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SC Claims Adjuster practice questions

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Question 1Insurance Principles and Concepts

Insurance is primarily designed to transfer which type of risk?

  1. Gambling risk
  2. Investment risk
  3. Speculative risk
  4. Pure risk Correct answer.

Explanation

Pure risk involves only the chance of loss or no loss, with no possibility of gain, which makes it insurable. Speculative risks involve the chance of gain as well as loss and are generally not insurable.

Question 2Insurance Principles and Concepts

To collect on a property damage claim, the insured must generally have an insurable interest in the property at what point?

  1. At the time of the loss Correct answer.
  2. When the policy was issued
  3. When the claim is settled
  4. When the first premium is paid

Explanation

For property insurance, insurable interest must exist at the time of the loss, because indemnity requires that the insured actually suffered a financial detriment. Interest at inception alone does not support a recovery after the interest has ended.

Question 3Insurance Principles and Concepts

The principle of indemnity provides that a claimant is restored to roughly the same financial position held before the loss, which means the insured may not do what?

  1. Profit from the loss Correct answer.
  2. Assign the policy after a loss
  3. Recover the deductible from the agent
  4. File a proof of loss

Explanation

Indemnity limits recovery to the actual amount of the loss so the insured is made whole but not enriched. Collecting more than the loss would violate that principle and invite fraud.

Question 4Insurance Principles and Concepts

Which items are typically found on the declarations page of a policy?

  1. The state insurance statutes
  2. The insurer's claims manual
  3. The named insured, policy period, and limits Correct answer.
  4. A case-law summary of exclusions

Explanation

The declarations page personalizes the policy by identifying the insured, the property or risk insured, the policy term, and the coverage limits and deductibles. The insuring agreement, conditions, and exclusions appear elsewhere in the policy form.

Question 5Insurance Principles and Concepts

Which of the following is an example of a physical hazard?

  1. Knowingly leaving a rear door unlocked
  2. Lending a car to an unsafe driver
  3. Oily rags stored beside a furnace Correct answer.
  4. Inflating a claim after a fire

Explanation

A physical hazard is a tangible condition that increases the chance or severity of a loss, such as combustible debris near an ignition source. Conditions that arise from dishonesty or carelessness are moral or morale hazards instead.

Question 6Insurance Principles and Concepts

In insurance terminology, a peril is best described as which of the following?

  1. A condition that increases the chance of loss
  2. The amount the insurer pays on a claim
  3. The probability that a loss will occur
  4. The cause of a loss, such as fire or windstorm Correct answer.

Explanation

A peril is the actual cause of loss, such as fire, wind, or theft, and policies state which perils are covered or excluded. Conditions that raise the likelihood of loss are hazards, not perils.

Question 7Insurance Principles and Concepts

An insurance policy is a contract of adhesion, meaning that the insurer drafts the terms and ambiguities are construed in favor of whom?

  1. The agent
  2. The insurer
  3. The insured Correct answer.
  4. The reinsurer

Explanation

Because the insured has no meaningful ability to negotiate the wording, courts resolve truly ambiguous policy language against the party that drafted it. This rule protects the reasonable expectations of the policyholder.

Question 8Insurance Principles and Concepts

An aleatory contract is one in which the dollar amounts exchanged by the parties may be unequal, which distinguishes insurance from which type of contract?

  1. A conditional contract
  2. A unilateral contract
  3. A personal contract
  4. A commutative contract Correct answer.

Explanation

In a commutative contract the values exchanged are intended to be equal, as in a typical sale of goods. Insurance is aleatory because the premium paid may be far smaller or larger than the loss payment, depending on chance.

Question 9Insurance Principles and Concepts

An insurer pays a $40,000 collision claim caused by another driver's negligence. What does the right of subrogation allow the insurer to do?

