CAIB 1 - CHAPTER 1 INTRODUCTION
TO GENERAL INSURANCE EXAM
WITH ALL NEEDED TO PASS
Define in pure insurance terms "risk" - correct answers -chance of financial loss
which an object of insurance is exposed
List 3 categories of risk generally faced by people - correct answers -1 - personal
2 - property
3 - liability
State 4 possible options people can choose to deal with risk and give a brief
explanation and example of each - correct answers -1 - Avoidance: all chance of
financial loss has been eliminated, ex. rent rather than purchase
2 - Control: taking measures to reduce the frequency and severity of losses, ex.
installing burglar alarm
3 - Retention: assume financial responsibility for their own losses, ex. deductibles,
purchase certain types of coverage while omitting other
, 4 - Transfer: transfer the risk to another who is more financially capable to handle a
loss, ex. exchange for a premium, insurance companies normally agree to assume
the financial responsibility for their losses
Give 2 examples of loss control measures that can be taken to reduce the frequency
and severity of losses - correct answers -1 - burglar alarms
2 - fire alarms
State 2 reasons why loss control measures are NOT a total solution in eliminating
financial loss - correct answers -1 - equipment failure, doesn't work 100% of the time
2 - wind/hail/lightning cannot be controlled
Which of the 4 possible options is generally NOT an effective means of dealing with
risk - correct answers -Avoidance
Which of the 4 possible options is the most popular and practical means of dealing
with risk - correct answers -Transfer
Explain, using an example, "speculative risk" - correct answers -Chance of loss as
well as a chance of gain, ex. gambling
Explain, using an example, "pure risk" - correct answers -Chance of loss with no
chance of gain, ex. fire burns down your house
Which of these types of risk will insurers NOT provide an insurance policy - correct
answers -Speculative
A contract is an agreement between 2 or more persons which creates an obligation
to do or not to do a particular thing. All contracts contain 5 elements. Identify and
explain these - correct answers -1 - Agreement, offer made and an unequivocal and
unconditional acceptance of the terms of that offer. Policy offered to insured must be
in accordance with written application, unless indicated in writing the differences
2 - Consideration, something to be exchanged, return promise, act performed,
agreement not to act. Insured gives premium in exchange for insurer to indemnify
insured in event of a loss
3 - Legality of Object, cannot be against the law, have illegal aspects like illegal
property
4 - Legal Capacity of the Parties to Contract, must be competent and of sound mind.
Cannot be minors, mental incompetents, under the influence of drugs/alcohol, or a
trade name
5 - Genuine Intention, parties actually intended to enter into a contract. Not under
duress, use of fraud or concealment or mistake
List 2 items that are required for a proper agreement, or meeting of the minds, to be
valid.
Is it necessary that these items be in writing - correct answers -1 - offer made
2 - unequivocal and unconditional acceptance of the terms of that offer
No
TO GENERAL INSURANCE EXAM
WITH ALL NEEDED TO PASS
Define in pure insurance terms "risk" - correct answers -chance of financial loss
which an object of insurance is exposed
List 3 categories of risk generally faced by people - correct answers -1 - personal
2 - property
3 - liability
State 4 possible options people can choose to deal with risk and give a brief
explanation and example of each - correct answers -1 - Avoidance: all chance of
financial loss has been eliminated, ex. rent rather than purchase
2 - Control: taking measures to reduce the frequency and severity of losses, ex.
installing burglar alarm
3 - Retention: assume financial responsibility for their own losses, ex. deductibles,
purchase certain types of coverage while omitting other
, 4 - Transfer: transfer the risk to another who is more financially capable to handle a
loss, ex. exchange for a premium, insurance companies normally agree to assume
the financial responsibility for their losses
Give 2 examples of loss control measures that can be taken to reduce the frequency
and severity of losses - correct answers -1 - burglar alarms
2 - fire alarms
State 2 reasons why loss control measures are NOT a total solution in eliminating
financial loss - correct answers -1 - equipment failure, doesn't work 100% of the time
2 - wind/hail/lightning cannot be controlled
Which of the 4 possible options is generally NOT an effective means of dealing with
risk - correct answers -Avoidance
Which of the 4 possible options is the most popular and practical means of dealing
with risk - correct answers -Transfer
Explain, using an example, "speculative risk" - correct answers -Chance of loss as
well as a chance of gain, ex. gambling
Explain, using an example, "pure risk" - correct answers -Chance of loss with no
chance of gain, ex. fire burns down your house
Which of these types of risk will insurers NOT provide an insurance policy - correct
answers -Speculative
A contract is an agreement between 2 or more persons which creates an obligation
to do or not to do a particular thing. All contracts contain 5 elements. Identify and
explain these - correct answers -1 - Agreement, offer made and an unequivocal and
unconditional acceptance of the terms of that offer. Policy offered to insured must be
in accordance with written application, unless indicated in writing the differences
2 - Consideration, something to be exchanged, return promise, act performed,
agreement not to act. Insured gives premium in exchange for insurer to indemnify
insured in event of a loss
3 - Legality of Object, cannot be against the law, have illegal aspects like illegal
property
4 - Legal Capacity of the Parties to Contract, must be competent and of sound mind.
Cannot be minors, mental incompetents, under the influence of drugs/alcohol, or a
trade name
5 - Genuine Intention, parties actually intended to enter into a contract. Not under
duress, use of fraud or concealment or mistake
List 2 items that are required for a proper agreement, or meeting of the minds, to be
valid.
Is it necessary that these items be in writing - correct answers -1 - offer made
2 - unequivocal and unconditional acceptance of the terms of that offer
No
