CAIB 1 Practice Questions | 100 Questions with 100% Correct Answers | Verified | Updated, Exams of Advanced Education

Download CAIB 1 Practice Questions | 100 Questions with 100% Correct Answers | Verified | Updated and more Exams Advanced Education in PDF only on Docsity! CAIB 1 Practice Questions | 100 Questions with 100% Correct Answers | Verified | Updated 2023-2024 Consideration is... a. The law of insurance b. A promise between parties c. A contract's binding force d. An exchange of something of value - Correct Answer-d. An exchange of something of value A stock company is... a. A company that invests in other companies b. A company owned by stockholders who provide the capital to start and run the company c. Is owned by customers of the company d. A company that owns livestock - Correct Answer-b. A company owned by stockholders who provide the capital to start and run the company The difference between pure and speculative risk is... a. Speculative risk is insurable but pure risk is not b. Speculative risk means that there is a chance to gain or lose whereas one can only lose with pure risk c. Speculative risk means that there is only the chance to lose whereas pure risk means you have a chance to win too d. Speculative risk is a term invented by marine insurance companies in 1864 - Correct Answer-b. Speculative risk means that there is a chance to gain or lose whereas one can only lose with pure risk A legally enforceable agreement between 2 or more parties is defined as... a. A contract b. An agreement c. A will d. A contract of consideration - Correct Answer-a. A contract What are the 4 methods of dealing with risk? - Correct Answer-Avoidance, control, retention, transfer A reduction in value is called a... a. Loss b. Unlucky situation c. Claim d. Transfer - Correct Answer-a. Loss What elements must be present to constitute a legal contract? a. Parties to the contract, the contract itself, consideration b. Parties to the contract, a written document, consideration, and legal purpose c. Agreement, consideration, legality of object, legal capacity, genuine intention d. Competent parties, consideration, warranty, and legal purpose - Correct Answer-c. Agreement, consideration, legality of object, legal capacity, genuine intention The act of intentionally giving up some right or privilege is... a. A representation b. A transfer c. A waiver d. Subrogation - Correct Answer-c. A waiver Insurance purchased by an insurance company is called a. Reinsurance b. Risk avoidance insurance c. Full protection d. Umbrella insurance - Correct Answer-a. Reinsurance The main purpose of an insurance contract is to... a. Allow the spread of risk b. Allow insured's to take more risk c. Protect you from loss d. Manage income risk - Correct Answer-a. Allow the spread of risk A person has a few options when dealing with financial risk: avoidance, retention, control, and transfer. Which is usually the best option for most people? a. Avoidance b. Retention c. Transfer d. Control - Correct Answer-c. Transfer c. The insurer has the right to change the policy administration costs so refunds are calculated on a short-rate basis d. Written request for termination, signed by all parties named on the policy must be provided to insurer - Correct Answer-b. On termination, the insured is not entitled to a premium refund Which statutory condition below is untrue? a. Insurers only have an obligation to those parties named on the declaration page and have insurable interest b. A material change is a change that alters the risk in a way that increases potential for loss c. If the insured reports a material change ASAP, an additional premium is rarely charged d. When a loss arises directly out of an unreported material change, the insurer can deny the claim - Correct Answer-c. If the insured reports a material change ASAP, an additional premium is rarely charged Which one of the below statements is incorrect in the event of a claim? a. An insured must provide a Proof of Loss as soon as practicable b. If the insured included an item she didn't own, the insurer will only pay for the articles they can prove ownership for c. If the insurer denies a claim and the insured has up to 1 year to take legal action against the insurer d. When the insurer opts for a cash settlement, payment must be made within 60 days of receiving proof of loss unless the contract says otherwise - Correct Answer-b. If the insured included an item she didn't own, the insurer will only pay for the articles they can prove ownership for Which of the following does not apply to the Statutory Conditions? a. If the insured has a reasonable chance to protect property from loss but failed to do so, it would not affect the claim settlement b. When the insurer chooses to repair property, it must give written notice within 30 days of receiving the Proof of Loss c. An agent of the insured can give notice or proof of loss if the insured is unable d. After a loss has been reported, the insurer has the right of access to investigate the loss - Correct Answer-a. If the insured has a reasonable chance to protect property from loss but failed to do so, it would not affect the claim settlement A contract is only legally enforceable when it has all of these 3 elements - Correct Answer-Insurable interest, utmost good faith, indemnity Which of the following best reflects the duties of the broker? a. A broker acts only in the best interest of the client b. A broker must always place insurance with the cheapest insurer c. A broker does not owe any duty to the insurer he/she represents d. A broker must always be truthful and disclose all material facts about the client's risk to the insurer - Correct Answer-d. A broker must always be truthful and disclose all material facts about the client's risk to the insurer What is the role of the broker in the insurance process? - Correct Answer-An intermediary between the client and the insurer The law requires that brokers exercise "reasonable skill, care and diligence", otherwise errors and omissions claims may arise. The main reason for E&O claims is... - Correct Answer-Failing to identify client's loss exposures and offering adequate coverage The primary function of an underwriter is to... - Correct Answer-Select risks that are most likely to be profitable for the insurer When an underwriter looks at the financial and claims history of the applicant, they are looking for... a. Morale hazard b. Moral hazard c. Physical hazard d. Risks - Correct Answer-b. Moral hazard It is often said that property insurance policies are designed to insure against "direct damage" only. Yesterday, a fire destroyed 65% of your client's apartment building. What is the likely not covered in this situation? - Correct Answer-Loss of rental income All property policies contain some conditions & warranties. Which of the following is not true? a. A condition is a requirement that the insured do or not do something b. A claim is still valid despite a breach of condition if the loss was not caused by the breach c. A claim is still valid despite a breach of warranty by the insured as long as the breach did not directly cause the loss d. A warranty is a promise that certain facts are true and shall remain true for the duration of the policy period - Correct Answer-c. A claim is still valid despite a breach of warranty by the insured as long as the breach did not directly cause the loss What is the definition of insurance? - Correct Answer-The undertaking by one person to indemnify another against loss or liability in respect to a certain risk or peril What is the definition of contract? - Correct Answer-An agreement between people to do or not do something What is the definition of risk? - Correct Answer-Chance of financial loss What is the principle of indemnity? - Correct Answer-The principle of indemnity ensures that people receive the actual amount of their loss - no more, no less. What is an insurance binder? - Correct Answer-A temporary agreement where the insurer agrees to provide certain coverages pending the issuance of a policy What is an agency agreement? - Correct Answer-A contract between the insurer and the brokerage What is a void contract? - Correct Answer-A contract where one cannot legally support its intended purpose. In this case, the contract never existed. What is a peril? - Correct Answer-Cause of loss What is the difference between a direct loss and an indirect loss? - Correct Answer-A direct loss occurs when a peril directly attacks the object of insurance. Indirect losses are losses that arise as a consequence of a direct loss What is a valued policy? - Correct Answer-This is where the insured and insurer agree on the cash value of the property. If a loss occurs, this is the amount that would be paid What is insurable interest? - Correct Answer-One has insurable interest if they would suffer financially from a loss How do you determine the liability of a bailee for customer's goods? - Correct Answer- Under the 2 types of civil law a. Tort law: must exercise ordinary care b. Contract law: for responsibilities assumed under contract Explain the liability of employers for the tort of their employee - Correct Answer-a. Employees delegated their work without employer's consent b. While on a frolic of their own c. Employee used property without authorization for their own purpose Explain the concept of general average - Correct Answer-Provides payment for ocean marine losses voluntarily incurred to save the entire venture. The parties whose property was saved would contribute to repay the sacrificed party Identify 3 categories of risk - Correct Answer-Personal risk, property