Property & Casualty Exam-Day Cheat Sheet
High-yield reference matrices, critical rules, classification charts, and formula cheat sheets for the Property and Casualty Insurance License Exam.
📌 Quick Summary / Core Test Principles:P&C Key Formulas & Rules: Coinsurance Formula = [Amount Carried / (Replacement Value * 80%)] * Loss - Deductible. Actual Cash Value (ACV) = Replacement Cost - Depreciation. Homeowners Coverages: A = Dwelling, B = Other Structures (10% of A), C = Personal Property (50% of A), D = Loss of Use (30% of A), E = Personal Liability ($100k base), F = Medical Payments to Others ($1k base). CGL: Occurrence (date of incident governs) vs Claims-Made (incident after retroactive date AND claim reported during policy term). Auto: Split limits 25/50/25 = $25k BI per person / $50k BI per accident / $25k Property Damage per accident.
Homeowners Policies
ISO Homeowners Policy Forms (HO-2 through HO-8) Comparison Matrix
| Policy Form | Form Name | Dwelling Coverage (A & B) | Personal Property (Coverage C) | Target Insured |
|---|---|---|---|---|
| HO-2 | Broad Form | Named Perils (Broad) | Named Perils (16 Perils) | Budget-conscious owner-occupant |
| HO-3 | Special Form | Open Perils (Special) | Named Perils (16 Perils) | Most common residential homeowner policy |
| HO-4 | Contents Broad (Renters) | No Coverage (Tenant) | Named Perils (16 Perils) | Tenants renting apartments/homes |
| HO-5 | Comprehensive Form | Open Perils (Special) | Open Perils (Special) | High-value luxury homeowner properties |
| HO-6 | Unit-Owners Form (Condo) | Named Perils ($5k base interior) | Named Perils (16 Perils) | Condominium and co-op unit owners |
| HO-8 | Modified Form (Older Home) | Basic Named Perils (Market Value) | Basic Named Perils | Historic homes where replacement cost exceeds market value |
💡 Pro Tip:HO-3 vs HO-5 contents coverage is one of the top 3 most tested concepts: HO-3 has NAMED perils for contents, while HO-5 has OPEN perils for contents.
Dwelling Forms
Dwelling Property Program (DP-1, DP-2, DP-3) Form Comparison
| Dwelling Form | Perils Covered | Loss Settlement (Dwelling) | Loss Settlement (Personal Property) | Vandalism & Malicious Mischief (VMM) |
|---|---|---|---|---|
| DP-1 (Basic) | Fire, Lightning, Internal Explosion (EC & VMM optional) | Actual Cash Value (ACV) | Actual Cash Value (ACV) | Optional endorsement; suspended if vacant 60 days |
| DP-2 (Broad) | DP-1 perils + Extended Coverage + Broad perils | Replacement Cost (if 80% coinsurance met) | Actual Cash Value (ACV) | Included in broad perils form |
| DP-3 (Special) | Open Perils for Dwelling (Coverages A & B) | Replacement Cost (if 80% coinsurance met) | Named Perils (same as DP-2 contents) | Included; suspended if vacant 60 consecutive days |
💡 Pro Tip:Dwelling policies do NOT automatically include Coverage E (Personal Liability) or Coverage F (Medical Payments to Others); they must be added via personal liability endorsement.
Auto Insurance
Personal Auto Policy (PAP) Split Limits vs Single Limits Architecture
| Split Limit Element | Legal Meaning | Application in Accident | Financial Example (100/300/50) |
|---|---|---|---|
| First Number (100) | Bodily Injury Per Person | Maximum insurer will pay for injuries sustained by ANY ONE individual | Max $100,000 paid to Person A regardless of actual injury severity |
| Second Number (300) | Bodily Injury Per Accident | Maximum insurer will pay for ALL bodily injuries combined in one occurrence | Max $300,000 total across Person A, B, C, D combined |
| Third Number (50) | Property Damage Per Accident | Maximum insurer will pay for damage to other vehicles, guardrails, lampposts | Max $50,000 paid for all damaged vehicles and physical property |
| Combined Single Limit (CSL) | Single unified limit for BI + PD | Flexible cap applied across all claims with no per-person or property sub-caps | A $300,000 CSL can pay $280k BI and $20k PD, or any combination |
💡 Pro Tip:Medical Payments (Part B) pays regardless of fault, covering medical and funeral expenses sustained by insureds or passengers for up to 3 years from accident date.
