Free Kansas Casualty Insurance Practice Questions

Insurance only deals with pure risk: situations where there's a chance of loss or no loss, but no chance of gain (like your house burning down). Speculative risk involves a chance of loss, no loss, OR gain. That's gambling and investing, and insurers won't touch it. If there's an upside, it's not insurable.

Moral hazard equals dishonesty. It's the risk that someone deliberately causes or exaggerates a loss to profit, like torching a failing business for the payout. Don't mix it up with morale hazard (carelessness, choice B) or physical hazard (the actual physical conditions in A and D).

Morale hazard is the 'eh, I'm covered' attitude: indifference or carelessness that creeps in because insurance exists. It's not dishonesty (that's moral hazard) and it's not a physical condition (physical hazard). Trick to remember: moralE hazard is about a person's lazy attitudE.

A physical hazard is a tangible condition that increases the likelihood or severity of a loss: gasoline in the garage, a slippery floor, frayed wiring. You can see or touch it. If it's an attitude problem it's morale; if it's dishonesty it's moral; if it's a physical thing sitting there raising the odds, it's physical.

An insurer can't predict whether your house specifically will burn down, but give them a big enough pool of similar homes and they can predict pretty accurately how many out of the whole group will. That's the law of large numbers: more similar exposures, more reliable predictions. It's the statistical engine that makes pricing coverage possible at all.

Buying insurance is the classic risk transfer: you hand the financial consequences of a loss to the insurer in exchange for a premium. Avoidance means not doing the risky thing at all, retention means keeping the risk yourself (like a deductible), and reduction means lowering the odds or severity (smoke detectors). Insurance equals transfer.

Indemnity is the whole heartbeat of insurance: you get made whole, not rich. The goal is to put you back where you were financially right before the loss, no better, no worse. That's why you can't insure a $20,000 car for $80,000 and cash in. Insurance reimburses a loss; it doesn't hand out winnings.

The law of large numbers needs lots of similar exposures to make predictions reliable. A big pool of comparable homes lets the insurer forecast losses; a handful of wildly different ones doesn't. And concentrating them all in one spot is actually bad: one hurricane could wipe out the whole pool at once.

An agent represents the insurer (the principal); that's the cornerstone of agency law. A broker, by contrast, represents the insured. So when an agent acts within their authority, the insurer is on the hook for what they do. Agent equals the insurer's rep.

Express authority is the authority written right into the agency agreement, the powers the insurer explicitly hands the agent. Implied authority fills in the gaps needed to use that express authority, and apparent authority is what the public reasonably assumes. Express equals expressly stated.

Depreciation is the loss in a property's value from age, use, and obsolescence. It's subtracted from replacement cost to arrive at actual cash value. Hook: depreciation is the wear-and-tear value the insurer subtracts under ACV.

Under named perils, the insured must show the loss was caused by a listed peril. Under open perils (all-risk or special form), coverage is presumed unless the insurer proves an exclusion applies, so the burden shifts to the insurer. Open perils is the broader coverage. Hook: named perils, the insured proves it's covered; open perils, the insurer proves it's excluded.

The limit of insurance is the most the insurer will pay for a covered loss; amounts above it are the insured's responsibility. Hook: the limit is the ceiling on what the insurer pays.

If the insured met the coinsurance requirement, carrying at least the required percentage of value, no penalty applies and the loss is paid in full up to the limit. The penalty only bites when coverage falls short. Hook: meet the coinsurance requirement and there's no penalty.

The four elements of negligence are a duty owed, a breach of that duty, the breach being the proximate cause, and actual damages. Intent is not required; in fact, negligence is unintentional, which separates it from an intentional tort. Hook: duty, breach, causation, damages, but never intent for negligence.

Comparative negligence reduces the claimant's award by their percentage of fault, so someone 30% responsible recovers 70% of their damages. It's more forgiving than the older contributory negligence rule, which could bar recovery entirely for any fault at all. Hook: comparative negligence trims your recovery by your share of the blame.

After paying the insured for a loss caused by someone else, the insurer steps into the insured's shoes (subrogation) and pursues the at-fault party to recover what it paid. It prevents the insured from collecting twice. Hook: subrogation lets the insurer go after whoever caused the loss to get its money back.

Property policies typically prohibit abandonment: the insured can't simply dump damaged property on the insurer and demand the full amount. The insurer decides whether to repair, replace, or pay. Hook: you can't abandon the wreck to the insurer and demand a full check.

A peril is what actually causes a loss (fire, theft, windstorm), while a hazard is a condition that makes a loss more likely or more severe, like oily rags raising the chance of fire. Hook: peril is the cause; hazard is what makes the cause more likely.

