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PROPERTY AND CASUALTY INSURANCE EXAM
PASS THE P&C INSURANCE LICENSING EXAM WITH FLYING COLORS
"The policy period or term - CORRECT ANSWER the time between the effective date
and the expiration date- this could be six months, one year or even three years."
"Short rate basis - CORRECT ANSWER This is when the insured cancels before the
expiration date, the insurance company may keep the premiums that were already provided and also keep an allowance for expenses."
"Pro-rata basis - CORRECT ANSWER This is when the insurance company cancels the
policy and retains only the earned premium and is not able to keep an extra amount for expenses."
"Policy Limit (limit of coverage) - CORRECT ANSWER This is the maximum amount the
insurance company will pay for a loss."
"Valued or Agreed Amount Contract - CORRECT ANSWER this contract is written for a
specified amount and it lists the value of the insured property as agreed to by both the insured and the insurer."
"Deductible - CORRECT ANSWER the dollar amount the insured must pay on each loss.
the insurance company pays the remainder of each covered loss, up to the policy limit."
"Primary Insurance - CORRECT ANSWER this is the name for the insurance that pays
first, up to its limit of liability or the amount of the loss, whichever is less."
"Excess Insurance - CORRECT ANSWER this is the name for the insurance that is
applied after the primary insurance pays their limit.."
"Business Pursuits Endorsement - CORRECT ANSWER This endorsement provides
liability coverage for a business conducted away from the residence premises."
"Personal Injury Endorsement - CORRECT ANSWER This endorsement modifies the
definition of bodily injury to include personal injury (slander, libel, false arrest)"
"Flood Insurance - CORRECT ANSWER this coverage protects against flood for almost
any building that is walled and roofed and is principally above ground and is in a fixed location."
"Commercial Property Insurance - CORRECT ANSWER this type of insurance provides
coverage for a businessowner's real and business personal property."
"Control of Property Condition - CORRECT ANSWER This condition states that an act of
neglect of a person beyond the insured's direction or control will not effect the insured's insurance coverage."
"Peak Season Endorsement - CORRECT ANSWER This endorsement allows the insured
to carry increased coverage during certain seasons of the year when inventory or other covered property is higher than usual."
"Garage Keepers Insurance - CORRECT ANSWER this type of insurance covers the
insured's liability for damage to customer's property that the insured has for servicing, repair, parking and storage."
"Surety Bond - CORRECT ANSWER this type of bond guarantees that someone will
perform faithfully for whatever she agrees to do or that someone will make an agreed- upon payment to another party."
"Workers' Compensation Laws - CORRECT ANSWER these laws give employees the
right to collect from their employers for injury, disability, or death that occurs in the course of employment."
"Assumption of Risk - CORRECT ANSWER this allowed the employer to deny liability on
the basis that the employee knew what the situation was like before employment and assumed all of the risk of injury."
"Hazard - CORRECT ANSWER A condition or situation which increases the chance for
loss"
"Physical Hazards - CORRECT ANSWER a hazard that arises from the condition,
occupancy, or use of the property itself. ex: skateboard left on the steps"
"Moral Hazards - CORRECT ANSWER when an individual through carelessness or by
irresponsible actions can increase the possibly for a loss. ex: person who drives carelessly just because they know they are insured."
"Warranty - CORRECT ANSWER A provision in a policy that pledges that a condition
does exist or will exist at some time in the future."
"Deposit Premium - CORRECT ANSWER Tentative charge made at the beginning of
certain policies and reinsurance agreements to be adjusted when the actual earned charge has been later determined."
"Audit - CORRECT ANSWER Verification of books or accounts to determine their
accuracy."
"Occurrence - CORRECT ANSWER An accident, including continuous or repeated
exposure to the same harmful conditions, which result in bodily injury or property damage."
"Punitive Damages - CORRECT ANSWER type of damages intended to punish the
defendant and make an example out of her to discourage others from behaving the same way."
"Proximate Cause - CORRECT ANSWER An act, through an uniterrupted chain of
events, that can be determined to be the immediate or actual cause of a loss."
