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MI Property & Casualty study materials
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MI Property & Casualty practice questions

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Question 1Insurance Regulation

Which Michigan agency issues insurance producer licenses and enforces the state's insurance laws?

  1. Department of Insurance and Financial Services Correct answer.
  2. Michigan Public Service Commission, which oversees utility and insurance filings
  3. The Office of the Attorney General, Insurance Fraud Section
  4. The Secretary of State, Bureau of Commercial Services

Explanation

Michigan's insurance industry is regulated by the Department of Insurance and Financial Services (DIFS), headed by a Director appointed by the Governor. DIFS issues producer and insurer licenses, reviews rates and forms, and enforces the Insurance Code.

Question 2Insurance Regulation

To qualify for a Michigan resident insurance producer license, an individual must be at least what age?

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

Explanation

Michigan requires a resident producer applicant to be at least 18 years old, complete the application, and pass the qualifying examination for the lines requested. There is no prelicensing course requirement in Michigan.

Question 3Insurance Regulation

Michigan resident producers must complete how much continuing education during each two-year license period?

  1. 24 hours of instruction, including 3 hours of ethics Correct answer.
  2. 12 hours of instruction, including 2 hours of ethics
  3. 36 hours of instruction, including 6 hours of ethics
  4. 18 hours of instruction, including 2 hours of ethics

Explanation

Michigan requires resident producers to complete 24 credit hours of approved continuing education every two years, at least 3 of which must be in ethics. Credits must be earned in approved courses and reported to the state.

Question 4Insurance Regulation

Which of the following is prohibited under Michigan insurance law?

  1. Collecting the first premium from the applicant when the application is signed
  2. Rebating part of the commission to the buyer Correct answer.
  3. Applying a discount that is written into the policy form and filed with the state
  4. Charging different rates to different insureds under filed underwriting rules

Explanation

Rebating means offering an inducement not specified in the policy, such as returning part of the commission or premium to the buyer, and it is prohibited as an unfair trade practice. Lawful discounts must appear in the policy form and filed rating rules.

Question 5Insurance Regulation

What are Michigan's compulsory automobile liability minimum limits?

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

Explanation

Michigan requires owners and registrants of motor vehicles to carry liability coverage of at least $20,000 per person, $40,000 per accident for bodily injury, and $10,000 for property damage. No-fault personal injury protection is also required.

Question 6Insurance Regulation

Under Michigan's mini-tort provision, an insured may recover up to what amount from the at-fault driver for damage to the insured vehicle?

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

Explanation

Michigan's no-fault law generally bars tort claims for vehicle damage, but the mini-tort exception allows recovery of the deductible or unpaid damage up to $3,000 from the at-fault driver. Amounts above that limit are not recoverable in tort.

Question 7Insurance Regulation

What is the function of the Michigan Catastrophic Claims Association?

  1. It writes assigned-risk auto policies for drivers who cannot obtain coverage in the voluntary market
  2. It reimburses insurers for PIP claims above a set threshold Correct answer.
  3. It sets the maximum medical fee schedule used in no-fault claims
  4. It guarantees payment of claims when an auto insurer becomes insolvent

Explanation

The MCCA is an unincorporated association of all insurers writing auto insurance in Michigan; it assesses members and reimburses them for personal injury protection benefits paid above a defined threshold on each claim. It does not write policies, set fees, or guarantee insurer solvency.

Question 8Insurance Regulation

A producer collects a $2,400 premium from a client, deposits it in the agency's general operating account, and uses part of it to pay office expenses before remitting to the insurer. This conduct is best described as:

  1. Acceptable, because the policy was already bound with the insurer
  2. Prohibited commingling of fiduciary funds Correct answer.
  3. Acceptable, because the producer remains personally liable for the premium
  4. Prohibited only if the insurer suffers an actual financial loss

Explanation

Premiums collected from insureds are held in a fiduciary capacity and must be kept separate from the producer's operating funds and remitted promptly. Commingling or misusing those funds is a violation and grounds for license discipline, regardless of whether a loss occurs.

Question 9Insurance Regulation

An unlicensed office assistant refers a walk-in customer to a licensed producer, and the producer pays the assistant $100 out of the commission earned on the resulting sale. Under Michigan law this payment is:

  1. Permitted, because the assistant works in the producer's office
  2. Prohibited, because compensation for the referral is tied to a sale Correct answer.
  3. Permitted, because the assistant did not negotiate the policy
  4. Prohibited, unless the assistant holds a temporary license

Explanation

An unlicensed person may not be paid for selling, soliciting, or negotiating insurance, and a producer may not share commissions with an unlicensed person. A nominal referral fee that does not depend on whether a sale occurs may be permitted.

Question 10Insurance Regulation

A Michigan producer's license is suspended by another state's insurance regulator. Within what period must the producer report that action to the Director of DIFS?

  1. Whenever the license next comes up for renewal
  2. 30 days Correct answer.
  3. 60 days
  4. 10 days

Explanation

Producers must report administrative actions taken against them by another jurisdiction, as well as criminal prosecutions, to the Director within 30 days of the final disposition. Failure to report is itself a violation that can lead to license discipline.

Question 11Insurance Regulation

Before placing a homeowners policy with a surplus lines insurer, a Michigan surplus lines broker must:

  1. Disclose in writing to the applicant that the insurer is not authorized in Michigan Correct answer.
  2. File the policy form with the state at least 30 days before issuance
  3. Post a surety bond equal to the amount of the annual premium
  4. Obtain written approval from the Director for each individual policy

Explanation

Surplus lines insurance is written by nonadmitted insurers, so Michigan requires the broker to give the applicant a written disclosure that the insurer is not licensed by the state and is not protected by the guaranty association. The broker must also show a diligent effort to place the risk in the authorized market.

Question 12Insurance Regulation

Michigan's Essential Insurance Act requires insurers writing auto and home insurance to:

  1. Charge identical rates to all applicants living in the same county
  2. Offer every optional coverage the insurer sells to every applicant
  3. Reinsure a share of each policy with a state facility
  4. Insure eligible applicants without regard to where the risk is located Correct answer.

Explanation

The Essential Insurance Act limits an insurer's ability to refuse, cancel, or nonrenew auto and basic property insurance for eligible applicants and bars unfair discrimination, including denying coverage because of the geographic location of the risk. Insurers must also give required written notice of actions they do take.

Question 13Insurance Regulation

An insurer uses an applicant's credit information when underwriting a Michigan homeowners policy. Which use is barred?

  1. Refusing to write the policy based on the credit information Correct answer.
  2. Requesting the applicant's credit report from a consumer reporting agency
  3. Using credit information to calculate the premium charged
  4. Adjusting the applicant's payment plan based on credit history

Explanation

Michigan law prohibits insurers from refusing to insure, canceling, or nonrenewing personal lines auto or homeowners coverage solely on the basis of credit information. Credit information may be used in rating within statutory limits, and consumers are entitled to notice and dispute rights.

Question 14Insurance Regulation

A Michigan agent places coverage with an insurer that holds no Michigan certificate of authority and is not an eligible surplus lines insurer. The agent has:

  1. Acted lawfully if the policy was delivered outside Michigan
  2. Aided an unauthorized insurer in transacting insurance in Michigan Correct answer.
  3. Committed no violation, because the insured agreed to the placement
  4. Acted lawfully if the insurer posted a bond with the state

Explanation

Insurance may be placed in Michigan only with insurers holding a certificate of authority, or through a licensed surplus lines broker with an eligible nonadmitted insurer. A producer who places business with an unauthorized insurer has aided an unauthorized transaction and is subject to penalty.

Question 15Insurance Regulation

The Michigan Basic Property Insurance Association was created to:

  1. Guarantee the claim obligations of property insurers that have been declared insolvent
  2. Establish the maximum homeowners insurance premium permitted in each rating territory
  3. Make basic property insurance available to owners who cannot buy it voluntarily Correct answer.
  4. Administer the residual market for commercial auto and workers' compensation risks

Explanation

The association is Michigan's FAIR plan, a residual market that offers basic property coverage to owners who cannot obtain insurance in the voluntary market. Authorized property insurers participate in it, and it is separate from the guaranty association.

Question 16Insurance Regulation

The Michigan Assigned Claims Plan exists mainly to:

  1. Provide physical damage coverage for vehicles held by law enforcement agencies
  2. Reimburse member insurers for no-fault claims that exceed a catastrophic dollar threshold
  3. Establish territorial rating factors used for private passenger automobile insurance
  4. Provide no-fault benefits when the responsible driver is uninsured Correct answer.

Explanation

The assigned claims plan is a residual mechanism that pays no-fault personal injury protection benefits to injured persons who cannot collect from an insurer, such as those struck by an uninsured or unidentified motorist. It is funded by member insurers and is distinct from the catastrophic claims association.

Question 17Insurance Regulation

A policyholder stages a collision and submits a claim for injuries that never occurred. Under Michigan law this is:

  1. A fraudulent insurance act that may be prosecuted as a felony Correct answer.
  2. An unfair trade practice that the Attorney General alone may enforce
  3. A policy violation handled only by canceling the policy
  4. A civil matter between the insurer and the policyholder only

Explanation

Michigan's Insurance Code makes it a crime to knowingly present a false or fraudulent claim for payment. Suspected fraud is referred through the state's fraud reporting process and may be prosecuted as a felony, in addition to any civil or contractual remedies the insurer pursues.

Question 18Insurance Regulation

An insurer's advertisement states that its homeowners policy covers flood damage when the policy actually excludes it. This is:

  1. Permitted, because the policy language controls over advertising
  2. Permitted, if the advertisement includes a disclaimer in small print
  3. A misrepresentation prohibited as an unfair trade practice Correct answer.
  4. Prohibited only if a policyholder actually relied on the statement and suffered a loss

Explanation

Michigan's unfair trade practice provisions prohibit misrepresentations and false advertising about the terms, benefits, or conditions of a policy. The prohibition applies to the statement itself; proof of actual reliance or loss by a consumer is not required.

Question 19Insurance Regulation

Under Michigan's no-fault law, an action to recover PIP benefits for an expense must be commenced within:

  1. One year after the expense was incurred Correct answer.
  2. Two years after the date of the motor vehicle accident
  3. Three years after the insurer formally denies the claim
  4. Six months after the date of the motor vehicle accident

Explanation

Michigan's no-fault statute contains a one-year back rule: a claimant may recover benefits for expenses incurred within one year before the action is filed, and suit must be brought within one year after the expense is incurred. A separate one-year period runs from the insurer's denial of a claim.

Question 20Insurance Regulation

Which statement best describes Michigan's statutory standard for property and casualty rates?

  1. Rates must be identical for all insureds within the same classification
  2. Rates may be set at any level the market will bear once they are filed with the state
  3. Rates must be approved by the Director before they may be used in any territory
  4. Rates must not be excessive, inadequate, or unfairly discriminatory Correct answer.

Explanation

Michigan relies largely on competition, but filed rates must satisfy the statutory standard: not excessive, not inadequate for the insurer's obligations, and not unfairly discriminatory among similar risks. Classifications and rating rules must have a sound actuarial basis.

Question 21Insurance Regulation

A Michigan producer's license expires and is not renewed, but the producer submits an application for a client a few weeks later. The producer may:

  1. Submit the application if the insurer appoints the producer retroactively
  2. Take no part in the application until the license is reinstated Correct answer.
  3. Submit the application and keep the commission as an accommodation
  4. Submit the application if the client signs a hold-harmless agreement

Explanation

A producer may not solicit, negotiate, or sell insurance while unlicensed, and commissions may not be earned during a lapse. Activity during the lapse is unlicensed activity subject to civil and administrative penalties.

Question 22Insurance Regulation

Which claim falls within the scope of the Michigan Property and Casualty Guaranty Association?

  1. A covered claim against an insolvent authorized insurer Correct answer.
  2. A claim for benefits under a self-funded employer group health plan
  3. A claim against a company that was never licensed to do business in Michigan
  4. A claim against a nonadmitted surplus lines insurer

Explanation

The guaranty association protects policyholders of authorized property and casualty insurers that become insolvent, paying covered claims up to statutory limits and funded through assessments on member insurers. Unauthorized insurers, nonadmitted surplus lines insurers, and self-funded plans are outside its scope.

