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PA Property & Casualty practice questions

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Question 1Insurance Regulation

What are the minimum bodily injury and property damage liability limits required for a private passenger auto policy in Pennsylvania?

  1. $15,000/$30,000/$5,000 Correct answer.
  2. $10,000/$20,000/$5,000
  3. $20,000/$40,000/$10,000
  4. $25,000/$50,000/$10,000

Explanation

Pennsylvania's financial responsibility law sets the minimum auto liability limits at $15,000 per person and $30,000 per accident for bodily injury, plus $5,000 for property damage. Insurers may offer higher limits, but a policy may not be issued below these minimums.

Question 2Insurance Regulation

What is the minimum amount of first-party medical benefits an insurer must make available under a Pennsylvania private passenger auto policy?

  1. $2,500
  2. $15,000
  3. $5,000 Correct answer.
  4. $10,000

Explanation

Pennsylvania requires every private passenger auto policy to provide at least $5,000 in first-party medical benefits. Higher amounts may be purchased, but the mandatory floor is $5,000.

Question 3Insurance Regulation

How is the Insurance Commissioner of Pennsylvania selected?

  1. Chosen by the legislature
  2. Elected by the voters
  3. Selected by admitted insurers
  4. Appointed by the Governor Correct answer.

Explanation

The Pennsylvania Insurance Commissioner is a cabinet official appointed by the Governor to head the Insurance Department. The Commissioner serves at the pleasure of the Governor rather than by statewide election.

Question 4Insurance Regulation

What is the effect of an insured's election of limited tort coverage on a Pennsylvania auto policy?

  1. It requires all disputes to go to arbitration
  2. It preserves an unrestricted right to sue for pain and suffering
  3. It eliminates all first-party medical benefits
  4. It limits the right to sue for non-economic damages Correct answer.

Explanation

Limited tort is a choice available under Pennsylvania's no-fault auto law; the insured gives up most tort claims for non-economic damages in exchange for a premium reduction. Full tort preserves the unrestricted right to seek those damages.

Question 5Insurance Regulation

What continuing education must a Pennsylvania insurance producer complete for each two-year licensing period?

  1. 12 hours annually, including 2 hours of ethics
  2. 24 hours biennially, including 3 hours of ethics Correct answer.
  3. 30 hours every three years, including 3 hours of ethics
  4. 16 hours biennially, including 4 hours of ethics

Explanation

Pennsylvania producers must complete 24 credit hours of continuing education every two years, with at least 3 of those hours in ethics. The requirement applies to resident producers unless a specific exemption applies.

Question 6Insurance Regulation

A producer offers a prospective insured a share of the commission to persuade the insured to buy a policy. How does Pennsylvania law treat this offer?

  1. Allowed only for auto policies
  2. Lawful with Department approval
  3. Rebating, which is prohibited Correct answer.
  4. Permitted if disclosed to the insured

Explanation

Rebating is the practice of offering part of the commission or another inducement not stated in the policy to win business. Pennsylvania's Unfair Insurance Practices Act prohibits rebating, even if the insured agrees to it.

Question 7Insurance Regulation

What must an insurer obtain before it may legally transact insurance business in Pennsylvania?

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

Explanation

An insurer must receive a certificate of authority from the Pennsylvania Insurance Department before transacting insurance in the state. Transacting without that authority is an unauthorized-insurer violation.

Question 8Insurance Regulation

What is the maximum covered claim limit generally payable by the Pennsylvania Property and Casualty Insurance Guaranty Association for a single claim?

  1. $500,000
  2. $250,000
  3. $300,000 Correct answer.
  4. $100,000

Explanation

PPCIGA pays covered claims of insolvent P&C insurers up to $300,000 per claim, subject to statutory exclusions and adjustments. It is not a substitute for the full policy limit of the insolvent insurer.

Question 9Insurance Regulation

An insurer appoints a new producer to sell its policies in Pennsylvania. Within how many days must the insurer notify the Insurance Department of the appointment?

