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NC Public Adjuster practice questions

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Question 1North Carolina Adjuster Statutes, Rules, and Regulations

Under North Carolina law, a person who solicits, negotiates, or settles an insurance claim on behalf of an insured for compensation must hold which license?

  1. A producer license limited to property lines
  2. A general contractor license issued by the licensing board
  3. A public adjuster license issued by the Commissioner of Insurance Correct answer.
  4. A claims examiner certificate issued by the insurer

Explanation

North Carolina requires anyone who, for compensation, acts on behalf of an insured in negotiating or settling a first-party claim to be licensed as a public adjuster by the Commissioner of Insurance. A producer license and an insurer-issued certificate do not authorize that activity.

Question 2North Carolina Adjuster Statutes, Rules, and Regulations

Which entity issues and administers public adjuster licenses in North Carolina?

  1. The Federal Insurance Office
  2. The National Association of Insurance Commissioners
  3. The North Carolina Bar Association
  4. The North Carolina Department of Insurance Correct answer.

Explanation

Licensing and regulation of adjusters in North Carolina is administered by the Department of Insurance under the Commissioner. The NAIC drafts model laws but does not issue state licenses, and the federal office has no licensing role.

Question 3North Carolina Adjuster Statutes, Rules, and Regulations

A licensed public adjuster's contract with an insured must be in writing and must contain which required element?

  1. A waiver of the insured's right to cancel the contract
  2. An assignment of the insured's policy rights to the adjuster
  3. A statement of the compensation to be paid to the adjuster Correct answer.
  4. A guarantee that the claim will be paid in full

Explanation

North Carolina requires public adjuster contracts to be written and to disclose the compensation arrangement so the insured understands the fee before signing. Provisions waiving cancellation rights or assigning policy rights are not required elements and are inconsistent with consumer protections.

Question 4North Carolina Adjuster Statutes, Rules, and Regulations

An insured signs a public adjuster contract on a Monday. Under North Carolina's consumer protections, the insured may rescind that contract within what period?

  1. Twenty-four hours after signing
  2. Three business days after signing Correct answer.
  3. There is no rescission right once signed
  4. Ten calendar days after signing

Explanation

North Carolina gives insureds a short statutory window, measured in business days, to cancel a public adjuster contract after signing. This right cannot be waived by contract language, and it is far shorter than ten days.

Question 5North Carolina Adjuster Statutes, Rules, and Regulations

Which activity most clearly requires a North Carolina public adjuster license?

  1. Selling a homeowners policy to a new client
  2. Inspecting a roof for an insurer that already employs the inspector
  3. Adjusting a claim as a salaried staff employee of the insurer
  4. Negotiating a fire loss settlement with an insurer for a fee on behalf of the homeowner Correct answer.

Explanation

The license covers representing an insured for compensation in negotiating or settling a first-party claim. Selling policies is producer activity, and work performed for the insurer as its own staff or contractor falls outside public adjusting.

Question 6North Carolina Adjuster Statutes, Rules, and Regulations

A public adjuster wants to charge a fee calculated as a percentage of the insurance settlement. Under North Carolina rules, this arrangement is:

  1. Permissible only for commercial property claims
  2. Permissible only if the insurer approves the percentage
  3. Prohibited in all circumstances regardless of disclosure
  4. Permissible if the percentage and basis are disclosed in the written contract Correct answer.

Explanation

Contingent compensation is allowed in North Carolina when the written contract clearly states the percentage and the basis on which it is computed. The fee is not subject to insurer approval, and no blanket prohibition applies.

Question 7North Carolina Adjuster Statutes, Rules, and Regulations

Before signing a public adjuster contract, the adjuster must provide the insured with a document that typically does what?

  1. Transfers the insured's claim to the adjuster's trust account
  2. Authorizes the adjuster to bind coverage changes with the insurer
  3. Certifies that the claim is covered under the policy
  4. Explains the adjuster's role and the insured's rights in a separate written disclosure Correct answer.

Explanation

North Carolina requires a written disclosure, separate from the contract, explaining the adjuster's role and the insured's rights before the contract is signed. The adjuster cannot bind coverage or certify coverage, and funds are not transferred at signing.

