P&C Exam Cheat Sheet: 10 Key Definitions Every Candidate Must Memorize

P&C Exam Cheat Sheet — 10 Key Definitions Every Candidate Must Memorize The P&C licensing exam tests your vocabulary as much as your knowledge. These 10 definitions appear on virtually every exam form. If you can define each one in your sleep, you'll have a massive head start. Bookmark this page and review it daily until exam day. 1. Insurable Interest Definition: A financial stake in the continued existence of the insured property or person. You must have insurable interest at the time of loss to collect. Why it matters: Without insurable interest, insurance is gambling. The exam will test whether you know that insurable interest must exist at policy inception for life insurance, but at the time of loss for property insurance. 2. Subrogation Definition: The insurer's right to recover from a responsible third party after paying a claim to the insured. The insurer "steps into the shoes" of the insured. Why it matters: Subrogation prevents the insured from collecting twice (once from the insurer, once from the at-fault party). The insured cannot impair subrogation rights — doing so may void coverage. 3. Indemnity Definition: Restoring the insured to the same financial position they were in immediately before the loss — no better, no worse. Why it matters: Indemnity is the foundational principle of insurance. The exam tests this through replacement cost vs. actual cash value questions. RC pays to replace without depreciation; ACV deducts depreciation. Both are forms of indemnity, but they calculate the loss differently. 4. Proximate Cause Definition: The dominant, efficient cause of a loss that sets other causes in motion. Also called the "unbroken chain of events" test. Why it matters: When multiple perils contribute to a loss, proximate cause determines which policy coverage applies. If wind breaks a window and rain ruins the interior, wind is the proximate cause — and wind is a covered peril under most property policies. 5. Coinsurance Definition: A policy clause requiring the insured to carry coverage equal to a specified percentage (usually 80%) of the property's value. If underinsured, the insured shares in the loss proportionally. Why it matters: The coinsurance formula is tested on every exam. Here it is: (Amount of Insurance Carried / Amount of Insurance Required) x Loss = Amount Paid. Memorize this formula and practice 3-5 coinsurance math problems. 6. Deductible Definition: The amount the insured must pay out of pocket before the insurer pays the rest of the claim. It's a risk-sharing mechanism. Why it matters: The exam tests whether you understand that deductibles apply per occurrence (not per policy term) and that they reduce the amount paid on a claim — not the amount of coverage available. 7. Occurrence vs. Claims-Made Definition: An occurrence policy covers losses that happen during the policy period, regardless of when the claim is filed. A claims-made policy covers claims that are filed during the policy period, regardless of when the loss occurred. Why it matters: This is one of the most tested distinctions on the exam. CGL policies are often written on an occurrence basis. Professional liability (E&O) is typically claims-made. Know the difference cold. 8. Additional Insured vs. Named Insured Definition: A named insured is the party specifically listed on the declarations page with full policy rights. An additional insured is a third party added to the policy for specific coverage, but with limited rights. Why it matters: The exam will give you a scenario where a contractor wants to be listed as an additional insured on a property owner's policy. Know that additional insureds get coverage for liability arising from the named insured's operations — not their own independent acts. 9. Aggregate Limit vs. Per-Occurrence Limit Definition: The per-occurrence limit is the maximum the insurer pays for any single claim. The aggregate limit is the total amount the insurer pays for all claims during the policy period. Why it matters: CGL policies have both. If a policy has a $1M per-occurrence limit and a $2M aggregate, the insurer pays up to $1M per claim and $2M total for the year. Once the aggregate is exhausted, coverage ends. The general aggregate typically does not apply to products-completed operations. 10. Actual Cash Value (ACV) vs. Replacement Cost (RC) Definition: ACV = Replacement Cost minus Depreciation. RC = the full cost to repair or replace the property with like kind and quality, without deduction for depreciation. Why it matters: This shows up on nearly every property insurance question. The exam gives you a building worth $100K RC, depreciation of $30K, and asks for ACV. The answer: $70K. Practice 5-10 of these calculations until they're automatic. How to Use This Cheat Sheet 1. Read through all 10 definitions once per day until your exam. 2. Cover the definitions and try to recite them from memory. 3. For each term, think of one real-world example (a tree falls, a contractor sues, a roof is underinsured). 4. Do 2-3 practice questions per term so you see how the exam frames them. These 10 terms are the backbone of the P&C exam. Master them, and you've got a solid foundation for 25-35% of the questions you'll face. The rest is application — scenarios, calculations, and coverage analysis. But without knowing these definitions, the scenarios become impossible. Review this cheat sheet daily. Do your practice questions. Trust your preparation. You've got this. Need extra help to PASS your Property and Casualty exam? 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