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New Mexico Personal Lines Practice Exam

20 exam-style questions drawn from the same bank as our full New Mexico Personal Lines course (New Mexico Personal Lines Insurance Producer — Exam Prep). Answer all 20, then grade yourself — most state exams require 70% to pass. Explanations for every question are part of the full course.

1. A civil authority closes a neighborhood for 10 days following a wildfire that damaged a nearby home but not the insured's. The insured has to stay in a hotel. Under the HO-3 civil-authority provision, Coverage D pays:
Loss of rental income only, with no ALE for the insured's own displacementNothing — the insured's own property must sustain direct physical loss firstAdditional Living Expense for up to 2 weeks while civil authority prohibits useFull Coverage A dwelling reconstruction cost as if direct loss occurred
2. An insured backs out of his garage and strikes his own homeowners-policy storage shed, damaging both. Which coverage applies to the damage to the vehicle, and which applies to the damage to the shed?
Both the vehicle and the detached shed are paid under PAP collision because the impact occurred while the auto was being operatedVehicle damage under comprehensive; shed damage under PAP property damage liability, treated as a third-party recovery pursued against the at-fault driver of the striking auto through subrogationVehicle damage under collision on the PAP; shed damage is excluded from the PAP property damage liability (owned-property exclusion) and must be claimed under his homeowners dwelling extensionBoth items are paid under the homeowners policy as a single property occurrence under the dwelling-and-other-structures additional-coverage extension
3. A covered kitchen fire forces a family to live in a hotel for three months. Their usual food/lodging expense is $2,500/month; hotel + restaurant meals run $4,200/month. Coverage D pays:
The $1,700/month INCREASE in living expenses — i.e., the additional cost above normalThe full $4,200/month hotel-plus-meal bill paid in gross under the standard ALE provisionThe $2,500/month normal household living expense paid as the baseline ALE benefitNothing — Coverage D applies only to commercial property losses, not residential
4. An SR-22 is:
A certificate filed with the state by the insurer demonstrating the driver carries required liability insuranceA waiver of UM coverage signed by the named insured when the underlying liability limits selected are below the carrier's UM-waiver thresholdA type of auto policy written for high-risk drivers with a history of license suspensions and prior at-fault uninsured accidentsAn endorsement adding rental coverage to the PAP after a covered comprehensive or collision loss prevents normal use of the vehicle
5. An insured stores $9,000 in personal electronic data on a home server: family photos, scanned tax records, and music files. A power surge destroys the server hardware ($1,400) and corrupts all the data. The HO Coverage C special-limit on electronic data (cost of blank media plus re-creation labor) is typically very low — often $1,500 or less, sometimes only the cost of blank replacement media. How does the policy respond to the data loss?
$1,400 server only — data has no Coverage C value at all$1,400 server hardware + limited recovery for data per the special-limit sublimit (often $1,500 or just blank media cost)$9,000 — full recreation value, because the data has economic value$0 — electronic data is excluded as intangible personal property under every unendorsed HO form regardless of the media it resides on
6. Which of the following losses would be covered under a DP-3 but NOT under a DP-1 with extended coverage and V&MM?
A grease fire in the kitchen that ignites cabinetry and structural framingA hailstorm shattering windows that are listed under the EC perilA wind-driven tree falling on the roof during a covered windstorm eventAn accidental collapse of a load-bearing wall from a hidden defect
7. Under an HO-4 tenant form, Coverage A:
Does not exist on the form under the ISO HO-4 standard schedule for tenant occupantsCovers a small amount for improvements and betterments the tenant installsCovers the entire dwelling structure under the building-owner replacement-cost grantIs automatically equal to Coverage C under the HO-3 owner-occupant default ratio
8. Which of the following is NOT one of the elements that makes a risk insurable?
The loss must be due to chance, not intentional — applicable to surplus-lines placements, which the scenario explicitly excludesThe loss must be catastrophic to the entire pool simultaneouslyThe loss must be definite and measurable — required under the federal preemption framework that yields here to the state-law ruleA large number of similar exposure units must exist — required if and only if the policy includes a co-insurance penalty endorsement
9. An insured's car is destroyed by a flash flood. He carries collision but not comprehensive. The loss is:
Covered under PIP because the loss involved bodily exposure to floodwater contamination at the time of the incident on the roadwayCovered under collision because impact between the auto and floodwater counts as a covered collision-with-object loss eventCovered under liability because flood is treated as a natural-disaster liability of the insured for any auto damaged on a public roadNot covered — flood damage is a comprehensive (other-than-collision) peril; collision does not respond
10. Which is the best example of a peril?
An old, dry roofA faulty wiring systemCarelessness with cigarettesA house fire
11. PAP Part B (Medical Payments) pays:
