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VA Property & Casualty study materials
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VA Property & Casualty practice questions

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Question 1Insurance Regulation, Licensing, and Producer Responsibilities

Which entity is responsible for regulating the business of insurance in Virginia?

  1. The Virginia Department of Insurance
  2. The Office of the Attorney General
  3. The Virginia General Assembly
  4. The State Corporation Commission Correct answer.

Explanation

Virginia regulates insurance through the State Corporation Commission, which administers Title 38.2 of the Code of Virginia via its Bureau of Insurance. The Bureau is headed by the Commissioner of Insurance.

Question 2Insurance Regulation, Licensing, and Producer Responsibilities

Who appoints the Commissioner of Insurance in Virginia?

  1. The NAIC
  2. The Governor
  3. The State Corporation Commission Correct answer.
  4. The Virginia Senate

Explanation

The Commissioner of Insurance is appointed by the State Corporation Commission and serves as chief administrative officer of the Bureau of Insurance.

Question 3Insurance Regulation, Licensing, and Producer Responsibilities

In Virginia, a resident insurance producer's license generally expires:

  1. Biennially on the last day of the birth month Correct answer.
  2. Only when the renewal fee is unpaid
  3. Annually on December 31
  4. Every three years on the issuance anniversary

Explanation

Resident producer licenses in Virginia are renewed biennially and expire on the last day of the producer's birth month.

Question 4Insurance Regulation, Licensing, and Producer Responsibilities

Virginia's continuing education requirement for resident insurance producers is:

  1. 24 hours every three years, with no ethics
  2. 16 hours biennially, including 3 ethics hours Correct answer.
  3. 8 hours annually, including 1 hour of ethics
  4. 40 hours biennially, including 12 ethics hours

Explanation

Resident producers must complete 16 hours of continuing education every two years, including at least 3 hours of ethics.

Question 5Insurance Regulation, Licensing, and Producer Responsibilities

An insurer appointing a Virginia producer must file notice of appointment with the Bureau of Insurance within how many days after the agency contract is executed or the first application is submitted?

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

Explanation

Virginia requires an insurer to file the appointment with the Bureau within 30 days after the agency contract is executed or the first application is submitted.

Question 6Insurance Regulation, Licensing, and Producer Responsibilities

Under Virginia law, an insurer may pay a commission to which person for selling insurance?

  1. A friend who referred the customer
  2. A properly licensed Virginia producer Correct answer.
  3. A person who holds an expired producer license
  4. An unlicensed administrative assistant

Explanation

Commissions for selling, soliciting, or negotiating insurance may be paid only to a person properly licensed for the line of insurance involved.

Question 7Insurance Regulation, Licensing, and Producer Responsibilities

Which practice is prohibited as an inducement to buy insurance in Virginia?

  1. Explaining available payment plans
  2. Offering a commission rebate to the applicant Correct answer.
  3. Providing a written policy summary
  4. Quoting a lower premium under filed rules

Explanation

Rebating, which is giving any part of the premium or commission as an inducement, is an unfair trade practice under Virginia law.

Question 8Insurance Regulation, Licensing, and Producer Responsibilities

Twisting is best described as:

  1. Inducing a lapse through misrepresentation Correct answer.
  2. Failing to keep required business records
  3. Paying commissions to an unlicensed person
  4. Charging a premium above the filed rate

Explanation

Twisting is misrepresenting an existing policy to induce the policyholder to lapse, surrender, or replace it.

Question 9Insurance Regulation, Licensing, and Producer Responsibilities

A Virginia producer who collects premiums from insureds must:

  1. Deposit them in a personal account until month end
  2. Use them for business expenses until requested
  3. Forward them only after earning interest
  4. Hold them in trust and avoid commingling Correct answer.

Explanation

Premiums collected by a producer are held in a fiduciary capacity for the insurer and must not be commingled with personal or general business funds.

Question 10Insurance Regulation, Licensing, and Producer Responsibilities

A licensed Virginia producer who changes his business address must notify the Bureau of Insurance within:

  1. 6 months
  2. 30 days Correct answer.
  3. 5 days
  4. The next license renewal only

Explanation

A licensee must notify the Bureau of Insurance of a change of name or business address within 30 days.

Question 11Insurance Regulation, Licensing, and Producer Responsibilities

A Virginia producer who is the subject of a final administrative action by another state's insurance regulator must report it to the Bureau of Insurance within:

  1. 60 days
  2. 30 days Correct answer.
  3. 180 days
  4. 10 days

Explanation

Virginia requires licensees to report administrative actions, criminal convictions, and similar events within 30 days of final disposition.

