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MO Property & Casualty practice questions

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Question 1Insurance Regulation

Which agency administers and enforces the insurance laws of Missouri?

  1. The National Association of Insurance Commissioners
  2. The Federal Insurance Office
  3. The Missouri Attorney General's Office
  4. The Missouri Department of Commerce and Insurance Correct answer.

Explanation

Missouri's insurance code is administered by the Missouri Department of Commerce and Insurance, headed by the Director of Insurance, who licenses insurers and producers and enforces the code. The NAIC is a voluntary association of state regulators that drafts model laws but has no enforcement authority of its own.

Question 2Insurance Regulation

How is the Director of the Missouri Department of Commerce and Insurance selected?

  1. Elected by Missouri voters to serve a four-year term of office
  2. Appointed by the Governor with the Senate's consent Correct answer.
  3. Selected by a vote of the insurers authorized in Missouri
  4. Appointed by the NAIC for a term set by the model law

Explanation

The Director is a gubernatorial appointee who takes office after Senate confirmation, making the position part of the executive branch rather than an elected office. Insurers and the NAIC have no role in choosing the Director.

Question 3Insurance Regulation

Under Missouri law, a person who sells, solicits, or negotiates insurance for compensation must first hold:

  1. A certificate of authority from the NAIC
  2. A business license issued by the city where the office is located
  3. A general agent contract with at least one insurer
  4. A producer license for the line of insurance being sold Correct answer.

Explanation

Missouri requires anyone who sells, solicits, or negotiates insurance for compensation to be licensed as a producer for that line before transacting business. Local business licenses and insurer contracts do not substitute for a state producer license.

Question 4Insurance Regulation

Which practice is prohibited as rebating in Missouri?

  1. Sharing part of a commission with a buyer to induce the sale Correct answer.
  2. Providing a written quote that is lower than a competitor's quote
  3. Charging a rate that has been filed with the Director
  4. Paying a commission to a properly licensed producer

Explanation

Rebating is giving back part of the premium or commission, or any other inducement not stated in the policy, to persuade a buyer to purchase insurance. It is prohibited because it produces unfair discrimination among policyholders buying the same coverage.

Question 5Insurance Regulation

Premium that a producer collects from an insured is held:

  1. As an unsecured loan from the insured to the producer
  2. In escrow with the Director until the policy is delivered
  3. In trust for the insurer or the insured Correct answer.
  4. As the producer's own funds once a receipt is issued

Explanation

Premiums collected by a producer are held in a fiduciary capacity for the insurer or the insured, and Missouri law forbids commingling them with the producer's personal or general business funds. The producer must account for and remit the funds promptly.

Question 6Insurance Regulation

Before transacting the business of insurance in Missouri, an insurer must obtain:

  1. A federal charter from the U.S. Treasury
  2. A producer license issued by the Director of the Department
  3. A surety bond filed with the NAIC
  4. A certificate of authority from the Director Correct answer.

Explanation

An insurer must hold a certificate of authority from the Director before it may transact insurance in Missouri. An insurer without one is a nonadmitted insurer and may be used only through the surplus lines process.

Question 7Insurance Regulation

A producer misstates the dividends and cash values of a client's existing policy, knowing the figures are wrong, in order to persuade the client to drop that policy and buy a new one. This conduct is best described as:

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

Explanation

Twisting is a misrepresentation or misleading comparison of an existing policy made to induce the policyholder to lapse, surrender, or replace it. Coercion involves force or threats, and rebating involves giving value to induce a purchase.

Question 8Insurance Regulation

Which of the following is an unfair claim settlement practice under Missouri law?

  1. Denying a claim after a reasonable investigation shows no coverage
  2. Requesting a written proof of loss as required by the policy
  3. Failing to affirm or deny coverage within a reasonable time Correct answer.
  4. Settling a claim within the policy limits after investigation

Explanation

Insurers must handle claims promptly and in good faith, which includes affirming or denying coverage within a reasonable time after receiving a completed proof of loss. A supported denial, a request for required proof of loss, and a timely settlement within limits are all proper conduct.

