Practice Exam for CAIB 1 Actual
questions with complete solutions
Explain the meaning and disadvantage of the following approaches: Avoidance of Risk
& Control of Risk - ANSWER-Avoidance: Avoidance means that all chance of financial
loss has been eliminated or a decision not to do something. The disadvantage is its not
very effective as often the elimination of one exposure creates another in its place.
Control: taking measures to reduce the frequency and severity of losses. The
disadvantage is that not all losses can be controlled, because equipment will not work
100% of the time
Identify the three elements that are unique to contracts of insurance: - ANSWER-
Insurable Interest, Utmost Good Faith, and Indemnity
Insurers are in the business of assuming the financial risks of others which involves
entering into a formal contract. A contract is enforceable at law only when all legal
elements have been observed. Insurance contracts differ from other formal agreements
and are subject to what three additional elements? - ANSWER-Insurable Interest
Utmost Good Faith
Indemnity
The Insurance Act restricts payment for an insured loss to those amounts required to
indemnify the Insured. Indicate the amount the Insured is legally entitled to receive and
the measure used to determine this value. - ANSWER-Entitled to receive payment for
the actual amount of the loss, no more and no less. The measure is the value of the
object of insurance as it was immediately before the loss.
Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate
the Statutory Condition and the applicable rules: During the policy term the insured
installed a wood burning stove as a secondary heating device. The application indicates
that a gas furnace is used to heat the premises. - ANSWER-Material Change. The
insured must notify the insurer promptly of any change that serves to increase the
chance of loss. After receiving notification of the Material Change the insurer has the
option to cancel the policy and return the unearned portion of the premium to the
insured; or continue to insure the risk and advise the insured in writing of the additional
premium payable.
All Homeowners policies describe the Basis of Claim Payment for loss or damage to
dwelling building, detached private structures and personal property. Indicate the basis
of settlement and conditions: Water used to extinguish a small fire at the Insured's home
destroyed all electronic media and records kept by the Insured. - ANSWER-Cost to
reproduce lost or damage media from duplicates or from originals of the previous
, generation of the media. The payment for lost records is the cost of blank books, pages,
cards or other materials plus the cost of actually transcribing or copying such records.
Another option for insuring property values under Homeowners policies is the "Single
Limit" basis. Explain how this basis differs from the usual coverage format and the
advantage that this approach offers: - ANSWER-Coverages A to D are combined into
one single limit. The advantage is that this approach eliminates the coverage restriction
otherwise applicable to Coverages B, C and D.
The Homeowners Comprehensive Form (IBC 1155) is superior to all other Homeowners
policies. State how this policy describes "Insured Perils" - ANSWER-This policy "insures
against all risks of direct physical loss or damage subject to the exclusions and
conditions of this form"
Indicate the coverage provided for Emergency Removal Expense under the Mobile
Homeowners Form. - ANSWER-Covered up to 5% of the amount of insurance on the
dwelling and covers reasonable expenses incurred in disconnecting water and power,
and towing or transporting costs.
What is the basis of claim payment for loss or damage to the mobile home, detached
private structures and personal property under a Mobile Homeowners Policy? -
ANSWER-The basis of claim is Actual Cash Value; payment for loss or damage to
personal property is made on the same basis as under Homeowners Forms.
Identify two (2) other coverages included under C - Personal Property, which are not
found in a Homeowners policy - ANSWER-Improvements or betterments made by or
acquired at the expense of the tenant; $500 for damage (excluding fire damage) to the
portion of the building occupied by the tenant resulting from theft or attempted theft;
Damage caused to the interior of the building by vandalism or malicious acts.
Individuals who own one or more units in a multiple unit building have an insurable
interest in the building structure, common elements and personal property. Identify and
briefly explain three coverages that are unique to the Condominium Unit Owners Policy:
- ANSWER-Unit Improvements and Betterments: insures the value of improvements
and betterments by the insured, including any building, structure or swimming pool, and
materials and supplies on the premises for use in such improvements or betterments.
Loss Assessment: allows the Insured to claim the amount of an assessment paid due to
a loss to collectively owned property if covered under the Insured's policy.
