NC Property and Casualty State Exam Questions and Answers 100% Pass

NC Property and Casualty State Exam Questions and Answers 100% Pass Insurance - a plan of spreading the risk of possible loss over a large number of people (Law of Large Numbers) - protects against the risk (uncertainty) of when a financial loss might occur Speculative Risk - when there is a chance of gain as well as a chance of loss (ex: buying a stock, gambling) - insurance IS NOT intended to protect against this Pure Risk - when there is a chance of loss only - not all pure risks are insurable Insurable Risk - a risk the insurance company is willing to accept - characteristics of an insurable risk 1. Low probability of a loss occurring 2. Less than catastrophic results 3. The loss must be measurable 4. The loss must be significant 5. The loss must be accidental and unintended Law of Large Numbers - makes it possible to predict future losses based upon prior experience - law states that as a large # of events are included, the difference between actual and expected results become smaller Spread of Risk - involves spreading the company's policies over a broad geographical area in order to avoid large losses in the event of a catastrophic event Adverse Selection - occurs when insureds with a high risk of loss attempt to purchase insurance and are successful in doing so - insurers attempt to PREVENT THIS (bad risk) - prevented by: 1. refusal to write 2. rating up 3. insurability standards *** deductibles do not prevent this Retention - when liability for a loss is maintained by an individual by NOT PURCHASING INSURANCE - deductible is an example of retention Transfer To shift the responsibility for a loss to an insurance company through the purchase of insurance Control/Reduction - an attempt to prevent a loss or to reduce the amount of the loss - ex: installation of a sprinkler system to reduce the amount of loss Perils Actual cause of a loss such as fire, theft, wind, hail, etc. Hazards - increase in the probability of a peril occurring - ex: bald tires on a car, faulty wires, damaged steps Principle of Indemnity - the fundamental idea that the purpose of insurance is to restore the insured to the original financial position that was enjoyed before a loss, BUT WITHOUT GAIN Private/Voluntary Insurance - neither required nor made available by the government, but does not meet recognized needs - ex: collision insurance in a PAP Social Insurance - programs either require or made available by government - ex: facility, workers comp, flood insurance Reinsurance - where insurers sell portions of their individual contracts of insurance to other companies; helps spread risk - insurance for an insurance company Indirect Losses - consequential loss - include: 1. Losing Money 2. Incurred Additional Expenses Capital Stock Companies - in business to make a profit for stockholders - owned by stockholders; elect a board of directors - profit is fully taxable to stockholder Mutual Insurance Companies - owned by policyholders; each policyholder "owns" a part of the company proportionate to their share - elects a board of directors who appoint officers - surplus returned to policyholders in the form of non-taxable policy dividend Reciprocal (Assessment) Companies - policyholders are insured by other policyholders - managed by Attorney-In-Fact who can assess the policyholders for additional premiums Classifications of Insurance Companies 1. Domestic: organized in state 2. Foreign: organized in a different state 3. Alien: organized in another country Non-Admitted Companies Property, casualty, and personal lines insurance agents are not permitted to represent or place insurance coverage with non-admitted companies because the NC Department of Insurance cannot regulate them Independent Agency System - agent can represent more than one insurance company - owns the business and retains all rights to the accounts Direct Writers (captive/exclusive) - can only represent one insurance company - insurance company retains ownership rights, not the agent Agents - representatives of the insurance company - requires a contract and appointment (something stating they can sell insurance) - given binding authority (binder = temporary evidence insurance is in effect); must be written or oral (says you ARE covered); cannot cancel binder - only the policyholder or company can Broker - representatives of the insured