NC Property and Casualty State Exam Questions With Correct Answer

NC Property and Casualty State Exam
Questions With Correct Answer

Insurance - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- when there is a chance of loss only
- not all pure risks are insurable


Insurable Risk - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- when liability for a loss is maintained by an
individual by NOT PURCHASING INSURANCE
- deductible is an example of retention


Transfer - CORRECT ANSWER✔✔-To shift the responsibility for a loss to an
insurance company through the purchase of insurance

,Control/Reduction - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-Actual cause of a loss such as fire, theft, wind, hail,
etc.


Hazards - CORRECT ANSWER✔✔-- increase in the probability of a peril occurring
- ex: bald tires on a car, faulty wires, damaged steps


Principle of Indemnity - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- neither required nor made
available by the government, but does not meet recognized needs
- ex: collision insurance in a PAP


Social Insurance - CORRECT ANSWER✔✔-- programs either require or made
available by government
- ex: facility, workers comp, flood insurance


Reinsurance - CORRECT ANSWER✔✔-- where insurers sell portions of their
individual contracts of insurance to other companies; helps spread risk
- insurance for an insurance company

, Indirect Losses - CORRECT ANSWER✔✔-- consequential loss
- include:
1. Losing Money
2. Incurred Additional Expenses


Capital Stock Companies - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- 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 - CORRECT ANSWER✔✔-- policyholders are
insured by other policyholders
- managed by Attorney-In-Fact who can assess the policyholders for additional
premiums


Classifications of Insurance Companies - CORRECT ANSWER✔✔-1. Domestic:
organized in state
2. Foreign: organized in a different state
3. Alien: organized in another country