Question 9Insurance Regulation

An authorized insurer wants a licensed producer to write business on its behalf in Missouri. The insurer must:

  1. File notice of appointment with the Director and keep it in force Correct answer.
  2. Publish notice of the relationship in a newspaper of general circulation
  3. Obtain a separate producer license in its own name for the producer
  4. Wait for the producer to notify the NAIC of the relationship

Explanation

The appointing insurer files a notice of appointment for each producer who will act for it and must keep that appointment in force while the producer represents it. A producer cannot lawfully act for an insurer that has not appointed it.

Question 10Insurance Regulation

A Missouri resident producer must complete how much continuing education during each two-year licensing period?

  1. 24 hours each period, including 6 hours of ethics
  2. 16 hours, including 3 hours of ethics Correct answer.
  3. 8 hours, including 1 hour of ethics
  4. 40 hours, with no ethics requirement

Explanation

Missouri requires resident producers to complete 16 hours of approved continuing education every two years, at least 3 hours of which must cover ethics. The requirement applies to the biennial licensing period and must be satisfied to keep the license in force.

Question 11Insurance Regulation

A Missouri producer is disciplined by another state's insurance regulator. The producer must notify the Missouri Director:

  1. Only at the next license renewal
  2. Never, because another state's order has no effect in Missouri
  3. Within 30 days of the final disposition of the action Correct answer.
  4. Only if the disciplinary matter involved a Missouri policyholder

Explanation

A producer must report an administrative action taken against it by another jurisdiction within 30 days of the final disposition, because the Director must be able to evaluate the producer's continued fitness to hold a Missouri license.

Question 12Insurance Regulation

Which statement about the Missouri Property and Casualty Insurance Guaranty Association is correct?

  1. It pays covered claims of insolvent property and casualty insurers, within statutory limits Correct answer.
  2. It guarantees that a policyholder of an insolvent insurer will receive the full policy limit
  3. It prevents insolvent insurers from being placed into liquidation
  4. It may be used by a producer as a selling point in advertising

Explanation

The guaranty association pays certain covered claims of insolvent property and casualty insurers, subject to statutory limits and deductibles, after the insurer is liquidated. It is a consumer protection backstop, not a guarantee of full policy limits, and it may not be used to induce a sale.

Question 13Insurance Regulation

A producer's unlicensed office assistant explains coverage options to a caller, recommends limits, and closes the sale; the producer then splits the commission with the assistant. Under Missouri law this is:

  1. Acceptable, because the assistant is an employee of a licensed producer
  2. Prohibited; an unlicensed person may not solicit insurance for a commission Correct answer.
  3. Acceptable, because the client was not charged a separate fee
  4. Acceptable, if the commission split is reported to the insurer

Explanation

Only a licensed producer may solicit insurance or share in commissions generated by a sale. Splitting a commission with an unlicensed assistant who discussed coverage and closed the sale violates Missouri licensing law regardless of employment status.

Question 14Insurance Regulation

Under Missouri law, insurance rates must never be:

  1. Lower than the rates of the largest insurer in the market
  2. Excessive, inadequate, or unfairly discriminatory Correct answer.
  3. Changed after they take effect
  4. Filed with the Director before they are used

Explanation

Missouri's rating standards require that rates not be excessive, inadequate, or unfairly discriminatory, balancing affordability for policyholders against insurer solvency. Competition, rather than comparison to a market leader, governs the price level.

Question 15Insurance Regulation

Under Missouri law, policy forms used by an authorized insurer are generally:

  1. Approved only by the NAIC
  2. Not reviewed by any regulator because forms are unregulated
  3. Filed with the Director, who may disapprove noncomplying forms Correct answer.
  4. Required to be notarized by the insured before use

Explanation

Insurers submit policy forms to the Director, who has authority to disapprove forms that are misleading, ambiguous, or otherwise violate the insurance code. Form review protects policyholders by ensuring contracts comply with statutory requirements.

Question 16Insurance Regulation

A Missouri surplus lines producer may place coverage with a nonadmitted insurer:

  1. Only after a diligent search of authorized insurers fails Correct answer.
  2. Whenever the nonadmitted insurer quotes a lower premium
  3. Whenever the insured signs a waiver of guaranty fund protection
  4. Only for life and health insurance

Explanation

Surplus lines is a market of last resort: coverage may be placed with a nonadmitted but eligible insurer only after a diligent effort to obtain it from authorized insurers. A lower price alone is never a lawful reason to use a nonadmitted insurer.

