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NC Claims Adjuster practice questions

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Question 1Insurance Principles and Concepts

Which insurance principle holds that a payment for a covered loss should leave the insured in roughly the same financial position as before the loss, no better and no worse?

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

Explanation

The principle of indemnity limits recovery to the value of the loss so the insured is restored rather than enriched. It underlies policy limits, deductibles, and valuation methods such as actual cash value.

Question 2Insurance Principles and Concepts

In property insurance, the insured must have an insurable interest at which point in time?

  1. At the time of the loss Correct answer.
  2. Only when the application is signed
  3. Only when the policy is first renewed
  4. Continuously from application through expiration

Explanation

Property coverage requires insurable interest when the loss occurs, because indemnity is measured by the insured's actual financial exposure at that moment. Life insurance is different: there the interest must exist when the contract is formed.

Question 3Insurance Principles and Concepts

An insurer collects premiums from thousands of homeowners and uses those funds to pay the covered losses of the few. This arrangement is best described as:

  1. Pooling of risk Correct answer.
  2. Retention
  3. Self-insurance
  4. Speculation

Explanation

Pooling combines many similar but independent exposures so the cost of the few losses is shared across the whole group. This is the central mechanism by which insurers assume and spread risk.

Question 4Insurance Principles and Concepts

A deductible in a property policy works mainly by:

  1. Raising the limit for small claims
  2. Keeps a stated share of each loss with the insured Correct answer.
  3. Removing coinsurance from the policy
  4. Shifting the first dollar of loss to the insurer

Explanation

The deductible is subtracted from each covered loss, so the insured bears that amount before the insurer pays anything. This reduces small claims, lowers premium, and keeps the insured sharing in the cost of losses.

Question 5Insurance Principles and Concepts

Which policy section names the insured, shows the policy period and limits, and describes the property covered?

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

Explanation

The declarations page summarizes the individual risk: who is insured, what is covered, for how long, and for how much. The other sections state the promise to pay, the duties of the parties, and the limits on coverage.

Question 6Insurance Principles and Concepts

Why do insurers place exclusions in a policy?

  1. To explain how a claim will be paid once reported
  2. To broaden coverage beyond the insuring agreement
  3. To satisfy filing rules for rate increases
  4. To remove risks the insurer cannot or will not insure Correct answer.

Explanation

Exclusions carve out exposures that are uninsurable by law, better covered elsewhere, or outside the risk the insurer meant to accept. They keep the premium matched to the risk actually transferred.

Question 7Insurance Principles and Concepts

The doctrine of utmost good faith in insurance requires that:

  1. The insurer pay every claim submitted
  2. The agent complete the application for the applicant
  3. Both parties deal honestly and disclose material facts Correct answer.
  4. Only the insurer disclose material facts

Explanation

Insurance depends on each side relying on the other's candor, so both applicant and insurer must disclose material information and deal honestly. Breach by an applicant can support rescission, while breach by an insurer can support a bad faith claim.

Question 8Insurance Principles and Concepts

Insurance is called an aleatory contract because:

  1. The amounts exchanged may be unequal Correct answer.
  2. It follows the person of the insured
  3. Only one party makes an enforceable promise
  4. Its terms are drafted by the insurer alone

Explanation

An aleatory contract depends on an uncertain event, so what one party receives may be far more or far less than what it paid. A modest premium can produce a large claim payment, or no payment at all.

Question 9Insurance Principles and Concepts

An insurer pays its insured for a collision caused by another driver, then sues that driver to recover the amount paid. The insurer is exercising:

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

Explanation

Subrogation transfers the insured's right to recover from the responsible party to the insurer once the loss is paid. It prevents double recovery by the insured and places the cost on the party at fault.

Question 10Insurance Principles and Concepts

Two policies with equal coverage apply to the same loss. The insured collects from one insurer, and the two insurers then divide the loss. This sharing is called:

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

Explanation

Contribution is the right of an insurer that paid more than its share to recover the excess from other insurers covering the same interest. It supports indemnity by preventing the insured from collecting twice.

Question 11Insurance Principles and Concepts

In insurance, proximate cause means:

  1. Any cause that contributes in any degree
  2. The cause closest in time to the damage
  3. The dominant cause that sets the loss in motion Correct answer.
  4. The last event in the chain before damage

Explanation

Proximate cause is the efficient, dominant cause that starts the chain of events without a break. Coverage generally follows that cause even when a later event in the chain is excluded.