Question 23Insurance Regulation

A producer holds only a life insurance producer license in Michigan. The producer accepts an application for a commercial general liability policy from a client. This is:

  1. Permitted, if the producer remits the premium to the insurer within 10 days
  2. Prohibited, because a life license does not authorize casualty business Correct answer.
  3. Permitted, because the producer holds an active Michigan producer license
  4. Prohibited, unless the producer's insurer holds a certificate of authority

Explanation

Michigan issues producer licenses by line of authority, and a producer may act only within the lines for which the license is held. Selling a casualty policy on a life-only license is unlicensed activity, regardless of how quickly premium is handled.

Question 24Insurance Regulation

To obtain a Michigan nonresident producer license, an individual generally must:

  1. Maintain a physical business office located within the state of Michigan
  2. Complete a Michigan-approved prelicensing course before applying
  3. Hold a resident license in good standing in another state Correct answer.
  4. Pass the Michigan producer licensing examination for each line requested

Explanation

Michigan issues nonresident licenses on a reciprocal basis to producers who are licensed and in good standing in their home state. Under reciprocity the Michigan examination and prelicensing requirements are generally waived, and no in-state office is needed.

Question 25General Insurance Concepts

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

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

Explanation

Indemnity limits recovery to the actual amount of the loss so the insured is made whole but cannot profit from insurance. It is why policy limits, deductibles, and valuation methods such as actual cash value exist.

Question 26General Insurance Concepts

An agent gives a prospective insured temporary evidence of coverage, oral or written, while the application is being underwritten. This is a:

  1. Endorsement
  2. Certificate of insurance
  3. Binder Correct answer.
  4. Warranty

Explanation

A binder provides temporary protection from the date it is given until the policy is issued or the application is declined. Its terms are those of the policy being applied for.

Question 27General Insurance Concepts

Which policy section identifies the named insured, the covered locations, the policy period, the limits, and the premium?

  1. The conditions
  2. The exclusions
  3. The insuring agreement
  4. The declarations Correct answer.

Explanation

The declarations page personalizes the policy by naming the insured, describing the covered property and locations, and stating limits, deductibles, term, and premium. The remaining sections describe the promise to pay, duties, and what is not covered.

Question 28General Insurance Concepts

The primary purpose of a deductible in a property insurance policy is to:

  1. Reduce premium and eliminate the cost of handling small claims Correct answer.
  2. Satisfy the coinsurance requirement that applies to underinsured property
  3. Increase the insurer's investment income from premium reserves
  4. Transfer all risk of loss from the insurer to the insured, regardless of the loss amount

Explanation

A deductible is the portion of each loss the insured absorbs before the insurer pays. Because small claims are removed from the system, administrative costs fall and the premium is lower.

Question 29General Insurance Concepts

In property insurance, an insurable interest must exist at the time of:

  1. The application
  2. Policy inception
  3. Policy expiration
  4. The loss Correct answer.

Explanation

Property insurance requires insurable interest when the loss occurs, because the insured must suffer actual financial harm at that moment. Life insurance is different: interest is tested when the policy is applied for.

Question 30General Insurance Concepts

A building owner intentionally sets fire to the property in order to collect insurance money. This is an example of:

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

Explanation

Moral hazard is a dishonest tendency that increases the chance of an intentional loss. Underwriters try to control it through investigation, warranties, and careful claims handling.

Question 31General Insurance Concepts

An insurer supplies an agent with company forms, business cards, and a website listing that lead a reasonable applicant to believe the agent can bind coverage, although the agency agreement is silent on that power. The insurer is bound under:

  1. Express authority
  2. Implied authority
  3. Apparent authority Correct answer.
  4. Ratification

Explanation

Apparent authority arises when the insurer's own words or conduct lead a reasonable person to believe the agent has authority, even if actual authority is missing. The insurer is bound because it created the appearance.

Question 32General Insurance Concepts

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

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

Explanation

The required amount of insurance is 80% of $500,000, or $400,000. The insured carried $300,000, so the payment is the loss multiplied by 300,000/400,000, which equals $75,000.

Question 33General Insurance Concepts

A contract in which the dollar amounts exchanged by the parties may be unequal and depend on an uncertain future event is described as:

  1. Aleatory Correct answer.
  2. Unilateral
  3. Personal
  4. Conditional

Explanation

Insurance is aleatory because the premium paid and the amount the insurer may later pay are not equal in value; the outcome depends on whether and when a loss occurs. This distinguishes it from contracts where the exchange is roughly equal.

