I wanted to do a good test of the low oil alarm on a 1991 Mercury XR4 150. I took the oil cap off and carefully and gently put about half of a toothpick exactly the right length between the cap and the float to force the float under the cap in the full down position. Then I taped it in place with narrow tape. Then reinstalled oil cap. After the test I made sure the toothpick was still in place with the float in the full down position. With the ignition key on the alarm did not go off. Does this sound like a valid test? Does the engine have to be running for the alarm to work?
Yes, the engine needs to be running for the alarm to sound, but you can check without such an elaborate setup. Disconnect the wires to the cap. Start the engine, alarm should sound. That proves the alarm side of the system. Next get a multimeter and check the resistance of the switch in the cap. With the cap in place and the tank full, there should be zero (or near zero) resistance. With the meter still connected, lift the cap up out of the oil. As the float drops, the resistance should go to 'infinite'... That's tests both the alarm and the float switch. Refit the cap to the oil tank and reconnect the wires.
A more important test is the 'rotation sensor'. To test that, disconnect either one of the wires running to it, and run the engine, the alarm should sound.
Chris......