Fundamentals Of Insurance Practice Exam

Front 1

Insurance plays an important role in managing financial risk. The main purpose of insurance is to...

Back 1

allow the spread of risk

Front 2

The definition of insurance in the Insurance Act includes all of the following important points:

Back 2

1. Payment is made only when a certain peril has damaged the object of insurance.

2. Payment is limited to the actual amount of the loss, no more and no less.

3. There is no payment for losses that are deliberately caused by the insured.

Front 3

The majority of insurance companies use independent brokers to sell their insurance policies to the public. Which of the following statements apply to this system of distribution?

Back 3

1. Independent brokers receive commissions from the insurers for the business they produce.

2. Independent brokers can represent more than one insurance company.

3. Independe brokers own all of their client files.

Front 4

When dealing with financial risk, a person has several options available, including avoidance of risk, retention of risk, controlling of risk, and transfer of risk. Which of these is the best option for most people

Back 4

Transfer of risk.

Front 5

Risk defined as "the chance of financial loss" can be classified as either speculative or pure. Which best describes the meaning of pure risk?

Back 5

There is only the chance of financial loss with no chance of profiting from it.

Front 6

A contract is legally enforacable only when all legal elements are present. Only an insurance contract contains the following three elements.

Back 6

1. Insurable Interest

2. Utmost Good Faith

3. Idemnity

Front 7

"Consideration" is required of all parties to a contract. Consideration means:

Back 7

An exchange of something of value between the parties.

Front 8

Legal capacity of the parties is an important element to a contract. Of the following, only one party has the legal capacity to enter into a contract of insurance:

1. Sweet Cravings Bakery

2. Tools 4 U Enterprises

3. Mario Montana Sportswear Ltd.

4. Jack Daniels a.k.a. Jack's Liquors

Back 8

Mario Montana Sportswear Ltd.

Front 9

Insurance brokers are often asked to provide a binder to the insured. A binder is...

Back 9

Permitted only for risks and limits authorized by the insurer.

Front 10

All changes to an existing insurance ploicy must be in writing. Which document does the insurer issue when both the insurer and the insured have agreed to a change in the terms of the policy?

Back 10

An endorsement.

Front 11

In Canada the General Insurance Industry is strictly regulated by federal and provincial statutes. The provincial government performs all of the following functions:

Back 11

1. Supervising the terms and conditions of insurance contracts.

2. Licensing insurance companies to transact business in the province.

3. Monitoring the fincancial stability of insurers that are not federally licensed.

Front 12

The finanical solvency of insurers is a curcial matter. Solvency refers to

Back 12

The ability of an insurer to pay all insured losses.

Front 13

Both insurance companies and brokers are considered fiduciaries. Under the Insurance Act, the fiduciary responsibility of a broker requires that

Back 13

Unearned commissions are held in trust to be available should the policy be terminated before expiry.

Front 14

The Insurance Act determines when a contract of insurance takes effect. Coverage commences at

Back 14

12:01 am standard time at the address of the named insured.

Front 15

The Removal Clause requires the insurer to extend coverage to another location where the insured's property is kept, even if this location is not stated on the policy. Only one of the following situations would qualify for this coverage:

1. The insured moved to a new residence five days ago and has not yet advised the insurer of the new location.

2. The insured keeps furniture and fixtures in a rented storage locker because there is no more room at the principal residence.

3. The insured moved personal property to a storage facility to protect it from loss because of an encroaching forest fire.

4. The insured keeps some personal property at her seasonal dwelling but only during the summer months.

Back 15

The insured moved personal property to a storage facility to protect it from loss because of an encroaching forest fire.

Front 16

When the insurer has idemnified the insured for a loss caused by a third party, the insurer has a legal right of recovery from that party. The legal process is referred to as

Back 16

Subrogation

Front 17

The Insurance Act provides that a policy insuring the peril of fire must also include coverage for

Back 17

Explosion of natural. coal or manufactured gas and lightning, excluding damage to electrical appliances and devices.

Front 18

Only one of the following statements regarding "Statutory Condition No. 1 - Misrepresentation" is correct:

1. Any description of the property that proves to be incorrect constitutes a misrepresentation.

2. Withholding information about previous cancellations or refusal of insurance is not a misrepresntation.

3. Statements made by the applicant, which lead the insurer to believe that the risk is better than it actually is, are considered misrepresentation.

4. A misrepresentation has no effect whatsoever on the coverage under this policy, even when the insurer is able to prove misrepresentation.

Back 18

Statements made by the applicant, which lead the insurer to believe that the risk is better than it actually is, are considered misrepresentation.

Front 19

All of the following statements regarding the Statutory Conditions are true, except one. Pick the Exception:

1. The insurer has an obligation only to those parties whose name appears on the Declarations Page and who can prove insurable interst.

