P&C Trivia 2 — Questions and Answers
Question 1: Which type of insurance policy covers the insured's legal liability for bodily injury or property damage caused to third parties?
- First-party coverage
- Liability coverage (Correct answer)
- Physical damage coverage
- Inland marine coverage
Correct answer: Liability coverage
Liability coverage protects the insured against claims made by third parties for bodily injury or property damage the insured caused.
Question 2: What does the term 'subrogation' mean in property and casualty insurance?
- Cancellation of a policy mid-term
- The insurer's right to pursue a third party that caused an insurance loss (Correct answer)
- Adding an additional insured to a policy
- Dividing premiums between multiple insurers
Correct answer: The insurer's right to pursue a third party that caused an insurance loss
Subrogation gives the insurer the right to recover claim payments from the responsible third party after compensating the insured.
Question 3: An insured's home is destroyed by fire. Under a standard homeowners policy, which coverage pays for temporary housing while repairs are made?
- Coverage A – Dwelling
- Coverage B – Other Structures
- Coverage C – Personal Property
- Coverage D – Loss of Use (Correct answer)
Correct answer: Coverage D – Loss of Use
Coverage D (Loss of Use) pays additional living expenses when a covered loss makes the home uninhabitable.
Question 4: Which of the following perils is typically EXCLUDED from a standard homeowners policy?
- Fire
- Windstorm
- Flood (Correct answer)
- Theft
Correct answer: Flood
Flood is a standard exclusion in homeowners policies; separate coverage must be purchased through the NFIP or a private insurer.
Question 5: Under the principle of indemnity, the purpose of insurance is to:
- Allow the insured to profit from a loss
- Restore the insured to the same financial position as before the loss (Correct answer)
- Punish negligent insureds with higher premiums
- Replace all losses regardless of depreciation
Correct answer: Restore the insured to the same financial position as before the loss
Indemnity means the insurer restores the insured to their pre-loss financial condition, no better and no worse.
Question 6: A personal auto policy's collision coverage pays for damage to the insured vehicle caused by:
- Hail or falling objects
- Contact with another vehicle or object (Correct answer)
- Theft of the vehicle
- Flood damage
Correct answer: Contact with another vehicle or object
Collision coverage applies when the insured vehicle strikes or is struck by another vehicle or object, regardless of fault.
Question 7: What is a 'binder' in the context of property and casualty insurance?
- A written summary of policy exclusions
- A temporary agreement providing coverage until a formal policy is issued (Correct answer)
- A fee charged for processing a policy application
- A document listing all insured property values
Correct answer: A temporary agreement providing coverage until a formal policy is issued
A binder is a temporary contract that provides insurance coverage while the formal policy is being prepared and issued.
P&C Trivia 2
Which type of insurance policy covers the insured's legal liability for bodily injury or property damage caused to third parties?