Free South Carolina Insurance Adjuster Practice Questions

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.

Adverse selection is the insurer's headache: the people most likely to have a loss are also the most eager to buy and keep coverage. If underwriting didn't push back, the risk pool would fill up with bad risks and the math would collapse. It's exactly why underwriting and exclusions exist.

Reinsurance is insurance for insurance companies. The original insurer (the ceding company) hands off part of its risk to a reinsurer so one giant loss doesn't sink it. Individuals never deal with reinsurers directly; it all happens behind the scenes between carriers.

A stock insurer is owned by its stockholders (shareholders), who receive taxable dividends when the company profits. Policyholders are just customers. Contrast that with a mutual insurer, which is owned by its policyholders. Stock equals stockholders; mutual equals members/policyholders.

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.

Aleatory means the exchange of value can be lopsided and depends on chance. You might pay $600 in premium and collect $200,000 on a claim, or pay for years and never file one. That built-in inequality, hinging on whether a loss happens, is what makes the contract aleatory.

Representations are statements the applicant believes are true, and they only need to be true to the best of the applicant's knowledge. A warranty is a stronger animal: it's guaranteed to be absolutely true. Concealment is hiding a material fact. For most applications, you're dealing with representations.

Concealment is staying silent about a material fact you know the insurer would want, and if it's intentional, it can void the policy. It's the sin-of-omission version of misrepresentation (which is an active false statement). Both turn on the fact being 'material,' meaning it would have affected the insurer's decision.

A waiver is voluntarily surrendering a known right, say, an insurer choosing not to enforce a policy condition. Estoppel is the follow-on: once you've waived something, you can be legally prevented (estopped) from later trying to enforce it. Waiver is the giving up; estoppel is being held to it.

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.

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.

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.

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.

The deductible is the amount the insured absorbs on each loss, which screens out small, frequent claims and reduces the premium. Hook: the deductible knocks out the small stuff and trims your premium.

Property insurance is first-party (it pays the insured for their own loss), while liability insurance is third-party: it pays others the insured has harmed and is legally responsible to. The three parties are the insured, the insurer, and the injured third party. Hook: liability pays the third party you injured, not yourself.

Negligence is the failure to act with the care a reasonable, prudent person would under the same circumstances. It's the foundation of most liability claims and is unintentional, unlike an intentional tort. Hook: negligence is falling short of the reasonable-person standard of care.

A pro rata provision splits a loss among insurers in proportion to each policy's limit, so a policy carrying half the total coverage pays half the loss. It keeps the insured from collecting more than the actual loss. Hook: pro rata splits the loss by each policy's share of the total limits.

A moral hazard arises from a person's character, a dishonest tendency that increases risk, such as someone who would intentionally cause or exaggerate a loss to collect. Hook: moral hazard is dishonesty, the intent to cheat the insurer.

HO-3 insures the dwelling and other structures on an open-perils basis (covered unless excluded) but covers personal property on a named-perils basis. That split is the reason it is the go-to homeowners form. Hook: HO-3 is open perils on the house, named perils on the stuff inside.

Both forms cover the dwelling on open perils, but the HO-5 upgrades personal property to open perils as well, while the HO-3 keeps personal property on named perils. The HO-5 is the broadest standard homeowners form. Hook: HO-5 takes the HO-3 and upgrades the contents to open perils too.

Coverage D pays additional living expenses and fair rental value when a covered loss makes the home unfit to live in, covering the extra cost of hotels, meals, and similar expenses while repairs are made. Hook: Coverage D keeps a roof over your head, the extra living costs while your home is fixed.

Section I is the property side, Coverages A through D (dwelling, other structures, personal property, loss of use). Section II is the liability side, Coverages E and F (personal liability and medical payments). Hook: Section I is property A through D; Section II is liability E and F.

Coverage F is a no-fault, goodwill coverage that pays reasonable medical expenses for others accidentally injured on the insured's premises, regardless of fault, which often heads off a larger liability claim. Coverage E, by contrast, requires legal liability. Hook: Coverage F pays guests' medical bills no-fault; Coverage E needs you to be legally liable.

Standard homeowners forms require the dwelling to be owner-occupied, meaning it is the insured's residence. Non-owner-occupied or rental dwellings are insured under a dwelling policy instead. Hook: homeowners forms are for owner-occupied homes; rentals go on a dwelling policy.

Coverage D responds when a covered peril renders the home unfit to live in, paying the additional living expenses incurred while it is repaired or rebuilt. A voluntary remodel does not trigger it. Hook: Loss of Use kicks in when a covered loss forces you out, not when you choose to leave.

