Free Insurance License Practice Exam: 25 Life, Health and P&C Questions
This free insurance license practice exam has 25 multiple-choice questions on the general insurance principles every pre-licensing exam tests, plus policy provisions, life and health, property and casualty, underwriting and ethics.
Insurance exams are usually split by line of authority (life, health, property, casualty), and the vendor and format depend on your state. Use this test to check your fundamentals, then focus on your line.
Questions
25
Time
~25 min
Aim for
80%+
Sign-up
Not needed
- 1General Principles
Concealment of a material fact during application may:
Answer: A. Allow the insurer to rescind the policy
Concealment of a material fact (one that affects underwriting) can support rescission. Materiality is judged by whether a reasonable insurer would have underwritten differently with full disclosure.
- 2General Principles
An insurance company that is owned by its policyholders is a:
Answer: B. Mutual company
A mutual insurance company is owned by its policyholders, who may receive dividends from underwriting profits. Stock companies are owned by shareholders.
- 3Underwriting & Claims
A 'duty to defend' on a liability policy:
Answer: C. Insurer pays the defense costs of covered claims
Insurers' duty to defend is broader than the duty to indemnify — they must defend any claim potentially within coverage. Defense costs are often outside policy limits.
- 4General Principles
After paying its insured for a loss caused by a third party's negligence, the insurer takes over the insured's right to sue that third party. This is:
Answer: D. Subrogation
Subrogation gives the insurer the right to step into the insured's position to recover from a negligent third party, preventing the insured from recovering twice.
- 5Policy Provisions
A property insurer wants to cancel a policy mid-term for non-payment of premium. State laws generally require the insurer to provide:
Answer: A. A written notice of cancellation
States require written notice of cancellation a specified number of days before the effective date so the insured has time to obtain alternative coverage.
- 6Policy Provisions
Replacement cost is generally a more favorable settlement basis to the insured than ACV because:
Answer: B. Replacement cost pays for new like-kind without depreciation
Replacement cost pays for new property of like kind and quality without depreciation deduction. ACV is replacement cost minus depreciation.
- 7Policy Provisions
A 'beneficiary' designation in life insurance:
Answer: C. Names who receives the death benefit
Beneficiary designations determine who receives the death benefit. Primary and contingent beneficiaries can be named; revocable beneficiaries can be changed by the insured.
- 8Underwriting & Claims
A 'covered peril' versus 'cause of loss' distinction:
Answer: D. Some causes are excluded even if a peril is covered
Causation analysis can defeat coverage: even if fire is a covered peril, an excluded cause (e.g., earthquake-induced fire) may apply. Concurrent causation rules vary.
- 9General Principles
An insurance contract is drafted entirely by the insurer; the insured must accept it on a take-it-or-leave-it basis. This is an example of a(n):
Answer: A. Adhesion contract
An adhesion contract is drafted by one party (the insurer) and accepted as-is by the other. Ambiguities are construed against the drafter.
- 10General Principles
After the insurer pays a claim and exercises subrogation rights, recovery from the third party generally goes to:
Answer: B. The insurer (up to the amount it paid)
Through subrogation, the insurer steps into the insured's position to recover from the responsible third party. Recovery up to the amount paid goes to the insurer; any excess (rare) returns to the insured.
- 11Life & Health
A senior chooses a Medicare Advantage plan that combines hospital, medical, and often drug coverage through a private insurer. This plan is part of:
Answer: C. Medicare Part C
Medicare Part C (Medicare Advantage) is offered by private insurers approved by Medicare and combines Parts A and B (and often D) into one plan with its own networks and rules.
- 12General Principles
An insurance contract is conditional in that:
Answer: D. Each party's duty arises only on certain conditions
Conditional contracts require certain conditions (premium payment, occurrence of insured event, proof of loss) to be met before performance is required.
- 13Life & Health
A disability-income policy with an 'own-occupation' definition pays benefits when the insured cannot:
Answer: A. Work in her current specific occupation/role
'Own-occupation' coverage pays benefits when the insured cannot perform her specific job (e.g., a surgeon's surgery skills). 'Any-occupation' is stricter—pays only when unable to do any work for which she is reasonably qualified.
- 14Life & Health
A 'disability income' policy generally provides:
Answer: B. Income replacement during disability
Disability income (DI) replaces a portion of income lost during disability. Definitions of disability ('own occupation' vs 'any occupation') and elimination periods determine cost and benefit.
- 15Commercial Lines
A 'crime' coverage (employee theft):
Answer: C. Covers loss from dishonest acts by employees
Crime policies cover employee dishonesty (theft, forgery), counterfeit money, social engineering, and forgery. Important for businesses handling cash, valuable inventory, or financial accounts.
- 16Property & Casualty
A homeowner's policy has a $1,000 deductible. After a $5,000 covered loss, the insurer pays:
Answer: D. $4,000 (loss minus deductible)
The deductible is the amount the insured retains. The insurer pays the remainder ($5,000 − $1,000 = $4,000) up to the policy limit.
- 17General Principles
After a covered fire damages a building, the insurer pays for the cost of bringing the occupants back to their pre-loss financial position. The lost rental income that would have been collected is best classified as a(n):
Answer: A. Indirect (consequential) loss (lost income during repairs)
Lost rental income flows from the direct loss of the building. It is consequential (indirect) loss covered by business income/loss-of-rents coverage when included.
- 18Property & Casualty
A homeowners policy excludes most watercraft over a certain length. To cover a 25-foot motorboat, the owner should buy:
Answer: B. A separate boat (watercraft) policy or endorsement
Larger watercraft and many small craft with significant horsepower are excluded from HO policies and require dedicated boat (watercraft) coverage with hull, liability, and medical payments.
- 19General Principles
Insurance fundamentally works by spreading the cost of unforeseen losses across many similar exposures. This concept is:
Answer: C. Risk pooling (sharing losses across the group)
Risk pooling combines many similar exposures. Most don't suffer loss in any period; premiums from all fund the few losses. The larger the pool, the more predictable the average.
- 20Property & Casualty
Auto 'PIP' (Personal Injury Protection) is typically:
Answer: D. No-fault coverage for the insured's medical bills
PIP (also called no-fault medical or Medical Payments) pays the insured's medical bills and sometimes lost wages regardless of fault. Limits and required-vs-optional vary by state.
- 21General Principles
An 'agent' has authority to bind the insurer through:
Answer: A. Express, implied, and apparent authority
Agents have express authority (written contract), implied authority (necessary to perform express duties), and apparent authority (third-party reasonable belief). Apparent authority can bind the insurer.
- 22Commercial Lines
A 'specific' insurance on commercial property:
Answer: B. Limit applies only to a specific item or location
Specific insurance covers each item/location with its own limit. Blanket covers multiple items under one limit. Choice depends on values, locations, and protection needs.
- 23Ethics & Regulation
An agent must complete continuing education (CE). The required CE typically:
Answer: C. Renews each license cycle
Most states require CE hours per license cycle (often 24 hours every 2 years), with specific topics for ethics, law updates, and specialty areas (long-term care, annuities).
- 24Ethics & Regulation
An insurance producer also operates a real estate brokerage. When she sells homeowners insurance to her real estate clients, she must:
Answer: D. Disclose the dual role and any conflicts
When a producer has multiple roles that may produce a conflict of interest, full disclosure is required. The client must be informed and free to choose.
- 25General Principles
A 'moral hazard' refers to:
Answer: A. Character traits that increase fraud risk
Moral hazards arise from the insured's character — dishonesty, fraud risk. Underwriting often assesses moral hazard through application questions and history.
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