Question 8North Carolina Adjuster Statutes, Rules, and Regulations

A public adjuster solicits a claim at the home of an insured whose property was damaged by a hurricane two days earlier. Which statement reflects North Carolina's solicitation limits?

  1. Solicitation is unlimited because the insured has a right to hire anyone
  2. Solicitation is permitted only if the adjuster is also a licensed contractor
  3. Solicitation is restricted during declared disaster periods and may not exploit the emergency Correct answer.
  4. Solicitation is permitted only after the insurer has issued a denial

Explanation

North Carolina restricts public adjuster solicitation during declared disaster or emergency periods to prevent exploitation of vulnerable insureds. The restriction applies regardless of the insured's freedom to choose representation and does not depend on a prior denial.

Question 9North Carolina Adjuster Statutes, Rules, and Regulations

How does North Carolina treat an unlicensed person who negotiates a claim settlement for an insured in exchange for a share of the recovery?

  1. The conduct is lawful if the fee stays under a statutory cap
  2. The conduct is lawful if the insured consents in writing
  3. The conduct is regulated only by the insurer's internal policy
  4. The conduct is unlawful and subject to penalties under the adjuster licensing law Correct answer.

Explanation

Acting as a public adjuster without a license is unlawful in North Carolina and exposes the person to enforcement penalties, regardless of the insured's consent. A fee cap or insurer policy cannot cure the missing license.

Question 10North Carolina Adjuster Statutes, Rules, and Regulations

Which recordkeeping obligation applies to a licensed North Carolina public adjuster?

  1. Destroy claim files within thirty days of settlement
  2. Send all claim files to the insurer after settlement
  3. Retain records only when the claim exceeds a statutory dollar amount
  4. Maintain records of transactions and make them available to the Department of Insurance on request Correct answer.

Explanation

Licensed adjusters must keep books and records of their transactions and produce them for examination by the Department of Insurance. There is no rule requiring destruction within thirty days, transfer to the insurer, or a dollar threshold for retention.

Question 11North Carolina Adjuster Statutes, Rules, and Regulations

A public adjuster is licensed in South Carolina and wants to handle a North Carolina claim. What must the adjuster do?

  1. Rely on reciprocity because both states license adjusters
  2. Obtain a temporary permit from the insured's mortgagee
  3. Notify the insurer and begin work immediately
  4. Obtain a North Carolina public adjuster license before adjusting the claim Correct answer.

Explanation

North Carolina requires a license issued by its Commissioner to adjust claims in the state; an out-of-state license alone does not authorize the work. No reciprocity or mortgagee permit substitutes for the North Carolina license.

Question 12North Carolina Adjuster Statutes, Rules, and Regulations

Which continuing education requirement applies to North Carolina public adjusters?

  1. Continuing education administered solely by the insurer
  2. Continuing education only if the adjuster handles commercial claims
  3. No continuing education once the initial license is issued
  4. Completion of approved continuing education hours during each license term Correct answer.

Explanation

North Carolina adjusters must complete approved continuing education during each licensing term to keep the license in good standing. The requirement is not waived after initial licensing, is not limited to commercial work, and is not run by insurers.

Question 13North Carolina Adjuster Statutes, Rules, and Regulations

An applicant for a North Carolina public adjuster license must generally demonstrate which of the following?

  1. Membership in a national adjuster association
  2. Passing the required licensing examination and meeting the Commissioner's qualifications Correct answer.
  3. Ownership of a surety bond equal to the largest claim handled
  4. Five years of experience as an insurance producer

Explanation

North Carolina requires applicants to pass the licensing examination and satisfy the qualifications set by the Commissioner, such as good character and any required prelicensing education. Association membership and producer experience are not conditions of licensure.

Question 14North Carolina Adjuster Statutes, Rules, and Regulations

A public adjuster receives a claim payment check from the insurer that is payable to the insured and the mortgagee. What is the adjuster's proper role?