Flood is excluded from homeowners policies and must be insured separately, usually through the National Flood Insurance Program (NFIP) or a private flood policy. Earth movement such as earthquake is likewise excluded. Hook: homeowners never covers flood, that is a separate NFIP policy.

Earth movement, including earthquake, is excluded by the standard homeowners policy, but the insured can usually add earthquake coverage by endorsement or buy a separate earthquake policy. Hook: earthquake is excluded but can be bought back by endorsement.

Standard policies exclude water that backs up through sewers or drains, but a water backup endorsement adds that coverage up to a selected limit. It is separate from flood, which is surface water. Hook: sewer backup needs the water backup endorsement; surface flooding needs NFIP.

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 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.

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.

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.

UM coverage steps in when an at-fault driver has no liability insurance (or cannot be identified, as in a hit-and-run), paying the insured for injuries the other driver should have covered. Hook: uninsured motorist covers you when the at-fault driver has zero insurance.

UM bodily injury pays for the insured's injuries caused by an at-fault driver who is uninsured or who flees the scene. Whether UM also covers property damage varies by state. Hook: UM-BI is for your injuries when the other driver is uninsured or a hit-and-run.

A deductible is the insured's share of each physical damage loss, paid before the insurer pays the remainder. Choosing a higher deductible lowers the premium. Hook: the deductible is your slice of the loss you pay first.

Auto physical damage is normally paid on an actual cash value basis, which is replacement cost minus depreciation, reflecting the car's worth at the moment of loss. Vehicles lose value over time, so ACV is usually less than what was paid. Hook: cars are paid ACV, depreciated value, not what you paid for them.

In a no-fault system, each injured party turns to their own Personal Injury Protection coverage for medical bills and related expenses without first proving who was at fault, which speeds payment and limits lawsuits. Hook: no-fault means you collect from your own PIP, no blame needed.

Unlike the homeowners policy, the dwelling policy is primarily a property form and does not build in personal liability. An insured who wants it adds a liability endorsement. Hook: the DP is property-only out of the box; liability is a bolt-on.

The dwelling program has three standard forms: DP-1 Basic, DP-2 Broad, and DP-3 Special, in increasing order of coverage breadth. The HO numbers belong to the homeowners program. Hook: dwelling forms are 1 Basic, 2 Broad, 3 Special.

Among dwelling forms, the DP-3 gives the broadest protection on the structure by covering open perils. The DP-2 is broad but still named-perils, and the DP-1 is the narrowest. Hook: broadest dwelling form is the DP-3, open perils on the building.

Coverage E is Additional Living Expense, paying the extra costs an owner-occupant runs up living elsewhere while a covered loss is repaired. Coverage D, by contrast, is for lost rent on a rented dwelling. Hook: Coverage E is ALE for the owner who lives there; Coverage D is lost rent for a rental.

Coverage B is Other Structures, covering detached structures on the premises like a freestanding garage, shed, or fence, just as it does on a homeowners form. Hook: Coverage B is the detached structures, the same in DP and HO.

When a DP-2 or DP-3 dwelling is insured to the required percentage of replacement cost (commonly 80%), partial losses are paid at replacement cost without a depreciation deduction. Underinsuring drops the insured back toward ACV or a prorated amount. Hook: insure a DP-3 to value and partial losses pay full replacement cost.

Settlement basis is a major dividing line: the DP-1 pays ACV on the dwelling, while the broader DP-2 and DP-3 pay replacement cost when the insured carries enough coverage. Hook: DP-1 means ACV; DP-2 and DP-3 mean replacement cost.

Dwelling policies are flexible on occupancy: they can cover owner-occupied, tenant-occupied, or even vacant dwellings, with endorsements and conditions adjusting the coverage for each situation. Hook: a DP can insure owner-occupied, rented, or vacant homes.

Coverage C protects the named insured's (owner's) personal property kept at the dwelling, like appliances or upkeep equipment. The tenant insures their own belongings under a renters (HO-4) policy. Hook: on a rental DP, Coverage C is the owner's property; the tenant buys HO-4.

The DP-2 keeps the named-perils approach but lengthens the peril list and, unlike the DP-1, settles the dwelling on a replacement cost basis. Open perils is the DP-3, not the DP-2. Hook: DP-2 adds perils and upgrades the dwelling to replacement cost, still named perils.

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.

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 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 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.

Building coverage takes in the structure, completed additions, permanently installed fixtures and machinery, and equipment used to maintain or service the building (like heating and air conditioning). Movable contents and stock are business personal property instead. Hook: building is the structure plus what is bolted in to run it.

Coverage B covers personal and advertising injury offenses: libel, slander, false arrest, wrongful eviction, and infringing on copyright or slogans in the insured's advertising. Hook: Coverage B is the reputation and advertising offenses, libel and slander.

