduciary capacity Correct answer.
  2. As unearned income until the policy is delivered
  3. As a trust held for the insured
  4. As unrestricted operating funds

Explanation

Premium funds collected on behalf of an insurer are held in a fiduciary capacity. The producer must account for those funds and remit them to the insurer, and may not treat them as general business money.

Question 6Insurance Regulation and Licensing

Returning part of a commission to a buyer as an inducement to purchase insurance is an example of

  1. coercion
  2. defamation
  3. rebating Correct answer.
  4. twisting

Explanation

Rebating is the return of part of the premium or commission, or any other inducement not stated in the policy, used to persuade a buyer to purchase. Idaho's unfair trade practice provisions prohibit it.

Question 7Insurance Regulation and Licensing

A producer deposits client premium payments into the agency's general operating account and pays agency expenses from that account. This practice is best described as

  1. commingling of funds Correct answer.
  2. controlled business
  3. twisting
  4. unfair discrimination

Explanation

Mixing premium money with personal or agency operating funds is commingling, which breaches the fiduciary duty to hold premiums separately and remit them. Premium funds must be kept distinct from general business money.

Question 8Insurance Regulation and Licensing

Which statement best describes an appointment in Idaho?

  1. It is issued by the Department to the producer once the licensing exam is passed.
  2. It authorizes the producer to act for the insurer. Correct answer.
  3. It is a contract term that has no effect on the producer's authority to sell.
  4. It replaces the producer's license for that line of insurance.

Explanation

An appointment is the insurer's filing with the Department that authorizes a licensed producer to act as its representative. The license comes from the state, while the appointment comes from the insurer.

Question 9Insurance Regulation and Licensing

Idaho's continuing education requirement for resident insurance producers is

  1. 40 hours every two years, with no ethics requirement
  2. 12 hours every year, including at least 1 hour of ethics
  3. 24 hours every two years, including at least 3 hours of ethics Correct answer.
  4. no continuing education once a license has been held for ten years

Explanation

Idaho requires resident producers to complete 24 continuing education hours during each two-year license term, at least 3 of which must cover ethics. Credits must be earned from approved providers and reported before renewal.

Question 10Insurance Regulation and Licensing

An Idaho resident producer license is issued for a term of

  1. four years
  2. one year
  3. two years Correct answer.
  4. six years

Explanation

Resident producer licenses in Idaho run on a two-year term and must be renewed, with continuing education completed, before expiration. Allowing the license to lapse ends the producer's authority to transact insurance.

Question 11Insurance Regulation and Licensing

Under Idaho's reciprocity provisions, a nonresident producer generally may obtain an Idaho nonresident license without

  1. maintaining a home state license
  2. disclosing administrative actions taken against the license
  3. paying any license fee
  4. passing the Idaho licensing examination Correct answer.

Explanation

Idaho grants nonresident licenses on a reciprocal basis to producers who hold a comparable license in good standing in their home state, waiving the Idaho exam. The applicant must still pay applicable fees and disclose regulatory actions.

Question 12Insurance Regulation and Licensing

A producer whose license has been disciplined by another state's insurance regulator must report that action to the Idaho Director

  1. only at the next license renewal
  2. within 30 days of the final disposition Correct answer.
  3. within 90 days
  4. within 5 business days

Explanation

Producers must notify the Department of Insurance of administrative actions taken against them by another jurisdiction within 30 days of the final disposition. The duty applies even when the action arises outside Idaho.

Question 13Insurance Regulation and Licensing

Placing coverage for an Idaho client with an insurer that is not authorized to transact business in Idaho requires the producer to hold

  1. a surplus lines broker license Correct answer.
  2. a reinsurance intermediary license
  3. a temporary producer license
  4. a domestic insurer certificate

Explanation

Coverage with an unauthorized insurer may be placed only by a producer holding a surplus lines broker license, and only after a documented diligent effort to place the risk with authorized insurers. A temporary license does not authorize surplus lines placements.

Question 14Insurance Regulation and Licensing

Misrepresenting the terms of an existing policy to persuade a policyholder to lapse it and buy another policy is known as

  1. twisting Correct answer.
  2. unfair discrimination
  3. commingling
  4. rebating

Explanation

Twisting is the use of misrepresentation or incomplete comparison to induce a policyholder to drop existing coverage and replace it. It is an unfair trade practice under Idaho law.