risk, liability risk Explain the statutory condition of salvage. - Correct Answer-The insured is legally required to take reasonable steps to protect property from further damage. What is a physical hazard and provide 3 examples - Correct Answer-Condition related to premises (construction, occupancy, housekeeping) A moral hazard is - Correct Answer-Subjective characteristics of the applicant that could cause a peril What is the main difference between "named perils" and "all risk" policies as typically provided by insurers - Correct Answer-Named perils cover FSWILLER only. All risks covers all direct losses not excluded What are the 3 types of property insured under a commercial property policy - Correct Answer-Building, stock and equipment Briefly explain explosion coverage under homeowners form - Correct Answer-Covers damage caused by hot water heaters and domestic boilers not due to water hammer Briefly explain smoke coverage - Correct Answer-Covers losses out of sudden, unusual and faulty operation of stationary furnace What do homeowners forms typically exclude in the context of impact by aircraft or land vehicles? - Correct Answer-Damaged caused by insureds What do homeowners forms typically exclude in the context of windstorm and hail? - Correct Answer-Excludes loss or damage to antennae and satellite dishes What do homeowners forms typically exclude in the context of theft? - Correct Answer- Excludes theft by tenant, employee or member of household What are 5 coverages in broad form that aren't in named perils forms? - Correct Answer-a. Vehicle impact to insured's building when driven by insured b. All sources of smoke damage excluding industrial operations c. Water damage due to freezing or rupturing of water lines d. Theft e. Collapse (excluding earthquake or faulty workmanship) What are 5 factors insurers look at to determine the base rate for commercial property? - Correct Answer-Construction, protection, occupancy, location, claims history A "building" is defined as... - Correct Answer-a. Fixed structures b. Additions/extensions c. Permanent fittings d. Materials on premises for regular maintenance e. Growing plants inside the building for decoration Stock is defined as... - Correct Answer-Merchandise usual to the business & packing/wrapping/advertising materials What is the formula for calculating co-insurance? - Correct Answer-Did/should x amount of loss What is the reinstatement clause? - Correct Answer-Same amount of insurance after the loss as before the loss When can an insurer not subrogate against you? - Correct Answer-When you have insurable interest in the property What responsibilities does an insured have under the property protection systems clause? - Correct Answer-Notify insurer immediately when they: know of an interruption or flaw, when a monitoring/maintenance contract has lapsed, suspension of police services What are 2 key coverages under boiler and machinery (aka equipment breakdown)? - Correct Answer-a. Damage from explosion of boiler/pressure vessel operating at over 15 psi b. Electrical/mechanical breakdown of objects Do business interruption policies cover any perils excluded the corresponding property policy? - Correct Answer-No What is the basic difference between the earning form and the profits form? - Correct Answer-Earnings form ends when property has been replaced. Profits form ends when income is restored to pre-loss levels. What is bodily injury? - Correct Answer-Physical injury associated with external causes What does it mean when an insurer agrees to pay supplementary payments? What is the purpose and give 3 examples. - Correct Answer-pays for investigating, settling or defending a claim a. Cost of defense b. Reasonable expenses insured incurred to help in investigation and defense c. Court costs d. Interest from date of judgement to payment (based on limit of insurance only) Liability coverages on the homeowners forms do not usually insure damage arising out of business activities, what are the 3 exceptions? - Correct Answer-a. Personal actions during work not directly related to job b. Rental portions of your home (up to 2 roomers/boarders) c. Temporary or part-time business of an insured person under 21 Name 3 workers compensation plan benefits - Correct Answer-Necessary health care costs, lost earnings, death benefit What is an elimination period? - Correct Answer-A period of self-insurance between the start of disability and the start of benefits Who has insurable interest under Accident & Sickness insurance? - Correct Answer- The insured himself & spouse, employee, child, anyone with pecuniary interest, dependents Who qualifies as a dependent? - Correct Answer-Anyone under 20 (26 if in college), unmarried, living with and receiving full support from insured. Or anyone with mental of physical deformity