I85PREP
⌘ K
TN Property & Casualty study materials
TN Property & Casualty study resources

TN Property & Casualty practice questions

One question at a time. Build your TN Property & Casualty understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Tennessee Insurance Laws, Regulations, and Licensing

Which official heads the Tennessee Department of Commerce and Insurance and administers the state's insurance laws?

  1. The secretary of state, who supervises insurance as part of business regulation
  2. The state treasurer, who serves as insurance regulator ex officio
  3. The commissioner of commerce and insurance, appointed by the governor Correct answer.
  4. A commissioner elected by Tennessee voters to a four-year term

Explanation

Tennessee's insurance code is administered by the Department of Commerce and Insurance, headed by a commissioner appointed by the governor. The commissioner is not elected and does not hold the office by virtue of another elected position. The commissioner issues rules, examines insurers and producers, and enforces the insurance laws.

Question 2Tennessee Insurance Laws, Regulations, and Licensing

How long does an insurance producer license issued by Tennessee remain in effect before it must be renewed?

  1. One year
  2. Two years Correct answer.
  3. Three years
  4. Four years

Explanation

Tennessee issues producer licenses on a biennial cycle, so the license must be renewed every two years. Continuing education and any required fees are tied to that two-year term. A producer who does not renew in a timely manner may not transact insurance until the license is restored.

Question 3Tennessee Insurance Laws, Regulations, and Licensing

How many continuing education credit hours must a Tennessee producer complete during each two-year license term, including ethics?

  1. 16 hours, including 2 hours of ethics
  2. 30 hours, including 4 hours of ethics
  3. 24 hours, including 3 hours of ethics Correct answer.
  4. 12 hours, including 1 hour of ethics

Explanation

Tennessee requires 24 continuing education hours per two-year license term, and at least 3 of those hours must be in ethics. Courses must generally be approved for the producer's lines of authority. Failing to meet the requirement blocks renewal until it is satisfied.

Question 4Tennessee Insurance Laws, Regulations, and Licensing

What is the minimum age at which a person may qualify for a Tennessee insurance producer license?

  1. 16 years
  2. 21 years
  3. 19 years
  4. 18 years Correct answer.

Explanation

An applicant must be at least 18 years old, complete any required prelicensing education, pass the licensing examination, and pay the applicable fees. Being an adult is the baseline capacity requirement for licensure. Applicants must also meet character and fitness standards.

Question 5Tennessee Insurance Laws, Regulations, and Licensing

A licensed Tennessee producer moves to a new residence and business address. Within what period must the producer notify the department of the change?

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

Explanation

Producers must keep their address of record current and report a change of address to the department within 30 days. Official notices and renewal reminders are sent to the address on file. Missing notices because of an outdated address does not excuse late renewal or late reporting.

Question 6Tennessee Insurance Laws, Regulations, and Licensing

Within how many days must a Tennessee producer report to the commissioner an administrative action taken against the producer by another state's insurance regulator?

  1. 30 days Correct answer.
  2. 45 days
  3. 10 days
  4. 60 days

Explanation

A producer must report administrative actions taken by another jurisdiction's insurance regulator within 30 days of the final disposition. The duty applies even if the action does not affect the producer's Tennessee license. Failure to report is itself a ground for disciplinary action.

Question 7Tennessee Insurance Laws, Regulations, and Licensing

Before a producer may solicit insurance on behalf of an insurer in Tennessee, the insurer generally must:

  1. Appoint the producer and notify the department Correct answer.
  2. Issue the producer a certificate of authority
  3. Obtain the producer's written consent to a background check
  4. File a rate certification that names the producer

Explanation

An insurer must appoint a licensed producer before that producer can act on the insurer's behalf, and the appointment is filed with the department. The appointment links the producer's license to a specific insurer and line of authority. Certificates of authority are issued to insurers, not to producers.

Question 8Tennessee Insurance Laws, Regulations, and Licensing

Which arrangement is an unlawful rebate under Tennessee insurance law?

