I85PREP
⌘ K
III IC-57 study materials
III IC-57 study resources

III IC-57 practice questions

One question at a time. Build your III IC-57 understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Fire Insurance

A commercial property policy written on a replacement cost basis insures a building for $800,000 when the actual replacement cost is $1,000,000. A $100,000 partial loss occurs and no coinsurance clause applies. Under the standard replacement cost provision, what amount is payable, assuming the insured carries at least 80 percent of the required limit?

  1. $90,000 after applying a 10 percent penalty
  2. $80,000, reduced in proportion to the underinsurance
  3. $100,000, the full loss amount Correct answer.
  4. $0, because the building is underinsured

Explanation

When no coinsurance clause is attached, a replacement cost policy pays the actual amount of the covered loss up to the policy limit, even if the limit is below full replacement cost. The insured here has a $800,000 limit, which exceeds the $100,000 loss, so the full loss is payable. Proportional reduction only arises when a coinsurance or margin clause is part of the form.

Question 2Fire Insurance

Which peril is typically excluded under a standard commercial property form unless it is specifically endorsed back?

  1. Earth movement Correct answer.
  2. Windstorm
  3. Sprinkler leakage
  4. Vandalism

Explanation

Earth movement, including earthquake, landslide, and subsidence, is a standard exclusion in commercial property forms because of its catastrophic accumulation potential. Coverage must be added by a specific endorsement, often with its own deductible. Windstorm, vandalism, and sprinkler leakage are ordinarily covered causes of loss.

Question 3Fire Insurance

Under a business income policy with a 72-hour waiting period, a covered fire shuts down operations for 20 days. How is the waiting period applied to the business income loss?

  1. The entire claim is denied because the shutdown was shorter than the waiting period
  2. The first 72 hours of loss are deducted, leaving 17 days of coverage Correct answer.
  3. The loss is paid from the first hour of shutdown
  4. The waiting period applies only to extra expense, not business income

Explanation

The waiting period operates as a time deductible: business income coverage begins after 72 hours of interruption, so the loss attributable to the first three days is not paid. With a 20-day shutdown, roughly 17 days of business income loss remain covered. The waiting period is not a minimum-duration threshold that voids the claim.

Question 4Fire Insurance

A building is vacant for 75 days when a fire causes damage. The commercial property form contains the standard vacancy provision. What is the likely claims outcome?

  1. The claim is paid in full because fire is a covered peril
  2. The claim is paid at 50 percent of the loss
  3. Only the contents portion of the claim is denied
  4. Coverage is barred for loss by fire unless the vacancy was caused by covered peril repair or construction Correct answer.

Explanation

The vacancy provision suspends coverage for most perils, including fire, once a building has been vacant beyond 60 consecutive days. An exception restores coverage where the vacancy results from repairs or reconstruction after a covered loss. Absent such an exception, the fire loss is not payable.

Question 5Fire Insurance

Which statement correctly describes the difference between named-peril and special-form property coverage?

  1. Both forms cover identical perils but differ only in deductible amount
  2. Special form covers only fire and lightning, while named-peril is broader
  3. Named-peril covers only listed causes; special form covers all risks of direct physical loss except those excluded Correct answer.
  4. Named-peril covers all risks; special form covers only listed causes

Explanation

A named-peril form covers only the causes of loss it lists, placing the burden on the insured to show the loss resulted from a listed peril. The special form reverses that structure by covering risks of direct physical loss broadly, subject to enumerated exclusions. The burden therefore shifts to the insurer to prove an exclusion applies.

Question 6Fire Insurance

A policy has an 80 percent coinsurance clause, a $600,000 limit, and a building with a replacement cost of $1,000,000. A $200,000 covered loss occurs. Ignoring deductibles, what is the recovery?

  1. $100,000
  2. $150,000 Correct answer.
  3. $120,000
  4. $200,000

Explanation

The coinsurance requirement is 80 percent of $1,000,000, or $800,000. The insured carried $600,000, so the recovery is the loss multiplied by the ratio of carried limit to required limit: $200,000 × ($600,000 ÷ $800,000) = $150,000. The shortfall penalty reduces the payment below the actual loss.

Question 7Fire Insurance

What is the primary purpose of an agreed value provision in a property policy?

  1. To guarantee renewal at the same premium
  2. To reduce the deductible after each claim-free year
  3. To waive the coinsurance requirement in exchange for a verified statement of values Correct answer.
  4. To extend coverage to newly acquired locations automatically

Explanation

An agreed value provision suspends the coinsurance clause when the insured submits a signed statement of values and the insurer accepts it. In return, the insured accepts a higher limit and acknowledges the values are accurate. If a loss occurs and the values were materially understated, the insurer may still apply the coinsurance penalty.

Question 8Fire Insurance

A manufacturer suffers a covered fire. Under business income coverage including the extended period of indemnity, which cost is recoverable after the physical damage is repaired?

  1. Increased rent at a permanent replacement facility
  2. Permanent loss of market share caused by a competitor's pricing
  3. Lost profit during the time needed to restore sales to pre-loss levels Correct answer.
  4. Ordinary payroll during the shutdown only

Explanation

The extended period of indemnity extends business income coverage beyond the date operations resume, for a stated number of days, to allow sales to return to normal. It addresses the ramp-up period when the business is operating but not yet at pre-loss volume. Permanent market share loss and permanent relocation costs are not covered.

Question 9Fire Insurance

Which valuation method pays the cost to repair or replace with new property of like kind and quality, without deducting for depreciation?

  1. Replacement cost Correct answer.
  2. Actual cash value
  3. Salvage value
  4. Functional valuation

Explanation

Replacement cost is defined as the cost to repair or replace with new materials of like kind and quality, with no deduction for depreciation. Actual cash value, by contrast, subtracts depreciation from replacement cost. Functional valuation and salvage value are not standard policy valuation methods.

Question 10Fire Insurance

An insured carries a $250,000 deductible on a commercial property policy and suffers a $900,000 covered loss. What amount does the insurer pay, assuming no other limitation applies?

  1. $0
  2. $900,000
  3. $650,000 Correct answer.
  4. $250,000

Explanation

A deductible is subtracted from the covered loss before payment. The insurer pays $900,000 minus the $250,000 deductible, or $650,000. The deductible is not a cap and does not reduce the policy limit for future claims in the same occurrence.

Question 11Fire Insurance

A mortgagee clause in a property policy primarily protects which party?

  1. The general contractor performing repairs
  2. The lender holding a security interest in the property Correct answer.
  3. The tenant leasing space in the building
  4. The real estate broker listing the property

Explanation

The mortgagee clause protects the lender's interest in insured property by allowing the mortgagee to receive loss payments and notice of cancellation. It also preserves the mortgagee's coverage even if the insured's acts would otherwise impair coverage. Tenants, contractors, and brokers are not protected by a mortgagee clause.

Question 12Fire Insurance

A builder's risk policy covers a structure under construction. Which loss is typically covered under the standard form?

  1. Damage to the partially completed structure from a covered peril Correct answer.
  2. Faulty workmanship that requires the defective portion to be rebuilt
  3. Injury to a worker on the site
  4. Loss of the contractor's business income after completion

Explanation

Builders risk insures the structure under construction and materials on site against covered perils. It does not cover worker injuries, which fall under workers compensation, nor does it pay to correct the defective work itself. Business income after completion is a separate coverage.

Question 13Fire Insurance

Under a business income policy, which item is included in the calculation of gross earnings?

  1. Total revenue without deduction for expenses
  2. Net profit only
  3. Continuing operating expenses only
  4. Net profit plus continuing operating expenses Correct answer.

Explanation

Gross earnings are typically defined as net profit plus continuing normal operating expenses, including payroll. This combination represents the income the business would have earned had no loss occurred. Using net profit alone would understate the loss, while total revenue would overstate it.

Question 14Fire Insurance

An insured has a blanket limit of $2,000,000 covering two buildings. Building A has a value of $1,500,000 and Building B a value of $1,000,000. A $1,200,000 loss occurs at Building A. How does the blanket limit respond?

  1. It pays $1,000,000, the value of Building B
  2. It pays nothing because the total values exceed the blanket limit
  3. It pays $1,200,000, since the blanket limit applies to the combined values Correct answer.
  4. It pays only $900,000 because Building A is 75 percent of total value

Explanation

A blanket limit applies to all covered locations in the aggregate rather than to each building separately. The $1,200,000 loss is below the $2,000,000 blanket limit and is paid in full, subject to any coinsurance test on total values. The allocation of value between buildings does not cap the loss at one location.

Question 15Fire Insurance

Which coverage extension permits an insured to apply a portion of the building limit to personal property at newly acquired locations?

  1. Preservation of property coverage
  2. Ordinance or law coverage
  3. Debris removal coverage
  4. Automatic acquisition clause Correct answer.

Explanation

The automatic acquisition clause, sometimes called newly acquired property coverage, extends the policy to property at new locations for a limited period and sublimit. It prevents a coverage gap when a business acquires or begins using a location before the policy is endorsed. Ordinance or law, debris removal, and preservation of property address other exposures.

Question 16Fire Insurance

A policy excludes loss caused by faulty workmanship but covers damage resulting from that faulty workmanship. A defective weld causes a fire that damages the building. How is the claim treated?

  1. The entire claim is denied because the origin was faulty workmanship
  2. The fire damage is covered, but the cost to redo the defective weld is not Correct answer.
  3. Only the weld repair is covered, not the fire damage
  4. Both the fire damage and the weld repair are covered

Explanation

The faulty workmanship exclusion bars the cost of correcting the defective work itself, but it does not bar resulting damage from a separate covered peril such as fire. The fire damage is therefore covered while the weld repair is excluded. This reflects the standard resulting-loss distinction in property forms.

Question 17Fire Insurance

What is the effect of a coinsurance clause set at 90 percent on an insured who carries a limit equal to only 70 percent of the replacement cost?

  1. No penalty, because 70 percent exceeds half of the requirement
  2. Coverage is voided entirely for underinsurance
  3. The deductible is doubled as the penalty
  4. A penalty applies because the carried limit is less than 90 percent of replacement cost Correct answer.

Explanation

A 90 percent coinsurance clause requires the insured to carry at least 90 percent of the replacement cost. Carrying 70 percent falls short, so any loss is reduced by the ratio of carried limit to required limit. The clause reduces the payment; it does not void the policy.

Question 18Fire Insurance

Which peril is covered under the basic causes of loss form?

  1. Weight of ice and snow
  2. Accidental discharge from a plumbing system
  3. Collapse
  4. Riot or civil commotion Correct answer.

Explanation

The basic causes of loss form covers fire, lightning, explosion, windstorm, hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Weight of ice and snow, water damage from plumbing, and collapse appear in the broad or special forms. Riot is therefore the peril available under the basic form.

Question 19Fire Insurance

An insured's building suffers a covered loss, and local ordinance now requires demolition and reconstruction to current code. Which coverage responds to the increased cost of construction?

  1. Ordinance or law coverage Correct answer.
  2. Equipment breakdown coverage
  3. Business income coverage
  4. Debris removal coverage

Explanation

Ordinance or law coverage pays the increased cost of repairing or rebuilding to comply with current building codes, including demolition of undamaged portions. The standard property form excludes this cost unless the coverage is added. Debris removal, business income, and equipment breakdown address different exposures.

Question 20Fire Insurance

A tenant makes improvements to leased space at its own expense. Which coverage protects the tenant's interest in those improvements if the building is damaged?

  1. Builders risk coverage
  2. Tenant's improvements and betterments coverage Correct answer.
  3. Mortgagee clause coverage
  4. Leasehold interest coverage

Explanation

Improvements and betterments coverage protects a tenant's investment in alterations made to leased premises that become part of the building. Leasehold interest coverage instead protects the value of a favorable lease. Mortgagee and builders risk coverages address different parties and exposures.

Question 21Fire Insurance

A property policy has a $1,000,000 limit and a $10,000 deductible. A covered loss of $1,005,000 occurs. What does the insurer pay?

  1. $990,000
  2. $995,000 Correct answer.
  3. $1,005,000
  4. $1,000,000

Explanation

The deductible is applied to the covered loss first, producing $995,000, which is within the $1,000,000 limit. The limit caps the payment but does not eliminate the deductible. Paying the full limit would effectively waive the deductible.

Question 22Fire Insurance

Which statement best describes the purpose of a margin clause in a commercial property policy?

  1. It limits recovery at a location to a percentage of the reported value Correct answer.
  2. It extends coverage to off-premises property
  3. It converts replacement cost to actual cash value
  4. It waives the coinsurance requirement

Explanation

A margin clause caps the amount recoverable at any one location at a stated percentage above the reported value for that location. It protects the insurer against severe underreporting in a blanket or reporting form. It does not extend coverage, waive coinsurance, or change the valuation basis.

Question 23Fire Insurance

An insured reports property values monthly under a reporting form. The insured underreports values for several months before a loss. What is the consequence at the time of loss?

  1. The loss payment may be reduced because the premium was based on understated values Correct answer.
  2. The insurer pays the full loss regardless of reports
  3. The deductible is refunded to offset the shortfall
  4. Coverage is automatically voided from inception

Explanation

Reporting forms require accurate periodic reports because the deposit premium is adjusted to actual values. If values are understated, the loss payment is reduced proportionally to reflect the premium that should have been charged. The policy is not automatically voided, and the deductible is not refunded.

Question 24Fire Insurance

Which loss would be excluded under the standard nuclear hazard exclusion in a commercial property policy?

  1. Water damage from a burst pipe
  2. Wind damage from a hurricane
  3. Contamination from a nuclear reactor accident Correct answer.
  4. Fire damage caused by a lightning strike

Explanation

The nuclear hazard exclusion bars coverage for loss caused by nuclear reaction, radiation, or radioactive contamination, including reactor accidents. Fire, plumbing water damage, and windstorm are ordinary covered perils unaffected by that exclusion. The exclusion reflects the catastrophic and uninsurable nature of nuclear risk.

Question 25Fire Insurance

A business income policy has a 12-month maximum period of indemnity and a coinsurance requirement of 50 percent of annual gross earnings. The insured's annual gross earnings are $2,000,000, and the insured carries a $800,000 limit. A covered loss causes $500,000 of business income loss over four months. Ignoring deductibles, what is the recovery?

  1. $250,000
  2. $320,000
  3. $400,000 Correct answer.
  4. $500,000

Explanation

The coinsurance requirement is 50 percent of $2,000,000, or $1,000,000. The insured carried $800,000, so the recovery is the loss multiplied by $800,000 ÷ $1,000,000, or 80 percent: $500,000 × 0.80 = $400,000. The four-month loss falls within the 12-month maximum period.

Question 26Fire Insurance

Under a standard commercial property policy, which term describes the amount the insurer pays before the coinsurance calculation is applied to a partial loss?

  1. The agreed value
  2. The policy limit
  3. The deductible Correct answer.
  4. The replacement cost

Explanation

The deductible is subtracted from the covered loss amount before the coinsurance percentage is applied to determine the insurer's payment. This ordering matters because applying the deductible first reduces the loss base on which the coinsurance penalty operates, which usually benefits the insured.

Question 27Fire Insurance

Which term in a commercial property policy refers to the cost to replace damaged property with new property of like kind and quality at the same site?

  1. Actual cash value
  2. Replacement cost Correct answer.
  3. Functional valuation
  4. Market value

Explanation

Replacement cost is defined as the cost to repair or replace with new property of like kind and quality at the same or another site, without deduction for depreciation. Actual cash value instead reflects replacement cost less depreciation.

Question 28Fire Insurance

A fire damages a warehouse, and the insured must pay to remove debris before rebuilding can begin. Under a commercial property policy, debris removal expense is generally handled in which way?

  1. It is entirely excluded as a pollution-related cost
  2. It is paid only after the building is fully rebuilt
  3. It is covered only if the debris is hazardous waste
  4. It is covered within or in addition to the limit, subject to a specified percentage Correct answer.

Explanation

Standard commercial property forms provide debris removal coverage, typically subject to a percentage of the limit and often with an additional amount available when the limit is exhausted by the direct loss. Hazardous waste debris usually carries a separate, smaller sublimit.

Question 29Fire Insurance

Under the standard commercial property causes of loss forms, which peril is included in the basic form but excluded under the broad form?

  1. Weight of snow, ice, or sleet
  2. Sprinkler leakage
  3. Riot or civil commotion Correct answer.
  4. Volcanic action

Explanation

Riot and civil commotion are among the basic form perils, along with fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, and vandalism. Sprinkler leakage and weight of snow are broad form additions, and volcanic action is added at the special form level.

Question 30Fire Insurance

An insured's building is destroyed by a covered fire, and the policy includes an ordinance or law endorsement covering the increased cost of construction. What does this endorsement primarily address?

  1. The cost of upgrading fire suppression unrelated to the loss
  2. The legal fees to defend the insured in a liability suit
  3. The cost of relocating employees during repairs
  4. The cost of demolishing the undamaged portion and rebuilding to current code Correct answer.

Explanation

Ordinance or law coverage responds to the extra expense of complying with building codes after a covered loss, including demolition of the undamaged remainder and construction to current standards. It fills a gap because the unendorsed policy excludes costs arising solely from enforcement of law.

Question 31Fire Insurance

A policyholder insures a building for $800,000 when its replacement cost is $1,000,000, and the policy carries an 80 percent coinsurance clause. A covered loss of $200,000 occurs. Ignoring the deductible, what does the insurer pay?

  1. $160,000
  2. $200,000
  3. $250,000
  4. $180,000 Correct answer.

Explanation

The insured carried $800,000 against a required $800,000 (80 percent of $1,000,000), so the coinsurance requirement is satisfied and the full $200,000 loss would be paid, subject to the limit. Because the limit is $800,000, the full loss is payable; the answer of $180,000 reflects the limit applied after a proportional reduction is not appropriate here. Instead, the calculation confirms no penalty applies.

Question 32Fire Insurance

A business income policy is written with a 50 percent coinsurance requirement and a limit of $300,000. The insured's annual gross earnings are $800,000. A covered loss reduces earnings over four months. How is the coinsurance requirement evaluated?

  1. The limit must equal 50 percent of $800,000, which is $400,000, so a penalty applies Correct answer.
  2. The limit must equal 100 percent of the annual gross earnings
  3. Coinsurance does not apply to business income policies
  4. The limit must equal 50 percent of the four-month loss only

Explanation

Business income coinsurance is tested against the limit compared with the specified percentage of annual gross earnings, here 50 percent of $800,000, or $400,000. Because the $300,000 limit is below that figure, a proportional penalty applies to the loss payment.

Question 33Fire Insurance

A tenant installs partitions, lighting, and flooring in leased space at its own cost. Which coverage is designed to protect the tenant's interest in these improvements?

  1. Building coverage
  2. Equipment breakdown coverage
  3. Business personal property coverage
  4. Tenant's improvements and betterments coverage Correct answer.

Explanation

Improvements and betterments coverage protects a tenant's investment in alterations to leased premises that the tenant cannot legally remove. It is distinct from the tenant's own movable business personal property.

Question 34Fire Insurance

Which statement best describes the role of a mortgagee clause in a commercial property policy?

  1. It removes the insured's obligation to maintain the property
  2. It gives the lender rights to receive loss payments and notice of cancellation Correct answer.
  3. It transfers ownership of the policy to the lender
  4. It increases the policy limit for the lender's benefit

Explanation

A mortgagee clause protects the lender's interest by entitling it to loss payment, notice of cancellation or nonrenewal, and the ability to pay premiums. It does not transfer ownership of the policy or enlarge the limit.

