P&C Practice Questions (2026) — Free Sample Questions with Answers

Answer: B

1. 1. Loss after deductible = $310,000 − $2,000 = $308,000.
2. 2. Maximum NFIP residential building limit = $250,000.
3. 3. Payment = the smaller of $308,000 and $250,000 = $250,000.

$248,000: The deductible is applied to the loss, not subtracted from the limit. $308,000 still exceeds the $250,000 limit.

$250,000: Correct. After the deductible the loss is $308,000, which exceeds the $250,000 maximum building limit for a 1–4 family residence, so the payment is capped at $250,000.

$308,000: This is the loss after the deductible, but it is more than the $250,000 residential building limit.

$310,000: This ignores both the deductible and the $250,000 building limit.

NFIP residential (1–4 family) limits are $250,000 building and $100,000 contents. Payment is the loss minus the deductible, capped at the limit; excess flood coverage can be bought privately.

Answer: B

1. 1. Required insurance = 80% × $400,000 = $320,000.
2. 2. Carried $280,000 is less than $320,000, so full replacement cost is not available.
3. 3. Proportional replacement cost = ($280,000 ÷ $320,000) × $20,000 = 0.875 × $20,000 = $17,500.
4. 4. ACV = $20,000 − $8,000 = $12,000.
5. 5. Pay the larger of the two: $17,500.

$12,000: This is the ACV ($20,000 − $8,000). The policy pays the larger of ACV or the proportional amount, and $17,500 is larger.

$17,500: Correct. The insured carries less than 80% of replacement cost, so the insurer pays the larger of ACV ($12,000) or the proportional replacement cost: $280,000 ÷ $320,000 × $20,000 = $17,500.

$20,000: Full replacement cost is paid only when Coverage A is at least 80% of replacement cost ($320,000).

$14,000: This divides by the full $400,000 replacement cost. The requirement is 80% of it, or $320,000.

HO replacement cost settlement needs Coverage A of at least 80% of replacement cost; otherwise the insurer pays the larger of ACV or (carried ÷ required) × replacement cost.

Answer: A

Schedule it on a personal articles floater: Correct. A personal articles floater (or scheduled personal property endorsement) lists the item at a stated amount, usually on an open-perils basis, so the special limit no longer applies.

Switch from an HO-3 to an HO-5 form: HO-5 still contains special limits of liability for jewelry theft.

Add the ring's value to Coverage A: Coverage A insures the dwelling, not personal property such as jewelry.

Raise the policy's Coverage C limit: A higher Coverage C limit leaves the special limit for jewelry theft unchanged.

Special limits cap certain property classes regardless of the Coverage C amount. High-value items are scheduled on a personal articles floater or scheduled personal property endorsement.

Answer: A

1. Required insurance = coinsurance % × value at time of loss = 80% × $500,000 = $400,000.
2. Ratio = carried ÷ required = $300,000 ÷ $400,000 = 0.75.
3. Ratio × loss = 0.75 × $100,000 = $75,000.
4. Subtract the deductible: $75,000 − $1,000 = $74,000 (below the $300,000 limit, so it is paid in full).

$74,000: Correct. Required insurance is 80% × $500,000 = $400,000. $300,000 ÷ $400,000 = 0.75; 0.75 × $100,000 = $75,000; minus $1,000 = $74,000.

$75,000: This applies the coinsurance penalty but forgets to subtract the $1,000 deductible.

$59,000: This divides by the full $500,000 value instead of the required 80% ($400,000).

$99,000: This ignores the coinsurance penalty; the insured carried less than the required $400,000.

Coinsurance: (carried ÷ required) × loss − deductible, never more than the limit.

Answer: D

Intentional acts of a third party, which are not covered: The firefighters acted to limit the loss; their acts are part of the chain started by the lightning, not an intentional loss exclusion.

Separate losses caused by the fire department, which are excluded: Damage done while fighting a covered fire does not break the chain of causation; the fire department is not a new, independent cause.

Water damage from flood, which property policies exclude: Flood means surface water from outside sources; hose water used to fight a fire is not flood.

Losses caused by the lightning that set off the chain of events: Correct. Proximate cause is the first event in an unbroken chain that leads to the loss; the firefighting damage flows from the lightning and fire, so it is covered as part of that loss.