Question 12Insurance Principles and Concepts

An insured who deliberately burns a failing business to collect insurance presents an example of:

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

Explanation

Moral hazard is a dishonest tendency to create or exaggerate a loss in order to collect insurance. It differs from morale hazard, which is carelessness or indifference that arises from having coverage.

Question 13Insurance Principles and Concepts

A building with a replacement value of $500,000 is insured for $300,000 under a policy containing an 80% coinsurance requirement. A $100,000 covered loss occurs. Ignoring any deductible, the insurer pays:

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

Explanation

The coinsurance requirement is 80% of $500,000, or $400,000, and the insured carried $300,000, which is 75% of the requirement. Applying that fraction to the $100,000 loss produces a payment of $75,000.

Question 14Insurance Principles and Concepts

Actual cash value is ordinarily determined as:

  1. Replacement cost plus depreciation
  2. Replacement cost minus depreciation Correct answer.
  3. Assessed value of the land and structure
  4. Original purchase price without adjustment

Explanation

Actual cash value reflects what the damaged property was worth just before the loss, commonly replacement cost less depreciation. Some states define it differently, so the policy wording and state law control.

Question 15Insurance Principles and Concepts

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

  1. It pays only after the damaged property is sold
  2. It limits payment to the remaining mortgage balance
  3. It pays repair or replacement without depreciation Correct answer.
  4. It pays the original price paid for the damaged item

Explanation

Replacement cost coverage pays what it costs today to repair or replace with like kind and quality, with no deduction for depreciation. Insurers often require the repair or replacement to be completed before releasing the full amount.

Question 16Insurance Principles and Concepts

A temporary written or oral agreement that provides coverage immediately while the policy is being issued is a:

  1. Binder Correct answer.
  2. Declarations page
  3. Endorsement
  4. Warranty

Explanation

A binder is temporary evidence of coverage that takes effect at once and lasts until the policy is issued or the binder expires. Its terms are those of the policy form it contemplates.

Question 17Insurance Principles and Concepts

An adjuster tells the insured that a late proof of loss will be accepted, and the insurer later relies on the lateness to deny the claim. The insured's best argument is that the insurer:

  1. Reformed the policy
  2. Waived the deadline Correct answer.
  3. Was subrogated
  4. Reserved its rights

Explanation

Waiver is the voluntary relinquishment of a known right, and a statement accepting a late filing can waive the deadline. Whether the waiver is enforceable often turns on the insured's reliance on that statement.

Question 18Insurance Principles and Concepts

When a court finds that policy wording is genuinely ambiguous, the usual result is that the wording is:

  1. Referred to the state insurance department
  2. Read against the insurer that drafted it Correct answer.
  3. Struck from the policy
  4. Replaced with the insurer's intended meaning

Explanation

Because the insurer drafts the policy and the insured has little bargaining power over its terms, ambiguity is construed in favor of the insured. This is the contra proferentem rule.

Question 19Insurance Principles and Concepts

A claims-made liability policy responds to:

  1. Incidents reported by the insured before inception
  2. Injuries that occur during the policy period whenever reported
  3. Injuries that occur after the policy expires
  4. Claims first made against the insured during the policy period Correct answer.

Explanation

A claims-made form is triggered by the date the claim is first made or reported, not by the date of the injury. An occurrence form, by contrast, responds to injury or damage that takes place during the policy period.

Question 20Insurance Principles and Concepts

How does the law of large numbers help an insurer set rates?

  1. It requires each risk to be priced on its own loss history
  2. It forces regulators to approve every rate filing
  3. It guarantees that no single policy will produce a loss
  4. Losses become more predictable as similar exposures grow Correct answer.

Explanation

As an insurer covers more similar, independent exposures, actual loss experience tends to converge on the expected value. That predictability allows the insurer to estimate future losses and price coverage reliably.

Question 21Insurance Principles and Concepts

After a fire destroys a building, the insured tells the insurer to keep the remains and pay the full policy limit. Under standard property forms, the insured:

  1. Forfeits all coverage by offering the remains
  2. Must transfer title before any payment is made
  3. May abandon the property and demand the full limit
  4. Cannot abandon the property to the insurer Correct answer.

Explanation

Standard property policies contain an abandonment condition stating that the insured may not abandon damaged property to the insurer. Salvage remains with the insured, although the insurer may take it after paying a total loss and may credit its value when it does not.

