Fundamentals of Insurance BC Questions and Answers 100% Solved

Fundamentals of Insurance BC Questions and Answers 100% Solved What is the major function of insurance? to allow the spread of risk What are the five important functions of insurance? 1) insurance is the shifting of financial responsibility for a loss 2) payment will be made only in the event of an insured risk 3) the amount of payment is restricted to the amount required to indemnify the insured 4) insurance covers losses the object may be exposed to 5) the indemnity can be in the form of money or repair/replacement What are the three main types of insurance included in broad insurance (property and casualty) Auto insurance property insurance liability insurance (Also known as general insurance) Identify the two major types of insurers 1) private insurers 2)government insurers define how stock companies work compared to mutual companies Stock companies exist to turn a profit Mutual companies exist to provide lower insurance rates for its policy holders What type of insurance involves government insurers Mandatory auto insurance, such as ICBC identify the two methods of distributing insurance and how the differentiate Direct Writing System -represent products provided by one company exclusively Independent brokerage -represent more than one insurance company Chapter 2 Define the 3 categories of risk Personal Property Liability Identify the 4 options for dealing with risk 1) avoidance of risk 2) controlling of risk 3) retention of risk 4) transfer of risk What are the two types of risk? Which is insurable? 1) Pure Risk 2) speculative risk Only Pure risk is insurable as there is no chance for financial gain Define an insurance contract an agreement between two or more parties which is enforceable by law What are the five elements required to be present in all contracts 1) agreement; an offer made, and accepted 2) consideration; exchange of value between parties 3) legal capacity to contract 4) legality of object; cannot breach laws 5) genuine intention between parties What are the three elements exclusively required in an insurance contract 1) Insurable interest 2) Utmost good faith 3) Indemnity Define endorsements or riders on insurance policies acknowledges a change in the terms of the contract Define Floaters Used to provide coverage for property having a high degree of mobility Insurance is fiduciary in nature, define fiduciary Means to hold financial trust with a person or organization define the role of the federal government Provides licensing only to companies who can meet strict financial standards, these companies are monitored constantly to ensure financial stability define the role of the provincial government licensing insurers, establishing premium levels, supervising terms and conditions of provincial contracts Define solvency when insurers are meeting financial obligations they are considered solvent What are the fiduciary responsibilities of insurance companies and insurance brokers Unearned premiums are held in trust to refund insureds in the event the policy is cancelled prior to expiring The insurance act determines when a contract takes affect. what time does coverage commence at? 12:01 am (midnight) at the address of the named insured what is the removal clause requires the insurer to extend coverage to another location where the insured's property is kept, even if the location is not named in the policy When does the removal clause apply? when the insured can prove that property was removed in order to protect it from a peril covered by the policy For how long can kept at an unnamed location before the coverage is removed? 7 days or upon the expiry of the policy Define subrogation when the insurer has indemnified the insured against a third party, the insurer has the legal right to seek recovery from the party. The insurance act requires that every policy insuring loss by fire must also provide what coverages? 1) lightening 2) explosion of natural gas, coal or manufactured gas Define two sources of fire which can destroy property Friendly fire; fire which is contained in its intended receptacle Hostile fire; Fire which escapes from is intended area, such as a log rolling onto a carpet and causing a loss Define the four exclusions under the standard exclusions legislated 1)Direct Application of heat 2)Lightning damage to electrical devices or equipment 3)Electrical currents 4)Contamination by radioactive material All of the above are not covered under the insurance act Name the three forms of misrepresentation regarding statutory conditions 1) false description of the property 2) misrepresentation of a material fact 3) omission of material fact Under statutory condition 2: property of others, when are insurers obligated to pay for the loss or damage to the property of others? Coverage for the property of others is only applicable when the insured has stated insurable interest in the contract Under statutory condition 3: change of interest, when will the insurer be liable for loss or damage 1) an authorized assignment under the bankruptcy act 2) a change of title by succession 3) a change of title by operation of law 4) a change of title by death Under statutory condition 4: material change, what is a material change defined as? A material change is any change within the control and knowledge of the insured which: arises after the policy is insured or serves to increase the chance of loss. changes must be both substantial and continuing What effect does material change have on policies/coverages? All material changes must be reported to the insurer, all unreported changes entitle the insurer to void the contract resulting in any damages incurred directly by the change to be unpaid. When a material change is reported the insurer has two options, name them return the unearned premiums and cancel the policy retain the risk and advise the insureds in writing of the additional premium. State the primary role of the broker in the insurance process to serve as the intermediary between client and the insurer What is the duty owed by brokers to clients? That they receive the right insurance advice and coverages What is the duty owed by brokers to insurers? to present the truth about the risks they submit and to not withhold or conceal important information what is the main source of an errors and omissions claim inadequate coverage Who are underwriters and what is there primary role? Employees of insurance companies, there main job is to select risks which are likely to be profitable for the insurer Identify the two kinds of hazards present in every risk 1) physical hazard; the building, or premises 2) Moral hazard; characteristics of the applicant that could cause a hazard to occur Under home owners forms used by insurers, what coverage is automatically provided for personal property 1) Dwelling building 2) Detached private structure 3) personal property Under commercial property what coverage is provided? 1) Building 2) Stock/Items 3) Equipment Property insurance policies insure only one loss, what kind of loss? Direct damage, any damage that was deemed a direct result of a loss Define a warranty A promise that all facts are represented truly and will remain true. name the perils excluded under property policies books of account, securities, cars, boats, planes, money, vacant property (more than 30 days) Name perils excluded under commercial policies earthquake, flood, smoke form industrial operations, wear, rust, war, nuclear, sewer back up, increased cost of repair due to by-law identify two types of conditions statutory conditions (auto insurance) Policy conditions (common to property insurance) A client lost one ear ring in a pair, will she receive payment for a full set? Loss or damage to one item or set does not constitute payment for the entire pair or set, the saved item continues to have value what constitutes a "parts" claim? when there is a loss to only one part of property which consists of several parts what are the three factors which make up the indemnity agreement? 1) actual cash value 2) interest of the insured 3) limit of insurance What are the two guarantees outlined in the standard mortgage clause? 1) guarantee of payment when insured breaches any policy conditions 2) guarantee that the insurer will not reduce coverages nor terminate the policy without providing notice