  1. Cancel the policy without notice
  2. Seek reimbursement from the negligent driver Correct answer.
  3. Raise the insured's premium to recover the payment
  4. Collect the same $40,000 again from the insured

Explanation

Subrogation lets the insurer stand in the insured's shoes and pursue the responsible third party for amounts it paid. Any recovery is subject to the insured's interest, so the insured is not deprived of a deductible reimbursement.

Question 10Insurance Principles and Concepts

An applicant states on a homeowners application that the roof is five years old when it is actually twenty years old. The insurer issues the policy and learns the truth after a storm claim. What may the insurer do?

  1. Nothing, because applications are not part of the insurance contract
  2. Rescind the policy if the misrepresentation was material and relied on Correct answer.
  3. Cancel going forward but pay the claim in full
  4. Deny only if the roof itself failed in the storm

Explanation

A material misrepresentation on an application allows the insurer to rescind the policy when it relied on the false statement in issuing coverage. Materiality turns on whether the insurer would have acted differently had it known the truth.

Question 11Insurance Principles and Concepts

A policy condition requires the insured to maintain a monitored alarm system. This requirement is best described as which of the following?

  1. A waiver of the insurer's right to deny coverage
  2. An estoppel created by the insurer's conduct
  3. A warranty whose breach may bar a related loss Correct answer.
  4. A representation made at application

Explanation

A warranty is a promise or condition in the policy that the insured must satisfy, and a breach may defeat coverage for a loss connected to the broken promise. Representations are statements of fact made before the contract, not continuing promises.

Question 12Insurance Principles and Concepts

A building has a replacement cost of $500,000 and the policy carries an 80% coinsurance clause. The insured carries $300,000 of coverage and suffers a $100,000 loss with no deductible. What amount is payable?

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

Explanation

The coinsurance requirement is $400,000 (80% of $500,000). Because $300,000 was carried, the recovery is ($300,000 / $400,000) x $100,000 = $75,000, which is the penalty for underinsurance.

Question 13Insurance Principles and Concepts

Actual cash value in property claims is generally determined by using which calculation?

  1. Replacement cost minus depreciation Correct answer.
  2. Replacement cost plus depreciation
  3. The policy limit minus the deductible
  4. The original purchase price with no adjustment

Explanation

Actual cash value reflects the depreciated value of the damaged property, so it is the cost to replace the item reduced by depreciation. This keeps the payment consistent with indemnity by accounting for the property's age and condition.

Question 14Insurance Principles and Concepts

A windstorm blows a tree into a power line, starting a fire that destroys a home. Under the doctrine of proximate cause, the cause of loss is which of the following?

  1. The fallen tree
  2. The fire
  3. The windstorm Correct answer.
  4. The electrical failure

Explanation

Proximate cause looks to the initiating event in an unbroken chain of events that produces the loss without a new, independent cause intervening. Because the covered windstorm set the sequence in motion, it is the efficient proximate cause.

Question 15Insurance Principles and Concepts

What is the primary function of a deductible in a property policy?

  1. To satisfy the coinsurance requirement
  2. To increase the insurer's exposure on small losses
  3. To eliminate small claims and reduce the premium Correct answer.
  4. To transfer part of the risk to a reinsurer

Explanation

A deductible makes the insured absorb the first portion of each loss, which removes the administrative cost of small claims and reduces moral hazard. The insurer prices the policy lower because its expected payout is smaller.

Question 16Insurance Principles and Concepts

Adverse selection in insurance occurs when which of the following happens?

  1. A policyholder increases coverage after a loss
  2. An agent places business with several insurers
  3. An insurer selects only the best risks
  4. Those most likely to have losses buy coverage most eagerly Correct answer.

Explanation

Adverse selection is the tendency of poorer-than-average risks to seek insurance while better risks decline it, which skews the insurer's pool. Underwriting, exclusions, and rating classes are used to counter this tendency.

Question 17Insurance Principles and Concepts

Authority that arises when an insured reasonably believes an agent can act for the insurer because of the insurer's own conduct is called what?

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

Explanation

Apparent authority is created by the insurer's manifestations to the public, which lead a reasonable person to believe the agent has power to bind it. The insurer may be bound by the agent's acts even if the agent exceeded actual instructions.

