PSI Insurance Exam Practice 3 — Questions and Answers
Question 1: A commercial general liability (CGL) policy written on a 'claims-made' basis covers claims:
- Only if the injury occurs and is reported during the policy period (Correct answer)
- When the injury occurs during the policy period regardless of when reported
- Only for products sold before policy inception
- Only for intentional acts by employees
Correct answer: Only if the injury occurs and is reported during the policy period
A claims-made policy covers claims that are both made (reported) during the active policy period, making the reporting date critical.
Question 2: The 'incontestability clause' in a life insurance policy prevents the insurer from voiding the policy for misrepresentation after:
- 6 months
- 1 year
- 2 years (Correct answer)
- 5 years
Correct answer: 2 years
After the incontestability period (typically 2 years), the insurer cannot contest the policy's validity based on misstatements in the application.
Question 3: Which auto insurance coverage pays for the insured's own vehicle damage when colliding with another object?
- Comprehensive
- Collision (Correct answer)
- Uninsured motorist property damage
- Medical payments
Correct answer: Collision
Collision coverage pays for damage to the insured's vehicle resulting from impact with another vehicle or object, regardless of fault.
Question 4: A person who is licensed to sell insurance and represents the insured rather than the insurance company is called a(n):
- Captive agent
- Broker (Correct answer)
- Managing general agent
- Surplus lines agent
Correct answer: Broker
A broker represents the insurance buyer (insured) and shops the market on their behalf, owing fiduciary duty to the client rather than to any one insurer.
Question 5: Under the Social Security definition used in many disability income policies, total disability means the inability to perform:
- Any occupation for which the insured is reasonably suited (Correct answer)
- The insured's own occupation only
- Any type of work whatsoever
- Part-time work in any field
Correct answer: Any occupation for which the insured is reasonably suited
Social Security's strict definition of disability requires the inability to engage in any substantial gainful activity due to a medically determinable condition expected to last at least 12 months or result in death.
Question 6: Which provision in a health insurance policy requires the insurer to renew coverage as long as premiums are paid, but allows rate increases for an entire class of insureds?
- Noncancellable
- Guaranteed renewable (Correct answer)
- Conditionally renewable
- Optionally renewable
Correct answer: Guaranteed renewable
A guaranteed renewable policy cannot be cancelled as long as premiums are paid, but the insurer may raise rates for an entire class—not for a single insured.
Question 7: The 'principle of indemnity' in insurance means that after a covered loss, the insured should be:
- Placed in a better financial position than before the loss
- Compensated with double the loss amount as a penalty to the insurer
- Restored to approximately the same financial position as before the loss (Correct answer)
- Required to split the recovery with the insurer
Correct answer: Restored to approximately the same financial position as before the loss
Indemnity prevents the insured from profiting from a loss; the goal is restoration to the pre-loss financial condition, not a windfall.
PSI Insurance Exam Practice 3
A commercial general liability (CGL) policy written on a 'claims-made' basis covers claims: