CAIB 1 Practice Questions With 100% Correct Answers (Pass!), Exams of Business Economics

Download CAIB 1 Practice Questions With 100% Correct Answers (Pass!) and more Exams Business Economics in PDF only on Docsity! CAIB 1 Practice Questions With 100% Correct Answers (Pass!) 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 - ANS-✔✔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 - ANS-✔✔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 - ANS-✔✔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 - ANS-✔✔a. A contract What are the 4 methods of dealing with risk? - ANS-✔✔Avoidance, control, retention, transfer A reduction in value is called a... a. Loss b. Unlucky situation c. Claim d. Transfer - ANS-✔✔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 b. Licensing insurance companies to allow them to do business in the province c. Monitor the financial stability of insurers that are not federally licensed d. All of the above e. Only a and b - ANS-✔✔d. All of the above The financial solvency of insurers is critical. Solvency means... - ANS-✔✔The ability of an insurer to pay all insured losses Both insurance companies and brokers act as fiduciaries. What is the fiduciary responsibility of a broker in regards to commissions? - ANS-✔✔Unearned commissions are to be held in trust and paid back if the policy is cancelled before expiry When does the Insurance Act dictate a contract of insurance takes effect? a. 12:01 am standard time at the address of the named insured b. 12:01 am standard time at the address of the risk location c. 12:01 am local time at the address of the named insured d. 12:01 am local time at the address of the insurance company - ANS-✔✔a. 12:01 am standard time at the address of the named insured The removal clause is a common policy clause that requires insurers extend coverage to another location where the insured's property is kept when... a. The insured moved to a new residence 2 days ago and has not notified the insurer b. The insured moved personal property to protect it from an incoming forest fire c. Insured keeps some property at her vacation home during the summer d. Insured keeps furniture and other items in a rented storage locker because she does not have enough room at home - ANS-✔✔b. The insured moved personal property to protect it from an incoming forest fire After the insurer had indemnified the insured for loss, the insurer has the legal right to recover from the at fault party. This right is known as... - ANS-✔✔The right of subrogation The most basic form of coverage is coverage from fire losses. The Insurance Act in Canada also ensures there is coverage for... - ANS-✔✔Explosion (of natural, coal or manufactured gas) and lightning (excluding damage to electrical devices) You might have read that one of your statutory conditions is regarding misrepresentation, which of the following statements is correct? a. Withholding information about previous cancellations or refusals of insurance is OK b. Statements made by the applicant which leads the insurer to believe a risk is better than it actually is not OK c. Any description of the property that is incorrect as long as it is small will not change coverage d. Statements made by the applicant which leads the insurer to believe a risk is worse than it actually is not OK - ANS-✔✔b. Statements made by the applicant which leads the insurer to believe a risk is better than it actually is not OK What is the definition of misrepresentation? - ANS-✔✔A misstatement or fraudulent omission of a material fact Regarding the statutory condition around termination, which of the 4 provisions is wrong? a. Your client does not have to give the insurer any notice to cancel b. On termination, the insured is not entitled to a premium refund 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 - ANS-✔✔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 - ANS-✔✔c. If the insured reports a material change ASAP, an additional premium is rarely charged b. Moral hazard c. Physical hazard d. Risks - ANS-✔✔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? - ANS-✔✔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 - ANS-✔✔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? - ANS-✔✔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? - ANS-✔✔An agreement between people to do or not do something What is the definition of risk? - ANS-✔✔Chance of financial loss What is the principle of indemnity? - ANS-✔✔The principle of indemnity ensures that people receive the actual amount of their loss - no more, no less. What is an insurance binder? - ANS-✔✔A temporary agreement where the insurer agrees to provide certain coverages pending the issuance of a policy What is an agency agreement? - ANS-✔✔A contract between the insurer and the brokerage What is a void contract? - ANS-✔✔A contract where one cannot legally support its intended purpose. In this case, the contract never existed. What is a peril? - ANS-✔✔Cause of loss What is the difference between a direct loss and an indirect loss? - ANS-✔✔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? - ANS-✔✔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? - ANS-✔✔One has insurable interest if they would suffer financially from a loss What is utmost good faith? - ANS-✔✔With insurance contracts, you must maintain a higher standard of honesty than with other contracts. This applies to the insured, insurer and the broker What is a fiduciary? - ANS-✔✔Someone who has a special position of trust when handing the affairs or funds of another What is the difference between a friendly fire and a hostile fire? - ANS-✔✔A friendly fire is a fire contained in its proper receptacle. Once that fire passes outside its boundaries, it becomes a hostile fire. (ie. a spark escapes the fireplace and burns the carpet) What is the difference between pro-rata and short rate forms of premium return calculation? - ANS-✔ ✔Pro-rata means calculating the premium refund by dividing the amount of premium paid by the number of days left remaining on the policy. Short rate is pro-rata minus any administrative charges or cancellation penalty What is the insured's responsibility when it comes to providing notice of loss? - ANS-✔✔The insured or his representative must immediately report the loss to the insurer in writing What is proof of loss? - ANS-✔✔A formal verification, under oath, of the details and amounts claimed What is fraud? - ANS-✔✔A deliberate attempt to deceive with the aim of financial gain What is a deductible and why does it exist? - ANS-✔✔The amount the insured is required to absorb for each loss before insurer pays out. A deductible exists to reduce the number of petty claims Explain the idea of subrogation - ANS-✔✔When an insurer pays a claim for a loss caused by a 3rd party, the insurer is allowed to place itself "into the insured's shoes" and take on their legal rights (ie. to sue the responsible party) What is considered "personal property? - ANS-✔✔Contents of the dwelling, personal property used by insured while on premises and contents usual to the ownership/maintenance of the dwelling What is the definition of a vacant property? - ANS-✔✔All occupants have moved out with no intention of returning and no new occupants b. While on a frolic of their own c. Employee used property without authorization for their own purpose Explain the concept of general average - ANS-✔✔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 - ANS-✔✔Personal risk, property risk, liability risk Explain the statutory condition of salvage. - ANS-✔✔The insured is legally required to take reasonable steps to protect property from further damage. What is a physical hazard and provide 3 examples - ANS-✔✔Condition related to premises (construction, occupancy, housekeeping) A moral hazard is - ANS-✔✔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 - ANS-✔✔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 - ANS-✔✔Building, stock and equipment Briefly explain explosion coverage under homeowners form - ANS-✔✔Covers damage caused by hot water heaters and domestic boilers not due to water hammer Briefly explain smoke coverage - ANS-✔✔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? - ANS-✔✔Damaged caused by insureds What do homeowners forms typically exclude in the context of windstorm and hail? - ANS-✔✔Excludes loss or damage to antennae and satellite dishes What do homeowners forms typically exclude in the context of theft? - ANS-✔✔Excludes theft by tenant, employee or member of household What are 5 coverages in broad form that aren't in named perils forms? - ANS-✔✔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? - ANS-✔✔ Construction, protection, occupancy, location, claims history A "building" is defined as... - ANS-✔✔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... - ANS-✔✔Merchandise usual to the business & packing/wrapping/advertising materials What is the formula for calculating co-insurance? - ANS-✔✔Did/should x amount of loss What is the reinstatement clause? - ANS-✔✔Same amount of insurance after the loss as before the loss When can an insurer not subrogate against you? - ANS-✔✔When you have insurable interest in the property What responsibilities does an insured have under the property protection systems clause? - ANS-✔✔ 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)? - ANS-✔✔a. Damage from explosion of boiler/pressure vessel operating at over 15 psi b. Electrical/mechanical breakdown of objects