Massachusetts Personal Lines Insurance License Exam — All Questions

A landlord who rents out a single-family house and needs to insure the building and lost rental income would most appropriately use a:

• a.Personal auto policy
• b.Dwelling policy (DP form)✓
• c.Condominium HO-6 policy
• d.Homeowners HO-4 policy

A Dwelling policy (DP form) is designed for residential property, including non-owner-occupied rentals, and can cover the building and fair rental value. It does not automatically include personal liability, which can be added by endorsement. HO-4 covers a tenant's contents, HO-6 covers a condo unit owner, and neither fits a landlord who needs building and rental-income coverage.

Which Dwelling form insures the dwelling on an open-perils basis, providing the broadest property coverage?

• a.DP-1 (Basic)
• b.DP-0 (Minimum)
• c.DP-2 (Broad)
• d.DP-3 (Special)✓

The DP-3 (Special) form is the broadest Dwelling form, insuring the dwelling and other structures on an open-perils basis while covering personal property on a named-perils basis. The DP-1 (Basic) covers a short list of named perils and is narrowest, and the DP-2 (Broad) covers more named perils but is still not open-perils. There is no standard DP-0 form.

Under a Dwelling policy covering a rented home, the coverage that reimburses the owner for lost rent while the home is being repaired after a covered loss is:

• a.Coverage A – Dwelling
• b.Coverage D – Fair Rental Value✓
• c.Coverage C – Personal Property
• d.Coverage B – Other Structures

Fair Rental Value (Coverage D) reimburses the owner for the rental income lost while a covered peril makes the rented dwelling unfit to live in, limited to the time reasonably required to repair. Coverage A insures the structure, Coverage B other structures, and Coverage C personal property. Fair rental value protects the landlord's income rather than the physical property itself.

A major difference between a Dwelling policy and a Homeowners policy is that the Dwelling policy:

• a.Does not automatically include personal liability coverage✓
• b.Can be issued only to the owner of a condominium unit
• c.Covers personal property but not the dwelling structure
• d.Automatically covers the contents of the dwelling worldwide

A Dwelling policy is primarily a property policy and does not automatically include personal liability or medical payments coverage; liability must be added by endorsement. A Homeowners policy packages property and personal liability together. This flexibility makes the Dwelling policy suitable for rentals and homes that do not qualify for Homeowners coverage, where liability may be handled differently.

Compared with a homeowners policy, a dwelling policy is best described as:

• a.A package form that adds liability and theft coverage automatically
• b.A property form that can insure a home its owner does not live in✓
• c.A commercial form used for apartment buildings of any unit count
• d.A form issued only for owner-occupied single-family residences

The dwelling policy is a property-only contract, and it is regularly written on rental, seasonal, and other homes the owner does not occupy, though an owner-occupant may also buy one. The choice describing an automatic liability and theft package states the homeowners package instead: on a dwelling form both are added by endorsement.

Which risk is eligible for coverage under a standard dwelling program?

• a.A residence containing no more than four family units✓
• b.A restaurant building with an apartment on the top floor
• c.A twenty-unit apartment complex owned by a partnership
• d.A hotel that rents rooms to guests on a nightly basis

The dwelling program is written for residential buildings holding only a few family units, the standard limit being a dwelling of no more than four families. The twenty-unit complex and the hotel are commercial habitational risks rated on other forms, and a building whose principal use is a restaurant is a mercantile exposure rather than a dwelling.

A family owns a lakeside cottage they use only in summer and rent to no one. Coverage on the cottage is:

• a.Unavailable, because seasonal homes cannot be insured
• b.Available only on a homeowners form for second homes
• c.Available only if the cottage is occupied year round
• d.Available on a dwelling policy as a seasonal dwelling✓

Seasonal dwellings are within the dwelling program, which is one reason producers reach for it when a homeowners form does not fit the occupancy. The answer requiring year-round occupancy confuses eligibility with the vacancy condition, which suspends certain perils after a stated period rather than barring the policy from being written.

The unendorsed basic form of the dwelling policy insures the building against:

• a.Fire, windstorm, and vandalism losses
• b.Fire, theft, and personal liability claims
• c.Fire, flood, and earth movement damage
• d.Fire, lightning, and internal explosion✓

The basic dwelling form names exactly three perils of its own: fire, lightning, and internal explosion. Everything else is bought on. The list naming windstorm and vandalism describes perils that arrive only with the extended coverage group and the separate vandalism endorsement, and flood and earth movement are excluded on every dwelling form.

Which group of perils does the extended coverage endorsement add to a basic dwelling form?

• a.Collapse, falling objects, and accidental water discharge
• b.Windstorm or hail, riot, aircraft, vehicles, and smoke✓
• c.Flood, earthquake, war, and nuclear hazard damage losses
• d.Theft, vandalism, glass breakage, and frozen water pipes

Extended coverage is a fixed group: windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption. Vandalism is not in that group; it is added separately. Collapse and accidental water discharge belong to the broad form's longer peril list, and flood and earthquake stay excluded on all dwelling forms.

A windstorm tears shingles off a dwelling insured on an unendorsed basic form. The loss is:

• a.Not covered, because windstorm is not a basic-form peril✓
• b.Covered, because windstorm is a basic dwelling peril
• c.Covered, but only for the depreciated value of shingles
• d.Not covered, because roof surfaces are excluded property

Windstorm reaches a dwelling policy only through the extended coverage endorsement, so an unendorsed basic form pays nothing for wind-torn shingles. The answer settling the claim at depreciated value states the basic form's loss settlement rule correctly but applies it to a peril the form does not insure, and roof surfaces are covered property under the dwelling limit.

On a basic dwelling form, vandalism or malicious mischief coverage is:

• a.One of the three perils the basic form names itself
• b.Added as a peril of its own, after extended coverage✓
• c.Included within the extended coverage group of perils
• d.Available only under a broad form dwelling policy

Vandalism and malicious mischief is its own endorsement, commonly written once extended coverage is already on the policy. It is not part of the extended coverage group, which stops at smoke and volcanic eruption, and it is certainly not one of the three perils the basic form names on its own. The broad form, by contrast, includes it.

A dwelling insured with vandalism coverage has stood vacant well past the period the policy allows when vandals damage it. The loss is:

• a.Covered, but the insurer pays only half the amount
• b.Excluded, because vandalism is not a dwelling peril
• c.Covered, since vandalism carries no vacancy condition
• d.Excluded, because the policy's vacancy period ran out✓

Dwelling forms suspend vandalism and malicious mischief once the building has been vacant beyond the number of consecutive days the policy states, so a vandalism loss after that point falls outside coverage. Vandalism can plainly be insured on a dwelling policy, so the answer calling it unavailable is wrong, and no dwelling form pays a flat half share.

The broad form dwelling policy is best described as covering the building against:

• a.A longer list of named perils than the basic form✓
• b.Named perils on the dwelling, open perils on contents
• c.Open perils on the dwelling and its contents alike
• d.The same perils as the basic form at a lower cost

The broad form stays a named-peril contract but stretches the list, picking up items such as damage by burglars, falling objects, weight of ice and snow, accidental discharge of water, and freezing. Open perils on the dwelling is the special form's feature, and no dwelling form insures contents on an open-perils basis.

On a special form dwelling policy, personal property is insured against:

• a.Named perils, and the dwelling is on named perils too
• b.Open perils, on the same basis as the dwelling itself
• c.Named perils, while the dwelling is open perils✓
• d.Fire and lightning only, unless the form is endorsed

The special form splits the policy: the dwelling and other structures are written open perils, while personal property keeps the broad form's named-peril list. The answer giving contents open perils describes a homeowners form built that way, and the answer keeping the dwelling on named perils describes the broad form instead.

Why would a producer recommend a special form dwelling policy over a basic form?

• a.It adds personal liability and medical payments coverage
• b.It costs less because the form names three covered perils
• c.It drops the deductible that applies to property losses
• d.It insures the dwelling against any peril not excluded✓

The special form's value is its open-perils wording on the building: instead of matching the loss to a listed peril, the insured is covered unless the policy excludes the cause. Neither form includes liability, which is endorsed on, and moving to the special form raises rather than lowers the premium while leaving the deductible in place.

