P&C Property & Casualty Insurance License MCQ 4 — Questions and Answers
Question 1: Under an umbrella liability policy, 'drop-down coverage' occurs when:
- The umbrella policy drops down to cover losses excluded by underlying policies (Correct answer)
- The umbrella limit drops down to match the underlying policy limit
- The umbrella policy responds when underlying limits are exhausted
- The insured drops down to a lower tier of coverage
Correct answer: The umbrella policy drops down to cover losses excluded by underlying policies
Drop-down coverage means the umbrella policy covers certain losses excluded by underlying policies, subject to a self-insured retention (SIR).
Question 2: The 'vacancy clause' in a commercial property policy typically suspends certain coverages after the building has been vacant for:
- 30 consecutive days
- 60 consecutive days (Correct answer)
- 90 consecutive days
- 120 consecutive days
Correct answer: 60 consecutive days
Under standard commercial property forms, coverage for certain perils (vandalism, sprinkler leakage, glass breakage, water damage) is suspended after 60 consecutive days of vacancy.
Question 3: Which auto coverage is required in 'no-fault' states to pay for the insured's own medical expenses regardless of who caused the accident?
- Medical Payments (MedPay)
- Personal Injury Protection (PIP) (Correct answer)
- Bodily Injury Liability
- Uninsured Motorist Bodily Injury
Correct answer: Personal Injury Protection (PIP)
Personal Injury Protection (PIP) is the mandated coverage in no-fault states that pays the insured's own medical bills, lost wages, and other expenses without regard to fault.
Question 4: An insured purchases a homeowners policy and then suffers a fire loss the next day. The insurer discovers the insured knew the house had faulty wiring when applying. This is an example of:
- Concealment
- Warranty breach
- Material misrepresentation (Correct answer)
- Fraud
Correct answer: Material misrepresentation
Knowingly withholding or misrepresenting a material fact (faulty wiring) that would affect the insurer's underwriting decision constitutes material misrepresentation.
Question 5: Under the CGL policy, 'products-completed operations' coverage is triggered when:
- A product is manufactured in the insured's facility
- A product causes injury or damage after it leaves the insured's premises or operations are completed (Correct answer)
- The insured completes installation on the customer's property
- A customer returns a defective product
Correct answer: A product causes injury or damage after it leaves the insured's premises or operations are completed
Products-completed operations coverage applies once a product has left the insured's control or work has been completed, covering resulting bodily injury or property damage.
Question 6: A 'retroactive date' in a claims-made policy means:
- The date the policy was first issued
- The earliest date of an occurrence for which a claim will be covered under the policy (Correct answer)
- The date by which all claims must be reported
- The date the insurer can retroactively cancel the policy
Correct answer: The earliest date of an occurrence for which a claim will be covered under the policy
The retroactive date sets the earliest point in time from which an occurrence can arise and still be covered under a claims-made policy.
Question 7: Which of the following describes 'actual cash value' (ACV) in property insurance?
- The cost to replace the damaged property with new property of like kind and quality
- Replacement cost minus depreciation (Correct answer)
- The original purchase price of the damaged property
- The fair market value as determined by a licensed appraiser
Correct answer: Replacement cost minus depreciation
Actual cash value is calculated as the replacement cost of the property minus depreciation for age, wear, and obsolescence.
P&C Property & Casualty Insurance License MCQ 4
Under an umbrella liability policy, 'drop-down coverage' occurs when: