Free Washington Insurance Adjuster Practice Questions

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.

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.

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.

A reciprocal (an unincorporated group of members who insure each other) is run by an attorney-in-fact. The members are both insureds and insurers to one another. Niche, but the exam likes the 'attorney-in-fact' detail, so tuck it away.

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.

Apparent authority is about appearances: what a reasonable customer believes the agent can do based on how the insurer let the agent act (business cards, signage, company applications). Express authority is spelled out in the contract; implied is what's needed to carry out the express. Apparent is the 'looks legit' bucket.

Premiums an agent collects belong to the insurer, not the agent, so the agent holds them in a fiduciary capacity, a position of financial trust. Mixing that money with personal funds (commingling) is a big no-no and a fast way to lose a license.

A contract of adhesion is written by one party (the insurer) and accepted as-is by the other, with no line-by-line negotiating. The practical kicker: because the insured didn't get to write it, any ambiguity is interpreted in the insured's favor. That's a courtroom rule worth knowing.

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.

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.

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.

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 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.

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.

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.

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 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.

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-4, the Contents Broad Form, is the renters or tenants policy. It covers the tenant's personal property and liability but not the building, which the landlord insures. Hook: HO-4 is the renters form, contents and liability, no building.

HO-6 covers condominium and co-op unit owners. It insures personal property and provides limited building coverage for improvements inside the unit, since the association's master policy covers the structure itself. Hook: HO-6 is the condo form, your belongings plus the walls-in.

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 B insures detached structures such as a garage, shed, or fence, usually for 10% of the Coverage A limit. The owner can raise it by endorsement if needed. Hook: Coverage B is detached structures, normally 10% of the dwelling limit.

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.

Medical Payments covers others, not the named insured or regular household residents. Their own injuries fall outside this coverage and would be handled by their own health insurance. Hook: Coverage F is for others, never the insured or household members.

By default, Coverage C pays actual cash value, replacement cost minus depreciation, for personal property. A replacement-cost-on-contents endorsement upgrades it to pay full replacement with no depreciation. Hook: contents default to ACV; add the endorsement to get replacement cost.

The loss settlement condition usually requires carrying at least 80% of the dwelling's replacement cost to be paid full replacement cost on partial losses. Carry less and the payout is reduced. Hook: insure the dwelling to at least 80% of replacement cost to get full replacement on partial losses.

Underinsuring below 80% drops the insured to the larger of the actual cash value of the loss or a reduced amount figured by the loss-settlement proportion, but never the full replacement cost. Hook: under 80%, you fall back to the greater of ACV or the prorated amount, not full replacement.

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.

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.

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.

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.

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.

UIM fills the gap when the at-fault driver does carry liability insurance but the limits run out before the insured's injuries are fully paid. It picks up where the other driver's insufficient coverage stops. Hook: underinsured means they had some coverage, just not enough, and UIM bridges the shortfall.

Rental reimbursement (transportation expense) coverage pays a daily amount for a rental car while the insured's vehicle is being repaired or replaced after a covered loss, usually subject to a daily and total cap. Hook: rental reimbursement keeps you on the road while your car is in the shop.

Insurance covers fortuitous, accidental losses, so intentional damage caused by the insured is excluded. Allowing it would invite fraud and is against public policy. Hook: on-purpose damage is never covered, insurance is for accidents.

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.

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 DP-3 Special Form insures the dwelling and other structures on an open-perils basis, meaning all causes of loss are covered except those specifically excluded. It is the broadest of the dwelling forms. Hook: DP-3 is special, open perils on the structure.

Coverage C is personal property belonging to the named insured. On a rental dwelling it covers the owner's property at the location, not the tenant's belongings, which the tenant insures separately. Hook: Coverage C is personal property, the insured's stuff.

Extended Coverage adds the classic EC perils: windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles, and smoke. Flood, earthquake, and war stay excluded. Hook: EC adds the WHARVES-style perils, wind, hail, aircraft, riot, vehicles, explosion, smoke.

