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New Mexico PSI ALL LINES ADJUSTER PRACTICE EXAM QUESTIONS AND CORRECT ANSWERS (VERIFIED, Exams of Law

Eastern New Mexico University (ENMU)Law

New Mexico PSI ALL LINES ADJUSTER PRACTICE EXAM QUESTIONS AND CORRECT ANSWERS (VERIFIED ANSWERS) PLUS RATIONALES 2025

Typology: Exams

2024/2025

Available from 07/01/2025

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New Mexico PSI ALL LINES ADJUSTER PRACTICE
EXAM QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES 2025
1. An insurance contract is considered a contract of adhesion. This means:
• A. Both parties negotiate the terms equally
• B. Only the insurer writes the contract terms
• C. The insured can change the terms
• D. Both parties can amend the policy anytime
Answer: B
Rationale: A contract of adhesion means the insurer drafts the
terms; the insured must accept or reject the policy as is.
2. Which of the following is NOT an insurable risk characteristic?
• A. Loss must be predictable
• B. Loss must be catastrophic
• C. Loss must cause economic hardship
• D. Loss must be measurable
Answer: B
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Download New Mexico PSI ALL LINES ADJUSTER PRACTICE EXAM QUESTIONS AND CORRECT ANSWERS (VERIFIED and more Exams Law in PDF only on Docsity!

New Mexico PSI ALL LINES ADJUSTER PRACTICE

EXAM QUESTIONS AND CORRECT ANSWERS

(VERIFIED ANSWERS) PLUS RATIONALES 2025

  1. An insurance contract is considered a contract of adhesion. This means:
    • A. Both parties negotiate the terms equally
    • B. Only the insurer writes the contract terms
    • C. The insured can change the terms
    • D. Both parties can amend the policy anytime Answer: B Rationale: A contract of adhesion means the insurer drafts the terms; the insured must accept or reject the policy as is.
  2. Which of the following is NOT an insurable risk characteristic?
    • A. Loss must be predictable
    • B. Loss must be catastrophic
    • C. Loss must cause economic hardship
    • D. Loss must be measurable Answer: B

Rationale: Insurers avoid catastrophic risks because they impact many at once, making them uninsurable.

  1. The clause that requires the insured to protect the property from further damage after a loss is the: - A. Subrogation clause - B. Salvage clause - C. Appraisal clause - D. Duties after loss condition Answer: D Rationale: The insured’s duties after a loss include protecting the property from further damage.
  2. Which law allows an insurer to recover from a negligent third party after paying a claim? - A. Indemnity - B. Waiver - C. Subrogation - D. Estoppel Answer: C Rationale: Subrogation allows the insurer to pursue recovery from the responsible third party.
  • C. Staff adjuster
  • D. Public adjuster Answer: D Rationale: A public adjuster is hired by and represents the insured’s interests.
  1. Which of the following best defines indemnity?
  • A. Paying more than the loss amount
  • B. Restoring the insured to their original financial position
  • C. Making a profit after a loss
  • D. Adding extra fees to the claim Answer: B Rationale: Indemnity restores the insured to the same financial status before the loss, no more, no less.
  1. In New Mexico, an adjuster must report address changes within:
  • A. 10 days
  • B. 15 days
  • C. 30 days
  • D. 45 days Answer: C

Rationale: Most states, including NM, require licensees to report address changes within 30 days. 10.An insurance binder is:

  • A. A written or oral temporary agreement
  • B. A permanent policy
  • C. An endorsement
  • D. A cancellation notice Answer: A Rationale: A binder provides temporary coverage until the formal policy is issued. 11.When two policies cover the same property, how is the claim usually settled?
  • A. Each policy pays the full amount
  • B. The insured chooses one
  • C. Pro rata liability applies
  • D. One cancels the other Answer: C Rationale: Pro rata liability ensures each insurer pays its share based on its policy limits.
  • D. Appraisal Answer: C Rationale: The Other Insurance clause ensures the insured doesn’t profit from duplicate policies. 15.Which is an example of an indirect loss?
  • A. Fire damage to a building
  • B. Water damage to inventory
  • C. Loss of income due to business interruption
  • D. Theft of equipment Answer: C Rationale: Indirect losses are consequential, like lost income due to a covered direct loss. 16.The insurable interest must exist:
  • A. When the policy is purchased
  • B. At the time of the loss
  • C. At both the purchase and loss times
  • D. Only after a claim is filed Answer: B Rationale: Insurable interest must exist at the time of the loss to prevent wagering on insurance.

