CPCL California Property and Casualty license exam - Set 1 - Part 1

Test your knowledge of technical writing concepts with these practice questions. Each question includes detailed explanations to help you understand the correct answers.

Question 1: California law defines insurance as a contract under which one party undertakes to do which of the following for another party facing a contingent or unknown event?

Guarantee a financial profit

Indemnify against loss, damage, or liability

Eliminate all possibility of loss

Assume ownership of insured property

Question 2: Which of the following risks is insurable because it involves only the chance of loss, with no possibility of gain?

Investing in the stock market

Opening a new restaurant

Wagering on a sporting event

A house damaged by fire

Question 3: A windstorm tears the roof from a home in Bakersfield. In insurance terms, the windstorm is best identified as which of the following?

The peril causing the loss

A physical hazard

A morale hazard

An indirect loss

Question 4: An insured leaves her car unlocked in a parking lot, reasoning that her policy will pay if it is stolen. This careless attitude is best described as which of the following?

A moral hazard

A morale hazard

A physical hazard

A legal hazard

Question 5: Which of the following situations is the clearest example of a physical hazard that increases the chance of a loss?

Filing a fraudulent theft claim

Indifference to loss from coverage

Faulty electrical wiring in a building

A county known for large jury awards

Question 6: Which principle allows an insurer to predict losses more accurately as the number of similar insured exposures grows larger?

The law of large numbers

The principle of indemnity

The concept of adverse selection

The principle of insurable interest

Question 7: A restaurant fire destroys the kitchen, and the owner loses income while the building is repaired. The lost income is best classified as which of the following?

A direct loss

A peril

A physical hazard

An indirect loss

Question 8: A homeowner could be held legally responsible when his dog bites a visitor. This possibility is best described as which type of loss exposure?

A property loss exposure

A speculative exposure

A liability loss exposure

A morale exposure

Question 9: Which of the following is NOT one of the characteristics of an ideally insurable risk?

The loss must be accidental

The risk must be catastrophic

The loss must be measurable

Losses must be calculable

Question 10: An insurer collects premiums from many policyholders so the premiums of the many can fund the losses of the few. This arrangement is best known as which of the following?

Risk pooling, or spread of risk

Adverse selection

Subrogation

Reinsurance

Question 11: Under the California Insurance Code, which of the following may be insured against, even if the event is past, as long as it remains unknown to the parties?

A loss the insured caused on purpose

Any contingent or unknown event

A certain and expected event

A speculative business venture

Question 12: For property insurance under California law, when must the insured have an insurable interest in the covered property?

Only when the policy is purchased

Only when a claim is filed

Both at inception and at the loss

At every moment during the policy

Question 13: Which insurance principle holds that a policy should restore an insured to the same financial position held before a loss, without allowing a profit?

The principle of indemnity

The law of large numbers

The principle of adhesion

The doctrine of estoppel

Question 14: Which of the following parties clearly has an insurable interest in a financed automobile?

A neighbor who admires the car

The bank that financed the car

A passing pedestrian

A former owner who sold it

Question 15: Under California law, what is the effect on an insurance contract if the insured has no insurable interest in the subject of the insurance?

The contract is fully enforceable

The premium simply increases

The insurer must still pay claims

The contract is void

Question 16: A company decides never to manufacture a particular product so it can eliminate the related liability exposure entirely. Which risk management technique is this?

Avoidance

Retention

Transfer

Reduction

Question 17: A large business sets aside its own reserve fund to pay for minor property losses instead of buying coverage for them. This approach is best described as which of the following?

Risk transfer

Risk avoidance

Risk retention

Reinsurance

Question 18: Purchasing an insurance policy is the most common example of which risk management technique?

Transfer

Avoidance

Retention

Loss control

Question 19: Which term describes the tendency of people with a higher-than-average chance of loss to seek insurance more eagerly than lower-risk people?

Risk retention

The law of large numbers

Subrogation

Adverse selection

Question 20: Within an insurance company, what is the primary purpose of the underwriting process when an application is submitted?

To evaluate and select acceptable risks

To adjust and pay submitted claims

To market policies to new customers

To invest the insurer's reserves

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