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Property & Casualty InsuranceFree Property & Casualty Insurance Producer License practice test
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10 real Property & Casualty Insurance practice questions with instant answers and explanations — no account, no credit card, no email. Score yourself, then unlock the full bank of 70 questions whenever you’re ready. The Property & Casualty Insurance passing score is 70% (California 60%; varies by state).
For a property insurance policy to be valid, the person buying coverage must stand to suffer a genuine financial loss if the insured item is damaged. What is this requirement called?
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All 10 Property & Casualty Insurance questions & answers
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Q1. For a property insurance policy to be valid, the person buying coverage must stand to suffer a genuine financial loss if the insured item is damaged. What is this requirement called?
Correct answer: B. Insurable interest
Insurable interest means the policyholder would experience a real financial loss if the covered property is damaged or destroyed; without it, the contract would amount to a wager and be unenforceable.
Q2. An insurance principle holds that a person recovering under a policy should be restored to roughly the same financial position held just before the loss, without profiting from it. This principle is known as:
Correct answer: A. Indemnity
The principle of indemnity limits recovery to the actual amount of the loss so the insured is made whole but does not gain financially from an insured event.
Q3. A stairway with a loose, broken handrail increases the chance that someone will fall and be injured. This physical condition that raises the likelihood or severity of a loss is best described as a:
Correct answer: B. Physical hazard
A physical hazard is a tangible condition of the property or person that increases the probability or size of a loss, such as a defective handrail.
Q4. Which situation represents a pure risk rather than a speculative risk?
Correct answer: C. A homeowner facing the possibility that a fire destroys the house
Pure risk involves only the chance of loss or no loss with no possibility of gain, such as a fire destroying a home; it is the only category of risk that is insurable.
Q5. Insurers rely on a mathematical concept stating that as the number of similar exposure units grows large, actual results tend to approach the predicted average. This concept is the:
Correct answer: A. Law of large numbers
The law of large numbers lets insurers predict future losses more accurately as the pool of similar insureds increases, which is the statistical foundation of rate-making.
Q6. An insurer worries that people most likely to experience losses are also the most eager to buy coverage, which can distort the risk pool. This tendency is called:
Correct answer: A. Adverse selection
Adverse selection is the tendency of higher-risk applicants to seek insurance more aggressively than lower-risk ones; underwriting and policy conditions are used to control it.
Q7. A five-year-old appliance with a replacement cost of $1,000 has depreciated by $400. Under a policy that settles losses on an actual cash value basis, how much would the insurer pay for its total loss, before any deductible?
Correct answer: C. $600
Actual cash value equals replacement cost minus depreciation, so $1,000 minus $400 depreciation equals $600.
Q8. A windstorm loosens roof shingles, and rain then enters and ruins interior furnishings. When identifying the covered cause of loss, the windstorm is treated as the:
Correct answer: B. Proximate cause
Proximate cause is the initiating event that sets an unbroken chain of events in motion leading to the loss; here the windstorm is the proximate cause of the resulting water damage.
Q9. An insurance company transfers part of the risk it has accepted to another insurer in exchange for a share of the premium. This arrangement is known as:
Correct answer: C. Reinsurance
Reinsurance is insurance purchased by an insurer to spread risk it has assumed, stabilizing results and increasing the amount of coverage it can safely write.
Q10. Which section of a property or casualty policy identifies the named insured, the policy period, the covered property or auto, and the limits of insurance?
Correct answer: C. Declarations
The Declarations page is the personalized section that lists who and what is insured, the policy term, and the applicable limits and premium.
Exam facts and objectives sourced from the official NAIC (National Association of Insurance Commissioners) certification page. Last reviewed June 2026.
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