Insurance License Exam Practice Questions (With Answers)

By the License Ready team

Twelve original practice questions with a fully explained answer key — the same style as the Daily Drill inside the community.

Twelve original questions in the style of the Daily Drill inside License Ready — national-core concepts every state tests. Answer all twelve before you open the key. In the community, you get one of these every morning, free, plus full drill banks in Premium.

1. Which of the following is a peril?

  1. Icy steps leading to a front door
  2. Fire
  3. Leaving a candle burning unattended
  4. A homeowner's carelessness about locks

2. For property insurance, insurable interest must exist:

  1. Only when the policy is purchased
  2. Only at the time of loss
  3. At the time of purchase and at the time of loss
  4. It is never required for property insurance

3. An insurance policy is an aleatory contract because:

  1. Both parties must perform equally
  2. The exchange of value is unequal — one party may receive far more than the other, depending on chance
  3. It can be cancelled by either party at any time
  4. It is written by one party and accepted by the other

4. A binder is best described as:

  1. A permanent policy jacket
  2. Temporary evidence of coverage until the policy is issued
  3. A clause that voids coverage
  4. The insurer's rate filing with the state

5. A dwelling is worth $200,000 and the homeowners policy has an 80% coinsurance requirement. The owner insures it for only $120,000 and suffers a $20,000 covered partial loss. Ignoring the deductible, how much does the insurer pay?

  1. $20,000
  2. $15,000
  3. $18,000
  4. $12,000

6. Actual cash value (ACV) is generally calculated as:

  1. Replacement cost, with no deduction
  2. Replacement cost minus depreciation
  3. Market value plus depreciation
  4. The policy limit minus the deductible

7. Under the entire contract provision, a life insurance policy consists of:

  1. The policy only
  2. The policy and a copy of the application, attached
  3. The policy and the agent's notes
  4. The policy and the insurer's underwriting file

8. The incontestable clause in a life insurance policy generally prevents the insurer from contesting the policy after it has been in force for:

  1. 6 months
  2. 1 year
  3. 2 years
  4. 5 years

9. Twisting is an unfair trade practice that involves:

  1. An agent keeping a client's premium for personal use
  2. Inducing a policyholder to replace an existing policy with a new one through misrepresentation, to the policyholder's detriment
  3. Refusing to insure a risk
  4. Charging different rates in different states

10. Leaving your car keys in the ignition because you 'don't care' if the car is stolen is an example of a:

  1. Physical hazard
  2. Moral hazard
  3. Morale hazard
  4. Peril

11. The main purpose of a deductible is to:

  1. Increase the insurer's profits
  2. Eliminate small claims and make the insured share in the cost of loss
  3. Replace the need for underwriting
  4. Set the policy's premium

12. The insuring agreement section of a policy is where you find:

  1. The names of the insured and insurer
  2. The insurer's promise to pay for covered losses, and what perils it covers
  3. The duties of the insured after a loss
  4. The list of property never covered

Answer key — with the reasoning

  1. B — Fire. A peril is the cause of a loss (fire, windstorm, theft). The other choices are hazards — conditions that increase the chance or size of a loss.
  2. C — At purchase and at time of loss. Property insurable interest must exist at inception and when the loss occurs. (Life insurance is different: interest must exist at application, not at death.)
  3. B. Aleatory means the outcome depends on chance and the values exchanged are unequal — premiums are small and certain; the benefit is large and uncertain.
  4. B. A binder gives temporary coverage, usually until the policy is issued or the binder expires — commonly up to 90 days.
  5. B — $15,000. Coinsurance: (amount carried ÷ amount required) × loss = (120,000 ÷ 160,000) × 20,000 = 0.75 × 20,000 = $15,000. Carry at least 80% of value and partial losses are paid in full (up to the limit).
  6. B. ACV = replacement cost minus depreciation. That's why replacement-cost coverage exists — it removes the depreciation deduction.
  7. B. The entire contract is the policy plus the attached copy of the application — nothing outside those documents can be used to change or contest it.
  8. C — 2 years. After two years in force (during the insured's lifetime), the insurer generally cannot contest the policy, with narrow exceptions such as premium non-payment.
  9. B. Twisting = misrepresentation used to make someone drop an existing policy for a new one, to their detriment. Option A describes conversion (stealing premiums) — also illegal, different name.
  10. C — Morale hazard. Morale hazard is indifference to loss because insurance exists. Moral hazard involves dishonesty; a physical hazard is a tangible condition.
  11. B. Deductibles eliminate nuisance claims and keep the insured financially interested in preventing loss — risk retention at the front end.
  12. B. The insuring agreement is the heart of the policy: the insurer's promise and the covered perils. Names/parties live in the declarations; duties live in the conditions; never-covered items live in the exclusions.

How did you do? 10–12: your concept base is real — mocks will tell you the rest. 7–9: normal for a first pass; the Concepts Starter course closes exactly these gaps. Below 7: start with the vocabulary layer (the 100 Most-Tested Terms) before you drill. All three live free inside License Ready.

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