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NV Property & Casualty practice questions

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Question 1Insurance Regulation

Who appoints the Commissioner of the Nevada Division of Insurance?

  1. The state Senate
  2. The Nevada Supreme Court
  3. The Governor Correct answer.
  4. The voters in a general election

Explanation

The Commissioner heads the Nevada Division of Insurance and is appointed by the Governor to regulate the business of insurance in the state. The Commissioner is not elected by voters or chosen by the courts.

Question 2Insurance Regulation

A producer collects an initial premium from an insured for a policy placed with an authorized insurer. How must the producer treat that money?

  1. As funds that may be commingled with agency operating funds
  2. As fiduciary funds held for the insurer and insured Correct answer.
  3. As personal funds once the policy is bound
  4. As a nonrefundable service fee

Explanation

Premiums collected by a producer are held in a fiduciary capacity for the insurer and the insured. They must be accounted for properly and may not be treated as the producer's personal money.

Question 3Insurance Regulation

What are Nevada's minimum required liability limits for private passenger auto insurance?

  1. $15,000 per person / $30,000 per accident / $10,000 property damage
  2. $30,000 per person / $60,000 per accident / $25,000 property damage
  3. $25,000 per person / $50,000 per accident / $20,000 property damage Correct answer.
  4. $50,000 per person / $100,000 per accident / $50,000 property damage

Explanation

Nevada requires private passenger autos to carry at least $25,000 bodily injury liability per person, $50,000 per accident, and $20,000 property damage liability. These are the statutory minimum limits, not a recommendation for adequate coverage.

Question 4Insurance Regulation

Before an insurer may transact insurance in Nevada, it must obtain what from the Division of Insurance?

  1. NAIC accreditation
  2. A certificate of authority Correct answer.
  3. A federal insurance charter
  4. A county business license

Explanation

An insurer must be authorized by the Nevada Division of Insurance, generally through a certificate of authority, before it may transact insurance in the state. Unauthorized insurers are restricted to limited channels such as surplus lines.

Question 5Insurance Regulation

A producer tells a prospect, 'Buy this policy and I will give you $50 out of my commission.' This conduct is best described as:

  1. Allowed only for auto policies
  2. Lawful if the producer discloses it
  3. Permissible because it is under $100
  4. Rebating, which is prohibited Correct answer.

Explanation

Offering part of the commission or another inducement not stated in the policy to persuade a buyer is rebating, an unfair trade practice. Nevada prohibits rebating as an inducement to purchase insurance.

Question 6Insurance Regulation

A producer wants to pay part of a commission to an unlicensed friend who referred a client. Under Nevada insurance law, this payment is generally:

  1. Allowed if the amount is under $25
  2. Allowed if the unlicensed friend discloses the arrangement in writing
  3. Allowed as a standard referral fee
  4. Prohibited commission sharing with an unlicensed person Correct answer.

Explanation

Commissions for the sale of insurance may generally be paid only to licensed producers or other persons lawfully entitled to receive them. Paying a commission to an unlicensed person for a referral can violate licensing and commission-sharing rules.

Question 7Insurance Regulation

Twisting is best described as:

  1. Failing to remit premium to the insurer
  2. Paying part of a commission to an unlicensed person
  3. Charging a higher rate because of race
  4. Misrepresenting to induce lapse of existing coverage Correct answer.

Explanation

Twisting is an unfair trade practice in which a producer uses misrepresentation or incomplete comparison to persuade a policyholder to drop or replace existing coverage. The harm is that the policyholder may lose coverage or pay more based on false information.

Question 8Insurance Regulation

Which claims-handling action would most likely be an unfair claim settlement practice?

  1. Denying a claim after a reasonable investigation
  2. Requesting a proof of loss from the insured
  3. Using an independent appraiser to value damage
  4. Failing to acknowledge a claim promptly Correct answer.

Explanation

Insurers must handle claims promptly and in good faith, which includes acknowledging receipt of a claim within required timeframes. Unreasonable delay or failure to communicate can constitute an unfair claim settlement practice.

Question 9Insurance Regulation

A surplus lines broker may place a Nevada risk with an unauthorized insurer only after:

  1. The Commissioner pre-approves each individual policy
  2. The insured signs a waiver of all coverage
  3. The unauthorized insurer posts a Nevada bond
  4. A diligent search of authorized insurers has failed Correct answer.

Explanation

Surplus lines is a limited market of last resort. Before placing a risk with an unauthorized insurer, the broker generally must show that authorized insurers declined or could not provide the coverage after a diligent search.

Question 10Insurance Regulation

The Nevada Insurance Guaranty Association was created primarily to:

  1. Set maximum rates for auto and homeowners insurance
  2. Guarantee insurers a profit on P&C business
  3. Provide reinsurance to the voluntary market
  4. Pay covered claims of insolvent P&C insurers Correct answer.

Explanation

State guaranty associations protect policyholders when an licensed insurer becomes insolvent. The Nevada association pays certain covered claims of insolvent property and casualty insurers, subject to statutory limits and exclusions.

Question 11Insurance Regulation

Nevada resident insurance producers generally must complete how many hours of continuing education every two years?

  1. 24 hours
  2. 12 hours
  3. 30 hours Correct answer.
  4. 40 hours

Explanation

Nevada requires resident producers to complete 30 hours of continuing education every two-year license term, including required ethics hours. Continuing education helps ensure producers remain current on insurance laws and practices.

Question 12Insurance Regulation

When an insurer terminates a producer's appointment, Nevada law generally requires the insurer to notify:

  1. The NAIC only
  2. All policyholders within 10 days
  3. The Commissioner Correct answer.
  4. Only the producer

Explanation

Insurers must notify the Nevada Division of Insurance when they terminate a producer's appointment, generally within a set period after termination. This lets the Division track which producers are actively appointed.

Question 13Insurance Regulation

Nevada producers generally must retain records of insurance transactions for at least:

  1. 1 year
  2. 3 years
  3. 10 years
  4. 5 years Correct answer.

Explanation

Nevada recordkeeping rules generally require producers to keep records of insurance transactions for at least five years. The records must be available for examination by the Division of Insurance.

Question 14Insurance Regulation

For a private passenger auto policy, Nevada law requires an insurer to give at least how many days' written notice before canceling for nonpayment of premium?

  1. 30 days
  2. 20 days
  3. 5 days
  4. 10 days Correct answer.

Explanation

Nevada requires at least 10 days' written notice before an auto insurer cancels a policy for nonpayment of premium. The notice gives the insured a short opportunity to cure the default.

Question 15Insurance Regulation

In Nevada, uninsured/underinsured motorist coverage for private passenger autos is:

  1. Applicable only to property damage
  2. Offered, but rejectable in writing by the insured Correct answer.
  3. Required only for commercial vehicles
  4. Mandatory coverage that the insured cannot reject at all

Explanation

Nevada requires insurers to offer uninsured and underinsured motorist coverage, but an insured may reject it in writing. The rejection must generally be documented so the insurer can show the coverage was offered.

Question 16Insurance Regulation

A producer's premium trust account may not be used to pay:

  1. Premiums due to the insurer
  2. Commissions that have been earned by the producer
  3. Refunds of premium owed to insureds
  4. General agency operating expenses Correct answer.

Explanation

Premium trust funds must be used for purposes connected with premiums, such as remitting premium or paying lawful refunds. Using the trust account for general agency operating expenses improperly commingles fiduciary funds.

Question 17Insurance Regulation

Nevada generally regulates property and casualty rates under a file-and-use system. This means an insurer may:

  1. Use any rate because P&C rates are unregulated
  2. Use a rate only after the Commissioner approves it
  3. Use only rates set by the Commissioner
  4. Use a filed rate subject to later review Correct answer.

Explanation

Under file-and-use, an insurer files its rates with the regulator and may begin using them without waiting for prior approval, but the rates remain subject to review and challenge. This differs from prior-approval systems, where rates cannot be used until approved.

Question 18Insurance Regulation

Which claim would generally be eligible for payment by the Nevada Insurance Guaranty Association?

