Free Louisiana 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.

Keep these three straight and you'll bank easy points all day: a peril is the cause of loss (fire, wind, theft), a hazard is something that increases the chance or severity of that loss, and risk is the uncertainty of loss itself. The peril is the thing that actually does the damage.

A hazard doesn't cause the loss itself; it just makes a loss more likely or more severe. Icy steps, frayed wiring, a careless attitude: none of those start the fire or the fall, but they tip the odds. Causes of loss are perils; hazards just stack the deck.

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.

Insurers like risks that are accidental (due to chance, not intentional) and definite and measurable (you can pin down when, where, and how much). Add in 'predictable for large groups,' 'not catastrophic to the insurer,' and 'affordable premium,' and you've got the recipe for an insurable risk. A loss someone causes on purpose? Not insurable.

ACV pays what the damaged property was actually worth at the time of loss: replacement cost minus depreciation for age and wear. It leaves the insured to absorb the depreciation. Hook: ACV equals replacement cost minus depreciation, today's worn-down value.

Replacement cost coverage pays to rebuild or replace with new property of like kind and quality, with no depreciation subtracted, so the insured isn't out-of-pocket for wear and tear. It usually requires meeting a coinsurance or insurance-to-value condition. Hook: replacement cost pays new-for-old, depreciation ignored.

Market value reflects what the property would sell for, including the land and location-driven demand, while replacement cost is purely the cost to rebuild the structure. The two can differ widely. Hook: market value includes the land and the neighborhood; replacement cost is just bricks and labor.

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.

With agreed value, the parties set the insured amount up front (often for hard-to-value items like fine art), and that agreed figure is paid for a total loss, with the coinsurance requirement waived. Hook: agreed value locks in the payout amount ahead of time, no coinsurance fight later.

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.

A named perils policy covers only the perils it specifically lists, such as fire, lightning, windstorm, or theft. If the cause isn't named, there's no coverage. Hook: named perils covers only what's on the list.

Open perils coverage protects against all direct physical losses unless a peril is specifically excluded, making it broader than named perils. The exclusions list defines what's left out. Hook: open perils covers everything except what's specifically excluded.

A direct loss is the immediate physical damage a peril causes, like a fire burning a building. It contrasts with indirect (consequential) losses that follow from it. Hook: direct loss is the physical damage itself, the fire burning the house.

An indirect, or consequential, loss is the financial fallout that follows a direct loss, like the income a business loses while closed for repairs. Business income (interruption) coverage addresses it. Hook: indirect loss is the ripple effect, the income lost after the physical damage.

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.

Part B is Medical Payments coverage, which pays reasonable medical expenses for the insured and passengers hurt in an auto accident, regardless of fault. Hook: Part B is for bodies, the medical payments part.

Part C is Uninsured/Underinsured Motorist coverage, which protects the insured when an at-fault driver has no liability insurance or not enough of it. Hook: Part C covers you when the other driver Can't pay.

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.

In split limits the first number is the per-person bodily injury cap, the second is the per-accident bodily injury cap, and the third is the property damage cap per accident. So 100/300/50 is 100,000 per person, 300,000 per accident, 50,000 for property. Hook: split limits read per person, per accident, then property damage.

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.

Medical Payments is a no-fault coverage that pays reasonable and necessary medical (and sometimes funeral) expenses for the insured and occupants of the covered auto, no matter who caused the accident. Hook: Med Pay pays your people's medical bills, fault not required.

A CPP is a package because it bundles two or more commercial coverage parts, such as property and general liability, under one policy with shared declarations and conditions. Hook: package means two or more coverage parts in one policy.

A monoline policy covers a single line of business, such as property alone. Add a second coverage part and it becomes a package. Hook: one line is monoline; two or more is a package.

Packaging usually lowers the premium (a package credit) and reduces the chance of gaps or overlaps between separately written policies. It does not erase deductibles, conditions, or exclusions. Hook: packages save money and close the gaps between separate policies.

Each coverage part is itself built from a declarations page, coverage form(s), a causes-of-loss form (for property), and applicable conditions, all sitting under the shared common declarations and common conditions. Hook: a coverage part stacks its own dec, coverage form, causes-of-loss, and conditions.

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.

The Inspections and Surveys condition reserves the insurer's right (but not a duty) to inspect the premises and operations and to make safety recommendations. Hook: the right to walk the premises lives in Inspections and Surveys.

The first named insured may cancel by mailing or delivering notice, and the insurer may cancel by sending advance written notice (the number of days is set by the condition and state law). The first named insured acts on behalf of all insureds. Hook: the first named insured cancels by notice; the insurer cancels with advance written notice.

The BPP is the workhorse coverage form of the commercial property coverage part, insuring buildings and business personal property. Hook: the BPP is the heart of the commercial property 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.

Workers compensation pays benefits to employees who are injured or become ill because of their job. It is employee coverage, not customer or personal coverage. Hook: workers comp is for employees hurt on the job.

Under workers compensation, an injured worker collects benefits without proving the employer was negligent, and benefits are generally owed even if the worker was careless. Fault is set aside. Hook: no-fault means benefits flow without proving blame.

The grand bargain of workers compensation: the worker gets prompt, certain benefits and in return gives up the right to sue the employer in court over the work injury. Hook: guaranteed benefits in, the right to sue the employer out, that is exclusive remedy.

Benefit types and amounts are set by each state's workers compensation statute, which is why the policy promises to pay whatever the law requires rather than a chosen dollar limit. Hook: the state statute, not the employer, sets the benefits.

The two-part test is that the injury must arise out of the employment (be connected to job duties) and occur in the course of employment (during work). Both prongs generally must be met. Hook: covered injuries arise out of and happen in the course of the job.

Workers compensation covers not just sudden accidents but also occupational diseases, illnesses that develop from job conditions over time, such as repetitive stress or exposure to harmful substances. Hook: comp covers both the sudden accident and the slow occupational disease.

Under the going-and-coming rule, an ordinary commute is normally not in the course of employment, so a commuting injury usually is not covered (special exceptions can apply, such as travel that is part of the job). Hook: the normal commute is off the clock for comp purposes.

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.

Temporary total disability (TTD) replaces a portion of wages while the worker is fully unable to work but is expected to recover and return. Once recovery plateaus, the case may move to a permanent classification. Hook: temporary total is off work now, expected back later.

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.

Umbrellas require the insured to carry stated minimum underlying limits (for example on auto and homeowners liability). The umbrella then picks up above those limits. Hook: keep your required underlying limits, or the umbrella will not sit on top.

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.

Because flood is excluded from standard property forms, owners buy it through the NFIP or a private flood insurer. Hook: flood is its own policy, NFIP or private, never the homeowners form.

The NFIP is a federal program run through FEMA, offering flood insurance in communities that adopt and enforce floodplain management rules. Private insurers may sell and service it under write-your-own arrangements. Hook: NFIP is federal flood insurance, available where the community participates.

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.

Scheduling valuables like jewelry, furs, or fine arts is done on a personal articles floater, which is a personal inland marine form. Hook: the personal articles floater is inland marine for your valuables.

A floater insures scheduled items for an agreed or appraised value on a broad, open-perils basis, getting past the low special theft sublimits a homeowners policy places on jewelry. Hook: schedule the ring on a floater to beat the homeowners jewelry sublimit.