Question 15Insurance Regulation and Licensing

A licensed Idaho producer who moves her business address must notify the Department of Insurance

  1. within 30 days of the change Correct answer.
  2. within one year of the change
  3. only when the license is next renewed
  4. within 90 days of the move

Explanation

Licensees must keep Department records current and report a change of address within 30 days. Timely notice ensures official correspondence about the license and any regulatory action reaches the producer.

Question 16Insurance Regulation and Licensing

A licensed Idaho producer pays 25 percent of her commission to an unlicensed friend who referred a commercial client to her. This payment is

  1. permitted if the arrangement is disclosed to the insurer
  2. prohibited unless the friend holds a producer license Correct answer.
  3. permitted, because referral fees are outside the insurance code
  4. permitted if the friend is an attorney or an accountant

Explanation

Commissions may be shared only with persons who hold a valid insurance producer license. Paying a referral fee out of commission to an unlicensed person is an unlawful sharing of commissions, regardless of any disclosure to the insurer.

Question 17Insurance Regulation and Licensing

A producer collects a $6,000 premium, deposits it in the agency account, and spends it on payroll before remitting it to the insurer. The producer has

  1. acted properly if the insurer is paid within 60 days
  2. engaged in lawful float of the premium funds
  3. breached a fiduciary duty owed to the insurer Correct answer.
  4. committed twisting under the unfair trade practices act

Explanation

Premiums held on an insurer's behalf are trust-like funds that must be remitted and may not be used for agency expenses. Using them for payroll is a breach of the producer's fiduciary duty and may also trigger license discipline.

Question 18Insurance Regulation and Licensing

A producer's license lapses in March because she never completed her continuing education, yet she continues to solicit policies through June. During that period she was

  1. covered by her insurer's appointment
  2. lawfully operating under a grace period
  3. authorized under a temporary license
  4. acting as an unlicensed producer Correct answer.

Explanation

Once the license lapses, the producer no longer holds the authority the state requires to solicit or sell insurance. Continuing to do so is unlicensed activity subject to penalties, and the insurer's appointment does not survive the loss of the license.

Question 19Insurance Regulation and Licensing

To win an account, a producer offers to pay the client's $200 homeowners deductible out of her own pocket. Under Idaho law this offer is

  1. an illegal inducement not specified in the policy Correct answer.
  2. acceptable, if the client signs a written acknowledgment
  3. acceptable, because the producer pays the cost
  4. acceptable, if the insurer approves the arrangement

Explanation

Offering something of value that is not stated in the policy to induce a purchase is an unlawful inducement akin to rebating. Paying the deductible from the producer's own funds is such an inducement even though it costs the insurer nothing.

Question 20Insurance Regulation and Licensing

Under Idaho insurance law, the Director of the Department of Insurance may examine a licensed producer's records

  1. whenever reasonably necessary to enforce the code Correct answer.
  2. only after a written complaint has been filed by an insured
  3. only when the producer consents in writing
  4. only during the month in which the license renews

Explanation

The Director has broad examination authority and may inspect a licensee's books and records whenever reasonably necessary to determine compliance. A complaint or the producer's consent is not a precondition to that authority.

Question 21General Insurance Principles and Concepts

Which principle holds that an insured should be restored to approximately the same financial position after a loss as before the loss, no better and no worse?

  1. The principle of indemnity Correct answer.
  2. The principle of contribution
  3. The principle of subrogation
  4. The principle of utmost good faith

Explanation

Indemnity means the insured is restored to roughly the pre-loss financial position, no better and no worse. It is the reason property policies pay actual cash value or the cost to repair rather than an arbitrary sum.

Question 22General Insurance Principles and Concepts

For property insurance, insurable interest must exist at which point?

  1. Only when the policy is first purchased
  2. Only when a claim is filed in court
  3. At the time of the loss Correct answer.
  4. At the time the policy is renewed each year

Explanation

Property insurance requires insurable interest at the time of loss, so the insured must actually suffer a financial loss. A person with no financial interest at the time of the loss cannot collect.

Question 23General Insurance Principles and Concepts

A policy's declarations page typically provides which information?

  1. The complete text of every exclusion in the policy
  2. The named insured, policy limits, and premium Correct answer.
  3. A summary of court rulings that interpret the form
  4. The insurer's annual surplus and reserve figures

Explanation

The declarations page identifies the named insured, the policy period, the limits and the premium charged. It is the summary that personalizes the standard form for that particular risk.

