KY Property and Casualty Insurance
Pre-Licensing Exam Questions and
Answers
Exposures - CORRECT ANSWERS-being subject to a loss
Risk - CORRECT ANSWERS-chance/possibility of loss
Law of Large Numbers - CORRECT ANSWERS-the more numbers used in a statistic, the more
accurate the statistic will be
Pure risk - CORRECT ANSWERS-only the possibility of loss
Speculative risk - CORRECT ANSWERS-a situation in which either profit or loss is possible
Risk Management Strategies - CORRECT ANSWERS-Avoid, Reduce, Retain, Share, Transfer
Peril - CORRECT ANSWERS-cause of loss
Hazard - CORRECT ANSWERS-increases the chance of loss
Physical hazard - CORRECT ANSWERS-A tangible characteristic of property, persons, or
operations that tends to increase the frequency or severity of loss.
Moral hazard - CORRECT ANSWERS-based on a person's values and ethics. A policyholder may
attempt to create a loss on purpose in order to take advantage of an insurance company.
Morale hazard - CORRECT ANSWERS-deals more with carelessness or irresponsibility
Loss - CORRECT ANSWERS-the disappearance or decrease in value of a piece of property
Direct loss - CORRECT ANSWERS-Loss that is a direct result of a peril, such as fire.
Indirect or consequential loss - CORRECT ANSWERS-a financial loss that results indirectly from
the occurrence of a direct physical damage or theft loss
Insurance - CORRECT ANSWERS-the transference of risk
Property insurance - CORRECT ANSWERS-a two party contract in which the insured (first party)
purchases protection from the insurer (second party) against loss to property from a covered
peril
Casualty insurance - CORRECT ANSWERS-includes liability insurance, has 3 parties: the insured,
insurer, and the injured third party
,Liability insurance - CORRECT ANSWERS-a three party contract that protects the insured against
negligent damage done to another party
Personal insurance - CORRECT ANSWERS-provides protection for one's personal needs
Commercial insurance - CORRECT ANSWERS-protects a business and its exposures
Insurable interest - CORRECT ANSWERS-the financial interest an individual has in a property
Indemnification - CORRECT ANSWERS--"to make whole"
-means that the insured is restored to the condition prior to the loss
Limit of Liability - CORRECT ANSWERS-a policy's limit of responsibility, or the most the policy
will pay for a given situation
Occurrence limit - CORRECT ANSWERS-a maximum limit within a policy and is based upon each
time the policy is used / the most the policy will pay for any one occurrence
Aggregate limit - CORRECT ANSWERS-the most that a policy will pay within a policy year
Insured - CORRECT ANSWERS-the party that the policy is designed to protect against a loss
Types of insureds - CORRECT ANSWERS-named insured, insured by definition, additional
insured, first named insured
Exclusion - CORRECT ANSWERS-a peril or issue that will not be covered by a policy
Types of exclusions - CORRECT ANSWERS-catastrophic, covered elsewhere, excluded but
available, predictable losses
Endorsements or riders - CORRECT ANSWERS-provisions added to the policy to modify or clarify
the coverage, perhaps for an additional or reduced premium
Liberalization Clause - CORRECT ANSWERS-allows the insurer to extend broader legislated or
regulated coverages to a current policy / cannot affect the premiums
Assignment - CORRECT ANSWERS-to assign or give rights to another party
Cancellation - CORRECT ANSWERS-when the policy coverage ends prior to the expiration date
on the policy
Nonrenewal - CORRECT ANSWERS-when the insurance company chooses not to renew the
policy has been issued
Certificate of Insurance - CORRECT ANSWERS-Written evidence showing that an insurance
policy or policies have been issued
Accident - CORRECT ANSWERS-a sudden and unexpected event resulting in damage or injury
,Occurrence - CORRECT ANSWERS-accidental event along with an event that is continuous or
ongoing
Countersignature - CORRECT ANSWERS-a signature by a licensed resident agent or
representative of the company
Lloyd's - CORRECT ANSWERS-a company that insures by spreading risk over a group of investors
Stock company - CORRECT ANSWERS-insurance company owned by stockholders and
shareholders. Because the policyholder does not usually receive a dividend, both the product
and the company are referred to as nonparticipating
Mutual company - CORRECT ANSWERS-company owned by its policyholders. Since the policy
owner is receiving the dividend, this is referred to as a participating product / company
Return of premium - CORRECT ANSWERS-the dividend from a participating product
Gross premium - CORRECT ANSWERS-risk - interest + expenses
T/F: Agents cannot guarantee dividends. - CORRECT ANSWERS-True
T/F: Self-insurers do not retain their own risk. - CORRECT ANSWERS-False
Risk retention groups are a part of - CORRECT ANSWERS-self-insurance programs
Reinsurance - CORRECT ANSWERS-a form of insurance between insurers
Reinsurance terms - CORRECT ANSWERS-ceding company, assuming company
Reinsurance treaty - CORRECT ANSWERS-the agreement between the ceding and assuming
company
Domestic insurer - CORRECT ANSWERS-an insurer organized under the laws of that state
Foreign insurer - CORRECT ANSWERS-an insurer organized under the laws of another state
Alien insurer - CORRECT ANSWERS-an insurer organized under the laws of another country
Authorized/admitted insurer - CORRECT ANSWERS-An insurer that is entitled to transact
insurance within the state, having complied with the law and satisfying all conditions to
transacting insurance
Unauthorized/nonadmitted insurer - CORRECT ANSWERS-an insurer that is not entitled to
transact insurance within the state
Contract - CORRECT ANSWERS-an agreement between two parties, verbal or in writing
All contracts consist of 4 legal elements: - CORRECT ANSWERS-competent parties/legal
capacity, legal purpose, offer & acceptance = agreement, and consideration
, Legally competent - CORRECT ANSWERS-to be accountable under the law
The offer is most typically made by the applicant; - CORRECT ANSWERS-it is an offer to buy.
Consideration - CORRECT ANSWERS-something of value exchanged between each party of the
contract
In exchange for the applicant's consideration, - CORRECT ANSWERS-the company gives the
promise to pay.
Utmost Good Faith - CORRECT ANSWERS-concept of trust between parties in a transaction
Doctrine of Reasonable Expectation - CORRECT ANSWERS-the insured should be able to expect
the insurance company to fulfill their obligation in a reasonable way
Warranty - CORRECT ANSWERS-a promise or guarantee; a condition of coverage
Representation - CORRECT ANSWERS-the truth to the best of the applicant's knowledge
Misrepresentation - CORRECT ANSWERS-a mistruth or a lie
Material statement - CORRECT ANSWERS-something that had the insurance company been
aware of, the information would have affected how the policy was issued
Concealment - CORRECT ANSWERS-hiding or withholding the truth
Fraud - CORRECT ANSWERS-intentional misrepresentation to take advantage of another; illegal
Fiduciary - CORRECT ANSWERS-someone who is responsible for someone else's finances
Based upon contract law, a contract does not go into effect until... - CORRECT ANSWERS-after
the agreement is complete.
Interim insuring agreement - CORRECT ANSWERS-an agreement for the company to provide
coverage on the client while still completing the underwriting process
Binding receipt/binder - CORRECT ANSWERS-temporary immediate coverage; verbal or written
form
Binders can end in three ways: - CORRECT ANSWERS-cancel, replace, expire
Characteristics of insurance contracts: - CORRECT ANSWERS-personal, conditional, unilateral,
adhesion, aleatory
DICED - CORRECT ANSWERS-Declarations, Insuring Clause, Conditions, Exclusions, Definitions
4 P's - CORRECT ANSWERS-parties, property, perils, promise
Waiver - CORRECT ANSWERS-to voluntarily give up a known right
Estoppel - CORRECT ANSWERS-to be legally stopped from being able to enforce one's legal right
Pre-Licensing Exam Questions and
Answers
Exposures - CORRECT ANSWERS-being subject to a loss
Risk - CORRECT ANSWERS-chance/possibility of loss
Law of Large Numbers - CORRECT ANSWERS-the more numbers used in a statistic, the more
accurate the statistic will be
Pure risk - CORRECT ANSWERS-only the possibility of loss
Speculative risk - CORRECT ANSWERS-a situation in which either profit or loss is possible
Risk Management Strategies - CORRECT ANSWERS-Avoid, Reduce, Retain, Share, Transfer
Peril - CORRECT ANSWERS-cause of loss
Hazard - CORRECT ANSWERS-increases the chance of loss
Physical hazard - CORRECT ANSWERS-A tangible characteristic of property, persons, or
operations that tends to increase the frequency or severity of loss.
Moral hazard - CORRECT ANSWERS-based on a person's values and ethics. A policyholder may
attempt to create a loss on purpose in order to take advantage of an insurance company.
Morale hazard - CORRECT ANSWERS-deals more with carelessness or irresponsibility
Loss - CORRECT ANSWERS-the disappearance or decrease in value of a piece of property
Direct loss - CORRECT ANSWERS-Loss that is a direct result of a peril, such as fire.
Indirect or consequential loss - CORRECT ANSWERS-a financial loss that results indirectly from
the occurrence of a direct physical damage or theft loss
Insurance - CORRECT ANSWERS-the transference of risk
Property insurance - CORRECT ANSWERS-a two party contract in which the insured (first party)
purchases protection from the insurer (second party) against loss to property from a covered
peril
Casualty insurance - CORRECT ANSWERS-includes liability insurance, has 3 parties: the insured,
insurer, and the injured third party
,Liability insurance - CORRECT ANSWERS-a three party contract that protects the insured against
negligent damage done to another party
Personal insurance - CORRECT ANSWERS-provides protection for one's personal needs
Commercial insurance - CORRECT ANSWERS-protects a business and its exposures
Insurable interest - CORRECT ANSWERS-the financial interest an individual has in a property
Indemnification - CORRECT ANSWERS--"to make whole"
-means that the insured is restored to the condition prior to the loss
Limit of Liability - CORRECT ANSWERS-a policy's limit of responsibility, or the most the policy
will pay for a given situation
Occurrence limit - CORRECT ANSWERS-a maximum limit within a policy and is based upon each
time the policy is used / the most the policy will pay for any one occurrence
Aggregate limit - CORRECT ANSWERS-the most that a policy will pay within a policy year
Insured - CORRECT ANSWERS-the party that the policy is designed to protect against a loss
Types of insureds - CORRECT ANSWERS-named insured, insured by definition, additional
insured, first named insured
Exclusion - CORRECT ANSWERS-a peril or issue that will not be covered by a policy
Types of exclusions - CORRECT ANSWERS-catastrophic, covered elsewhere, excluded but
available, predictable losses
Endorsements or riders - CORRECT ANSWERS-provisions added to the policy to modify or clarify
the coverage, perhaps for an additional or reduced premium
Liberalization Clause - CORRECT ANSWERS-allows the insurer to extend broader legislated or
regulated coverages to a current policy / cannot affect the premiums
Assignment - CORRECT ANSWERS-to assign or give rights to another party
Cancellation - CORRECT ANSWERS-when the policy coverage ends prior to the expiration date
on the policy
Nonrenewal - CORRECT ANSWERS-when the insurance company chooses not to renew the
policy has been issued
Certificate of Insurance - CORRECT ANSWERS-Written evidence showing that an insurance
policy or policies have been issued
Accident - CORRECT ANSWERS-a sudden and unexpected event resulting in damage or injury
,Occurrence - CORRECT ANSWERS-accidental event along with an event that is continuous or
ongoing
Countersignature - CORRECT ANSWERS-a signature by a licensed resident agent or
representative of the company
Lloyd's - CORRECT ANSWERS-a company that insures by spreading risk over a group of investors
Stock company - CORRECT ANSWERS-insurance company owned by stockholders and
shareholders. Because the policyholder does not usually receive a dividend, both the product
and the company are referred to as nonparticipating
Mutual company - CORRECT ANSWERS-company owned by its policyholders. Since the policy
owner is receiving the dividend, this is referred to as a participating product / company
Return of premium - CORRECT ANSWERS-the dividend from a participating product
Gross premium - CORRECT ANSWERS-risk - interest + expenses
T/F: Agents cannot guarantee dividends. - CORRECT ANSWERS-True
T/F: Self-insurers do not retain their own risk. - CORRECT ANSWERS-False
Risk retention groups are a part of - CORRECT ANSWERS-self-insurance programs
Reinsurance - CORRECT ANSWERS-a form of insurance between insurers
Reinsurance terms - CORRECT ANSWERS-ceding company, assuming company
Reinsurance treaty - CORRECT ANSWERS-the agreement between the ceding and assuming
company
Domestic insurer - CORRECT ANSWERS-an insurer organized under the laws of that state
Foreign insurer - CORRECT ANSWERS-an insurer organized under the laws of another state
Alien insurer - CORRECT ANSWERS-an insurer organized under the laws of another country
Authorized/admitted insurer - CORRECT ANSWERS-An insurer that is entitled to transact
insurance within the state, having complied with the law and satisfying all conditions to
transacting insurance
Unauthorized/nonadmitted insurer - CORRECT ANSWERS-an insurer that is not entitled to
transact insurance within the state
Contract - CORRECT ANSWERS-an agreement between two parties, verbal or in writing
All contracts consist of 4 legal elements: - CORRECT ANSWERS-competent parties/legal
capacity, legal purpose, offer & acceptance = agreement, and consideration
, Legally competent - CORRECT ANSWERS-to be accountable under the law
The offer is most typically made by the applicant; - CORRECT ANSWERS-it is an offer to buy.
Consideration - CORRECT ANSWERS-something of value exchanged between each party of the
contract
In exchange for the applicant's consideration, - CORRECT ANSWERS-the company gives the
promise to pay.
Utmost Good Faith - CORRECT ANSWERS-concept of trust between parties in a transaction
Doctrine of Reasonable Expectation - CORRECT ANSWERS-the insured should be able to expect
the insurance company to fulfill their obligation in a reasonable way
Warranty - CORRECT ANSWERS-a promise or guarantee; a condition of coverage
Representation - CORRECT ANSWERS-the truth to the best of the applicant's knowledge
Misrepresentation - CORRECT ANSWERS-a mistruth or a lie
Material statement - CORRECT ANSWERS-something that had the insurance company been
aware of, the information would have affected how the policy was issued
Concealment - CORRECT ANSWERS-hiding or withholding the truth
Fraud - CORRECT ANSWERS-intentional misrepresentation to take advantage of another; illegal
Fiduciary - CORRECT ANSWERS-someone who is responsible for someone else's finances
Based upon contract law, a contract does not go into effect until... - CORRECT ANSWERS-after
the agreement is complete.
Interim insuring agreement - CORRECT ANSWERS-an agreement for the company to provide
coverage on the client while still completing the underwriting process
Binding receipt/binder - CORRECT ANSWERS-temporary immediate coverage; verbal or written
form
Binders can end in three ways: - CORRECT ANSWERS-cancel, replace, expire
Characteristics of insurance contracts: - CORRECT ANSWERS-personal, conditional, unilateral,
adhesion, aleatory
DICED - CORRECT ANSWERS-Declarations, Insuring Clause, Conditions, Exclusions, Definitions
4 P's - CORRECT ANSWERS-parties, property, perils, promise
Waiver - CORRECT ANSWERS-to voluntarily give up a known right
Estoppel - CORRECT ANSWERS-to be legally stopped from being able to enforce one's legal right