Question 18Insurance Principles and Concepts

An adjuster tells the insured in writing that a late-reported claim will be honored, and the insurer later denies it for late notice. The insurer is most likely barred by which doctrine?

  1. Waiver and estoppel Correct answer.
  2. Subrogation
  3. Arbitration
  4. Coinsurance

Explanation

Waiver is the voluntary giving up of a known right, and estoppel prevents the insurer from asserting a right after its conduct led the insured to rely on it to their detriment. Honoring the late notice in writing waives the defense.

Question 19Insurance Principles and Concepts

Two policies cover the same $60,000 loss. Policy A has a $100,000 limit and Policy B has a $200,000 limit. Using pro rata liability by limits, how much does Policy A pay?

  1. $40,000
  2. $20,000 Correct answer.
  3. $15,000
  4. $30,000

Explanation

Policy A bears its share of the combined limits: $100,000 divided by $300,000 equals one-third, and one-third of the $60,000 loss is $20,000. Policy B then pays the remaining two-thirds, or $40,000.

Question 20Insurance Principles and Concepts

After paying a total loss on a vehicle, the insurer's salvage rights permit it to do what?

  1. Require the insured to repair the vehicle
  2. Return the vehicle to the insured at full value
  3. Sell the vehicle without crediting the insured
  4. Take and dispose of the damaged vehicle Correct answer.

Explanation

Once the insurer pays the full value of the damaged property, it is entitled to the remaining salvage so that it can recover some of its cost. The insured is not allowed to keep the salvage and also collect the full loss payment.

Question 21Insurance Principles and Concepts

A building worth $600,000 is insured for $450,000 under a policy with a 90% coinsurance clause and a $5,000 deductible. A $120,000 loss occurs. What is the payable amount?

  1. $75,000
  2. $115,000
  3. $95,000 Correct answer.
  4. $100,000

Explanation

The coinsurance requirement is $540,000 (90% of $600,000). Applying the ratio, ($450,000 / $540,000) x $120,000 = $100,000, and subtracting the $5,000 deductible leaves $95,000.

Question 22Insurance Principles and Concepts

Rain enters a home through an opening torn open by a covered windstorm, and the policy excludes damage caused by water. Under the efficient proximate cause rule, how is the claim handled?

  1. The insured must show the exclusion is unenforceable
  2. Coverage applies because the covered windstorm set the loss in motion Correct answer.
  3. The water exclusion always prevails once water is involved
  4. The loss is divided equally between covered and excluded causes

Explanation

When a covered peril initiates an unbroken chain of events leading to loss, the loss is covered even if a later excluded peril contributed. The windstorm is the efficient proximate cause, so the water exclusion does not defeat the claim.

Question 23Insurance Principles and Concepts

In a recorded statement after a fire, an insured omits a prior bankruptcy when directly asked. For the insurer to void coverage based on concealment, the omitted fact must be which of the following?

  1. Documented in a signed writing
  2. Known to the producing agent
  3. Material and intentionally withheld Correct answer.
  4. Discovered before the proof of loss

Explanation

Concealment requires an intentional failure to disclose a fact that is material to the insurer's decision, made with intent to deceive. An immaterial omission, or one made innocently, does not void the policy.

Question 24Insurance Principles and Concepts

A commercial property policy allows the insured to waive subrogation in writing before a loss. The insured signs such a waiver with a tenant, and later a fire caused by the tenant damages the building. What is the insurer's position?

  1. It may sue the tenant and also surcharge the insured
  2. It cannot pursue the tenant, because the right was waived before loss Correct answer.
  3. It may recover from the tenant only above the deductible
  4. It may deny the claim because the waiver is a breach of warranty

Explanation

A valid pre-loss waiver of subrogation extinguishes the insured's right of recovery, and the insurer's subrogation rights cannot exceed those of the insured. Because the right was given up before the loss, the insurer has nothing to step into.

