Free West Virginia Insurance Adjuster Practice Questions

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.

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.

Treaty reinsurance is the automatic, blanket deal: the reinsurer agrees in advance to take a whole category of risks. Facultative is the opposite, case-by-case, where the reinsurer can accept or decline each risk individually. Treaty equals automatic and broad; facultative equals optional and specific.

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.

Participating policies 'participate' in the insurer's profits by paying policy dividends, and are typically issued by mutual companies. Nonparticipating policies don't pay dividends and are typically issued by stock companies. The word 'participate' is your tell.

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.

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.

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.

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.

Strict (absolute) liability holds a party responsible for harm without proof of negligence or fault, typically for inherently dangerous activities (like blasting) or, in some contexts, defective products. Hook: strict liability means liable even without fault.

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.

An excess provision makes that policy pay only after other primary coverage has been used up; it sits on top as a second layer. Hook: excess coverage waits its turn, paying only after the primary is exhausted.

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.

When an insurer pays for a loss, it generally gains rights to the salvage, the damaged property, which it can then sell to recover part of what it paid. Hook: salvage is the leftover the insurer can sell after paying the claim.

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.

HO-8 fits older homes whose replacement cost far exceeds market value. It settles dwelling losses on a modified, functional, or actual cash value basis instead of full replacement cost, which keeps the coverage affordable and realistic. Hook: HO-8 is for older homes and pays on a modified or ACV basis, not full replacement.

The HO-2 Broad Form covers both the dwelling and personal property on a named-perils basis, using the broad list of covered perils. It is narrower than the HO-3, which opens the dwelling up to open perils. Hook: HO-2 is named perils on everything, the broad list applied to both house and contents.

The dwelling under Coverage A is generally settled on a replacement cost basis, as long as the insured carries at least the required percentage, usually 80%, of replacement cost. Personal property defaults to actual cash value unless a replacement-cost endorsement is added. Hook: the dwelling is replacement cost if insured to value; contents default to ACV.

The base liability section covers bodily injury and property damage. A personal injury endorsement broadens it to cover offenses such as libel, slander, defamation, and invasion of privacy. Hook: the personal injury endorsement adds the reputation harms, libel and slander.

Coverage C follows the insured's personal property anywhere in the world, so belongings are covered while traveling or temporarily off premises, often subject to a percentage limit when away from home. Hook: your stuff is covered worldwide, not only at the house.

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.

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.

After a covered loss, current building codes may require costlier rebuilding than the original construction. An ordinance or law endorsement covers that added expense, which the base policy may limit or exclude. Hook: ordinance or law pays the code-upgrade costs when you rebuild.

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.

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.

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.

Other-than-collision, often called comprehensive, covers the non-crash perils: theft, fire, hail, falling objects, vandalism, glass breakage, and animal strikes. Crashing or overturning is collision, not comprehensive. Hook: comprehensive is everything but the crash, fire, theft, hail, and Bambi.

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.

Hitting an animal is treated as an other-than-collision (comprehensive) loss, not a collision, even though there is an impact. This usually means the comprehensive deductible applies. Hook: hitting an animal is comprehensive, not collision.

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.

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 dwelling policy is built for residences that fall outside standard homeowners eligibility, especially rentals and non-owner-occupied homes, plus seasonal or older dwellings. Homeowners forms assume the owner lives there. Hook: the DP is the rental and non-owner-occupied house policy.

Coverage D, Fair Rental Value, reimburses the owner for lost rental income when a covered loss makes a rented (or rentable) dwelling unfit to live in, for the time needed to repair it. Hook: lost rent on a rental goes to Coverage D, Fair Rental Value.

In its base form the DP-1 covers fire, lightning, and internal explosion. Extended Coverage and optional endorsements broaden it from there. Hook: the bare DP-1 starts with fire, lightning, and internal explosion.

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.

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.

Like the HO-3, the DP-3 splits its basis: the dwelling and other structures get open perils, but personal property is covered on a named-perils basis. Hook: DP-3 is open perils on the building, named perils on the contents, just like HO-3.

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.

Because the dwelling policy is property-focused, liability and medical payments are not built in; they are added through a personal liability supplement or endorsement when the insured wants them. Hook: want liability and med pay on a DP, add the liability endorsement.

Like homeowners, dwelling policies exclude flood and earth movement (including earthquake). Flood is insured through the NFIP or a private flood policy, and earthquake can be added by endorsement or separate policy. Hook: DP and HO both exclude flood and earth movement, buy those separately.

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.

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.

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.

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.

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.

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.

An occurrence form responds based on when the injury or damage took place. If it happened during the policy period, it is covered even if the claim surfaces years later. Hook: occurrence form looks at when it happened, not when it is reported.

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.

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.

A CPP is built piece by piece from chosen coverage parts and suits a wide range of businesses, while a BOP is a standardized bundle of property and liability designed for eligible small to mid-size businesses. Hook: CPP is build-your-own; BOP is the prepackaged 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.

A defining simplification of the BOP is that it usually has no coinsurance clause, so the insured is not penalized for underinsuring the way a coinsurance form would penalize them. Insuring to value is still wise but not enforced by a coinsurance penalty. Hook: the BOP drops the coinsurance clause, no did/should penalty.

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.

A customer hurt on the premises is a third-party bodily injury claim, handled under the BOP liability section (with small medical bills possibly paid under medical payments). Hook: a hurt customer is a liability claim, not a property claim.

Flood and earth movement (including earthquake) are excluded under a BOP just as under other property forms, and must be insured separately. Fire, theft, and vandalism are typically covered. Hook: BOP still excludes flood and earthquake, buy those separately.

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.

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.

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.

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 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.

Workers compensation rates are quoted as a dollar rate per $100 of payroll for each classification, so payroll drives the premium. Hook: comp rates are dollars per $100 of payroll.

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 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.

Second Injury Funds limit an employer's liability when a new work injury combines with a worker's prior impairment to cause a greater disability, removing a disincentive to hire workers with pre-existing conditions. Hook: second injury funds make it safer to hire workers with prior impairments.

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.

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.

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.

Homeowners policies give limited coverage for small, low-powered watercraft, but larger or faster boats require a dedicated boatowners or yacht policy. Hook: little boats may ride on the homeowners; real boats need their own policy.

Large or powerful vessels exceed the homeowners watercraft limits and exclusions, so their liability and physical damage belong on a dedicated boatowners or yacht policy. Hook: the bigger the boat, the more it needs its own watercraft policy.

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.

Unlike insurance, a surety expects the principal to ultimately bear the loss, so after paying the obligee the surety can seek reimbursement from the principal. Hook: the surety pays, then comes back to the principal to be repaid.

A performance bond is a surety bond guaranteeing the contractor will complete the project according to the contract; if not, the surety makes the obligee whole. Hook: performance bonds guarantee the job gets finished.

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.

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.