After an unexplained loss to a dwelling written on an open-perils form, the burden of proof:

• a.Falls on the insurer to show an exclusion applies✓
• b.Is shared equally by the insurer and the insured
• c.Falls on the insured to name the peril that caused it
• d.Falls on the adjuster hired by the mortgage holder

Open-perils wording reverses the usual burden. The insured shows a direct physical loss, and the insurer must point to an exclusion to deny it. The answer making the insured name the peril states the rule for a named-perils form such as the basic or broad dwelling policy, where the loss must be matched to a listed cause.

Under a dwelling policy, Coverage A pays for damage to:

• a.The described dwelling and structures attached to it✓
• b.Any residential building the insured owns at any location
• c.The tenant's own furniture kept inside the dwelling unit
• d.Detached garages, sheds, and fences on the same premises

Coverage A insures the dwelling shown on the declarations, including structures attached to it, plus materials and supplies on the premises for its repair. Detached garages, sheds, and fences sit under the other structures coverage, and household contents belong to the personal property coverage, whoever owns them.

A detached garage on the insured premises burns to the ground. A dwelling policy pays the loss under:

• a.Coverage B, which insures other structures on site✓
• b.Coverage C, since a garage stores personal property
• c.Coverage A, because a garage is part of the dwelling
• d.Coverage D, which restores the owner's rental income

Structures on the described premises that are separated from the dwelling by clear space are insured under the other structures coverage, and a detached garage is the standard example. The dwelling coverage would apply only if the garage were attached, and the fair rental value coverage responds to lost rent, not to a burned building.

A structure on the described premises rented to someone who is not a tenant of the dwelling is:

• a.Covered as an other structure without any condition
• b.Excluded, unless it is used only as a private garage✓
• c.Covered under the dwelling limit instead of Coverage B
• d.Excluded, because rented buildings are commercial risks

The other structures coverage does not extend to a structure rented or held for rental to anyone who is not a tenant of the dwelling, with a private garage as the recognised exception. The answer covering it with no condition ignores that carve-out, and renting a structure does not by itself convert the premises into a commercial risk.

How is the personal property limit set on a dwelling policy?

• a.It equals the limit written for other structures
• b.It is a fixed percentage of the Coverage A limit
• c.It is written for the full replacement cost of contents
• d.The insured selects a separate limit for Coverage C✓

On a dwelling policy the personal property amount is chosen and shown on the declarations rather than derived from the building limit, which is why a landlord can carry a small contents amount or none at all. The percentage answer describes the homeowners architecture, where the contents limit is set as a share of the dwelling limit.

Which item would NOT be covered as personal property under a dwelling policy?

• a.A washing machine used by the owner's household
• b.A set of power tools kept in the utility room
• c.A window air conditioner stored in the basement
• d.A pet parakeet kept in the family's living room✓

Animals, birds, and fish sit on the dwelling forms' property-not-covered list, alongside motor vehicles and aircraft, so the bird is outside the contents coverage entirely. The appliances and tools are ordinary household property usual to the occupancy of a dwelling and are insured up to the personal property limit shown on the declarations.

Personal property temporarily away from the described location under a dwelling policy is:

• a.Covered up to a percentage stated in the policy✓
• b.Excluded once it leaves the described location
• c.Covered for the full Coverage C limit anywhere
• d.Covered only while it sits in a storage facility

The dwelling forms follow contents off the premises, but only up to the share of the personal property limit the form states, and the same perils apply. The answer giving the full limit worldwide overstates it, and the answer cutting coverage off at the property line ignores the off-premises extension the form contains.

Coverage D on a dwelling policy pays the owner for:

• a.Rent a tenant refuses to pay during a lease term
• b.The cost of housing the tenant in a nearby hotel
• c.Rent lost while a covered loss is being repaired✓
• d.Legal fees spent evicting a nonpaying occupant

Fair rental value replaces the rental income the described premises would have produced during the time needed to repair covered damage. It is not a credit device: unpaid rent from a solvent tenant, eviction costs, and the tenant's own hotel bill are business risks the landlord carries, because the policy responds only to a covered physical loss.

