Fundamentals of Insurance Questions and
Correct Answers
Define Genuine Intention. - ANSWER- Genuine Intention is present
when it can be shown the contract was not affected by fraud, duress,
concealment or mistake.
Define Insurable Interest. - ANSWER- People who are able to show
that they would suffer financially by a loss are said to have "insurable
interest"
Define Utmost Good Faith. - ANSWER- "Utmost Good Faith" is
breached when an applicant for insurance deliberately withholds
information about previous claims, cancellations, or refusals of
insurance.
Define Indemnity. - ANSWER- A part of all insurance contracts
which attempts to provide insureds with the actual amount of their
loss, no more and no less.
Which is the most popular and most practical means of dealing with
risk? - ANSWER- Transfer of Risk via Insurance.
In the event that a contract is missing 1 or more of the 8 essential
elements of a contract, the contract may be considered: - ANSWER- -
Void: A void contract is a contract that is considered never to have
existed
- Voidable: A contract which is void as to the wrongdoer, but not void
as to the wronged party, unless the wronged party elects to treat it as
such.
,Describe Avoidance of Risk. - ANSWER- Avoidance of risk means
that all chance of financial loss has been eliminated. For example, the
Butlers' own a furniture store. If they were to sell the store
completely, they would avoid any risk of loss.
Describe Controlling of Risk. - ANSWER- Risk control is concerned
with taking measures to reduce the frequency and severity of losses.
An example of this can be: fire and burglar alarms.
Describe Retention of Risk. - ANSWER- Retention of risk is also
known as self-insurance. Large corporations such as Canadian Pacific
Railways and various levels of government often assume financial
responsibility for their losses. People and business can not usually
afford to totally finance their losses.
Describe Transfer of Risk. - ANSWER- When people decide they are
unable to withstand the financial consequences of a loss, they may
choose to transfer a risk via an insurer.
What is the role of the Property and Casualty Insurance Corporation
(PACICC) when an insurer becomes insolvent? - ANSWER- When a
bankruptcy occurs and claims cannot be paid, the PACICC will pay
all valid claims. All participating insurance companies are then
charged an assessment to cover the total amount of claims. The
amount of each insurer's contribution is based on total direct
premiums written by it.
The following amounts can be claimed under this industry-funded
plan:
- A max of $250,000 for all claims arising from a single occurrence
,- A refund of up to 70% of unearned premiums, subject to a max of
$700 per policy.
Define "fiduciary" - ANSWER- "Fiduciary" is one who handles other
people's money. Insurance is fiduciary in nature.
What are the fiduciary obligations of Insurers? - ANSWER-
Premiums paid to insurers are not fully earned until the expiry of the
insurance policy. Unearned premiums are to be held in trust to refund
to the insureds in the event the policy is cancelled prior to its expiry
date.
What are the fiduciary obligations of brokers? - ANSWER-
Commissions are not fully earned until the expiry of the insurance
policy. Unearned commissions are considered to be held in trust to
refund to the insureds in the event the policy is cancelled prior to its
expiry date.
- It's standard practice for brokers to deduct the total amount of
commission from the amount of the payment made to the insurer.
Summarize the provisions of the "removal" clause contained in
policies of fire insurance. - ANSWER- The "Removal" clause in fire
insurance policies extends coverage to insured property when it is
temporarily moved to a location not specifically listed on the policy.
Under this clause, if property is saved and relocated during a fire or
other covered peril, it remains insured while at the new, unnamed
location. This provision offers protection for insured property that
may need to be moved to safety during an emergency, ensuring
continued coverage even when the property is temporarily relocated.
, Define "Subrogation" - ANSWER- Subrogation means to put oneself
"into antoher's shoes". In an insurance context, this allows the insurer
the legal right to recover the amount of the loss from the respective
party.
How can a term or condition be waived by an insurance broker? -
ANSWER- A term or condition in an insurance policy can be waived
by an insurance broker if authorized by the insurer. When interim
changes to the policy are needed, they typically require the signature
of a person authorized by the insurer. This authorized person, often an
officer of the insurance company, has the power to waive or modify
specific terms or conditions of the policy.
Your clients received their policy 1 month ago. It has not yet been
paid for. Yesterday, they had a fire loss. What affect does the delivery
of the policy have on the obligations of the insurer? - ANSWER-
Once the insurance policy has been delivered to the insured, it
becomes binding on the insurer, regardless of whether the premium
has been paid. Therefore, even though the premium for the policy has
not yet been paid, any claims insured under the policy will still be
paid by the insurer.
What are 3 coverages required to be provided on all policies of fire
insurance. - ANSWER- 1. Fire
2. Lightning
3. Explosion of Natural Gas, Coal or Manufactured Gas
Explain and provide an example of Friendly Fire - ANSWER-
Friendly fire is one that is contained in its proper receptical. Insurance
policies will not pay for fire damage to property which was
deliberately introduced to a friendly fire.
Correct Answers
Define Genuine Intention. - ANSWER- Genuine Intention is present
when it can be shown the contract was not affected by fraud, duress,
concealment or mistake.
Define Insurable Interest. - ANSWER- People who are able to show
that they would suffer financially by a loss are said to have "insurable
interest"
Define Utmost Good Faith. - ANSWER- "Utmost Good Faith" is
breached when an applicant for insurance deliberately withholds
information about previous claims, cancellations, or refusals of
insurance.
Define Indemnity. - ANSWER- A part of all insurance contracts
which attempts to provide insureds with the actual amount of their
loss, no more and no less.
Which is the most popular and most practical means of dealing with
risk? - ANSWER- Transfer of Risk via Insurance.
In the event that a contract is missing 1 or more of the 8 essential
elements of a contract, the contract may be considered: - ANSWER- -
Void: A void contract is a contract that is considered never to have
existed
- Voidable: A contract which is void as to the wrongdoer, but not void
as to the wronged party, unless the wronged party elects to treat it as
such.
,Describe Avoidance of Risk. - ANSWER- Avoidance of risk means
that all chance of financial loss has been eliminated. For example, the
Butlers' own a furniture store. If they were to sell the store
completely, they would avoid any risk of loss.
Describe Controlling of Risk. - ANSWER- Risk control is concerned
with taking measures to reduce the frequency and severity of losses.
An example of this can be: fire and burglar alarms.
Describe Retention of Risk. - ANSWER- Retention of risk is also
known as self-insurance. Large corporations such as Canadian Pacific
Railways and various levels of government often assume financial
responsibility for their losses. People and business can not usually
afford to totally finance their losses.
Describe Transfer of Risk. - ANSWER- When people decide they are
unable to withstand the financial consequences of a loss, they may
choose to transfer a risk via an insurer.
What is the role of the Property and Casualty Insurance Corporation
(PACICC) when an insurer becomes insolvent? - ANSWER- When a
bankruptcy occurs and claims cannot be paid, the PACICC will pay
all valid claims. All participating insurance companies are then
charged an assessment to cover the total amount of claims. The
amount of each insurer's contribution is based on total direct
premiums written by it.
The following amounts can be claimed under this industry-funded
plan:
- A max of $250,000 for all claims arising from a single occurrence
,- A refund of up to 70% of unearned premiums, subject to a max of
$700 per policy.
Define "fiduciary" - ANSWER- "Fiduciary" is one who handles other
people's money. Insurance is fiduciary in nature.
What are the fiduciary obligations of Insurers? - ANSWER-
Premiums paid to insurers are not fully earned until the expiry of the
insurance policy. Unearned premiums are to be held in trust to refund
to the insureds in the event the policy is cancelled prior to its expiry
date.
What are the fiduciary obligations of brokers? - ANSWER-
Commissions are not fully earned until the expiry of the insurance
policy. Unearned commissions are considered to be held in trust to
refund to the insureds in the event the policy is cancelled prior to its
expiry date.
- It's standard practice for brokers to deduct the total amount of
commission from the amount of the payment made to the insurer.
Summarize the provisions of the "removal" clause contained in
policies of fire insurance. - ANSWER- The "Removal" clause in fire
insurance policies extends coverage to insured property when it is
temporarily moved to a location not specifically listed on the policy.
Under this clause, if property is saved and relocated during a fire or
other covered peril, it remains insured while at the new, unnamed
location. This provision offers protection for insured property that
may need to be moved to safety during an emergency, ensuring
continued coverage even when the property is temporarily relocated.
, Define "Subrogation" - ANSWER- Subrogation means to put oneself
"into antoher's shoes". In an insurance context, this allows the insurer
the legal right to recover the amount of the loss from the respective
party.
How can a term or condition be waived by an insurance broker? -
ANSWER- A term or condition in an insurance policy can be waived
by an insurance broker if authorized by the insurer. When interim
changes to the policy are needed, they typically require the signature
of a person authorized by the insurer. This authorized person, often an
officer of the insurance company, has the power to waive or modify
specific terms or conditions of the policy.
Your clients received their policy 1 month ago. It has not yet been
paid for. Yesterday, they had a fire loss. What affect does the delivery
of the policy have on the obligations of the insurer? - ANSWER-
Once the insurance policy has been delivered to the insured, it
becomes binding on the insurer, regardless of whether the premium
has been paid. Therefore, even though the premium for the policy has
not yet been paid, any claims insured under the policy will still be
paid by the insurer.
What are 3 coverages required to be provided on all policies of fire
insurance. - ANSWER- 1. Fire
2. Lightning
3. Explosion of Natural Gas, Coal or Manufactured Gas
Explain and provide an example of Friendly Fire - ANSWER-
Friendly fire is one that is contained in its proper receptical. Insurance
policies will not pay for fire damage to property which was
deliberately introduced to a friendly fire.