  1. 60 days
  2. 30 days Correct answer.
  3. 90 days
  4. 10 days

Explanation

Under Pennsylvania appointment rules, the insurer must file notice of the appointment with the Department within 30 days after the producer first submits business for the insurer. The appointment cannot be backdated to avoid the filing requirement.

Question 10Insurance Regulation

An insured purchases a Pennsylvania auto policy with $100,000/$300,000 bodily injury limits and does not sign any uninsured/underinsured motorist waiver. What UM/UIM limits apply?

  1. Equal to the bodily injury liability limits Correct answer.
  2. Zero, because no coverage was requested
  3. The minimum 15/30 limits
  4. A fixed $5,000

Explanation

Pennsylvania requires UM/UIM coverage to be offered at limits equal to the bodily injury liability limits unless the insured signs a written waiver or selects lower limits. Without a valid written waiver, the UM/UIM limits default to the liability limits.

Question 11Insurance Regulation

What rate of premium tax applies to surplus lines insurance placed in Pennsylvania?

  1. 3% Correct answer.
  2. 5%
  3. 1%
  4. 2%

Explanation

Pennsylvania imposes a 3% surplus lines premium tax on surplus lines transactions. The surplus lines broker is responsible for collecting and remitting the tax.

Question 12Insurance Regulation

A Pennsylvania producer deposits collected premiums into the agency's general operating account and uses them for office expenses. How is this practice viewed?

  1. Permitted if records are kept separate
  2. Prohibited, because it is commingling Correct answer.
  3. Permitted with the insurer's written consent
  4. Permitted for small amounts

Explanation

Premiums held by a producer are held in a fiduciary capacity and must be kept separate from agency operating funds. Commingling premiums with general business funds is prohibited.

Question 13Insurance Regulation

An insurer cancels a Pennsylvania auto policy because the insured failed to pay the premium. What is the minimum advance written notice the insurer must give?

  1. 30 days
  2. 10 days Correct answer.
  3. 45 days
  4. 20 days

Explanation

Pennsylvania auto cancellation rules allow a shortened 10-day notice for cancellation due to nonpayment of premium. Other cancellations require a longer notice period.

Question 14Insurance Regulation

An insurer cancels a Pennsylvania auto policy for a reason other than nonpayment of premium. What is the minimum advance written notice required?

  1. 60 days Correct answer.
  2. 90 days
  3. 30 days
  4. 10 days

Explanation

For auto policies, Pennsylvania requires at least 60 days' written notice before a cancellation that is not based on nonpayment of premium. The 10-day period is reserved for nonpayment cancellations.

Question 15Insurance Regulation

An insurer receives a claim and fails to acknowledge the insured's repeated communications for several months. How is this conduct classified under Pennsylvania insurance law?

  1. Allowed because the claim is complex
  2. Permitted because the insured has counsel
  3. Acceptable due to high claim volume
  4. An unfair claim settlement practice Correct answer.

Explanation

The Unfair Insurance Practices Act prohibits failing to acknowledge and act promptly on communications about a claim. Unreasonable delay or failure to respond can be an unfair claim settlement practice subject to regulatory action.

Question 16Insurance Regulation

Which practice is defined as twisting in Pennsylvania?

  1. Selling insurance without a license
  2. Misrepresenting a policy to induce a lapse Correct answer.
  3. Sharing commissions with an unlicensed person
  4. Failing to remit premiums to the insurer

Explanation

Twisting is inducing a policyholder to lapse, surrender, or replace a policy through misrepresentation or incomplete comparison. It is prohibited as an unfair trade practice.

Question 17Insurance Regulation

Pennsylvania rate regulation requires that property and casualty rates be what?

  1. The lowest rates offered by any insurer in the market
  2. Guaranteed to produce an underwriting profit
  3. Formally approved by the NAIC before use
  4. Not excessive, inadequate, or unfair Correct answer.

Explanation

The governing standard is that rates must not be excessive, inadequate, or unfairly discriminatory. Competition and loss experience are considered, but neither the lowest market rate nor a guaranteed profit is required.