A claims-made form is triggered by when the claim is first reported, not when the injury happened, and a retroactive date sets the earliest loss date it will respond to. Extended reporting (tail) coverage can fill gaps at expiration. Hook: claims-made looks at when the claim is reported, bounded by the retro date.

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.

The commercial crime coverage part handles dishonesty and theft exposures, including employee theft, forgery, robbery, and theft of money and securities. Hook: theft, forgery, and employee dishonesty live in the crime coverage part.

Where the CPP is built piece by piece and fits businesses of any size, the BOP is a ready-made bundle designed for eligible small to mid-size firms, trading flexibility for simplicity. Hook: CPP is build-your-own; BOP is the ready-made small-business bundle.

BOPs are filed for eligible classes of small to mid-size businesses and screen on factors like size and type of operation. Risks that are too large or in an excluded class go on a CPP instead. Hook: BOPs are for eligible smaller businesses, not everyone.

Classic eligible BOP classes include small offices, retail and mercantile stores, and apartment buildings. Auto dealers, financial institutions, and heavy manufacturers fall outside the eligible classes. Hook: offices, shops, and apartments are bread-and-butter BOP risks.

BOP programs cap eligibility by size, commonly using floor area and annual gross sales or receipts for the class. Exceed the thresholds and the risk must move to a CPP. Hook: square footage and sales are eligibility gates, too big and it is a CPP.

BOP property coverage protects the business's building (if owned) and its business personal property, such as contents and stock, at the described premises. Hook: BOP property is the building and the business contents.

BOPs bundle several automatic additional coverages, such as debris removal and limited money and securities coverage. Workers comp, professional liability, and auto are not part of the BOP. Hook: BOP throws in extras like debris removal and a little money and securities.

Built-in business income means a covered shutdown is protected by default, which guards against the common small-business mistake of forgetting to purchase interruption coverage. Hook: built-in business income protects owners who would otherwise forget to buy it.

Workers compensation is never part of a BOP; it is written on a separate workers comp policy. The BOP does include property, liability, and business income. Hook: a BOP has no workers comp, that is always a separate policy.

While the BOP is standardized, insurers offer optional coverages and endorsements (for example, equipment breakdown or hired and non-owned auto) to tailor it to a business's needs. Hook: tailor the BOP with optional coverages and endorsements.

Bundling the core coverages into one BOP reduces the chance of gaps, simplifies administration, and usually costs less than separate policies, which is the whole appeal for a small business. Hook: one bundled BOP means fewer gaps, less hassle, and lower cost.

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.

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.

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.

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.

Part One has no dollar limit because it pays statutory benefits, but Part Two, being liability coverage, carries stated dollar limits (for each accident, by disease policy limit, and by disease per employee). Hook: Part One is unlimited statute; Part Two is liability with dollar limits.

Workers compensation premium is driven by payroll and the job classifications of the workers, since riskier classes carry higher rates. Premium is typically a rate applied to payroll. Hook: comp premium rides on payroll and job classification.

Many states let sole proprietors, partners, and corporate officers opt out of their own workers compensation coverage or elect to be included, since they are owners rather than ordinary employees. Hook: owners can often opt in or out of their own comp coverage.

In a monopolistic state, workers compensation must be purchased from the state fund, and private insurers do not write the coverage there. Hook: monopolistic means one seller, the state fund.

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.

The core bargain is certainty for the worker (guaranteed no-fault benefits) traded for giving up the right to sue the employer, which also caps the employer's exposure. Hook: certain benefits for the worker, no lawsuit for the employer, that is the deal.

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.

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.

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.

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.

Inland marine grew out of ocean marine to cover property that moves over land or is hard to insure at a fixed site, plus transportation instrumentalities like bridges and tunnels. Hook: inland marine is property on the move over land, not on the sea.

Because they are driven on the road, motor homes and RVs need auto-style liability and physical damage coverage, often on a specialized RV policy that also addresses their living-quarters contents. Hook: if it drives on the road, it needs auto-type coverage, even a motor home.

The obligee is the party protected by the bond, the one the principal must perform for. The principal is the one who must perform, and the surety backs that promise. Hook: the obligee is owed the obligation, the one the bond protects.

FAIR Plans are state residual-market programs that make basic property insurance available to applicants who cannot get it in the voluntary market, often because of location or risk. Hook: FAIR Plans are the property safety net for hard-to-insure risks.

A farm policy blends personal and business exposures, covering the farm dwelling and personal property along with barns, equipment, livestock, and farm liability, because a farm is both a home and a business. Hook: farm coverage mixes the home and the business under one roof.

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.