CAIB 4 CHAPTER 1 EXAM PREP QUESTIONS
AND ANSWERS FULL SOLUTION
●● List 3 Categories of Risk
Answer: 1) Personal 2) Property 3) Liability
●● List 4 Types of Risk Management Techniques
Answer: 1) Risk Avoidance 2) Risk Retention 3) Risk Control 4) Risk
Transfer
●● Define "Risk Avoidance"
Answer: To avoid doing something in order to eliminate the chance of
risk
●● Define "Risk Retention"
Answer: To self-insure or to pay for losses themselves
●● Define "Risk Control"
Answer: To reduce the frequency or severity of the loss
●● Define "Risk Transfer"
,Answer: To shift the financial obligation to someone better equipped to
handle it (an insurance company)
●● List 2 Types of Risks
Answer: 1) Speculative Risk 2) Pure Risk
●● Define "Speculative Risk"
Answer: Chance of Financial Loss or Financial Gain
●● Define "Pure Risk"
Answer: Chance of Financial Loss only
●● What type of risk is insurable?
Answer: Pure Risk
●● What is a Contract?
Answer: 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
Answer: 1) Agreement 2) Consideration 3) Legality of Object 4) Legal
Capacity 5) Genuine Intention
, ●● Define "Agreement"
Answer: a meeting of the minds where an offer has been made and
accepted unconditionally
●● Define "Consideration"
Answer: the exchange of something of value
●● Define "Legality of Object"
Answer: must be legal and cannot violate the public good
●● Define "Legal Capacity"
Answer: all parties must be competent and of sound mind
●● Define "Genuine Intention"
Answer: basic level of honesty
●● Who cannot enter into contracts?
Answer: 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
Answer: 1) Insurable Interest 2) Utmost Good Faith 3) Indemnity
AND ANSWERS FULL SOLUTION
●● List 3 Categories of Risk
Answer: 1) Personal 2) Property 3) Liability
●● List 4 Types of Risk Management Techniques
Answer: 1) Risk Avoidance 2) Risk Retention 3) Risk Control 4) Risk
Transfer
●● Define "Risk Avoidance"
Answer: To avoid doing something in order to eliminate the chance of
risk
●● Define "Risk Retention"
Answer: To self-insure or to pay for losses themselves
●● Define "Risk Control"
Answer: To reduce the frequency or severity of the loss
●● Define "Risk Transfer"
,Answer: To shift the financial obligation to someone better equipped to
handle it (an insurance company)
●● List 2 Types of Risks
Answer: 1) Speculative Risk 2) Pure Risk
●● Define "Speculative Risk"
Answer: Chance of Financial Loss or Financial Gain
●● Define "Pure Risk"
Answer: Chance of Financial Loss only
●● What type of risk is insurable?
Answer: Pure Risk
●● What is a Contract?
Answer: 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
Answer: 1) Agreement 2) Consideration 3) Legality of Object 4) Legal
Capacity 5) Genuine Intention
, ●● Define "Agreement"
Answer: a meeting of the minds where an offer has been made and
accepted unconditionally
●● Define "Consideration"
Answer: the exchange of something of value
●● Define "Legality of Object"
Answer: must be legal and cannot violate the public good
●● Define "Legal Capacity"
Answer: all parties must be competent and of sound mind
●● Define "Genuine Intention"
Answer: basic level of honesty
●● Who cannot enter into contracts?
Answer: 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
Answer: 1) Insurable Interest 2) Utmost Good Faith 3) Indemnity