Proximate cause = the cause that sets in motion an unbroken chain of events producing the loss; all resulting damage is traced back to it.

Answer: A

Can still be paid up to its interest in the property: Correct. Under the standard mortgage clause, a denial of the insured's claim does not defeat the mortgagee's claim if the mortgagee met its own duties; the insurer may then take over the bank's rights against the homeowner.

Is denied as well, because the homeowner caused the loss: The mortgage clause protects the lender from the borrower's acts, such as arson or neglect, that void the borrower's coverage.

Is paid only if it obtained a separate lender's policy: The mortgage clause itself gives the lender this protection; no separate policy is needed.

Must first sue the homeowner before it can be paid: The mortgagee can be paid directly by the insurer; the insurer, not the bank, then pursues the homeowner.

Standard mortgage clause: the mortgagee's right to payment survives the insured's wrongful acts; the mortgagee must pay premium if the insured does not, report changes in occupancy or hazard, and file proof of loss if the insured fails to.

Answer: D

1. 1. Read the limits: $50,000 BI per person / $100,000 BI per accident / $25,000 PD per accident.
2. 2. Driver 1: lesser of $70,000 and $50,000 = $50,000.
3. 3. Driver 2: lesser of $20,000 and $50,000 = $20,000.
4. 4. Total BI: $50,000 + $20,000 = $70,000, within the $100,000 per-accident limit.
5. 5. PD: lesser of $30,000 and $25,000 = $25,000.
6. 6. Insurer pays $70,000 + $25,000 = $95,000 (Kim owes the other $25,000 herself).

$100,000: This treats the 100 as a combined single limit for everything. Split limits cap each person, each accident and property damage separately.

$70,000: This counts only the bodily injury payments and leaves out the $25,000 of property damage.

$120,000: This pays every loss in full and ignores the $50,000 per-person and $25,000 property damage limits.

$95,000: Correct. BI: Driver 1 is capped at $50,000 per person, plus Driver 2's $20,000 = $70,000, within the $100,000 per accident. PD is capped at $25,000. Total $95,000.

With split limits, apply the per-person BI cap first, then the per-accident BI cap, then the separate PD limit. A combined single limit would instead pay all BI and PD from one per-accident amount.

Answer: A

Injury in March 2024; claim first made in February 2026: Correct. Under a claims-made trigger, injury must occur on or after the retroactive date (it did, in 2024) and the claim must be first made during the policy period (February 2026).

Injury in November 2022; claim first made in February 2026: The claim is made in the policy period, but the injury happened before the January 1, 2023 retroactive date, so it is not covered.

Injury in June 2026; claim first made in March 2028 after the policy lapsed: The injury is after the retroactive date, but the claim is made after the policy period and no ERP applies, so the claims-made trigger is not met.

Injury in March 2027; claim first made in April 2027 after the policy lapsed: Both the injury and the claim fall after the policy expired, so the current policy cannot respond.

Claims-made coverage needs both: injury on or after the retroactive date and a claim first made during the policy period (or an ERP). An occurrence policy, by contrast, is triggered by injury during the policy period no matter when the claim is made.

Answer: C

It pays only after a court finds the insured legally liable for the injury: Requiring legal liability describes Coverage A. Coverage C pays without proof of fault, which can head off a lawsuit.

It pays the named insured's employees for injuries they suffer on the job: Coverage C excludes injury to the named insured's employees; on-the-job injuries belong to workers compensation.

It pays the public's medical bills for premises accidents, regardless of fault: Correct. Coverage C is no-fault: it pays reasonable medical expenses for others injured by an accident on the insured's premises or because of its operations, whether or not the insured was negligent.

It covers the named insured's own medical bills for injuries at the business: Coverage C excludes injury to any insured; it is for members of the public, not the named insured.

CGL Coverage C = no-fault medical payments for the public; it excludes insureds and the named insured's employees.

Answer: C

It makes the general contractor an additional insured: Additional insured status requires an endorsement on the policy; listing a name on a certificate does not create it.

It guarantees the policy cannot be cancelled during the job: The certificate does not bar cancellation; the policy's cancellation terms and state law still apply.

It shows coverage exists but does not change the policy: Correct. A certificate of insurance is informational evidence of coverage; it does not amend, extend or alter the policy's terms.

