NORTH CAROLINA PROPERTY AND
CASUALTY STATE STUDY GUIDE
2026 COMPLETE QUESTIONS AND
ACCURATE ANSWERS
◉ Speculative Risk. Answer: - when there is a chance of gain as well as
a chance of loss (ex: buying a stock, gambling)
- insurance IS NOT intended to protect against this
◉ Pure Risk. Answer: - when there is a chance of loss only
- not all pure risks are insurable
◉ Insurable Risk. Answer: - a risk the insurance company is willing to
accept
- characteristics of an insurable risk
1. Low probability of a loss occurring
2. Less than catastrophic results
3. The loss must be measurable
4. The loss must be significant
5. The loss must be accidental and unintended
◉ Law of Large Numbers. Answer: - makes it possible to predict future
losses based upon prior experience
,- law states that as a large # of events are included, the difference
between actual and expected results become smaller
◉ Spread of Risk. Answer: - involves spreading the company's policies
over a broad geographical area in order to avoid large losses in the event
of a catastrophic event
◉ Adverse Selection. Answer: - occurs when insureds with a high risk
of loss attempt to purchase insurance and are successful in doing so
- insurers attempt to PREVENT THIS (bad risk)
- prevented by:
1. refusal to write
2. rating up
3. insurability standards
*** deductibles do not prevent this
◉ Retention. Answer: - when liability for a loss is maintained by an
individual by NOT PURCHASING INSURANCE
- deductible is an example of retention
◉ Transfer. Answer: To shift the responsibility for a loss to an insurance
company through the purchase of insurance
◉ Control/Reduction. Answer: - an attempt to prevent a loss or to reduce
the amount of the loss
,- ex: installation of a sprinkler system to reduce the amount of loss
◉ Perils. Answer: Actual cause of a loss such as fire, theft, wind, hail,
etc.
◉ Hazards. Answer: - increase in the probability of a peril occurring
- ex: bald tires on a car, faulty wires, damaged steps
◉ Principle of Indemnity. Answer: - the fundamental idea that the
purpose of insurance is to restore the insured to the original financial
position that was enjoyed before a loss, BUT WITHOUT GAIN
◉ Private/Voluntary Insurance. Answer: - neither required nor made
available by the government, but does not meet recognized needs
- ex: collision insurance in a PAP
◉ Social Insurance. Answer: - programs either require or made available
by government
- ex: facility, workers comp, flood insurance
◉ Reinsurance. Answer: - where insurers sell portions of their individual
contracts of insurance to other companies; helps spread risk
- insurance for an insurance company
◉ Indirect Losses. Answer: - consequential loss
, - include:
1. Losing Money
2. Incurred Additional Expenses
◉ Capital Stock Companies. Answer: - in business to make a profit for
stockholders
- owned by stockholders; elect a board of directors
- profit is fully taxable to stockholder
◉ Mutual Insurance Companies. Answer: - owned by policyholders;
each policyholder "owns" a part of the company proportionate to their
share
- elects a board of directors who appoint officers
- surplus returned to policyholders in the form of non-taxable policy
dividend
◉ Reciprocal (Assessment) Companies. Answer: - policyholders are
insured by other policyholders
- managed by Attorney-In-Fact who can assess the policyholders for
additional premiums
◉ Classifications of Insurance Companies. Answer: 1. Domestic:
organized in state
2. Foreign: organized in a different state
3. Alien: organized in another country
CASUALTY STATE STUDY GUIDE
2026 COMPLETE QUESTIONS AND
ACCURATE ANSWERS
◉ Speculative Risk. Answer: - when there is a chance of gain as well as
a chance of loss (ex: buying a stock, gambling)
- insurance IS NOT intended to protect against this
◉ Pure Risk. Answer: - when there is a chance of loss only
- not all pure risks are insurable
◉ Insurable Risk. Answer: - a risk the insurance company is willing to
accept
- characteristics of an insurable risk
1. Low probability of a loss occurring
2. Less than catastrophic results
3. The loss must be measurable
4. The loss must be significant
5. The loss must be accidental and unintended
◉ Law of Large Numbers. Answer: - makes it possible to predict future
losses based upon prior experience
,- law states that as a large # of events are included, the difference
between actual and expected results become smaller
◉ Spread of Risk. Answer: - involves spreading the company's policies
over a broad geographical area in order to avoid large losses in the event
of a catastrophic event
◉ Adverse Selection. Answer: - occurs when insureds with a high risk
of loss attempt to purchase insurance and are successful in doing so
- insurers attempt to PREVENT THIS (bad risk)
- prevented by:
1. refusal to write
2. rating up
3. insurability standards
*** deductibles do not prevent this
◉ Retention. Answer: - when liability for a loss is maintained by an
individual by NOT PURCHASING INSURANCE
- deductible is an example of retention
◉ Transfer. Answer: To shift the responsibility for a loss to an insurance
company through the purchase of insurance
◉ Control/Reduction. Answer: - an attempt to prevent a loss or to reduce
the amount of the loss
,- ex: installation of a sprinkler system to reduce the amount of loss
◉ Perils. Answer: Actual cause of a loss such as fire, theft, wind, hail,
etc.
◉ Hazards. Answer: - increase in the probability of a peril occurring
- ex: bald tires on a car, faulty wires, damaged steps
◉ Principle of Indemnity. Answer: - the fundamental idea that the
purpose of insurance is to restore the insured to the original financial
position that was enjoyed before a loss, BUT WITHOUT GAIN
◉ Private/Voluntary Insurance. Answer: - neither required nor made
available by the government, but does not meet recognized needs
- ex: collision insurance in a PAP
◉ Social Insurance. Answer: - programs either require or made available
by government
- ex: facility, workers comp, flood insurance
◉ Reinsurance. Answer: - where insurers sell portions of their individual
contracts of insurance to other companies; helps spread risk
- insurance for an insurance company
◉ Indirect Losses. Answer: - consequential loss
, - include:
1. Losing Money
2. Incurred Additional Expenses
◉ Capital Stock Companies. Answer: - in business to make a profit for
stockholders
- owned by stockholders; elect a board of directors
- profit is fully taxable to stockholder
◉ Mutual Insurance Companies. Answer: - owned by policyholders;
each policyholder "owns" a part of the company proportionate to their
share
- elects a board of directors who appoint officers
- surplus returned to policyholders in the form of non-taxable policy
dividend
◉ Reciprocal (Assessment) Companies. Answer: - policyholders are
insured by other policyholders
- managed by Attorney-In-Fact who can assess the policyholders for
additional premiums
◉ Classifications of Insurance Companies. Answer: 1. Domestic:
organized in state
2. Foreign: organized in a different state
3. Alien: organized in another country
