Property & Casualty Insurance Practice Test
P&C Insurance Insurance Basics & Underwriting Practice Questions
Insurance Basics & Underwriting makes up 7 of every 50 questions on a Tigertest P&C Insurance practice test. Here are 10 of the 28 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on the general (national) portion of the property and casualty producer exam outlines. State laws and the state portion are not covered.
1. Which situation is an example of a pure risk?
- A.Betting on a horse race
- B.A house that may burn down
- C.Opening a restaurant hoping for profit
- D.Buying shares expecting them to rise
Answer: B. Pure risk offers only the chance of loss or no loss, which is why it is insurable. Speculative risks such as investing or gambling include a chance of gain and are not insurable.
2. A fire destroys an insured garage. In insurance terms, the fire itself is the:
- A.Hazard
- B.Loss exposure
- C.Risk
- D.Peril
Answer: D. A peril is the cause of loss. A hazard is a condition that increases the chance or severity of loss, and risk is the uncertainty of loss.
3. Oily rags piled next to a furnace are an example of which type of hazard?
- A.Physical hazard
- B.Moral hazard
- C.Morale hazard
- D.Legal hazard
Answer: A. A physical hazard is a tangible condition that increases the chance of loss. Moral and morale hazards describe people's dishonesty or carelessness, not physical conditions.
4. An insured intentionally sets fire to an insured building to collect the policy proceeds. This illustrates:
- A.Physical hazard
- B.Speculative risk
- C.Moral hazard
- D.Morale hazard
Answer: C. Moral hazard is the increased chance of loss from a person's dishonesty. Morale hazard is careless indifference rather than deliberate wrongdoing.
5. An insured leaves the car unlocked with the keys inside, reasoning that it is insured anyway. This attitude is:
- A.Moral hazard
- B.Adverse selection
- C.Morale hazard
- D.Physical hazard
Answer: C. Morale hazard is indifference to loss because insurance exists. Moral hazard involves dishonest intent, which is absent here.
6. The law of large numbers states that:
- A.Larger groups make loss predictions more accurate
- B.Premiums fall as policy limits rise
- C.Insurers must write at least 1,000 policies to be licensed
- D.Large losses are less likely than small ones
Answer: A. The larger the group of similar exposures, the more accurately losses can be predicted, which is what makes rating possible. It says nothing about license requirements or the size of individual losses.
7. Which requirement of an ideally insurable risk is violated when a flood hits an entire region at once?
- A.The loss must be accidental
- B.The loss must be definite and measurable
- C.There must be a large number of homogeneous units
- D.The loss must not be catastrophic
Answer: D. Insurers need losses to be spread out so that one event cannot bankrupt them. A regional flood hits many insureds at once, which is why flood is handled by the NFIP rather than standard policies.
8. A business decides not to open a fireworks stand because of the fire exposure. Which risk management technique is this?
- A.Reduction
- B.Avoidance
- C.Retention
- D.Transfer
Answer: B. Avoidance eliminates the exposure by not engaging in the activity. Reduction would mean opening the stand but adding safeguards such as sprinklers.
9. Choosing a higher deductible on a property policy is an example of:
- A.Risk avoidance
- B.Risk retention
- C.Risk transfer
- D.Risk sharing
Answer: B. The insured keeps (retains) the first part of each loss up to the deductible. Transfer is the part of the risk handed to the insurer above the deductible.
10. For a property insurance claim to be paid, insurable interest must exist:
- A.Only when the premium is paid
- B.Only when the application is signed
- C.Only when the policy is issued
- D.At the time of the loss
Answer: D. Property insurance requires insurable interest when the loss occurs, since the policy indemnifies for a financial loss. Life insurance differs, requiring interest only at inception.
Practice all 28 insurance basics & underwriting questions, and the rest of the 200-question bank, in the free P&C Insurance training sets. Questions you miss come back until you have mastered them.
Start practicingFree to start. No account needed.