Question 25Insurance Principles and Concepts

How does an insurer's duty to defend compare with its duty to indemnify?

  1. It is broader and covers claims potentially within coverage Correct answer.
  2. It is narrower and applies only to covered judgments
  3. It begins only after a judgment is entered
  4. It applies only to suits the insurer considers meritorious

Explanation

The duty to defend is triggered by allegations that potentially fall within coverage, even if the suit turns out to be groundless. The duty to indemnify arises only when a covered loss or judgment actually exists.

Question 26Insurance Principles and Concepts

In property insurance, an insurable interest must exist at which point for the insured to recover for a loss?

  1. Only when the claim is filed
  2. At the time of the loss Correct answer.
  3. Only when the premium is paid
  4. Only when the application is signed

Explanation

Property insurance is a contract of indemnity, so the insured must have a financial interest in the property at the time of the loss. An interest that existed only at application or that arises later does not satisfy the requirement for a property loss.

Question 27Insurance Principles and Concepts

The principle of indemnity is intended to do which of the following?

  1. Restore the insured to approximately the same financial position held before the loss Correct answer.
  2. Punish the party who caused the loss
  3. Guarantee that all damaged property is replaced with new property
  4. Allow the insured to profit when a loss exceeds the policy premium

Explanation

Indemnity places the insured back in approximately the same financial position held before the loss, without gain. Replacement cost coverage is a valuation method that may exceed actual cash value, but indemnity itself does not guarantee new-for-old replacement.

Question 28Insurance Principles and Concepts

An insured becomes less careful about locking a bicycle after obtaining theft coverage. This behavior is best classified as which type of hazard?

  1. Speculative risk
  2. Moral hazard
  3. Physical hazard
  4. Morale hazard Correct answer.

Explanation

Morale hazard is carelessness or indifference that develops because insurance is in place. Moral hazard involves intentional dishonesty or wrongdoing, while physical hazard refers to tangible conditions.

Question 29Insurance Principles and Concepts

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

  1. Buying stock in hopes of a price increase
  2. A fire damaging a home Correct answer.
  3. Betting on the outcome of a sporting event
  4. Introducing a new product to increase market share

Explanation

Pure risk involves only the chance of loss or no loss, with no possibility of gain. Fire, theft, and liability are common pure risks, whereas investments and wagers are speculative risks.

Question 30Insurance Principles and Concepts

In the formation of an insurance contract, the applicant's submission of an application and the insurer's issuance of a policy together represent which element?

  1. Competent parties
  2. Offer and acceptance Correct answer.
  3. Legal purpose
  4. Consideration

Explanation

The application generally operates as the offer, and the insurer's issuance of the policy operates as acceptance. Consideration is the exchange of value, while legal purpose and competent parties are separate contract requirements.

Question 31Insurance Principles and Concepts

Insurance is classified as a unilateral contract because which of the following is true?

  1. Neither party is legally bound until a loss occurs
  2. Only the insured is legally bound to perform
  3. Only the insurer makes a legally enforceable promise to pay covered claims Correct answer.
  4. Both parties make legally enforceable promises of equal obligation

Explanation

A unilateral contract is one in which only one party makes a legally enforceable promise. In insurance, the insurer promises to pay covered claims, while the insured is not legally compelled to continue paying premiums.

Question 32Insurance Principles and Concepts

Which document provides temporary evidence that insurance is in force until the policy is issued?

  1. Binder Correct answer.
  2. Certificate of insurance
  3. Rider
  4. Endorsement

Explanation

A binder is a temporary contract or evidence of coverage that applies until the formal policy is issued. A certificate summarizes existing coverage, while endorsements and riders modify a policy.

Question 33Insurance Principles and Concepts

Which document is a formal, often sworn, statement by an insured that describes a loss and the amount claimed?

  1. Binder
  2. Appraisal award
  3. Subrogation receipt
  4. Proof of loss Correct answer.

Explanation

A proof of loss is a formal statement, frequently sworn, that provides the insurer with details of the loss and the amount claimed. It is commonly required by the policy as a condition of payment.