Coverage E on a dwelling policy responds when:

• a.A tenant stops paying rent after a covered fire loss
• b.The insured decides to remodel a kitchen and move out
• c.A covered loss destroys furniture the insured owned
• d.A covered loss makes the insured's home unlivable✓

Additional living expense pays the increase in the insured household's own cost of living while the damaged home is unfit to live in, covering items such as temporary lodging and higher meal costs. Lost rent belongs to fair rental value, destroyed furniture is a contents claim, and a voluntary remodel is not a covered loss at all.

An owner lives in half of a duplex and rents out the other half. A covered fire makes both halves unlivable. The correct treatment is:

• a.Both the lost rent and her own costs under Coverage D
• b.Both the lost rent and her own costs under Coverage E
• c.Neither loss is payable because a half is rented
• d.Lost rent under Coverage D, her own costs under E✓

The two indirect-loss coverages divide by whose loss it is: fair rental value handles income from the portion held for rental, and additional living expense handles the increased cost of living for the insured's own household. Renting part of a dwelling does not defeat either coverage, so the answer denying both losses misreads the eligibility rules.

When a dwelling policy settles a fair rental value claim, the insurer pays:

• a.The value the building lost in the local market
• b.The gross rent the lease named, with no offset at all
• c.The lost rent minus expenses that do not continue✓
• d.The rent plus the value of the owner's lost time

Fair rental value is an indirect-loss coverage measured by rental income lost during the repair period, reduced by expenses that stop while the unit is unusable, such as utilities the owner no longer buys. Paying the gross lease amount would put the owner ahead of where the fire found her, which the principle of indemnity does not allow.

A dwelling insured on a basic form is damaged by fire. The building loss is settled on:

• a.A functional replacement cost basis for old homes
• b.An actual cash value basis at the time of loss✓
• c.A replacement cost basis with no deduction taken
• d.A market value basis set by a local appraisal

The basic dwelling form settles building losses at actual cash value, that is, replacement cost less depreciation at the time of the loss. Replacement cost on the dwelling is what the broad and special forms offer when their insurance-to-value condition is met, and market value is a sale price that reflects land and location rather than rebuilding cost.

A basic form dwelling loses a roof section that costs $12,000 to replace and has depreciated $4,000. Before any deductible, the policy pays:

• a.$4,000, the amount by which the old roof depreciated
• b.$12,000, the full cost of installing a new roof
• c.$8,000, the depreciated value of the damaged roof✓
• d.$6,000, one half of the roof's replacement cost

Actual cash value is replacement cost less depreciation: $12,000 minus $4,000 leaves $8,000, and the deductible then comes off that figure. Paying the full $12,000 would apply the broad or special form's replacement-cost settlement, and paying $4,000 hands the insured the depreciation instead of the value that was actually destroyed.

The broad and special dwelling forms differ from the basic form in that they settle:

• a.Losses to personal property at full replacement cost too
• b.Dwelling losses at replacement cost, not actual cash value✓
• c.Dwelling losses at the home's current fair market value
• d.Every covered loss at actual cash value after depreciation

Both the broad and special forms pay building losses at replacement cost, provided the insured carries the percentage of replacement cost the policy's loss-settlement condition demands. Personal property stays on an actual cash value basis unless a replacement cost endorsement is bought, so the contents answer overstates what the forms give.

A dwelling costs $300,000 to replace and is insured on a special form for $180,000 under an 80% loss-settlement condition. A partial building loss is settled:

• a.At replacement cost, because this loss is only partial
• b.At less than replacement cost; $240,000 was required✓
• c.At market value, since the limit fell below that cost
• d.At replacement cost, because a stated limit was purchased

The condition requires 80% of $300,000, or $240,000, and the owner carries $180,000. Falling short of that figure drops the settlement to the greater of actual cash value or the proportion of the repair cost that $180,000 bears to $240,000. Buying any limit does not earn replacement cost, and market value is not a settlement basis in these forms.

Why is theft of the insured's property not paid under an unendorsed dwelling policy?