Question 18Insurance Regulation

An unlicensed individual solicits and sells a Pennsylvania homeowner's policy while a licensed producer supervises the transaction. What is the legal result?

  1. A violation of state licensing law Correct answer.
  2. Permitted if the producer supervises
  3. Permitted if no commission is paid
  4. Permitted as a courtesy referral

Explanation

Only a licensed producer may solicit or sell insurance in Pennsylvania. Supervision, lack of compensation, or the casual nature of the referral does not cure the licensing violation.

Question 19Insurance Regulation

An insurer is organized and chartered under the laws of Pennsylvania. How is it classified in Pennsylvania?

  1. Alien insurer
  2. Foreign insurer
  3. Domestic insurer Correct answer.
  4. Surplus lines insurer

Explanation

A domestic insurer is one formed under the laws of the state in which it is doing business. Because this insurer is chartered in Pennsylvania, it is a Pennsylvania domestic insurer.

Question 20Insurance Regulation

Under Pennsylvania limited tort, which circumstance allows an insured to recover non-economic damages despite the limited tort election?

  1. Serious impairment of a body function Correct answer.
  2. Any soft-tissue injury
  3. Medical expenses exceeding $5,000
  4. Lost wages for more than 60 days

Explanation

Limited tort bars most non-economic damage claims unless the injury causes death, serious impairment of a body function, or permanent serious disfigurement. Medical expense and wage-loss thresholds alone do not satisfy the exception.

Question 21Insurance Regulation

An insured has two vehicles on one Pennsylvania auto policy with UM/UIM coverage and the policy provides for stacking. After an accident in one vehicle, how may the UM/UIM limits be applied?

  1. Stack only property damage limits
  2. Stack the limits from both vehicles Correct answer.
  3. Never stack any limits
  4. Stack limits only after an accident

Explanation

Stacking permits the insured to add the UM/UIM limits applicable to multiple vehicles when the policy provides for it and the insured has not waived stacking. Pennsylvania permits stacking only when the policy language allows it.

Question 22Insurance Regulation

Before placing a risk with a surplus lines insurer in Pennsylvania, what must a surplus lines broker do?

  1. Obtain Commissioner approval for each policy
  2. Use the NAIC model surplus lines form
  3. Place the risk with any unauthorized insurer
  4. Document a search of the admitted market Correct answer.

Explanation

A surplus lines broker must make and document a diligent effort to place the risk with authorized insurers before using an eligible surplus lines insurer. The coverage cannot be placed in the surplus lines market when the admitted market can provide it.

Question 23Insurance Regulation

A producer places a Pennsylvania commercial risk with an insurer that has no certificate of authority and does not use the surplus lines law. How is this placement treated?

  1. Permitted if the premium is lower
  2. Permitted for commercial risks only
  3. Prohibited outside surplus lines Correct answer.
  4. Permitted with the insured's written consent

Explanation

Transacting insurance with an unauthorized insurer is prohibited unless the placement complies with Pennsylvania's surplus lines law. A lower premium or the insured's consent does not make an unauthorized placement lawful.

Question 24Insurance Regulation

When must a Pennsylvania motorist maintain the required auto liability coverage?

  1. Continuously while the vehicle is operated Correct answer.
  2. Only after the first accident
  3. Only for commercial vehicles
  4. Only at the time of registration

Explanation

Pennsylvania's financial responsibility law requires the required liability coverage to be maintained continuously on a registered vehicle. Lapses can lead to registration and driving-privilege sanctions.

Question 25Insurance Regulation

Which authority does the Pennsylvania Insurance Department have over admitted insurers?

  1. Examine insurer books and records Correct answer.
  2. Adjudicate criminal fraud cases
  3. Set mandatory uniform rates for all insurers
  4. Approve every producer's commissions

Explanation

The Department has broad examination authority to inspect the books, records, and affairs of admitted insurers. It does not set uniform mandatory rates, approve individual producer commissions, or hear criminal cases.

Question 26Insurance Regulation

A Pennsylvania insurance producer licensed for property and casualty must complete how many hours of continuing education during each two-year license period?

