Alabama Property & Casualty Insurance Practice Exam Free - 2026

• A. $20,000 per person / $40,000 per accident / $10,000 property damage
• B. $25,000 per person / $50,000 per accident / $25,000 property damage
• C. $30,000 per person / $60,000 per accident / $25,000 property damage
• D. $50,000 per person / $100,000 per accident / $50,000 property damage

Correct answer: B. $25,000 per person / $50,000 per accident / $25,000 property damage

Explanation: Ala. Code § 32-7-6(c) sets limits of not less than $25,000 for bodily injury or death of one person, $50,000 for two or more persons in one accident, and $25,000 for property damage; § 32-7A-4(b) requires every registered vehicle's liability policy, bond or cash deposit to meet those amounts. Options A, C and D are not the Alabama statutory minimums. See Ala. Code § 32-7-6 and § 32-7A-4.

• A. Re-offer UM coverage in writing at every renewal and obtain a new rejection.
• B. Automatically add UM coverage at renewal because rejections expire annually.
• C. Nothing further; UM need not be provided on renewal unless the named insured requests it in writing.
• D. Cancel the policy because Alabama prohibits UM rejection.

Correct answer: C. Nothing further; UM need not be provided on renewal unless the named insured requests it in writing.

Explanation: Ala. Code § 32-7-23(a) requires UM coverage in the limits of § 32-7-6(c) to be provided unless the named insured rejects it, and provides that unless the named insured requests the coverage in writing, it need not be provided on a renewal policy where it was rejected on the prior policy with the same insurer. Option A imposes a re-offer duty the statute does not; option B is contrary to the renewal rule; option D is wrong because rejection is expressly permitted. See Ala. Code § 32-7-23.

• A. $50
• B. $100
• C. $400
• D. $200

Correct answer: D. $200

Explanation: Ala. Code § 32-7A-12(c) provides that for a first violation the department terminates the suspension upon payment of a $200 reinstatement fee and submission of proof of current insurance. Options A and B are too low, and option C is a higher amount not tied to a first violation. See Ala. Code § 32-7A-12.

• A. At least 10 days, with the reason stated
• B. At least 20 days
• C. At least 30 days
• D. At least 45 days

Correct answer: A. At least 10 days, with the reason stated

Explanation: Ala. Code § 27-23-23 requires at least 20 days' notice for cancellation generally, but where cancellation is for nonpayment of premium, at least 10 days' notice accompanied by the reason is sufficient. Option B is the general (non-payment-unrelated) period; options C and D are not statutory periods for auto cancellation. See Ala. Code § 27-23-23.

• A. Insurance that covers the insured's legal liability for damage to others' property
• B. Insurance that protects physical property against damage or loss
• C. Insurance that pays a fixed amount based on the market value of real estate
• D. Insurance that indemnifies lenders when a borrower defaults on a mortgage loan

Correct answer: B. Insurance that protects physical property against damage or loss

Explanation: Property insurance protects physical property (buildings, personal property, equipment) against damage or loss from covered perils such as fire, theft, or natural disasters.

• A. Insurance covering damage to the insured's own buildings and personal property
• B. Insurance covering financial loss from the death or disability of a key employee
• C. Insurance covering legal liability for injuries or damage caused to others
• D. Insurance covering loss of business income when operations are suspended by a fire

Correct answer: C. Insurance covering legal liability for injuries or damage caused to others

Explanation: Casualty insurance (liability insurance) covers the insured's legal liability for injuries to others or damage to their property. It protects against claims and lawsuits from third parties.

• A. The policy's face value
• B. The market value of stocks
• C. The full cost to replace an item new
• D. Replacement cost minus depreciation

Correct answer: D. Replacement cost minus depreciation

Explanation: Actual cash value (ACV) is the value of property at the time of loss, calculated as replacement cost minus depreciation. It reflects what the property was worth just before it was damaged or destroyed.

• A. Coverage that pays to replace damaged property with new items of like kind and quality
• B. Coverage that pays the current market value of damaged property less depreciation
• C. Coverage that pays the original purchase price of damaged property regardless of age
• D. Coverage that pays an agreed amount fixed at policy issue regardless of actual value

Correct answer: A. Coverage that pays to replace damaged property with new items of like kind and quality

Explanation: Replacement cost coverage pays to replace or repair damaged property with new items of similar kind and quality, without deducting for depreciation. It provides more complete recovery than ACV coverage.

• A. A condition that increases the chance of a loss occurring
• B. A specific cause of loss that may trigger a claim
• C. The uncertainty that a financial loss will occur
• D. The financial harm that results from a covered event

Correct answer: B. A specific cause of loss that may trigger a claim

Explanation: A peril is a specific cause of loss or event that may result in damage and trigger an insurance claim, such as fire, theft, windstorm, or vandalism.

• A. A policy that covers every peril except those listed
• B. A policy that covers listed perils and any similar ones
• C. A policy that covers only specifically listed perils
• D. A policy that covers only items listed on a schedule

Correct answer: C. A policy that covers only specifically listed perils

Explanation: A named perils (or specified perils) policy only covers losses caused by perils specifically listed in the policy. If a peril isn't named, it isn't covered.

• A. A policy covering the causes of loss that are specifically listed in the form
• B. A policy covering every cause of loss with no exclusions of any kind
• C. A policy covering all causes of loss up to an unlimited amount with no deductible
• D. A policy covering all causes of loss except those specifically excluded

Correct answer: D. A policy covering all causes of loss except those specifically excluded

Explanation: An open perils (all-risk) policy covers all causes of loss except those specifically excluded in the policy. It provides broader coverage than named perils policies.

• A. Restoring the insured to their pre-loss financial condition
• B. Paying the insured the full policy limit after any covered loss
• C. Recovering the claim payment from the party who caused the loss
• D. Placing the insured in a better financial position than before

Correct answer: A. Restoring the insured to their pre-loss financial condition

Explanation: Indemnification is the principle of restoring the insured to the same financial position they were in before the loss occurred - no better and no worse. It prevents profit from insurance claims.