A physical hazard is a tangible condition of property or environment that increases risk, like icy steps, faulty wiring, or stored chemicals. It exists in the physical world, unlike moral or morale hazards. Hook: a physical hazard is a real-world condition you could point to.

Part A is Liability Coverage, the part that pays for bodily injury and property damage the insured causes to others. It is the core of the auto policy and the coverage states require. Hook: Part A is liability, what you owe others, and it comes first in the PAP.

Part D, Coverage for Damage to Your Auto, is the physical damage section that pays for damage to the insured's own car under collision and other-than-collision coverage. Part A handles liability to others, not your own vehicle. Hook: Part D is the D in damage to your own auto.

Liability coverage responds when the insured is legally responsible for injuring someone else or damaging their property, and it also pays the cost of defending the insured. It does not pay for the insured's own car. Hook: liability pays the other guy, both his injuries and his property.

A combined single limit gives one pool of money per accident that can be used for bodily injury and property damage in any combination, instead of separate per-person and per-accident caps. It offers more flexibility on large losses. Hook: combined single limit is one bucket for everything per accident.

The first claim is capped at the 25,000 per-person limit, the other two ($20,000 and $15,000) are under that cap and paid in full, summing to 60,000. But the 50,000 per-accident bodily injury limit caps the total payout at 50,000. Hook: apply the per-person cap first, then the per-accident cap can still trim the total.

Liability coverage includes the insurer's duty to defend the insured against covered claims, and those defense costs are usually paid in addition to the policy limits, not subtracted from them. Hook: liability buys you a lawyer, and the defense cost normally sits on top of your limit.

When repair cost exceeds the vehicle's actual cash value, the insurer totals the car and pays the ACV rather than the higher repair bill, less the deductible. Here that is 8,000 minus 500, or 7,500. Hook: if repairs cost more than the car is worth, you get ACV minus deductible, not the repair bill.

After a total loss, physical damage pays only the ACV, which can be less than what the insured still owes. Gap coverage pays that shortfall between the ACV and the outstanding loan or lease balance. Hook: gap covers the gap between what the car is worth and what you still owe.

The PAP excludes losses occurring while the auto is used in any prearranged or organized racing or speed contest, because that activity sharply increases the risk. Hook: take it to the track and the PAP taps out, racing is excluded.

Financial responsibility laws make drivers demonstrate the ability to pay for harm they cause, generally by carrying at least the state minimum liability limits. An SR-22 is a filing the insurer makes to confirm that coverage is in force. Hook: financial responsibility means prove you can pay, and SR-22 is the proof on file.

The common declarations identify who and what is insured: named insured, mailing address, policy period, a list of the coverage parts in the package, and the premium for each. Hook: the common dec is the who, when, and what of the whole package.

The common policy conditions, things like cancellation, changes, inspections, and transfer of rights, govern every coverage part in the package, while each part also has its own specific conditions. Hook: common conditions are common to all parts; specific conditions live in each part.

Business personal property is the contents the business owns and uses: furniture, fixtures, machinery, equipment, and stock (inventory) located at the described premises. The building itself is insured separately. Hook: business personal property is the contents, furniture, fixtures, machinery, and stock.

Commercial property attaches one of three causes-of-loss forms, Basic, Broad, or Special, to decide which perils are covered. They run narrowest to broadest. Hook: commercial causes of loss are Basic, Broad, Special.

Business income coverage replaces the net income (and continuing expenses like payroll) the business would have earned had a covered loss not suspended operations. It is time-element coverage. Hook: business income replaces the profit you lose while you are shut down.

The period of restoration runs from the date of the direct physical loss (after any waiting period) until the property is or should be repaired or replaced with reasonable speed. That window defines how long business income is paid. Hook: restoration runs from the loss to when repairs should be done.

Coverage C is goodwill medical payments: it pays reasonable medical bills for others injured on the premises or by the insured's operations, no fault required, which can prevent a larger liability claim. Hook: CGL Coverage C pays small injury bills no-fault, just like home med pay.

The general aggregate caps total payments for the policy period across most coverages, separate from the per-occurrence limit and from the products-completed operations aggregate. Hook: the general aggregate is the year's total ceiling, separate from each-occurrence.

Inland marine covers property that moves or is hard to value at a fixed location: contractors' equipment, fine arts, goods in transit, and similar floating risks. Despite the name, it is largely land-based. Hook: inland marine insures property on the move and hard-to-rate items.

