NC PERSONAL LINES LICENSE FINAL
STUDY GUIDE 2026 QUESTIONS WITH
SOLUTIONS GRADED A+
⩥ Types of risk.
Answer: 1. Speculative risk
2. Pure risk
3. Insurable risk
⩥ Speculative risk.
Answer: chance of grain as well as a chance of loss; insurance is not
intended to protect against this type of risk
⩥ Pure risk.
Answer: chance of loss only; we attempt to buy insurance based on pure
risk
⩥ insurable risk.
Answer: one that an insurance company is willing to accept
⩥ Characteristics of insurable risk.
Answer: 1. low probability of loss occurring
,2. less than catastrophic results (earthquake, flood, wind)
3. the loss must be measurable ($)
4. the loss must be significant
5. the loss must be accidental and unintended
⩥ Probability.
Answer: measures the chance of an event occurring; measure of risk;
predicting the future based on the past
⩥ Law of Large Numbers (Law of Averages).
Answer: Mathematical principle that makes it possible to predict future
losses based upon prior experience; insurance uses both probability and
law of numbers in determining rates
⩥ geographic dispersion (spread of risk).
Answer: 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 obtaining insurance; insurers
attempt to prevent adverse selection by carefully underwriting each and
every applicant for insurance.
,⩥ with higher risk customers you can.
Answer: 1. refulse to write the policy
2. charge more
3. check underwriting guidelines with companies; some use credit
history; shop around
⩥ do not.
Answer: deductibles ____ prevent bad business from getting on the
books
⩥ methods of handling risk.
Answer: 1. retention
2. transfer
3. control or reduction
⩥ retention.
Answer: when liability for a loss is maintained by an individual by not
purchasing insurance
⩥ transfer.
Answer: shift the responsibility for a loss to an insurance company
through the purchase of insurance
, ⩥ control or reduction.
Answer: Attempt to prevent a loss or to reduce the amount of the loss.
⩥ perils.
Answer: actual cause of a loss such as a fire, theft, wind, hail, etc.
⩥ hazard.
Answer: increase the probability of a peril occurring; ex: bald tires faulty
wires
⩥ restore.
Answer: The purpose of insurance is to ____ the insured to the original
financial position that was enjoyed before a loos, but without gain. This
is also known as the principle of indemnity.
⩥ property insurance.
Answer: indemnifies (repays) a person or business with an interest in the
physical integrity of tangible property for its loss and the loss of income
produced by that property
⩥ casualty insurance.
Answer: provides protection to meet the unexpected costs imposed by
law due to acts that have cause bodily injury or property damage to
another individual
STUDY GUIDE 2026 QUESTIONS WITH
SOLUTIONS GRADED A+
⩥ Types of risk.
Answer: 1. Speculative risk
2. Pure risk
3. Insurable risk
⩥ Speculative risk.
Answer: chance of grain as well as a chance of loss; insurance is not
intended to protect against this type of risk
⩥ Pure risk.
Answer: chance of loss only; we attempt to buy insurance based on pure
risk
⩥ insurable risk.
Answer: one that an insurance company is willing to accept
⩥ Characteristics of insurable risk.
Answer: 1. low probability of loss occurring
,2. less than catastrophic results (earthquake, flood, wind)
3. the loss must be measurable ($)
4. the loss must be significant
5. the loss must be accidental and unintended
⩥ Probability.
Answer: measures the chance of an event occurring; measure of risk;
predicting the future based on the past
⩥ Law of Large Numbers (Law of Averages).
Answer: Mathematical principle that makes it possible to predict future
losses based upon prior experience; insurance uses both probability and
law of numbers in determining rates
⩥ geographic dispersion (spread of risk).
Answer: 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 obtaining insurance; insurers
attempt to prevent adverse selection by carefully underwriting each and
every applicant for insurance.
,⩥ with higher risk customers you can.
Answer: 1. refulse to write the policy
2. charge more
3. check underwriting guidelines with companies; some use credit
history; shop around
⩥ do not.
Answer: deductibles ____ prevent bad business from getting on the
books
⩥ methods of handling risk.
Answer: 1. retention
2. transfer
3. control or reduction
⩥ retention.
Answer: when liability for a loss is maintained by an individual by not
purchasing insurance
⩥ transfer.
Answer: shift the responsibility for a loss to an insurance company
through the purchase of insurance
, ⩥ control or reduction.
Answer: Attempt to prevent a loss or to reduce the amount of the loss.
⩥ perils.
Answer: actual cause of a loss such as a fire, theft, wind, hail, etc.
⩥ hazard.
Answer: increase the probability of a peril occurring; ex: bald tires faulty
wires
⩥ restore.
Answer: The purpose of insurance is to ____ the insured to the original
financial position that was enjoyed before a loos, but without gain. This
is also known as the principle of indemnity.
⩥ property insurance.
Answer: indemnifies (repays) a person or business with an interest in the
physical integrity of tangible property for its loss and the loss of income
produced by that property
⩥ casualty insurance.
Answer: provides protection to meet the unexpected costs imposed by
law due to acts that have cause bodily injury or property damage to
another individual