Question 17Insurance Regulation

An insurer domiciled in another state that is authorized to do business in Missouri is generally required to:

  1. Reinsure all of its Missouri risks with a Missouri insurer
  2. Maintain its principal office in Jefferson City
  3. Deposit securities with the NAIC
  4. Appoint the Director as its agent for service of process Correct answer.

Explanation

As a condition of authority, an out-of-state insurer must designate the Director as its agent for service of process so that Missouri claimants and regulators can serve legal papers on it. This protects Missouri residents from having to pursue an insurer in a distant state.

Question 18Insurance Regulation

The Missouri Director's authority to examine a licensed producer's insurance records is best described as follows:

  1. Only during the producer's biennial renewal period
  2. Only with the producer's prior written consent and only during business hours
  3. Only after a court issues a search warrant
  4. At any time; refusal is grounds for license suspension or revocation Correct answer.

Explanation

The Director has broad examination authority over licensees and may inspect books and records relating to insurance transactions whenever necessary to verify compliance. Refusing to submit to an examination is itself a violation that can lead to suspension or revocation.

Question 19Insurance Regulation

After a hearing, the Director issues a final order suspending a producer's license. The producer's proper remedy is to:

  1. Petition for judicial review in the appropriate Missouri court Correct answer.
  2. Ask the insurer to indemnify the producer for the penalty imposed
  3. File a new license application
  4. Ask the NAIC to overrule the Director

Explanation

A person aggrieved by a final order of the Director after an administrative hearing may seek judicial review in the appropriate Missouri court. The NAIC has no authority to review or reverse a state regulator's order.

Question 20Insurance Regulation

A Missouri producer knowingly places coverage for a client with an insurer that is neither authorized in Missouri nor an eligible surplus lines insurer. The producer:

  1. Has acted properly if the insurer is authorized in the producer's home state
  2. Has violated Missouri law and may have its license suspended or revoked Correct answer.
  3. Has committed no violation because the insured chose the insurer
  4. Has acted properly if the insured signed a consent form

Explanation

Placing business with an unauthorized insurer outside the surplus lines framework is prohibited and exposes the producer to license suspension or revocation and civil penalties. The insured's consent or the insurer's authority in another state does not cure the violation in Missouri.

Question 21General Insurance Concepts

For a property insurance policy, insurable interest means that the insured:

  1. holds a clear deed with no mortgage or lien encumbering it
  2. would suffer a financial loss from its damage Correct answer.
  3. is named as mortgagee on the policy
  4. lives on the insured premises

Explanation

Insurable interest exists when the insured would suffer a genuine financial loss if the property were damaged or destroyed. Unencumbered ownership is not required, and occupancy alone does not establish an interest.

Question 22General Insurance Concepts

The principle of indemnity in property insurance means the insured is restored to:

  1. an amount that includes expected future profits
  2. the same financial position as before the loss, no better Correct answer.
  3. the policy limit for every covered loss
  4. the full purchase price of damaged property with no depreciation deduction

Explanation

Indemnity puts the insured back in approximately the same financial position held before the loss, without profit. Recovery is therefore limited to the actual value of the loss, subject to policy limits.

Question 23General Insurance Concepts

An insurance policy is described as a contract of adhesion because:

  1. the applicant dictates the policy wording
  2. both parties negotiate each term of the agreement before signing
  3. the insurer writes the terms and the applicant accepts them Correct answer.
  4. the courts supply the terms of the agreement

Explanation

In a contract of adhesion one party drafts the agreement and the other takes it or leaves it. Because the insurer controls the language, ambiguities are generally construed against the insurer.

Question 24General Insurance Concepts

Insurance is classified as an aleatory contract because:

  1. the parties exchange equal value at the start of the contract
  2. only one party is legally bound to perform under the contract
  3. the amounts exchanged are unequal and depend on chance Correct answer.
  4. the contract must be in writing to be enforceable at law

Explanation

An aleatory contract depends on an uncertain event, so the values exchanged may be very unequal. A small premium can produce a large claim payment, or no payment at all.