Question 34Insurance Principles and Concepts

For life insurance, insurable interest is generally required to exist at which time?

  1. Continuously throughout the policy period
  2. At the time of the insured's death
  3. At the time a claim is submitted
  4. At the time the policy is applied for or issued Correct answer.

Explanation

Life insurance requires insurable interest at inception to prevent wagering on a person's life. Unlike property insurance, life insurance does not require insurable interest at the time of death.

Question 35Insurance Principles and Concepts

A policy provision states that a particular fact must be exactly true and that any variance voids coverage even if the fact is not material. This provision is best described as which of the following?

  1. A waiver
  2. A representation
  3. A concealment
  4. A warranty Correct answer.

Explanation

A warranty is a statement or condition that must be literally true, and a breach may void coverage regardless of materiality. A representation generally need only be substantially true and material.

Question 36Insurance Principles and Concepts

An applicant intentionally fails to disclose a prior fire loss when the application asks for all losses in the past five years. This conduct is best described as which of the following?

  1. Estoppel
  2. Misrepresentation
  3. Concealment Correct answer.
  4. Waiver

Explanation

Concealment is the intentional failure to disclose material information in response to a question. Misrepresentation involves an affirmative false statement rather than an omission.

Question 37Insurance Principles and Concepts

An agency agreement specifically states that an agent may bind property coverage up to $500,000. This authority is best described as which of the following?

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

Explanation

Express authority is authority specifically granted to an agent by the insurer, often in a written agency agreement. Implied authority is incidental authority needed to carry out express authority, while apparent authority arises from the insurer's conduct.

Question 38Insurance Principles and Concepts

An agent collects premiums from insureds and must hold and remit those funds to the insurer. This obligation is best described as which type of duty?

  1. Subrogation duty
  2. Coinsurance duty
  3. Underwriting duty
  4. Fiduciary duty Correct answer.

Explanation

A fiduciary duty requires an agent to handle funds belonging to others with trust, keep accurate records, and account for those funds. The duty arises because the agent is entrusted with money that belongs to the insurer or insured.

Question 39Insurance Principles and Concepts

Two property policies cover the same loss. Policy A states it is primary, and Policy B states it is excess. Which policy responds first?

  1. Policy A, because it is primary Correct answer.
  2. Policy B, because it is excess
  3. Neither policy responds until the insured pays the full loss
  4. Both policies share equally from the first dollar

Explanation

A primary policy responds first, and an excess policy applies only after the primary policy's limits are exhausted. Equal sharing from the first dollar generally applies when concurrent policies do not establish a primary and excess order.

Question 40Insurance Principles and Concepts

An insured and insurer agree that a covered loss occurred but disagree on the amount of damage. The policy provides that each party selects a competent appraiser and the appraisers choose an umpire. This process is called which of the following?

  1. Appraisal Correct answer.
  2. Mediation
  3. Subrogation
  4. Arbitration

Explanation

Appraisal is the policy process used to resolve disputes over the amount of loss when coverage itself is not disputed. Each party selects an appraiser, and an umpire resolves differences if the appraisers cannot agree.

Question 41Insurance Principles and Concepts

In a negligence claim, which element requires the claimant to show that the defendant owed a legal obligation to act with reasonable care?

  1. Breach
  2. Duty Correct answer.
  3. Proximate cause
  4. Damages

Explanation

Duty is the legal obligation to act with reasonable care under the circumstances. Breach is the failure to meet that duty, while causation and damages connect the breach to the harm.

Question 42Insurance Principles and Concepts

A plaintiff suffers $100,000 in damages and is found 30% at fault. Under a modified comparative negligence rule that bars recovery at 51% or more fault, what amount can the plaintiff recover?

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

Explanation

Modified comparative negligence reduces the plaintiff's recovery by the plaintiff's percentage of fault if the plaintiff is below the bar. A 30% fault share reduces the $100,000 award by $30,000, leaving $70,000.

