USAA Licensing Exam Questions and Correct
Answers | Latest Update 2026/2027 | Graded
A+
SECTION 1: INSURANCE BASICS & RISK
Question 1: What is the primary purpose of insurance?
• A) To increase investment returns
• B) To transfer risk from one person or organization to an insurance company
• C) To eliminate all possibility of loss
• D) To accumulate wealth over time
Answer: B
Rationale: Insurance is fundamentally a mechanism for transferring risk. The
insured pays a premium to transfer the financial consequences of a potential loss
to the insurer .
Question 2: Which type of risk involves the chance of both gain and loss and is
generally NOT insurable?
• A) Pure risk
• B) Speculative risk
• C) Particular risk
• D) Fundamental risk
,Answer: B
Rationale: Speculative risk offers the opportunity for either gain or loss (e.g.,
gambling, investing) and is therefore not insurable. Pure risk offers only the
chance of loss and is insurable .
Question 3: What is an example of a Morale Hazard?
• A) A faulty electrical system in a house
• B) An insured who intentionally burns down their warehouse
• C) An insured who is careless with their phone because it is insured
• D) A driver who parks in a high-crime area
Answer: C
Rationale: A morale hazard (or attitudinal hazard) stems from a careless or
indifferent attitude toward risk BECAUSE insurance is in place. Intentionally
causing a loss is a moral hazard, not a morale hazard .
Question 4: The principle of indemnity means:
• A) The insured can profit from a loss
• B) The insurer must pay claims within 5 business days
• C) The insured is restored to their pre-loss financial condition
• D) The policy can be cancelled at any time
Answer: C
Rationale: Indemnity ensures the insured is neither enriched nor impoverished by
a claim. They are returned to approximately the same financial position they were
in before the loss occurred .
,SECTION 2: INSURANCE CONTRACT & POLICY COMPONENTS
Question 5: What are the 4 essential parts of an insurance contract (D.I.C.E.)?
• A) Deductible, Interest, Coverage, Exceptions
• B) Declarations, Insuring Agreement, Conditions, Exclusions
• C) Damages, Indemnity, Claims, Endorsements
• D) Documentation, Investigation, Coverage, Evaluation
Answer: B
Rationale: The four parts are: Declarations (identifies who/what is
insured), Insuring Agreement (insurer's promise to pay), Conditions (duties of
both parties), and Exclusions (what is not covered) .
Question 6: Which part of an insurance policy "personalizes" the policy as to
whom and what are insured?
• A) Insuring Agreement
• B) Conditions
• C) Declarations
• D) Exclusions
Answer: C
Rationale: The Declarations page contains the policy number, named insured,
premium, policy term, coverage limits, and a description of the insured property
or risk .
Question 7: Insurance policies are considered contracts of adhesion. This means:
• A) Both parties have equal bargaining power
, • B) The policy is written by the insurer, and any ambiguities are interpreted
in favor of the insured
• C) The contract is only valid for one year
• D) The insured can negotiate all policy terms
Answer: B
Rationale: Because the insured cannot negotiate the terms of a standard policy,
courts interpret any ambiguous language in favor of the insured .
Question 8: The voluntary relinquishment of a known legal right is called:
• A) Estoppel
• B) Concealment
• C) Waiver
• D) Subrogation
Answer: C
Rationale: Waiver is the intentional and voluntary giving up of a known right.
Estoppel prevents a party from denying a fact based on prior actions that another
party relied upon .
SECTION 3: TYPES OF INSURERS & ADJUSTERS
Question 9: An adjuster who works on behalf of the insured (not the insurance
company) to negotiate a claim settlement is called a:
• A) Staff adjuster
• B) Independent adjuster
• C) Public adjuster
• D) Catastrophe adjuster
Answers | Latest Update 2026/2027 | Graded
A+
SECTION 1: INSURANCE BASICS & RISK
Question 1: What is the primary purpose of insurance?
• A) To increase investment returns
• B) To transfer risk from one person or organization to an insurance company
• C) To eliminate all possibility of loss
• D) To accumulate wealth over time
Answer: B
Rationale: Insurance is fundamentally a mechanism for transferring risk. The
insured pays a premium to transfer the financial consequences of a potential loss
to the insurer .
Question 2: Which type of risk involves the chance of both gain and loss and is
generally NOT insurable?
• A) Pure risk
• B) Speculative risk
• C) Particular risk
• D) Fundamental risk
,Answer: B
Rationale: Speculative risk offers the opportunity for either gain or loss (e.g.,
gambling, investing) and is therefore not insurable. Pure risk offers only the
chance of loss and is insurable .
Question 3: What is an example of a Morale Hazard?
• A) A faulty electrical system in a house
• B) An insured who intentionally burns down their warehouse
• C) An insured who is careless with their phone because it is insured
• D) A driver who parks in a high-crime area
Answer: C
Rationale: A morale hazard (or attitudinal hazard) stems from a careless or
indifferent attitude toward risk BECAUSE insurance is in place. Intentionally
causing a loss is a moral hazard, not a morale hazard .
Question 4: The principle of indemnity means:
• A) The insured can profit from a loss
• B) The insurer must pay claims within 5 business days
• C) The insured is restored to their pre-loss financial condition
• D) The policy can be cancelled at any time
Answer: C
Rationale: Indemnity ensures the insured is neither enriched nor impoverished by
a claim. They are returned to approximately the same financial position they were
in before the loss occurred .
,SECTION 2: INSURANCE CONTRACT & POLICY COMPONENTS
Question 5: What are the 4 essential parts of an insurance contract (D.I.C.E.)?
• A) Deductible, Interest, Coverage, Exceptions
• B) Declarations, Insuring Agreement, Conditions, Exclusions
• C) Damages, Indemnity, Claims, Endorsements
• D) Documentation, Investigation, Coverage, Evaluation
Answer: B
Rationale: The four parts are: Declarations (identifies who/what is
insured), Insuring Agreement (insurer's promise to pay), Conditions (duties of
both parties), and Exclusions (what is not covered) .
Question 6: Which part of an insurance policy "personalizes" the policy as to
whom and what are insured?
• A) Insuring Agreement
• B) Conditions
• C) Declarations
• D) Exclusions
Answer: C
Rationale: The Declarations page contains the policy number, named insured,
premium, policy term, coverage limits, and a description of the insured property
or risk .
Question 7: Insurance policies are considered contracts of adhesion. This means:
• A) Both parties have equal bargaining power
, • B) The policy is written by the insurer, and any ambiguities are interpreted
in favor of the insured
• C) The contract is only valid for one year
• D) The insured can negotiate all policy terms
Answer: B
Rationale: Because the insured cannot negotiate the terms of a standard policy,
courts interpret any ambiguous language in favor of the insured .
Question 8: The voluntary relinquishment of a known legal right is called:
• A) Estoppel
• B) Concealment
• C) Waiver
• D) Subrogation
Answer: C
Rationale: Waiver is the intentional and voluntary giving up of a known right.
Estoppel prevents a party from denying a fact based on prior actions that another
party relied upon .
SECTION 3: TYPES OF INSURERS & ADJUSTERS
Question 9: An adjuster who works on behalf of the insured (not the insurance
company) to negotiate a claim settlement is called a:
• A) Staff adjuster
• B) Independent adjuster
• C) Public adjuster
• D) Catastrophe adjuster
