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AD BANKER AL P&C PRACTICE COMP
EXAM Questions with Detailed Verified
Answers
Which rating method listed below is established by the
underwriter?
A. Manual rating
B. Retrospective rating
C. Individual rating
D. Judgment rating
⼀Answer:⼀ D.
Judgment rating is the Only rating method that is determined by the
underwriter. All other rating methods are determined by the actuarial
department of the insurance company. 1.11
The type of insurance company in which the policyholder is
considered an owner, with the right to vote and share in the profits,
is a:
A. Fraternal benefit society
B. Mutual company
C. Stock company
D. Risk retention group
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⼀Answer:⼀ B.
A mutual company is mutually owned by the policyholders.
Policyholders participate in the company's profits in the form of
dividends and each policyholder has voting rights. Stock companies
are owned by stock holders. Fraternal benefit societies are non-profit
organizations and are member owned. Risk retention groups are
group-owned insurers specializing in limited risks such as: theme parks,
go-cart tracks, etc. 1.2
A morale hazard:
A. Is being dishonest on an application or claim form
B. Is the extent to which one may be affected by a peril
C. Is a physical condition that increases the probability of loss
D. Arises through an individual's carelessness or irresponsible
actions
⼀Answer:⼀ D.
A morale hazard refers to a persons behavior, or a persons morale. It
refers to an increase in the possibility of loss through an individual's
carelessness or irresponsible actions.
1.8
A good example of Risk Reduction might be:
A. When one takes action to minimize the severity of a potential
loss
B. Insuring only those risks that threaten the financial stability of
the insured
C. The transfer of the risk to an insurance company
D. The elimination of the exposure to a specific risk
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⼀Answer:⼀ A.
Risk Reduction involves applying techniques for prevention or reduction
of potential loss, such as installing sprinkler systems, burglar alarms,
safety guards on machinery, etc. 1.8
Insurance binders are:
A. Limited to personal lines risks
B. Valid for 30 days
C. Temporary or interim insuring agreements
D. Required to be written
⼀Answer:⼀ C.
An insurance binder is considered to be an interim insuring agreement,
which is basically a temporary policy. It may be oral or written and is
generally valid for up to 90 days. It does not guarantee the issue of
the policy and may be cancelled at anytime by the insurer. 2.1
Which of the following would NOT be found in the policy
declarations page?
A. Limits of insurance, deductibles, amount of premium
B. A description of the property to be insured
C. A legal representative in the event of the insured's death
D. Insurers promise of protection
⼀Answer:⼀ D.
The insurers promise of protection would be found in the policy's
Insuring Clause, not the Declarations. Remember, the Declarations
describe the: Who, What, Where, When and How Much, parts of the
policy. It is the policy cover page providing a quick overview of the
policy. 2.4
The right to request an appraisal belongs to:
AD BANKER AL P&C PRACTICE COMP
EXAM Questions with Detailed Verified
Answers
Which rating method listed below is established by the
underwriter?
A. Manual rating
B. Retrospective rating
C. Individual rating
D. Judgment rating
⼀Answer:⼀ D.
Judgment rating is the Only rating method that is determined by the
underwriter. All other rating methods are determined by the actuarial
department of the insurance company. 1.11
The type of insurance company in which the policyholder is
considered an owner, with the right to vote and share in the profits,
is a:
A. Fraternal benefit society
B. Mutual company
C. Stock company
D. Risk retention group
, Page | 2
⼀Answer:⼀ B.
A mutual company is mutually owned by the policyholders.
Policyholders participate in the company's profits in the form of
dividends and each policyholder has voting rights. Stock companies
are owned by stock holders. Fraternal benefit societies are non-profit
organizations and are member owned. Risk retention groups are
group-owned insurers specializing in limited risks such as: theme parks,
go-cart tracks, etc. 1.2
A morale hazard:
A. Is being dishonest on an application or claim form
B. Is the extent to which one may be affected by a peril
C. Is a physical condition that increases the probability of loss
D. Arises through an individual's carelessness or irresponsible
actions
⼀Answer:⼀ D.
A morale hazard refers to a persons behavior, or a persons morale. It
refers to an increase in the possibility of loss through an individual's
carelessness or irresponsible actions.
1.8
A good example of Risk Reduction might be:
A. When one takes action to minimize the severity of a potential
loss
B. Insuring only those risks that threaten the financial stability of
the insured
C. The transfer of the risk to an insurance company
D. The elimination of the exposure to a specific risk
, Page | 3
⼀Answer:⼀ A.
Risk Reduction involves applying techniques for prevention or reduction
of potential loss, such as installing sprinkler systems, burglar alarms,
safety guards on machinery, etc. 1.8
Insurance binders are:
A. Limited to personal lines risks
B. Valid for 30 days
C. Temporary or interim insuring agreements
D. Required to be written
⼀Answer:⼀ C.
An insurance binder is considered to be an interim insuring agreement,
which is basically a temporary policy. It may be oral or written and is
generally valid for up to 90 days. It does not guarantee the issue of
the policy and may be cancelled at anytime by the insurer. 2.1
Which of the following would NOT be found in the policy
declarations page?
A. Limits of insurance, deductibles, amount of premium
B. A description of the property to be insured
C. A legal representative in the event of the insured's death
D. Insurers promise of protection
⼀Answer:⼀ D.
The insurers promise of protection would be found in the policy's
Insuring Clause, not the Declarations. Remember, the Declarations
describe the: Who, What, Where, When and How Much, parts of the
policy. It is the policy cover page providing a quick overview of the
policy. 2.4
The right to request an appraisal belongs to:
