Free CAPP General Insurance Information exam Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CAPP General Insurance Information exam practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A crop adjuster suspects that a producer facing severe debt has inflated the reported damage on a hail claim hoping the indemnity will ease the financial strain. Which insurance concept describes the condition the adjuster has recognized?

   1. A. A moral hazard, a condition that could lead an insured to exaggerate a loss or file a false claim for financial benefit
   2. B. A morale hazard, a condition of carelessness or indifference to loss because the insured knows coverage exists
   3. C. Adverse selection, a condition in which the insured buys coverage against a loss already known or expected to occur
   4. D. A physical hazard, a condition of the insured property itself that increases the likely frequency or severity of loss

   Answer: A

   Explanation: The study guide defines moral hazards as "conditions that would lead one to exaggerate or consider intentionally causing a loss or filing a false claim to benefit financially" and gives the example that "An insured experiencing trouble with finances might view an insurance claim as a means to help alleviate some of the financial strain by exaggerating the amount of a loss." A morale hazard involves carelessness or indifference rather than intent to gain, and adverse selection concerns the purchase decision, not an inflated claim.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, Fundamental Assumptions and Principles of Insurance, fourth fundamental assumption (page 2)

2. 2Under the current Standard Reinsurance Agreement, after an adjuster has filed the annual conflict of interest disclosure, the adjuster begins custom farming for a policyholder. Within what period must the adjuster disclose this new business relationship?

   1. A. Within 15 days of entering into the new business relationship with the policyholder
   2. B. Within 3 business days of entering into the new business relationship with the policyholder
   3. C. Within 30 days of entering into the new business relationship with the policyholder
   4. D. By the next annual acreage reporting date following the new business relationship

   Answer: A

   Explanation: SRA Appendix I, Section VI(e)(2)(A)(iii) provides that if an employee or affiliate enters into a business, financial, or legal relationship with the policyholder after the annual disclosure, the person must disclose the "information required in paragraph (1) within 15 days of entering the relationship." The 3-business-day period applies to the Company notifying FCIC of a discovered violation, and the acreage reporting date is the deadline for the annual disclosure, not for a relationship formed afterward.

   Reference: 2027 Standard Reinsurance Agreement, Appendix I: Regulatory Duties and Responsibilities — Appendix I, Section VI(e)(2)(A)(iii), Disclosure and Notification Requirements (pages 10-11)

3. 3During a loss inspection, an adjuster learns that a producer stopped scouting for insects and skipped a planned fungicide application, saying the crop insurance policy would cover whatever was lost. Which type of hazard does the producer's attitude illustrate?

   1. A. Moral hazard
   2. B. Physical hazard
   3. C. Morale hazard
   4. D. Adverse selection

   Answer: C

   Explanation: The study guide describes morale hazards as "hazards that involve carelessness about, or indifference to, potential loss on the part of an insured or applicant" and states: "A morale hazard exists when an insured believes that they can be less careful or pay less attention to good management practices because they have insurance." The producer is not trying to exaggerate a loss for gain (moral hazard) and did not buy coverage against a known loss (adverse selection); the producer simply became careless because insurance exists.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, fourth fundamental assumption, morale hazards (pages 2-3)

4. 4The study guide explains that good faith requires the insurer to investigate and pay claims promptly. In which section of the Basic Provisions are these insurer obligations most notably detailed?

   1. A. Section 12
   2. B. Section 20
   3. C. Section 35
   4. D. Section 14

   Answer: D

   Explanation: Under the first fundamental assumption, the study guide states: "Good faith is required on the insurer’s part to investigate and pay claims promptly. These obligations are detailed in the Basic Provisions in various sections; most notably section 14". It adds that this section provides terms for prompt payment of claims through FCIC-established or approved loss procedures. Section 12 lists excluded causes, section 20 covers dispute remedies, and section 35 limits multiple benefits.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, first fundamental assumption (page 1)

5. 5A producer and an insurer disagree about a policy provision that can reasonably be read in two different ways, and a court declares the provision ambiguous. How will the court generally interpret the provision?