"4 elements of negligence - CORRECT ANSWER 1. The existence of a DUTY to act in a
certain way
- A FAILURE to live up to this duty
- An actual INJURY must occur
- The failure in duty must be the PROXIMATE CAUSE of the injury."
"Negligence - CORRECT ANSWER An unreasonable or prudent act, A thoughtless or
careless act or one committed out of ignorance. It may be a non-act or omission, but it is NEVER an intentional act."
"Uninsured Motor Vehicle - CORRECT ANSWER A motor vehicle or trailer to which:
- No liability coverage at the time of accident -has liability coverage but not enough to meet the state's financial responsibility requirement
- Operated by a hit and run driver
- Has invalid liability insurance at the time of the accident because the insurer is insolvent or denies coverage"
"Part C: Uninsured Motorist Coverage - CORRECT ANSWER this coverage compensates
the insured for bodily injury ONLY as a result of an accident with an uninsured motorist."
"Medical Payments - CORRECT ANSWER Insurance company agrees to pay for
reasonable expenses incurred for necessary medical and funeral services because of bodily injury.
- Covers first party.
- "Stays in the car"
- 3 years is time limit for incurring medical expenses"
"Supplementary Payments - CORRECT ANSWER Payments made in addition to the
Limits of Liability.
- Up to $200/day for loss of earnings
- Up to $250 for the cost of bail bonds required because of an accident."
"Split Limit Basis - CORRECT ANSWER This limit has separate limits for BI and PD.
For example: 20/50/10 - $20,000 for per person bodily injury, $50,000 total per accident bodily injury, $10,000 per accident for property damage."
"Split/ Combined Single Limit - CORRECT ANSWER This limit has only one limit that
applies to both BI and PD."
"Part A - Liability Coverage - CORRECT ANSWER Provides payment for Bodily Injury (BI)
& Property Damage (PD) damage resulting from the injured's use of an automobile for which the insured becomes legally liable.
- Covers Third Party Only
- Pays for both $pecial and General Damages"
"Loss of Use - CORRECT ANSWER The inconvenience caused to an individual for the
inability to use property."
"Write Your Own (WYO) - CORRECT ANSWER Program instituted by the Federal
Government which enables private insurers (Allstate, State Farm, etc) to write, service, bill and settle claims directly with insureds while being backed financially by the federal government."
"Tort - CORRECT ANSWER Fault
A civil wrong that violates the rights of another person. Can be intentional or unintentional"
"Fair Credit Reporting Act - CORRECT ANSWER Mandates confidential, fair and
accurate reporting of information on consumers by reporting organizations as well as organizations (such as insurers) which use the services of reporting organizations. Consumers must be informed if a credit report is needed in order to underwrite a particular line of insurance."
"Apparent Authority - CORRECT ANSWER Authority that states that an agent may have
whatever authority a reasonable person would assume the agent has."
"General Rule of Agency - CORRECT ANSWER Any knowledge of the agent is presumed
to be knowledge of the insurer (principal)."
"Producer (Agent) - CORRECT ANSWER general term used to describe someone who
sells insurance. -represents the insurance company"
"Broker - CORRECT ANSWER An individual, partnership, or corporation who, for a
commission, acts or aids in any manner in the sale of insurance as the representative of the insured. In an insurance transaction, this person represents the insured."
"Consultant - CORRECT ANSWER Someone who, for a fee, offers advice on the
benefits, advantages, and disadvantages of various insurance policies. -They don't actually sell insurance, only advice."
"Solicitor - CORRECT ANSWER like an agent, sells insurance and may even be
authorized to collect premiums. However, they cannot issue or countersign policies, only agents can do this. -they represent the insurance company"
"Aleatory Contract - CORRECT ANSWER it is a contract that is contingent on an
uncertain event (a loss) that provides for unequal transfer of value between the parties. For example, people can pay insurance premiums for years without having a loss or on the other hand someone could experience a loss and be reimbursed a great deal more than they had paid in premiums."