2. A "Material Change" is considered a change that alters the risk in a way that greatly increases the potential for some losses.

3. When a loss is caused directly by an unreported Material Change, the insurer has the right to deny that claim.

4. As long as the insured reports a Material Change promptly, the insurer rarely charges an additional premium.

Back 19

The following statement is incorrect:

As long as the insured reports a Material Change promptly, the insurer rarely charges an additional premium.

Front 20

Your client has requested the termination of his insurance policy. You advise your client of the provisions of Statutory Condition No. - Termination. Which of the four provisions stated below is wrong?

1. Written request for termination signed by all persons stated on the policy must be provided by the insurer.

2. Your client does not have to give the insurer any notice prior to the requested cancellation date.

3. As the insurer has the right to change the insured administrative costs to process the cancellation, the premium refund is calculated on a short-rate basis.

4. When the insured terminated the policy, the insured is not entitled to a premium refund.

Back 20

The following statement is incorrect:

When the insured terminated the policy, the insured is not entitled to a premium refund.

Front 21

In the event of a claim, there are also a number of Statutory Conditions that affect both the insurer and the insured. One of the following statements regarding these conditions is incorrect. Select the statement that is incorrect.

1. The insured must provide the insurer with a Proof of Loss as soon as practicable.

2. In the claim, the insured included an article she did not even own, therefore the insurer will only pay for those articles for which the insured can prove ownership.

3. When the insurer opts for a cash settlement, payment must be made to the insured within sixty days after receipt of the Proff of Loss or less, if the contract provides for a shorter period.

4. If the insurer denies a claim and the insured wishes to sue the insurer, legal action must be taken within one year after the date of the loss.

Back 21

The following statement is incorrect:

In the claim, the insured included an article she did not even own, therefore the insurer will only pay for those articles for which the insured can prove ownership.

Front 22

All of the following statements apply to the Statutory Conditions, except one. Pick the Exception:

1. After a loss has been reported, the insurer has the immediate right of access and entry to the property to investigate the loss.

2. When the insurer elects to repair or rebuild the damaged property, it must give written notice to the insured within thirty days after receipt of the Proof of Loss.

3. When the insured is unable to notify the insurer of a loss and provide Proof of Loss, an agent of the insured is permitted to give notice and proof.

4. Even if the insured had a reasonable chance to protect property from loss but failed to do any such thing, this usually does not affect the claim settlement.

Back 22

The following statement is incorrect:

Even if the insured had a reasonable chance to protect property from loss but failed to do any such thing, this usually does not affect the claim settlement.

Front 23

The role of agents and brokers is to serve as an intermediary between the client and the insurer. Which of the following best reflects the duties of the broker?

1. The broker acts exclusively in the best interest of the client.

2. A broker must always place insurance with the insurer that charges the lowest premium.

3. A broker must always present the client's risk truthfully and disclose all material facts to the insurer.

4. A broker does not owe any duty to the insurer he or she respresents.

Back 23

A broker must always present the client's risk truthfully and disclose all material facts to the insurer.

Front 24

The law requires that insurance brokers exercise "reasonable skill, care and dilligence" in carrying out their duties. Failiure to do so can result in an Errors and Omissions claim against the broker. The main reason why Errors and Omissions claims are made is because...

Back 24

The failiure to properly identify the client's loss exposures and offering the required coverages.

Front 25

An underwriter is required to perform numerous tasks, however the primary function of an Underwriter is to...

Back 25

Select those risks that are most likely to be profitable to the insurer.

Front 26

Determining whether a risk meets the criteria for insurance, the Underwriter must assess the hazards the could cause a peril to occur. When checking into an applicant's prior claims history or financial condition, the Underwriter is concerned about the existence of...

Back 26

A moral hazrad.

Front 27

Property policies are designed to insure "Direct Damage" only. Two months ago, a fire caused substantial damage to an apartment building your client owns and he was shocked when the adjuster explained that a portion of the loss would not be paid out under this policy. Which part of the loss is not covered by the property policy?

Back 27

Loss of rental income from tenants who left because the building was unsafe after the fire.

Front 28

All property policies contain certain conditions; insurers may also include warranties. The following provisions, except one, apply to conditions and warranties. Select the Exception:

1. A condition is a clause in a policy that requires the insured to do or not do something.

2. A warranty is a promise made by the insured that certain facts are truly as they are represented an will remain so for the duration of the policy.

3. A breach of a condition does not result in the denial of a claim so long as the loss was not caused by such a breach.

4. A breach of a warranty by the insured has the effect that the insurer will not pay a claim when this breach directly caused the loss.

Back 28

A breach of a warranty by the insured has the effect that the insurer will not pay a claim when this breach directly caused the loss.