Question 24General Insurance Principles and Concepts

A deductible in a property policy primarily serves to:

  1. Transfer the entire risk of every loss to the insured party
  2. Increase the amount the insurer pays on very small losses
  3. Eliminate the need for the insurer to investigate any claim
  4. Reduce small claims and share each loss with the insured Correct answer.

Explanation

A deductible makes the insured retain a small, predictable part of each loss, which removes the cost of handling minor claims and encourages loss prevention. The insurer pays only the amount above the deductible.

Question 25General Insurance Principles and Concepts

The law of large numbers supports which underwriting idea?

  1. Each individual risk must be priced entirely on its own merits
  2. Losses become more predictable as similar exposures increase Correct answer.
  3. Predictability declines as an insurer adds more policyholders
  4. Larger policies always produce lower loss ratios for insurers

Explanation

The law of large numbers holds that actual results converge on expected results as the number of similar independent exposures increases. This is why insurers can predict aggregate losses even though individual losses are uncertain.

Question 26General Insurance Principles and Concepts

An insured deliberately burns down a building to collect insurance. This is an example of:

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

Explanation

Moral hazard is a dishonest tendency rooted in character, such as intentionally causing a loss to collect insurance. It differs from morale hazard, which is indifference or carelessness.

Question 27General Insurance Principles and Concepts

A binder provides:

  1. Written proof that the full annual premium has been paid
  2. A guarantee that the insurer will renew the policy at expiry
  3. A permanent endorsement that cannot be cancelled by either party
  4. Temporary evidence of coverage until the policy is issued Correct answer.

Explanation

A binder is temporary evidence of coverage, oral or written, effective until the policy is issued or the binder expires. It is subject to the terms of the policy it binds.

Question 28General Insurance Principles and Concepts

After paying a covered loss caused by a negligent third party, an insurer may pursue subrogation in order to:

  1. Avoid the obligation to pay the insured's claim at all
  2. Collect a second premium from the insured for the same loss
  3. Recover the amount paid from the party responsible for the loss Correct answer.
  4. Cancel the policy retroactively to its inception date

Explanation

Subrogation lets the insurer stand in the insured's legal shoes and recover the amount it paid from the party legally responsible. The insured cannot also collect from that party, which keeps indemnity intact.

Question 29General Insurance Principles and Concepts

A windstorm knocks down a power line, causing a fire that destroys a store. The fire is best described as:

  1. An unrelated event outside the chain of causation
  2. A proximate result of the windstorm Correct answer.
  3. A separate peril that breaks the chain of causation
  4. A remote cause that the windstorm did not set in motion

Explanation

Proximate cause is the unbroken chain of events linking a covered peril to the loss. Because the windstorm set the fire in motion without a new intervening cause, the fire is a proximate result of the windstorm.

Question 30General Insurance Principles and Concepts

A building is valued at $1,000,000 and insured for $600,000 under a policy with an 80% coinsurance clause. A covered loss of $200,000 occurs. Ignoring any deductible, how much will the insurer pay?

  1. $150,000 Correct answer.
  2. $200,000
  3. $120,000
  4. $160,000

Explanation

The coinsurance requirement is 80% of $1,000,000, or $800,000, while the policy limit is $600,000. Payment is (600,000 / 800,000) x 200,000 = $150,000.

Question 31General Insurance Principles and Concepts

A five-year-old machine with a replacement cost of $40,000 has an expected useful life of 10 years. Using straight-line depreciation, the actual cash value is:

  1. $20,000 Correct answer.
  2. $16,000
  3. $40,000
  4. $24,000

Explanation

Annual depreciation is $40,000 divided by 10, or $4,000, and five years of depreciation totals $20,000. Subtracting that from replacement cost gives an actual cash value of $20,000.

Question 32General Insurance Principles and Concepts

Which statement about representations made in an insurance application is correct?

  1. A promise that the insured will do or refrain from some act
  2. A statement that must be absolutely true in every detail
  3. A statement the applicant believes to be true Correct answer.
  4. A statement that only counts when made in writing

Explanation

A representation is a statement of fact the applicant believes to be true to the best of their knowledge; it need only be substantially true and not material to the risk. A warranty, by contrast, must be literally true.