"Unilateral Contract - CORRECT ANSWER Only one of the parties in the contract is
legally bound to do anything. -Insurance policies are one sided because only the insurance company is legally bound to perform its part of the agreement."
"Absolute Liability - CORRECT ANSWER Imposed on defendants engaged in hazardous
activities, such as harboring wild animals, using explosives, etc. The injured party does not have to prove negligence."
"Characteristics of a valid contract include: - CORRECT ANSWER -competent parties
-legal purpose -offer and agreement -consideration"
"Offer - CORRECT ANSWER a promise that requires an act or another promise in
exchange."
"Agreement - CORRECT ANSWER occurs when the other party agrees to the offer or
does what was proposed in the offer."
"Consideration - CORRECT ANSWER a thing of value exchanged for the performance
promised in the contract."
-Nuclear energy liability insurance -Flood insurance -Federal crop insurance"
"Insurance from state government may include: - CORRECT ANSWER -Unemployment
insurance -Workers compensation benefits"
"Residual Market Insurance - CORRECT ANSWER insurance provided by the
government which is not typically available from private insurers. Such war risk, flood, workers comp, etc."
"Monoline companies - CORRECT ANSWER insurance companies that only write one
type of insurance policy."
"Multiline companies - CORRECT ANSWER insurance companies that write more than
one type of insurance policy."
"Life insurance - CORRECT ANSWER insurance designed to handle the risk of
premature death or the risk that an individual may outlive his or her financial resources."
"Personal Lines - CORRECT ANSWER are property and casualty coverage that protect
an individual or family."
"Commercial Lines - CORRECT ANSWER are coverages designed for businesses."
"Suspense or dairy system - CORRECT ANSWER this system alerts an agent before a
policies renewal time."
"Countersigning - CORRECT ANSWER this is when the agent signs each new policy
prepared by the company before delivering it to the insured. Most states require this in order to validate the contract."
"Responsibilities of an insurance agent: - CORRECT ANSWER -selling insurance
-issuing and countersigning policies -collecting premiums
-providing a link between the insured and the insurance company -field underwriting risks"
"Field underwriting - CORRECT ANSWER this is when an agent uses pre-established
criteria to seek out the type of business that is likely to be acceptable to the company."
"Independent Agency System - CORRECT ANSWER Agencies that are independent
contractors which contract with several different companies to represent and sell insurance for those companies."
"Independent or Nonexclusive Agent. - CORRECT ANSWER An agent who represents
more than one company."
"Investigative Consumer Reports - CORRECT ANSWER This type of consumer report
gathers data through personal interviews with friends, neighbors, and associates. -Pre-notification is only required for this report"
"First Named Insured - CORRECT ANSWER This happens when there is more than one
person listed as an insured. The first person listed will have more duties or rights in the policy."
"Named Insured - CORRECT ANSWER the person, business, or other entity named in
the declarations to whom the policy is issued."
"Additional insureds - CORRECT ANSWER are designated persons, businesses, or
entities listed as insureds that are covered under the policy. ex: mortgage company"
"Market Value - CORRECT ANSWER This is the amount that a property could be sold
for at the time of the loss."
"Non-reporting Policies - CORRECT ANSWER policies that charge a flat premium every
time the policy is renewed. -ex: homeowners policies or auto policies."
-the loss must not happen to a large number of insureds at the same time."
"Spread of Risk - CORRECT ANSWER when an insurance company insures a large
number of people across many towns to avoid a catastrophic loss. The greater the spread of risk, the less likely that there will be a catastrophic loss for the company."
"Peril - CORRECT ANSWER Cause of loss"
"Policy Period - CORRECT ANSWER The time the policy is in effect for. Starts at 12:
am."
"Mortgage Clause "loss payable condition" - CORRECT ANSWER condition found in
property insurance policies that specifies the rights and duties of the mortgagee under the policy."
"Mortgagee Rights - CORRECT ANSWER These are rights granted to a mortgagee
(lender-bank) under a property contract issued to a mortgagor (homeowner) by virtue of the mortgagee's financial interest in the property."