Question 34General Insurance Concepts

The transfer of a portion of risk from a primary insurer to another insurer is called:

  1. Reinsurance Correct answer.
  2. Coinsurance
  3. Pooling
  4. Self-insurance

Explanation

Reinsurance is insurance for insurers: the ceding company transfers part of its exposure to a reinsurer. It affects the insurer's capacity and solvency but does not change the coverage owed to the original insured.

Question 35General Insurance Concepts

An insurer's adjuster, knowing the insured breached a policy condition, tells the insured that the breach will not affect the claim. The insurer later denies coverage. Which doctrine is most likely to prevent the denial?

  1. Waiver and estoppel Correct answer.
  2. Concealment
  3. Adhesion
  4. Subrogation

Explanation

A waiver is the voluntary giving up of a known right, and estoppel prevents the insurer from later reclaiming that right when the insured has relied on it to their detriment. The insurer's statement to the insured is the basis for both.

Question 36General Insurance Concepts

Which term describes the amount added to expected losses in an insurance rate to cover expenses, profit, and contingencies?

  1. Expense ratio
  2. Expense loading Correct answer.
  3. Pure premium
  4. Loss ratio

Explanation

The pure premium covers expected losses per unit of exposure, and the expense loading is added to cover operating costs, profit, and contingencies. Together they produce the gross rate charged to the insured.

Question 37General Insurance Concepts

As the number of similar, independent exposure units an insurer covers increases, actual loss experience tends to approach expected loss experience. This is known as the:

  1. Law of diminishing returns
  2. Principle of adverse selection
  3. Principle of indemnity
  4. Law of large numbers Correct answer.

Explanation

The law of large numbers allows an insurer to predict aggregate losses more accurately as the insured pool grows and exposures are independent. This predictability is what makes rates and reserves reliable.

Question 38General Insurance Concepts

Which statement best describes the effect of the principle of utmost good faith on an applicant for insurance?

  1. The applicant's statements are treated as warranties that must be literally true in every detail
  2. The insurer must disclose its complete underwriting manual, including all rating tiers, to the applicant before coverage can be bound, and any omission voids the policy
  3. The applicant must volunteer every fact known to the applicant, whether or not it is material to the risk
  4. The applicant must disclose material facts the insurer needs to evaluate the risk, and concealment or misrepresentation can void coverage Correct answer.

Explanation

Utmost good faith requires each party to deal honestly, and it places on the applicant the duty to disclose facts a prudent underwriter would consider material. A material misrepresentation or concealment gives the insurer grounds to rescind or deny.

Question 39General Insurance Concepts

Which statement correctly distinguishes a representation from a warranty?

  1. A representation is a formal promise that coverage will continue regardless of later changes in the risk, while a warranty is an informal opinion offered at application
  2. A representation must be substantially true; a warranty is a policy condition that must be met exactly Correct answer.
  3. A warranty may be oral and need not appear anywhere in the policy, while a representation must be printed in full in the policy
  4. Both terms describe statements that are made only after a claim has been reported to the insurer

Explanation

A representation is a statement of fact on the application that must be substantially true and made in good faith. A warranty is a promise or condition written into the policy that must be met exactly, or coverage may be affected.

Question 40General Insurance Concepts

A manufacturer keeps the first $250,000 of each loss and buys a policy that pays covered losses above that amount up to $5 million. This arrangement is best described as:

  1. Reinsurance, because the manufacturer has transferred risk to another insurer
  2. Coinsurance, because the insured shares every loss in the same proportion that the policy limit bears to the total value of the property at risk
  3. A self-insured retention with excess coverage, because the insured funds losses up to a set amount and buys insurance above it Correct answer.
  4. A binder, because coverage is temporary until the retained amount is exhausted by losses

Explanation

The insured retains losses up to the stated amount, which is a self-insured retention, and transfers the excess through an excess policy. This is a form of planned risk retention paired with risk transfer.

Question 41Property Insurance Basics

In property insurance, when must the insured have an insurable interest in the covered property?

  1. Only when the application is signed
  2. Continuously from application through expiration
  3. At the time of the loss Correct answer.
  4. Only when a claim is disputed

Explanation

Property insurance requires insurable interest at the time of loss, because that is when the insured must actually suffer a financial detriment. A person may buy coverage on property not yet owned (such as a pending purchase), but recovery requires an interest existing when the loss occurs.