Commercial Liability
Commercial General Liability (CGL) Occurrence vs Claims-Made Form
| Feature | Occurrence Form (CG 00 01) | Claims-Made Form (CG 00 02) | Key Underwriting Implication |
|---|---|---|---|
| Coverage Trigger | Injury/damage occurs during policy period | Claim is formally made against insured during active policy period | Claims-Made eliminates long-tail coverage uncertainty |
| Retroactive Date | Does NOT apply (date of event is sole test) | Mandatory: incident must occur on or after retroactive date | Advancing retroactive date creates dangerous uncovered gaps |
| Extended Reporting Period (ERP) | Not needed (coverage stays with that policy year) | Mini-tail (60 days) automatic; Midi-tail (5 yrs); Maxi-tail (unlimited) for fee | Tail coverage protects insured when canceling or retiring |
| Long-Tail Exposure | Insurer remains liable decades later for latent defects/toxic torts | Insurer liability terminates when policy and reporting period expire | Used for medical malpractice, environmental, and product liability |
💡 Pro Tip:Never allow a client to change claims-made carriers with an advanced retroactive date; the new carrier must honor the PRIOR retroactive date to avoid coverage gaps.
Coinsurance Math
Coinsurance Formula & Loss Settlement Mathematical Rules
| Formula Step | Mathematical Equation | Example Calculation ($500k building, $300k limit, 80% clause) | Resulting Figure |
|---|---|---|---|
| Step 1: Should Carry | Building Replacement Value * Coinsurance % | $500,000 * 80% | $400,000 Required Insurance |
| Step 2: Did Carry | Actual Policy Limit Purchased | Actual limit on declarations page | $300,000 Carried Insurance |
| Step 3: Penalty Ratio | Did / Should | $300,000 / $400,000 | 75% (0.75) Coinsurance Factor |
| Step 4: Apply to Loss | Loss Amount * Penalty Ratio | $40,000 Loss * 0.75 | $30,000 Adjusted Loss |
| Step 5: Deductible | Adjusted Loss - Deductible | $30,000 - $2,000 Deductible | $28,000 Final Insurer Payout |
💡 Pro Tip:The coinsurance penalty NEVER applies to a total loss; if a building burns completely to the ground, the insurer pays the full policy face amount ($300,000).
Ethics & Law
Prohibited Unfair Trade Practices & Producer Conduct Penalties
| Unfair Trade Practice | Legal Definition | Statutory Example | Regulatory Sanctions |
|---|---|---|---|
| Rebating | Returning part of commission or valuable consideration as sales inducement | Offering $200 cash back or free golf clubs to buy a commercial policy | License revocation, misdemeanor conviction, heavy monetary fines |
| Twisting | Making false/misleading comparisons to induce policy lapse/surrender | Misrepresenting existing policy terms to replace with a new carrier | License suspension, mandatory restitution, administrative fines |
| Defamation | Publishing false or maliciously critical statements regarding an insurer | Telling a customer a rival insurer is on the verge of bankruptcy | Cease-and-desist order, civil liability for defamation damages |
| Boycott, Coercion, Intimidation | Monopolistic practices restraining business or forcing insurance purchases | Bank requiring loan applicants to buy insurance exclusively from bank agency | Federal antitrust violation (Sherman Act) and state license revocation |
| Misrepresentation | Falsifying policy terms, dividends, benefits, or financial stability | Guaranteeing future non-guaranteed policy dividends | Immediate license suspension and civil fines up to $25,000 per violation |
💡 Pro Tip:Producers act as fiduciaries for all premiums collected; commingling client premiums with personal or agency operating funds is grand theft.