  1. 24 hours Correct answer.
  2. 8 hours
  3. 40 hours
  4. 16 hours

Explanation

Pennsylvania requires licensed producers to complete 24 credit hours of continuing education every two years. At least 3 of those hours must be in ethics.

Question 27Insurance Regulation

A producer tells a client that the insurer will refund part of the commission if the client buys the policy, a benefit not stated in the policy. This practice is best described as:

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

Explanation

Rebating is offering an inducement, such as a share of commission, that is not specified in the policy to persuade a person to buy insurance. Pennsylvania prohibits rebating as an unfair trade practice.

Question 28Insurance Regulation

Who is required to hold a Pennsylvania public adjuster license?

  1. A producer who sells policies to insureds
  2. An attorney who litigates a claim for an insured
  3. A salaried employee who adjusts claims for an insurer
  4. A person who negotiates claims for an insured for pay Correct answer.

Explanation

Pennsylvania licenses public adjusters, who represent insureds in negotiating claims for compensation. Insurer staff adjusters and attorneys acting in a legal capacity are not public adjusters.

Question 29Insurance Regulation

An applicant knowingly states on a Pennsylvania insurance application that a vehicle is kept in a garage when it is actually kept on the street, to obtain a lower premium. This conduct is:

  1. A lawful rating practice
  2. Insurance fraud Correct answer.
  3. A minor underwriting error
  4. A permissible sales tactic

Explanation

Knowingly providing false information on an insurance application to obtain a lower premium is insurance fraud. Pennsylvania imposes criminal and civil penalties for fraudulent insurance acts.

Question 30Insurance Regulation

An insurer gives a producer blank policy forms and rate manuals, and the producer uses them to issue a policy. The insured reasonably believes the producer has authority to bind the insurer. The insurer is bound under which doctrine?

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

Explanation

Apparent authority arises when the insurer's conduct leads a reasonable person to believe the producer has authority to act for the insurer. The insurer may be bound even if the producer lacked actual authority.

Question 31Insurance Regulation

An insurer decides not to renew a Pennsylvania private passenger auto policy at its expiration. What is the minimum advance written notice generally required?

  1. 90 days
  2. 60 days Correct answer.
  3. 20 days
  4. 120 days

Explanation

Pennsylvania generally requires an insurer to give at least 60 days' advance written notice before nonrenewing a private passenger auto policy. This gives the insured time to obtain replacement coverage.

Question 32Insurance Regulation

Before a Pennsylvania surplus lines broker may place coverage with a nonadmitted insurer, the insurer must generally appear on which of the following?

  1. The guaranty fund roster
  2. The NAIC list of certified reinsurers
  3. The list of admitted insurers
  4. The surplus lines eligibility list Correct answer.

Explanation

A surplus lines broker may place coverage with a nonadmitted insurer only if the insurer is on the Insurance Department's eligible surplus lines insurer list. Admitted insurers are placed through the voluntary market instead.

Question 33Insurance Regulation

An insurer charges one group of applicants a higher premium than another group for the same coverage, and the difference is based solely on national origin. This practice is:

  1. Permissible if disclosed in the policy
  2. Unfair discrimination Correct answer.
  3. Lawful underwriting classification
  4. A rating rule approved by the commissioner

Explanation

Pennsylvania prohibits unfair discrimination in rates and availability of insurance based on characteristics such as national origin. Premium differences must rest on lawful actuarial distinctions, not prohibited classifications.

Question 34Insurance Regulation

A Pennsylvania insurer denies a first-party claim. Under unfair claim settlement practice rules, the insurer should generally provide the claimant with:

  1. An immediate referral to the guaranty fund
  2. A written explanation of the denial Correct answer.
  3. A copy of the insurer's loss ratio report
  4. A verbal explanation only if requested

Explanation

Unfair claim settlement practice rules require insurers to give a prompt and reasonable explanation of the basis for denying a claim. This is typically provided in writing so the claimant understands the reason.

