P&C Property & Casualty Insurance License MCQ 5 — Questions and Answers
Question 1: A garage owner's policy (garage policy) is specifically designed to cover:
- Personal auto owners with large garages
- Auto dealerships, service stations, and repair shops (Correct answer)
- Parking lot and valet operations exclusively
- Fleet trucks operated by municipalities
Correct answer: Auto dealerships, service stations, and repair shops
The Garage Policy is a specialized commercial policy designed for auto dealerships, service stations, repair shops, and similar auto-related businesses.
Question 2: Under a surety bond, the party that guarantees the principal's performance to the obligee is called the:
- Indemnitor
- Surety (Correct answer)
- Beneficiary
- Guarantor
Correct answer: Surety
The surety is the bonding company that guarantees to the obligee that the principal will fulfill their contractual or legal obligation.
Question 3: Which rating factor most directly affects a commercial auto policy premium for a fleet of delivery trucks?
- The personal credit scores of individual drivers
- The radius of operations and type of cargo hauled (Correct answer)
- The color and make of the vehicles
- The number of employees who do not drive
Correct answer: The radius of operations and type of cargo hauled
For commercial autos, the radius of operations and cargo type are primary rating factors because they directly affect the frequency and severity of potential losses.
Question 4: An 'inland marine' policy would most appropriately cover which of the following?
- A ship sinking in international waters
- A contractor's tools and equipment transported between job sites (Correct answer)
- Damage to a building caused by a river flood
- Liability for a boating accident on a lake
Correct answer: A contractor's tools and equipment transported between job sites
Inland marine insurance covers movable property, equipment in transit, and instrumentalities of transportation and communication — such as a contractor's equipment on the move.
Question 5: The 'insuring agreement' in an insurance policy serves what primary purpose?
- Lists all exclusions and conditions that limit coverage
- Defines the insurer's promise to pay and describes what is covered (Correct answer)
- States the premium amount and payment schedule
- Identifies all parties named on the policy
Correct answer: Defines the insurer's promise to pay and describes what is covered
The insuring agreement is the core coverage promise of the policy, describing what the insurer agrees to pay for or do in the event of a covered loss.
Question 6: Under the 'other insurance' provision of a liability policy, 'pro-rata' sharing means:
- The policy that responded first pays all losses up to its limit
- Each policy pays its proportionate share of the loss based on each policy's limit relative to total available limits (Correct answer)
- The excess policy pays only after the primary is fully exhausted
- The insured chooses which policy pays each claim
Correct answer: Each policy pays its proportionate share of the loss based on each policy's limit relative to total available limits
Pro-rata sharing requires each insurer to pay its proportional share of a loss, calculated by dividing each policy's limit by the total of all applicable limits.
Question 7: A property insurer cancels a policy mid-term for non-payment of premium. The return premium is calculated on a:
- Pro-rata basis
- Short-rate basis (Correct answer)
- Flat cancellation basis
- Earned premium basis
Correct answer: Short-rate basis
When the insured cancels or is cancelled for non-payment, the return premium is calculated on a short-rate basis, which retains a penalty portion for the insurer.
P&C Property & Casualty Insurance License MCQ 5
A garage owner's policy (garage policy) is specifically designed to cover: