Free Colorado Property and Casualty Practice Exam Online

Correct answer: B. Named-peril coverage

Correct. Named-peril coverage pays only for losses caused by perils specifically listed in the policy; any cause of loss not listed is not covered.

• A: Open-peril (all-risk) coverage insures against all causes of loss except those specifically excluded, the opposite structure from a named-peril list.
• C: Guaranteed replacement coverage refers to a valuation method that pays to fully rebuild regardless of the coverage limit, not to how perils are defined.
• D: Blanket coverage refers to a single limit applying across multiple locations or items of property, not to how covered perils are defined.

Correct answer: C. HO-3 (Special Form)

Correct. HO-3 (Special Form), the most commonly sold homeowners policy, covers the dwelling on an open-peril (all-risk) basis, subject to policy exclusions, while personal property is typically covered on a named-peril basis.

• A: HO-1 (Basic Form) covers only a short, named list of perils and is the most limited of the standard forms, largely phased out in most markets.
• B: HO-2 (Broad Form) covers a broader named-peril list than HO-1 but still names specific perils rather than using an open-peril approach on the dwelling.
• D: HO-4 is the renters/tenants policy, covering the policyholder's personal property (typically named-peril) since the tenant does not own the dwelling structure.

Correct answer: C. A condominium unit owner's interior improvements and personal property

Correct. HO-6 is the condominium unit-owners form, covering the unit owner's interior improvements, betterments, and personal property, since the condo association's master policy generally covers the building structure itself.

• A: A single-family detached home is typically insured under HO-2 or HO-3, not HO-6.
• B: A mobile/manufactured home is typically insured under a specialized mobile home form, not the standard HO-6.
• D: A landlord's rented dwelling is typically insured under a dwelling fire policy (DP series) or landlord-specific form, not HO-6.

Correct answer: B. Replacement cost value

Correct. Replacement cost valuation pays to repair or replace the damaged property with new property of similar kind and quality, without a depreciation deduction, subject to policy limits and any applicable coinsurance requirement.

• A: Actual cash value deducts depreciation from replacement cost, which is the opposite of what is described.
• C: Agreed value is a valuation method (often used for classic cars or scheduled items) where the insurer and insured agree on a fixed value in advance, not the general repair-cost-with-no-depreciation method described.
• D: Market value reflects what a property would sell for, factoring in land value and market conditions, which is a different concept from a replacement-cost-based claim payment.

Correct answer: B. Replacement cost minus depreciation

Correct. The most common method for calculating actual cash value is replacement cost minus depreciation, reflecting the property's reduced value due to age, wear, and condition at the time of loss.

• A: Adding depreciation to replacement cost would increase, rather than reduce, the payout, which is the opposite of how ACV works.
• C: ACV is not defined as market value plus depreciation; that combination does not match the standard formula used in property claims.
• D: Using the unadjusted original purchase price ignores depreciation and does not reflect how ACV is typically determined.