Question 25General Insurance Concepts

Which of the following is a pure risk?

  1. the chance of winning a state lottery
  2. the chance that a new product outsells all expectations
  3. the chance that fire destroys a warehouse Correct answer.
  4. the chance that a stock rises in value

Explanation

A pure risk involves only the possibility of loss or no loss, never gain, which is why it is insurable. Speculative risks offer the chance of profit as well as loss and are generally not insured.

Question 26General Insurance Concepts

Which of the following is a peril rather than a hazard?

  1. fire Correct answer.
  2. faulty wiring
  3. oily rags stored in a closet
  4. an icy sidewalk

Explanation

A peril is the actual cause of loss, such as fire, wind, or theft. A hazard is a condition that increases the chance or severity of a loss, and the other choices describe such conditions.

Question 27General Insurance Concepts

An insured who stops locking his bicycle because he now carries theft insurance is creating which type of hazard?

  1. moral hazard
  2. morale hazard Correct answer.
  3. legal hazard
  4. physical hazard

Explanation

Morale hazard is carelessness or indifference toward loss that arises because insurance exists. Moral hazard involves a dishonest intent to cause or exaggerate a loss, while physical hazard is a tangible condition of the property.

Question 28General Insurance Concepts

An insurer pays a $30,000 collision claim and then recovers $30,000 from the at-fault driver's insurer, since the insured cannot collect twice. This right of recovery is called:

  1. coinsurance
  2. contribution
  3. salvage
  4. subrogation Correct answer.

Explanation

Subrogation lets an insurer that has paid a loss step into the insured's shoes and pursue recovery from the party legally responsible. It supports the indemnity principle by preventing double recovery.

Question 29General Insurance Concepts

A building with a replacement cost of $1,000,000 is insured for $600,000 under a policy with an 80% coinsurance clause and a $100,000 covered loss. Ignoring any deductible, how much does the insurer pay?

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

Explanation

The required amount of insurance is 80% of $1,000,000, or $800,000. Payment is the loss multiplied by the ratio of carried insurance to required insurance: ($600,000 / $800,000) x $100,000 = $75,000.

Question 30General Insurance Concepts

Two property policies cover the same building against the same loss: Policy A with a $100,000 limit and Policy B with a $300,000 limit. Each contains a pro rata other insurance clause, and a covered $40,000 loss occurs. How much does Policy A pay?

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

Explanation

Under pro rata sharing, each policy pays the loss in the proportion that its limit bears to the total limits. Policy A's share is ($100,000 / $400,000) x $40,000 = $10,000.

Question 31General Insurance Concepts

A roof with a replacement cost of $20,000 and an expected useful life of 25 years is destroyed after 10 years. Using straight-line depreciation, what is its actual cash value?

  1. $20,000
  2. $8,000
  3. $10,000
  4. $12,000 Correct answer.

Explanation

Straight-line depreciation spreads the cost evenly over the useful life, so accumulated depreciation is (10/25) x $20,000 = $8,000. Actual cash value is replacement cost minus depreciation, or $20,000 - $8,000 = $12,000.

Question 32General Insurance Concepts

An insurer's written agency agreement states that the agent may bind coverage on the insurer's behalf. This authority is:

  1. fiduciary authority
  2. apparent authority
  3. implied authority
  4. express authority Correct answer.

Explanation

Express authority is granted in writing, either in the agency contract or by statute. Implied authority covers customary acts needed to carry out express powers, and apparent authority arises from the insurer's conduct toward the public.

Question 33General Insurance Concepts

An adjuster tells an insured in writing that a proof of loss filed after the deadline will be accepted, then later denies the claim for late filing. The insured will most likely succeed under the doctrine of:

  1. concealment
  2. subrogation
  3. estoppel Correct answer.
  4. coinsurance

Explanation

Estoppel prevents a party from asserting a right after conduct or a promise has led another party to rely on it to their detriment. The adjuster voluntarily waived the deadline, and the insured relied on that assurance.

Question 34General Insurance Concepts

Which statement about representations in an insurance application is correct?