17.The primary function of reinsurance is to:

  • A. Increase underwriting risks
  • B. Decrease competition
  • C. Protect insurers from catastrophic losses
  • D. Reduce premium payments Answer: C Rationale: Reinsurance helps insurers share risk and avoid large financial losses. 18.An example of a moral hazard is:
  • A. A house in a flood zone
  • B. A faulty wiring system
  • C. An insured committing fraud
  • D. A vehicle parked in a dangerous area Answer: C Rationale: Moral hazards involve dishonesty or intent to cause a loss for financial gain. 19.A windstorm damages a roof. A second rainstorm causes water damage inside. The water damage is:
  • A. Excluded
  • D. Fire Answer: D Rationale: Fire is a named peril and covered under standard homeowners policies. 22.Which party is responsible for proving a loss under a property policy?
  • A. The insurer
  • B. The agent
  • C. The claimant
  • D. The insured Answer: D Rationale: The burden of proof for a covered loss falls on the insured. 23.A liability policy will always pay:
  • A. Punitive damages
  • B. Bodily injury and property damage
  • C. Fines and penalties
  • D. Intentional acts Answer: B Rationale: Liability insurance covers unintentional bodily injury and property damage.

24.What is the purpose of an appraisal clause?

  • A. Settle disagreements over coverage
  • B. Resolve disputes over value of a loss
  • C. Revoke policy coverage
  • D. Determine legal liability Answer: B Rationale: An appraisal clause is used when the insurer and insured disagree on the amount of loss. 25.Which of the following would be considered a “first-party” claim?
  • A. A customer sues a business
  • B. A fire damages an insured’s home
  • C. A pedestrian sues a driver
  • D. A business sues its contractor Answer: B Rationale: First-party claims are made by the insured for damage to their own property. 26.Which coverage is part of a Commercial General Liability policy?
  • A. Inland marine
  • B. Product liability
  • C. Builders risk

29.A proof of loss is:

  • A. An oral statement about the incident
  • B. A legally binding contract
  • C. A sworn statement by the insured about the loss
  • D. A release of liability Answer: C Rationale: The proof of loss confirms the facts and amount claimed under oath. 30.An adjuster is required to maintain claim records for:
  • A. 1 year
  • B. 3 years
  • C. 5 years
  • D. 10 years Answer: B Rationale: Most states, including NM, require adjusters to maintain records for 3 years. 31.Which of the following perils is typically excluded from a basic commercial property policy?
  • A. Fire
  • B. Hail
  • C. Vandalism
  • D. Earthquake Answer: D Rationale: Earthquake requires a separate endorsement or policy. 32.Which is a duty of the insurer during the claims process?
  • A. Determine negligence
  • B. Promptly investigate the claim
  • C. Settle all claims for policy limits
  • D. Represent the insured in court Answer: B Rationale: Insurers are obligated to act in good faith and promptly investigate claims. 33.Under the concept of proximate cause:
  • A. The loss must have multiple causes
  • B. The adjuster chooses the most recent cause
  • C. The initial cause that set the chain of events is covered
  • D. No cause matters if damage is visible Answer: C Rationale: The first event in a sequence of related events determines coverage.
  • C. As required by the state
  • D. Only after a license expires Answer: C Rationale: New Mexico requires adjusters to complete CE hours as a licensing condition. 37.A reservation of rights letter protects the insurer by:
  • A. Avoiding claim payment
  • B. Delaying investigation
  • C. Preserving the right to deny
  • D. Requiring a third-party appraisal Answer: C Rationale: It allows the insurer to investigate while reserving the option to deny later. 38.A temporary license may be issued in New Mexico if:
  • A. A company hires a contractor
  • B. An adjuster fails the exam
  • C. An adjuster dies or becomes disabled
  • D. An agent requests a favor Answer: C

Rationale: Temporary licenses are often issued in cases of death or disability. 39.An example of “special damages” includes:

  • A. Pain and suffering
  • B. Mental anguish
  • C. Medical bills
  • D. Loss of companionship Answer: C Rationale: Special damages are quantifiable losses such as bills and lost income. 40.The term “replacement cost” means:
  • A. Cost minus depreciation
  • B. Actual cash value
  • C. Full cost to replace with like kind and quality
  • D. Salvage value Answer: C Rationale: Replacement cost pays to replace the item with a similar new one. 41.Who sets licensing requirements for adjusters in New Mexico?
  • D. Shift the burden to the insurer Answer: B Rationale: Deductibles discourage small claims and reduce administrative costs. 44.In a commercial package policy (CPP), which coverage is optional?
  • A. Commercial property
  • B. General liability
  • C. Equipment breakdown
  • D. All are required Answer: C Rationale: Equipment breakdown is an optional module in a CPP. 45.A surety bond differs from insurance because it:
  • A. Requires no underwriting
  • B. Protects the obligee
  • C. Has no beneficiary
  • D. Cannot be canceled Answer: B Rationale: Surety bonds protect the obligee (third party), not the principal.

46.The primary goal of insurance regulation is to:

  • A. Limit competition
  • B. Protect the insurer
  • C. Protect the public interest
  • D. Prevent claims Answer: C Rationale: Regulation ensures solvency and fair treatment of policyholders. 47.The term “salvage” refers to:
  • A. Uninsured damage
  • B. Property recovered after a loss
  • C. Deductible limits
  • D. Insurance fraud Answer: B Rationale: Salvage is the remaining value of damaged property recovered after loss payment. 48.Under liability coverage, who is considered an insured?
  • A. Only the policyholder
  • B. Named insured and spouse
  • C. Anyone listed and resident relatives