NJ PSI Property and Casualty Exam
Actual 2026 Questions and Verified
Answers () A+ Grade
Complete Verified by Experts
Section 1: General Insurance Principles (Questions 1-15)
Question 1: For the purpose of insurance, risk is defined as:
A) A condition that increases the chance of loss
B) The cause of a potential loss
C) The uncertainty or chance of loss
D) The amount of loss sustained
Correct ,,,answer,,,: C
Rationale: Risk is defined as the uncertainty or chance of loss. Hazard
is a condition that increases the chance of loss (A). Peril is the cause of
loss (B). Loss amount is the financial consequence (D).
Question 2: What significance did Paul v. Virginia have on the
insurance industry?
A) It established that insurance is interstate commerce subject to federal
regulation
B) It decided that insurance was not interstate commerce and could not
,be regulated by the federal government
C) It created the National Association of Insurance Commissioners
D) It mandated federal licensing for all insurance agents
Correct ,,,answer,,,: B
Rationale: Paul v. Virginia (1869) decided that insurance was not
interstate commerce and therefore could not be regulated by the federal
government, leaving regulation to the states.
Question 3: U.S. v. South-Eastern Underwriters was decided in
1944. To what extent does the Supreme Court's decision still apply
to insurance today?
A) It has been completely overturned by subsequent legislation
B) Insurance is considered to be interstate commerce and is therefore
subject to regulation by the federal government
C) It applies only to health insurance, not property and casualty
D) The decision no longer has any legal effect
Correct ,,,answer,,,: B
Rationale: U.S. v. South-Eastern Underwriters (1944) determined that
insurance is interstate commerce and subject to federal regulation.
However, the McCarran-Ferguson Act of 1945 returned primary
regulation to the states.
,Question 4: Which type of insurance company is organized to return
any surplus money to its policyholders?
A) Stock insurer
B) Reciprocal insurer
C) Mutual insurer
D) Lloyd's association
Correct ,,,answer,,,: C
Rationale: A mutual insurer is owned by its policyholders. Any surplus
(profits) may be returned to policyholders as dividends. Stock insurers
(A) are owned by shareholders.
Question 5: An insurance policy based upon uncertainty of loss
where equal value is not given by the parties to the contract is called
a(n):
A) Contract of adhesion
B) Aleatory contract
C) Unilateral contract
D) Conditional contract
Correct ,,,answer,,,: B
Rationale: An aleatory contract is based on an uncertain event where
the values exchanged may be unequal. The insured may pay premiums
for years with no claim, or pay one premium and receive a large claim
payment.
, Question 6: The principle requiring parties to an insurance contract
to rely upon the integrity of one another is called:
A) Indemnity
B) Insurable interest
C) Utmost good faith
D) Subrogation
Correct ,,,answer,,,: C
Rationale: Utmost good faith (Uberrimae Fidei) requires both parties to
disclose all material facts honestly. This principle distinguishes
insurance from ordinary commercial contracts.
Question 7: Which part of an insurance policy contains the insurer's
promise to pay and describes the coverage provided and perils
insured against?
A) Declarations
B) Insuring agreement
C) Conditions
D) Exclusions
Correct ,,,answer,,,: B
Rationale: The insuring agreement is the section containing the insurer's
promise to pay, a description of coverage provided, and the perils
insured against.
Actual 2026 Questions and Verified
Answers () A+ Grade
Complete Verified by Experts
Section 1: General Insurance Principles (Questions 1-15)
Question 1: For the purpose of insurance, risk is defined as:
A) A condition that increases the chance of loss
B) The cause of a potential loss
C) The uncertainty or chance of loss
D) The amount of loss sustained
Correct ,,,answer,,,: C
Rationale: Risk is defined as the uncertainty or chance of loss. Hazard
is a condition that increases the chance of loss (A). Peril is the cause of
loss (B). Loss amount is the financial consequence (D).
Question 2: What significance did Paul v. Virginia have on the
insurance industry?
A) It established that insurance is interstate commerce subject to federal
regulation
B) It decided that insurance was not interstate commerce and could not
,be regulated by the federal government
C) It created the National Association of Insurance Commissioners
D) It mandated federal licensing for all insurance agents
Correct ,,,answer,,,: B
Rationale: Paul v. Virginia (1869) decided that insurance was not
interstate commerce and therefore could not be regulated by the federal
government, leaving regulation to the states.
Question 3: U.S. v. South-Eastern Underwriters was decided in
1944. To what extent does the Supreme Court's decision still apply
to insurance today?
A) It has been completely overturned by subsequent legislation
B) Insurance is considered to be interstate commerce and is therefore
subject to regulation by the federal government
C) It applies only to health insurance, not property and casualty
D) The decision no longer has any legal effect
Correct ,,,answer,,,: B
Rationale: U.S. v. South-Eastern Underwriters (1944) determined that
insurance is interstate commerce and subject to federal regulation.
However, the McCarran-Ferguson Act of 1945 returned primary
regulation to the states.
,Question 4: Which type of insurance company is organized to return
any surplus money to its policyholders?
A) Stock insurer
B) Reciprocal insurer
C) Mutual insurer
D) Lloyd's association
Correct ,,,answer,,,: C
Rationale: A mutual insurer is owned by its policyholders. Any surplus
(profits) may be returned to policyholders as dividends. Stock insurers
(A) are owned by shareholders.
Question 5: An insurance policy based upon uncertainty of loss
where equal value is not given by the parties to the contract is called
a(n):
A) Contract of adhesion
B) Aleatory contract
C) Unilateral contract
D) Conditional contract
Correct ,,,answer,,,: B
Rationale: An aleatory contract is based on an uncertain event where
the values exchanged may be unequal. The insured may pay premiums
for years with no claim, or pay one premium and receive a large claim
payment.
, Question 6: The principle requiring parties to an insurance contract
to rely upon the integrity of one another is called:
A) Indemnity
B) Insurable interest
C) Utmost good faith
D) Subrogation
Correct ,,,answer,,,: C
Rationale: Utmost good faith (Uberrimae Fidei) requires both parties to
disclose all material facts honestly. This principle distinguishes
insurance from ordinary commercial contracts.
Question 7: Which part of an insurance policy contains the insurer's
promise to pay and describes the coverage provided and perils
insured against?
A) Declarations
B) Insuring agreement
C) Conditions
D) Exclusions
Correct ,,,answer,,,: B
Rationale: The insuring agreement is the section containing the insurer's
promise to pay, a description of coverage provided, and the perils
insured against.