Question 33General Insurance Principles and Concepts

An insurer's claims adjuster tells an insured in writing that a late report will not affect the claim, and the insured relies on that statement. This best illustrates:

  1. Subrogation of the insured's rights to the insurer
  2. Waiver of a policy condition by the insurer's conduct Correct answer.
  3. Estoppel, which automatically voids the entire policy
  4. Concealment of a material fact by the insured

Explanation

Waiver is the voluntary relinquishment of a known right, and it can arise from an insurer's conduct or statements. Once the insurer waives a condition such as a prompt-notice requirement, it generally cannot later rely on that condition to deny the claim.

Question 34General Insurance Principles and Concepts

Adverse selection occurs when:

  1. An insurer spreads risk across a large pool of similar exposures
  2. An insurer selects only the lowest-risk applicants through underwriting
  3. A policyholder's risk is reduced by loss-control measures
  4. Higher-risk applicants are more likely to buy or keep coverage Correct answer.

Explanation

Adverse selection is the tendency of poorer-than-average risks to seek or retain insurance, which can distort the pool. Insurers counter it with underwriting, exclusions and appropriate pricing.

Question 35General Insurance Principles and Concepts

Two policies cover the same loss on a pro rata basis. Policy A has a $300,000 limit and Policy B has a $100,000 limit. Of a $40,000 covered loss, Policy B pays:

  1. $30,000
  2. $20,000
  3. $10,000 Correct answer.
  4. $40,000

Explanation

The other-insurance clause using pro rata shares the loss in proportion to each policy's limit. Policy B's share is 100,000 divided by 400,000, or 25%, so it pays 25% of $40,000, which is $10,000.

Question 36General Insurance Principles and Concepts

A general liability policy with a $1,000,000 per-occurrence limit and a $2,000,000 aggregate limit means that:

  1. The per-occurrence limit is fully reinstated after each paid claim
  2. The insurer will pay up to $2,000,000 for any single occurrence or accident
  3. The aggregate limit applies separately to each individual claim made
  4. One occurrence is capped at $1,000,000 and the period total at $2,000,000 Correct answer.

Explanation

The per-occurrence limit caps what the insurer pays for any one occurrence, while the aggregate caps total payments for all occurrences during the policy period. Both limits must be satisfied.

Question 37General Insurance Principles and Concepts

Which set of elements must generally be proven in a negligence claim?

  1. Strict liability, proximate cause, and punitive damages
  2. Intent to harm, a written contract, and a monetary loss
  3. A warranty, a representation, and a material misrepresentation
  4. A duty owed, a breach of that duty, causation, and actual damages Correct answer.

Explanation

Negligence requires a duty of care, a breach of that duty, a causal connection between the breach and the harm, and actual damages. All four elements must be established.

Question 38General Insurance Principles and Concepts

Under pure comparative negligence, an injured party who is 30% at fault for their own loss:

  1. Recovers 70% of the damages proven Correct answer.
  2. Recovers 30% of the damages proven
  3. Recovers the full amount of damages proven
  4. Recovers nothing because any fault bars recovery

Explanation

Under pure comparative negligence, damages are reduced in proportion to the claimant's own fault. At 30% fault, the claimant recovers 70% of proven damages.

Question 39General Insurance Principles and Concepts

In a reinsurance arrangement, the ceding company is:

  1. The reinsurer that assumes a portion of the risk
  2. The insured that purchases the underlying policy
  3. The primary insurer that transfers part of its risk Correct answer.
  4. The broker who places the reinsurance treaty

Explanation

The ceding company is the primary insurer that transfers, or cedes, part of its risk to a reinsurer. Reinsurance protects the insurer's capacity and surplus rather than the individual insured directly.

Question 40General Insurance Principles and Concepts

A policy contains an anti-concurrent causation clause excluding damage from flood. A storm surge driven by a named hurricane both floods a building and damages it with wind. Under an anti-concurrent causation clause, the insurer will most likely:

  1. Pay only the wind-damage portion after a detailed engineering allocation
  2. Deny the claim only if flood was the sole cause of the loss
  3. Pay the entire loss because wind is a covered peril under the form
  4. Deny the whole claim because excluded and covered perils acted together Correct answer.

Explanation

An anti-concurrent causation clause excludes loss where an excluded peril and a covered peril act together to cause damage. The result is denial of the whole claim, including damage that would otherwise be covered.

Question 41General Insurance Principles and Concepts

Under a valued policy law, when a building insured for a stated amount is totally destroyed by a covered peril, the insurer:

  1. Pays only the amount the insured can prove as actual loss
  2. Pays the lesser of the stated amount or the actual cash value
  3. Pays nothing until the property is appraised by three parties
  4. Pays the stated policy amount without regard to actual cash value Correct answer.