  1. The adjuster may endorse the insured's name under the contract's power of attorney
  2. The adjuster may not endorse the insured's name and should help coordinate the endorsement process Correct answer.
  3. The adjuster may deposit the check into the adjuster's operating account
  4. The adjuster may return the check and demand a single-payee replacement

Explanation

A public adjuster cannot sign or endorse a payment on the insured's behalf merely by virtue of the adjuster contract. The adjuster's role is to assist the insured and mortgagee in completing the endorsement and disbursement process.

Question 15North Carolina Adjuster Statutes, Rules, and Regulations

Which statement about a public adjuster's fiduciary duties in North Carolina is accurate?

  1. The adjuster may favor the insurer when the insurer pays the fee
  2. The adjuster may keep undisbursed claim funds as an advance on future fees
  3. The adjuster must act in the insured's interest and account for funds held on the insured's behalf Correct answer.
  4. The adjuster owes equal loyalty to the insurer and the insured

Explanation

A public adjuster represents the insured and owes fiduciary duties, including honest accounting for any funds received on the insured's behalf. Loyalty cannot be shifted to the insurer, and unearned funds cannot be retained as advances.

Question 16North Carolina Adjuster Statutes, Rules, and Regulations

North Carolina law prohibits a public adjuster from doing which of the following during the claims process?

  1. Misrepresenting the adjuster's authority or the insured's policy terms to obtain a settlement advantage Correct answer.
  2. Preparing a written estimate of the loss
  3. Explaining policy provisions to the insured in plain language
  4. Attending a site inspection with the insurer's adjuster

Explanation

Adjusters are barred from misrepresentation and deceptive practices in connection with claims. Explaining coverage, preparing estimates, and attending inspections are ordinary, permitted functions of the public adjuster's role.

Question 17North Carolina Adjuster Statutes, Rules, and Regulations

A public adjuster tells an insured that the insurer 'must pay the policy limit or face criminal charges.' This statement is:

  1. Permissible only for total-loss claims
  2. Acceptable advocacy because the adjuster represents the insured
  3. Permissible if the statement is later corrected in writing
  4. A prohibited misrepresentation of the insurer's obligations and the law Correct answer.

Explanation

Threatening criminal consequences or misstating the insurer's legal obligations is a prohibited deceptive practice. Zealous advocacy does not license false statements about the law, and a later correction does not cure the violation.

Question 18North Carolina Adjuster Statutes, Rules, and Regulations

When may a public adjuster disclose confidential information the insured provided about a claim?

  1. Whenever the adjuster believes disclosure will speed settlement
  2. Whenever the insurer requests it informally
  3. Only with the insured's authorization or as required by law Correct answer.
  4. At the adjuster's discretion after the claim closes

Explanation

Information the insured shares is confidential and may be disclosed only with authorization or when the law compels it. Convenience, informal insurer requests, or the passage of time do not create disclosure authority.

Question 19North Carolina Adjuster Statutes, Rules, and Regulations

An insured's policy has a two-year suit-limitation clause. How should a public adjuster treat that deadline?

  1. The adjuster may waive the deadline on the insured's behalf
  2. The adjuster may ignore it because the adjuster does not practice law
  3. The adjuster may extend the deadline by notifying the insurer orally
  4. The adjuster should advise the insured of the deadline and avoid conduct that lets it lapse Correct answer.

Explanation

Adjusters should alert insureds to contractual and statutory deadlines and avoid actions that prejudice the insured's rights. The adjuster cannot waive or orally extend the limitation period, and ignorance of the deadline is not a defense to a malpractice claim.

Question 20North Carolina Adjuster Statutes, Rules, and Regulations

Which compensation practice is prohibited for a North Carolina public adjuster?

  1. Charging a contingency fee disclosed in the contract
  2. Charging an hourly fee disclosed in the contract
  3. Charging a flat fee disclosed in the contract
  4. Sharing the adjuster's fee with an unlicensed person who referred the claim Correct answer.

Explanation

Paying or sharing compensation with unlicensed persons for claim referrals is prohibited because it encourages unlicensed solicitation. Hourly, flat, and disclosed contingency fees are all permissible forms of compensation.

Question 21North Carolina Adjuster Statutes, Rules, and Regulations

A public adjuster advertises services using the phrase 'State Approved Adjuster.' Why is this problematic under North Carolina rules?

