P&C Exam Practice: 5 Coverage Questions You Should Know

P&C Exam Practice: 5 Coverage Questions You Should Know

Practice questions are most useful when you study the reasoning behind each answer—not just whether you picked A, B, or C. Use the five questions below as a quick checkpoint, then review the explanations carefully.

Question 1: What does actual cash value mean?

A policy pays the actual cash value of a damaged roof. Which calculation is generally used?

A. Replacement cost plus depreciation B. Replacement cost minus depreciation C. Market value plus the deductible D. Original purchase price minus the deductible

Answer: B. Actual cash value is generally replacement cost minus depreciation. The deductible is applied when calculating the insurance payment, but it is not what defines ACV.

Question 2: Which policy condition addresses concealment or fraud?

An insured intentionally hides a material fact during a claim. Which policy provision is most directly relevant?

A. Appraisal B. Other insurance C. Concealment or fraud D. Subrogation

Answer: C. The concealment or fraud condition allows the insurer to take action when an insured intentionally conceals or misrepresents a material fact. Do not confuse it with subrogation, which concerns the insurer's right to recover from a responsible third party.

Question 3: What is the purpose of subrogation?

An insurer pays its insured for a covered loss caused by a negligent third party. What may the insurer do next?

A. Recover from the responsible third party B. Cancel every policy held by the third party C. Increase the insured's deductible D. Convert the claim to an uncovered loss

Answer: A. Subrogation allows the insurer to pursue recovery from the party responsible for the loss after paying the insured, helping prevent the insured from receiving a double recovery.

Question 4: Which is an example of an indirect loss?

A fire damages a restaurant. Which loss is indirect?

A. Burned kitchen equipment B. Smoke damage to the walls C. Lost business income while the restaurant is closed D. Water damage from fire suppression

Answer: C. Physical damage is a direct loss. Lost business income resulting from the shutdown is a consequential, or indirect, loss. Business income coverage may respond when the policy requirements are met.

Question 5: What does liability insurance primarily protect against?

What is the main purpose of liability coverage?

A. Wear and tear to the insured's property B. The insured's legal responsibility for injury or damage to others C. Every intentional act by the insured D. Investment losses caused by inflation

Answer: B. Liability coverage generally responds to the insured's covered legal responsibility for bodily injury or property damage to others, subject to the policy terms, exclusions, limits, and conditions. Intentional acts are commonly excluded.

Fast review: the exam traps to remember

- ACV generally means replacement cost minus depreciation. - Concealment or fraud is different from subrogation. - Subrogation is the insurer's recovery right after paying a claim. - Business income is an indirect loss, not physical damage. - Liability coverage is about covered responsibility to others—not maintenance or intentional harm.

Try answering each question again without looking at the choices. If you missed one, write the rule in your own words and create a short example. That extra step turns recognition into recall, which is much closer to what you need on exam day.

This is general guidance for exam preparation—not legal or coverage advice. Always follow the policy wording and your state's licensing-exam materials.

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