ILLINOIS ADJUSTER EXAM 2026 - PRACTICE
QUESTIONS , ANSWERS & RATIONALES
**1. INSURANCE BASICS & PRINCIPLES
**1.** Which of the following is NOT an element of a valid insurance contract?
A) Consideration
B) Legal purpose
C) Oral agreement **(correct answer)**
D) Competent parties
**RATIONALE:** Insurance contracts must be in writing to be enforceable under
the Statute of Frauds; oral agreements lack the required written documentation
and legal standing.
**2.** The principle that prevents an insured from recovering more than the
actual amount of loss is called:
A) Subrogation
B) Indemnity **(correct answer)**
C) Utmost good faith
D) Insurable interest
,**RATIONALE:** **Indemnity ensures the insured is restored to their pre-loss
financial position without profiting from the loss, which is fundamental to
property and casualty insurance.**
**3.** When an insurance company transfers a portion of its risk to another
insurer, this is known as:
A) Coinsurance
B) Reinsurance **(correct answer)**
C) Self-insurance
D) Ceding
**RATIONALE:** **Reinsurance allows primary insurers to reduce their exposure
to large losses by transferring risk to reinsurers, stabilizing their financial
position.**
**4.** The doctrine of utmost good faith requires:
A) Only the insurer to disclose material facts
B) Only the insured to disclose material facts
C) Both parties to disclose all material facts **(correct answer)**
D) Neither party to disclose any facts
**RATIONALE:** **Uberrimae fidei (utmost good faith) imposes a duty of
complete honesty and disclosure on both insurer and insured regarding all
material facts affecting the risk.**
,**5.** An insured has a duty to notify the insurer of a claim within:
A) 24 hours
B) A reasonable time **(correct answer)**
C) 30 days only
D) 1 year
**RATIONALE:** **While policies may specify timeframes, Illinois law generally
requires "reasonable" prompt notice; unreasonable delay may void coverage if it
prejudices the insurer.**
**6.** Which type of policy covers all perils except those specifically excluded?
A) Named perils policy
B) Open perils policy **(correct answer)**
C) Basic form policy
D) Broad form policy
**RATIONALE:** **Open perils (all-risk) policies provide broader protection by
covering any cause of loss not explicitly excluded, shifting the burden of proof to
the insurer.**
**7.** The amount an insured must pay before insurance coverage begins is
called:
A) Premium
B) Deductible **(correct answer)**
C) Coinsurance
, D) Limit
**RATIONALE:** **The deductible is the insured's initial out-of-pocket expense
designed to eliminate small claims and reduce moral hazard.**
**8.** Actual cash value is calculated as:
A) Replacement cost minus depreciation **(correct answer)**
B) Replacement cost plus depreciation
C) Market value only
D) Original purchase price
**RATIONALE:** **ACV represents the fair market value of property at the time
of loss, accounting for physical deterioration and obsolescence through
depreciation.**
**9.** A binder provides:
A) Permanent coverage
B) Temporary coverage pending policy issuance **(correct answer)**
C) Only liability coverage
D) Coverage only after inspection
**RATIONALE:** **Binders are temporary insurance contracts that provide
immediate coverage until the formal policy is issued, typically valid for 30-60
days.**
QUESTIONS , ANSWERS & RATIONALES
**1. INSURANCE BASICS & PRINCIPLES
**1.** Which of the following is NOT an element of a valid insurance contract?
A) Consideration
B) Legal purpose
C) Oral agreement **(correct answer)**
D) Competent parties
**RATIONALE:** Insurance contracts must be in writing to be enforceable under
the Statute of Frauds; oral agreements lack the required written documentation
and legal standing.
**2.** The principle that prevents an insured from recovering more than the
actual amount of loss is called:
A) Subrogation
B) Indemnity **(correct answer)**
C) Utmost good faith
D) Insurable interest
,**RATIONALE:** **Indemnity ensures the insured is restored to their pre-loss
financial position without profiting from the loss, which is fundamental to
property and casualty insurance.**
**3.** When an insurance company transfers a portion of its risk to another
insurer, this is known as:
A) Coinsurance
B) Reinsurance **(correct answer)**
C) Self-insurance
D) Ceding
**RATIONALE:** **Reinsurance allows primary insurers to reduce their exposure
to large losses by transferring risk to reinsurers, stabilizing their financial
position.**
**4.** The doctrine of utmost good faith requires:
A) Only the insurer to disclose material facts
B) Only the insured to disclose material facts
C) Both parties to disclose all material facts **(correct answer)**
D) Neither party to disclose any facts
**RATIONALE:** **Uberrimae fidei (utmost good faith) imposes a duty of
complete honesty and disclosure on both insurer and insured regarding all
material facts affecting the risk.**
,**5.** An insured has a duty to notify the insurer of a claim within:
A) 24 hours
B) A reasonable time **(correct answer)**
C) 30 days only
D) 1 year
**RATIONALE:** **While policies may specify timeframes, Illinois law generally
requires "reasonable" prompt notice; unreasonable delay may void coverage if it
prejudices the insurer.**
**6.** Which type of policy covers all perils except those specifically excluded?
A) Named perils policy
B) Open perils policy **(correct answer)**
C) Basic form policy
D) Broad form policy
**RATIONALE:** **Open perils (all-risk) policies provide broader protection by
covering any cause of loss not explicitly excluded, shifting the burden of proof to
the insurer.**
**7.** The amount an insured must pay before insurance coverage begins is
called:
A) Premium
B) Deductible **(correct answer)**
C) Coinsurance
, D) Limit
**RATIONALE:** **The deductible is the insured's initial out-of-pocket expense
designed to eliminate small claims and reduce moral hazard.**
**8.** Actual cash value is calculated as:
A) Replacement cost minus depreciation **(correct answer)**
B) Replacement cost plus depreciation
C) Market value only
D) Original purchase price
**RATIONALE:** **ACV represents the fair market value of property at the time
of loss, accounting for physical deterioration and obsolescence through
depreciation.**
**9.** A binder provides:
A) Permanent coverage
B) Temporary coverage pending policy issuance **(correct answer)**
C) Only liability coverage
D) Coverage only after inspection
**RATIONALE:** **Binders are temporary insurance contracts that provide
immediate coverage until the formal policy is issued, typically valid for 30-60
days.**