Question 12Insurance Regulation, Licensing, and Producer Responsibilities

Which statement is correct about a nonresident producer license in Virginia?

  1. The applicant must pass the Virginia exam for every line
  2. The applicant must first be denied a home-state license
  3. The applicant must maintain a Virginia office
  4. The applicant may qualify through home-state reciprocity Correct answer.

Explanation

Virginia issues nonresident producer licenses on a reciprocal basis and generally waives the state exam when the producer holds a valid home-state license in good standing.

Question 13Insurance Regulation, Licensing, and Producer Responsibilities

A Virginia business entity that applies for an insurance producer license must:

  1. Operate only as an insurance consultant
  2. Have every officer individually licensed
  3. Designate a licensed producer for compliance Correct answer.
  4. Be owned only by licensed producers

Explanation

A business entity must designate a licensed individual producer who is responsible for the entity's compliance with Virginia insurance laws.

Question 14Insurance Regulation, Licensing, and Producer Responsibilities

A person licensed as an insurance consultant in Virginia generally:

  1. Need not disclose fees to clients
  2. May act as an appointed agent for any insurer
  3. May not receive commissions, only fees Correct answer.
  4. May receive commissions from insurers

Explanation

An insurance consultant is compensated by fees and may not receive commissions on the same transaction, which avoids a conflict of interest.

Question 15Insurance Regulation, Licensing, and Producer Responsibilities

Before placing coverage with an eligible surplus lines insurer in Virginia, a surplus lines broker generally must:

  1. Charge the surplus lines tax only to the insured
  2. Make a diligent effort in the admitted market Correct answer.
  3. Obtain approval from the insured's mortgagee
  4. Place the risk with a domestic insurer first

Explanation

A surplus lines broker must conduct a diligent search of the admitted market and document declinations before placing a risk with an eligible surplus lines insurer.

Question 16Insurance Regulation, Licensing, and Producer Responsibilities

Which of the following is an unfair claim settlement practice under Virginia law?

  1. Denying a claim after a reasonable investigation
  2. Explaining policy exclusions to a claimant
  3. Requesting proof of loss from a claimant
  4. Failing to act promptly on claim communications Correct answer.

Explanation

Unfair claim settlement practices include failing to acknowledge or act reasonably promptly on claim communications, among other listed acts.

Question 17Insurance Regulation, Licensing, and Producer Responsibilities

A Virginia producer who knowingly uses an advertisement containing false statements about policy benefits commits:

  1. Misrepresentation, an unfair trade practice Correct answer.
  2. A lawful comparison if the statement is brief
  3. Twisting only if the insured switches insurers
  4. A permissible sales technique

Explanation

Publishing or circulating false statements about policy terms or benefits is misrepresentation, an unfair trade practice.

Question 18Insurance Regulation, Licensing, and Producer Responsibilities

Making a false statement that an insurer is financially unsound is known as:

  1. Unfair discrimination
  2. Rebating
  3. Coercion
  4. Defamation Correct answer.

Explanation

Defamation is a false statement, made maliciously or with intent to injure, about an insurer's financial condition.

Question 19Insurance Regulation, Licensing, and Producer Responsibilities

Which ground may support suspension or revocation of a Virginia producer license?

  1. Completing continuing education early
  2. Refusing to sell a policy not represented
  3. Misappropriating premiums held in trust Correct answer.
  4. Changing the producer's business address

Explanation

Misappropriating premiums is a serious violation and grounds for suspension or revocation of a producer license.

Question 20Insurance Regulation, Licensing, and Producer Responsibilities

Under Virginia law, a person must hold a producer license to:

  1. Read an insurance policy
  2. Discuss insurance with a friend
  3. File a claim with an insurer
  4. Sell insurance for compensation Correct answer.

Explanation

A producer license is required for persons who solicit, negotiate, or sell insurance for compensation.

Question 21General Insurance Concepts and Principles

Which principle requires the policyholder to have a financial stake in the subject matter of the insurance?

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

Explanation

Insurable interest requires that the insured would suffer a genuine economic loss if the insured property were damaged or destroyed. Without it, the arrangement would look more like a wager than insurance, so the law requires the interest to exist at the time of loss.

Question 22General Insurance Concepts and Principles

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

  1. Shift every loss to the insurer without regard to policy limits
  2. Pay for new property no matter how old the damaged item was
  3. Allow the insured to collect more than the loss to fund upgrades
  4. Restore the insured to the pre-loss financial position Correct answer.

