RIBO Insurance Exam Questions and Answers Graded A

RIBO Insurance Exam Questions and Answers Graded A What makes pure risk insurable while speculative not? Pure risk insurance is a situation involving a chance of a loss without a chance of gain. Insurance will accept situations where there is no potential for gain. Pure Risk A situation involving a chance of loss without a chance of gain. Example: property damage Speculative Risk A situation where the possibility of either financial loss or gain exists. This is not accepted by insurances. Example: gambling Insurance A contract in which one party, the insurer, for monetary consideration agrees to reimburse another, the insured, for loss or liability for a loss by specified hazards or perils Risk the chance of loss (the possible loss or destruction of property or incurring of a liability). Direct Loss losses that are involving damage to or destruction of the property insured. Example: replacing a stolen stereo Indirect Loss losses that occur because of direct losses. Example: loss of income from a tenant due to a building burning down. Peril the event that caused a loss covered by the policy. Example: fire. (WHISLER acronym) What is WHISLER stand for? Wind, Hail, Impact, Smoke, Lightning, Explosion and Riot Hazard condition that may cause a peril to occur or make the loss more severe - divided into physical and moral hazards. Physical hazards' example is slippery floors. Moral hazard example would be mental attitudes about risk. What are the three classes of insurance? The classes of insurance include personal and commercial lines as well as specialty risks. Example: personal (jewelry), commercial (owned businesses) and specialty (airports or high risk industry) What is a liability insurance peril? It includes negligence - when you are doing or not doing something that is expected by a reasonable person. Proximate Cause is the immediate and effective cause of the loss in a chain of events leading to the loss, but is not necessarily the last event before the occurrence Immediate Cause last link in the chain of events Remote Cause is separate from the proximate cause in the chain of events leading to a loss (what could've been) Indemnify compensate for loss, damage, or injury; reimburse; repay. It is to bring the insured person back to the point they previously were (no gain, no loss). Pooling Funds for Loss A group of people will pay out for insurance to insure the few that are injured. Losses of a few are shared by the many. What is the role of an insurance broker? Bring in two parties together in a contractual relationship What is spread of risk and how can it be done? Spreading of risk is a way to achieve balance between premiums collected versus losses paid. It is done through volume (large number of risks), diversity of risk (different risk classifications) and diversity of location (not all risks in one location). What does the insurance money get used for? Insurance money is a source of capital. it is invested in large amounts of capital to low risk investments. What is insurable interest? You must own the item that you are insuring. You must benefit from its existence and suffer from its loss. You cannot insure your neighbour's house. What is actual cost value (ACV)? determined in one of three ways: cost to repair, fair market value or consideration of evidence of value What are the two most popular forms of valuation in indemnification? Actual cash value (ACV) and replacement value (cost) What is replacement value? What is guaranteed replacement cost? Replacement value is the current market value to replace. Guaranteed replacement pays for replacement cost without depreciation and can exceed the amount of insurance on the dwelling. What is value contracts? It is an alternative calculation method where a predetermined amount is agreed upon by the insure and insured at the time the contract is made. It is usually done on items where it is difficult to determine a true value after loss. What is General Insurance? General insurance includes property and casualty insurance. It is also referred to as P&C insurance. Property is the loss or loss of income caused by a covered peril. Causality refers to areas not covered by fire, life or auto which would be burglary or liability. What are the four groups of insurers? 1) For profit - stock companies 2) Co-operative - mutuals & reciprocals 3) Government - worker's compensation 4) Captive - policy holders limited to parent company and subsidiaries Stock Companies (For Profit) a group of shareholders put interest in the asset and expect a profit on the investment (Lloyds is an example). Outstanding Loss Reservers funds set aside to pay for losses that have been incurred but not yet paid for Factory Mutuals Insurance companies of the mutual type that specialize in industrial risks and in loss prevention How do insurers distribute their insurance? Use of brokers, agents, direct writers and Insuretech (similar to Kanetix) Independent Brokerage System system in which independent insurance professionals, licensed as brokers, sell insurance on behalf of an insurer or multiple insurers they have contracts with Insurer insurance company (this is different than an insurance broker) Exclusive Agency Companies agents who represent only one company - they are not employees of the insurance company. There is a commission based model and they pay their own expenses. Client belongs to the company not the agent. Direct Writing Companies deals directly with the public - insurance company agents sell policies to prospective insureds. Agents are employees of the company and paid salary based with commission. Clients belong to the insurance company. Common Law Exists everywhere besides Quebec. Agents are employed to secure contracts and act for an employer in contractual matters. Brokers are employed for Insurance Types of Agency Contracts Express - terms explicitly stated