• a.Theft is covered but capped at a small dollar sublimit
• b.Theft is not one of the perils the form insures against✓
• c.Theft losses are paid only after a police report is filed
• d.Theft applies only while the dwelling is owner occupied

No dwelling form, basic, broad, or special, carries theft as an insured peril, which is one of the sharpest differences from a homeowners policy. A theft coverage endorsement adds it. The sublimit answer imports the homeowners treatment of jewelry and firearms, where theft is covered but capped, into a form that does not insure theft at all.

Burglars force a door on a dwelling insured on an unendorsed broad form and carry off a television. The policy pays for:

• a.Neither loss, because burglars are excluded entirely
• b.The damage done to the door, but not the television✓
• c.The television, but not the damage done to the door
• d.Both the broken door and the stolen television set

The broad form lists damage caused by burglars as an insured peril, so the shattered door is a building loss, but the stolen property itself is theft, which the form does not insure without an endorsement. The answer paying both treats the burglary peril as if it were theft coverage, and damage by burglars is plainly not excluded.

A visitor slips on the steps of a rented dwelling and sues the owner. An unendorsed dwelling policy:

• a.Pays nothing, because it insures property only✓
• b.Pays the claim only if the owner lives in the home
• c.Defends the owner under its liability insuring clause
• d.Pays the visitor's medical bills on a no-fault basis

A dwelling policy is a first-party property contract with no liability section, so a bodily injury suit against the owner falls outside it until a personal liability endorsement is attached. No-fault medical payments to others and a duty to defend are Section II features of a homeowners policy or of that endorsement, not of the bare dwelling form.

A tenant renting a house may use a dwelling policy to insure:

• a.The landlord's building at its full replacement cost
• b.Household goods and improvements the tenant installed✓
• c.The rent the landlord loses after a covered fire
• d.The tenant's liability to guests injured in the house

A tenant can be the named insured on a dwelling policy for personal property, and the contents coverage also picks up improvements, alterations, and additions the tenant made to the rented premises. The tenant has no insurable interest in the landlord's building limit or rental income, and liability is not part of the property form.

A landlord insuring a rented house wants the building, the appliances she supplies, and her rental income protected. She needs:

• a.Coverages A and B, plus Coverage E for the tenant
• b.Coverage C alone, because the tenant owns the home
• c.Coverages A and C written along with Coverage D✓
• d.Coverage A only, since the tenant insures the rest

The dwelling limit covers the building, the personal property limit covers appliances and furnishings the landlord owns and keeps on the premises for the tenant's use, and fair rental value replaces income lost while repairs are made. Additional living expense would respond to the insured's own household costs, which a nonresident landlord does not have.

A dwelling in which the owner runs a small insurance office is:

• a.Ineligible, unless a commercial package policy is bought
• b.Ineligible, because any business use voids the form
• c.Eligible, as a permitted incidental business occupancy✓
• d.Eligible, but only if the office has its own entrance

The dwelling program tolerates a permitted incidental occupancy such as an office, a professional practice, a private school, or a studio, and business property in the dwelling can be picked up by endorsement. The answer voiding the form for any business use is too broad, and a separate entrance is not what makes the occupancy acceptable.

A dwelling policy is written on a house that is still being built. Under the standard forms, that building is:

• a.Treated as vacant until furniture is moved into it
• b.Covered once a certificate of occupancy is issued
• c.Insured only for materials sitting on the job site
• d.Not treated as vacant while construction continues✓

The dwelling forms state that a building under construction is not considered vacant, so the vacancy condition that suspends vandalism and certain other perils does not bite during the build. A certificate of occupancy is a municipal document, not a condition of coverage, and the dwelling limit insures the structure itself as well as materials on site.

A neighbor's car skids off the road into a dwelling insured on a basic form with extended coverage. The damage is:

• a.Excluded, since vehicle damage requires an auto policy
• b.Covered, because vehicles is one of the basic form perils
• c.Excluded, unless the driver's own insurer denies the claim
• d.Covered, because vehicles is an extended coverage peril✓

Vehicles sits in the extended coverage group along with windstorm or hail, explosion, riot, aircraft, smoke, and volcanic eruption, so the endorsed basic form pays for the struck building. The property claim does not wait on the driver's auto insurer, though the dwelling carrier may pursue subrogation against the neighbor afterward.