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MC
An economic device used to protect against the risk of realizing unforeseen and extraordinary
financial loss
is
called:
risk avoidance.
subrogation.
indemnification
insurance
MC The transfer of risk from one party to another is
called: adjustment.
restoration.
indemnification.
insurance
Authority, character, competent parties, legal
purpose
LA Adjuster Practice Exam Questions and Answers 2024
MC
In an insurance contract, the policyholder gives the insurer , and the insurer gives the
policyholder
covered property; a risk
pool a surety; premium
payments peace of mind;
risk
premium payments; peace of
mind
Agreement, consideration, competent parties, legal purpose
Melinda’s home sustained $6,500 in damage when Jared ran into it with his truck. Melinda
received $6,
MC from her insurance company, and Jared also paid her $5,000. Melinda has now profited from this
loss and is in violation of:
MC The Principle of Indemnity is designed to
prevent: subrogation.
insurers from making a profit.
having multiple payees on a policy.
an insured from making a
profit.
MC Which of the following best defines “insured”?
A legally binding contract in which the insurance company agrees to pay for specified losses
in exchange
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s ing financial protection
An individual or organization that pays premiums in exchange for financial
protection
1 /
62
federal law.
the principle of
subrogation. state law.
the principle of
indemnity.
MC In an insurance contract, consideration from both parties is
comprised of: risk from the insured and surety from the insurer.
surety from the insured and risk from the insurer.
peace of mind from the insured and premiums from the insurer.
premiums from the insured and the promise to pay from the
insurer.
Sandra rear-ended Randy’s car when he stopped quickly for a yellow light that she was sure they
were both going to make. The damage was minor, but Sandra was worried her premiums would
increase if the
MC accident was reported, so she gave Randy $500 in an effort to keep it just between the two of
them.
However, Randy filed the claim with his insurance company and received a settlement check for
$750. What has Randy violated?
The principle of loss minimization
The principle of insurable
interest The principle of
subrogation
The principle of indemnity
MC Which of the following statements
about insurance is FALSE?
The insurer promises to pay for any covered losses that may occur.
The insurer takes on the insured’s risk of financial loss for a
premium. The insured pays for peace of mind provided by the
insurer.
The insurer will only pay up to the amount already collected in
premiums from each insured.
MC Which of the following statements about insurance is FALSE?
Depending on the type of loss, a claimant may receive money for damaged property,
additional living expenses, or car rental fees.
In exchange for a premium, the insurer promises to pay for any loss covered under an insurance
policy. Insurance transfers the risk of financial loss from one party to another.
If the policy limit is greater than the value of the insured item, the claimant may profit from a
total loss.
MC
"We will provide the insurance described in this policy in return for the premium and
compliance with all applicable provisions of this policy." In which section of the insurance policy
would this statement be found?
Definitions
Endorsements
Declarations
Insuring
Agreement
MC Which of these
causes of loss is LEAST
2 /
62
While completing his auto insurance application, Charlie states that he drives his vehicle
5,000 miles per year, but he actually drives more than 20,000 miles per year.
Mandy is filling out a homeowners policy application and states that her roof is two years
old, when it is actually 22 years old.
Joey does not tell his insurer that he spends three months a year at his vacation home, leaving
his primary residence vacant during that time.
MC
Scott is visiting his insurance agent’s office and applying for auto insurance on his new car. The
auto policy that the agent drafts will be based on Scott’s.
subrogation
promises
warranties
representation
s
Darnell is applying
for auto
insurance with
his agent.
Currently, he
only wants to
get a minimal
amount of
MC coverage to keep his premiums as low as possible, so he decides not to include uninsured
motorist coverage on his policy. His agent has him sign a document giving up his right to this
coverage. What is this called?
A warranty
An implied waiver
A binder
An express waiver
MC How is
concealment distinct
from
misrepresentation?
Concealment and
misrepresentati
on are not
distinct; they
mean the same
thing.
Concealment is deliberately withholding information, while misrepresentation is accidentally
withholding information.
Concealment is stating a falsehood, while misrepresentation is accidentally withholding
information. Concealment is deliberately withholding information, while misrepresentation
is stating a falsehood.
MC
If Brigitta applies for insurance, the insurer will probably issue her a temporary policy so she can
be covered while they come to a decision about her application. This is called:
an estoppel. a
guarantee.
a warranty.
a binder.
4 /
62
Jim applied for a homeowners policy with his agent, who gave him immediate temporary coverage.
MC
However, after checking Jim’s background information, his agent discovers that Jim has been
convicted of arson, so she declines his application. Which of the following best describes Jim's
failure to mention his
conviction during the application process?
Binder
Warranty
Misrepresentation
Concealment
MC
Skip’s Convenience Store must agree to install and maintain an emergency shutoff system for its
gas pumps in order to qualify for insurance coverage. Which of the following statements is true?
This requirement is a warranty found in the declarations section of the policy.
This requirement is a representation found in the declarations section of the
policy. This requirement is a binder found in the conditions section of the
policy.
This requirement is a warranty found in the conditions section of the policy.
Skip’s Convenience Store suffers severe fire damage after a gas pump
explodes. The adjuster asks if the
MC
emergency shutoff system, which is required by the policy, was properly maintained and
functional at the time of the accident. Skip says “yes,” even though the system was actually
broken at the time. Which of the following statements is true?
Skip is guilty of concealment and violating a binder, so the insurer could deny the
claim. Skip is guilty of concealment and violating a warranty, so the insurer
could deny the claim.
Skip is guilty of misrepresentation and violating an estoppel, so the insurer could deny
the claim. Skip is guilty of misrepresentation and violating a warranty, so the insurer
could deny the claim.
MC
Lawrence is 24, but he gives his age as 26 on his car insurance application because he hopes this
will get him a better rate. Lawrence’s actions could best be described as:
criminal.
extortion.
concealmen
t.
misrepresentati
on.
Jason’s auto
policy states
that the
insurer may
cancel
coverage if
Jason pays a
premium
more than 30
days
MC
late. However, Jason is currently more than 30 days late, and has been so five times in the last
Soft fraud
Factual
misrepresentation
Concealment
Hard fraud
5/
a peril.
a proximate
cause. a risk.
a hazard.
7/
2
Robby carpools to school with his friends, and he enjoys racing the other cars on the road
whenever he can.
MC
His Dad lectures him about the dangers of speeding, but Robby thinks his Dad is overreacting.
He's been driving for two whole years, so he knows what he's doing. And besides, they have
good insurance, so it
wouldn't be that big of a deal even if Robby did damage his car. In insurance terms, Robby’s
behavior is:
a peril. a
risk.
a morale hazard. a
moral hazard.
Oswald can’t afford to take his car to a shop, even though it is falling into disrepair. The windshield
has been cracked for some time, and two of the lights are broken, not to mention the oil leak he
noticed last week.
MC While he is driving on icy roads one day, he loses control and slides into a guardrail, damaging
the front bumper. He is upset by the accident, but then sees an opportunity. He files a claim for
the accident, stating that the windshield, lights, and oil tank were damaged by the collision.
Oswald’s actions constitute:
a physical hazard.
a morale
hazard. hard
fraud.
soft fraud.
MC Which of the
following activities is
considered a
speculative risk?
Leaving your jewelry on a bedstand
Flying in an airplane
Driving a car
Buying a lottery ticket
MC Which of the following activities is a
speculative risk?
Priving towards a hailstorm
Parking the company truck in a dry
riverbed Building a house on the beach
Betting on a horse race
MC Which of the following best describes a
“risk,” according to the insurance definition?
Something that increases the likelihood of a
loss An occurrence that causes damage
The presence of danger
The potential for a financial loss
MC All of the following are true about the Law of Large Numbers in the insurance
industry, except: The larger the number of units insured, the easier it is to set
appropriate premium rates.