  1. It is prohibited only in television advertising
  2. It implies official state endorsement, which the licensing law prohibits Correct answer.
  3. It is acceptable because the adjuster holds a state license
  4. It is acceptable if the word 'licensed' is added elsewhere

Explanation

Adjusters may state that they are licensed, but may not use language suggesting the state endorses or approves them. The prohibition applies across all advertising media, and adding a clarifying word elsewhere does not cure the misleading claim.

Question 22North Carolina Adjuster Statutes, Rules, and Regulations

A public adjuster's license lapses for failure to renew. What is the adjuster's status while unlicensed?

  1. The adjuster may work under a colleague's license
  2. The adjuster may handle only claims under a set dollar amount
  3. The adjuster may not negotiate or settle claims until the license is reinstated Correct answer.
  4. The adjuster may continue existing claims to completion

Explanation

Once the license lapses, the adjuster loses authority to act as a public adjuster, including on existing claims, until reinstated under the Commissioner's procedures. Working under another's license or a claim-value exception is not permitted.

Question 23North Carolina Adjuster Statutes, Rules, and Regulations

Which body of law primarily governs the conduct of North Carolina public adjusters?

  1. Municipal zoning ordinances
  2. The Uniform Commercial Code
  3. The North Carolina insurance statutes and regulations administered by the Commissioner Correct answer.
  4. The federal Fair Credit Reporting Act

Explanation

Public adjuster licensing and conduct are governed by North Carolina insurance law and the Commissioner's regulations. Federal credit, zoning, and commercial code provisions do not regulate adjuster conduct.

Question 24North Carolina Adjuster Statutes, Rules, and Regulations

An insured asks a public adjuster to also sell them a new insurance policy. What is the adjuster's proper response?

  1. The adjuster may sell the policy only after the claim is closed
  2. The adjuster must hold a separate producer license to sell insurance and cannot do so under the adjuster license alone Correct answer.
  3. The adjuster may sell the policy if the insurer provides a commission split
  4. The adjuster may sell the policy because the adjuster license covers all insurance transactions

Explanation

A public adjuster license authorizes claim representation, not the sale of insurance products. Selling policies requires a separate producer license, and neither a commission arrangement nor the timing of the claim changes that requirement.

Question 25North Carolina Adjuster Statutes, Rules, and Regulations

During a declared state of emergency, a public adjuster contacts disaster victims door-to-door offering immediate claim representation. Which principle governs this conduct?

  1. Door-to-door solicitation is always permitted for licensed adjusters
  2. Solicitation is permitted if no fee is mentioned at the door
  3. Emergency-period solicitation restrictions apply and violations can lead to license discipline Correct answer.
  4. Solicitation is permitted if the adjuster wears visible identification

Explanation

North Carolina imposes specific limits on public adjuster solicitation during declared emergencies, and violations can result in administrative penalties against the license. Identification badges or silence about fees do not lift the restriction.

Question 26Insurance Principles and Concepts

In property insurance, the principle of indemnity is best described as restoring the insured to which position after a covered loss?

  1. A position equal to the original purchase price of the property
  2. The position the insured would have held if the property had appreciated
  3. The financial position held immediately before the loss, no better and no worse Correct answer.
  4. A position of profit equal to the property's full replacement cost

Explanation

Indemnity means the insured is made whole for the actual loss, returning them to approximately the same financial position they occupied before the loss occurred. It prevents both underpayment and profit from insurance, which is why actual cash value methods reduce payment by depreciation.

Question 27Insurance Principles and Concepts

Which party to an insurance contract is legally obligated to pay the premium and is protected by the policy's promises?

  1. The third-party claimant
  2. The insured (policyholder) Correct answer.
  3. The beneficiary of an unrelated trust
  4. The producer who sold the policy

Explanation

The insured, often called the policyholder, is the party that contracts with the insurer, pays premium, and receives the policy's protections. The insurer is the other contracting party and promises to pay covered claims.

Question 28Insurance Principles and Concepts

A homeowner's policy contains a clause stating that coverage does not apply to damage caused by earth movement. This clause is an example of which policy component?

  1. An exclusion Correct answer.
  2. An endorsement
  3. A declaration
  4. A condition

Explanation

An exclusion removes or limits coverage for specified perils, property, or circumstances, and earth movement is a classic property exclusion. Declarations identify the insured and limits, while conditions set out duties of the parties.

Question 29Insurance Principles and Concepts

Which concept explains why an insurer may void coverage when an applicant conceals a material fact during underwriting?

  1. Subrogation
  2. Coinsurance
  3. Utmost good faith Correct answer.
  4. Proximate cause

Explanation

Insurance is a contract of utmost good faith, which requires both parties to deal honestly and disclose material facts. Concealment of a material fact breaches that duty and can allow the insurer to rescind or deny coverage.

Question 30Insurance Principles and Concepts

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

  1. A frayed electrical cord stored in an attic
  2. Fire Correct answer.
  3. An unattended space heater near curtains
  4. Poor housekeeping habits

Explanation

A peril is the actual cause of loss, such as fire, windstorm, or theft. Hazards are conditions that increase the likelihood or severity of a peril, such as frayed cords or unattended heaters.

Question 31Insurance Principles and Concepts

An insured pays a deductible before the insurer responds to a covered loss. Which purpose does a deductible primarily serve?

  1. It eliminates the insurer's duty to investigate small claims
  2. It guarantees full replacement cost at the time of loss
  3. It transfers the loss to a reinsurer
  4. It shifts small predictable losses to the insured and reduces premium Correct answer.

Explanation

A deductible retains a portion of each loss with the insured, removing small claims from the insurer's expense stream and lowering the premium. It does not eliminate coverage or determine valuation method.

Question 32Insurance Principles and Concepts

Under a standard mortgage clause, what happens to the lender's interest in insurance proceeds after a covered property loss?

  1. The lender must pay a separate deductible before any proceeds are released
  2. The lender's interest is protected and proceeds may be payable to the lender as its interest appears Correct answer.
  3. The lender's claim is subordinate to all other creditors
  4. The lender receives nothing unless named as an additional insured

Explanation

A mortgage clause protects the lender's security interest, allowing the insurer to pay the lender to the extent of its interest and to notify the lender of cancellation or nonrenewal. The insured's claim is subject to that interest.

Question 33Insurance Principles and Concepts

An insured has a fire policy with a limit of $200,000 and suffers a $50,000 covered loss. Assuming no deductible and full compliance with policy conditions, what is the insurer's payment under an indemnity policy?

  1. $0, because the loss is below the policy limit
  2. $50,000, because the loss is within the limit Correct answer.
  3. $200,000, because the policy limit is paid on any total loss
  4. $150,000, because the limit is reduced by the loss

Explanation

Under indemnity, the insurer pays the covered loss up to the policy limit, so a $50,000 loss within a $200,000 limit is paid in full. The limit is a ceiling, not a fixed payment for partial losses.

Question 34Insurance Principles and Concepts

Which term describes the insurer's right, after paying a covered claim, to pursue the responsible third party for reimbursement?

  1. Estoppel
  2. Contribution
  3. Waiver
  4. Subrogation Correct answer.

Explanation

Subrogation lets the insurer stand in the insured's shoes and recover from the party that caused the loss, preventing double recovery. It supports the indemnity principle by keeping the insured from collecting twice.

Question 35Insurance Principles and Concepts

A property policy insures a building for $300,000 when its replacement cost is $600,000, and the policy contains an 80% coinsurance clause. For a $120,000 covered loss, what is the maximum payment before any deductible?

  1. $120,000
  2. $96,000
  3. $60,000
  4. $75,000 Correct answer.

Explanation

The required insurance is 80% of $600,000, or $480,000. The insured carried $300,000, so the recovery is $120,000 multiplied by 300,000/480,000, which equals $75,000, subject to the limit of liability.

Question 36Insurance Principles and Concepts

In liability insurance, what is the significance of the term 'occurrence'?

