17 Free North Carolina P&C Practice Questions: Commercial Property Coverages (2026)
How to Use This Commercial Property Coverages Set
Commercial property is Section III of both outlines: 10 scored items on the Property exam and 15 on the Casualty exam. It is a calculation-heavy topic, and the Casualty exam gives it more weight than the Property exam does.
This set covers coinsurance, the Basic, Broad and Special causes-of-loss forms, business income and extra expense, extended business income, the earthquake endorsement, peak season coverage, debris removal and inland marine.
These 17 questions come from LanePrep's North Carolina P&C quiz bank. Work every calculation on paper before opening the explanation.
Practice Questions 1-6: Coinsurance, Causes of Loss and Business Income
Required insurance is a percentage of value. Compare the limit carried with the amount required, then decide whether a penalty applies before you do anything else.
Question 1 (Chapter 3)
A retailer insures its building for $800,000 on an 80% coinsurance clause. The actual replacement cost of the building is $1,000,000. A covered fire causes $400,000 of damage. What amount will the insurer pay?
- A) $360,000
- B) $320,000
- C) $200,000
- D) $400,000
Show answer & explanation
Answer: D
Required insurance = 80% of $1,000,000 = $800,000. The insured's $800,000 limit equals the required amount, so no coinsurance penalty applies. The insurer therefore pays the full $400,000 loss (there is no deductible stated). A and B both apply penalties that do not exist here. D is unrelated to the correct calculation.
Question 2 (Chapter 3)
An insurer offers three cause-of-loss forms: Basic, Broad, and Special. Which of the following perils is added at the Broad level but is not part of the Basic form?
- A) Fire
- B) Windstorm or hail
- C) Explosion
- D) Falling objects
Show answer & explanation
Answer: D
The Basic form's named perils include fire, lightning, explosion, windstorm/hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. The Broad form keeps all of those and adds falling objects, the weight of ice/snow/sleet, and certain water-damage and collapse perils. Fire, windstorm/hail, and explosion (A, C, D) are already covered under the Basic form.
Question 3 (Chapter 3)
A manufacturing plant has Business Income coverage with a 90% coinsurance requirement based on the insured's total revenue of $5,000,000. The policy's face amount is $3,000,000. What is the minimum amount of Business Income insurance the plant must carry to avoid a coinsurance penalty?
- A) $3,000,000
- B) $2,250,000
- C) $5,000,000
- D) $4,500,000
Show answer & explanation
Answer: D
Coinsurance for Business Income is calculated as a percentage of the base specified in the policy (here, total revenue). 90% of $5,000,000 = $4,500,000, so the plant must carry at least $4,500,000 of Business Income coverage to avoid a penalty. A ($3,000,000) is the current face amount, which falls short of the requirement. B is below the required amount, and C exceeds the requirement but is not the minimum asked for.
Question 4 (Chapter 3)
A construction contractor carries Inland Marine coverage for "Bailee's Customer" property. The contractor's truck is stolen, and inside it is a client's $25,000 worth of high‑value tools. Which coverage pays for the client's loss?
- A) The contractor's Commercial Property policy
- B) The contractor's Businessowners Policy
- C) The contractor's Workers' Compensation policy
- D) The Bailee's Customer endorsement on the Inland Marine policy
Show answer & explanation
Answer: D
Bailee's Customers coverage is an Inland Marine endorsement that protects property of customers in the bailee's possession. Therefore the client's loss is covered under the Bailee's Customers endorsement (option D). A is incorrect because Commercial Property does not cover bailed-out property of others. B is incorrect for the same reason. C is unrelated; Workers' Compensation covers employee injuries, not property loss.
Question 5 (Chapter 3)
Which of the following causes of loss is typically covered under a Special cause-of-loss form but excluded under a Basic cause-of-loss form?
- A) Theft
- B) Fire
- C) Hail
- D) Windstorm
Show answer & explanation
Answer: A
The Basic cause-of-loss form covers a short list of named perils: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse and volcanic action. Theft is not on that list (and the Broad form does not add it either), while the Special form covers any cause of loss not excluded, which includes theft subject to the form's limitations. Fire (B), hail (C) and windstorm (D) are already covered under the Basic form.
Question 6 (Chapter 3)
A Business Income coverage form includes an optional "monthly limit of indemnity" of $40,000. The insured experiences a covered interruption lasting three full months. Assuming the daily rate is $1,500, what is the maximum amount payable?
- A) $135,000
- B) $150,000
- C) $120,000
- D) $180,000
Show answer & explanation
Answer: C
The monthly limit caps each month's payment at $40,000. Over three months the maximum is 3 × $40,000 = $120,000, even though the calculated loss (30 days × $1,500 × 3 = $135,000) exceeds the limit. A, B, and D ignore the monthly cap.