VMM is not automatic on the DP-1; it is commonly added by endorsement, while the broader DP-2 and DP-3 include it. Vacant dwellings may have VMM restricted. Hook: VMM is an add-on for the DP-1, built into the broader forms.

The DP-2 Broad Form expands the named-perils list well beyond the DP-1, adding perils like weight of ice and snow, accidental water discharge, and falling objects. It remains named perils, just a longer list. Hook: DP-2 is still named perils, just a much longer list than DP-1.

Dwelling forms do not build in theft the way homeowners does; theft is added by endorsement, and the coverage is broader for owner-occupied dwellings than for rentals. Hook: theft is not standard on a DP; add it by endorsement.

The dwelling policy leaves out three things homeowners builds in: liability, theft, and medical payments. Each can be added by endorsement, but none is automatic. Hook: a DP skips liability, theft, and med pay unless you add them.

Seasonal and secondary residences often fail homeowners occupancy requirements, so they are written on a dwelling policy instead. Hook: the vacation or seasonal home usually lands on a dwelling policy.

The DP-1 Basic Form sits at the bottom of the ladder, with the fewest perils and ACV settlement. The DP-2 is broader and the DP-3 is broadest. Hook: DP-1 is the floor, the narrowest dwelling form.

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 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.

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.

Extra expense pays the added costs of staying open or reopening sooner, such as renting a temporary location or leasing equipment, which can reduce the business income loss. Hook: extra expense is the money spent to keep the doors open after a loss.

CGL Coverage A is the core: bodily injury and property damage liability arising out of the insured's premises, operations, products, and completed operations. Hook: CGL Coverage A is bodily injury and property damage liability.

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.

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.

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.

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.

Auto dealers, banks and financial institutions, and bars or similar amusement places are typically excluded from the BOP because of their distinct hazards. Offices, apartments, and small retail are eligible. Hook: car lots, banks, and bars are classic BOP no-gos.

BOPs typically settle covered property losses on a replacement cost basis, paying to repair or replace without deducting depreciation, which is a selling point over ACV forms. Hook: BOP property is usually replacement cost, no depreciation taken.

The BOP builds in business income and extra expense automatically, so a covered shutdown is protected without the owner having to remember to add the coverage. That is a key BOP advantage for small businesses. Hook: business income comes built into the BOP, no add-on needed.

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.

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.

The BOP excludes most owned autos, so a business with vehicles needs a separate commercial (business) auto policy for liability and physical damage on its fleet. Hook: BOP leaves out the autos, buy commercial auto separately.

Apartments, offices, and small mercantile (retail) operations are the staple eligible classes the BOP was designed for. Hook: apartments, offices, and small retail are the textbook eligible BOP classes.

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.

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.

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.

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.

The experience mod compares an employer's actual losses with those expected for its class. A mod above 1.0 raises premium, below 1.0 lowers it, rewarding good safety records. Hook: the experience mod credits or debits you for your own loss history.

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.

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.

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.

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.

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.

Hull coverage insures the vessel itself against physical damage, much like physical damage coverage on an auto. Cargo, freight, and protection and indemnity cover other ocean marine exposures. Hook: hull is the boat itself, the ship's physical damage.

Protection and indemnity (P&I) is the liability portion of ocean marine, covering the owner's legal liability for bodily injury and property damage arising from the vessel, including crew injury and damage to other ships. Hull covers the vessel, cargo covers the goods, P&I covers the liability. Hook: P&I is the liability piece of ocean marine.

Aviation risks (hull and liability for aircraft) are excluded from standard personal lines and must be written on specialized aviation policies. Hook: planes need aviation insurance, never the home or auto policy.

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.

Title insurance covers losses from title defects, such as liens, errors in records, or competing ownership claims, that already existed but surface after the property is bought. Hook: title insurance protects against ownership defects hiding in the property's past.

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.

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.