CAIB 1 - CHAPTER 1 EXAM QUESTIONS
AND ANSWERS (VERIFIED AND
UPDATED)
Define "Risk" - ANS The chance of a financial loss to which the object of insurance may be
exposed to
List 3 Categories of Risk - ANS 1) Personal 2) Property 3) Liability
List 4 Types of Risk Management Techniques - ANS 1) Risk Avoidance 2) Risk Retention 3) Risk
Control 4) Risk Transfer
Define "Risk Avoidance" - ANS To avoid doing something in order to eliminate the chance of
risk
Define "Risk Retention" - ANS To self-insure or to pay for losses themselves
Define "Risk Control" - ANS To reduce the frequency or severity of the loss
Define "Risk Transfer" - ANS To shift the financial obligation to someone better equipped to
handle it (an insurance company)
List 2 Types of Risks - ANS 1) Speculative Risk 2) Pure Risk
@2026/2027 ALLRIGHTS RESERVED.
, Define "Speculative Risk" - ANS Chance of Financial Loss or Financial Gain
Define "Pure Risk" - ANS Chance of Financial Loss only
What type of risk is insurable? - ANS Pure Risk
What is a Contract? - ANS An agreement between 2 or more parties that creates an
obligation or do or not to do a specific thing
List the 5 components of a contract - ANS 1) Agreement 2) Consideration 3) Legality of Object
4) Legal Capacity 5) Genuine Intention
Define "Agreement" - ANS a meeting of the minds where an offer has been made and
accepted unconditionally
Define "Consideration" - ANS the exchange of something of value
Define "Legality of Object" - ANS must be legal and cannot violate the public good
Define "Legal Capacity" - ANS all parties must be competent and of sound mind
Define "Genuine Intention" - ANS basic level of honesty
Who cannot enter into contracts? - ANS Minors, people with mental illness' or under the
influence of drugs or alcohol, business who operate under a trade name
List 3 additional components of a contract specific to Insurance Contracts - ANS 1) Insurable
Interest 2) Utmost Good Faith 3) Indemnity
@2026/2027 ALLRIGHTS RESERVED.
AND ANSWERS (VERIFIED AND
UPDATED)
Define "Risk" - ANS The chance of a financial loss to which the object of insurance may be
exposed to
List 3 Categories of Risk - ANS 1) Personal 2) Property 3) Liability
List 4 Types of Risk Management Techniques - ANS 1) Risk Avoidance 2) Risk Retention 3) Risk
Control 4) Risk Transfer
Define "Risk Avoidance" - ANS To avoid doing something in order to eliminate the chance of
risk
Define "Risk Retention" - ANS To self-insure or to pay for losses themselves
Define "Risk Control" - ANS To reduce the frequency or severity of the loss
Define "Risk Transfer" - ANS To shift the financial obligation to someone better equipped to
handle it (an insurance company)
List 2 Types of Risks - ANS 1) Speculative Risk 2) Pure Risk
@2026/2027 ALLRIGHTS RESERVED.
, Define "Speculative Risk" - ANS Chance of Financial Loss or Financial Gain
Define "Pure Risk" - ANS Chance of Financial Loss only
What type of risk is insurable? - ANS Pure Risk
What is a Contract? - ANS An agreement between 2 or more parties that creates an
obligation or do or not to do a specific thing
List the 5 components of a contract - ANS 1) Agreement 2) Consideration 3) Legality of Object
4) Legal Capacity 5) Genuine Intention
Define "Agreement" - ANS a meeting of the minds where an offer has been made and
accepted unconditionally
Define "Consideration" - ANS the exchange of something of value
Define "Legality of Object" - ANS must be legal and cannot violate the public good
Define "Legal Capacity" - ANS all parties must be competent and of sound mind
Define "Genuine Intention" - ANS basic level of honesty
Who cannot enter into contracts? - ANS Minors, people with mental illness' or under the
influence of drugs or alcohol, business who operate under a trade name
List 3 additional components of a contract specific to Insurance Contracts - ANS 1) Insurable
Interest 2) Utmost Good Faith 3) Indemnity
@2026/2027 ALLRIGHTS RESERVED.