Explanation

Under a valued policy law, the agreed value stated in the policy is conclusively presumed to be the amount of the loss after a total loss by a covered peril. The insurer pays that amount without a separate valuation dispute.

Question 42General Insurance Principles and Concepts

Which statement about salvage and abandonment is correct?

  1. Salvage rights belong to the mortgagee until the loan is repaid
  2. Salvage value is never considered when settling a loss
  3. The insured cannot force the insurer to accept abandoned property Correct answer.
  4. The insured may abandon damaged property and demand the full limit

Explanation

The insured cannot abandon damaged property and compel the insurer to take title and pay the full limit. The insurer pays the loss and may then take the salvage, disposing of it to offset what it paid.

Question 43General Insurance Principles and Concepts

When coverage is unclear, an insurer continues to defend its insured while sending a letter reserving its right to deny coverage later. This practice:

  1. Is prohibited because it creates a conflict of interest
  2. Preserves the insurer's coverage defenses while it investigates Correct answer.
  3. Transfers the defense obligation to the insured permanently
  4. Waives all policy defenses once the defense begins

Explanation

A reservation of rights letter lets the insurer defend the insured, which it must do to avoid waiver or estoppel, while preserving the right to deny coverage later. This protects the insurer when the coverage question is unresolved.

Question 44General Insurance Principles and Concepts

Which situation best illustrates strict liability?

  1. A store clerk forgets to mop a spill and a customer slips
  2. A maker is liable for a defective product despite due care Correct answer.
  3. A driver fails to signal a turn and causes a collision
  4. A contractor installs a faulty roof that later leaks badly

Explanation

Strict liability imposes liability without proof of negligence, as with defective products, abnormally dangerous activities and certain statutory situations. The injured party need not show a failure of care.

Question 45Property Insurance Coverages and Policy Provisions

Under an HO-3 homeowners policy, which coverage is written on an open-peril basis?

  1. Scheduled jewelry and furs
  2. Liability and medical payments
  3. Dwelling and other structures Correct answer.
  4. Personal property and loss of use

Explanation

The HO-3 covers the dwelling and other structures for risks of direct physical loss unless excluded, which is the open-peril approach. Personal property is covered on a broad named-peril basis, and scheduled items are added by endorsement.

Question 46Property Insurance Coverages and Policy Provisions

In property insurance, actual cash value is best described as:

  1. Market value of the property at time of loss
  2. Replacement cost less depreciation Correct answer.
  3. Replacement cost plus depreciation
  4. Purchase price less accrued depreciation

Explanation

Actual cash value is commonly calculated as replacement cost minus depreciation. It reflects the value of the property at the time of loss rather than the cost to buy new property.

Question 47Property Insurance Coverages and Policy Provisions

A property deductible generally applies:

  1. To each item damaged in a single event
  2. Only to total losses
  3. Once per policy term
  4. To each separate occurrence of loss Correct answer.

Explanation

The deductible is subtracted from each loss occurrence, no matter how many items are damaged in that event. It is not applied once per policy term.

Question 48Property Insurance Coverages and Policy Provisions

Under a standard homeowners policy, the special limit for money is:

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

Explanation

Money is subject to a low special limit of $200 under the standard homeowners forms. Higher amounts require an endorsement or scheduled coverage.

Question 49Property Insurance Coverages and Policy Provisions

Coverage D - Loss of Use primarily pays for:

  1. Permanent repairs to the dwelling structure
  2. Extra living costs while the home is uninhabitable Correct answer.
  3. The unpaid mortgage balance if the home is destroyed
  4. Replacement of damaged personal property

Explanation

Loss of Use pays additional living expenses, such as temporary housing and meals, when a covered loss makes the home unfit to live in. It can also cover fair rental value when a rented portion is uninhabitable.

Question 50Property Insurance Coverages and Policy Provisions

A mortgage clause in a property policy protects the lender by:

  1. Cancelling the policy when the loan is paid off
  2. Increasing the dwelling limit each year
  3. Paying the lender even if the insured caused the loss Correct answer.
  4. Transferring the policy to the lender at renewal

Explanation

The mortgage clause makes the loss payable to the lender to the extent of its interest, and the lender's rights generally survive certain acts of the insured. This protects the lender's collateral position.