Question 35Insurance Regulation

A Pennsylvania producer is disciplined by another state's insurance regulator. Within how many days must the producer report the action to the Pennsylvania Insurance Department?

  1. 90 days
  2. 10 days
  3. 60 days
  4. 30 days Correct answer.

Explanation

A Pennsylvania producer must report an administrative action taken by another state's insurance regulator within 30 days. Timely reporting is part of the producer's ongoing licensing obligations.

Question 36Insurance Regulation

A Pennsylvania public adjuster contract with an insured may generally be rescinded by the insured within what period after signing?

  1. 24 hours
  2. 30 days
  3. 3 business days Correct answer.
  4. 10 business days

Explanation

Pennsylvania gives an insured the right to rescind a public adjuster contract within 3 business days after signing it. The contract must disclose this cancellation right.

Question 37Insurance Regulation

A producer wants to pay an unlicensed individual a percentage of the commission for soliciting a client who buys a policy. The producer should:

  1. Not pay the friend; the arrangement is prohibited Correct answer.
  2. Pay a referral fee because no terms were negotiated
  3. Pay a fee if the insurer approves in writing
  4. Pay a fee only if the friend is a relative

Explanation

A licensed producer may not share commissions with an unlicensed person for soliciting insurance. Paying a percentage of commission for the sale would amount to compensating unlicensed activity.

Question 38Insurance Regulation

An insurer terminates a producer's appointment because the producer misappropriated premiums. Within how many days must the insurer notify the Pennsylvania Insurance Department?

  1. 90 days
  2. 60 days
  3. 30 days Correct answer.
  4. 45 days

Explanation

When an insurer terminates a producer's appointment for cause, it must notify the Pennsylvania Insurance Department within 30 days. The producer is also given an opportunity to respond to the termination.

Question 39Insurance Regulation

Which statement about adjuster licensing in Pennsylvania is correct?

  1. Only attorneys may adjust claims for insurers
  2. Insurer staff adjusters generally need no public adjuster license Correct answer.
  3. A public adjuster license is required to sell policies
  4. Every insurer staff adjuster must hold a public adjuster license

Explanation

Pennsylvania's public adjuster licensing requirement applies to adjusters who represent insureds for compensation. Staff adjusters who work directly for an insurer generally are not required to hold a public adjuster license.

Question 40Insurance Regulation

When a Pennsylvania surplus lines broker places coverage with a nonadmitted insurer, the broker must generally disclose to the insured that:

  1. The policy is fully covered by the Pennsylvania guaranty fund
  2. The policy must be approved by the commissioner before it takes effect
  3. The insurer is nonadmitted and the guaranty fund does not cover it Correct answer.
  4. The insurer holds a Pennsylvania certificate of authority

Explanation

Surplus lines coverage is placed with insurers that are not admitted in Pennsylvania. The broker must inform the insured that the insurer is nonadmitted and that the policy is not protected by the Pennsylvania guaranty fund.

Question 41General Insurance Concepts

A business purchases a commercial property policy to handle the financial consequences of a fire loss. Which risk-management technique does this represent?

  1. Risk retention
  2. Risk transfer Correct answer.
  3. Risk avoidance
  4. Loss prevention

Explanation

Buying insurance transfers the financial consequences of an uncertain loss to the insurer in exchange for a premium. The business still owns the physical exposure, but the dollars of loss are shifted to the carrier. Retention means the business absorbs the loss itself, while avoidance eliminates the activity that creates the exposure altogether.

Question 42General Insurance Concepts

Which statement best describes insurable interest in property insurance?

  1. It must exist when the policy is purchased but need not exist at the time of loss
  2. It must exist at the time of loss for the insured to collect Correct answer.
  3. It is created automatically when the first premium is paid
  4. It applies only to family members of the named insured

Explanation

Insurable interest is a financial stake in the property such that the insured suffers a genuine economic loss if the property is damaged. In property insurance the interest must exist at the time of the loss, because the coverage is meant to make the insured whole rather than to create a windfall. Paying a premium does not by itself create an insurable interest.