Question 22Insurance Principles and Concepts

A covered windstorm causes a building to collapse, and the policy excludes loss caused by collapse. Under the efficient proximate cause rule, the loss is:

  1. Split evenly between the insurer and the insured
  2. Excluded, because an excluded event followed the covered peril
  3. Measured by which peril caused the larger share of damage
  4. Covered, because the covered peril set the loss in motion Correct answer.

Explanation

The efficient proximate cause rule looks to the peril that started the chain of events without a break. When that peril is covered, the loss is covered even if a later event in the chain falls within an exclusion.

Question 23Insurance Principles and Concepts

Which statement best describes estoppel?

  1. It is the voluntary surrender of a known right
  2. It requires a written endorsement
  3. It bars a right after detrimental reliance Correct answer.
  4. It applies only to life policies

Explanation

Estoppel prevents a party from asserting a right or defense when another party has relied on that party's conduct and would be harmed by the change. Waiver is the voluntary relinquishment of a known right, and the two concepts often appear together.

Question 24Insurance Principles and Concepts

An applicant for a homeowners policy says the roof is five years old when it is twenty. After a roof claim, the insurer learns the truth. The insurer's strongest ground to rescind is that the statement was:

  1. Innocent rather than intentional
  2. Immaterial because the roof was inspected
  3. A warranty rather than a representation
  4. Material to the decision to accept the risk Correct answer.

Explanation

A misrepresentation supports rescission when it is material, meaning it would have affected the insurer's decision to issue the policy or to set its terms. Intent or fault is not always required once materiality is established.

Question 25Insurance Principles and Concepts

How does the reasonable expectations doctrine differ from contra proferentem?

  1. It requires proof that the insurer acted in bad faith
  2. It limits all recoveries to the stated policy limits
  3. It can protect expectations even when wording is clear Correct answer.
  4. It applies only when the policy language is ambiguous

Explanation

Contra proferentem is a rule of interpretation used only when language is ambiguous. The reasonable expectations doctrine can, in some jurisdictions, protect an insured's objectively reasonable coverage expectations even when the text is clear.

Question 26Insurance Principles and Concepts

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

  1. at the time of the loss Correct answer.
  2. throughout every day of the policy period
  3. at the policy's expiration date
  4. only when the application is signed

Explanation

Property insurance is a contract of indemnity, so the insured must stand to lose financially at the moment the loss occurs. Insurable interest is therefore tested at the time of loss; an owner who has already sold the property has nothing to indemnify.

Question 27Insurance Principles and Concepts

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

  1. both parties bargain over each clause before the policy is issued
  2. one party drafts the terms and the other merely accepts them Correct answer.
  3. the insured must pay the full premium before coverage can begin
  4. only the insurer is legally bound by the terms of the agreement

Explanation

A contract of adhesion is prepared by one party and offered on a take-it-or-leave-it basis, which is why genuinely ambiguous wording is construed against the drafter. The insured has no realistic opportunity to negotiate the standardized form.

Question 28Insurance Principles and Concepts

Which of the following is an example of a pure risk?

  1. owning a home that may be damaged by fire Correct answer.
  2. investing in a new product line that may fail
  3. gambling on a sporting event
  4. buying stock that may lose value

Explanation

A pure risk involves only the chance of loss or no loss, with no possibility of gain, which is the type of risk insurance is designed to handle. Speculative risks carry a chance of profit and are generally uninsurable.

Question 29Insurance Principles and Concepts

A warehouse owner stops maintaining the sprinkler system because a fire would be covered by insurance. This behavior is best described as:

  1. adverse selection
  2. moral hazard
  3. morale hazard Correct answer.
  4. physical hazard

Explanation

Morale hazard is carelessness or indifference toward loss created by the presence of insurance, and it often appears as deferred maintenance. Moral hazard, by contrast, involves a dishonest or intentional act such as arson.

Question 30Insurance Principles and Concepts

In insurance terminology, a condition that increases the chance or severity of a loss is a:

  1. occurrence
  2. peril
  3. risk
  4. hazard Correct answer.

Explanation

A hazard is a condition that makes a loss more likely or more severe, such as oily rags in a storage room. The peril is the cause of the loss itself, such as fire or windstorm.

Question 31Insurance Principles and Concepts

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

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

Explanation

The declarations page supplies the specific facts of the individual policy: who is insured, what is covered, the limits, the deductible, and the policy term. The other sections describe coverage in general terms rather than identifying the particular risk.

Question 32Insurance Principles and Concepts

The purpose of the insuring agreement in a policy is to:

  1. state the insurer's promise to pay for covered losses Correct answer.
  2. identify the property and persons covered
  3. list the duties the insured must perform after a loss
  4. describe the losses the policy will not cover

Explanation

The insuring agreement is the core promise of the policy; it names the coverages or perils provided and the general scope of protection. Limits, duties, and exclusions appear in other sections.

Question 33Insurance Principles and Concepts

A form used to change or add to the terms of an already issued policy is called a(n):

  1. declaration page
  2. certificate of insurance
  3. endorsement Correct answer.
  4. binder

Explanation

An endorsement, sometimes called a rider, is attached to an existing policy to add, delete, or alter coverage. Where an endorsement conflicts with the original form, the endorsement controls.

Question 34Insurance Principles and Concepts

A policy has a $1,000 deductible and a $10,000 limit of liability. A covered loss totals $12,000. How much does the insurer pay?

  1. $9,000
  2. $11,000
  3. $12,000
  4. $10,000 Correct answer.

Explanation

The deductible is applied to the covered loss first, which yields $11,000, but the insurer never pays more than the policy limit. The payment is therefore capped at $10,000.

Question 35Insurance Principles and Concepts

An aggregate limit of liability applies to:

  1. the total of all covered losses during the policy period Correct answer.
  2. each claim separately during the policy period
  3. only losses that occur in the final month of the policy
  4. the amount paid for defense costs alone

Explanation

An aggregate limit caps the total the insurer will pay for all covered losses within a policy period, while a per-occurrence limit caps each single loss. Once the aggregate is exhausted, no further claims are paid for that period.

Question 36Insurance Principles and Concepts

In a claims-made liability policy, the retroactive date:

  1. is the first day of each renewal term
  2. sets the date by which a claim must be reported
  3. marks the end of the extended reporting period
  4. bars coverage for wrongful acts that occurred before it Correct answer.

Explanation

The retroactive date is the earliest date of a wrongful act that a claims-made policy will cover. Acts occurring before that date are excluded even if the claim is first made during the policy period.

Question 37Insurance Principles and Concepts

How does a third-party liability claim differ from a first-party claim?

  1. Coverage is limited to damage to the insured's own property.
  2. The insurer owes no duty to defend in a third-party claim.
  3. The claimant is always the named insured under the policy.
  4. The demand comes from someone other than the insured. Correct answer.

Explanation

A first-party claim is made by the insured for its own loss, while a third-party claim is a demand by an injured person against the insured that the insurer handles under liability coverage. The duty to defend applies to covered third-party suits.

Question 38Insurance Principles and Concepts

Damages intended to restore an injured party to the financial position held before the loss are called:

  1. compensatory damages Correct answer.
  2. punitive damages
  3. treble damages
  4. nominal damages

Explanation

Compensatory damages make the injured party whole by covering economic losses such as medical bills and lost wages, and sometimes non-economic losses such as pain and suffering. They are not intended to punish the defendant.

Question 39Insurance Principles and Concepts

Punitive damages in a liability claim are awarded to:

  1. pay the claimant's attorney fees
  2. punish the defendant and deter similar conduct Correct answer.
  3. restore damaged property to its pre-loss value
  4. reimburse medical bills and lost wages

Explanation

Punitive damages are awarded when a defendant's conduct is especially egregious, to punish that conduct and discourage others from repeating it. They are separate from the claimant's actual losses.

Question 40Insurance Principles and Concepts

A jurisdiction applies pure comparative negligence. A claimant with $100,000 in proven damages is found 30% at fault. What does the claimant recover?

  1. $0
  2. $30,000
  3. $70,000 Correct answer.
  4. $100,000

Explanation

Under pure comparative negligence, the claimant's recovery is reduced by the claimant's percentage of fault, so 30% fault reduces $100,000 to $70,000. The claimant still recovers even though partly at fault.

Question 41Insurance Principles and Concepts

The doctrine of res ipsa loquitur allows a claimant to:

  1. hold a manufacturer liable without any showing of fault
  2. infer negligence from the circumstances of the accident Correct answer.
  3. shift the burden of proof to the insurer
  4. recover without proving that any injury occurred

Explanation

Res ipsa loquitur, meaning the thing speaks for itself, permits a jury to infer negligence when an accident would not ordinarily happen without negligence and the instrumentality was under the defendant's control. It is an evidentiary inference, not a substitute for proving injury.

