PROPERTY AND CASUALTY INSURANCE
TEST BANK UPDATED QUESTIONS AND
ANSWERS FULL STUDY SHEET
●● Speculative
Answer: possibility of both gain and loss. Not insurable.
●● Pure
Answer: only the possibility of loss. Insurable.
●● What are the 5 methods of managing or handling risk?
Answer: Avoidance, Assumption, Transfer, Sharing, Reducing.
●● Insurance
Answer: Method of handling pure risk by spreading it over a large
number of similar exposure units to predict individual losses with some
accuracy.
●● Law of Large Numbers
Answer: A mathematical principal stating that when the number of
similar independent exposure units increases, the relative accuracy of
predictions about future outcomes based on these exposure units also
increases.
,●● Peril
Answer: Immediate, specific cause of a loss.
●● Hazard
Answer: A condition or situation which creates a peril.
●● Physical Hazards
Answer: A physical, or tangible item that causes peril.
●● Moral Hazards
Answer: Subjective characteristics of an individual that can create a
peril. ie. arsonist, car thief
●● Morale Hazards
Answer: Also subjective in nature, but are based on an "attitude
problem" rather than a particular act.
●● Indemnity
Answer: A payment for damage or loss, compensation. No one will
profit from the result of a loss.
●● Replacement Cost
,Answer: The amount of money it would take to replace a damaged or
destroyed item with one of like kind and quality AT THE TIME OF
LOSS.
●● Actual Cash Value (ACV)
Answer: Replacement Cost, minus depreciation.
●● Pair and Set Clause
Answer: Loss to one item of a pair or set does not constitute loss to the
entire pair or set.
●● Appraisal
Answer: A method of resolving disputes between insurers and insureds
over the amount owed on a covered loss.
●● Subrogation
Answer: An insurer's right to recover the amount of its loss payment
from the third party who is legally responsible for the loss.
●● Arbitration
Answer: Process by which insurance companies usually settle their
differences when one company subrogates against another.
, ●● What perils does DP-1 (Basic) provide coverage for direct physical
loss by?
Answer: Fire, lightning, internal explosion.
●● What perils does DP-2 (Broad) provide coverage for direct physical
loss by?
Answer: Windstorm, Civil commotion, Smoke, Hail, Aircraft, Vehicles,
Volcanic eruption, Explosion, Riot (WC SHAVVER).
Vandalism & Malicious Mischief (VMM).
Burglar damage, Ice & snow weight, Glass breakage, Accidental
discharge, Falling objects, Freezing of pipes, Electrical damage,
Collapse, Tearing apart (BIG AFFECT).
As well as Fire & Lightning.
●● What perils does DP-3 (Special) provide coverage for direct physical
loss by?
Answer: All risk or open perils coverage on dwelling and other
structures. Broad form coverage (all 20 perils) on the personal property.
●● What does WC SHAVVER stand for?
TEST BANK UPDATED QUESTIONS AND
ANSWERS FULL STUDY SHEET
●● Speculative
Answer: possibility of both gain and loss. Not insurable.
●● Pure
Answer: only the possibility of loss. Insurable.
●● What are the 5 methods of managing or handling risk?
Answer: Avoidance, Assumption, Transfer, Sharing, Reducing.
●● Insurance
Answer: Method of handling pure risk by spreading it over a large
number of similar exposure units to predict individual losses with some
accuracy.
●● Law of Large Numbers
Answer: A mathematical principal stating that when the number of
similar independent exposure units increases, the relative accuracy of
predictions about future outcomes based on these exposure units also
increases.
,●● Peril
Answer: Immediate, specific cause of a loss.
●● Hazard
Answer: A condition or situation which creates a peril.
●● Physical Hazards
Answer: A physical, or tangible item that causes peril.
●● Moral Hazards
Answer: Subjective characteristics of an individual that can create a
peril. ie. arsonist, car thief
●● Morale Hazards
Answer: Also subjective in nature, but are based on an "attitude
problem" rather than a particular act.
●● Indemnity
Answer: A payment for damage or loss, compensation. No one will
profit from the result of a loss.
●● Replacement Cost
,Answer: The amount of money it would take to replace a damaged or
destroyed item with one of like kind and quality AT THE TIME OF
LOSS.
●● Actual Cash Value (ACV)
Answer: Replacement Cost, minus depreciation.
●● Pair and Set Clause
Answer: Loss to one item of a pair or set does not constitute loss to the
entire pair or set.
●● Appraisal
Answer: A method of resolving disputes between insurers and insureds
over the amount owed on a covered loss.
●● Subrogation
Answer: An insurer's right to recover the amount of its loss payment
from the third party who is legally responsible for the loss.
●● Arbitration
Answer: Process by which insurance companies usually settle their
differences when one company subrogates against another.
, ●● What perils does DP-1 (Basic) provide coverage for direct physical
loss by?
Answer: Fire, lightning, internal explosion.
●● What perils does DP-2 (Broad) provide coverage for direct physical
loss by?
Answer: Windstorm, Civil commotion, Smoke, Hail, Aircraft, Vehicles,
Volcanic eruption, Explosion, Riot (WC SHAVVER).
Vandalism & Malicious Mischief (VMM).
Burglar damage, Ice & snow weight, Glass breakage, Accidental
discharge, Falling objects, Freezing of pipes, Electrical damage,
Collapse, Tearing apart (BIG AFFECT).
As well as Fire & Lightning.
●● What perils does DP-3 (Special) provide coverage for direct physical
loss by?
Answer: All risk or open perils coverage on dwelling and other
structures. Broad form coverage (all 20 perils) on the personal property.
●● What does WC SHAVVER stand for?
