NC state exam Questions and Verified Answers
Insurance Correct Answer: an agreement in which an individual or business makes regular payments
(premium), to an authorized insurance company and the insurance company promises to pay monetary
compensation if the individual is injured or dies, if property is damaged, lose of stolen or if an individual
or business becomes liable for damages. A method of transferring financial risk through the pooling of
similar pure risks by insurance companies. individuals and businesses purchase insurance to hedge
against potential financial loss.
Purpose of insurance Correct Answer: to restore the insured to the financial position that existed before
the loss occurred. The principle of indemnity.
Factors needed to be an insured risk Correct Answer: there must be a LARGE NUMBER OF SIMILAR
EXPOSURES, without a large number of similar exposures, the insurer cannot accurately predict the
probability of a loss. The potential loss must be SIGNIFICANT IN SCOPE, if the loss occurred it would
cause an economic hardship for the insured. The potential loss must be MEASURABLE, the amount of a
potential loss must be statistically predictable. The potential loss must be ACCIDENTAL, uncertain,
unforeseen, and unintentional. The potential loss must be NON-CATASTROPHIC, unless a specialized
insurance policy is purchased such as floods, such events could cause insolvency for the insurer.
Requirements for a legal contract Correct Answer: competent as to age and mental capacity (18 years old
unless Life Insurance or Annuity contract which can be done at age 15). The contract must have legal
purpose and have no illegal elements. There must be an offer and acceptance. There must be
consideration, which is payment of the premium by the proposed insured.
Legal contract Correct Answer: a contract is an oral or written agreement that is enforceable in a court of
law or through arbitration.
Special elements of insurance contracts Correct Answer: unilateral, conditional, and utmost good faith
Unilateral Correct Answer: there is only one party, the insurer, which makes promises legally
enforceable in a court of law or through arbitration. The insured in a policy is not required to make
legally enforceable promises.
Conditional Correct Answer: the insurer's promise to pay benefits as stated in the contract is dependent
upon the occurrence of a stated risk
Utmost good faith Correct Answer: applicants and policyholders should be truthful with the insurer
Traditional insurance sources Correct Answer: stock insurance and mutual insurance companies
,Stock insurance company Correct Answer: "capital stock," sells stock and is owned by stockholders. The
stockholders share in the company's profits through stock dividends.
Mutual insurance company Correct Answer: "assessable mutuals," owned by policyholders, each
policyholder pays a specific amount into a common fund from which members are entitled to
indemnification in case of a loss. If losses and expenses exceed deposits, insurance company can assess
additional premiums to cover losses. A mutual may declare a policy dividend (not a stock dividend). The
policy dividend is distributed to the policyowner in a manner prescribed in the contract.
Other insurance sources Correct Answer: reciprocal insurance exchange, insurers, lloyd's of london, and
self-insurers
Reciprocal insurance exchange Correct Answer: an unincorporated association of companies or
individual in which each member (known as subscribers) of the association insures the other members.
In this arrangement each member is both an insurer and an insured. Each member shares profit and
losses in the same proportion as the amount of insurance purchased by that member. Administered by an
attorney in fact whose duties include selecting new members, paying losses, investing funds, and
assessing premiums.
Reinsurers Correct Answer: insurance companies that specialize in accepting risks from insurance
companies that wish to insure a large financial risk without taking on the full risk. The acceptance of
part of a risk by a reinsurer is done through reinsurance. An insurance company (the reinsurers) agrees
to indemnify another insurance company (the ceding company) against all or a portion of the primary
insurance risks underwritten by the ceding company under one or more insurance contracts. Allows
insurance companies to spread the risk of loss os that a disproportionately large loss under a single policy
does not fall on a single company. Reinsurance allows an insurance company to expand its capacity to
write more business and stabilize its underwriting results by minimizing potential losses.
Types of reinsurers Correct Answer: automatic (treaty) and facultative
Automatic (treaty) Correct Answer: ceding company is contractually bound to cede (give up or
surrender) a percentage of the risk, and a reinsurer is bound by a contract (treaty) to accept some portion
of the risk
Facultative Correct Answer: negotiated separately for each insurance contract. The reinsuring company
decides whether to insure or reject individual risks not covered by their reinsurance treaties, amounts in
excess of the limites on their insurance treaties and unusual risks.
Excess of loss Correct Answer: a method of reinsurance whereby the primary insurer pays the amount of
each claim for each risk up to a limit determined in advance, and the reinsurer pays the amount of the
claim above that specific limit.
,Quota share Correct Answer: is a reinsurance arrangement where the primary insurer and the
reinsurer(s) involved will pay claims in direct relationship with the percentage of the risk that each is
insuring
Lloyd's of london Correct Answer: one of the world's largest commercial insurers. Is not an insurance
company but a society of members (corporate and individual) who underwrites in syndicates.
Professional underwriters accept risk on behalf of syndicates. Supporting capital is provided by
investment institutions, special investors, international insurance companies and individuals. Famous for
insuring unusual and even speculative risks.
Self-insurers Correct Answer: individuals or organizations that designate certain monetary reserves to be
used to cover potential losses. Companies often use self-insurance to fund employee group health planes,
workers' compensation, and pension plans. Different from uninsured because uninsured people do not
have designated funds available to cover potential losses.
Insurance services office Correct Answer: an organization that calculates rates and creates policy forms
such as homeowners and auto for property and casualty insurers. State agencies ISO forms and adopt
them to the needs of the insured.
National association of insurance commissioners Correct Answer: NAIC, a governing organization for all
state insurance commissioner, directors, or superintendent. Works toward standardization of insurance
codes (laws). Legislation passed by the NAIC is non-binding on the states until pass by the tate legislative
body. Suggestions how to act in good faith.
North carolina rate bureau Correct Answer: NCRB, is an organization that helps to set rates and
standards for property and casualty risks in NC
Ratings Correct Answer: the financial strength of insurers is published regularly by rating services such
as A.M. Best, Standards and Poor's, and Moody's and Fitch. The rating range from superior a++ to a+ to in
liquidation F
Insurance producer Correct Answer: agent, is an individual appointed by an insurance company to
solicit, negotiate, effect or countersign insurance contracts on its behalf. Bound by the operating rules of
the principal (insurer) and laws of the state
Insurance broker Correct Answer: a licensed insurance producer that is not appointed with an insurance
company. The broker finds insurance contracts that meet individual or business needs. Represents the
policy owner and or the insured in the solicitation, negotiation, or procurement of contract of insurance.
In NC a broker must port a $15,000 surety bond with the NCDOI for each line of authority.
Customer service representative Correct Answer: CSR, is an individual that is empowered by an
insurance company or insurance agency to answer questions not related to the interpretation of an
insurance contract. Only duly licensed individual or entities may answer insurance questions
, Adjuster Correct Answer: an individual who represents the insurance company and acts for the company
in working on agreements regarding the amount of a loss and the liability of the company in a claim.
Claims adjuster.
Underwriter Correct Answer: is an individual that works in the home office of an insurance company
and performs the function of determining if a risk is suitable for the company or not.
Insurers classifications Correct Answer: domestic, foreign, alien
Domestic insurers Correct Answer: are organized under the laws of the same state in which they are
domiciled.
Foreign insurers Correct Answer: are formed under the laws of a different state from the one in which
they are doing business.
Alien insurers Correct Answer: formed under the laws of another country from the one in which they
are doing business.
Indemnity contract Correct Answer: promises to pay an amount equal to the loss covered under the
policy. Although all insurance contracts promise to pay some amount for loss, only property contracts
follow the strict definition of indemnity.
Reimbursement contract Correct Answer: a contact type which reimburses expenses. Typically, this
refers to medical insurance contracts in which the insured receives reimbursement for medical expenses
that he or she paid. Today most health contracts do not use a true reimbursement method.
Valued contract Correct Answer: stated value, is a contact type in which the insurer agrees to pay a
specific sum of money no matter what the amount of loss may be. Life insurance contracts are valued
contracts.
Acceptance Correct Answer: is an agreement to an offer in contract law. In insurance "acceptance" is
when the insurer agrees to provide coverage for a risk
Adverse selection Correct Answer: anti-selection, is the term used to indicate that the selection of such a
risk has a greater than average chance of producing a loss
Appraisal Correct Answer: is the valuation of property for damage resulting from a covered peril. If an
insured and insurer disagree on the amount of a claim, the claim may be settled through appraisal.
Arbitration Correct Answer: the process of settling difference relating to loss under an insurance policy
Insurance Correct Answer: an agreement in which an individual or business makes regular payments
(premium), to an authorized insurance company and the insurance company promises to pay monetary
compensation if the individual is injured or dies, if property is damaged, lose of stolen or if an individual
or business becomes liable for damages. A method of transferring financial risk through the pooling of
similar pure risks by insurance companies. individuals and businesses purchase insurance to hedge
against potential financial loss.
Purpose of insurance Correct Answer: to restore the insured to the financial position that existed before
the loss occurred. The principle of indemnity.
Factors needed to be an insured risk Correct Answer: there must be a LARGE NUMBER OF SIMILAR
EXPOSURES, without a large number of similar exposures, the insurer cannot accurately predict the
probability of a loss. The potential loss must be SIGNIFICANT IN SCOPE, if the loss occurred it would
cause an economic hardship for the insured. The potential loss must be MEASURABLE, the amount of a
potential loss must be statistically predictable. The potential loss must be ACCIDENTAL, uncertain,
unforeseen, and unintentional. The potential loss must be NON-CATASTROPHIC, unless a specialized
insurance policy is purchased such as floods, such events could cause insolvency for the insurer.
Requirements for a legal contract Correct Answer: competent as to age and mental capacity (18 years old
unless Life Insurance or Annuity contract which can be done at age 15). The contract must have legal
purpose and have no illegal elements. There must be an offer and acceptance. There must be
consideration, which is payment of the premium by the proposed insured.
Legal contract Correct Answer: a contract is an oral or written agreement that is enforceable in a court of
law or through arbitration.
Special elements of insurance contracts Correct Answer: unilateral, conditional, and utmost good faith
Unilateral Correct Answer: there is only one party, the insurer, which makes promises legally
enforceable in a court of law or through arbitration. The insured in a policy is not required to make
legally enforceable promises.
Conditional Correct Answer: the insurer's promise to pay benefits as stated in the contract is dependent
upon the occurrence of a stated risk
Utmost good faith Correct Answer: applicants and policyholders should be truthful with the insurer
Traditional insurance sources Correct Answer: stock insurance and mutual insurance companies
,Stock insurance company Correct Answer: "capital stock," sells stock and is owned by stockholders. The
stockholders share in the company's profits through stock dividends.
Mutual insurance company Correct Answer: "assessable mutuals," owned by policyholders, each
policyholder pays a specific amount into a common fund from which members are entitled to
indemnification in case of a loss. If losses and expenses exceed deposits, insurance company can assess
additional premiums to cover losses. A mutual may declare a policy dividend (not a stock dividend). The
policy dividend is distributed to the policyowner in a manner prescribed in the contract.
Other insurance sources Correct Answer: reciprocal insurance exchange, insurers, lloyd's of london, and
self-insurers
Reciprocal insurance exchange Correct Answer: an unincorporated association of companies or
individual in which each member (known as subscribers) of the association insures the other members.
In this arrangement each member is both an insurer and an insured. Each member shares profit and
losses in the same proportion as the amount of insurance purchased by that member. Administered by an
attorney in fact whose duties include selecting new members, paying losses, investing funds, and
assessing premiums.
Reinsurers Correct Answer: insurance companies that specialize in accepting risks from insurance
companies that wish to insure a large financial risk without taking on the full risk. The acceptance of
part of a risk by a reinsurer is done through reinsurance. An insurance company (the reinsurers) agrees
to indemnify another insurance company (the ceding company) against all or a portion of the primary
insurance risks underwritten by the ceding company under one or more insurance contracts. Allows
insurance companies to spread the risk of loss os that a disproportionately large loss under a single policy
does not fall on a single company. Reinsurance allows an insurance company to expand its capacity to
write more business and stabilize its underwriting results by minimizing potential losses.
Types of reinsurers Correct Answer: automatic (treaty) and facultative
Automatic (treaty) Correct Answer: ceding company is contractually bound to cede (give up or
surrender) a percentage of the risk, and a reinsurer is bound by a contract (treaty) to accept some portion
of the risk
Facultative Correct Answer: negotiated separately for each insurance contract. The reinsuring company
decides whether to insure or reject individual risks not covered by their reinsurance treaties, amounts in
excess of the limites on their insurance treaties and unusual risks.
Excess of loss Correct Answer: a method of reinsurance whereby the primary insurer pays the amount of
each claim for each risk up to a limit determined in advance, and the reinsurer pays the amount of the
claim above that specific limit.
,Quota share Correct Answer: is a reinsurance arrangement where the primary insurer and the
reinsurer(s) involved will pay claims in direct relationship with the percentage of the risk that each is
insuring
Lloyd's of london Correct Answer: one of the world's largest commercial insurers. Is not an insurance
company but a society of members (corporate and individual) who underwrites in syndicates.
Professional underwriters accept risk on behalf of syndicates. Supporting capital is provided by
investment institutions, special investors, international insurance companies and individuals. Famous for
insuring unusual and even speculative risks.
Self-insurers Correct Answer: individuals or organizations that designate certain monetary reserves to be
used to cover potential losses. Companies often use self-insurance to fund employee group health planes,
workers' compensation, and pension plans. Different from uninsured because uninsured people do not
have designated funds available to cover potential losses.
Insurance services office Correct Answer: an organization that calculates rates and creates policy forms
such as homeowners and auto for property and casualty insurers. State agencies ISO forms and adopt
them to the needs of the insured.
National association of insurance commissioners Correct Answer: NAIC, a governing organization for all
state insurance commissioner, directors, or superintendent. Works toward standardization of insurance
codes (laws). Legislation passed by the NAIC is non-binding on the states until pass by the tate legislative
body. Suggestions how to act in good faith.
North carolina rate bureau Correct Answer: NCRB, is an organization that helps to set rates and
standards for property and casualty risks in NC
Ratings Correct Answer: the financial strength of insurers is published regularly by rating services such
as A.M. Best, Standards and Poor's, and Moody's and Fitch. The rating range from superior a++ to a+ to in
liquidation F
Insurance producer Correct Answer: agent, is an individual appointed by an insurance company to
solicit, negotiate, effect or countersign insurance contracts on its behalf. Bound by the operating rules of
the principal (insurer) and laws of the state
Insurance broker Correct Answer: a licensed insurance producer that is not appointed with an insurance
company. The broker finds insurance contracts that meet individual or business needs. Represents the
policy owner and or the insured in the solicitation, negotiation, or procurement of contract of insurance.
In NC a broker must port a $15,000 surety bond with the NCDOI for each line of authority.
Customer service representative Correct Answer: CSR, is an individual that is empowered by an
insurance company or insurance agency to answer questions not related to the interpretation of an
insurance contract. Only duly licensed individual or entities may answer insurance questions
, Adjuster Correct Answer: an individual who represents the insurance company and acts for the company
in working on agreements regarding the amount of a loss and the liability of the company in a claim.
Claims adjuster.
Underwriter Correct Answer: is an individual that works in the home office of an insurance company
and performs the function of determining if a risk is suitable for the company or not.
Insurers classifications Correct Answer: domestic, foreign, alien
Domestic insurers Correct Answer: are organized under the laws of the same state in which they are
domiciled.
Foreign insurers Correct Answer: are formed under the laws of a different state from the one in which
they are doing business.
Alien insurers Correct Answer: formed under the laws of another country from the one in which they
are doing business.
Indemnity contract Correct Answer: promises to pay an amount equal to the loss covered under the
policy. Although all insurance contracts promise to pay some amount for loss, only property contracts
follow the strict definition of indemnity.
Reimbursement contract Correct Answer: a contact type which reimburses expenses. Typically, this
refers to medical insurance contracts in which the insured receives reimbursement for medical expenses
that he or she paid. Today most health contracts do not use a true reimbursement method.
Valued contract Correct Answer: stated value, is a contact type in which the insurer agrees to pay a
specific sum of money no matter what the amount of loss may be. Life insurance contracts are valued
contracts.
Acceptance Correct Answer: is an agreement to an offer in contract law. In insurance "acceptance" is
when the insurer agrees to provide coverage for a risk
Adverse selection Correct Answer: anti-selection, is the term used to indicate that the selection of such a
risk has a greater than average chance of producing a loss
Appraisal Correct Answer: is the valuation of property for damage resulting from a covered peril. If an
insured and insurer disagree on the amount of a claim, the claim may be settled through appraisal.
Arbitration Correct Answer: the process of settling difference relating to loss under an insurance policy
