CAIB 2 Practice Exam Questions with Answers
Building - ✔✔1. Fixed structures, fittings, fixtures and additions
2. Growing plants inside for decorative purposes
3. Materials, equipment and supplies used for maintenance
Stock - ✔✔1. Merchandise (what they sell usual to the business)
2. Things used to sell merchandise (bags, shipping supplies)
3. Things usual to the business that are owned by others but that are in the custody of the
insured, which the insured is legally liable or obligated to care for
Equipment - ✔✔1. All contents usual to the business other than stock or buildings (cash
registers, portable walls, desks)
2. Similar property belonging to others usual to the business which the insured is legally liable
for or obligated to care for
3. Tenants improvements
Tenants Improvements - ✔✔Alterations and betterments made by the insurred in a building
they do not own and that are not otherwise insured
Scheduled vs. all risk coverage - ✔✔Scheduled covers specific items on a list, whereas all-risk is
one limit for everything
Name the three approaches to ACV - ✔✔Formula cost approach
Market Value/Direct sales approach
Income approach
Formula Cost Approach - ✔✔A form of ACV to determine depreciation.
1. Straight line approach is where depreciation occurs equally each year
,2. Plateau accelerated approach is where the property depreciates greatly in the early stages of
life and then plateaus
Market Value/Direct Sales Approach - ✔✔The actual cash value of the property before loss,
after loss, and the value of the land. Not great because markets fluctuate and not all property
has market value (i.e., institutions)
Income Approach - ✔✔Basked on the income/rent a building generates; used when the
building generates value for the owner
Replacement Cost - ✔✔The value of property without deduction for depreciation
Book Value - ✔✔Uses financial statements; not a valid method for valuing property in terms of
insurance
What is the purpose of a minimum retained premium? - ✔✔To recoup the costs of
underwriting should the insured cancel shortly following the acceptance of the contract
Indemnity Agreement Clause - ✔✔The agreement that the insurer will cede the least of ACV,
interest in the property, and limits shown on the declaration page
Deductible Clause - ✔✔The insured must pay the deductible before they are entitled to recover
the loss from the insurer
Occurrence-based deductible - ✔✔One deductible per incident, even if multiple property
groups with different deductibles are affected by the loss
Standard Coinsurance Clause - ✔✔Encourages clients to purchase adequate limits of insurance;
did/should * loss = settlement
, purchased 100,000, shouldve purchased 150,000, 75,000 loss --> 100,000/150,000 * 75,000 =
50,000 paid and the client would have to cover the rest
Waiver of Coinsurance - ✔✔recognizes that when claims are small, the cost of compliance to
prove the amount of loss would exceed the claim itself.
Stated Amount Coinsurance - ✔✔Replaces the standard coinsurance clause, requires the client
to file an SOV and maintain the values throughout the term
Why do exclusions exist? - ✔✔1. Uninsurable (war/nuclear)
2. Potential for catastrophe (earthquake, flood)
3. Specialized form available
4. Illegal activity
5. In the control of the insured (wear and tear, application of heat)
Permissions Clause - ✔✔To make addition, alteration, or repair to existing structures
Breach of Conditions Clause - ✔✔A condition imposed on the insured that requires them to do
or not do something
Reinstatement Clause - ✔✔s
The insured will have as much insurance after a loss as they did before the loss
Property Protection Systems Clause - ✔✔Insured must have protection systems such as fire
sprinklers, fire detection systems, intrusion detection system; must immediately notify insurer
of malfunctions, cancellations, or lack of police response to these systems
Building - ✔✔1. Fixed structures, fittings, fixtures and additions
2. Growing plants inside for decorative purposes
3. Materials, equipment and supplies used for maintenance
Stock - ✔✔1. Merchandise (what they sell usual to the business)
2. Things used to sell merchandise (bags, shipping supplies)
3. Things usual to the business that are owned by others but that are in the custody of the
insured, which the insured is legally liable or obligated to care for
Equipment - ✔✔1. All contents usual to the business other than stock or buildings (cash
registers, portable walls, desks)
2. Similar property belonging to others usual to the business which the insured is legally liable
for or obligated to care for
3. Tenants improvements
Tenants Improvements - ✔✔Alterations and betterments made by the insurred in a building
they do not own and that are not otherwise insured
Scheduled vs. all risk coverage - ✔✔Scheduled covers specific items on a list, whereas all-risk is
one limit for everything
Name the three approaches to ACV - ✔✔Formula cost approach
Market Value/Direct sales approach
Income approach
Formula Cost Approach - ✔✔A form of ACV to determine depreciation.
1. Straight line approach is where depreciation occurs equally each year
,2. Plateau accelerated approach is where the property depreciates greatly in the early stages of
life and then plateaus
Market Value/Direct Sales Approach - ✔✔The actual cash value of the property before loss,
after loss, and the value of the land. Not great because markets fluctuate and not all property
has market value (i.e., institutions)
Income Approach - ✔✔Basked on the income/rent a building generates; used when the
building generates value for the owner
Replacement Cost - ✔✔The value of property without deduction for depreciation
Book Value - ✔✔Uses financial statements; not a valid method for valuing property in terms of
insurance
What is the purpose of a minimum retained premium? - ✔✔To recoup the costs of
underwriting should the insured cancel shortly following the acceptance of the contract
Indemnity Agreement Clause - ✔✔The agreement that the insurer will cede the least of ACV,
interest in the property, and limits shown on the declaration page
Deductible Clause - ✔✔The insured must pay the deductible before they are entitled to recover
the loss from the insurer
Occurrence-based deductible - ✔✔One deductible per incident, even if multiple property
groups with different deductibles are affected by the loss
Standard Coinsurance Clause - ✔✔Encourages clients to purchase adequate limits of insurance;
did/should * loss = settlement
, purchased 100,000, shouldve purchased 150,000, 75,000 loss --> 100,000/150,000 * 75,000 =
50,000 paid and the client would have to cover the rest
Waiver of Coinsurance - ✔✔recognizes that when claims are small, the cost of compliance to
prove the amount of loss would exceed the claim itself.
Stated Amount Coinsurance - ✔✔Replaces the standard coinsurance clause, requires the client
to file an SOV and maintain the values throughout the term
Why do exclusions exist? - ✔✔1. Uninsurable (war/nuclear)
2. Potential for catastrophe (earthquake, flood)
3. Specialized form available
4. Illegal activity
5. In the control of the insured (wear and tear, application of heat)
Permissions Clause - ✔✔To make addition, alteration, or repair to existing structures
Breach of Conditions Clause - ✔✔A condition imposed on the insured that requires them to do
or not do something
Reinstatement Clause - ✔✔s
The insured will have as much insurance after a loss as they did before the loss
Property Protection Systems Clause - ✔✔Insured must have protection systems such as fire
sprinklers, fire detection systems, intrusion detection system; must immediately notify insurer
of malfunctions, cancellations, or lack of police response to these systems