  1. A life insurance claim against an insurer that has become insolvent
  2. An unpaid liability claim against an insolvent P&C insurer Correct answer.
  3. A claim covered by another solvent insurer's policy
  4. A premium refund claim against a solvent insurer

Explanation

Guaranty association protection generally applies to covered claims against insolvent property and casualty insurers, within statutory limits. Life and health claims, solvent insurers, and claims covered by other insurance are generally outside that protection.

Question 19Insurance Regulation

If a Nevada producer's license expires and is not renewed, the producer may generally:

  1. Not transact insurance until reinstated Correct answer.
  2. Sell only surplus lines coverage
  3. Continue servicing existing policies indefinitely
  4. Renew automatically without any action

Explanation

A producer must hold a valid license to transact insurance. Once a license expires, the producer generally must stop transacting insurance until reinstated or newly licensed, though limited servicing may be allowed by rule.

Question 20Insurance Regulation

A producer reports suspected insurance fraud to Nevada authorities in good faith. Under Nevada law, the producer generally:

  1. Is prohibited from reporting by privacy laws
  2. Is liable for defamation if the report is wrong
  3. Has qualified immunity for a good-faith report Correct answer.
  4. Must obtain the insured's consent before reporting

Explanation

Nevada encourages reporting of suspected insurance fraud by providing protection for good-faith reports. Qualified immunity generally shields the reporter from civil liability when the report is made in good faith rather than with malice.

Question 21General Insurance Concepts

A condition that increases the likelihood or severity of a loss is known as a:

  1. Peril
  2. Exposure
  3. Hazard Correct answer.
  4. Risk

Explanation

A hazard is any condition that makes a loss more likely to occur or more severe when it does occur. Perils are the actual causes of loss, such as fire, windstorm, or theft. Risk describes uncertainty about loss, while exposure is the state of being subject to a loss.

Question 22General Insurance Concepts

Under the principle of indemnity, a property insurance payment is intended to:

  1. Provide the insured with a profit after a loss occurs
  2. Pay the insured for emotional distress caused by the loss
  3. Restore the insured to pre-loss financial standing Correct answer.
  4. Pay the full original purchase price of the damaged item

Explanation

Indemnity means the insured is restored to roughly the same financial position as before the loss, no better and no worse. This is why property claims are measured by actual cash value or replacement cost rather than an arbitrary sum. Paying more than the amount of the loss would make loss profitable and create a moral hazard.

Question 23General Insurance Concepts

Kim insures a building in January, sells it in June, and the building is destroyed by fire in August while Kim still holds the policy. What is Kim's position regarding a claim for the August fire?

  1. Kim may collect because the buyer never asked to cancel
  2. Kim may collect because the policy was still in force
  3. Kim may not collect; interest ended with the sale Correct answer.
  4. Kim may collect because insurable interest existed in January

Explanation

In property insurance, insurable interest must exist at the time of the loss, not merely when the policy was purchased. Once Kim sold the building, she no longer stood to suffer a financial loss from its destruction. The policy does not follow the property to the new owner unless it is assigned with the insurer's consent.

Question 24General Insurance Concepts

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

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

Explanation

The declarations page personalizes the contract by naming the insured, describing the covered property or operations, and stating the policy period, limits, and premium. The insuring agreement contains the insurer's promise to pay, the conditions list each party's duties, and exclusions remove coverage.

Question 25General Insurance Concepts

Actual cash value is generally calculated as replacement cost minus:

  1. any salvage value recovered
  2. the coinsurance penalty
  3. accumulated depreciation Correct answer.
  4. the policy deductible

Explanation

Actual cash value reflects what the damaged property was worth immediately before the loss, traditionally computed as replacement cost less depreciation. Deductibles, coinsurance, and salvage affect the final amount paid but are not part of the ACV formula itself. Some policies define ACV differently, so the definition in the policy controls.

Question 26General Insurance Concepts

An insurance contract in which the amounts exchanged by the parties are unequal and depend on chance is best described as:

  1. adhesive
  2. unilateral
  3. conditional
  4. aleatory Correct answer.

Explanation

A policy is aleatory because the values exchanged are unequal and depend on chance: a modest premium may produce a large claim payment or no payment at all. A conditional contract makes the insurer's duty depend on the insured's compliance, a unilateral contract binds only the insurer to an enforceable promise, and a contract of adhesion is drafted by one party and accepted by the other.

Question 27General Insurance Concepts

An insurer pays an insured $20,000 for auto damage caused by another driver's negligence, then sues that driver to recover the money. Which right is the insurer exercising?

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

Explanation

Subrogation lets the insurer step into the insured's shoes after paying a claim and pursue the party legally responsible for the loss. It holds the responsible party accountable and allows the insurer to recover its payment, which helps hold down premiums. The insured may not impair this right, for example by releasing the at-fault party.

Question 28General Insurance Concepts

An insured carries a $1,000 deductible and sustains a covered loss of $4,000 with no other limits or coinsurance involved. How much will the insurer pay?

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

Explanation

The insurer pays the covered loss minus the deductible: $4,000 minus $1,000 equals $3,000. Deductibles require the insured to absorb small losses, which reduces claim expenses and moral hazard and lowers the premium. The insured retains responsibility for the first $1,000 of each covered loss.

Question 29General Insurance Concepts

An insured stops locking his car because he knows his policy will pay for theft. This behavior is best described as:

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

Explanation

A morale hazard is carelessness or indifference toward loss that grows out of having insurance. A moral hazard involves dishonesty, such as intentionally causing a loss or exaggerating a claim. A physical hazard is a tangible condition, such as a frayed wire or an unguarded stairway.

Question 30General Insurance Concepts

A statement made by an applicant on an insurance application that the applicant believes to be true to the best of his or her knowledge is called:

  1. a representation Correct answer.
  2. an express warranty
  3. a material concealment
  4. a temporary binder

Explanation

A representation is a statement of fact on the application that the applicant believes to be true to the best of his or her knowledge. A warranty is a statement or promise the insured guarantees to be literally true, and concealment is the intentional failure to disclose a material fact. Material misrepresentations can allow the insurer to rescind the policy.

Question 31General Insurance Concepts

A producer gives an applicant a document that temporarily confirms coverage is in force while the application is underwritten. This document is a:

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

Explanation

A binder is temporary evidence that coverage exists until the policy is issued or the application is rejected. It is subject to the terms of the policy it represents and, in most states, may be written or oral. Once the policy is issued, the policy supersedes the binder.

Question 32General Insurance Concepts

The principle that predicted losses become more reliable as the number of similar, independent exposure units increases is called the:

  1. principle of indemnity
  2. doctrine of proximate cause
  3. rule of adverse selection
  4. law of large numbers Correct answer.

Explanation

The law of large numbers holds that as a pool of similar, independent exposure units grows, actual losses approach the expected or predicted level. This predictability allows insurers to set rates and establish reserves with confidence. It depends on a large group of reasonably homogeneous units that are not all exposed to a single catastrophic event.

Question 33General Insurance Concepts

After a policy is issued, an insured and the insurer agree to add coverage for a newly purchased boat. The change is made by:

  1. rewriting the declarations page only
  2. issuing a binder
  3. attaching a certificate of insurance
  4. adding an endorsement Correct answer.

Explanation

An endorsement, sometimes called a rider, is a form attached to the policy that alters its terms by adding coverage, changing limits, or adding insureds. Because the policy is a contract of adhesion drafted by the insurer, changes are made on the insurer's forms and become part of the contract. A binder is only temporary evidence of coverage, and a certificate merely summarizes coverage for a third party.

Question 34General Insurance Concepts

An insurer purchases reinsurance primarily to:

  1. spread a portion of its risk to another insurer Correct answer.
  2. comply with the state's minimum premium requirements
  3. avoid the need to maintain policy reserves
  4. transfer its claim-handling duties to another carrier

Explanation

Reinsurance is insurance for insurers: the primary insurer cedes part of its risk to a reinsurer in exchange for a share of the premium. It allows the insurer to write larger limits, absorb catastrophic losses, and stabilize results. The primary insurer remains fully responsible to its own policyholders and continues to handle their claims.

Question 35General Insurance Concepts

The efficient cause that sets in motion an unbroken chain of events leading to a loss is known as:

  1. the proximate cause Correct answer.
  2. a hazard
  3. a covered peril
  4. an exposure unit

Explanation

Proximate cause is the efficient cause that sets in motion an unbroken sequence of events producing a loss, without a new and independent cause intervening. If the proximate cause is covered, the resulting loss is payable even when the final agent of damage would not be covered standing alone. A peril is the cause of loss, a hazard increases the chance of loss, and an exposure unit is a single subject of insurance.

Question 36General Insurance Concepts

Which type of risk is generally considered uninsurable by private insurers?

  1. Property and liability risk
  2. Speculative risk Correct answer.
  3. Personal risk exposure
  4. Pure risk

Explanation

Private insurers generally insure pure risks, which present only the chance of loss or no loss. Speculative risks carry the possibility of gain as well as loss, as with investing or gambling, and are treated as uninsurable because the loss can be voluntarily created. Property, liability, and personal risks are classic insurable pure risks.

Question 37General Insurance Concepts

An insurer notices that applicants with the greatest likelihood of loss are the most eager to buy coverage. This problem is known as:

  1. Reinsurance of the block
  2. Moral hazard in underwriting
  3. Adverse selection Correct answer.
  4. Risk retention by the insured

Explanation

Adverse selection occurs when those most likely to suffer losses are also the most likely to seek insurance, producing a pool that is worse than average. Insurers counter it with application questions, underwriting, and policy exclusions. Moral hazard concerns dishonest or careless behavior after coverage is in place, while risk retention means keeping a risk rather than transferring it.

Question 38General Insurance Concepts

An insured fails to submit a signed proof of loss within the period the policy requires, and the insurer withholds payment until it is provided. This best illustrates that an insurance policy is:

  1. A unilateral contract
  2. A contract of adhesion drafted by the insurer
  3. A conditional contract Correct answer.
  4. An aleatory contract

Explanation

Insurance is a conditional contract because the insurer's duty to pay arises only when the insured has complied with the policy conditions, such as giving prompt notice and filing proof of loss. If those conditions are not met, the insurer may be excused from paying the claim. Aleatory refers to unequal exchange, adhesion to who drafted the terms, and unilateral to the fact that only the insurer makes an enforceable promise.

Question 39General Insurance Concepts

A building has an actual cash value of $500,000 and is insured for $300,000 under a policy with an 80% coinsurance clause. A covered loss of $100,000 occurs and no deductible applies. How much will the insurer pay?

  1. $50,000
  2. $75,000 Correct answer.
  3. $60,000
  4. $100,000

Explanation

The coinsurance requirement is 80% of $500,000, or $400,000, but the insured carried only $300,000. The payment is ($300,000 divided by $400,000) times $100,000, which equals $75,000. The insured absorbs the remaining $25,000 as a coinsurance penalty for underinsurance.

Question 40General Insurance Concepts

A $60,000 covered loss is insured under two policies covering the same property: Policy A with a $100,000 limit and Policy B with a $200,000 limit. Using pro rata by limits, how much does Policy A pay?

  1. $20,000 Correct answer.
  2. $40,000
  3. $60,000
  4. $30,000

Explanation

Under pro rata by limits, each policy pays its limit divided by the total insurance available, multiplied by the loss. Policy A's share is $100,000 divided by $300,000, or one-third, and one-third of the $60,000 loss is $20,000. Policy B pays the remaining $40,000.

Question 41Property Insurance Basics

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

  1. Only when the application is signed
  2. Only at each policy renewal date
  3. Within 30 days after the loss is reported
  4. At the time of the loss Correct answer.

Explanation

Property coverage is a contract of indemnity, so the insured must stand to suffer financial loss from damage to the property at the moment the loss occurs. A policyholder who has already sold or otherwise given up the property collects nothing, no matter when the policy began.

Question 42Property Insurance Basics

The principle of indemnity means a property claim payment is intended to do which of the following?

  1. Reimburse the insured for emotional upset caused by the loss
  2. Pay the full policy limit for each covered loss
  3. Provide a profit to the insured when a loss occurs
  4. Restore the insured to the pre-loss financial position Correct answer.

Explanation

Indemnity puts the insured back where they stood financially before the loss, no better and no worse. Paying a profit, paying the limit regardless of the damage, or compensating distress would all go beyond indemnity.