  1. It is any intentional act by the insured that causes harm
  2. It is a contractual penalty for late premium payment
  3. It is an accident or continuous exposure to conditions that results in bodily injury or property damage during the policy period Correct answer.
  4. It is a claim reported after the policy expires regardless of when the injury happened

Explanation

Occurrence-based liability policies respond to injury or damage that takes place during the policy period, often regardless of when the claim is reported. This differs from claims-made policies, which focus on when the claim is made.

Question 37Insurance Principles and Concepts

An adjuster is reviewing a loss where the insured's negligence contributed to the damage but a covered peril also played a role. Which doctrine helps determine whether the loss is covered when a covered and an excluded cause combine?

  1. Doctrine of contra proferentem
  2. Doctrine of proximate cause Correct answer.
  3. Doctrine of reasonable expectations
  4. Doctrine of reformation

Explanation

Proximate cause identifies the dominant, efficient cause of a loss when multiple causes combine, guiding whether an exclusion or covered peril controls. Courts often ask which peril set the chain of events in motion.

Question 38Insurance Principles and Concepts

Which statement correctly distinguishes a representation from a warranty in insurance underwriting?

  1. A representation is always written into the policy, while a warranty is only oral
  2. A representation applies only to life insurance, while a warranty applies only to property insurance
  3. A representation is a promise that a fact is true, while a warranty is merely an opinion
  4. A representation is a statement believed true to the best of the applicant's knowledge, while a warranty is a promise that a condition is guaranteed Correct answer.

Explanation

A representation is a statement of fact made during underwriting that the applicant believes to be true, while a warranty is a policy condition the insured promises to maintain. Breach of warranty historically allowed the insurer to avoid coverage even without materiality.

Question 39Insurance Principles and Concepts

An insured holds two property policies covering the same building, one with a $100,000 limit and one with a $300,000 limit, and both contain pro rata other insurance clauses. For a $40,000 covered loss, how much does the $100,000 policy pay?

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

Explanation

Under pro rata other insurance, each policy pays its share of the loss based on its limit relative to total insurance. The $100,000 policy represents 100,000/400,000, or 25%, of $40,000, which is $10,000.

Question 40Insurance Principles and Concepts

Which of the following best describes the concept of insurable interest?

  1. The reinsurer's participation in the risk
  2. The producer's commission interest in the policy
  3. The insurer's financial stake in collecting premium
  4. A legal or economic relationship such that the insured benefits from preservation of the property and suffers loss from its damage Correct answer.

Explanation

Insurable interest requires the insured to have a lawful economic relationship with the subject matter so that its loss causes genuine financial harm. It distinguishes insurance from gambling and must generally exist at the time of loss for property coverage.

Question 41Insurance Principles and Concepts

An insured's policy includes a $2,500 deductible and a $10,000 loss is covered. After the deductible, the insurer pays $7,500. If the policy also has a $1,000 deductible for wind losses, which deductible applies to a wind-caused loss?

  1. $1,000, because the specific wind deductible overrides the general deductible Correct answer.
  2. $0, because wind losses waive deductibles
  3. $3,500, because both deductibles are added
  4. $2,500, because the general deductible always controls

Explanation

Specific deductibles, such as a separate wind or hurricane deductible, control over the policy's general deductible for the peril they address. They are not stacked with the general deductible unless the policy expressly says so.

Question 42Insurance Principles and Concepts

Which policy provision requires the insured to provide prompt notice of a loss and to cooperate in the investigation?

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

Explanation

The conditions section sets out the duties of the insured and insurer, including notice, proof of loss, and cooperation. Failure to comply can prejudice coverage depending on the policy language and applicable law.

Question 43Insurance Principles and Concepts

An adjuster is evaluating a claim where the insured's building was damaged by a covered fire, but the building was already vacant and subject to a vacancy exclusion. What is the most accurate statement about how the adjuster should proceed?

  1. Deny the claim solely because the building was old
  2. Pay the claim and seek subrogation against the insured
  3. Ignore the vacancy exclusion because fire is a covered peril
  4. Determine whether the vacancy condition applies and whether it bars or limits coverage for this loss Correct answer.