Question 43Insurance Principles and Concepts

Medical expenses and lost wages incurred because of an injury are classified as which type of damages?

  1. Punitive damages
  2. Nominal damages
  3. General damages
  4. Special damages Correct answer.

Explanation

Special damages are economic, quantifiable losses such as medical bills and lost wages. General damages compensate for non-economic harm such as pain and suffering.

Question 44Insurance Principles and Concepts

A liability policy covers bodily injury that occurs during the policy period, regardless of when the claim is reported. This policy is written on which basis?

  1. Reporting
  2. Retroactive
  3. Claims-made
  4. Occurrence Correct answer.

Explanation

An occurrence policy is triggered by injury or damage that occurs during the policy period, even if the claim is reported later. A claims-made policy is triggered by the report of a claim during the policy period.

Question 45Insurance Principles and Concepts

An adjuster tells an insured that a policy covers a type of loss when the policy clearly excludes it. This conduct is best described as which unfair trade practice?

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

Explanation

Misrepresentation includes false statements about the terms or benefits of an insurance policy. Rebating involves offering an inducement from premium, twisting involves inducing a policy replacement through misrepresentation, and defamation involves false statements about an insurer.

Question 46Insurance Principles and Concepts

A building is insured under a valued policy with a stated value of $300,000. A total loss by a covered fire occurs when the actual cash value is $250,000. What amount does the policy pay, ignoring any deductible?

  1. $300,000 Correct answer.
  2. $275,000
  3. $0
  4. $250,000

Explanation

A valued policy pays the stated value on a total loss, regardless of actual cash value, to avoid disputes over valuation. Actual cash value would govern a total loss under an ordinary indemnity policy that is not valued.

Question 47Insurance Principles and Concepts

An insurer purchases reinsurance and later the reinsurer becomes insolvent. What is the effect on the original insured's covered claim?

  1. The reinsurer's insolvency automatically voids the original policy
  2. The insured must file directly with the reinsurer
  3. The ceding insurer remains responsible for paying the covered claim Correct answer.
  4. The insured's claim is limited to the reinsurer's assets

Explanation

Reinsurance is an agreement between insurers, and the original insured generally has no direct contractual relationship with the reinsurer. The ceding insurer remains liable to its insured for covered claims even if the reinsurer fails.

Question 48Insurance Principles and Concepts

A claims-made policy has a retroactive date of January 1, 2022. An act causing injury occurred on June 1, 2021, and the claim is first reported during the 2023 policy period. How is the claim treated?

  1. Excluded because the injury occurred before the retroactive date Correct answer.
  2. Covered only if the insured pays an additional premium
  3. Covered because the policy was in force when the claim was reported
  4. Covered because the claim was reported during the policy period

Explanation

A claims-made policy covers claims reported during the policy period only if the act giving rise to the claim occurred on or after the retroactive date. Because the injury occurred before the retroactive date, the claim is excluded.

Question 49Insurance Principles and Concepts

An insurer seeks to rescind a policy for a misrepresentation on the application. Which standard best determines whether the misrepresentation is material?

  1. The insurer would have issued the policy on different terms or not at all Correct answer.
  2. The statement was made in writing
  3. The statement was objectively false
  4. The statement related to the insured property

Explanation

Materiality asks whether the insurer would have made a different underwriting decision or charged a different premium had it known the truth. A false statement is not enough by itself if it would not have affected the insurer's decision.

Question 50Insurance Principles and Concepts

Business interruption coverage generally pays for lost earnings during the period of restoration. When does that period end?

  1. Exactly twelve months after the loss
  2. When the damaged property is repaired or should have been repaired with reasonable speed Correct answer.
  3. When the insured finds a permanent replacement location
  4. When the business's income returns to its pre-loss level

Explanation

The period of restoration ends when the damaged property is repaired or replaced, or when it should have been with reasonable speed and diligence. It is not measured by when income fully returns to its pre-loss level.