  1. Charging the premium rate that was filed with the department
  2. Paying a commission to the licensed producer who wrote the policy
  3. Paying a dividend that the policy itself provides for
  4. Returning part of the producer's commission to the buyer as an inducement Correct answer.

Explanation

A rebate is an inducement not specified in the policy, such as giving back part of the commission or offering something of value to win the sale. Rebating is an unfair trade practice because it discriminates between similarly situated buyers. Dividends and other benefits provided in the contract are lawful.

Question 9Tennessee Insurance Laws, Regulations, and Licensing

A producer persuades a client to surrender an existing policy by falsely stating that the current insurer is near failure. This practice is best described as:

  1. Commingling
  2. Sliding
  3. Twisting Correct answer.
  4. Coercion

Explanation

Twisting is inducing a policyholder to lapse, surrender, or replace coverage through misrepresentation or incomplete comparison of policies. The false statement about the insurer's financial condition is the classic twisting device. Coercion involves compulsion rather than misrepresentation.

Question 10Tennessee Insurance Laws, Regulations, and Licensing

A producer deposits premiums collected from clients into the same account used to pay the agency's office expenses. This practice is a violation known as:

  1. Commingling Correct answer.
  2. Misrepresentation
  3. Twisting
  4. Defalcation

Explanation

Premiums collected belong to the insurer or the insured and must be held in a fiduciary capacity, separate from the producer's personal or operating funds. Mixing those funds is commingling and is prohibited even if every premium is eventually remitted. A producer may also be required to maintain a separate premium trust account.

Question 11Tennessee Insurance Laws, Regulations, and Licensing

A Tennessee producer may lawfully share a commission from an insurance sale with which person?

  1. Another producer licensed for that line of authority Correct answer.
  2. An unlicensed friend who referred the client
  3. The client, as a thank-you for the purchase
  4. A bank employee who mailed in the application

Explanation

Commissions for the sale of insurance may be paid only to a licensed producer or to the insurer, so splitting a commission with another properly licensed producer is permitted. Sharing with an unlicensed person is an illegal payment for solicitation. Giving part of the commission to a client would be an unlawful rebate.

Question 12Tennessee Insurance Laws, Regulations, and Licensing

A producer completes an auto application and adds medical payments coverage without telling the applicant, then collects the higher premium. This conduct is best identified as:

  1. Rebating, because extra value was added
  2. A lawful package sale, because coverage was written
  3. Sliding, an unfair trade practice Correct answer.
  4. Twisting, because coverage was replaced

Explanation

Sliding is the practice of adding coverage to a policy without the applicant's knowledge or consent, and the buyer is charged for it. It is an unfair trade practice because the insured did not agree to the coverage purchased. The remedy may include refunds plus regulatory penalties.

Question 13Tennessee Insurance Laws, Regulations, and Licensing

A producer replaces a client's policy primarily to earn a new first-year commission, with no advantage to the client. This practice is known as:

  1. Coercion
  2. Defamation
  3. Churning Correct answer.
  4. Sliding

Explanation

Churning is the replacement of a policy principally to generate new commissions rather than to benefit the policyholder. It is an unfair trade practice because it harms the client and wastes policy value. A lawful replacement must be justified by a genuine benefit disclosed to the client.

Question 14Tennessee Insurance Laws, Regulations, and Licensing

After notice and hearing, the commissioner finds that a Tennessee producer violated the insurance code. Which action may the commissioner take?

  1. Refer the matter solely to the producer's appointing insurer
  2. Issue only a private warning letter to the producer
  3. Suspend or revoke the license and impose a civil penalty Correct answer.
  4. Impose criminal fines, which only courts may do

Explanation

The commissioner has administrative authority to suspend, revoke, refuse to renew, or place conditions on a license, and may also levy civil penalties and order restitution. Criminal punishment is imposed by courts, not by the commissioner. Enforcement is a regulatory function and does not depend on the insurer's action.

