PERSONAL LINES INSURANCE LATEST EXAM ACTUAL
2026/2027 QUESTIONS AND SOLUTIONS RATED A+
✔✔Three dimensions that make up Loss Exposure - ✔✔Type of value exposed to loss,
peril causing the loss, and financial consequence of loss
✔✔Loss due to resignation, retirement, or death of a key employee is what type of loss
exposure - ✔✔Personnel
✔✔Not a benefit of Insurance is: - ✔✔Risk retention
✔✔Other words for Homogenous units - ✔✔Like or similar
✔✔Formula for loss ratio - ✔✔Loss divided by premiums
✔✔Principle of indemnity - ✔✔The basic principle behind Insurance. To restore
someone to the same financial condition the occupied prior to the loss with no intent of
loss or gain (to make while). The intent is to cover the amount of the actual loss only. An
insured cannot collect more than 100% of actual loss. An insured can only be
indemnified to the extent of their insurable interest (ownership) in property.
✔✔Purpose of indemnity - ✔✔To prevent insured from profit from a loss and reduce
moral hazard
✔✔Indemnification - ✔✔Cannot collect more than your actual loss under this definition.
✔✔Deductibles - ✔✔Portion of covered expenses the insured must pay/satisfy before
the insurer pays. Lowering deductible would cause a increase in claims and premiums.
Raising deductible would cause a decrease in claims and premiums. Purpose is to
eliminate nuisance claims; to keep premiums affordable; to make the insured more
careful about loss control
✔✔Reinsurance - ✔✔The process of the insurer ceding (transferring) all or part of the
risk to another insurer so that they share the risk. The insurer transferring the risk is
known as the ceding or primary insurer and the party agreeing to accept all or a portion
of the risk is known as the reinsurer
✔✔Purpose of Reinsurance - ✔✔Used to spread risk, insure large risks safely, any type
of policy can be reinsured, solves problems with unearned premium, most reinsurance
is treaty (automatic) not specific/facultative, and helps insurers avoid capacity problems
✔✔Self funding - ✔✔Risk retention. The owner/employer pays for claims out of pocket.
Two very important characteristics must be present: The loss must be predictable and
, known and based large number of homogeneous exposure units (predictability).
Sufficient liquid assets to pay claims and other costs of retaining the risk
✔✔Type of agreement that restores someone to the same condition as prior to the
loss? - ✔✔Contract
✔✔An agreement in which an insurer contracts with a third party to insure itself against
losses from insurance policies it issues is known as: - ✔✔Reinsurance
✔✔The insurer the cedes a portion of the risk is known as the: - ✔✔Reinsurer
✔✔Four Major Categories of Insurers - ✔✔Property insurance, Casualty Insurance, Life
Insurance and Accident/health insurance
✔✔Property insurance - ✔✔Covers direct and indirect losses- referred to as first party
insurance/coverage
✔✔Casualty insurance - ✔✔Includes a wide variety of unrelated coverages such as
auto, workers comp, general liability, crime insurance aviation insurance, surety bonds,
etc...
✔✔life insurance - ✔✔Provides death beds, annuities, lifetime income
✔✔Accident and health insurance - ✔✔Protects against loss caused by injury, illness,
accidental death and disability income
✔✔The 22 classes/lines of Insurance - ✔✔Life, Fire (property), Marine (boat), Title (not
free and clear), Surety (Bonds), disability (injury/sickness), plate glass (glass that
breaks), liability (injury), workers comp (injury on job), common carrier (liability of
goods), boiler/machinery (explosion of tanks/pipes), burglary (theft), credit, sprinkler,
team (loss caused by use of teams), auto, mortgage, aircraft, mortgage guarantee,
insolvency, legal, misc. (eq, flood)
✔✔Private insurer and Government Insurers - ✔✔Insurance is provided to the public by
two major sources, private and US Government. Two major insurers are Stock and
Mutual
✔✔Stock insurer - ✔✔Non participating! stock holders, shareholders, stakeholders own
and elect the board of directors (dividends taxable equal return of profit)
✔✔Mutual insurer - ✔✔Participating. Policy holders and buyers own elect the board of
directors. (Dividends not taxable equals return of premium)
✔✔Demutualization - ✔✔When a mutual insurer becomes a stock insurer
2026/2027 QUESTIONS AND SOLUTIONS RATED A+
✔✔Three dimensions that make up Loss Exposure - ✔✔Type of value exposed to loss,
peril causing the loss, and financial consequence of loss
✔✔Loss due to resignation, retirement, or death of a key employee is what type of loss
exposure - ✔✔Personnel
✔✔Not a benefit of Insurance is: - ✔✔Risk retention
✔✔Other words for Homogenous units - ✔✔Like or similar
✔✔Formula for loss ratio - ✔✔Loss divided by premiums
✔✔Principle of indemnity - ✔✔The basic principle behind Insurance. To restore
someone to the same financial condition the occupied prior to the loss with no intent of
loss or gain (to make while). The intent is to cover the amount of the actual loss only. An
insured cannot collect more than 100% of actual loss. An insured can only be
indemnified to the extent of their insurable interest (ownership) in property.