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Practice Questions 7-12: Actual Cash Value, Limits and Policy Conditions
These scenarios combine a valuation clause with a limit or a condition. Decide the settlement basis first, then test coinsurance, then apply the deductible.
Question 7 (Chapter 3)
A North Carolina-based auto repair shop operates out of a 2,500 sq. ft. building valued at $1,200,000. The shop's owner purchases a Building and Personal Property (BPP) policy with a Special Cause of Loss form and an 80% coinsurance clause. The policy limit is set at $960,000 for the building, exactly meeting the 80% coinsurance requirement. During a covered hailstorm, the roof sustains damage; the actual replacement cost to repair the roof is $350,000, and the insurer determines the roof was 20% depreciated at the time of the loss. The insured has not purchased the Replacement Cost Endorsement. How much will the insurer pay for the roof damage?
- A) $280,000, the actual cash value of the roof ($350,000 x 80%, after 20% depreciation), since no coinsurance penalty applies
- B) $350,000, the full replacement cost, since the coinsurance requirement is met
- C) $320,000, a coinsurance penalty applied to the replacement cost
- D) $245,000, the actual cash value further reduced by a coinsurance penalty
Show answer & explanation
Answer: A
Because the insured did not purchase the Replacement Cost Endorsement, the loss settles at actual cash value: $350,000 x 80% (after 20% depreciation) = $280,000. No coinsurance penalty applies because the insured's $960,000 limit exactly meets the 80% coinsurance requirement on the building's $1,200,000 value. B wrongly pays full replacement cost despite the missing endorsement. C and D wrongly apply a coinsurance penalty that does not exist here.
Question 8 (Chapter 3)
A retail store's BPP policy contains a vacancy clause that limits coverage if the premises are vacant for more than 30 days. The store closes for renovations for 45 days and a covered water leak occurs on day 40. What is the effect of the vacancy clause?
- A) The loss is covered because the store is still owned by the insured
- B) Coverage is reduced to 50% of the loss
- C) Only the building portion is covered, not the personal property
- D) The loss is not covered because the premises were vacant over 30 days
Show answer & explanation
Answer: D
The vacancy clause in this BPP policy excludes coverage when the premises are vacant beyond the specified period (30 days). Since the loss occurred on day 40, the policy excludes the loss, so D is correct. A is wrong because continued ownership does not override a vacancy exclusion. B is not a typical provision; the clause is an exclusion, not a percentage reduction. C is incorrect because the vacancy clause as written here excludes coverage broadly, not just for personal property.
Question 9 (Chapter 3)
A North Carolina hotel purchases a Commercial Property policy with a Special Cause of Loss form and an Earthquake Endorsement. The endorsement includes a $250,000 deductible and a $5,000,000 limit. During a covered earthquake, the hotel sustains $3,000,000 in building damage and $500,000 in personal property damage. How much will the insurer pay for the total earthquake loss?
- A) $3,500,000, the full combined loss with no deductible applied
- B) $3,000,000, applying the deductible to the building loss only
- C) $3,250,000, applying a single $250,000 deductible once to the combined loss
- D) $2,750,000, applying the deductible separately to both the building and personal property losses
Show answer & explanation
Answer: C
Earthquake endorsements typically apply a single per-occurrence deductible to the combined loss from all covered property, rather than separate deductibles for each coverage. Combined loss = $3,000,000 + $500,000 = $3,500,000; minus the single $250,000 deductible = $3,250,000, which is within the $5,000,000 limit. A ignores the deductible. B applies the deductible to only part of the loss. D invents a separate-deductible structure that is not the standard approach for this endorsement.
Question 10 (Chapter 3)
A North Carolina contractor's Inland Marine policy covering a Contractors Equipment Floater requires prompt notice of loss as a condition of coverage. The contractor discovers that $300,000 worth of equipment was stolen but waits an unreasonably long time before reporting the theft to the insurer, well beyond what the policy allows. The policy includes a $50,000 deductible. How will the insurer most likely handle the claim?
- A) Deny the claim, because failing to give the required prompt notice of loss is a breach of a policy condition
- B) Pay $250,000, after applying the deductible, because prompt notice is not a condition of coverage
- C) Pay $300,000 in full, because the policy limit is higher than the loss
- D) Pay $500,000, the full policy limit, regardless of when the loss was reported
Show answer & explanation
Answer: A
Property policies, including inland marine floaters, require the insured to give prompt notice of a loss as a condition of coverage. An insured's unreasonable delay in reporting a loss can be treated as a breach of that condition, giving the insurer grounds to deny the claim. B and C wrongly assume notice timing does not matter. D ignores both the deductible and the notice condition.