Explanation

The adjuster must apply the policy's vacancy provision to the facts, because a vacancy exclusion may bar or reduce coverage even when the immediate cause is a covered peril. The analysis depends on the policy wording and the duration and nature of the vacancy.

Question 44Insurance Principles and Concepts

Which of the following is an example of a moral hazard rather than a physical hazard?

  1. A store located in a flood-prone area
  2. An insured who intentionally damages property to collect insurance Correct answer.
  3. A slippery warehouse floor
  4. A building with outdated wiring

Explanation

Moral hazard arises from dishonesty or character, such as intentional loss or exaggerated claims. Physical hazards are tangible conditions that increase the chance of loss.

Question 45Insurance Principles and Concepts

Which statement best explains the difference between actual cash value and replacement cost in property claims?

  1. Replacement cost applies only to liability claims
  2. Both methods always produce the same payment amount
  3. Actual cash value pays the cost to replace without depreciation, while replacement cost deducts depreciation
  4. Actual cash value generally reflects replacement cost less depreciation, while replacement cost pays the cost to replace without depreciation Correct answer.

Explanation

Actual cash value is commonly calculated as replacement cost minus depreciation, reflecting the property's value at the time of loss. Replacement cost coverage pays to replace or repair without deducting depreciation, subject to policy limits and conditions.

Question 46Insurance Principles and Concepts

A policyholder's building is damaged and the insurer pays the claim. Later, the insurer discovers the insured had breached a policy condition requiring proof of loss within a specified period. Which principle most directly governs whether the insurer may deny or reduce the claim?

  1. The doctrine of insurable interest
  2. The principle of subrogation
  3. The doctrine of conditions precedent and compliance with policy terms Correct answer.
  4. The principle of indemnity

Explanation

Policy conditions such as timely proof of loss may operate as conditions precedent to coverage, meaning the insurer's duty to pay depends on compliance. Whether a breach allows denial depends on the policy language and applicable law.

Question 47Insurance Principles and Concepts

Which of the following best describes the role of the declarations page in a property policy?

  1. It sets out the insured's duties after a loss
  2. It explains the insurer's promise to pay for covered perils
  3. It lists the insured, covered property, policy period, limits, and deductibles Correct answer.
  4. It lists the perils and property that are excluded from coverage

Explanation

The declarations page personalizes the policy by identifying the insured, the property insured, the policy period, limits, and deductibles. It is the starting point for determining what is covered and in what amounts.

Question 48Insurance Principles and Concepts

An insured deliberately sets fire to a building to collect insurance proceeds. Which principle most directly supports the insurer's denial of the claim?

  1. The principle of indemnity, because the insured would profit from the loss Correct answer.
  2. The principle of proximate cause, because fire is a covered peril
  3. The principle of coinsurance, because the building was underinsured
  4. The principle of subrogation, because the insurer may recover from the insured

Explanation

Indemnity prevents an insured from profiting from a loss, and intentional acts to cause loss are excluded as against public policy. The insurer may deny coverage and may also pursue fraud remedies.

Question 49Insurance Principles and Concepts

An insured has a policy with a $500,000 limit and a 90% coinsurance clause on a building with a replacement cost of $800,000. The insured carries $600,000 in coverage and suffers a $200,000 covered loss. What is the maximum payment before deductible?

  1. $180,000
  2. $150,000
  3. $200,000
  4. $166,667 Correct answer.

Explanation

The required insurance is 90% of $800,000, or $720,000. The recovery is $200,000 multiplied by 600,000/720,000, which equals $166,667, subject to the policy limit.

Question 50Insurance Principles and Concepts

An insured has a claims-made liability policy with a retroactive date of January 1, 2023. A claim is made in 2024 for an act that occurred in 2022. Which statement is most accurate?

  1. The claim is covered because occurrence policies always cover prior acts
  2. The claim is likely excluded because the act predates the retroactive date Correct answer.
  3. The claim is covered because it was made during the policy period
  4. The claim is covered only if the insured pays an additional deductible

Explanation

A retroactive date in a claims-made policy bars coverage for acts occurring before that date, even if the claim is made during the policy period. The claim must generally involve acts on or after the retroactive date and be reported within the policy or extended reporting period.