North Carolina Property and Casualty
Insurance Overview Actual EXAM 2025
QUESTIONS AND ANSWERS
What is a recommended strategy for reading exam questions? - ANS Slow down and read
each question thoroughly, paying attention to words like 'not', 'except', or 'unless'.
What is the definition of insurance as provided in the manual? - ANS Insurance is a plan of
spreading the risk of possible loss over a large number of people, protecting against the
uncertainty of when a financial loss might occur.
What mathematical principle is insurance based on? - ANS The Law of Large Numbers.
What is a speculative risk? - ANS A risk where there is a chance of gain as well as a chance of
loss.
What is emphasized about the nature of the insurance industry? - ANS It is a dependable and
desirable field for a business career, offering opportunities for continuous learning and success.
What is the significance of the first thought during the exam? - ANS Your first thought is
usually the best one.
What is the importance of reading questions carefully in the exam? - ANS The ability to read
carefully is almost as important as content knowledge for the exam.
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, What is a speculative risk? - ANS A speculative risk is when there is a chance of gain as well
as a chance of loss, such as buying a stock or gambling.
What is a pure risk? - ANS A pure risk is when there is a chance of loss only, and these risks
are the subject of insurance protection, although not all pure risks are insurable.
What are the characteristics of an insurable risk? - ANS An insurable risk has low probability
of loss, less than catastrophic results, measurable loss, significant loss, and the loss must be
accidental and unintended.
What does probability measure in the context of insurance? - ANS Probability measures the
chance of an event occurring and is a measure of uncertainty, highest when probability is 50%.
What is the Law of Large Numbers? - ANS The Law of Large Numbers states that as a larger
number of events are included, the difference between actual and expected results becomes
smaller, allowing for predictions of future losses.
What is geographic dispersion in insurance? - ANS Geographic dispersion, or 'spread of risk',
is spreading exposed units over a large area to avoid high losses in the event of a catastrophe.
What is adverse selection in insurance? - ANS Adverse selection is the tendency of people
with a higher probability of loss to buy and maintain insurance coverage, which can negatively
impact the insurer.
What is risk retention? - ANS Risk retention is when an individual maintains liability for a loss
by not purchasing insurance, such as having a deductible in an insurance policy.
What does risk transfer mean in insurance? - ANS Risk transfer is shifting the responsibility
for a loss to an insurance company through the purchase of insurance.
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, What is risk control or reduction? - ANS Risk control or reduction involves attempts to
prevent a loss or reduce the amount of a loss, such as building earthquake-resistant structures.
What are perils in insurance? - ANS Perils are the actual causes of loss, such as fire, theft,
wind, or hail.
What are hazards in the context of insurance? - ANS Hazards increase the probability of a
peril occurring, such as bald tires increasing the chance of a wreck.
What is the Principle of Indemnity in insurance? - ANS The Principle of Indemnity states that
insurance aims to restore the insured to their original financial position before a loss, without
gain.
What does property insurance cover? - ANS Property insurance indemnifies a person or
business for loss of tangible property or loss of income produced by that property.
What does casualty insurance provide? - ANS Casualty insurance provides protection against
unexpected costs due to acts causing bodily injury or property damage to another individual.
What is private or voluntary insurance? - ANS Private or voluntary insurance is where
individuals seek coverage to meet recognized needs, not required or provided by the
government.
What is social insurance? - ANS Social insurance consists of programs required or made
available by the government, such as Workers Compensation and Flood Insurance.
What is reinsurance? - ANS Reinsurance is when insurers sell portions of their individual
contracts of insurance to other companies.
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@COPYRIGHT BRAINBARTER 2025/2026
, What is the purpose of reinsurance for insurance companies? - ANS To spread risk and
improve cash positions by lowering reserve requirements.
What are Capital Stock Companies? - ANS Proprietary companies that aim to make a profit
for stockholders, who retain management responsibility through a Board of Directors.
How do Capital Stock Companies distribute profits to stockholders? - ANS In the form of a
commercial stock dividend that is fully taxable.
What is the ownership structure of Mutual Companies? - ANS They are organized on a non-
profit basis with ownership resting with the policyholders.
How do Mutual Companies return operating surpluses to policyholders? - ANS As a non-
taxable policy dividend.
What are Reciprocal (Assessment) Companies? - ANS Non-incorporated associations of
individuals or businesses that engage in cooperative insurance, where each policyholder insures
the others.
Who manages Reciprocal Companies? - ANS An Attorney-in-Fact, who is not necessarily a
lawyer.
What can the Attorney-in-Fact do if underwriting losses occur in Reciprocal Companies? -
ANS Assess policyholders for additional premiums to maintain financial solvency.
How are insurance companies classified by domicile? - ANS As Domestic (organized in the
state), Foreign (organized in another state), or Alien (organized in another country).