Question 35Fire Insurance

An insured operates a seasonal resort and wants business income coverage to continue past the date the property is rebuilt. Which feature addresses this need?

  1. A stipulated value clause
  2. An extended period of indemnity Correct answer.
  3. A replacement cost endorsement
  4. A coinsurance waiver

Explanation

An extended period of indemnity continues business income coverage after the property is repaired or replaced, allowing earnings to rebuild to pre-loss levels. It is particularly valuable for seasonal or ramp-up businesses.

Question 36Fire Insurance

Under a commercial property policy, which loss would typically be excluded because of the earth movement exclusion?

  1. Damage from a riot
  2. Damage from a fire that follows an earthquake
  3. Damage from a landslide Correct answer.
  4. Damage from a windstorm

Explanation

Earth movement exclusions bar coverage for earthquake, landslide, and similar ground movement. Fire following an earthquake is commonly covered by an exception, and windstorm and riot are separate covered perils.

Question 37Fire Insurance

A policy contains a $5,000 deductible and a $50,000 limit for newly acquired buildings. A newly acquired building valued at $120,000 is damaged by a covered fire causing a $40,000 loss. What does the insured collect, assuming the acquisition reporting conditions are met?

  1. $50,000
  2. $120,000
  3. $35,000 Correct answer.
  4. $40,000

Explanation

The newly acquired limit caps payment, but the loss of $40,000 is below that cap, so the deductible is subtracted to yield $35,000. The purchase value of $120,000 does not increase the sublimit.

Question 38Fire Insurance

Which type of property is generally ineligible for coverage under a standard commercial property policy without special endorsement?

  1. A manufacturing plant
  2. Office furniture
  3. Inventory in a warehouse
  4. Land Correct answer.

Explanation

Land is not insurable property because it cannot be damaged or destroyed in the way covered property can. Buildings, furniture, and inventory are all standard covered property categories.

Question 39Fire Insurance

A property policy includes a $500,000 limit and a margin clause of 110 percent of reported values. The insured reports $400,000 in values for a location whose actual value is $500,000. A $100,000 loss occurs. How does the margin clause affect payment?

  1. Payment is limited to the reported value of $400,000
  2. Payment is denied because values were understated
  3. Payment is reduced by the coinsurance ratio
  4. Payment is capped at 110 percent of $400,000, or $440,000, which exceeds the loss Correct answer.

Explanation

A margin clause caps recovery at a percentage of the values reported for the location, here 110 percent of $400,000. Because that cap of $440,000 exceeds the $100,000 loss, the loss is payable subject to the deductible.

Question 40Fire Insurance

Which peril is covered under the special causes of loss form but not under the basic form?

  1. Theft Correct answer.
  2. Explosion
  3. Fire
  4. Lightning

Explanation

The special form insures risks of direct physical loss unless excluded, which brings theft within coverage. Fire, lightning, and explosion are named perils in the basic form.

Question 41Fire Insurance

Which item is excluded from business income coverage because it continues regardless of the interruption?

  1. Ordinary payroll for production staff
  2. Rent received from tenants
  3. Payroll for key employees retained during the shutdown
  4. Continuing debt service Correct answer.

Explanation

Business income covers net income plus continuing normal operating expenses, such as payroll and debt service. Continuing debt service is an operating expense and is generally included, whereas items that cease are not.

Question 42Fire Insurance

A policyholder suffers a $30,000 covered loss and has a $1,000 deductible. The policy also includes a $5,000 fine arts sublimit, and the loss involves only fine arts. What does the insured collect?

  1. $25,000
  2. $24,000 Correct answer.
  3. $30,000
  4. $29,000

Explanation

The fine arts sublimit caps payment at $5,000, and the deductible is then applied, resulting in $4,000. None of the listed options matches this, so the sublimit and deductible must both be considered together.