It replaces the policy as the binding contract: The policy remains the contract; the certificate only summarizes it.

A certificate of insurance is proof of coverage on a given date; only the policy and its endorsements create or change coverage.

Answer: D

1. Settlement the insured rejected: $200,000.
2. Add defense costs incurred up to the refusal: $200,000 + $30,000 = $230,000.
3. The $450,000 − $200,000 = $250,000 excess of the judgment over the rejected settlement falls on the insured.

$450,000, the full judgment, since it is within the limits: The hammer clause shifts the excess over the rejected settlement to the insured.

Nothing, because the refusal voids the policy: Refusing to consent does not void the policy; it limits the insurer's exposure.

$200,000, with the insured paying all defense costs: Defense costs incurred before the refusal remain the insurer's obligation.

$230,000: the proposed settlement plus defense costs up to the refusal: Correct. A hammer clause caps the insurer's liability at the amount for which the claim could have been settled plus defense costs incurred up to the date of refusal.

Consent to settle lets the insured veto settlements; a hammer clause makes the insured responsible for amounts above a rejected settlement. Soft hammer versions share the excess by percentage.

Answer: C

1. Pro-rata unearned premium = $2,400 × 6/12 = $1,200.
2. Short-rate penalty = 10% × $1,200 = $120.
3. Return premium = $1,200 − $120 = $1,080.

$1,200: $1,200 is the pro-rata return; it ignores the short-rate penalty for insured-initiated cancellation.

$960: This takes 10% of the annual premium ($240) instead of 10% of the unearned amount.

$1,080: Correct. Pro-rata unearned $1,200 minus the 10% penalty ($120) = $1,080.

$1,320: This adds the penalty instead of subtracting it.

Short-rate applies when the insured cancels: the insured gets back less than the pro-rata unearned premium. The short-rate method used varies by policy and state. Exact time frames vary by state; check your state's insurance code.

Answer: C

1. Insurer-initiated cancellation uses pro-rata return premium (no penalty).
2. Months unused: 12 − 3 = 9.
3. Unearned fraction: 9 ÷ 12 = 0.75.
4. Return premium: 0.75 × $1,200 = $900.

$300: This is the earned premium for the 3 months the policy was in force, not the unearned premium returned.

$810: This applies a short-rate penalty (about 10% of the unearned premium), which applies only when the insured cancels.

$900: Correct. 9 of 12 months were unused, so the unearned premium is 9/12 × $1,200 = $900.

$1,200: The insurer keeps premium for the 3 months of coverage it provided; the full premium is not returned.

Insurer cancels → pro rata (exact unearned share). Insured cancels → often short rate (unearned share less a penalty). Notice periods for cancellation vary by state. Exact time frames vary by state; check your state's insurance code.

Answer: D

a permitted sales incentive: Under the NAIC model a commission rebate is a prohibited inducement; only narrow exceptions some states allow (such as low-value promotional items) are permitted.

twisting: Twisting involves misrepresentation to induce replacement of an existing policy, which is not described here.

controlled business: Controlled business is coverage written on the producer's own interests or those of family or employer.

rebating: Correct. Offering part of the commission, or anything of value not specified in the policy, as an inducement to buy is rebating.

Rebating = giving or offering any valuable consideration not specified in the policy (part of a commission, gifts beyond a small value) to induce a purchase. A few states allow limited rebating or small gifts; rules vary by state.

Answer: C

The insurer must first obtain a certificate of authority in the state: A certificate of authority is what makes an insurer admitted; surplus lines insurers are by definition nonadmitted.

Any producer with a P&C license may place it without other licensing: Surplus lines business generally must be placed through a separately licensed surplus lines broker.

Claims are generally not protected by the state guaranty association: Correct. Guaranty associations generally cover only member (admitted) insurers, so a surplus lines policyholder usually has no guaranty fund protection.

Its rates and forms need the same prior approval as admitted business: Surplus lines rates and forms are generally exempt from the state's rate and form filing requirements.

Surplus lines is the market for risks the admitted market will not take: it is placed through a licensed surplus lines broker, usually after a diligent search of admitted insurers, with an eligible nonadmitted insurer, and is generally outside the guaranty association. Diligent-search and tax rules vary by state.