Question 15Tennessee Insurance Laws, Regulations, and Licensing

A Tennessee surplus lines broker wants to place an unusual commercial risk with a nonadmitted insurer. Before doing so, the broker must first:

  1. Obtain written approval from the commissioner for that specific risk
  2. Make a diligent effort to place the coverage with authorized insurers Correct answer.
  3. Purchase reinsurance covering the broker's placement
  4. Place the risk with the state guaranty association instead

Explanation

Surplus lines placement requires a diligent search showing that the coverage cannot be obtained from authorized insurers, and the search must be documented. Only after that effort may the broker use an eligible nonadmitted insurer. The broker must also disclose to the client that the insurer is not admitted and is not protected by the guaranty fund.

Question 16Tennessee Insurance Laws, Regulations, and Licensing

A Tennessee surplus lines broker may place coverage with a nonadmitted insurer only if that insurer:

  1. Holds a Tennessee certificate of authority
  2. Is a member of the Tennessee guaranty association
  3. Holds a license in at least one other state
  4. Appears on the department's list of eligible surplus lines insurers Correct answer.

Explanation

Nonadmitted insurers used for surplus lines must qualify as eligible surplus lines insurers under the department's standards and appear on its published list. Being licensed elsewhere or holding a Tennessee certificate would make the insurer admitted, which defeats the purpose of surplus lines. Guaranty association protection does not extend to surplus lines placements.

Question 17Tennessee Insurance Laws, Regulations, and Licensing

The Tennessee Insurance Guaranty Association exists primarily to:

  1. License insurers and examine their financial condition
  2. Reimburse producers for unpaid earned commissions
  3. Pay covered claims of insolvent P&C insurers Correct answer.
  4. Guarantee that member insurers will earn a profit

Explanation

The guaranty association steps in to pay covered claims of property and casualty insurers that become insolvent, protecting policyholders within statutory limits. It does not guarantee insurer profits or replace the department's solvency regulation. Life and health policies are handled by a separate guaranty mechanism.

Question 18Tennessee Insurance Laws, Regulations, and Licensing

A Tennessee homeowners insurer is declared insolvent with unpaid covered claims. Which statement about the Tennessee Insurance Guaranty Association is accurate?

  1. General tax revenue funds it, and it pays every claim
  2. It covers only life and health insurance policies
  3. Member insurers fund it, and it pays only covered claims Correct answer.
  4. It pays every claim in full regardless of policy limits

Explanation

The association is funded by assessments on member insurers, and the state is not liable for its obligations. It pays only claims that fall within the statutory definition of covered claims and within statutory limits. Claims outside those limits must be pursued in the insolvency proceeding.

Question 19Tennessee Insurance Laws, Regulations, and Licensing

An applicant knowingly understates a claims history on a Tennessee insurance application to obtain a lower premium. Under Tennessee law this conduct is:

  1. Insurance fraud, subject to criminal and civil penalties Correct answer.
  2. A breach of contract with no statutory consequence
  3. A minor underwriting irregularity with no penalty
  4. A civil matter that the insurer handles internally

Explanation

Knowingly making a false or misleading statement to obtain insurance or a lower rate is insurance fraud under Tennessee's fraud statute. Fraudulent insurance acts may be prosecuted criminally and also expose the person to civil liability. Insurers and producers are expected to report suspected fraud to the department's fraud unit.

Question 20Tennessee Insurance Laws, Regulations, and Licensing

A licensed public adjuster in Tennessee represents:

  1. The insurer when settling first-party property claims
  2. The insured for compensation in settling a claim Correct answer.
  3. The department during a market conduct examination
  4. The guaranty association in an insolvency proceeding

Explanation

A public adjuster is paid by the policyholder to prepare, present, and negotiate a claim, and must hold a public adjuster license. Company or staff adjusters represent the insurer and are treated differently under the law. The same person may not act on both sides of a claim.

Question 21Tennessee Insurance Laws, Regulations, and Licensing

A producer who holds a valid resident license in another state generally may obtain a Tennessee nonresident producer license by:

  1. Posting a surety bond with the department
  2. Establishing a business office in Tennessee
  3. Passing the Tennessee licensing examination again
  4. Relying on the home state license under reciprocity Correct answer.

Explanation

Tennessee grants nonresident licenses on a reciprocal basis to producers who are licensed and in good standing in their home state. The home state license satisfies the examination and education requirements. The producer must still submit an application, pay fees, and comply with Tennessee law.