"Liberalization Clause - CORRECT ANSWER A clause that states if an insurer broadens
coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will reflect the same changes."
"Recovered Property - CORRECT ANSWER if property is recovered, the insured
chooses to retain the property. If so the property value will be deducted from the loss."
"Duties after Loss - CORRECT ANSWER 1. give the insurer prompt notice
- protect the property from further loss
- keep accurate records when making reasonable repairs
- cooperate with the insurer
- show damaged property
- send proof of loss within 60 days"
"Other Insurance Agreement - CORRECT ANSWER This condition sets out how any
other insurance that applies to the same loss will affect reimbursement under the policy."
"Legal Action Against an Insurer - CORRECT ANSWER no action can be brought against
the insurer unless there has been full compliance with all terms of the policy and the action is started within two years after the date of loss."
"Schedule rating - CORRECT ANSWER This is a form of merit rating which applies a
system of debits or credits to reflect characteristics of a particular insured."
"Judgement rating - CORRECT ANSWER The oldest form of determining rates. This
premium is determined by considering the individual risk. No books or tables are used; premiums are established through careful judgement."
"Manual Rating or Class Rating - CORRECT ANSWER Most common method of rate
determination. The rate is determined by consulting a manual which is usually stored on a computer. Rates are arranged by categories or classes. The agent or underwriter classifies the risk according to the defined criteria and then looks up the appropriate rate. Then the printed rate is multiplied by the number of units of insurance being purchased to get the premium."
"Merit rating - CORRECT ANSWER This rating starts with a class or manual rating which
is then modified to reflect the unique characteristics of the risk that are not reflected in the manual rate."
"Experience rating - CORRECT ANSWER This is a form of merit rating that modified the
manual premium on the basis of the insureds loss experience (the dollars paid out in claims vs. the premium received) over a period, generally the three years preceding the current policy year."
"Retrospective rating - CORRECT ANSWER This is a form of merit rating which bases
the insured's premium on losses incurred during the policy period."
"Unfair Discrimination - CORRECT ANSWER This means that an insured cannot be
given a lower or higher rate than another insured in and identical circumstance. This action violates the law. the insurer cannot charge different rates for the same class of insureds"
"Reinsurance Department - CORRECT ANSWER This department helps protect
insurance companies from catastrophic losses."
"Loss ratio - CORRECT ANSWER this ratio is used to compare the company's operations
from year to year. It shows the percentage of losses the company incurred for every dollar of earned premium.
"Actuaries - CORRECT ANSWER This is the numbers department. These people
determine the rates to be charged for various types of insurance. Part of the Actuarial and Statistical Department"
"Legal Department - CORRECT ANSWER This department interprets the various state
insurance laws and helps the company keep its policies and practices compliant."
"Loss Control Department - CORRECT ANSWER This department inspects factories,
certifies boilers, and makes recommendations to insureds as to how risks may be avoided or reduced."
"Insurance Department - CORRECT ANSWER Each state has on of these departments
which is headed by an official with the responsibility for controlling insurance matters within the state."
"The National Association of Insurance Commissioners (NAIC) - CORRECT ANSWER
This commission is made up of commissioners from each state. Much of the nation's insurance laws are created through the Commissions recommendations."
"Admitted or Authorized Insurer. - CORRECT ANSWER An insurance company who
meets the department's standards and is authorized to do business in the state."
"Non-admitted or Unauthorized Insurer. - CORRECT ANSWER An insurance company
who is not authorized to do business in the state."
"Domestic Company - CORRECT ANSWER A company operating in its home state."
"Foreign Company - CORRECT ANSWER A company conducting business in other
states other than their home state."
"Alien Company - CORRECT ANSWER A company that is incorporated in a country
other than the United States but is doing business in the states"
"Fiduciary - CORRECT ANSWER A person who stands in a special relationship of trust to
another person."