Question 42Insurance Principles and Concepts

A delivery driver negligently injures a pedestrian while making deliveries for an employer. Under vicarious liability:

  1. the employer may be held liable for the driver's negligence Correct answer.
  2. only the driver can ever be held liable for the injury
  3. the employer is liable only if the driver was uninsured
  4. the pedestrian must prove the employer was directly negligent

Explanation

Vicarious liability holds an employer responsible for an employee's negligent acts committed within the scope of employment, without proof that the employer itself was negligent. The employer may also face direct liability for negligent hiring or supervision.

Question 43Insurance Principles and Concepts

Strict liability most commonly applies to:

  1. claims of slander against a competitor
  2. blasting and other abnormally dangerous activities Correct answer.
  3. written contracts between businesses
  4. ordinary slips and falls in a grocery store

Explanation

Strict liability imposes liability without proof of negligence, and it is most often applied to abnormally dangerous activities such as blasting and to defective products that cause injury.

Question 44Insurance Principles and Concepts

Apparent authority of an insurance agent arises from:

  1. the terms of the written agency agreement between the agent and the insurer
  2. the filed underwriting guidelines that the insurer uses to classify risks
  3. the rate and form filings the insurer makes with the state
  4. the insurer's words or conduct toward third parties Correct answer.

Explanation

Apparent authority rests on the reasonable belief of a third party created by the insurer's own words or conduct, even when the agent exceeded actual authority. The insurer may be bound by acts that appear to be authorized.

Question 45Insurance Principles and Concepts

An adjuster suspects a claim may not be covered but needs more time to investigate. The best practice is to:

  1. send a reservation of rights letter while investigating Correct answer.
  2. pay the claim in full and seek reimbursement later
  3. take no action until the insured files suit
  4. deny the claim immediately and close the file

Explanation

A reservation of rights letter informs the insured that the insurer will keep investigating or defending while preserving its right to deny coverage later. It protects the insurer from being deemed to have waived a coverage defense.

Question 46Insurance Principles and Concepts

During a fire loss investigation, the insurer asks the insured to submit to an examination under oath. If the insured refuses without justification:

  1. the insured breaches a policy duty and may lose coverage Correct answer.
  2. the claim is automatically referred to arbitration
  3. the insurer must pay the claim within thirty days
  4. the insurer must file suit to compel the examination

Explanation

The examination under oath is a policy condition the insured must satisfy, and an unjustified refusal is a breach that can bar recovery. The insurer needs no court order to request it while the claim is pending.

Question 47Insurance Principles and Concepts

An insurer denies a clearly covered claim with no reasonable basis and ignores the evidence in its own claim file. The insurer is most likely exposed to:

  1. cancellation of the policy by the state guaranty fund
  2. extra-contractual damages for bad faith Correct answer.
  3. a reduced premium on the next renewal
  4. no consequence, because coverage decisions are discretionary

Explanation

An insurer that denies a covered claim without a reasonable basis may be liable beyond the policy limit for bad faith, including consequential and sometimes punitive damages. The duty of good faith and fair dealing runs to the insured.

Question 48Insurance Principles and Concepts

The appraisal provision in a property policy is used to resolve disputes about:

  1. which policy applies to a loss
  2. the amount of the loss Correct answer.
  3. whether the insured committed fraud
  4. whether the policy was properly cancelled

Explanation

Appraisal resolves disagreements about the amount of damage between the insured's appraiser and the insurer's appraiser, with an umpire deciding if they cannot agree. It does not decide whether coverage exists.

Question 49Insurance Principles and Concepts

A reinsurance agreement between two insurers:

  1. shifts part of the ceding insurer's risk to another insurer Correct answer.
  2. gives the original insured a direct claim against the reinsurer
  3. replaces the primary policy issued to the policyholder
  4. requires the insured to pay two separate deductibles

Explanation

Reinsurance is insurance for insurers: the ceding company transfers part of its risk to a reinsurer in exchange for part of the premium. The original insured has no direct contractual claim against the reinsurer.

Question 50Insurance Principles and Concepts

State insurance guaranty associations exist to:

  1. provide reinsurance for catastrophic losses
  2. set the rates that admitted insurers may charge
  3. license producers and investigate misconduct
  4. pay covered claims of insurers that become insolvent Correct answer.

Explanation

Guaranty associations are state-created safety nets that pay covered claims of insolvent admitted insurers up to statutory limits. They are funded by assessments on member insurers.