Equipment breakdown, the modern boiler and machinery coverage, pays for sudden and accidental breakdown of boilers, pressure vessels, and mechanical or electrical equipment, plus resulting damage. Hook: equipment breakdown covers the machine blowing up, not wear and tear.

Although comp is no-fault, most statutes still allow benefits to be reduced or denied where the injury results from the worker's intoxication or willful misconduct. No-fault does not mean no defenses. Hook: no-fault still has limits, intoxication and willful misconduct can cut benefits.

Workers compensation medical benefits generally cover the full reasonable cost of treating the job injury, with no deductible and no overall dollar cap, unlike most health plans. Hook: comp medical is usually first-dollar and unlimited for the work injury.

Permanent partial disability (PPD) applies when the worker is left with a lasting impairment, such as the loss of use of a limb, but retains some ability to work. Benefits often follow a statutory schedule. Hook: permanent partial means a lasting impairment, but still able to work somewhat.

A fatal work injury triggers death benefits to the worker's surviving dependents (often a percentage of wages) along with a burial or funeral allowance set by statute. Hook: a fatal claim pays the dependents plus a burial allowance.

Vocational rehabilitation helps a worker who cannot return to the old job get back to gainful work, through retraining, job placement, or similar services. Hook: voc rehab is about getting the worker back to work, retrain and replace the income.

Part Two protects the employer against lawsuits for work-related injuries that escape the exclusive-remedy bar, such as a third-party-over action or a consequential injury claim by a family member. It backstops the gaps Part One does not address. Hook: Part Two catches the work-injury suits that slip past exclusive remedy.

Because workers compensation covers employees, a true independent contractor is normally not covered by the hiring firm's policy and is expected to carry their own. Misclassifying employees as contractors is a common compliance problem. Hook: real independent contractors are not on the hiring firm's comp.

A competitive state fund coexists with private insurers, so employers can choose between the fund and the private market. A monopolistic fund is the only option. Hook: competitive fund means you get a choice; monopolistic means you do not.

Monopolistic fund policies generally omit employers liability (Part Two), so the employer buys stop-gap employers liability, usually endorsed onto a CGL or BOP, to cover those liability suits. Hook: in monopolistic states, add stop-gap to fill the missing employers liability.

The Longshore and Harbor Workers Compensation Act (USL&H) covers maritime workers such as longshoremen and harbor workers who fall outside state workers comp. The Jones Act covers seamen and FELA covers railroad workers. Hook: dockworkers fall under USL&H, the Longshore act.

An umbrella sits on top of the home and auto policies, adding a high layer of liability limits and broadening coverage for some claims the underlying policies exclude. It is excess liability, not property coverage. Hook: the umbrella is extra liability stacked above your home and auto.

When a loss is covered by the umbrella but not the underlying policy, the insured pays a self-insured retention (much like a deductible) and the umbrella covers the rest. Hook: no underlying coverage means the umbrella kicks in after your self-insured retention.

A commercial umbrella adds limits above primary liability lines like CGL, business auto liability, and employers liability. It is excess liability, not excess property coverage. Hook: the commercial umbrella tops up the liability lines, not property.

NFIP flood coverage typically does not take effect until about 30 days after purchase, which discourages buying only when a flood is imminent. Limited exceptions apply (such as loan-related purchases). Hook: NFIP usually makes you wait about 30 days, no buying ahead of the storm.

Standard property forms exclude earth movement, but earthquake coverage can be added by endorsement or bought separately, commonly with a deductible expressed as a percentage of the dwelling limit rather than a flat dollar amount. The NFIP covers flood, not quake. Hook: earthquake is excluded but buy-back-able, usually with a percentage deductible.

A fidelity bond covers an employer for losses caused by dishonest employees, such as theft or embezzlement. It is about employee dishonesty, not third-party liability. Hook: fidelity bonds guard against the crooked employee.

A DIC policy is written alongside basic property coverage to fill gaps, commonly adding catastrophic perils such as flood and earthquake that the underlying policy excludes. It supplements rather than replaces. Hook: DIC fills the holes, often adding flood and quake to a property program.

Most insurance covers future accidental losses, but title insurance looks backward, covering title defects that already exist, and it is paid for with a one-time premium at closing. Hook: title insurance is paid once and looks backward at past defects.

Personal umbrellas typically start at $1,000,000 of additional liability and increase from there, giving high-net-worth and ordinary insureds a large cushion above their home and auto limits. Hook: personal umbrellas usually begin at a cool one million.

The residual or shared market is the insurer of last resort, providing coverage (auto through assigned risk plans, property through FAIR Plans) to applicants the voluntary market turns down. Hook: the residual market is the last resort for risks no one else will write.