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Canada’s Chartered Insurance Professional (CIP) program Test
Questions And Correct Answers (Verified Answers) Plus
Rationales 2025/2026 Q&A | Instant Download Pdf
Practice Exam – Insurance Institute of Canada (CIP)
- What is the primary function of insurance? a) To increase risk b) To transfer risk c) To eliminate risk d) To create risk b) To transfer risk Insurance transfers risk from the insured to the insurer in exchange for a premium. Risk is not eliminated but shared.
- Which of the following is NOT an element of insurable risk? a) The loss must be accidental b) The loss must be predictable c) The loss must be catastrophic to all policyholders simultaneously d) The loss must be measurable c) The loss must be catastrophic to all policyholders simultaneously Insurers avoid covering catastrophic risks that affect all policyholders at once (e.g., war, nuclear events).
- A contract of insurance is considered a contract of: a) Sale
b) Utmost good faith c) Indemnity only d) Adhesion only b) Utmost good faith Insurance relies on full disclosure by both parties. The insured must disclose all material facts.
- Which principle ensures that an insured cannot profit from a loss? a) Contribution b) Subrogation c) Indemnity d) Proximate cause c) Indemnity Indemnity restores the insured to the same financial position they were in before the loss, without profit.
- What does "subrogation" allow an insurer to do? a) Void a contract b) Recover from a third party responsible for a loss c) Cancel a policy at any time d) Increase premiums unilaterally b) Recover from a third party responsible for a loss Subrogation allows insurers to recover costs from liable third parties after compensating the insured.
- A "deductible" in a policy primarily serves to: a) Increase claims payout
- The proximate cause of a loss is: a) The last cause in a sequence b) The dominant and effective cause c) Always the first cause in a chain d) The insured’s negligence b) The dominant and effective cause Proximate cause identifies the main, efficient cause that led directly to the loss. 10.Which law governs insurance contracts in Canada? a) Common law and civil law depending on the province b) Only federal insurance legislation c) Criminal law d) Maritime law a) Common law and civil law depending on the province Common law applies in most provinces, while Quebec follows civil law. 11.In liability insurance, “occurrence” refers to: a) Only sudden accidents b) A continuous or repeated exposure to harmful conditions c) A deliberate act d) An excluded peril b) A continuous or repeated exposure to harmful conditions Occurrence includes both accidents and ongoing exposures that cause damage over time.
12.Which party is the first to sign an insurance contract? a) Broker b) Insurer c) Insured (applicant) d) Adjuster c) Insured (applicant) The applicant first signs by submitting a completed application, which is an offer to the insurer. 13.An endorsement to a policy is best described as: a) A separate contract b) A written amendment altering coverage c) A cancellation notice d) A type of exclusion b) A written amendment altering coverage Endorsements modify the terms of a policy, either expanding or restricting coverage. 14.Which of the following is considered a “direct loss”? a) Fire damage to a building b) Loss of rental income after a fire c) Business interruption costs d) Extra expenses from relocation a) Fire damage to a building Direct losses are physical damages. Indirect losses are financial consequences that follow.
Moral hazard arises when insured behavior changes due to having insurance. 18.What type of insurance policy covers multiple locations under one contract? a) Blanket policy b) Named perils policy c) Open perils policy d) Endorsement a) Blanket policy A blanket policy provides coverage for multiple properties or locations under one limit. 19.Which of the following is true regarding coinsurance in property insurance? a) It increases premiums linearly with coverage b) It penalizes under-insurance by reducing claim payments c) It eliminates deductibles d) It applies only to liability insurance b) It penalizes under-insurance by reducing claim payments If the insured carries less than the required percentage of coverage, partial losses are reduced proportionally. 20.In insurance, “peril” is defined as: a) A cause of loss b) A consequence of loss c) The insured property d) A type of deductible
a) A cause of loss Perils are events that can cause damage, such as fire, theft, or windstorm. 21.Which of the following is NOT a requirement for a legally binding insurance contract? a) Offer and acceptance b) Consideration c) Insurable interest d) Government approval d) Government approval Government approval is not required; a valid contract requires agreement, consideration, legal capacity, and insurable interest. 22.Which type of reinsurance arrangement spreads risk proportionally? a) Facultative b) Treaty proportional c) Excess of loss d) Retrocession b) Treaty proportional Proportional treaty reinsurance shares premiums and losses between the insurer and reinsurer according to an agreed percentage. 23.In marine insurance, “average” refers to: a) Ordinary wear and tear b) Partial loss of insured property c) Total loss only d) Loss due to negligence
b) Losses reported during the policy period, regardless of when the incident occurred Claims-made policies emphasize the timing of the claim, not the occurrence of the incident. 27.The principle of “contribution” applies when: a) Two insurers cover the same loss, sharing payment proportionally b) The insured contributes to deductible c) Loss is caused by multiple perils d) Only first-party claims are covered a) Two insurers cover the same loss, sharing payment proportionally Contribution prevents double recovery when multiple insurers cover the same risk. 28.Which type of insurance protects against legal liability for bodily injury and property damage? a) Life insurance b) Liability insurance c) Health insurance d) Property insurance b) Liability insurance Liability insurance covers legal obligations to pay damages for injuries or damage to others. 29.In life insurance, the “insurable interest” requirement ensures: a) The insured benefits financially from the loss of another b) The policyholder has a legitimate financial interest in the insured’s
continued life c) The insurer profits from death d) Premiums are tax-free b) The policyholder has a legitimate financial interest in the insured’s continued life Insurable interest prevents wagering and ensures the policyholder suffers financial loss if death occurs. 30.Which of the following is an example of a “proximate cause” in a fire loss? a) Faulty wiring causing a fire b) Water damage from extinguishing the fire c) Smoke damage to adjacent property d) Delay in filing the claim a) Faulty wiring causing a fire Proximate cause identifies the dominant, effective cause that led to the loss. 31.Which type of insurance provides coverage only after all other insurance has paid? a) Primary insurance b) Excess insurance c) Reinsurance d) Liability insurance b) Excess insurance Excess insurance responds only after limits of primary coverage are exhausted.