Question 11 (Chapter 3)
A North Carolina-based auto repair shop purchases a Businessowner's Policy (BOP) with Section I (Property Coverage) and Business Income Coverage. The BOP includes a $1,500,000 limit for the building, a $750,000 limit for Business Personal Property (BPP), and a $300,000 face amount for Business Income with a 90% coinsurance requirement based on annual revenue. The shop's annual revenue is $4,000,000. After a covered flood (excluded peril), the shop suffers a $200,000 loss to BPP. The insured later discovers a covered fire causes an additional $150,000 loss to BPP. The policy includes a $25,000 deductible for BPP claims. How much will the insurer pay for the fire-related BPP loss, considering the deductible?
- A) $125,000 (fire loss minus deductible, as the flood loss is excluded)
- B) $0 (the flood loss exhausts the deductible for the fire loss)
- C) $150,000 (full amount of the fire loss, as the deductible applies per claim)
- D) $175,000 (fire loss minus deductible, with the flood loss reducing the total deductible)
Show answer & explanation
Answer: A
The $25,000 deductible applies per claim, not per peril or policy year. Since the flood loss is excluded, it does not reduce the deductible for the fire-related loss. Thus, the $150,000 fire loss is reduced by the $25,000 deductible, resulting in a $125,000 payment. Option B is wrong because the flood loss does not affect the deductible for the fire claim. Option C is wrong because the deductible applies. Option D is wrong because the flood loss is excluded and does not reduce the deductible.
Question 12 (Chapter 3)
A North Carolina-based electronics manufacturing plant purchases a Commercial Property policy with a Special Cause of Loss form and an 80% coinsurance clause. The plant's Business Personal Property (BPP) includes a $1,500,000 replacement cost inventory of high-tech components. The insured carries a $1,200,000 limit for BPP. During a covered lightning strike, the inventory sustains $800,000 in damage (replacement cost). The insured did not purchase the Replacement Cost Endorsement. The policy's loss valuation clause for BPP is actual cash value (ACV) with a 15% depreciation factor. The plant's accountant estimates the depreciated value of the damaged inventory at $680,000. How much will the insurer pay for the BPP loss, considering the coinsurance clause and ACV valuation?
- A) $680,000, the actual cash value of the loss, since the coinsurance requirement is exactly met and no penalty applies
- B) $544,000, applying an unnecessary coinsurance penalty on top of the ACV
- C) $612,000, from an inconsistent blended calculation
- D) $800,000, the full replacement cost, ignoring the lack of a Replacement Cost Endorsement
Show answer & explanation
Answer: A
The insured's $1,200,000 BPP limit exactly meets the 80% coinsurance requirement (80% x $1,500,000 = $1,200,000), so no coinsurance penalty applies. Because the Replacement Cost Endorsement was not purchased, the loss settles at actual cash value: $800,000 replacement cost x 85% (after 15% depreciation) = $680,000, which is within the $1,200,000 limit, so the insurer pays the full $680,000. B and C apply penalties or blended calculations that do not apply once coinsurance is satisfied. D wrongly pays full replacement cost despite the missing endorsement.
Practice Questions 13-17: Endorsements, Extra Expense and Inland Marine
These questions ask which coverage or endorsement answers a given exposure: a seasonal inventory peak, a temporary location, property in transit.
Question 13 (Chapter 3)
A North Carolina retail store experiences a significant increase in inventory during the holiday season, exceeding its standard Business Personal Property (BPP) limit. To cover this fluctuating inventory, the store adds a Peak Season Coverage endorsement to its Commercial Property policy. How does this endorsement typically function?
- A) It provides a separate, fixed limit for the entire holiday season, regardless of daily inventory fluctuations.
- B) It automatically increases the BPP limit by a predetermined amount or percentage for a specified period.
- C) It requires the insured to report inventory values daily, and the limit adjusts accordingly.
- D) It replaces the standard BPP limit with an 'agreed value' for the peak season.
Show answer & explanation
Answer: B
Peak Season Coverage is an endorsement that provides for an increase in the amount of insurance for specific periods of time to cover fluctuating inventory, such as during holiday seasons. It's an automatic increase for a defined period, not a reporting form (which requires regular reporting) or an agreed value (which waives coinsurance and sets a specific value).
Question 14 (Chapter 3)
A North Carolina veterinary clinic experiences a covered burst pipe that renders its examination rooms unusable. To continue serving its patients and minimize the duration of the shutdown, the clinic leases temporary space, rents specialized equipment, and pays overtime to staff working in the temporary location. Which type of commercial property coverage is primarily designed to cover these types of costs?
- A) Business Income Coverage.
- B) Building and Personal Property Coverage.
- C) Extra Expense Coverage.
- D) Commercial General Liability.
Show answer & explanation
Answer: C
Extra Expense Coverage is specifically designed to cover necessary expenses incurred by the insured during the period of restoration that are over and above the normal cost of operations, with the purpose of continuing operations and minimizing the suspension of business. Business Income covers lost profits and continuing expenses. BPP covers direct physical damage to property. Commercial General Liability covers third-party liability.
Question 15 (Chapter 3)
A North Carolina retail store suffers a covered fire that destroys a significant portion of its inventory and shelving. The cost to remove the charred debris from the premises is $25,000. The store's Building and Personal Property (BPP) policy has a $500,000 limit for Business Personal Property and includes the standard Debris Removal additional coverage. How much will the BPP policy pay for the debris removal, assuming the direct loss to property is $300,000?
- A) $12,500, as debris removal is typically limited to 25% of the direct loss.
- B) $25,000, as it falls within the standard debris removal limit.
- C) $15,000, as debris removal is typically limited to 5% of the direct loss.
- D) The BPP policy will not pay for debris removal, as it is an excluded expense.
Show answer & explanation
Answer: B
The Debris Removal additional coverage in a standard BPP policy typically pays for the cost of removing debris of covered property if the debris is caused by a covered cause of loss. The coverage is usually limited to 25% of the sum of the direct physical loss plus the deductible, up to the policy limit. However, an additional amount of up to $25,000 may be available if the debris removal expense exceeds the 25% limit, or if the sum of the direct loss and debris removal exceeds the policy limit. In this scenario, $25,000 is the full cost, and it falls within the additional $25,000 allowance, as well as being less than 25% of the direct loss ($300,000 * 0.25 = $75,000). Therefore, the full $25,000 would be paid. Options A, C, and D misrepresent the standard debris removal provisions.
Question 16 (Chapter 3)
A North Carolina restaurant experiences a covered fire that forces it to close for four months for repairs. Its Business Income Coverage Form includes 'Extended Business Income' coverage. After the restaurant reopens, it takes an additional three months for its revenue to gradually return to the pre-loss levels. For how long would the Extended Business Income coverage typically provide indemnity for the lost income after the restaurant reopens?
- A) For the entire three months it takes to return to normal operations, as long as it does not exceed 12 months from the date of loss.
- B) For a maximum of 30 days after the restaurant reopens, as this is the standard limit for Extended Business Income.
- C) For a maximum of 60 days after the restaurant reopens, as this is the standard limit for Extended Business Income.
- D) Only for the first 15 days after reopening, as it is intended for short-term recovery.
Show answer & explanation
Answer: C
Extended Business Income coverage pays for the loss of business income that continues after the period of restoration ends (when the property is repaired and operations resume) until the business returns to its normal operating level, up to a stated maximum. In the current ISO Business Income Coverage Form that default is 60 consecutive days after operations resume (option C), unless an endorsement extends it. A is incorrect because the extension is a fixed number of days after reopening, not an open-ended period measured from the date of loss. B reflects the pre-2012 edition of the form, and D is shorter than any edition provides.
Question 17 (Chapter 3)
A North Carolina company specializes in installing large, custom-built water filtration systems for municipal facilities. These systems are transported to various job sites and installed over several months. To protect against damage or theft during transit and installation, the company purchases an Inland Marine policy. What is the primary reason an Inland Marine policy is better suited for this risk than a standard Commercial Property policy?
- A) Inland Marine policies offer lower deductibles than Commercial Property policies.
- B) Inland Marine policies are designed to cover property that is mobile, in transit, or at various, changing locations, which standard Commercial Property policies typically do not cover adequately.
- C) Commercial Property policies only cover buildings, not equipment or inventory.
- D) Inland Marine policies provide liability coverage for installation errors, which Commercial Property policies do not.
Show answer & explanation
Answer: B
Inland Marine insurance is specifically designed to cover property that is movable, in transit, or is an instrument of transportation or communication. Standard Commercial Property policies primarily cover property at a fixed location. For property like custom-built systems that are transported to job sites and are in the process of installation, an Inland Marine policy (such as an Installation Floater or Builders Risk - Inland Marine) provides the necessary coverage for these mobile and changing exposures. Options A, C, and D are incorrect; deductibles vary, Commercial Property covers more than just buildings, and Inland Marine is primarily property coverage, not liability for errors.
The Mistakes That Cost Marks
Applying a penalty that does not exist. When the limit carried equals the coinsurance requirement, nothing is reduced. Always compute the requirement first.
Mixing up the causes-of-loss forms. Basic names perils, Broad adds more named perils such as falling objects, and Special covers risks not excluded.
Paying replacement cost without the endorsement. If replacement cost was not purchased, the loss is valued at actual cash value.
Reading business income as a rate times calendar time. A monthly limit or a face amount can cap the payment before the period of indemnity ends.
Treating Extra Expense and Business Income as the same thing. One replaces lost income, the other pays costs above normal to keep operating.
Your Next Step
Pick the chapter where you missed the most questions and go back to its audio lesson, then retest. For the full list of sets, see the free North Carolina P&C practice question hub. To see how the audio lessons and quizzes work, try the course preview.
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