RIBO INSURANCE EXAM QUESTIONS
AND ANSWERS
What makes pure risk insurable while speculative not? - Correct Answers -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 - Correct Answers -A situation involving a chance of loss without a chance of
gain. Example: property damage
Speculative Risk - Correct Answers -A situation where the possibility of either financial
loss or gain exists. This is not accepted by insurances. Example: gambling
Insurance - Correct Answers -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 - Correct Answers -the chance of loss (the possible loss or destruction of property
or incurring of a liability).
Direct Loss - Correct Answers -losses that are involving damage to or destruction of the
property insured. Example: replacing a stolen stereo
Indirect Loss - Correct Answers -losses that occur because of direct losses. Example:
loss of income from a tenant due to a building burning down.
Peril - Correct Answers -the event that caused a loss covered by the policy. Example:
fire. (WHISLER acronym)
What is WHISLER stand for? - Correct Answers -Wind, Hail, Impact, Smoke, Lightning,
Explosion and Riot
Hazard - Correct Answers -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? - Correct Answers -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? - Correct Answers -It includes negligence - when you
are doing or not doing something that is expected by a reasonable person.
Proximate Cause - Correct Answers -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 - Correct Answers -last link in the chain of events
Remote Cause - Correct Answers -is separate from the proximate cause in the chain of
events leading to a loss (what could've been)
Indemnify - Correct Answers -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 - Correct Answers -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? - Correct Answers -Bring in two parties
together in a contractual relationship
What is spread of risk and how can it be done? - Correct Answers -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? - Correct Answers -Insurance money is a
source of capital. it is invested in large amounts of capital to low risk investments.
What is insurable interest? - Correct Answers -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)? - Correct Answers -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? - Correct Answers
-Actual cash value (ACV) and replacement value (cost)
What is replacement value? What is guaranteed replacement cost? - Correct Answers -
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? - Correct Answers -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? - Correct Answers -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? - Correct Answers -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) - Correct Answers -a group of shareholders put interest in
the asset and expect a profit on the investment (Lloyds is an example).
Outstanding Loss Reservers - Correct Answers -funds set aside to pay for losses that
have been incurred but not yet paid for
Factory Mutuals - Correct Answers -Insurance companies of the mutual type that
specialize in industrial risks and in loss prevention
How do insurers distribute their insurance? - Correct Answers -Use of brokers, agents,
direct writers and Insuretech (similar to Kanetix)
Independent Brokerage System - Correct Answers -system in which independent
insurance professionals, licensed as brokers, sell insurance on behalf of an insurer or
multiple insurers they have contracts with
Insurer - Correct Answers -insurance company (this is different than an insurance
broker)
Exclusive Agency Companies - Correct Answers -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 - Correct Answers -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.
AND ANSWERS
What makes pure risk insurable while speculative not? - Correct Answers -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 - Correct Answers -A situation involving a chance of loss without a chance of
gain. Example: property damage
Speculative Risk - Correct Answers -A situation where the possibility of either financial
loss or gain exists. This is not accepted by insurances. Example: gambling
Insurance - Correct Answers -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 - Correct Answers -the chance of loss (the possible loss or destruction of property
or incurring of a liability).
Direct Loss - Correct Answers -losses that are involving damage to or destruction of the
property insured. Example: replacing a stolen stereo
Indirect Loss - Correct Answers -losses that occur because of direct losses. Example:
loss of income from a tenant due to a building burning down.
Peril - Correct Answers -the event that caused a loss covered by the policy. Example:
fire. (WHISLER acronym)
What is WHISLER stand for? - Correct Answers -Wind, Hail, Impact, Smoke, Lightning,
Explosion and Riot
Hazard - Correct Answers -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? - Correct Answers -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? - Correct Answers -It includes negligence - when you
are doing or not doing something that is expected by a reasonable person.
Proximate Cause - Correct Answers -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 - Correct Answers -last link in the chain of events
Remote Cause - Correct Answers -is separate from the proximate cause in the chain of
events leading to a loss (what could've been)
Indemnify - Correct Answers -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 - Correct Answers -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? - Correct Answers -Bring in two parties
together in a contractual relationship
What is spread of risk and how can it be done? - Correct Answers -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? - Correct Answers -Insurance money is a
source of capital. it is invested in large amounts of capital to low risk investments.
What is insurable interest? - Correct Answers -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)? - Correct Answers -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? - Correct Answers
-Actual cash value (ACV) and replacement value (cost)
What is replacement value? What is guaranteed replacement cost? - Correct Answers -
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? - Correct Answers -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? - Correct Answers -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? - Correct Answers -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) - Correct Answers -a group of shareholders put interest in
the asset and expect a profit on the investment (Lloyds is an example).
Outstanding Loss Reservers - Correct Answers -funds set aside to pay for losses that
have been incurred but not yet paid for
Factory Mutuals - Correct Answers -Insurance companies of the mutual type that
specialize in industrial risks and in loss prevention
How do insurers distribute their insurance? - Correct Answers -Use of brokers, agents,
direct writers and Insuretech (similar to Kanetix)
Independent Brokerage System - Correct Answers -system in which independent
insurance professionals, licensed as brokers, sell insurance on behalf of an insurer or
multiple insurers they have contracts with
Insurer - Correct Answers -insurance company (this is different than an insurance
broker)
Exclusive Agency Companies - Correct Answers -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 - Correct Answers -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.