Question 22Tennessee Insurance Laws, Regulations, and Licensing

Which of these activities requires a Tennessee insurance producer license?

  1. Discussing coverage and quoting a premium for a client Correct answer.
  2. Mailing a policy that a licensed producer already sold
  3. Printing brochures that describe a policy form
  4. Entering prospect names into a marketing database

Explanation

Soliciting, negotiating, and selling insurance, including quoting premiums and advising on coverage, requires a producer license. Clerical and administrative tasks performed without discretion over insurance terms do not. The distinction turns on whether the person is transacting insurance with the public.

Question 23Tennessee Insurance Laws, Regulations, and Licensing

A Tennessee producer completes all renewal steps except the required continuing education. What is the likely result?

  1. The license is not renewed until the education requirement is satisfied Correct answer.
  2. The producer automatically receives a one-year grace period
  3. The license renews with a warning and no further action
  4. The producer may renew if an appointing insurer makes a written request

Explanation

Continuing education compliance is a condition of renewal, so the license cannot be renewed while the requirement is outstanding. Once the hours are completed and reported, the producer may be eligible to renew or reinstate. Continuing to transact insurance without a valid license subjects the producer to penalties.

Question 24Tennessee Insurance Laws, Regulations, and Licensing

Under Tennessee law, the commissioner's examiners may review an insurer's books and records:

  1. Only after a court issues a search warrant
  2. Only with the insurer's advance written permission
  3. During normal business hours as authorized by statute Correct answer.
  4. Only after a consumer files a formal complaint

Explanation

The commissioner has statutory authority to examine insurers' affairs and records during ordinary business hours, and insurers must cooperate. Examinations may be routine or targeted and do not require the insurer's consent or a customer complaint. Refusal to allow an examination is itself a violation.

Question 25Tennessee Insurance Laws, Regulations, and Licensing

Which insurer claim-handling practice constitutes an unfair claims settlement practice in Tennessee?

  1. Requesting a proof of loss form from the claimant
  2. Denying a claim in writing and citing the policy provision relied on
  3. Failing to acknowledge a claim for months with no reasonable explanation Correct answer.
  4. Using an independent adjuster to inspect the damage

Explanation

Unfair claims settlement practices include unreasonable delay, failure to acknowledge or act on communications about a claim, and failure to conduct a reasonable investigation. Ignoring a claim for months without explanation falls within that prohibition. Prompt written denials stating the policy basis are proper handling.

Question 26Tennessee Insurance Laws, Regulations, and Licensing

Who appoints the commissioner who heads the Tennessee Department of Commerce and Insurance and oversees the insurance division?

  1. The state senate
  2. The governor Correct answer.
  3. A board of insurance company executives
  4. Voters in a statewide general election

Explanation

Tennessee's commissioner of commerce and insurance is a gubernatorial appointee who serves at the pleasure of the governor and administers the department, including the insurance division. The position is not filled by election, by legislative selection, or by the industry.

Question 27Tennessee Insurance Laws, Regulations, and Licensing

Under Tennessee continuing education requirements, how many credit hours must a resident insurance producer complete during each two-year license term, and how many of those hours must be ethics?

  1. 24 hours, including 3 hours of ethics Correct answer.
  2. 30 hours, including 6 hours of ethics
  3. 16 hours, including 2 hours of ethics
  4. 12 hours, including 1 hour of ethics

Explanation

Tennessee requires resident producers to complete 24 credit hours of approved continuing education every two-year license term, with at least 3 of those hours devoted to ethics instruction. Hours must be earned from approved providers and reported to the department before renewal.

Question 28Tennessee Insurance Laws, Regulations, and Licensing

An insurance agency is newly organized as a limited liability company and intends to sell policies in Tennessee. What must the agency do to be properly licensed?

  1. Skip insurance licensing because licensing rules apply only to individuals
  2. Operate using only its owners' individual producer licenses
  3. Obtain a license, but with no individual producer connected to the firm
  4. Obtain the business-entity license and designate a licensed principal or officer responsible for compliance Correct answer.