Question 43General Insurance Concepts

Which principle of insurance is intended to restore an insured to approximately the same financial position held before a loss, no better and no worse?

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

Explanation

The principle of indemnity limits recovery to the amount of the insured's actual financial loss, so the insured is restored but not enriched. Insurable interest, actual cash value valuation, and subrogation all exist to support this principle. Utmost good faith governs disclosure between the parties rather than the measure of recovery.

Question 44General Insurance Concepts

A situation that can produce only loss or no loss, with no possibility of gain, is known as:

  1. Fundamental risk
  2. Pure risk Correct answer.
  3. Speculative risk
  4. Particular risk

Explanation

Pure risk involves only the chance of loss or no loss, and it is the category of risk that insurance is designed to handle. Speculative risk offers the possibility of gain as well as loss and is generally considered uninsurable. Fundamental and particular risk describe the scope of an exposure rather than whether gain is possible.

Question 45General Insurance Concepts

An insured stores gasoline in open containers inside an attached garage. This condition is best classified as:

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

Explanation

A physical hazard is a tangible condition that increases the chance or severity of a loss, such as storing flammable liquids near a structure. Moral hazard involves dishonest intent, and morale hazard involves carelessness or indifference because insurance exists. Speculative risk involves a chance of gain and is not insurable.

Question 46General Insurance Concepts

An applicant intentionally overstates the value of merchandise that does not exist in order to collect a larger claim. This conduct illustrates:

  1. Moral hazard Correct answer.
  2. Legal hazard
  3. Morale hazard
  4. Physical hazard

Explanation

Moral hazard is the increase in loss potential created by dishonesty or an intent to defraud the insurer. A morale hazard, by contrast, is carelessness or indifference that arises because the insured has insurance. Physical hazards are tangible conditions, and legal hazards arise from laws or regulations that affect the exposure.

Question 47General Insurance Concepts

The principle that allows an insurer to predict losses more accurately as the number of similar exposure units increases is called:

  1. The principle of indemnity
  2. The rule of proximate cause
  3. The principle of utmost good faith
  4. The law of large numbers Correct answer.

Explanation

The law of large numbers holds that actual losses come closer to expected losses as the number of similar, independent exposure units grows. This is why insurers can pool many risks, price coverage accurately, and set adequate reserves. The other named principles address the measure of recovery, disclosure duties, and causation of loss.

Question 48General Insurance Concepts

Insurance policies are generally treated as contracts of adhesion because:

  1. Both parties negotiate each policy term at length before signing
  2. The insurer writes the terms and the insured accepts them as written Correct answer.
  3. The insured drafts the policy language and the insurer must accept it
  4. The policy is enforceable only after the insured has incurred a loss

Explanation

A contract of adhesion is drafted by one party and offered to the other on a take-it-or-leave-it basis, which is how insurance policies are sold. Because the insurer controls the wording, ambiguities are generally interpreted in favor of the insured. Negotiated wording is a feature of a bargained contract rather than an adhesion contract.

Question 49General Insurance Concepts

After paying an insured $20,000 for collision damage caused by another driver, the insurer pursues the at-fault driver for reimbursement. This right is called:

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

Explanation

Subrogation is the insurer's right to step into the insured's shoes and recover a loss payment from the party responsible for the damage. It supports the principle of indemnity by preventing the insured from collecting twice and helps hold down premiums. Contribution applies when two insurers share the same loss, and salvage concerns the disposal of damaged property.

Question 50General Insurance Concepts

A building is valued at $500,000 and the policy contains an 80% coinsurance clause. What is the minimum amount of insurance the owner must carry to avoid a coinsurance penalty on a partial loss?

  1. $300,000
  2. $450,000
  3. $400,000 Correct answer.
  4. $500,000

Explanation

The coinsurance clause requires the insured to carry insurance equal to a stated percentage of the property's value at the time of loss. Here, 80% of $500,000 is $400,000, which is the minimum limit needed to avoid a penalty on a partial loss. Carrying less than that amount reduces a partial-loss payment under the coinsurance formula.