NPCI - Nevada Property and Casualty Insurance Exam

Question 1: Insurance deals with only one of the two basic kinds of risk that a person or business may face in daily life. One kind involves the chance of a loss with no chance of gain, while the other involves both loss and gain. Which kind of risk is insurable?

Financial risk

Speculative risk

Pure risk

Market risk

Question 2: When studying insurance terms, it is important to separate the cause of a loss from the things that merely make a loss more likely to happen. A fire that burns down a house, a hailstorm, or a theft is best described by which of the following terms?

An exposure

A hazard

A speculative risk

A peril

Question 3: In insurance terminology, some conditions do not themselves cause a loss but instead make a loss more likely or more severe if a peril does strike. A term for such a condition, such as a slick floor or worn tires, is which of the following?

A hazard

A peril

A loss

A premium

Question 4: Insurance divides hazards into physical, moral, and morale types. One of these arises specifically from a person's character and dishonesty, such as the tendency to lie on an application or to fake a loss to collect on a policy. Which type of hazard is this?

Morale hazard

Moral hazard

Physical hazard

Legal hazard

Question 5: Among the three types of hazard, one arises not from dishonesty but from a careless or indifferent state of mind, often because a person feels protected by insurance. Leaving a car running and unlocked because it is insured is the classic example of which type of hazard?

Physical hazard

Moral hazard

Morale hazard

Speculative hazard

Question 6: Insurance distinguishes between a loss that flows immediately from a peril and a loss that follows only as a later consequence of that first loss. A landlord who loses rental income because a fire made an apartment building uninhabitable has suffered which kind of loss from the lost rent?

A morale hazard

A direct, physical loss

A speculative loss

An indirect, consequential loss

Question 7: At its most basic level, insurance is a financial arrangement that shifts the burden of a possible large loss away from an individual or business. Which of the following best describes what fundamentally happens when a person buys an insurance policy from an insurer?

Risk is transferred to the insurer

Risk is eliminated entirely

The loss is guaranteed to occur

The insurer avoids all risk

Question 8: One of the standard methods of handling risk is for an individual or business to keep a risk and plan to pay for any resulting loss itself, rather than transferring it. Choosing a policy deductible or setting up self-insurance is an example of which risk-handling method?

Transfer

Avoidance

Retention

Sharing

Question 9: Risk managers describe several distinct methods of handling risk, one of which removes an exposure completely by simply not taking part in the activity that creates it. A person who never rides a motorcycle in order to eliminate motorcycle-accident risk is using which method?

Transfer

Retention

Reduction

Avoidance

Question 10: Insurers rely on a mathematical principle that allows them to predict total losses more accurately as the number of similar exposure units they insure grows larger. This principle is considered the foundation that makes insurance possible. What is it called?

The principle of indemnity

The law of large numbers

Adverse selection

The doctrine of subrogation

Question 11: Insurers must guard against a tendency that would cause them to pay more claims than their rates anticipate. This is the tendency of people with higher-than-average risk to seek and keep insurance more eagerly than average risks. What is this tendency called?

Adverse selection

The law of large numbers

Indemnification

Coinsurance

Question 12: A central principle of insurance holds that a person who suffers a covered loss should be restored to the same financial condition enjoyed just before the loss, without being allowed to profit from it. What is this fundamental principle of insurance called?

The law of large numbers

The principle of subrogation

The principle of indemnity

The principle of adhesion

Question 13: For property insurance, the law requires that the insured stand to suffer a genuine financial loss if the insured property is damaged or destroyed. Considering when that requirement must be satisfied, at what point must an insurable interest exist for a property insurance claim to be valid?

At no particular time

Only when the policy is issued

Only when the premium is paid

At the time of the loss

Question 14: In insurance distribution, it matters legally whose interests a salesperson represents. One kind of producer legally represents the insurance company, while another legally represents the customer buying coverage. Which statement correctly describes this distinction between an agent and a broker?

Agent represents insurer; broker represents insured

Agent represents insured; broker represents insurer

Both represent only the insured

Both represent only the insurer

Question 15: Insurers are organized in different ways, and one common form is a corporation owned by investors who buy its shares. This kind of insurer generally issues policies that do not pay policy dividends. What is this type of insurer, and what kind of policy does it issue?

A stock insurer issuing participating policies

A mutual insurer issuing participating policies

A stock insurer issuing nonparticipating policies

A reciprocal insurer issuing certificates

Question 16: One common form of insurer is owned by its policyholders rather than by outside investors. This kind of company may return part of the premium to policyholders as a dividend when results are favorable. What is this type of insurer, and how are such dividends generally treated for the policyholder?

Stock insurer; dividend is taxable income

Mutual insurer; dividend is a premium refund

Mutual insurer; dividend is guaranteed

Reciprocal insurer; dividend is a wage

Question 17: States classify insurers by where they were formed relative to the state where they do business. An insurer chartered in one U.S. state that transacts business in a different U.S. state is described, in that second state, by which of the following terms?

An admitted insurer

A domestic insurer

An alien insurer

A foreign insurer

Question 18: States distinguish insurers by whether they hold a license, known as a certificate of authority, to transact business in the state. An insurer that has obtained this certificate and is licensed to do business in the state is properly described by which of the following terms?

An admitted, authorized insurer

A nonadmitted, unauthorized insurer

A surplus lines insurer

An alien insurer

Question 19: Insurance companies sometimes transfer part of the risk they have accepted to another insurer, in effect buying insurance for themselves. In this reinsurance arrangement, the company that gives away or cedes its risk to another insurer is known by which of the following terms?

The primary obligee

The reinsurer

The ceding insurer

The attorney-in-fact

Question 20: One form of insurer is an unincorporated group whose members agree to insure one another's losses, with the whole arrangement managed by a designated manager. In a reciprocal insurance exchange, who manages the exchange on behalf of the members, who are called subscribers?

A certificate holder

A board of stockholders

A managing general agent

An attorney-in-fact

NPCI Nevada Property and Casualty Insurance Exam - Set 5 - Part 1

Question 1: Insurance deals with only one of the two basic kinds of risk that a person or business may face in daily life. One kind involves the chance of a loss with no chance of gain, while the other involves both loss and gain. Which kind of risk is insurable?

Question 2: When studying insurance terms, it is important to separate the cause of a loss from the things that merely make a loss more likely to happen. A fire that burns down a house, a hailstorm, or a theft is best described by which of the following terms?

Question 3: In insurance terminology, some conditions do not themselves cause a loss but instead make a loss more likely or more severe if a peril does strike. A term for such a condition, such as a slick floor or worn tires, is which of the following?

Question 4: Insurance divides hazards into physical, moral, and morale types. One of these arises specifically from a person's character and dishonesty, such as the tendency to lie on an application or to fake a loss to collect on a policy. Which type of hazard is this?

Question 5: Among the three types of hazard, one arises not from dishonesty but from a careless or indifferent state of mind, often because a person feels protected by insurance. Leaving a car running and unlocked because it is insured is the classic example of which type of hazard?

Question 7: At its most basic level, insurance is a financial arrangement that shifts the burden of a possible large loss away from an individual or business. Which of the following best describes what fundamentally happens when a person buys an insurance policy from an insurer?

Question 8: One of the standard methods of handling risk is for an individual or business to keep a risk and plan to pay for any resulting loss itself, rather than transferring it. Choosing a policy deductible or setting up self-insurance is an example of which risk-handling method?

Question 9: Risk managers describe several distinct methods of handling risk, one of which removes an exposure completely by simply not taking part in the activity that creates it. A person who never rides a motorcycle in order to eliminate motorcycle-accident risk is using which method?

Question 10: Insurers rely on a mathematical principle that allows them to predict total losses more accurately as the number of similar exposure units they insure grows larger. This principle is considered the foundation that makes insurance possible. What is it called?

Question 11: Insurers must guard against a tendency that would cause them to pay more claims than their rates anticipate. This is the tendency of people with higher-than-average risk to seek and keep insurance more eagerly than average risks. What is this tendency called?

Question 12: A central principle of insurance holds that a person who suffers a covered loss should be restored to the same financial condition enjoyed just before the loss, without being allowed to profit from it. What is this fundamental principle of insurance called?

Question 15: Insurers are organized in different ways, and one common form is a corporation owned by investors who buy its shares. This kind of insurer generally issues policies that do not pay policy dividends. What is this type of insurer, and what kind of policy does it issue?

Question 17: States classify insurers by where they were formed relative to the state where they do business. An insurer chartered in one U.S. state that transacts business in a different U.S. state is described, in that second state, by which of the following terms?

Question 18: States distinguish insurers by whether they hold a license, known as a certificate of authority, to transact business in the state. An insurer that has obtained this certificate and is licensed to do business in the state is properly described by which of the following terms?

Question 19: Insurance companies sometimes transfer part of the risk they have accepted to another insurer, in effect buying insurance for themselves. In this reinsurance arrangement, the company that gives away or cedes its risk to another insurer is known by which of the following terms?

Question 20: One form of insurer is an unincorporated group whose members agree to insure one another's losses, with the whole arrangement managed by a designated manager. In a reciprocal insurance exchange, who manages the exchange on behalf of the members, who are called subscribers?

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