Hawaii Personal Lines Insurance License Exam — All Questions

Actual cash value (ACV) of personal property is calculated as:

• a.The original price the insured paid
• b.Replacement cost with no adjustment
• c.Replacement cost minus depreciation✓
• d.The total premiums paid on the policy

Actual cash value equals the current cost to replace the item minus depreciation for age, wear, and condition. It reflects what the used property is actually worth at the time of loss. Replacement cost coverage, by contrast, pays to replace the item with a new one of like kind and quality without deducting depreciation, subject to policy conditions, and is a valuable option for personal property.

Under an open-perils (all-risk) property form, a loss is covered:

• a.Unless it is caused by a specifically excluded peril✓
• b.Only if the peril is specifically named
• c.Only if the insurer approves in advance
• d.Only for perils listed on the declarations page

An open-perils form covers any cause of loss that is not specifically excluded, so the insurer must prove an exclusion applies to deny a claim. This is broader than a named-perils form, which covers only the perils listed and requires the insured to prove the loss came from a named peril. Open-perils coverage generally costs more because it is broader.

A homeowner has a $1,000 deductible and suffers a covered $6,000 loss. How much will the insurer pay?

• a.$6,000
• b.$5,000✓
• c.$1,000
• d.$0

A deductible is the portion of a covered loss the insured pays before the insurer pays. With a $1,000 deductible on a $6,000 loss, the insured absorbs $1,000 and the insurer pays the remaining $5,000. Deductibles lower premiums and discourage small claims by giving the insured a financial stake in each loss.

Which of the following is typically NOT covered under a standard homeowners property form?

• a.Fire
• b.Windstorm
• c.Theft
• d.Flood✓

Standard homeowners forms exclude flood; flood coverage must be obtained separately. Earth movement (such as earthquake) is also typically excluded and added by endorsement or a separate policy. Fire, windstorm, and theft are covered perils under standard forms. Knowing which catastrophic perils are excluded from the base policy is essential for identifying coverage gaps.

After paying a claim, an insurer's right to recover from the person who caused the loss is called:

• a.Subrogation✓
• b.Coinsurance
• c.Indemnity
• d.Salvage

Subrogation is the insurer's right, after paying a covered claim, to step into the insured's position and pursue the third party responsible for the loss. It prevents the insured from collecting twice and supports the principle of indemnity. The insured must avoid any action after a loss that would impair the insurer's ability to subrogate, such as signing away claims against the responsible party.