Property & Casualty Insurance License Test Property Insurance Policies Questions and Answers 1

Question 1

A commercial property is valued at $1,000,000 and insured for $600,000. The policy includes an 80% coinsurance clause and a $1,000 deductible. If a covered fire causes $200,000 in damages, how much will the insurance company pay for the loss?

Accepted Answer

$149,000

Answer

The coinsurance clause requires the property to be insured for at least 80% of its value ($1,000,000 * 0.80 = $800,000). Since the property is only insured for $600,000, a penalty is applied. The formula is: [(Amount of Insurance Carried / Amount of Insurance Required) * Loss] - Deductible. So, [($600,000 / $800,000) * $200,000] - $1,000 = (0.75 * $200,000) - $1,000 = $150,000 - $1,000 = $149,000.

Question 2

Which section of a standard property insurance policy personalizes the contract by specifying the named insured, property address, policy period, coverages, and premium amounts?

Accepted Answer

Declarations

Answer

The Declarations page contains all the specific information that is unique to the policyholder and the insured property. It identifies the named insured, location of the property, policy term, specific coverages, limits, and the policy premium.

Question 3

A landlord owns a rental house and wants to purchase a Dwelling Policy. They desire broad, named-peril coverage for the structure and its contents, including protection against risks like the weight of ice and snow, and falling objects. Which policy form best suits their needs?

Accepted Answer

DP-2 (Broad Form)

Answer

The DP-2 (Broad Form) is a named-perils policy that covers all the perils of the DP-1 plus several additional ones, such as falling objects and the weight of ice and snow. The DP-1 is more basic, and the DP-3 provides open-peril coverage for the dwelling, which is more than what is described.

Question 4

Under the Standard Mortgage Clause in a property insurance policy, if an insured intentionally sets fire to their own home, how will the claim be handled for the mortgagee?

Accepted Answer

The mortgagee's claim will be paid to the extent of their financial interest, but the insured's claim will be denied.

Answer

The Standard Mortgage Clause creates a separate contract between the insurer and the mortgagee. This clause protects the mortgagee's insurable interest even if the policyholder's claim is denied due to their own acts (like arson) or negligence. The insurer will pay the mortgagee up to the amount of their outstanding loan balance.

Question 5

Which of the following is an example of an 'Additional Coverage' commonly found in a standard Homeowners or Commercial Property policy, provided at no extra premium?

Accepted Answer

Debris Removal

Answer

Debris Removal is a standard additional coverage included in many property policies. It covers the cost of removing debris of covered property after a covered loss. Earthquake and Flood are typical exclusions that require a separate policy or endorsement. Scheduled Personal Property is an endorsement used to provide specific, higher limits for valuable items.

Property & Casualty Insurance License Test Practice Test

Property & Casualty Insurance License Test Practice Test

Property & Casualty Insurance License Test Property Insurance Policies Questions and Answers 1