Explanation

A business entity seeking a Tennessee producer license must designate a principal or officer who holds a current producer license and is responsible for compliance. Individual sellers must also hold the appropriate license; LLC formation alone does not satisfy insurance licensing.

Question 29Tennessee Insurance Laws, Regulations, and Licensing

A bank tells a mortgage applicant that the loan will close only if the applicant buys homeowners coverage through the bank's affiliated insurance agency. How does Tennessee insurance law treat this demand?

  1. It is unlawful coercion and an unfair trade practice Correct answer.
  2. It is lawful because the applicant remains free to compare other insurers
  3. It is lawful because lenders may require insurance as a loan condition
  4. It is lawful as long as the affiliated agency charges standard rates

Explanation

Tennessee's unfair trade practice provisions prohibit coercion, intimidation, and boycotting in connection with insurance. A lender may require that property be insured, but it may not force the borrower to buy that coverage from a particular agent, agency, or insurer.

Question 30Tennessee Insurance Laws, Regulations, and Licensing

A producer who lives in Georgia holds a Tennessee nonresident producer license and is in good standing in Georgia, where continuing education is required and has been completed. What continuing education must the producer satisfy for Tennessee?

  1. The producer must complete Tennessee's full 24-hour biennial requirement
  2. The producer must complete Tennessee ethics hours only, with no other credit hours
  3. Tennessee accepts the home state's completed requirement, so no separate Tennessee hours are due Correct answer.
  4. The producer must complete 12 hours of Tennessee-specific education each year

Explanation

Tennessee generally exempts nonresident producers from its continuing education requirement when the producer's home state requires continuing education and the producer has satisfied it. Compliance is verified through the home state rather than through separate Tennessee coursework.

Question 31General Insurance Concepts, Contracts, and Policy Provisions

An insurance policy is a contract of adhesion, which means that:

  1. Both parties negotiate the terms of coverage as equals before the policy is issued.
  2. The amounts each party gives up are always exactly equal.
  3. Only the insured makes enforceable promises under the contract.
  4. The insurer drafts the terms and the insured generally must accept them as written. Correct answer.

Explanation

A contract of adhesion is prepared by one party and presented to the other on a take-it-or-leave-it basis. Because the insurer controls the wording, courts resolve genuine ambiguities in favor of the insured.

Question 32General Insurance Concepts, Contracts, and Policy Provisions

The principle of indemnity holds that after a covered loss the insured should be:

  1. Placed in a better financial position than before the loss.
  2. Compensated for emotional distress caused by the loss.
  3. Paid a fixed benefit stated in the policy no matter how small the actual loss.
  4. Restored to roughly the same financial position as before the loss. Correct answer.

Explanation

Indemnity means the insured is made whole, no more and no less. Recovery is limited to the actual financial loss so the insured cannot profit from insurance.

Question 33General Insurance Concepts, Contracts, and Policy Provisions

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

  1. Only when the policy is delivered.
  2. At the time of the loss. Correct answer.
  3. Only when the application is signed.
  4. Only when the claim is submitted.

Explanation

Insurable interest is measured at the time of loss in property coverage, because the insured must actually suffer a financial detriment. Life insurance, by contrast, tests insurable interest at the time of application.

Question 34General Insurance Concepts, Contracts, and Policy Provisions

Which list correctly states the elements required for a contract to be legally enforceable?

  1. Declarations, insuring agreement, conditions, and exclusions
  2. Consideration, coinsurance, salvage, and waiver
  3. Agreement, consideration, competent parties, and legal purpose Correct answer.
  4. Offer, acceptance, indemnity, and subrogation

Explanation

A valid contract requires an agreement (offer and acceptance), consideration, parties with legal capacity, and a lawful purpose. The other lists name insurance concepts or policy sections rather than contract elements.

Question 35General Insurance Concepts, Contracts, and Policy Provisions

The part of an insurance policy that identifies the named insured, the policy period, the limits, and the premium is the:

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

Explanation

The declarations page personalizes the policy by listing who is insured, what is covered, the term, the limits, and the premium charged. The other sections supply the promise to pay, the duties of the parties, and the coverage that is removed.