Question 42Property Insurance Basics

Which statement best describes the principle of indemnity?

  1. The insurer must pay the full policy limit for any covered loss
  2. Benefits are based on the insured's stated value at application
  3. The insured may collect from every policy that lists the property
  4. The insured is restored to the pre-loss financial position without profit Correct answer.

Explanation

Indemnity means the insured should be made whole financially, no better and no worse off than before the loss. This principle underlies limits, deductibles, valuation methods, and the restriction on collecting twice for the same loss.

Question 43Property Insurance Basics

Under the actual cash value (ACV) method of valuation, a covered loss is settled by:

  1. Deducting depreciation from the replacement cost of the damaged property Correct answer.
  2. Paying the limit shown on the declarations page regardless of damage
  3. Paying the full cost to replace the damaged item with new property
  4. Paying the original purchase price of the property

Explanation

ACV is commonly computed as replacement cost minus depreciation, reflecting the used value of the property at the time of loss. Policies may define ACV differently, but depreciation is the central feature that distinguishes it from replacement cost.

Question 44Property Insurance Basics

Which information is found on the declarations page of a property policy?

  1. The duties the insured must perform after a loss
  2. The list of perils the policy does not cover
  3. Named insured, covered location, limits, and policy period Correct answer.
  4. The appraisal and umpire procedures

Explanation

The declarations page personalizes the policy by identifying who is insured, what and where property is covered, the limits and deductibles, and the effective dates. The remaining policy sections (insuring agreement, conditions, exclusions) supply the general rules.

Question 45Property Insurance Basics

What is the primary effect of a deductible in a property policy?

  1. It transfers all small losses to the insurer
  2. It removes the insured's duty to report a loss promptly
  3. It increases the policy limit by the deductible amount
  4. It lowers the premium in exchange for the insured retaining small losses Correct answer.

Explanation

A deductible is the portion of each loss the insured absorbs, which eliminates small claims and their handling costs and therefore reduces the premium. It also gives the insured a reason to prevent losses.

Question 46Property Insurance Basics

Which policy section contains the insurer's promise to pay for covered loss?

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

Explanation

The insuring agreement states the insurer's core promise, describing the perils covered, the property covered, and the scope of protection. Conditions, exclusions, and declarations modify or support that promise but do not contain it.

Question 47Property Insurance Basics

A ten-year-old roof has a replacement cost of $20,000 and depreciation of 40%. The policy settles losses at actual cash value and carries a $1,000 deductible. What amount will the insurer pay for a total loss to the roof?

  1. $12,000
  2. $11,000 Correct answer.
  3. $19,000
  4. $20,000

Explanation

Actual cash value equals replacement cost minus depreciation: $20,000 less 40% ($8,000) leaves $12,000. The deductible is then subtracted from that figure, producing an $11,000 payment.

Question 48Property Insurance Basics

A building has a replacement value of $500,000 and is insured for $300,000 under a policy containing an 80% coinsurance clause. What amount of insurance must be carried to avoid a coinsurance penalty?

  1. $500,000
  2. $300,000
  3. $400,000 Correct answer.
  4. $250,000

Explanation

The coinsurance requirement is the stated percentage multiplied by the value of the property at the time of loss. Here 80% of $500,000 is $400,000, so the $300,000 carried is below the requirement and partial losses will be reduced.

Question 49Property Insurance Basics

Which of the following is a duty of the insured after a covered property loss?

  1. Discard damaged property so the site is left clean
  2. Complete all permanent repairs before the insurer inspects the damage
  3. Protect the property from further damage and keep records of expenses Correct answer.
  4. Pay the policy deductible directly to the producing agent

Explanation

Conditions in a property policy require the insured to mitigate further damage, give prompt notice, cooperate with the investigation, and document the loss with inventories and receipts. Reasonable expenses to protect property are typically reimbursed as part of the claim.

Question 50Property Insurance Basics

An insurer pays a $40,000 fire claim and then pursues the negligent contractor who caused the fire to recover that amount. This right is called:

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

Explanation

Subrogation lets the insurer stand in the insured's shoes and recover the loss payment from the party legally responsible. It supports the principle of indemnity by preventing the insured from collecting twice and placing the cost on the wrongdoer.