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Commercial Property

Practice questions on commercial property for the property exam, each with an answer and explanation.

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Study questions and answers

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1. A commercial policy made up of common policy declarations, common policy conditions, and two or more coverage parts is called a:

  1. Package policy
  2. Monoline policy
  3. Businessowners policy
  4. Difference in conditions policy
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A. Package policy
When two or more coverage parts are combined with the common declarations and conditions, the result is a commercial package policy. A policy with only one coverage part is monoline.

2. Under the Building and Personal Property Coverage Form, which of the following is included in the definition of Building?

  1. Permanently installed machinery and equipment
  2. The land under the building
  3. Money kept in a safe
  4. Customer vehicles parked on the lot
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A. Permanently installed machinery and equipment
Building includes completed additions, fixtures, and permanently installed machinery and equipment. Land, money, and most vehicles are property not covered.

3. Which of the following is listed as property not covered under the Building and Personal Property Coverage Form?

  1. Furniture and fixtures owned by the insured
  2. Growing crops and lawns
  3. Stock held for sale
  4. Tenant improvements and betterments
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B. Growing crops and lawns
Land, water, growing crops and lawns are property not covered. Furniture, stock and the tenant's improvements can all be business personal property.

4. A building is valued at $500,000 and insured for $300,000 under a commercial property form with an 80 percent coinsurance clause and a $1,000 deductible. A covered loss of $100,000 occurs. How much does the insurer pay?

  1. $75,000
  2. $100,000
  3. $74,000
  4. $59,000
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C. $74,000
The insured carried $300,000 of the $400,000 required, so the insurer pays 3/4 of $100,000, or $75,000. The deductible is then subtracted, leaving $74,000.

5. Which optional coverage on a commercial property policy suspends the coinsurance clause for the policy period?

  1. Inflation guard
  2. Agreed value
  3. Replacement cost
  4. Extension of replacement cost to property of others
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B. Agreed value
Under the agreed value option, the coinsurance condition does not apply as long as the limit equals the agreed value shown in the declarations.

6. Unless replacement cost is chosen as an optional coverage, covered property under the Building and Personal Property Coverage Form is generally valued at:

  1. Stated value
  2. Market value
  3. Agreed value
  4. Actual cash value
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D. Actual cash value
The form's valuation condition uses actual cash value unless the replacement cost option is shown in the declarations, with a few listed exceptions.

7. Under the Building and Personal Property Coverage Form, stock that has been sold but not yet delivered is valued at:

  1. The selling price, less discounts and expenses the insured would have had
  2. Its original cost to the insured
  3. Actual cash value
  4. Replacement cost
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A. The selling price, less discounts and expenses the insured would have had
Sold but undelivered stock is valued at the selling price, minus any discounts and expenses the insured would otherwise have had.

8. After a covered fire, the insured moves undamaged stock to a rented storage unit to protect it. Under the preservation of property additional coverage, the stock is covered while moved or stored for up to:

  1. 10 days
  2. 60 days
  3. 30 days
  4. 90 days
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C. 30 days
Preservation of property covers direct loss to property being moved or temporarily stored for up to 30 days after it is first moved.

9. The fire department service charge additional coverage in the Building and Personal Property Coverage Form pays up to what amount, unless a higher limit is shown?

  1. $500
  2. $1,000
  3. $2,500
  4. $10,000
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B. $1,000
The form pays up to $1,000 for fire department service charges, and no deductible applies to this additional coverage.

10. The pollutant clean-up and removal additional coverage pays up to $10,000 for each described premises during each:

  1. Separate 12-month period
  2. Occurrence
  3. Policy term of three years
  4. Calendar quarter
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A. Separate 12-month period
Pollutant clean-up is limited to $10,000 per described premises for all expenses arising from covered causes of loss during each separate 12-month period.

11. The coverage extensions in the Building and Personal Property Coverage Form, such as newly acquired buildings, apply only if the declarations show:

  1. A deductible of at least $1,000
  2. Replacement cost valuation
  3. A coinsurance percentage of 80 percent or more, or a value reporting symbol
  4. The agreed value option
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C. A coinsurance percentage of 80 percent or more, or a value reporting symbol
The extensions are available only when the declarations show at least 80 percent coinsurance or a value reporting symbol.

12. An insured buys a second building during the policy term. Under the newly acquired buildings extension, coverage for the new building lasts until the policy expires, values are reported, or how many days after acquisition, whichever comes first?

  1. 10 days
  2. 60 days
  3. 90 days
  4. 30 days
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D. 30 days
Newly acquired or constructed buildings are covered for up to 30 days after acquisition, or until values are reported or the policy expires if sooner.

13. Under the outdoor property extension of the Building and Personal Property Coverage Form, trees, shrubs and plants are covered for no more than what amount per item?

  1. $250
  2. $500
  3. $1,000
  4. $2,500
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A. $250
Outdoor property is covered up to $1,000 per occurrence in total, but no more than $250 for any one tree, shrub or plant.

14. An insured's building has been vacant for more than 60 consecutive days when a windstorm damages it. Under the vacancy condition, the payment for the wind loss is:

  1. Paid in full
  2. Denied entirely
  3. Reduced by 15 percent
  4. Reduced by 50 percent
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C. Reduced by 15 percent
After 60 consecutive days of vacancy, losses from perils such as vandalism, glass breakage, water damage and theft are not covered, and other covered losses are reduced by 15 percent.

15. Which commercial property form is designed to cover a building while it is under construction?

  1. Legal Liability Coverage Form
  2. Builders Risk Coverage Form
  3. Condominium Commercial Unit-Owners Coverage Form
  4. Extra Expense Coverage Form
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B. Builders Risk Coverage Form
The Builders Risk Coverage Form covers buildings under construction, including materials and supplies at the site.

16. Under the Common Policy Conditions, who is responsible for paying the premium and is entitled to receive any return premium?

  1. Every named insured equally
  2. The mortgageholder
  3. The producer of record
  4. The first named insured
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D. The first named insured
The first named insured is responsible for paying premiums, may request cancellation, and receives any return premium.
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