Explanation

Indemnity means the insured is made whole, no better and no worse, after a covered loss. Payment is therefore capped by the amount of the loss and by the policy limit, so the insured cannot profit from the event.

Question 23General Insurance Concepts and Principles

An insured habitually leaves a space heater running unattended, which raises the chance of a fire loss. This condition is best described as which type of hazard?

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

Explanation

A morale hazard is an attitude of carelessness or indifference toward loss because insurance is in place. It differs from a moral hazard, which involves a dishonest intent to create or exaggerate a loss.

Question 24General Insurance Concepts and Principles

Which of these is an example of a pure risk?

  1. Speculating in foreign currency exchange rates
  2. Damage to a home caused by a windstorm Correct answer.
  3. Opening a new restaurant in a competitive market
  4. Buying stock in hopes that its price rises

Explanation

A pure risk involves only the possibility of loss or no loss, with no chance of gain, which is the type of exposure insurance is designed to handle. Speculative risks offer the possibility of profit and are generally not insurable.

Question 25General Insurance Concepts and Principles

An insurance policy is generally described as a contract of adhesion because...

  1. the insured and the insurer negotiate each coverage term individually before the policy is issued
  2. the insurer drafts the terms and the insured takes or leaves them Correct answer.
  3. the state legislature writes the policy language used by all insurers
  4. both parties draft the wording together before the policy is bound

Explanation

In a contract of adhesion, one party writes the terms and the other party simply accepts them, so ambiguities are ordinarily construed against the drafter. Standard personal and commercial policies are drafted by insurers and offered on a take-it-or-leave-it basis.

Question 26General Insurance Concepts and Principles

An insurance contract is characterized as aleatory because...

  1. the amounts exchanged by the parties depend on an uncertain future event Correct answer.
  2. premiums paid are always exactly equal to the expected losses of the insured class
  3. each party promises to perform at the same time as the other
  4. the insured may cancel at any time without any penalty

Explanation

Aleatory means the values exchanged are unequal and depend on chance: a small premium may produce a large claim payment, or no payment at all. This uncertainty of performance distinguishes insurance from contracts where the exchange is roughly equal.

Question 27General Insurance Concepts and Principles

After paying a covered loss caused by a negligent third party, an insurer's right to pursue that third party for reimbursement is called...

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

Explanation

Subrogation lets the insurer step into the insured's legal shoes and recover the paid amount from the party responsible for the loss. It supports the indemnity principle by preventing the insured from collecting twice for the same loss.

Question 28General Insurance Concepts and Principles

A commercial building policy carries an 80% coinsurance requirement, the building is valued at $500,000, and the insured carries a $300,000 limit. A covered loss of $100,000 occurs. Ignoring any deductible, what does the insurer pay?

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

Explanation

The required limit is 80% of $500,000, or $400,000. Because the insured carried only $300,000, the insurer pays the loss multiplied by 300,000 divided by 400,000, which is 0.75 times $100,000, or $75,000.

Question 29General Insurance Concepts and Principles

A producer gives a client a binder while the application is being processed. The binder...

  1. provides temporary evidence of coverage until the policy is issued Correct answer.
  2. has no legal effect until the insurer approves the application in writing
  3. guarantees the quoted premium will never change during the policy term
  4. is a permanent policy document that replaces the original application for insurance

Explanation

A binder is temporary evidence that coverage is in force from the date specified until the policy is issued or the binder expires. It is typically oral or written and may be subject to the same terms as the policy that will follow.

Question 30General Insurance Concepts and Principles

In insurance underwriting, a representation is...

  1. an intentional failure to disclose a material fact
  2. a promise that a specified condition will exist throughout the policy period
  3. a statement believed true to the best of the applicant's knowledge Correct answer.
  4. a clause that voids coverage if a stated condition is unmet

Explanation

Representations are the statements an applicant makes on the application, and they are presumed to be true to the best of the applicant's knowledge. A material misrepresentation can allow the insurer to rescind the policy or deny a claim.

Question 31General Insurance Concepts and Principles

An insurer learns that an insured breached a policy condition but continues to handle the claim without reserving its rights. The insurer may later be barred from denying coverage under the doctrine of...

  1. Adhesion
  2. Contribution
  3. Res ipsa loquitur
  4. Estoppel Correct answer.

Explanation

Estoppel prevents a party from asserting a right after conduct that led the other party to rely on a contrary position. An insurer that handles a claim while knowing of a breach may lose the ability to rely on that breach later.

Question 32General Insurance Concepts and Principles

A windstorm knocks down a power line, and the resulting fire destroys a home. For purposes of the property claim, the windstorm is best described as...

