1|Page
NORTH CAROLINA PROPERTY & CASUALTY INSURANCE
EXAM 2025/2026 | COMPLETE TEST BANK WITH VERIFIED
QUESTIONS & ANSWERS | FREQUENTLY TESTED STUDY
GUIDE FOR GUARANTEED PASS || AWARDED A+ ||
What is a recommended strategy for reading exam questions? - ANSWER-
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? - ANSWER-
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? - ANSWER-The Law
of Large Numbers.
What is a speculative risk? – ANSWER- 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? -
ANSWER-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? - ANSWER-
Your first thought is usually the best one.
What is the importance of reading questions carefully in the exam? -
ANSWER-The ability to read carefully is almost as important as content
knowledge for the exam.
2025/2026
,2|Page
What is a speculative risk? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-
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? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-Risk transfer is
shifting the responsibility for a loss to an insurance company through the
purchase of insurance.
What is risk control or reduction? - ANSWER-Risk control or reduction
involves attempts to prevent a loss or reduce the amount of a loss, such as
building earthquake-resistant structures.
2025/2026
,3|Page
What are perils in insurance? - ANSWER-Perils are the actual causes of
loss, such as fire, theft, wind, or hail.
What are hazards in the context of insurance? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-Private or voluntary
insurance is where individuals seek coverage to meet recognized needs,
not required or provided by the government.
What is social insurance? - ANSWER-Social insurance consists of
programs required or made available by the government, such as Workers
Compensation and Flood Insurance.
What is reinsurance? - ANSWER-Reinsurance is when insurers sell
portions of their individual contracts of insurance to other companies.
What is the purpose of reinsurance for insurance companies? - ANSWER-
To spread risk and improve cash positions by lowering reserve
requirements.
What are Capital Stock Companies? - ANSWER-Proprietary companies
that aim to make a profit for stockholders, who retain management
responsibility through a Board of Directors.
2025/2026
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How do Capital Stock Companies distribute profits to stockholders? -
ANSWER-In the form of a commercial stock dividend that is fully taxable.
What is the ownership structure of Mutual Companies? - ANSWER-They
are organized on a non-profit basis with ownership resting with the
policyholders.
How do Mutual Companies return operating surpluses to policyholders? -
ANSWER-As a non-taxable policy dividend.
What are Reciprocal (Assessment) Companies? - ANSWER-Non-
incorporated associations of individuals or businesses that engage in
cooperative insurance, where each policyholder insures the others.
Who manages Reciprocal Companies? - ANSWER-An Attorney-in-Fact,
who is not necessarily a lawyer.
What can the Attorney-in-Fact do if underwriting losses occur in Reciprocal
Companies? - ANSWER-Assess policyholders for additional premiums to
maintain financial solvency.
How are insurance companies classified by domicile? - ANSWER-As
Domestic (organized in the state), Foreign (organized in another state), or
Alien (organized in another country).
What is a Certificate of Authority in the context of insurance companies? –
ANSWER- certification that allows companies to do business in a state,
making them Admitted or Authorized companies.
What are non-admitted or non-authorized companies? - ANSWER-
Companies that do not hold a Certificate of Authority and cannot be
represented by property, casualty, and personal lines insurance agents.
What is the role of insurance producers? - ANSWER-They solicit insurance
on behalf of insurance companies.
What distinguishes agents from brokers in the insurance industry? -
ANSWER-Agents represent the insurer, while brokers represent the
insured.
2025/2026
NORTH CAROLINA PROPERTY & CASUALTY INSURANCE
EXAM 2025/2026 | COMPLETE TEST BANK WITH VERIFIED
QUESTIONS & ANSWERS | FREQUENTLY TESTED STUDY
GUIDE FOR GUARANTEED PASS || AWARDED A+ ||
What is a recommended strategy for reading exam questions? - ANSWER-
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? - ANSWER-
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? - ANSWER-The Law
of Large Numbers.
What is a speculative risk? – ANSWER- 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? -
ANSWER-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? - ANSWER-
Your first thought is usually the best one.
What is the importance of reading questions carefully in the exam? -
ANSWER-The ability to read carefully is almost as important as content
knowledge for the exam.
2025/2026
,2|Page
What is a speculative risk? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-
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? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-Risk transfer is
shifting the responsibility for a loss to an insurance company through the
purchase of insurance.
What is risk control or reduction? - ANSWER-Risk control or reduction
involves attempts to prevent a loss or reduce the amount of a loss, such as
building earthquake-resistant structures.
2025/2026
,3|Page
What are perils in insurance? - ANSWER-Perils are the actual causes of
loss, such as fire, theft, wind, or hail.
What are hazards in the context of insurance? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-Private or voluntary
insurance is where individuals seek coverage to meet recognized needs,
not required or provided by the government.
What is social insurance? - ANSWER-Social insurance consists of
programs required or made available by the government, such as Workers
Compensation and Flood Insurance.
What is reinsurance? - ANSWER-Reinsurance is when insurers sell
portions of their individual contracts of insurance to other companies.
What is the purpose of reinsurance for insurance companies? - ANSWER-
To spread risk and improve cash positions by lowering reserve
requirements.
What are Capital Stock Companies? - ANSWER-Proprietary companies
that aim to make a profit for stockholders, who retain management
responsibility through a Board of Directors.
2025/2026
, 4|Page
How do Capital Stock Companies distribute profits to stockholders? -
ANSWER-In the form of a commercial stock dividend that is fully taxable.
What is the ownership structure of Mutual Companies? - ANSWER-They
are organized on a non-profit basis with ownership resting with the
policyholders.
How do Mutual Companies return operating surpluses to policyholders? -
ANSWER-As a non-taxable policy dividend.
What are Reciprocal (Assessment) Companies? - ANSWER-Non-
incorporated associations of individuals or businesses that engage in
cooperative insurance, where each policyholder insures the others.
Who manages Reciprocal Companies? - ANSWER-An Attorney-in-Fact,
who is not necessarily a lawyer.
What can the Attorney-in-Fact do if underwriting losses occur in Reciprocal
Companies? - ANSWER-Assess policyholders for additional premiums to
maintain financial solvency.
How are insurance companies classified by domicile? - ANSWER-As
Domestic (organized in the state), Foreign (organized in another state), or
Alien (organized in another country).
What is a Certificate of Authority in the context of insurance companies? –
ANSWER- certification that allows companies to do business in a state,
making them Admitted or Authorized companies.
What are non-admitted or non-authorized companies? - ANSWER-
Companies that do not hold a Certificate of Authority and cannot be
represented by property, casualty, and personal lines insurance agents.
What is the role of insurance producers? - ANSWER-They solicit insurance
on behalf of insurance companies.
What distinguishes agents from brokers in the insurance industry? -
ANSWER-Agents represent the insurer, while brokers represent the
insured.
2025/2026