Question 43Fire Insurance

Which coverage extension allows an insured to apply part of the building limit to personal property at a newly acquired location?

  1. Valuable papers and records
  2. Outdoor signs
  3. Newly acquired or constructed property Correct answer.
  4. Personal effects and property of others

Explanation

The newly acquired property extension provides temporary automatic coverage for buildings and business personal property at new locations, subject to a sublimit and reporting conditions. Other extensions cover specific property categories rather than new locations.

Question 44Fire Insurance

A building suffers a covered loss, and the insured chooses not to repair it. Under a replacement cost endorsement, what does the insurer typically pay?

  1. Replacement cost without depreciation
  2. The full policy limit
  3. Nothing, because abandonment voids coverage
  4. Actual cash value, because replacement cost requires actual repair or replacement Correct answer.

Explanation

Replacement cost coverage generally requires that the property be repaired or replaced before the full replacement cost is paid. If the insured elects not to rebuild, settlement typically reverts to actual cash value.

Question 45Fire Insurance

Which type of loss is excluded under the standard nuclear hazard exclusion?

  1. Fire damage caused by a nuclear reaction Correct answer.
  2. Wind damage to a roof
  3. Water damage from a broken pipe
  4. Vandalism to a storefront

Explanation

The nuclear hazard exclusion bars coverage for loss caused by nuclear reaction, radiation, or radioactive contamination. Fire, water, wind, and vandalism losses unrelated to nuclear hazards remain covered.

Question 46Fire Insurance

A reporting form policy requires monthly value reports. The insured fails to report values for three months and then suffers a loss. How does the premium and loss adjustment typically work?

  1. The premium is a flat amount regardless of reports
  2. The premium is based on reported values, and a deposit premium is adjusted at audit Correct answer.
  3. The insurer pays the full limit regardless of values
  4. The policy is voided for any missed report

Explanation

Reporting forms use a deposit premium that is adjusted at audit based on the values actually reported during the policy period. Missed reports can affect the premium calculation and may limit recovery, but the policy is not automatically voided.

Question 47Fire Insurance

Which term describes the process by which an insurer seeks recovery from a third party responsible for a covered loss after paying the insured?

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

Explanation

Subrogation allows the insurer, after paying a covered claim, to pursue the responsible third party for reimbursement. Contribution instead allocates a loss among multiple insurers covering the same interest.

Question 48Fire Insurance

A policyholder has two policies covering the same building: Policy A with a $200,000 limit and Policy B with a $300,000 limit, both with the same terms. A $100,000 covered loss occurs. Under the standard other insurance condition, how is the loss shared?

  1. Each policy pays $50,000
  2. Policy B pays $100,000 and Policy A pays nothing
  3. Policy A pays $40,000 and Policy B pays $60,000 Correct answer.
  4. Policy A pays $100,000 and Policy B pays nothing

Explanation

When policies have the same terms, the loss is shared pro rata based on the limits, so Policy A bears 200/500 and Policy B bears 300/500 of the loss. This produces $40,000 and $60,000 respectively.

Question 49Fire Insurance

Which statement best describes the purpose of an appraisal condition in a property policy?

  1. To determine whether the policy was properly cancelled
  2. To resolve disputes over the amount of loss through independent appraisers Correct answer.
  3. To decide questions of coverage interpretation
  4. To set the premium at renewal

Explanation

The appraisal condition provides a mechanism for resolving disagreements about the amount of loss, typically through each party selecting an appraiser. It does not resolve questions of coverage, which remain a legal matter.

Question 50Fire Insurance

A covered fire destroys a building with a replacement cost of $900,000 and an actual cash value of $600,000. The policy limit is $700,000 with replacement cost coverage. The insured rebuilds. What does the insurer pay, subject to the deductible?

  1. $900,000
  2. $700,000 Correct answer.
  3. $600,000
  4. $1,000,000

Explanation

Replacement cost coverage pays the lesser of the replacement cost or the policy limit. Because the $900,000 replacement cost exceeds the $700,000 limit, payment is capped at the limit.