Maryland Property and Casualty Insurance
Exam Questions and Answers
1. When must insurable interest be present? - ANSWER At the time of the loss
2. What does an insurance company use to determine profitability? - ANSWER
The loss ratio
3. What is the formula used to determine profitability? (To determine loss
ratio) - ANSWER (Incurred losses + loss adjusting expense) / (Earned
Premium) = Loss Ratio
4. What is the most common experience risk? - ANSWER Workers
compensation
5. ABC drone company is a NEW company. They created drones and in order
to be correctly insured, which rating system should be used? - ANSWER
Schedule Rating. This is a unique risk, there is nothing else like it
6. John has auto insurance and recently had a premium increase. His deductible
is $500 and he had a $10,000 claim. How will his policy be rated? -
ANSWER Merit Rated. Auto insurance is always merit rated
7. A policy that covers all risks except what is excluded - ANSWER Open
Peril
8. In order for the indirect loss to be covered, what is the proximate cause? -
ANSWER The Direct Loss
9. John has a building with a replacement cost of $250,000. If there is a fire
and the building needs to be replaced, When and how much will be payed? -
ANSWER Pay up to $250,000 and rebuilt in any location
10.What describes the terms of a policy? - ANSWER Definitions
11.What part of the policy does the insurance company promise to pay? -
ANSWER Insuring Agreement
12.Where are the perils found? - ANSWER Insuring Agreement
1
,13.What part of the policy includes the duties of the insured and the insurance
company? - ANSWER Conditions
14.What portion of the policy broadens the coverages - ANSWER
Liberalization Clause
15.What must be signed by an executive officer? - ANSWER Endorsements
16.When can an agent make a change to an insurance policy? - ANSWER
Never.
Executive officer can make changes.
Policy holder can make changes
Agent can sell more insurance.
Agent can NEVER change insurance policy
17.What are written changes to an original contract called? - ANSWER
Endorsements
18.What kind of policy pays after the primary policy's limit has been reached -
ANSWER Excess Policy
19.What is the chance of a loss? - ANSWER Risk
20.Insurance is designed to protect individuals from____ - ANSWER Loss
21.An individual who is indifferent to a loss is____ - ANSWER Morale Hazard
22.What is a cause of loss? - ANSWER Peril
23.John has a homeowners policy with a replacement cost of $250,000 and a
deductible of $1,000. His house was destroyed by a hurricane, what does this
descrbie? - ANSWER Peril
24.Which of the following is risk retention?
A. Joe pays his monthly premium
B. An insurer pays John's disability benefit
C. ABC company decides to self fund the health insurance
D. Insurer A buys a Reinsurance policy from insurer B. - ANSWER C.
Self insuring or paying your deductible is a form of Risk Retention.
2
,25.Joe had an active job where he moved everyday. But now he has a desk job
where he sits all day. When Joe gets home he walks 2 miles and stops eating
sweets.
How is Joe handling his desk job? - ANSWER Risk Reduction
26.What is true regarding an insurable risk? - ANSWER The loss must be
calculatable
27.What helps an insurance company predict which types of individuals in the
U.S will die this year? - ANSWER Law of Large Numbers
28.Which term best associated with reinsurance? - ANSWER Catastrophic
29.I live in maryland and buy a policy from Maryland life. What type of insurer
in Maryland Life? - ANSWER Domestic Insurer
30.I live in Maryland and buy a policy from New York? What type of insurance
in this? - ANSWER Foreign Insurer
31.I live in Maryland and buy a policy from SunLife Canada. What type of
insurance is this? - ANSWER Alien Insurer
32.I live in Maryland and buy a policy from Purteo Rico Life. What type of
insurance is this? - ANSWER Foreign Insurer
33.Whats an Independent rating service? - ANSWER They determine the
financial stability of all insurance companies
34.All of the following types of advertising except:
A. TV Ad
B. Radio Ad
C. Newspaper ad
D. AM Best - ANSWER D. AM best is a independent rating service
35.Which best describes an insurer that uses Direct Mail? - ANSWER Direct
Response Marketing
36.What is true about the Life & Health and Property & Casualty Insurance
Guaranty Corporation - ANSWER The Insurance companies are assessed.
3
, All insurance companies pay into it based on how much business they have.
It exists in case an insurance company went bankrupt and can not pay out
claims.
37.What are insurance carriers that exist as social organizations to voluntarily
provide insurance for their members? - ANSWER Fraternal Benefits
Societies
38.Explain a fiduciary - ANSWER An agent who handles insurer funds in a
trust capacity
39.Producers - ANSWER anyone who legally performs activities of an
insurance agent broker in MD
40.Business entity producer - ANSWER refers to the legal structure of an
organization
41.Nonresident producer - ANSWER licensed agent in any state other than MD
42.temporary license - ANSWER may be issued in case of death or disability of
licensed producer. Valid for 15 months
43.advisers - ANSWER give advise to clients about insurance exposures and
coverages
44.public insurance adjusters - ANSWER represents and is compensated by the
commissioner
45.portable electronics insurance limited lines license - ANSWER must be
approved by the commissioner
46.reinstatement and renewal - ANSWER A producer who allows his or her
license to lapse may, within 12 months from the renewal date, reinstate the
license without retaking the state licensing exam.
47.address change - ANSWER must notify commissioner within 30 days
48.reporting of actions - ANSWER report actions to the commissioner within
30 days
4
Exam Questions and Answers
1. When must insurable interest be present? - ANSWER At the time of the loss
2. What does an insurance company use to determine profitability? - ANSWER
The loss ratio
3. What is the formula used to determine profitability? (To determine loss
ratio) - ANSWER (Incurred losses + loss adjusting expense) / (Earned
Premium) = Loss Ratio
4. What is the most common experience risk? - ANSWER Workers
compensation
5. ABC drone company is a NEW company. They created drones and in order
to be correctly insured, which rating system should be used? - ANSWER
Schedule Rating. This is a unique risk, there is nothing else like it
6. John has auto insurance and recently had a premium increase. His deductible
is $500 and he had a $10,000 claim. How will his policy be rated? -
ANSWER Merit Rated. Auto insurance is always merit rated
7. A policy that covers all risks except what is excluded - ANSWER Open
Peril
8. In order for the indirect loss to be covered, what is the proximate cause? -
ANSWER The Direct Loss
9. John has a building with a replacement cost of $250,000. If there is a fire
and the building needs to be replaced, When and how much will be payed? -
ANSWER Pay up to $250,000 and rebuilt in any location
10.What describes the terms of a policy? - ANSWER Definitions
11.What part of the policy does the insurance company promise to pay? -
ANSWER Insuring Agreement
12.Where are the perils found? - ANSWER Insuring Agreement
1
,13.What part of the policy includes the duties of the insured and the insurance
company? - ANSWER Conditions
14.What portion of the policy broadens the coverages - ANSWER
Liberalization Clause
15.What must be signed by an executive officer? - ANSWER Endorsements
16.When can an agent make a change to an insurance policy? - ANSWER
Never.
Executive officer can make changes.
Policy holder can make changes
Agent can sell more insurance.
Agent can NEVER change insurance policy
17.What are written changes to an original contract called? - ANSWER
Endorsements
18.What kind of policy pays after the primary policy's limit has been reached -
ANSWER Excess Policy
19.What is the chance of a loss? - ANSWER Risk
20.Insurance is designed to protect individuals from____ - ANSWER Loss
21.An individual who is indifferent to a loss is____ - ANSWER Morale Hazard
22.What is a cause of loss? - ANSWER Peril
23.John has a homeowners policy with a replacement cost of $250,000 and a
deductible of $1,000. His house was destroyed by a hurricane, what does this
descrbie? - ANSWER Peril
24.Which of the following is risk retention?
A. Joe pays his monthly premium
B. An insurer pays John's disability benefit
C. ABC company decides to self fund the health insurance
D. Insurer A buys a Reinsurance policy from insurer B. - ANSWER C.
Self insuring or paying your deductible is a form of Risk Retention.
2
,25.Joe had an active job where he moved everyday. But now he has a desk job
where he sits all day. When Joe gets home he walks 2 miles and stops eating
sweets.
How is Joe handling his desk job? - ANSWER Risk Reduction
26.What is true regarding an insurable risk? - ANSWER The loss must be
calculatable
27.What helps an insurance company predict which types of individuals in the
U.S will die this year? - ANSWER Law of Large Numbers
28.Which term best associated with reinsurance? - ANSWER Catastrophic
29.I live in maryland and buy a policy from Maryland life. What type of insurer
in Maryland Life? - ANSWER Domestic Insurer
30.I live in Maryland and buy a policy from New York? What type of insurance
in this? - ANSWER Foreign Insurer
31.I live in Maryland and buy a policy from SunLife Canada. What type of
insurance is this? - ANSWER Alien Insurer
32.I live in Maryland and buy a policy from Purteo Rico Life. What type of
insurance is this? - ANSWER Foreign Insurer
33.Whats an Independent rating service? - ANSWER They determine the
financial stability of all insurance companies
34.All of the following types of advertising except:
A. TV Ad
B. Radio Ad
C. Newspaper ad
D. AM Best - ANSWER D. AM best is a independent rating service
35.Which best describes an insurer that uses Direct Mail? - ANSWER Direct
Response Marketing
36.What is true about the Life & Health and Property & Casualty Insurance
Guaranty Corporation - ANSWER The Insurance companies are assessed.
3
, All insurance companies pay into it based on how much business they have.
It exists in case an insurance company went bankrupt and can not pay out
claims.
37.What are insurance carriers that exist as social organizations to voluntarily
provide insurance for their members? - ANSWER Fraternal Benefits
Societies
38.Explain a fiduciary - ANSWER An agent who handles insurer funds in a
trust capacity
39.Producers - ANSWER anyone who legally performs activities of an
insurance agent broker in MD
40.Business entity producer - ANSWER refers to the legal structure of an
organization
41.Nonresident producer - ANSWER licensed agent in any state other than MD
42.temporary license - ANSWER may be issued in case of death or disability of
licensed producer. Valid for 15 months
43.advisers - ANSWER give advise to clients about insurance exposures and
coverages
44.public insurance adjusters - ANSWER represents and is compensated by the
commissioner
45.portable electronics insurance limited lines license - ANSWER must be
approved by the commissioner
46.reinstatement and renewal - ANSWER A producer who allows his or her
license to lapse may, within 12 months from the renewal date, reinstate the
license without retaking the state licensing exam.
47.address change - ANSWER must notify commissioner within 30 days
48.reporting of actions - ANSWER report actions to the commissioner within
30 days
4