Reasonable medical expenses for BI to insureds caused by accident, regardless of faultDamage to other people's property arising from a covered auto accident under the policyThe deductible on physical damage owed by the insured before comprehensive payment beginsLost wages of the named insured during the time off work after an accident-related injury
12. An insured's friend borrows the covered auto with permission and is injured in a single-car wreck. The friend incurs $4,000 in medical bills. Under typical PAP med pay, the friend is:
Not covered — med pay is restricted to the named insured and resident relatives who are specifically listed on the policy declarations pageCovered as an occupant of the covered auto, regardless of whether she is a resident relative of the named insuredCovered only up to 50% of the med pay limit as a non-listed driverCovered only if her own health insurance denies the claim first
13. Which underwriting practice most directly limits an insurer's exposure to adverse selection?
Classifying applicants into rating groups so each group's premium reflects the risk it bringsRaising the policy limit offered to every applicant who reports a prior loss on the applicationExtending the free-look period so applicants have longer to decide whether to keep the policyPaying producers a higher first-year commission on policies written for hard-to-place risks
14. A homeowner and an insurer disagree on the amount of loss after a covered fire. The insured estimates $185,000; the insurer estimates $120,000. Neither party disputes that the loss is covered. The HO-3 includes a standard appraisal clause. Either party may invoke appraisal, and the process will produce:
A binding determination only if both parties signed an arbitration rider at policy inceptionA non-binding mediation report the parties may accept or rejectA binding determination on the AMOUNT of loss only — coverage disputes remain for the courtsA binding determination on coverage AND amount
15. The insured's dog bites a delivery driver, causing $25,000 in medical bills and pain-and-suffering damages. The insured carries $300,000 of Coverage E and $5,000 of Coverage F. Which best describes how the policy responds?
Neither coverage applies because animal liability is universally excluded from HO Section II under the standard 'living-animal-as-personal-property' provision in every state's filed HO-3Only Coverage F responds because Coverage E categorically excludes any bodily injury claim arising from contact with the insured's owned domestic animal regardless of breedBoth Coverage E and Coverage F stack only when the dog has been formally declared dangerous by local animal-control authorities and the insured failed to disclose the designationCoverage F pays the first $5,000 of medical bills as no-fault, and Coverage E responds to the remaining bodily injury liability — assuming no breed exclusion or prior-bite exclusion applies
16. An attractive nuisance, such as an unfenced swimming pool that draws neighborhood children, is best classified as a:
Physical hazard increasing liability exposurePure benefit arising under the policy bargainSpeculative risk under the gain-or-loss testMoral hazard arising from intent to defraud
17. An insured stores fireworks in his attached garage, lights one, and it ignites the garage AND severely burns a friend who was helping. The HO-3 excludes 'expected or intended' bodily injury and property damage. The insured argues he 'didn't expect' anyone to get hurt. The insurer's coverage analysis turns on:
Whether the act of lighting fireworks was a covered 'occurrence' — meaning an ACCIDENT — given that the burn injury was the direct expected outcome of an intentional actWhether the homeowner had completed a state-approved fire-safety certification course within the 12 months immediately preceding the date of lossWhether the injured friend signed an enforceable assumption-of-risk waiver before participating in the pyrotechnics demonstration under premises-liability case lawWhether the state DOI has approved an indoor-fireworks endorsement on the HO-3 form for use within attached-garage spaces at residential premises
18. Theft of personal property under a DP-3:
Is excluded but can be added by endorsementIs automatically covered up to the Coverage C limitIs covered up to a $500 special limitIs covered only when theft occurs at a secondary residence
19. The Law of Large Numbers is fundamental to casualty rating because:
Larger pools allow actuaries to predict aggregate frequency and severity within statistically reliable boundsIt predicts the timing of any individual loss through actuarial computation of frequency and severity factors for each insured riskIt eliminates risk from the underlying casualty pool by spreading the expected loss cost across all participating policyholdersIt permits speculative gain through pooling of casualty exposures across a sufficient number of similar exposure units writing in
20. An insured buys a PAP with $100/300/100 liability limits but is not offered UM/UIM at any point during the application. Six months later she is hit by an uninsured driver. How are her UM limits determined?
UM limits are zero until she signs a UM-coverage endorsement after the loss; the carrier may not retroactively backdate coverage to pre-lossUM limits default to the state's minimum financial responsibility limits under the residual-coverage rule for unselected UM electionsUM limits default to the same $100/300/100 limits as her liability because she did not reject UM in writingUM is excluded entirely from the policy because she did not specifically request it on the application or endorse it after policy issuance

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