   1. A. In favor of the insurer, since insurers have the legal talent to draft precise language
   2. B. In favor of the insured, since the insured had no part in choosing the wording
   3. C. According to the intentions of the party who drafted the policy language
   4. D. According to the information the insured gave on the signed application

   Answer: B

   Explanation: Under the second fundamental assumption, the study guide quotes its source: "What matters is the written contract’s actual wording, not the intentions of the party who drafted it." It continues: "If a policy provision is declared ambiguous by a court, the court will generally apply an interpretation that favors the insured." Because insurers choose the wording and insureds can only accept or reject it, the drafter's intent does not control, and the ambiguity is resolved for the insured. The study guide's definition of ambiguity cites the insurers' legal talent as a reason courts rule for the insured, not against them, and the application is the form describing the risk, not a rule for interpreting the policy.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, second fundamental assumption (page 1)

6. 6A producer complains that the crop insurance policy was offered on a take-it-or-leave-it basis, with the insurer having chosen every word and the producer having no chance to negotiate the terms. What type of contract does this describe?

   1. A. Contract of adhesion
   2. B. Aleatory contract
   3. C. Contract of indemnity
   4. D. Continuous policy

   Answer: A

   Explanation: The study guide states: "This type of contract, where one party chooses the exact wording in the policies, and the other party (insured) has little choice but to accept or reject it is considered a contract of adhesion." An aleatory contract concerns the exchange of unequal amounts, a contract of indemnity concerns payment related to the amount of loss, and a continuous policy concerns how long the policy stays in force.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, second fundamental assumption, contract of adhesion (page 2)

7. 7An insured disputes the meaning of language in a Federal crop insurance policy that was issued by an approved insurance provider (AIP). Which entity must provide the interpretation of the disputed policy language?

   1. A. The AIP that issued the policy, as the party that offered the contract
   2. B. The insurance department of the State where the insured crop is located
   3. C. The Federal Crop Insurance Corporation (FCIC), as the drafter of the policy
   4. D. An arbitrator selected under the policy's dispute resolution provisions

   Answer: C

   Explanation: The study guide explains that FCIC, not the issuing AIP, is considered the drafter of Federal crop insurance policies: "Because FCIC is considered to have developed the policy language, any disputes of policy language by an insured require an interpretation from FCIC rather than the AIP’s." Arbitration and state regulators do not supply interpretations of FCIC policy language.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, second fundamental assumption, FCIC as drafter (page 2)

8. 8An adjuster is assigned a claim on which the insured disputes the meaning of policy language that must be interpreted by FCIC. According to the study guide, how should the adjuster work this claim, as directed by the AIP?

   1. A. Stop the inspection and leave the claim open until FCIC issues its interpretation
   2. B. Settle the claim on the insured's reading, since ambiguity favors the insured
   3. C. Deny the claim and refer the insured directly to mediation or arbitration
   4. D. Work it on a non-waiver or under the controversial claim procedure in the LAM

   Answer: D

   Explanation: The study guide states: "As directed by the AIP, adjusters should work claims having such disputes on a non-waiver or in accordance with the controversial claim procedure in the Loss Adjustment Manual (LAM)." The adjuster neither halts the inspection nor resolves the policy interpretation; the interpretation itself belongs to FCIC.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, second fundamental assumption (page 2)

9. 9An insurance provider that disputes policy language requests an interpretation from FCIC and then disagrees with the FCIC determination. Where is the remedy for that disagreement outlined?

   1. A. Section 14 of the Basic Provisions, on duties in the event of damage or loss
   2. B. Section 20 of the Basic Provisions, on mediation, arbitration, appeal, and review
   3. C. Section 22 of the Basic Provisions, on other insurance on the insured crop
   4. D. Section 27 of the Basic Provisions, on concealment, misrepresentation or fraud

   Answer: B

   Explanation: The study guide states that "If an insurance provider disputes the policy language, they too must request an interpretation from FCIC." It then explains: "The remedy for a disagreement with a FCIC determination is outlined in section 20" of the Basic Provisions, titled Mediation, Arbitration, Appeal, Reconsideration, and Administrative and Judicial Review.

   Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, second fundamental assumption (page 2)

10. 10The third fundamental assumption states that insurance is a contract of indemnity. Under a contract of indemnity, what does the insurer agree to do in the event of a covered loss?

    1. A. Pay the face amount stated in the policy, regardless of the size of the loss
    2. B. Refund all premiums paid with interest in place of paying for the loss
    3. C. Pay an amount directly related to the amount of the loss, within policy limits
    4. D. Pay the full replacement cost of the property without applying a deductible

    Answer: C

    Explanation: The study guide quotes its source: "A contract of indemnity is a contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss." It adds that an insured would expect compensation to be made whole "(within the limits of the policy)", and that deductibles and coverage limits still apply, so neither a fixed face amount nor full replacement without a deductible describes indemnity.

    Reference: NCIS General Insurance Information Study Guide, Crop Adjuster Proficiency Program (CAPP) — Section I, third fundamental assumption (page 2)