"Misrepresentation by an Agent - CORRECT ANSWER when an agent falsely advertises
the terms of benefits of a policy or the financial condition of the company. -NOT ALLOWED"
"Twisting - CORRECT ANSWER a form of misrepresentation in which the agent
convinces the client to cancel already-existing insurance and buy another policy from the agent. -THIS IS ILLEGAL"
"Rebating - CORRECT ANSWER giving or offering some benefit other than those
specified in the policy, such as cash, gifts or securities, to induce a customer to buy insurance. -This is illegal in all states except two."
"Prior Approval Forms - CORRECT ANSWER This is when insurance companies must
obtain official approval BEFORE using new forms and rates."
"File and Use Form - CORRECT ANSWER This is when an insurance company can begin
using forms and rates as soon as they have been filed."
"Open Competition Forms - CORRECT ANSWER This allows the companies to compete
openly with the forms and rates they select, subject only to requirements of adequacy and nondiscrimination."
"Insurance Guaranty Associations - CORRECT ANSWER The public is also protected by
this association which provides funds for payment of unpaid claims when an insurer becomes insolvent." "Prohibited Persons in Insurance- Federal Violent Crime Control and Law Enforcement Act
(18 USC Sect 1033, 1034) - CORRECT ANSWER This act prohibits anyone who has been
convicted of a state or federal felony involving dishonesty or breach of trust from being involved in the insurance business without a waiver from the Commissioner"
"USA Patriot Act - CORRECT ANSWER This act gives the federal government broad
power to curtail attempts to launder money and finance terrorist activities."
This can be intentional or unintentional."
"Material fact - CORRECT ANSWER a fact that would cause an insurer to decline a risk,
charge a different premium or change the provisions of the policy that was issued."
"Concealment - CORRECT ANSWER is similar to misrepresentation but it involves
withholding information rather than misstating a material fact."
"Fraud - CORRECT ANSWER is a deliberate misrepresentation that causes harm. It is
ALWAYS intentional."
"Four elements of Fraud: - CORRECT ANSWER 1. Someone deliberately lies
- The intent of the lie is for someone else to rely on that lie
- Another person relies on that lie 4, The other person suffers harm as a result of relying on that lie"
"Representations - CORRECT ANSWER statements that the applicant believes are true.
A policy cannot be voided because of this."
"Warranties - CORRECT ANSWER specific agreements that are made between the
insured and the insurer that certain conditions will be met. -If these conditions are violated then the contract can be voided. Whether it was done intentionally or unintentionally."
"Waiver - CORRECT ANSWER This is the intentional relinquishment of a known right.
ex: Sometimes an insurer knowingly overlooks a condition or exclusion that would normally have been grounds for denying coverage. When the insurer does this they give up the right to deny or refuse the policy."
"Contribution by Limits - CORRECT ANSWER a method of handling insurance when
more than one coverage applies to a loss. Each coverage pays a portion of the loss in
proportion to the relationship it's limit of liability bears to the total limit of liability under all applicable insurance."
"Flat cancellation - CORRECT ANSWER This is when a policy is canceled by either party
on the effective date."
"Nonrenewal - CORRECT ANSWER These provisions are less strict than cancellation
requirements but the insurance company may still be limited in the reasons for doing this action. The insured can make the decision to renew or not."
"Named/Specific Perils - CORRECT ANSWER this is when the policy lists specific perils
or causes of loss that are insured against under the policy. -It ONLY covers perils listed on the policy."
"Open Peril/ All risk - CORRECT ANSWER this is when a policy insures against ALL risks
of physical loss except those specifically excluded from the policy."
"Direct Loss - CORRECT ANSWER this is a financial loss resulting directly from a loss to
property. ex: such as your house burning down"
"Indirect Loss/ Consequential Loss - CORRECT ANSWER this is a loss that is the result or
consequence of a direct loss. ex: having to pay for a hotel because your house burnt down."
"5 Broad Categories of Exclusions - CORRECT ANSWER -Non-Accidental losses
-Losses Controllable by the Insured -Extra Hazardous Perils -Catastrophic Losses -Property Covered in other Policies"
"Non-Accidental Losses (Exclusion) - CORRECT ANSWER These are excluded because
they are certainties, not risks.