  1. A remote cause
  2. An intervening cause
  3. A concurrent cause
  4. The proximate cause Correct answer.

Explanation

Proximate cause is the efficient, initiating cause that sets in motion an unbroken chain of events leading to the loss. When the initiating peril is covered, the resulting damage from a subsequent fire is generally covered as well.

Question 33General Insurance Concepts and Principles

A policy has a $500 deductible, a $50,000 limit, and a covered loss of $10,000 occurs. Assuming no other insurance, how much does the insurer pay?

  1. $10,500
  2. $500
  3. $9,500 Correct answer.
  4. $10,000

Explanation

A deductible is subtracted from the covered loss before the insurer pays. The loss of $10,000 minus the $500 deductible leaves $9,500, which is within the policy limit.

Question 34General Insurance Concepts and Principles

In insurance terminology, adverse selection refers to...

  1. the tendency of low-risk applicants to buy more coverage than high-risk ones
  2. a regulatory review of rates before they may be used
  3. the tendency of high-risk exposures to seek insurance most eagerly Correct answer.
  4. an insurer's practice of declining every applicant with a prior claim

Explanation

Adverse selection occurs when those most likely to have losses are the most likely to buy or retain coverage, which can push average costs above what was assumed in the rates. Underwriting and rating classifications are used to control it.

Question 35General Insurance Concepts and Principles

An insurer's ability to predict future losses accurately improves as...

  1. the number of similar independent exposure units increases Correct answer.
  2. the insurer concentrates its book of business in a single geographic area
  3. the average size of each claim increases
  4. the number of policyholders in a homogeneous class decreases

Explanation

The law of large numbers holds that actual results approach expected results as the number of similar, independent exposure units grows. This is why insurers seek large volumes of homogeneous, geographically spread risks when setting rates.

Question 36General Insurance Concepts and Principles

Which statement best describes facultative reinsurance?

  1. The reinsurer automatically covers every policy issued by the ceding insurer
  2. The ceding insurer must submit all risks within a class, and the reinsurer must accept them
  3. Each risk is offered and accepted or declined individually by the reinsurer Correct answer.
  4. It transfers only the risk of catastrophic loss above a stated retention

Explanation

Facultative reinsurance is arranged risk by risk, with the reinsurer free to accept or reject each submission. This differs from treaty reinsurance, under which the reinsurer automatically participates in all risks that fall within the treaty's terms.

Question 37General Insurance Concepts and Principles

A claims-made liability policy with a retroactive date of January 1, 2020 responds to...

  1. all claims made at any time, including those for acts occurring before January 1, 2020
  2. only acts that happen during the policy period, no matter when the claim is later made
  3. claims first made during the policy period for acts on or after January 1, 2020 Correct answer.
  4. claims reported after the policy expires regardless of when the act first occurred

Explanation

Claims-made coverage is triggered by the date the claim is first made against the insured, subject to the retroactive date, which bars coverage for acts occurring before that date. Occurrence policies, by contrast, are triggered by when the injury or damage takes place.

Question 38General Insurance Concepts and Principles

A five-year-old roof with a 20-year useful life is destroyed. On an actual cash value basis, the insurer pays...

  1. the original price paid for the roof without any adjustment
  2. the policy limit no matter how small the covered loss
  3. the full cost to replace the roof with new materials of like kind
  4. replacement cost less depreciation for the roof's age Correct answer.

Explanation

Actual cash value equals replacement cost minus depreciation, reflecting the value of the property just before the loss. Paying the full replacement cost without deduction would provide betterment and exceed a strict indemnity recovery.

Question 39General Insurance Concepts and Principles

After paying a total loss on damaged equipment, an insurer takes possession of the wreckage and sells it. The value recovered this way is called...

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

Explanation

Salvage is the residual value of damaged property that the insurer acquires after paying a total loss and may sell to offset its costs. Policies commonly allow the insurer to take or dispose of salvaged property.

Question 40General Insurance Concepts and Principles

Insurance works primarily by transferring risk from...

  1. the insurer to the insured
  2. the insured to a group of similarly exposed policyholders Correct answer.
  3. the reinsurer to the primary insurer
  4. the policyholder to the state guaranty fund

Explanation

Insurance pools the exposures of many policyholders so that the losses of the few are shared across the group. The individual's risk of a large loss is exchanged for a certain, smaller premium payment.