  1. Representations have no legal effect once the policy has been issued.
  2. A representation is a statement believed true to the best of the applicant's knowledge. Correct answer.
  3. A representation must be literally and exactly true in every detail, or the policy is void from inception.
  4. A representation is a promise that a future condition will exist.

Explanation

A representation is a statement of fact made to induce the insurer to issue the policy, and it is judged by whether it is substantially true to the best of the applicant's knowledge. A material misrepresentation can give the insurer grounds to void the policy.

Question 35General Insurance Concepts

A binder issued by an agent provides:

  1. a written list of the perils the policy excludes
  2. a promise to consider the application within 30 days
  3. permanent coverage that the insurer cannot cancel
  4. temporary evidence of coverage until the policy is issued Correct answer.

Explanation

A binder is temporary evidence that insurance is in effect while the application is underwritten and the policy is issued. It is subject to the terms of the policy to be issued and can generally be cancelled according to its terms.

Question 36General Insurance Concepts

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

  1. increase the policy limit for each loss
  2. satisfy the coinsurance requirement
  3. transfer risk to the producer
  4. eliminate small claims and lower premiums Correct answer.

Explanation

A deductible leaves the first layer of each loss with the insured, which removes small claims and reduces the insurer's handling costs. Those savings are passed along as lower premiums.

Question 37General Insurance Concepts

A windstorm tears the roof off a house, and rain entering through the opening damages the interior. The policy insures windstorm and excludes damage caused by rain to the interior of a building. How is the interior damage handled?

  1. The interior damage is covered because the windstorm is the proximate cause of the loss. Correct answer.
  2. The interior damage is shared equally between the covered and excluded perils.
  3. Only the cost of removing the tree and debris is covered.
  4. The interior damage is not covered because rain damage to the interior is excluded.

Explanation

Under the doctrine of proximate cause, the insurer looks to the efficient cause of the loss rather than the last event in the chain. Because wind opened the roof and set the rain damage in motion, the excluded rain peril is not the operative cause.

Question 38General Insurance Concepts

A primary insurer purchases reinsurance chiefly to:

  1. increase capacity by transferring part of the risk Correct answer.
  2. guarantee a profit on each policy it issues
  3. satisfy state rate filing requirements for admitted insurers
  4. end its legal obligations to its own policyholders when a claim arises

Explanation

Reinsurance transfers a portion of the insurer's risk to a reinsurer, freeing capital and surplus so the company can write more and larger risks. It is an indemnity agreement between insurers and does not change the original insurer's duty to its policyholders.

Question 39General Insurance Concepts

A claims-made liability policy has a retroactive date of January 1, 2023 and a policy period of January 1, 2024 to January 1, 2025. Which claim is covered?

  1. An injury that occurred February 1, 2025 and was reported April 1, 2025
  2. An injury that occurred March 1, 2024 and was reported March 1, 2026
  3. An injury that occurred June 1, 2023 and was reported September 1, 2024 Correct answer.
  4. An injury that occurred March 1, 2022 and was reported July 1, 2024

Explanation

A claims-made policy covers injury that occurs on or after the retroactive date and is reported during the policy period. This injury occurred after January 1, 2023 and was reported within the January 1, 2024 to January 1, 2025 term.

Question 40General Insurance Concepts

An insurer and an insured agree that a property loss is covered but cannot agree on its dollar amount. The policy condition typically provides for:

  1. arbitration of the coverage dispute by a neutral panel
  2. appraisal, with each side choosing a competent appraiser Correct answer.
  3. rescission of the policy back to its inception date
  4. a declaratory judgment action filed in court

Explanation

Appraisal is the policy mechanism for resolving disputes about the amount of a covered loss, not about whether coverage applies. Each party selects a competent appraiser, and an umpire resolves differences if the appraisers disagree.

Question 41Property Insurance Basics

In property insurance, at what point must insurable interest exist for the insured to collect for a loss?

  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 the policy is renewed

Explanation

Property insurance indemnifies only a person who actually suffers a financial loss from damage to the property, so insurable interest must exist when the loss occurs. A policy can be validly issued even if the insured's interest later changes, but no recovery is owed to someone with no interest at the time of loss.

Question 42Property Insurance Basics

The principle of indemnity in property insurance is intended to:

  1. allow the insured to earn a profit from a covered loss
  2. pay the full purchase price of destroyed property without depreciation
  3. allow the insured to collect from several policies for one loss
  4. restore the insured to the same financial position as before Correct answer.

Explanation

Indemnity means the insured is made whole, no better and no worse, after a covered loss. Payment is therefore limited to the actual amount of the loss so the insured cannot profit from insurance.

Question 43Property Insurance Basics

Actual cash value (ACV) is generally defined as replacement cost:

  1. less the policy deductible
  2. plus the coinsurance penalty
  3. less accumulated depreciation Correct answer.
  4. less the salvage value only

Explanation

Actual cash value reflects what the damaged property was worth just before the loss, so depreciation is subtracted from the cost to replace it. The deduction keeps the payment consistent with the indemnity principle.

Question 44Property Insurance Basics

How does replacement cost coverage differ from actual cash value coverage?

  1. It pays only after the insured has abandoned the property
  2. It pays the outstanding mortgage balance after a total loss
  3. It pays the original purchase price of the property
  4. It pays the cost to replace with new property of like kind and quality Correct answer.

Explanation

Replacement cost coverage pays what it costs today to repair or replace the damaged property with new property of comparable kind and quality, with no deduction for depreciation. Because this exceeds indemnity, many forms require the insured to actually repair or replace before the full amount is paid.

Question 45Property Insurance Basics

The declarations page of a property policy is used to:

  1. list every exclusion that applies to the policy form
  2. explain how a dispute over the value of a claim is resolved
  3. describe the insured's duties after a covered loss occurs
  4. identify the insured, the covered property, limits, and policy period Correct answer.

Explanation

The declarations personalize the policy by naming the insured, describing the covered property and locations, stating limits and deductibles, and showing the effective and expiration dates. Exclusions, duties, and appraisal procedures appear in the form itself, not on the declarations.

Question 46Property Insurance Basics

The purpose of a coinsurance clause in a commercial property policy is to:

  1. require the insurer to pay a share of every loss regardless of the limit purchased
  2. guarantee full payment of small losses without applying a deductible
  3. prevent the insured from buying coverage from more than one insurer
  4. encourage the insured to carry a limit close to the full value of the property Correct answer.

Explanation

A coinsurance clause sets a required limit as a percentage of the property's value and penalizes the insured who insures below that level. The penalty reduces the claim payment proportionally, which gives the insured an incentive to insure to value.

Question 47Property Insurance Basics

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

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

Explanation

The required limit is 80% of $500,000, or $400,000. Because the insured carried only $300,000, the payment is ($300,000 / $400,000) x $100,000 = $75,000. The insured absorbs the remaining $25,000 as the coinsurance penalty.

Question 48Property Insurance Basics

A covered loss of $6,000 occurs under a policy with a $100,000 limit and a $2,000 deductible. What amount does the insurer pay?

  1. $2,000
  2. $4,000 Correct answer.
  3. $8,000
  4. $6,000

Explanation

The deductible is subtracted from the covered loss before payment, so the insurer pays $6,000 minus $2,000, or $4,000. The limit is far above the loss and does not affect the calculation.

Question 49Property Insurance Basics

A loss of $20,000 is covered by two policies: Policy A with a $60,000 limit and Policy B with a $40,000 limit. Under pro rata other-insurance treatment, how much does Policy A pay?

  1. $20,000
  2. $10,000
  3. $12,000 Correct answer.
  4. $8,000

Explanation

Under pro rata sharing, each policy pays the proportion of the loss that its limit bears to the total insurance. Policy A carries $60,000 of the $100,000 total, or 60%, so it pays 60% of $20,000, which is $12,000.

Question 50Property Insurance Basics

After paying a covered property loss, an insurer's right of subrogation allows it to:

  1. cancel the policy without returning unearned premium
  2. raise the insured's premium to recover the amount paid
  3. seek reimbursement from the party legally responsible for the loss Correct answer.
  4. take ownership of the insured's property at the loss site

Explanation

Subrogation transfers to the insurer the insured's right to recover from the party that caused the loss, up to the amount the insurer paid. It supports the indemnity principle by preventing the insured from collecting twice and by placing the cost on the responsible party.