Practice Exam 2 Fundamentals of Insurance Level 1 Questions & Answer

Probably the best way to define risk is to say, "Risk is the chance of financial loss as a result of loss or damage to the object of insurance or some other happening." - AnswerTrue. Pure Risk: Provides only the potential for financial loss with no chance of gain or profit. Insurance is provided for pure risk only. - AnswerTrue. Risk Retention or Self-insurance may be a practical risk management technique when the chance of financial loss amounts to just a few hundred dollars. - AnswerTrue. There are different ways to deal with risk including risk control. Risk control involves taking whatever steps are needed to eliminate or reduce the frequency and severity of losses. - AnswerTrue. The insurance company is required to provide only as much insurance as is needed to indemnify the insured for their loss. On property insurance policies, that means that the insured is entitles to receive no more and no less than the value of the property as it existed immediately prior to the loss. - AnswerTrue. There are many secondary functions, benefits or spin-offs to the business of insurance including: Provides employment opportunities, peace of mind of insurance promotes investment and it helps to free up credit. - AnswerTrue. The main purpose of a true mutual insurance company is to prove insurance for their policyholders essentially at cost. Profit is of secondary importance. - AnswerTrue. Government insurers operate differently from Stock and Mutual Insurance Companies and do not share many of the organizational features of those companies. - AnswerFalse. Insurance companies have various options when determining how to get their insurance products in the hands of customers. One of these ways is to be a direct writer. A direct writer works with independent brokers to distribute their products. - AnswerFalse. A captive or exclusive agents is someone who sells the products of one insurance company only. For this reason they are not required to be licensed in their province. - AnswerFalse. Insurance agents and brokers are intermediaries between the applicant for insurance and the insurance company. They are not a party to the insurance contract. - AnswerTrue. Insurance brokers have a primary duty to ensure that they act ethically at all times in any dealing with an insurance company. An integral part of this duty is to ensure that they always tell the truth about the applicant and/or risk being submitted for insurance; and they must not withhold any information that the insurance company would consider important in making the decision whether to provide the applicant with insurance. - AnswerTrue. The applicant for insurance requested a policy with a $500 deductible. Today the insurance company advised the applicant that the minimum deductible it was prepared to accept for the property being insured was $1000. In this instance the element of "agreement" is considered to be present. - AnswerFalse. Minors will sometimes enter into contracts for their benefits. For example, there are a lot of minors who have bought and insured their own vehicles and rented or leased their own apartments. In these cases, the law provides that such contracts can be voided by the minor as long as they take action to do so within a reasonable time. Determining what is a reasonable time would depend upon the subject matter of the contact. - AnswerTrue. In order for a contact to be enforceable, it must contain five essential elements, including legality of object. Essentially any contract entered into that is for an activity that is prohibited by law or contrary to the public good fails to satisfy the requirement for legality of object and, as such, is unenforceable. - AnswerTrue. Insurance contracts are unique from other contracts One of the unique elements of all insurance is insurable interest. Financial institutions that have provided loans or mortgages to the insured, lessees and businesses that have customers property on their premises all have an insurable interest in the property being insured. - AnswerTrue. When an insurance contract has been ruled to be void after the premium has been paid, the insurance company is obligated to return only the unearned portion of the premium the insured paid for the policy. - AnswerFalse. The insured sold their home and the purchaser asked that their insurance policy be included in the sale. There is nothing in insurance law to prevent the insured from transferring the contract to another individual or party without the consent of the insurer. - AnswerFalse. The Insured may choose to assign any return premiums of the policy to a financial institution, individual or group in the event the policy is cancelled prior to the expiry date. - AnswerTrue. Written applications are not required for all insurance policies. The Insurance Act, however, requires that applications be in writing for automobile insurance, life insurance and accident and sickness insurance. - AnswerTrue. Sometimes applicants for insurance are less than honest in some of their answers to questions asked on the application for insurance. If they are untruthful about facts which the insurance company considers to be material facts, they will automatically lose all of the coverages provided. - AnswerFalse. A certificate of Insurance issued by an insurance company serves as confirmation that there is an insurance policy in place for a person or business. It will usually contain a brief overview of the amounts and types of insurance purchased and the premium charged. In addition, the Certificate will normally include the agreement of the insurer to notify the party of interest should the policy be cancelled. - AnswerTrue. The normal policy period is one year, although insurance companies may issue contracts for lesser periods. For example, it is not uncommon for automobile policies to be issued for 3, 6 or 9 month periods. - AnswerTrue. Regardless of where a person lives when they purchase a contact of property insurance, their coverage commences and expires at 12:01 AM Standard Time at the location of the property insured. In other words, the time that the policy commences and expires is tied to the location of the property and not to where the insureds live. - AnswerTrue. Generally, the deductible amount is applied to the total amount of the claim before the amount of the actual claim payment is calculated. When the claim is for less than the deductible, the insureds will not receive any payment from the insurance company. - AnswerTrue.