Question 41Property Insurance Basics, Policy Provisions, and Loss Valuation

The principle holding that a property insurance recovery should restore the insured to approximately the same financial position held before the loss, no better and no worse, is known as:

  1. Salvage
  2. Coinsurance
  3. Indemnity Correct answer.
  4. Subrogation

Explanation

Indemnity is the core valuation principle of property insurance: the payment should make the insured whole relative to the pre-loss position. Other concepts such as subrogation and salvage exist to support and enforce indemnity.

Question 42Property Insurance Basics, Policy Provisions, and Loss Valuation

In a property insurance policy, where would an insured find the policy period, the limits of insurance, and the description of the covered property?

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

Explanation

The declarations page is the informational section that identifies the named insured, covered property, limits, deductible and policy period. The insuring agreement, conditions and exclusions are generic form language that applies to all insureds.

Question 43Property Insurance Basics, Policy Provisions, and Loss Valuation

A property policy carries a $1,000 deductible. A covered loss is $6,500. Ignoring all other provisions, how much does the insurer pay?

  1. $1,000
  2. $6,500
  3. $5,500 Correct answer.
  4. $7,500

Explanation

A deductible is the insured's retained share and is subtracted from the covered loss before payment: $6,500 minus $1,000 equals $5,500. The deductible applies to each covered loss as the policy specifies.

Question 44Property Insurance Basics, Policy Provisions, and Loss Valuation

Which cause of loss is ordinarily excluded under an unendorsed commercial property policy and must be added by endorsement?

  1. Fire
  2. Earthquake Correct answer.
  3. Vandalism
  4. Windstorm

Explanation

Earth movement is a standard property exclusion because the exposure is catastrophic and difficult to underwrite at a predictable price. Coverage for it must be added by a specific endorsement.

Question 45Property Insurance Basics, Policy Provisions, and Loss Valuation

A property insurance coinsurance clause requires the insured to:

  1. carry insurance equal to a stated percentage of the property's value Correct answer.
  2. increase the limit automatically each year
  3. share all claim payments with the mortgagee
  4. pay a fixed percentage of every loss out of pocket

Explanation

A coinsurance clause requires the insured to carry insurance to a specified percentage of the property's value, commonly 80 or 90 percent, in exchange for a lower rate. Carrying less triggers a penalty on partial losses.

Question 46Property Insurance Basics, Policy Provisions, and Loss Valuation

Actual cash value is most accurately described as:

  1. replacement cost minus physical depreciation Correct answer.
  2. the limit of insurance shown on the declarations
  3. the price originally paid for the property
  4. the assessed value used for property taxation

Explanation

Actual cash value is generally the cost to replace damaged property with new property of like kind and quality, less an allowance for depreciation. Some jurisdictions substitute market value or use the broad evidence rule.

Question 47Property Insurance Basics, Policy Provisions, and Loss Valuation

Under the duties after loss condition of a property policy, the insured is generally required to:

  1. notify the state insurance department of the loss
  2. retain a public adjuster within 24 hours
  3. pay the balance of the annual premium
  4. submit a signed and sworn proof of loss Correct answer.

Explanation

A proof of loss is a formal, usually sworn statement giving the insurer the date, cause and amount of loss and the insured's interest in the property. Failing to submit it within the required time can jeopardize the claim.

Question 48Property Insurance Basics, Policy Provisions, and Loss Valuation

The insurer and the insured agree that a loss is covered but cannot agree on the amount of damage. The appraisal condition allows:

  1. each side to name a competent appraiser, who may then select an umpire Correct answer.
  2. the insured to sue without taking any further steps
  3. the agent to decide the amount of loss
  4. the insurer to set the amount unilaterally

Explanation

Appraisal is a dispute-resolution mechanism limited to the amount of loss. Each party selects a disinterested appraiser, and the appraisers choose an umpire when they disagree; coverage questions are not decided in appraisal.

Question 49Property Insurance Basics, Policy Provisions, and Loss Valuation

When an insurer pays a covered loss caused by a negligent third party, the insurer's right to pursue that third party is called:

  1. contribution
  2. subrogation Correct answer.
  3. salvage
  4. abandonment

Explanation

Subrogation transfers to the insurer, to the extent of its payment, the insured's right to recover from the party that caused the loss. It prevents double recovery by the insured and helps hold down the cost of insurance.

Question 50Property Insurance Basics, Policy Provisions, and Loss Valuation

A building valued at $400,000 is insured for $240,000 under an 80% coinsurance clause. A covered loss is $100,000. Ignoring the deductible, the insurer pays:

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

Explanation

The required amount of insurance is 80% of $400,000, or $320,000. Because only $240,000 was carried, the payment is $100,000 multiplied by ($240,000 divided by $320,000), which equals $75,000.