Question 36General Insurance Concepts, Contracts, and Policy Provisions

A deductible in a property insurance policy is best described as:

  1. The amount of each loss the insured must absorb Correct answer.
  2. A percentage of premium refunded when a policy is cancelled
  3. The maximum the insurer will pay for a single loss
  4. A fee the insurer charges to process a claim

Explanation

A deductible is the portion of each covered loss the insured retains before the insurer's payment begins. It reduces premium and discourages small claims.

Question 37General Insurance Concepts, Contracts, and Policy Provisions

An insurance contract is described as aleatory because:

  1. Both parties exchange promises of exactly equal value.
  2. Only one party is legally bound to perform.
  3. The insurer must renew the policy on the same terms each year.
  4. The dollar amounts exchanged may be unequal and depend on an uncertain event. Correct answer.

Explanation

In an aleatory contract the performance of the parties is conditioned on an uncertain event, so what each side gives up may be very unequal. A small premium can produce a large claim payment.

Question 38General Insurance Concepts, Contracts, and Policy Provisions

An applicant's representation in an insurance application is best described as:

  1. A promise to perform a future act, such as maintaining a sprinkler system.
  2. A statement the insurer may not rely on when issuing the policy.
  3. A statement of fact believed true that is material to the risk. Correct answer.
  4. A guarantee that the statement is literally true, so any inaccuracy voids coverage.

Explanation

A representation is a statement believed true to the best of the applicant's knowledge, and it must be material for the insurer to act on it. A statement that is guaranteed literally true is a warranty, which is a stricter standard.

Question 39General Insurance Concepts, Contracts, and Policy Provisions

After paying a collision claim, the insurer learns the loss was caused by another driver's negligence. Subrogation allows the insurer to:

  1. Cancel the policy back to the date of the loss.
  2. Pursue the at-fault party to recover the amount it paid. Correct answer.
  3. Raise the insured's premium to offset the claim payment.
  4. Require the insured to pay the deductible a second time.

Explanation

Subrogation transfers the insured's right of recovery against a responsible third party to the insurer after it pays the claim. The insured must generally be made whole first before the insurer keeps any recovery.

Question 40General Insurance Concepts, Contracts, and Policy Provisions

A building is insured under Policy A for $300,000 and Policy B for $100,000, both with identical terms covering the same property. Using the pro rata method, how much of a $40,000 covered loss will Policy A pay?

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

Explanation

Under the pro rata method, each policy pays in the proportion that its limit bears to the total insurance. Policy A carries $300,000 of $400,000, or 75%, so it pays 75% of $40,000, which is $30,000.

Question 41General Insurance Concepts, Contracts, and Policy Provisions

Under a standard mortgage clause in a property policy, the mortgagee is entitled to:

  1. Loss payment even if the insured's own acts voided coverage. Correct answer.
  2. The right to cancel without notifying the named insured.
  3. Ownership of the policy and all return premiums.
  4. The right to set the limits at any time during the term.

Explanation

The standard mortgage clause gives the lender independent rights, including payment of a loss even when the insured's own conduct voided coverage, provided the mortgagee was not involved in the loss. The lender also receives notice of cancellation and can pay the premium to keep coverage in force.

Question 42General Insurance Concepts, Contracts, and Policy Provisions

An adjuster tells the insured in writing that a late proof of loss will be accepted, and the insurer then tries to deny the claim because it was late. Which doctrine may bar the insurer from denying coverage?

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

Explanation

Estoppel prevents a party from asserting a right after its own conduct led the other party to rely on a contrary position to their detriment. Here the insured relied on the adjuster's written assurance that the late filing was acceptable.

Question 43General Insurance Concepts, Contracts, and Policy Provisions

Under most property and casualty policies, an insured may transfer rights under the policy to another person only with:

  1. The written consent of the insurer Correct answer.
  2. Oral notice to the producer
  3. Payment of a transfer fee to the insurer
  4. Approval of the state insurance department

Explanation

Policies are written with reference to the insured's own character and loss history, so assignment requires the insurer's written consent. Coverage does not automatically follow the property to a new owner.

