TheoryProperty Casualty Practice Test Video
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Property Casualty exam — full Q&A walkthrough
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Q1For a property insurance policy to be valid, the insured generally must have an insurable interest in the covered property at what point?
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✓ Correct answer: At the time of the loss
Property insurance is a contract of indemnity, so the insured must have an insurable interest (a financial stake) in the property at the time of loss in order to collect, unlike life insurance where interest need only exist at inception.
Q2In insurance terminology, the actual cause of a loss, such as fire or windstorm, is called a:
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✓ Correct answer: Peril
A peril is the immediate cause of loss (fire, theft, hail). A hazard is a condition that increases the chance or severity of a peril, so the two terms are distinct.
Q3Oily rags stored next to a furnace, which increase the likelihood of a fire, are an example of which type of hazard?
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✓ Correct answer: Physical hazard
A physical hazard is a tangible condition of the property or surroundings that increases the chance of loss. Moral and morale hazards relate to a person's dishonesty or carelessness, not physical conditions.
Q4An insured who leaves a house unlocked and the keys in the car because 'insurance will cover it' is displaying which type of hazard?
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✓ Correct answer: Morale hazard
Morale hazard is carelessness or indifference to loss because the insured has coverage. Moral hazard, by contrast, involves deliberate dishonesty such as arson or fraud.
Q5Under most standard property policies, actual cash value (ACV) is generally calculated as:
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✓ Correct answer: Replacement cost minus depreciation
ACV equals the cost to replace the property with new property of like kind and quality, less depreciation for age, wear, and obsolescence. This prevents the insured from profiting from a loss.
Q6A property loss is settled on a replacement cost basis. This means the claim is paid:
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✓ Correct answer: Without deduction for depreciation
Replacement cost coverage pays to repair or replace damaged property with new property of like kind and quality, with no deduction for depreciation, subject to policy limits and any conditions.
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