✔✔Purpose of indemnity - ✔✔To prevent insured from profit from a loss and reduce
moral hazard
✔✔Indemnification - ✔✔Cannot collect more than your actual loss under this definition.
✔✔Deductibles - ✔✔Portion of covered expenses the insured must pay/satisfy before
the insurer pays. Lowering deductible would cause a increase in claims and premiums.
Raising deductible would cause a decrease in claims and premiums. Purpose is to
eliminate nuisance claims; to keep premiums affordable; to make the insured more
careful about loss control
✔✔Reinsurance - ✔✔The process of the insurer ceding (transferring) all or part of the
risk to another insurer so that they share the risk. The insurer transferring the risk is
known as the ceding or primary insurer and the party agreeing to accept all or a portion
of the risk is known as the reinsurer
✔✔Purpose of Reinsurance - ✔✔Used to spread risk, insure large risks safely, any type
of policy can be reinsured, solves problems with unearned premium, most reinsurance
is treaty (automatic) not specific/facultative, and helps insurers avoid capacity problems
✔✔Self funding - ✔✔Risk retention. The owner/employer pays for claims out of pocket.
Two very important characteristics must be present: The loss must be predictable and
, known and based large number of homogeneous exposure units (predictability).
Sufficient liquid assets to pay claims and other costs of retaining the risk
✔✔Type of agreement that restores someone to the same condition as prior to the
loss? - ✔✔Contract
✔✔An agreement in which an insurer contracts with a third party to insure itself against
losses from insurance policies it issues is known as: - ✔✔Reinsurance
✔✔The insurer the cedes a portion of the risk is known as the: - ✔✔Reinsurer
✔✔Four Major Categories of Insurers - ✔✔Property insurance, Casualty Insurance, Life
Insurance and Accident/health insurance
✔✔Property insurance - ✔✔Covers direct and indirect losses- referred to as first party
insurance/coverage
✔✔Casualty insurance - ✔✔Includes a wide variety of unrelated coverages such as
auto, workers comp, general liability, crime insurance aviation insurance, surety bonds,
etc...
✔✔life insurance - ✔✔Provides death beds, annuities, lifetime income
✔✔Accident and health insurance - ✔✔Protects against loss caused by injury, illness,
accidental death and disability income
✔✔The 22 classes/lines of Insurance - ✔✔Life, Fire (property), Marine (boat), Title (not
free and clear), Surety (Bonds), disability (injury/sickness), plate glass (glass that
breaks), liability (injury), workers comp (injury on job), common carrier (liability of
goods), boiler/machinery (explosion of tanks/pipes), burglary (theft), credit, sprinkler,
team (loss caused by use of teams), auto, mortgage, aircraft, mortgage guarantee,
insolvency, legal, misc. (eq, flood)
✔✔Private insurer and Government Insurers - ✔✔Insurance is provided to the public by
two major sources, private and US Government. Two major insurers are Stock and
Mutual
✔✔Stock insurer - ✔✔Non participating! stock holders, shareholders, stakeholders own
and elect the board of directors (dividends taxable equal return of profit)
✔✔Mutual insurer - ✔✔Participating. Policy holders and buyers own elect the board of
directors. (Dividends not taxable equals return of premium)
✔✔Demutualization - ✔✔When a mutual insurer becomes a stock insurer
