Insurance Property & Casualty Insurance

Question 1

Which peril is typically covered under a standard homeowners insurance policy (HO-3) on an open-perils basis?

Accepted Answer

Fire damage

Answer

An HO-3 policy covers the dwelling on an open-perils basis, meaning fire damage is covered unless specifically excluded.

Question 2

What does 'subrogation' mean in the context of property and casualty insurance?

Accepted Answer

The insured transfers their right to recover losses from a third party to the insurer

Answer

Subrogation is the legal right of an insurer to pursue a third party that caused an insurance loss in order to recover the amount paid to the insured.

Question 3

In homeowners insurance, what is the purpose of 'loss of use' coverage?

Accepted Answer

Pays for additional living expenses if the home is uninhabitable after a covered loss

Answer

Loss of use coverage (Coverage D) pays for temporary housing and additional living expenses when a covered loss makes the insured home uninhabitable.

Question 4

What is the difference between 'actual cash value' (ACV) and 'replacement cost value' (RCV) in property insurance?

Accepted Answer

ACV pays to replace the item new; RCV deducts depreciation

Answer

Actual cash value equals replacement cost minus depreciation, while replacement cost value pays the full cost to replace the item with a new one of like kind.

Question 5

Under a standard auto insurance policy, which coverage pays for damage to the insured's own vehicle caused by a collision?

Accepted Answer

Collision coverage

Answer

Collision coverage pays for damage to the insured's vehicle resulting from a collision with another vehicle or object, regardless of fault.

Insurance Practice Test

Insurance Practice Test

Insurance Property & Casualty Insurance