Exam Questions and Solutions

Personal Lines Insurance Practice Exam Questions and Solutions Bobby, age 16, borrows his parents' car without their permission and gets into an accident. Which of the following statements about coverage under the parents' personal auto policy is CORRECT?

• Bobby is covered by his parents' policy because he is included in the

definition of named insured.

• Bobby is not covered for this accident because he used the car without

permission.

• Bobby is not covered because it was not his car.
• Bobby is covered by his parents' policy because he is a family member. -

-D) Bobby is covered by his parents' policy because he is a family member.

Explanation: Bobby is a family member and thus automatically is covered

under the family's PAP policy. Even though Bobby is using the car without permission, the exclusion pertaining to nonpermissive users does not apply to use of an owned auto policy by resident family members.

Reference: 8.7.2 in License Exam Manual

-A parking valet at a hotel uses a guest's car to do a personal errand and damages the car in a collision. The guest has a personal auto policy (PAP).The insurance company will pay the claim and ____.

• relieve the parking valet of legal liability for the loss
• subrogate against the named insured
• subrogate against the parking valet
• recover any additional loss from the lienholder - -C) subrogate against

the parking valet

Explanation: Part-D coverage for Damage to Your Auto of the PAP contains a

no benefit to bailee provision. This provision states that a carrier or other bailee for hire, such as a parking gar5age, service station, or moving company will not directly or indirectly benefit from the PAP's insurance. A bailee is an individual or entity that assumes possession of goods owned by another for the purpose of transporting, servicing, or storing them. When temporary custody is assumed, the bailee becomes legally liable for the goods.

Reference: 8.7.2 in the License Exam Manual 1 / 4

-Who of the following are required to be members of the Arizona Property and Casualty Insurance Guaranty Fund?

• All insurers that write the types of insurance that are protected by the

fund in Arizona

• Foreign property and casualty insurers only
• lien property and casualty insurers only
• All insurers that write insurance in Arizona, including life and health

insurers - -A) All insurers that write the types of insurance that are protected by the fund in Arizona

Explanation: All insurers that write types of insurance that are protected by

the fund are required to be member insurers of the fund. Reference: State

Supplement in the License Exam Manual.

Reference: 4.4.16.3 in the License Exam Manual

-Which one of the following dwellings would a HO-3 Homeowners Form cover?

• Condominium
• Office building
• Single-family home
• Apartment building - -C) Single-family home

Explanation: HO-3 Homeowners Form covers owner-occupied single family

dwellings. Condominiums are covered by the HO-6. Office and apartment buildings would be covered by a commercial policy.

Reference: 7.4.1 in the License Exam Manual

-Which on of the following would be classified as a general damage?

• Pain and suffering
• Lost wages
• Medical bills
• Damaged property - -A) Pain and suffering

Explanation: Compensatory damages compensate an injured party for

injuries sustained- nothing more. Their purpose is to make a person whole again in the position that existed before the loss or harm. Compensatory

damages are further categorized by: general damages (which necessarily

result from the act or omission, such as emotional distress, inconvenience, and pain and suffering) and special damages (losses measured in exact sums of money including medical bills, travel expenses for medical care, prescription costs damaged property, and lost wages). 2 / 4

Reference: 5.3.6 in the License Exam Manual

-Which of the following statements about flood insurance is NOT correct?

A) There are two types of flood insurance programs available: emergency

and regular

• A flood includes an overflow of inland or tidal waters
• Sewer backup into a dwelling is not considered flood and is not covered
• Personal property in a basement or outside in the yard is covered - -D)

Personal property in a basement or outside in the yard is covered

Explanation: Personal property in a basement or outside in the yard is NOT

covered under flood insurance.

Reference: 9.4 in the License Exam Manual

-Which of the following coverages is NOT included in a boatowners/watercraft package policy?

• Medical payments
• Liability
• Longshore and harbor workers' compensation insurance
• Property - -C) Longshore and harbor workers' compensation insurance

Explanation: Boatowners/watercraft package policies were developed by

individual insurance companies and they combine property, liability, and medical payments insurance on an open peril basis. Longshore and harbor workers' compensation insurance is found in personal yacht policies, which are used to insure larger vessels than those covered under boatowners policies.

Reference: 9.8.1 in the License Exam Manual

-An insured owns a pet lion that is caged on the homeowner's property. The owner takes great care to warn neighbors of the possible danger by posting signs, fencing the yard, and locking the cage at all times. When a neighbor's child manages to open the cage and is bitten, what type of liability would apply to the lion owner?

• Absolute liability
• Contractual liability
• Premises liability
• Vicarious liability - -A) Absolute liability 3 / 4

Explanation: The law imposes strict or absolute liability for specific situations or activities that pose threats to the safety of others. People who own dangerous animals are held to a higher standard of care. Absolute liability applies when a person is liable for a dangerous condition, regardless of the amount of care taken.

Reference: 5.3.4 in the License Exam Manual

-Which of the following terms is used to describe an empty building that is not being used?

• Vacated
• Absent
• Unoccupied
• Vacant - -D) Vacant

Explanation: A building that is not currently in use and does not have enough

furnishings to function in its normal capacity is considered vacant. A building is unoccupied if no one is currently in it, but furnishings are present and the occupants intended to return, as is the case when the residents are out of town on vacation.

Reference: 4.4.15 in the License Exam Manual

-Which of the following statements about umbrella policies is NOT correct?

• They provide coverage above the limits of underlying policies.
• They are written only for commercial risks.
• Losses that are excluded by the underlying policy but covered by the

umbrella are subject to the umbrella's retention limit.

• If the insured fails to keep the underlying coverage in force, the umbrella

policy will not cover the amount of loss that would have been paid by the underlying policy. - -B) They are written only for commercial risks.

Explanation: Umbrella liability policies may be written for both personal and

commercial risks.

Reference: 9.9.1 in the License Exam Manual

-The agent has many responsibilities to the applicant. One involves a trust relationship between the agent and the insured regarding the insured's finances and confidentiality. In this case, the agent acts in what capacity?

• Fiduciary
• Consultant
• Attorney-in-fact
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