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@COPYRIGHT BRAINBARTER 2025/2026
Insurance Overview Actual EXAM 2025
QUESTIONS AND ANSWERS
What is a recommended strategy for reading exam questions? - ANS Slow down and read
each question thoroughly, paying attention to words like 'not', 'except', or 'unless'.
What is the definition of insurance as provided in the manual? - ANS Insurance is a plan of
spreading the risk of possible loss over a large number of people, protecting against the
uncertainty of when a financial loss might occur.
What mathematical principle is insurance based on? - ANS The Law of Large Numbers.
What is a speculative risk? - ANS A risk where there is a chance of gain as well as a chance of
loss.
What is emphasized about the nature of the insurance industry? - ANS It is a dependable and
desirable field for a business career, offering opportunities for continuous learning and success.
What is the significance of the first thought during the exam? - ANS Your first thought is
usually the best one.
What is the importance of reading questions carefully in the exam? - ANS The ability to read
carefully is almost as important as content knowledge for the exam.
1
Page
@COPYRIGHT BRAINBARTER 2025/2026
, What is a speculative risk? - ANS A speculative risk is when there is a chance of gain as well
as a chance of loss, such as buying a stock or gambling.
What is a pure risk? - ANS A pure risk is when there is a chance of loss only, and these risks
are the subject of insurance protection, although not all pure risks are insurable.
What are the characteristics of an insurable risk? - ANS An insurable risk has low probability
of loss, less than catastrophic results, measurable loss, significant loss, and the loss must be
accidental and unintended.
What does probability measure in the context of insurance? - ANS Probability measures the
chance of an event occurring and is a measure of uncertainty, highest when probability is 50%.
What is the Law of Large Numbers? - ANS The Law of Large Numbers states that as a larger
number of events are included, the difference between actual and expected results becomes
smaller, allowing for predictions of future losses.
What is geographic dispersion in insurance? - ANS Geographic dispersion, or 'spread of risk',
is spreading exposed units over a large area to avoid high losses in the event of a catastrophe.
What is adverse selection in insurance? - ANS Adverse selection is the tendency of people
with a higher probability of loss to buy and maintain insurance coverage, which can negatively
impact the insurer.
What is risk retention? - ANS Risk retention is when an individual maintains liability for a loss
by not purchasing insurance, such as having a deductible in an insurance policy.
What does risk transfer mean in insurance? - ANS Risk transfer is shifting the responsibility
for a loss to an insurance company through the purchase of insurance.
2
Page
@COPYRIGHT BRAINBARTER 2025/2026
, What is risk control or reduction? - ANS Risk control or reduction involves attempts to
prevent a loss or reduce the amount of a loss, such as building earthquake-resistant structures.
What are perils in insurance? - ANS Perils are the actual causes of loss, such as fire, theft,
wind, or hail.
What are hazards in the context of insurance? - ANS Hazards increase the probability of a
peril occurring, such as bald tires increasing the chance of a wreck.
What is the Principle of Indemnity in insurance? - ANS The Principle of Indemnity states that
insurance aims to restore the insured to their original financial position before a loss, without
gain.
What does property insurance cover? - ANS Property insurance indemnifies a person or
business for loss of tangible property or loss of income produced by that property.
What does casualty insurance provide? - ANS Casualty insurance provides protection against
unexpected costs due to acts causing bodily injury or property damage to another individual.
What is private or voluntary insurance? - ANS Private or voluntary insurance is where
individuals seek coverage to meet recognized needs, not required or provided by the
government.
What is social insurance? - ANS Social insurance consists of programs required or made
available by the government, such as Workers Compensation and Flood Insurance.
What is reinsurance? - ANS Reinsurance is when insurers sell portions of their individual
contracts of insurance to other companies.
3
Page
@COPYRIGHT BRAINBARTER 2025/2026
, What is the purpose of reinsurance for insurance companies? - ANS To spread risk and
improve cash positions by lowering reserve requirements.
What are Capital Stock Companies? - ANS Proprietary companies that aim to make a profit
for stockholders, who retain management responsibility through a Board of Directors.
How do Capital Stock Companies distribute profits to stockholders? - ANS In the form of a
commercial stock dividend that is fully taxable.
What is the ownership structure of Mutual Companies? - ANS They are organized on a non-
profit basis with ownership resting with the policyholders.
How do Mutual Companies return operating surpluses to policyholders? - ANS As a non-
taxable policy dividend.
What are Reciprocal (Assessment) Companies? - ANS Non-incorporated associations of
individuals or businesses that engage in cooperative insurance, where each policyholder insures
the others.
Who manages Reciprocal Companies? - ANS An Attorney-in-Fact, who is not necessarily a
lawyer.
What can the Attorney-in-Fact do if underwriting losses occur in Reciprocal Companies? -
ANS Assess policyholders for additional premiums to maintain financial solvency.
How are insurance companies classified by domicile? - ANS As Domestic (organized in the
state), Foreign (organized in another state), or Alien (organized in another country).
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@COPYRIGHT BRAINBARTER 2025/2026