The larger the number of units insured, the better an insurer will be able to spread the risk of
MC
Dale just bought 30 shares of a hot new startup company online. Which of the following
statements about Dale is FALSE?
Dale’s investment could result in a gain or a loss.
Dale’s investment is not an insurable risk.
Dale has just taken a speculative risk which cannot be
insured. Dale has just taken a pure risk which cannot be
insured.
MC The law of large numbers states that:
insuring a greater number of units increases the effect of statistical outliers on loss
predictions. insuring a greater number of units makes the insurer’s losses less
predictable.
insuring a greater number of units increases the likelihood of loss for the insurer.
insuring a greater number of units increases the accuracy of the insurer’s loss
predictions.
Nina’s home is located in a high crime neighborhood. One day, she comes home from
work to find that her
MC garage door has been vandalized and must be replaced. Nina’s insurer pays her a $2,
settlement for her claim. The insurer considers the settlement:
an exposure.
hazard.
a risk. a
loss.
MC
Carol wants to purchase a homeowners policy that includes coverage for hail damage. Before
writing a policy for Carol, the insurance company may analyze the history of hail claims in her
area to determine their:
speculative risk.
peril.
risk.
exposure.
Nina’s home
is located
in a high
crime
neighborh
ood. One
day, she
comes
home
from work
to find
that her
MC garage door
had been
spray-painted
with graffiti.
Nina’s insurer
would
consider the
act of
vandalism to
8 /
MC
Jane’s shed burns to the ground during a tornado, when a tree falls on the roof and snaps a
power line, which then ignites the structure. What is the proximate cause of the loss?
Electrical current
Fire
Falling objects
Wind
When Mary
leaves her
stove on by
accident, she
starts a fire
that destroys
her kitchen
and leaves
smoke
MC
damage throughout her home. While the fire department puts the fire out, the influx of water
causes extensive damage as well. On top of all that, Mary is forced to board her three dogs at
a kennel for several weeks while her house is under repair. The kennel charge would be
considered:
a direct loss.
punitive
damage.
the proximate cause of the
damage. an indirect loss.
Driving home after a 14-hour shift,
Sam falls asleep at the wheel and
plows into Sandra’s home,
causing
MC
extensive damage to the East wall and roof. During repairs, the contractor discovers that the
wooden foundation for the porch on the West side of Sandra’s home is completely rotted and
must be replaced. The adjuster determines that repairs to the porch will not be covered by the
claim. Why is this?
Sam’s auto policy did not contain a porch endorsement.
Sam’s auto policy was strictly liability coverage.
The porch is not considered part of the structure.
The proximate cause, Sam’s car crashing into the house, was not responsible for the foundation’s
rot.
A hailstorm moves over Erin's restaurant. Large hailstones break through a skylight and water
pours in,
MC damaging the flooring in the restaurant. Additionally, the electrical system shorts out and Erin
has to close for three days. The hail would be considered:
the physical hazard.
an indirect loss.
a direct loss.
the proximate cause
of the loss.
MC
During a storm, heavy winds blow a tree over in Norman’s back yard, causing it to fall on his
10 /
62
A power surge sparks a small electrical fire in an office building. The electrical fire triggers the
automatic
MC
sprinkler system. The water from the sprinklers soaks the carpets and shorts-out all the
computers, causing thousands of dollars in damage. The office must close for two months
during repairs. The sprinklers soaking
the office would be considered:
a physical hazard.
the proximate cause of loss.
an indirect loss.
an occurrence.
While driving one winter day,
April is surprised by a deer
jumping into the road
directly in front of her. She
MC strikes the deer, overcorrects, and slides on the icy road. Her car skids off the road and
plows through a barbed-wire fence. What is the proximate cause of the damage to the fence?
April’s overcorrection
April’s vehicle
The icy road The
deer strike
During a storm,
lightning
strikes a tree
in Harry’s yard
and starts a
fire that
spreads to his
shed where he
MC keeps all the equipment for his landscaping business. In addition to the shed, Harry has to
purchase all new equipment to stay in business. What is the proximate cause of the damage to
Harry’s equipment?
The shed burning
The tree catching
fire
The fire burning the equipment
The lightning striking the
tree
MC A direct loss is best defined as:
destruction or damage caused solely by the policyholder.
severe damage inflicted by a series of unfortunate events.
intangible loss to property or person caused by a single
incident. physical harm to tangible property caused by a
peril.
MC
During a storm, lightning strikes a tree in Norman’s back yard, causing it to fall on his house and
damage his roof. In this case, Norman’s fallen tree is considered:
a hazard.
an indirect loss.
the proximate cause of loss.
11 /
62
Actual cash value does not account for the depreciation on
an item. Actual cash value is equal to the current replacement
cost of an item. Actual cash value generally reflects the fair
market value of an item.
MC Which of the following statements is true?
In determining how much to indemnify a policyholder in a replacement cost policy, an
insurer must analyze how long the policyholder has owned the insured item.
A valued policy will always indemnify a policyholder utilizing actual cash value
valuation. Actual cash value generally reflects what it would cost to replace an
item at current prices. Replacement cost valuations are usually beneficial to the
policyholder.
Frank purchases a homeowners policy worth $700,000 with a 4% deductible. A
few months later, a heavy
MC hailstorm destroys his roof, porch, and windows, causing $50,000 in damages.
Frank should expect
from the insurance company to pay for the damages.
Jim owns a home valued at $187,500, but he only has a $100,000 homeowner’s
policy and is underinsured.
MC During a storm, lightning strikes Jim’s home causing $45,000 in damages. The insurer decides
to invoke a coinsurance penalty. How much will Jim be required to pay for the penalty?
Francis lives in a nice house, valued at $300,000. He is fully insured, and his homeowner’s policy
has a $
MC
fixed deductible for fire and hail damage and a 3% percentage deductible for all other perils,
including wind damage. One evening, a massive storm hits and blows the roof off Francis’ home.
The cost to repair the roof will be $22,000. How much of this cost will the insurer cover?
MC How is actual cash value calculated?
Replacement cost minus annual
depreciation Market value plus annual
depreciation Market value minus total
depreciation Replacement cost minus
total depreciation
Kerry accidentally set his kitchen on fire
while frying a turkey for the holidays. The
fire results in $32,000 in
damage to his home, which is valued at $175,000. However, Kerry only has a $120,
13 /
62
Roxanne bought her 50” TV four years ago for $2,400. During a storm, her house is struck by
lightning and
MC
the current fries her TV. The TV depreciates $400 per year, and a similar TV costs $1,800 today.
Assuming
Roxanne’s homeowners policy pays ACV for personal property, how much can she expect to
receive in
indemnification for the damaged TV?
Linda’s home is worth $525,000. She has a homeowners policy with a $500,000 limit and a 1.5%
deductible.
MC When Linda’s husband sets their kitchen on fire while frying a turkey, he accidentally causes
$36,000 in damages. How much can Linda and her husband expect to receive in their
settlement?
Marcel’s home is valued at $495,000 and he carries a homeowner’s policy with a limit of
$400,000 and a 2%
MC
deductible. During an ice storm, the weight of the ice on a tree in Marcel’s
front yard causes a large limb to break off and fall on his house, causing $27,200 in damage. How
much will Marcel receive in his settlement
for this claim?
Jackie has a valued insurance policy on her antique square grand piano with a $35,000 limit.
After thieves
MC
break into her house and steal her piano, she files a claim with her insurer. In an effort to
support her claim, she provides her insurer with an article showing a similar piano that was
recently sold at auction for
$52,000. Ignoring any deductible, how much can Jackie expect to receive in indemnification for her
claim?
XYZ Trucking Company has a franchise deductible policy with a deductible of $100,000. When a
tornado rips
MC through their lot, the company sustains $965,000 in damage. How much of the damage will
XYZ Trucking Company be responsible for paying?
Bill is underinsured on his
home.
14 /
62
A customer ingests a piece of glass while eating at a
restaurant.
16/
2
Chad’s homeowners liability insurance
Stephanie’s auto liability insurance
Chris and Matt are playing a friendly game of one-on-one basketball in Matt’s driveway. When
Chris goes up
MC for a slam dunk, Matt accidentally trips him while attempting to block the shot. Chris lands
hard and tears the ACL in his left knee. Matt’s homeowners liability insurance will cover Chris’
medical bills because:
Chris’ actions were intentional, but negligent.
Chris’ actions were unintentional, but
negligent. Matt’s actions were intentional,
but negligent.
Matt’s actions were unintentional, but
negligent.
MC Which of the following best defines the
doctrine of Res Ipsa Loquitur?
The circumstances of the injury make it obvious that the defendant is negligent; no proof is
needed. The plaintiff will not be awarded any damages if she is found to be 50% or more
at fault.
The claimant knowingly participated in an activity with the potential to cause injury or
damage.
An employer is not held liable if a worker’s injuries were caused by the action or negligence of
a fellow employee.
MC Which of the following does NOT constitute one of the four elements of a negligent act?
The defendant entered into a legal contract with the plaintiff.
The defendant had a legal duty to act (or not act) in a prescribed manner.
The plaintiff suffered actual loss or injury due to the defendant's action or inaction.
The loss or injury to the plaintiff was a direct result of the breach of duty of the defendant.
As Seth is driving along a country road, a deer jumps out in front of him. This causes Seth to
veer off the
MC
road and crash into Cassie’s wood fence and a brick mailbox. As a result of the crash, Seth
suffers $3,700 damage to his sedan and causes $1,800 in damage to Cassie’s property. How
much of the damage will be
covered by Seth’s liability insurance?
MC Which of the following is NOT typically associated with strict liability?
Handling explosives
Using firearms
Housing exotic or wild animals
Working with electronics
MC Which of the following statements about liability insurance policy limits
is TRUE? Single limit liability policies have one limit: maximum
payout per policy term.
Split limit liability policies have two limits: 1) maximum for damage per occurrence, 2) maximum
payout per policy term.
pay Grace more than her garage is
worth. issue a judgement.
pay the claim in full.
17/
A driver T-bones another driver in an intersection.
A homeowner’s son breaks her window with a baseball while playing in the back yard.
MC
The use of which doctrine would result in David receiving no damages for his loss, if he were
found 25% responsible for his own loss?
Contributory negligence
Comparative negligence
Modified comparative
negligence Res Ipsa Loquitur
MC
A lion at a zoo escaped when a zoo employee failed to follow protocol. The lion injured a
zoo patron. In court, the injured patron's lawyer could invoke the doctrine of:
Res Ipsa Loquitur.
Comparative
negligence.
Contributory
negligence.
Assumption of Risk.
MC
Bryce's business has a commercial liability policy with a per occurrence limit and an
aggregate limit. The limits in the policy are $100,000/$200,000. What does this mean?
Bryce's policy will pay up to $100,000 per occurrence, and up to $200,000 during the whole
policy term. Bryce's policy will pay up to $100,000 for the first occurrence, and up to
$200,000 for the second occurrence.
The maximum amount Bryce's policy will pay during the policy term is
$300,000. The maximum amount Bryce's policy will pay during the
policy term is $100,000.
MC Which of the following is excluded from liability insurance
coverage? carelessness
unintentional acts of negligence
vicarious liability
intentional acts of tort or
wrongdoing
Greg lends Frank his arc welder to
build a custom smoker grill.
While Frank is using the arc
welder, he
MC suffers a severe injury when the tool malfunctions. Even though Greg did not knowingly lend
Frank a faulty welder, he is charged with committing a/an when Frank brings a civil
suit against him.
tortfeasor
joint tortfeasor
intentional tort
negligent
tort
MC Which of the
following does
NOT apply to Tort
Law?
broadened coverage
immediately.
19/
2
Joanne sells her house to her sister, Dianne. To save Dianne the trouble of finding her own
homeowners
MC
policy, Joanne calls up her insurance company and tells them that Dianne bought
her house and any future claim settlements should be paid to Dianne. Joanne’s insurer tells her
that they can’t do that because of
which condition?
Additional
Insured
Liberalization
Control of
Property
Assignment
Paul and his wife
have three
separate insurance
policies covering
their home –
Policy X with a
limit of
MC
$100,000, Policy Y with $50,000, and Policy Z with $25,000. These policies are set up to pay
covered claims by contribution of equal shares. After a fire causes a $125,000 in damage to their
home, how much will each policy pay (ignoring any deductibles)?
Policy X pays $71,250; Policy Y pays $36,250; and Policy Z pays
$17,500 Each policy pays $41,
Policy X pays $100,000; Policy Y pays $12,500; and Policy Z pays
$12,500 Policy X pays $50,000; Policy Y pays $50,000; and Policy Z
pays $25,
ABC Consulting has a CGL policy and an Umbrella policy, but the CGL
runs from January 1 to December 31
MC and the Umbrella policy runs from June 1 to May 31. This difference in inception and
expiration dates creates confusion when settling claims. This condition is known as:
ad hoc insurance.
coinsurance.
overinsurance.
nonconcurrency.
Nichole’s car was
damaged while it
was being
serviced at Don’s
Auto Shop.
Nichole’s auto
insurance policy
MC covers physical damage to her vehicle, but it will not cover the damage that occurred while
the vehicle was under the control of Don’s Auto Shop. Which provision in her policy states this?
Severability of Interests
Control of Property
Assignment
No Benefit to Bailee
Due to an E-coli
contamination in its
The Premium Audit condition requires that the insurer review all existing policies, including
Company Q’s,
to make sure this broadened coverage does not adversely affect their premiums.
The Assignment clause requires that this broadened coverage be offered to Company Q.
The Liberalization clause requires that this broadened coverage automatically apply to Company
Q’s
existing policy.
Tom has two commercial property policies covering his warehouse. Policy A is the primary policy
and has a
MC $200,000 limit, and Policy B is an excess policy with a $100,000 limit. After a fire causes
$140,000 to his warehouse, how will each of Tom’s policies respond (ignoring any deductible)?
Policy A will pay $40,000 and Policy B will pay
$100,000. Policy A will pay $93,333 and Policy B
will pay $46,667. Policy A will pay $70,000 and
Policy B will pay $70,000. Policy A will pay
$140,000 and Policy B will pay $0.
MC
Sara’s vehicle was stolen and her insurer paid her theft claim for the total value of the car. A
week later, the police found Sara’s car and returned it to her. Which of the following statements
is true?
The Assignment provision states that because Sara was already indemnified for the loss, she
must sign over the vehicle title to the insurer.
The Abandonment provision states that Sara must surrender her rights to the vehicle to her
insurer. The Salvage provision states that Sara must sell the vehicle and give the proceeds
to the insurer to pay back the settlement she received.
The Recovered Property provision states that Sara must notify the insurer and either return the
settlement payment or surrender the vehicle to the insurer.
MC According to the Assignment condition:
an insurer may reassign a policy to another insurer, as long as it provides the insured with
advanced notice.
an insurer may reassign a policy to another insurer, but only with the insured’s permission.
an insured may transfer a policy to a spouse or dependent, but only if all terms and conditions
remain the same.
insurance coverage may transfer to an insured’s legal representative when the insured dies.
MC In a liability policy, the Legal Action Against the Insurer provision
typically states: no one can sue the insured until the insurer’s
obligation is determined.
the insured is only responsible for damages below the policy limit.
the insurer must comply with all policy obligations prior to filing a
lawsuit. no one can join the insurer in a lawsuit against the
insured.
MC In an insurance contract, exclusions serve all of the following
purposes, except: manage moral and morale hazards.
eliminate duplication of coverages.
lower premiums.
add coverages that need special
treatment.
MC According to the Separation of