Question 43Property Insurance Basics

Which information appears on the declarations page of a property policy?

  1. The state statutes that govern the policy wording
  2. Limits, deductible, and the property being insured Correct answer.
  3. The step-by-step process for filing a claim
  4. A list of hazards the insurer will never cover

Explanation

The declarations page personalizes the policy: it identifies the named insured, the covered location or property, the limits of liability, the deductible, the policy period, and the premium. The other policy sections supply the general terms.

Question 44Property Insurance Basics

After a covered property loss, the insured is typically required to submit which document to the insurer?

  1. A certificate of insurance
  2. A binder receipt
  3. A notice of cancellation
  4. A signed proof of loss Correct answer.

Explanation

The duties-after-loss condition requires prompt notice, protection of the property from further damage, an inventory of damaged property, and a signed and sworn proof of loss stating the time, cause, and amount of the loss. The proof of loss is the formal sworn statement supporting the claim.

Question 45Property Insurance Basics

A building has a replacement cost of $400,000 and is 25 percent depreciated. A covered loss is settled on an actual cash value basis with a $1,000 deductible. What does the insurer pay?

  1. $300,000
  2. $299,000 Correct answer.
  3. $275,000
  4. $399,000

Explanation

Actual cash value equals replacement cost minus depreciation, so $400,000 less 25 percent is $300,000. The deductible is then subtracted from that figure, producing a payment of $299,000.

Question 46Property Insurance Basics

A building with a $500,000 replacement cost is insured for $300,000 under a policy with an 80 percent coinsurance clause. A covered $100,000 loss occurs and no deductible applies. What is the payment?

  1. $75,000 Correct answer.
  2. $100,000
  3. $50,000
  4. $60,000

Explanation

The coinsurance requirement is 80 percent of $500,000, or $400,000. Because the $300,000 limit falls below that requirement, payment equals the loss multiplied by the ratio of carried insurance to required insurance: ($300,000 / $400,000) x $100,000 = $75,000.

Question 47Property Insurance Basics

After paying an insured $20,000 for fire damage caused by a neighbor's negligence, the insurer sues the neighbor to recover the money. Which right is the insurer exercising?

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

Explanation

Subrogation lets the insurer step into the insured's shoes after payment and pursue the party that caused the loss, which keeps the cost with the responsible party and prevents the insured from collecting twice. Any recovery beyond the insurer's payment belongs to the insured.

Question 48Property Insurance Basics

Two policies cover the same building on the same basis: Policy A has a $100,000 limit and Policy B has a $300,000 limit. Each contains a pro rata other-insurance clause. A covered $80,000 loss occurs. How much does Policy A pay?

  1. $20,000 Correct answer.
  2. $26,667
  3. $80,000
  4. $40,000

Explanation

Under pro rata sharing, each policy pays its share of the total insurance. Policy A carries $100,000 of the $400,000 combined limit, or 25 percent, so it pays 25 percent of $80,000, which is $20,000.

Question 49Property Insurance Basics

Fire destroys a mortgaged home. The homeowner breached a policy condition, but the mortgagee had no knowledge of the breach. How does the standard mortgage clause treat the mortgagee's claim?

  1. The mortgagee collects nothing because the insured breached the policy
  2. The mortgagee must first sue the homeowner to collect
  3. The mortgagee recovers only half of the unpaid loan balance
  4. The mortgagee may still collect up to its interest Correct answer.

Explanation

The mortgage clause gives the mortgagee separate contract rights, so its recovery is not defeated by the insured's acts or neglect. Payment is limited to the mortgagee's interest in the property, and the insurer is subrogated to the mortgagee's rights against the borrower.

Question 50Property Insurance Basics

For property insurance purposes, a structure is considered vacant when it:

  1. Is temporarily under construction
  2. Has been listed for sale but is still occupied
  3. Has no occupants and no contents inside Correct answer.
  4. Contains furniture but no people

Explanation

Vacancy means both a lack of occupants and a lack of personal property in the structure, which is a materially greater risk than mere unoccupancy. Unoccupancy exists when nobody is living there but belongings remain.