PSI Knowledge Exam 3 — Questions and Answers
Question 1: Which insurance principle states that a policyholder should not profit from an insurance claim?
- Principle of utmost good faith
- Principle of indemnity (Correct answer)
- Principle of insurable interest
- Principle of contribution
Correct answer: Principle of indemnity
The principle of indemnity holds that insurance should restore the insured to their pre-loss financial position, not allow them to profit from a loss.
Question 2: A real estate listing agreement in which the seller must pay a commission regardless of who sells the property is called a(n):
- Open listing
- Exclusive agency listing
- Exclusive right-to-sell listing (Correct answer)
- Net listing
Correct answer: Exclusive right-to-sell listing
An exclusive right-to-sell listing guarantees the listing broker a commission if the property sells during the listing period, regardless of who procures the buyer.
Question 3: In the context of contractor licensing, what does 'surety bond' protect?
- The contractor against workplace injuries
- The public and clients if the contractor fails to fulfill contractual obligations (Correct answer)
- The contractor's tools and equipment
- The contractor against license revocation
Correct answer: The public and clients if the contractor fails to fulfill contractual obligations
A surety bond protects consumers and project owners by providing financial compensation if a contractor fails to complete work or meet contractual terms.
Question 4: Which type of life insurance policy builds cash value over time?
- Term life
- Decreasing term
- Annual renewable term
- Whole life (Correct answer)
Correct answer: Whole life
Whole life insurance is a permanent policy that accumulates a guaranteed cash value over the life of the policy in addition to providing a death benefit.
Question 5: When a licensed real estate agent fails to disclose a known material defect, they may be liable for:
- Misrepresentation or fraud (Correct answer)
- Trespassing
- Breach of warranty of habitability only
- Contract reformation
Correct answer: Misrepresentation or fraud
Failing to disclose a known material defect exposes a licensee to claims of misrepresentation or fraud, which can result in license suspension, fines, or lawsuits.
Question 6: What does 'occurrence-based' coverage mean in a liability insurance policy?
- Coverage applies only when a claim is filed during the policy period
- Coverage applies to incidents that occur during the policy period, regardless of when the claim is filed (Correct answer)
- Coverage resets each time an occurrence is reported
- Coverage requires the insured to report claims within 24 hours
Correct answer: Coverage applies to incidents that occur during the policy period, regardless of when the claim is filed
An occurrence-based policy covers losses that happen during the policy period, even if the claim is reported or filed years after the policy has expired.
Question 7: A property manager who collects rents and security deposits must typically hold those funds in a:
- Personal checking account for convenience
- Separate trust or escrow account (Correct answer)
- Money market account in the manager's name
- Joint account shared with the owner
Correct answer: Separate trust or escrow account
Real estate license laws require property managers to keep client funds in a separate trust or escrow account to prevent commingling with personal or operating funds.
PSI Knowledge Exam 3
Which insurance principle states that a policyholder should not profit from an insurance claim?