35.In a property insurance policy, a “waiver of subrogation” clause: a) Prevents the insurer from recovering from a third party b) Increases deductible c) Reduces coverage limit d) Adds additional perils a) Prevents the insurer from recovering from a third party This clause is often requested in contractual agreements to protect third parties from insurer claims. 36.Which of the following best defines a “material fact” in insurance? a) A fact that influences the insurer’s decision to accept the risk b) Any fact about the insured c) Facts that occur after the policy is issued d) Insignificant details about property a) A fact that influences the insurer’s decision to accept the risk Material facts must be disclosed because they affect the underwriting decision. 37.The term “reinstatement” in property insurance refers to: a) Restoring coverage after a lapse b) Changing the deductible c) Reducing policy limits d) Canceling the policy a) Restoring coverage after a lapse Reinstatement allows a policy to continue as if it had never lapsed, often subject to insurer approval.
38.What type of insurance covers loss of income when a business cannot operate due to an insured peril? a) Property insurance b) Business interruption insurance c) Liability insurance d) Life insurance b) Business interruption insurance This coverage compensates for lost revenue and continuing expenses after a covered loss. 39.In insurance, “underwriting” primarily involves: a) Settling claims b) Evaluating and selecting risks to insure c) Selling insurance policies d) Adjusting premiums retroactively b) Evaluating and selecting risks to insure Underwriters assess risk characteristics to determine acceptability and pricing. 40.Which clause prevents the insured from collecting more than the actual loss? a) Indemnity clause b) Subrogation clause c) Arbitration clause d) Deductible clause a) Indemnity clause Indemnity ensures the insured is restored, not overcompensated.
44.Which insurance concept applies when multiple causes combine to produce a loss? a) Subrogation b) Proximate cause c) Indemnity d) Deductible b) Proximate cause Proximate cause identifies the dominant cause when multiple contributing factors exist. 45.Which of the following is an example of a “named insured”? a) Person or entity listed on the policy declarations b) Anyone covered by the law c) Only beneficiaries d) Third-party claimant a) Person or entity listed on the policy declarations The named insured is explicitly identified in the policy and holds rights and responsibilities. 46.What is the main purpose of an insurance broker? a) To underwrite risks for insurers b) To act on behalf of the insured in securing coverage c) To adjust claims d) To enforce insurance laws b) To act on behalf of the insured in securing coverage Brokers advise clients, negotiate terms, and place coverage with insurers.
47.Which type of insurance is often required for professionals such as lawyers or accountants? a) Property insurance b) Professional liability (errors and omissions) insurance c) Life insurance d) Business interruption insurance b) Professional liability (errors and omissions) insurance This coverage protects professionals against claims of negligence or mistakes in their services. 48.In insurance, “proximate cause” determines: a) The deductible amount b) The direct link between the peril and the loss c) Policy premium d) Policy duration b) The direct link between the peril and the loss It establishes causation to determine coverage eligibility. 49.Which of the following is an example of a “pure risk”? a) Fire damage to property b) Investment in stocks c) Gambling d) Buying a lottery ticket a) Fire damage to property Pure risk involves only the possibility of loss or no loss, not gain.
53.In insurance, an “occurrence” policy differs from a “claims-made” policy in that it: a) Covers claims regardless of when reported if the incident occurs during the policy period b) Only covers claims reported during the policy period c) Only covers direct property damage d) Only covers catastrophic events a) Covers claims regardless of when reported if the incident occurs during the policy period Occurrence policies focus on when the event happens, not when the claim is filed. 54.Which type of insurance covers business assets during transit? a) Marine cargo insurance b) Property insurance c) Liability insurance d) Fidelity insurance a) Marine cargo insurance Marine cargo insurance protects goods against loss or damage while being transported. 55.In life insurance, “term insurance” provides: a) Coverage for a specified period b) Coverage for life with cash value c) Investment-only returns d) Liability protection a) Coverage for a specified period
Term insurance provides protection for a defined term with no savings component. 56.Which principle allows insurers to recover payments made from a responsible third party? a) Contribution b) Subrogation c) Indemnity d) Coinsurance b) Subrogation Subrogation allows insurers to step into the insured’s shoes to recover losses from liable third parties. 57.Which of the following best defines “risk retention”? a) Transferring risk to an insurer b) Accepting financial responsibility for loss c) Avoiding exposure entirely d) Sharing risk with a third party b) Accepting financial responsibility for loss Risk retention occurs when an organization decides to bear the cost of potential loss internally. 58.Which of the following is true about “aggregate limits” in liability insurance? a) They apply to each individual claim b) They are the maximum payable for all claims during a policy period c) They increase with inflation automatically
