Practice Exam for CAIB 1 (Questions and Answers).

Practice Exam for CAIB 1 (Questions and
Answers)


Insurers are in the business of assuming the financial risks of others which involves
n n n n n n n n n n n n n


nentering into a formal contract. A contract is enforceable at law only when all legal
n n n n n n n n n n n n n n


nelements have been observed. Insurance contracts differ from other formal agreements
n n n n n n n n n n


nand are subject to what three additional elements? - ANS-Insurable Interest
n n n n n n n n n n


Utmost Good Faith n n


Indemnity

Explain the meaning and disadvantage of the following approaches: Avoidance of Risk
n n n n n n n n n n n


& Control of Risk - ANS-Avoidance: Avoidance means that all chance of financial loss
n n n n n n n n n n n n n n


has been eliminated or a decision not to do something. The disadvantage is its not very
n n n n n n n n n n n n n n n n


effective as often the elimination of one exposure creates another in its place.
n n n n n n n n n n n n n


Control: taking measures to reduce the frequency and severity of losses. The
n n n n n n n n n n n


disadvantage is that not all losses can be controlled, because equipment will not work
n n n n n n n n n n n n n n


100% of the time
n n n n




Identify the three elements that are unique to contracts of insurance: - ANS-Insurable
n n n n n n n n n n n n


nInterest, Utmost Good Faith, and Indemnity
n n n n n




The Insurance Act restricts payment for an insured loss to those amounts required to
n n n n n n n n n n n n n


indemnify the Insured. Indicate the amount the Insured is legally entitled to receive and
n n n n n n n n n n n n n n


the measure used to determine this value. - ANS-Entitled to receive payment for the
n n n n n n n n n n n n n n


actual amount of the loss, no more and no less. The measure is the value of the object
n n n n n n n n n n n n n n n n n n


of insurance as it was immediately before the loss.
n n n n n n n n n




Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate
n n n n n n n n n n n n


the Statutory Condition and the applicable rules: During the policy term the insured
n n n n n n n n n n n n n


installed a wood burning stove as a secondary heating device. The application
n n n n n n n n n n n n


indicates that a gas furnace is used to heat the premises. - ANS-Material Change. The
n n n n n n n n n n n n n n n


insured must notify the insurer promptly of any change that serves to increase the
n n n n n n n n n n n n n n


chance of loss. After receiving notification of the Material Change the insurer has the
n n n n n n n n n n n n n n


option to cancel the policy and return the unearned portion of the premium to the
n n n n n n n n n n n n n n n


insured; or continue to insure the risk and advise the insured in writing of the additional
n n n n n n n n n n n n n n n n


premium payable.
n n




All Homeowners policies describe the Basis of Claim Payment for loss or damage to
n n n n n n n n n n n n n


dwelling building, detached private structures and personal property. Indicate the basis
n n n n n n n n n n n


of settlement and conditions: Water used to extinguish a small fire at the Insured's
n n n n n n n n n n n n n n


home destroyed all electronic media and records kept by the Insured. - ANS-Cost to
n n n n n n n n n n n n n n

, n reproduce lost or damage media from duplicates or from originals of the previous
n n n n n n n n n n n n


n generation of the media. The payment for lost records is the cost of blank books,
n n n n n n n n n n n n n n


n pages, cards or other materials plus the cost of actually transcribing or copying such
n n n n n n n n n n n n n


n records.

Another option for insuring property values under Homeowners policies is the "Single
n n n n n n n n n n n


Limit" basis. Explain how this basis differs from the usual coverage format and the
n n n n n n n n n n n n n n


advantage that this approach offers: - ANS-Coverages A to D are combined into one
n n n n n n n n n n n n n n


single limit. The advantage is that this approach eliminates the coverage restriction
n n n n n n n n n n n n


otherwise applicable to Coverages B, C and D.
n n n n n n n n




The Homeowners Comprehensive Form (IBC 1155) is superior to all other Homeowners
n n n n n n n n n n n


policies. State how this policy describes "Insured Perils" - ANS-This policy "insures
n n n n n n n n n n n n


against all risks of direct physical loss or damage subject to the exclusions and
n n n n n n n n n n n n n n


conditions of this form"
n n n n




Indicate the coverage provided for Emergency Removal Expense under the Mobile
n n n n n n n n n n


nHomeowners Form. - ANS-Covered up to 5% of the amount of insurance on the n n n n n n n n n n n n n


ndwelling and covers reasonable expenses incurred in disconnecting water and power,
n n n n n n n n n n


nand towing or transporting costs.
n n n n




What is the basis of claim payment for loss or damage to the mobile home, detached
n n n n n n n n n n n n n n n


private structures and personal property under a Mobile Homeowners Policy? - ANS-
n n n n n n n n n n n n


The basis of claim is Actual Cash Value; payment for loss or damage to personal
n n n n n n n n n n n n n n


property is made on the same basis as under Homeowners Forms.
n n n n n n n n n n n




Identify two (2) other coverages included under C - Personal Property, which are not
n n n n n n n n n n n n n


nfound in a Homeowners policy - ANS-Improvements or betterments made by or
n n n n n n n n n n n


nacquired at the expense of the tenant; $500 for damage (excluding fire damage) to the
n n n n n n n n n n n n n n


nportion of the building occupied by the tenant resulting from theft or attempted theft;
n n n n n n n n n n n n n


nDamage caused to the interior of the building by vandalism or malicious acts.
n n n n n n n n n n n n




Individuals who own one or more units in a multiple unit building have an insurable
n n n n n n n n n n n n n n


ninterest in the building structure, common elements and personal property. Identify and
n n n n n n n n n n n


nbriefly explain three coverages that are unique to the Condominium Unit Owners Policy:
n n n n n n n n n n n n


n- ANS-Unit Improvements and Betterments: insures the value of improvements and
n n n n n n n n n n


nbetterments by the insured, including any building, structure or swimming pool, and
n n n n n n n n n n n


nmaterials and supplies on the premises for use in such improvements or betterments.
n n n n n n n n n n n n




Loss Assessment: allows the Insured to claim the amount of an assessment paid due to
n n n n n n n n n n n n n n


a loss to collectively owned property if covered under the Insured's policy.
n n n n n n n n n n n n n




Unit Additional Protection: covers the Insured's unit, excluding damage to improvements
n n n n n n n n n n


and betterments, when the Condominium Corporation has no insurance, or it is
n n n n n n n n n n n n


inadequate
n