Virginia Personal Lines Agent
Licensing Course Questions &
Answers
What is insurance? - <CORRECT ANSWER >>Insurance is a social device for spreading the chance
of financial loss among a large number of people. By purchasing insurance, a "person" shares
risk with a group of others, thereby reducing the individual potential for disastrous financial
consequences.
What is insurance based on? - <CORRECT ANSWER >>the law of large numbers; by combining a
large number of homogeneous units, the insurer is able to make predictions of possible loss.
Using the law of large numbers, insurers are able to calculate probable losses and to establish
the rates for premiums that will cover their losses and their operating expenses.
What is underwriting? - <CORRECT ANSWER >>the process of selecting certain types of risks
that have historically produced a profit and rejecting those risks that do not fit the underwriting
criteria of the insurer; normally produces a favorable loss ratio
Adverse selection - <CORRECT ANSWER >>assess risk and charge too little; the tendency of
insureds with a greater-than-average chance of loss to purchase insurance
Reinsurace - <CORRECT ANSWER >>a contract of indemnity against liability by which an
insurance company procures another insurance company to insure it against loss or liability by
reason of the original insurance; insurance companies have a company that insures them
What are the 6 parts of an insurance contract? - <CORRECT ANSWER >>Declarations, Insuring
Agreement, Conditions, Exclusions and Limitations, Definitions, Endorsements
Declarations - <CORRECT ANSWER >>includes the identity and address of the named insured,
the policy term or period, the amount of insurance or limits of liability, the policy premium, and
any applicable deductibles; include property description and any applicable deductibles as well
as list any endorsements; who is insured, what is insured, deductibles... etc.
,Insuring Agreement - <CORRECT ANSWER >>describes the covered perils, or risks assumed, or
nature of coverage, or makes some reference to the contractual agreement between insurer
and insured; what insurer will cover for you.
Conditions - <CORRECT ANSWER >>set provisions, rules of conduct, duties, and obligations for
the parties; describes things such as the policy period and territory, the insured's obligation to
provide proof of loss, how settlements are handled when other insurance is involved, and the
right of each party to cancel the policy
Exclusions and Limitations - <CORRECT ANSWER >>Exclusions: may describe property , perils,
hazards, or losses arising from specific causes that are not covered by the policy; Limitations;
may eliminate or reduce coverage, but only under certain circumstances or when specified
conditions apply; Exclusions and Limitations: when the insurance company wont cover you.
Definitions - <CORRECT ANSWER >>Define important terms used in the policy language;
explanation
Endorsements - <CORRECT ANSWER >>used to add, delete, or change any of the policy parts;
written modification of the policy; additional coverages to contract --> extra money premium.
Peril - <CORRECT ANSWER >>potential cause of loss
Hazard - <CORRECT ANSWER >>increases the seriousness of a loss or increases the likelihood
that a loss will occur; increased potential of peril
Direct Loss - <CORRECT ANSWER >>direct consequence of a particular peril (example: fire
damage to an apartment building
Indirect Loss - <CORRECT ANSWER >>loss that is a result of a covered peril but is not caused
directly and immediately by that peril (example: loss of rental income)
, Salvage - <CORRECT ANSWER >>If the insurer pays a loss on behalf of the insured, the insurer is
entitled to the salvage to reduce the claim (example: totaled care --> belongs to insurance
company)
Abandonment - <CORRECT ANSWER >>insured cannot simply abandon the property to the
insurance company in exchange for the full-insured value.
Pair or Set Clause - <CORRECT ANSWER >>if part of a pair or set is lost or damaged, the loss will
be valued as a fair proportion of the total value of the set, giving consideration to the
importance of the damaged article to the set; initial - appraised = payout
Deductible - <CORRECT ANSWER >>Self-insured part of an insured loss, the insured must bear
this loss; amount you pay before insurance comes in --> you are responsible.
Vacancy and Unoccupancy - <CORRECT ANSWER >>Vacancy: building is void of contents and
people; 60 or more days; Unoccupancy: premises are void of people, will not affect the
coverage provided by the policy.
Assignment - <CORRECT ANSWER >>Insurance policy cannot be assigned to another party
without consent of the insurance company
Liberalization - <CORRECT ANSWER >>if the policy or endorsement forms are broadened and no
additional premium is required, then all existing similar policies or endorsements will be
construed to include the broadened coverage
Binder - <CORRECT ANSWER >>temporary evidence that coverage is in effect until the policy is
issued --> oral or written
Primary Insurance - <CORRECT ANSWER >>in cases where more than one policy is in force, the
primary policy pays first; example: you borrow your friends car and get into an accident --> that
car's insurance covers you, then you can use your own insurance.
Licensing Course Questions &
Answers
What is insurance? - <CORRECT ANSWER >>Insurance is a social device for spreading the chance
of financial loss among a large number of people. By purchasing insurance, a "person" shares
risk with a group of others, thereby reducing the individual potential for disastrous financial
consequences.
What is insurance based on? - <CORRECT ANSWER >>the law of large numbers; by combining a
large number of homogeneous units, the insurer is able to make predictions of possible loss.
Using the law of large numbers, insurers are able to calculate probable losses and to establish
the rates for premiums that will cover their losses and their operating expenses.
What is underwriting? - <CORRECT ANSWER >>the process of selecting certain types of risks
that have historically produced a profit and rejecting those risks that do not fit the underwriting
criteria of the insurer; normally produces a favorable loss ratio
Adverse selection - <CORRECT ANSWER >>assess risk and charge too little; the tendency of
insureds with a greater-than-average chance of loss to purchase insurance
Reinsurace - <CORRECT ANSWER >>a contract of indemnity against liability by which an
insurance company procures another insurance company to insure it against loss or liability by
reason of the original insurance; insurance companies have a company that insures them
What are the 6 parts of an insurance contract? - <CORRECT ANSWER >>Declarations, Insuring
Agreement, Conditions, Exclusions and Limitations, Definitions, Endorsements
Declarations - <CORRECT ANSWER >>includes the identity and address of the named insured,
the policy term or period, the amount of insurance or limits of liability, the policy premium, and
any applicable deductibles; include property description and any applicable deductibles as well
as list any endorsements; who is insured, what is insured, deductibles... etc.
,Insuring Agreement - <CORRECT ANSWER >>describes the covered perils, or risks assumed, or
nature of coverage, or makes some reference to the contractual agreement between insurer
and insured; what insurer will cover for you.
Conditions - <CORRECT ANSWER >>set provisions, rules of conduct, duties, and obligations for
the parties; describes things such as the policy period and territory, the insured's obligation to
provide proof of loss, how settlements are handled when other insurance is involved, and the
right of each party to cancel the policy
Exclusions and Limitations - <CORRECT ANSWER >>Exclusions: may describe property , perils,
hazards, or losses arising from specific causes that are not covered by the policy; Limitations;
may eliminate or reduce coverage, but only under certain circumstances or when specified
conditions apply; Exclusions and Limitations: when the insurance company wont cover you.
Definitions - <CORRECT ANSWER >>Define important terms used in the policy language;
explanation
Endorsements - <CORRECT ANSWER >>used to add, delete, or change any of the policy parts;
written modification of the policy; additional coverages to contract --> extra money premium.
Peril - <CORRECT ANSWER >>potential cause of loss
Hazard - <CORRECT ANSWER >>increases the seriousness of a loss or increases the likelihood
that a loss will occur; increased potential of peril
Direct Loss - <CORRECT ANSWER >>direct consequence of a particular peril (example: fire
damage to an apartment building
Indirect Loss - <CORRECT ANSWER >>loss that is a result of a covered peril but is not caused
directly and immediately by that peril (example: loss of rental income)
, Salvage - <CORRECT ANSWER >>If the insurer pays a loss on behalf of the insured, the insurer is
entitled to the salvage to reduce the claim (example: totaled care --> belongs to insurance
company)
Abandonment - <CORRECT ANSWER >>insured cannot simply abandon the property to the
insurance company in exchange for the full-insured value.
Pair or Set Clause - <CORRECT ANSWER >>if part of a pair or set is lost or damaged, the loss will
be valued as a fair proportion of the total value of the set, giving consideration to the
importance of the damaged article to the set; initial - appraised = payout
Deductible - <CORRECT ANSWER >>Self-insured part of an insured loss, the insured must bear
this loss; amount you pay before insurance comes in --> you are responsible.
Vacancy and Unoccupancy - <CORRECT ANSWER >>Vacancy: building is void of contents and
people; 60 or more days; Unoccupancy: premises are void of people, will not affect the
coverage provided by the policy.
Assignment - <CORRECT ANSWER >>Insurance policy cannot be assigned to another party
without consent of the insurance company
Liberalization - <CORRECT ANSWER >>if the policy or endorsement forms are broadened and no
additional premium is required, then all existing similar policies or endorsements will be
construed to include the broadened coverage
Binder - <CORRECT ANSWER >>temporary evidence that coverage is in effect until the policy is
issued --> oral or written
Primary Insurance - <CORRECT ANSWER >>in cases where more than one policy is in force, the
primary policy pays first; example: you borrow your friends car and get into an accident --> that
car's insurance covers you, then you can use your own insurance.