Unit Additional Protection: covers the Insured's unit, excluding damage to improvements
and betterments, when the Condominium Corporation has no insurance, or it is
inadequate
Insureds often find the limit of insurance for certain personal property items provided by
homeowners and other habitational forms inadequate and opt to insure individual
questions with complete solutions
Explain the meaning and disadvantage of the following approaches: Avoidance of Risk
& Control of Risk - ANSWER-Avoidance: Avoidance means that all chance of financial
loss has been eliminated or a decision not to do something. The disadvantage is its not
very effective as often the elimination of one exposure creates another in its place.
Control: taking measures to reduce the frequency and severity of losses. The
disadvantage is that not all losses can be controlled, because equipment will not work
100% of the time
Identify the three elements that are unique to contracts of insurance: - ANSWER-
Insurable Interest, Utmost Good Faith, and Indemnity
Insurers are in the business of assuming the financial risks of others which involves
entering into a formal contract. A contract is enforceable at law only when all legal
elements have been observed. Insurance contracts differ from other formal agreements
and are subject to what three additional elements? - ANSWER-Insurable Interest
Utmost Good Faith
Indemnity
The Insurance Act restricts payment for an insured loss to those amounts required to
indemnify the Insured. Indicate the amount the Insured is legally entitled to receive and
the measure used to determine this value. - ANSWER-Entitled to receive payment for
the actual amount of the loss, no more and no less. The measure is the value of the
object of insurance as it was immediately before the loss.
Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate
the Statutory Condition and the applicable rules: During the policy term the insured
installed a wood burning stove as a secondary heating device. The application indicates
that a gas furnace is used to heat the premises. - ANSWER-Material Change. The
insured must notify the insurer promptly of any change that serves to increase the
chance of loss. After receiving notification of the Material Change the insurer has the
option to cancel the policy and return the unearned portion of the premium to the
insured; or continue to insure the risk and advise the insured in writing of the additional
premium payable.
All Homeowners policies describe the Basis of Claim Payment for loss or damage to
dwelling building, detached private structures and personal property. Indicate the basis
of settlement and conditions: Water used to extinguish a small fire at the Insured's home
destroyed all electronic media and records kept by the Insured. - ANSWER-Cost to
reproduce lost or damage media from duplicates or from originals of the previous
, generation of the media. The payment for lost records is the cost of blank books, pages,
cards or other materials plus the cost of actually transcribing or copying such records.
Another option for insuring property values under Homeowners policies is the "Single
Limit" basis. Explain how this basis differs from the usual coverage format and the
advantage that this approach offers: - ANSWER-Coverages A to D are combined into
one single limit. The advantage is that this approach eliminates the coverage restriction
otherwise applicable to Coverages B, C and D.
The Homeowners Comprehensive Form (IBC 1155) is superior to all other Homeowners
policies. State how this policy describes "Insured Perils" - ANSWER-This policy "insures
against all risks of direct physical loss or damage subject to the exclusions and
conditions of this form"
Indicate the coverage provided for Emergency Removal Expense under the Mobile
Homeowners Form. - ANSWER-Covered up to 5% of the amount of insurance on the
dwelling and covers reasonable expenses incurred in disconnecting water and power,
and towing or transporting costs.
What is the basis of claim payment for loss or damage to the mobile home, detached
private structures and personal property under a Mobile Homeowners Policy? -
ANSWER-The basis of claim is Actual Cash Value; payment for loss or damage to
personal property is made on the same basis as under Homeowners Forms.
Identify two (2) other coverages included under C - Personal Property, which are not
found in a Homeowners policy - ANSWER-Improvements or betterments made by or
acquired at the expense of the tenant; $500 for damage (excluding fire damage) to the
portion of the building occupied by the tenant resulting from theft or attempted theft;
Damage caused to the interior of the building by vandalism or malicious acts.
Individuals who own one or more units in a multiple unit building have an insurable
interest in the building structure, common elements and personal property. Identify and
briefly explain three coverages that are unique to the Condominium Unit Owners Policy:
- ANSWER-Unit Improvements and Betterments: insures the value of improvements
and betterments by the insured, including any building, structure or swimming pool, and
materials and supplies on the premises for use in such improvements or betterments.
Loss Assessment: allows the Insured to claim the amount of an assessment paid due to
a loss to collectively owned property if covered under the Insured's policy.
Unit Additional Protection: covers the Insured's unit, excluding damage to improvements
and betterments, when the Condominium Corporation has no insurance, or it is
inadequate
Insureds often find the limit of insurance for certain personal property items provided by
homeowners and other habitational forms inadequate and opt to insure individual