Question 44General Insurance Concepts, Contracts, and Policy Provisions

An insured cancels a one-year policy after six months, and the insurer returns the unearned premium computed on a short-rate basis. Compared with a pro rata refund, the short-rate refund is:

  1. Larger, because the insured cancelled voluntarily
  2. Smaller, because the insurer keeps a cancellation penalty Correct answer.
  3. Identical, because both methods use the same table
  4. Zero, because no premium is returnable after six months

Explanation

Short-rate cancellation charges the insured more than the exact time on risk, so the refund is less than a pro rata return. Insurers typically use short rate when the insured initiates cancellation and pro rata when the insurer does.

Question 45General Insurance Concepts, Contracts, and Policy Provisions

A claims-made liability policy responds to:

  1. Only occurrences that happen after the policy has expired.
  2. Only occurrences that happen during the policy period, whenever they are reported.
  3. Claims first made during the policy period, subject to any retroactive date. Correct answer.
  4. Any claim filed in any year, as long as the occurrence was during the term.

Explanation

Claims-made coverage is triggered by the date the claim is first made against the insured, not the date of the injurious event. A retroactive date limits how far back the covered occurrence may have happened.

Question 46General Insurance Concepts, Contracts, and Policy Provisions

Actual cash value is generally calculated as:

  1. The original purchase price of the property
  2. Replacement cost plus depreciation
  3. Replacement cost minus depreciation Correct answer.
  4. The unpaid balance of any mortgage

Explanation

Actual cash value reflects what the damaged property was worth just before the loss, commonly computed as replacement cost less depreciation. Some policies use market value or a special valuation formula instead.

Question 47General Insurance Concepts, Contracts, and Policy Provisions

A building is insured for $600,000 under a policy with an 80% coinsurance clause. At the time of loss the building's replacement value is $1,000,000, and a covered loss of $100,000 occurs. The policy has a $1,000 deductible. How much will the insurer pay?

  1. $75,000
  2. $74,000 Correct answer.
  3. $60,000
  4. $100,000

Explanation

The coinsurance requirement is 80% of $1,000,000, or $800,000. Because only $600,000 was carried, the insurer pays (600,000 / 800,000) x $100,000 = $75,000, then subtracts the $1,000 deductible for a total of $74,000.

Question 48General Insurance Concepts, Contracts, and Policy Provisions

An insurer wants to investigate a claim while preserving its right to deny coverage later. The agreement that protects those defenses during the investigation is a:

  1. Certificate of insurance
  2. Nonwaiver agreement Correct answer.
  3. Memorandum of insurance
  4. Binder

Explanation

A nonwaiver agreement, signed by the insured, states that the insurer's investigation or defense of the claim does not waive any coverage defenses. A reservation-of-rights letter accomplishes a similar purpose without the insured's signature.

Question 49General Insurance Concepts, Contracts, and Policy Provisions

An applicant for homeowners coverage states that the roof is 5 years old when it is actually 20 years old. The insurer would have charged a higher premium had it known. The insurer may:

  1. Raise the premium retroactively but pay all claims.
  2. Cancel only prospectively, with no effect on pending claims.
  3. Rescind the policy back to its inception. Correct answer.
  4. Do nothing, because the statement was only an opinion.

Explanation

A misstatement of a fact that would have changed the insurer's underwriting or rating decision is material, and material misrepresentation allows the insurer to rescind the policy from the start. Age of the roof is an objective fact, not a matter of opinion.

Question 50General Insurance Concepts, Contracts, and Policy Provisions

Under the salvage provision of a property policy:

  1. The insured must sell all salvage and remit the proceeds to the state.
  2. The insured may abandon damaged property and demand the full limit.
  3. The insured must abandon the property after a total loss.
  4. No abandonment is allowed; the insurer may take the salvage. Correct answer.

Explanation

The insured may not abandon damaged property to the insurer and demand payment; the property remains the insured's. The insurer is given the option to take all or part of the salvage at the agreed or appraised value, which reduces the claim payment.