CAIB 2 Chapter 7 Study Guide Questions with
Answers
- Seen as being too technical;
- Reluctant to reveal earnings;
- Lack of consumer knowledge. - ✔✔Why some clients may be reluctant to discuss business
interruption Insurance.
- Physical damage to property;
- Failure or breakdown of public utilities;
- Transportation-related accidents;
- Physical damage to neighbouring premises;
- Loss caused to property of major supplier or customer;
- Ancillary causes - strikes/lockouts. - ✔✔Sources of business interruption losses.
1) Use capital reserves to pay expenses;
2) Bank loan;
3) Increase product prices to cover the loss. - ✔✔Three other sources of funding to pay
continuing expenses, other than business interruption insurance.
Includes all monies from sales or services rendered by a business. - ✔✔"Income."
Expenses that continue during the period of an interruption. Includes mortgage interest,
interest on accounts payable, management salaries and salaries under contract, etc. -
✔✔"Fixed expenses."
Expenses that may or may not continue during the period of interruption. Includes advertising,
short-term salary continuation, warehousing costs, etc. - ✔✔"Semi-variable expenses."
, 1) Insure against same perils as insured by the property policy;
2) Contracts of indemnity;
3) Period of indemnity is not limited by the policy period;
4) Provide payment of expenses necessarily incurred to reduce amount of loss;
5) Provide payment when access to insured's premises is prohibited by order of civil authority. -
✔✔Five common characteristics of business interruption insurance forms.
The sum of "net profit" and "standing charges." - ✔✔"Gross profit" in insurance terms.
Gross profit minus all other expenses earned by the business. - ✔✔"Net profit" in insurance
terms.
"Gross profit" on a financial statement allows more deductions than "gross profit" calculated
for insurance. If the accounting amount were used, the insured would be under-insured in the
event of a loss. - ✔✔How "gross profit" in accounting terms is different from "gross profit" in
insurance terms.
Gross Earnings - ends upon reinstatement of the lost or damaged property;
Profits - continues until income is restored to the level it would have been at if the loss hadn't
occurred. - ✔✔Difference in indemnity period between the Gross Earnings Form and the Profits
Form.
12 months. May be extended for additional premium. - ✔✔Indemnity period maximum under
both the Gross Earnings Form and the Profits Form.
1) Nature of the business;
2) Types of perils likely to cause interruption.
Both affect length of possible interruption. - ✔✔Two factors to determine type of business
interruption coverage required.
Answers
- Seen as being too technical;
- Reluctant to reveal earnings;
- Lack of consumer knowledge. - ✔✔Why some clients may be reluctant to discuss business
interruption Insurance.
- Physical damage to property;
- Failure or breakdown of public utilities;
- Transportation-related accidents;
- Physical damage to neighbouring premises;
- Loss caused to property of major supplier or customer;
- Ancillary causes - strikes/lockouts. - ✔✔Sources of business interruption losses.
1) Use capital reserves to pay expenses;
2) Bank loan;
3) Increase product prices to cover the loss. - ✔✔Three other sources of funding to pay
continuing expenses, other than business interruption insurance.
Includes all monies from sales or services rendered by a business. - ✔✔"Income."
Expenses that continue during the period of an interruption. Includes mortgage interest,
interest on accounts payable, management salaries and salaries under contract, etc. -
✔✔"Fixed expenses."
Expenses that may or may not continue during the period of interruption. Includes advertising,
short-term salary continuation, warehousing costs, etc. - ✔✔"Semi-variable expenses."
, 1) Insure against same perils as insured by the property policy;
2) Contracts of indemnity;
3) Period of indemnity is not limited by the policy period;
4) Provide payment of expenses necessarily incurred to reduce amount of loss;
5) Provide payment when access to insured's premises is prohibited by order of civil authority. -
✔✔Five common characteristics of business interruption insurance forms.
The sum of "net profit" and "standing charges." - ✔✔"Gross profit" in insurance terms.
Gross profit minus all other expenses earned by the business. - ✔✔"Net profit" in insurance
terms.
"Gross profit" on a financial statement allows more deductions than "gross profit" calculated
for insurance. If the accounting amount were used, the insured would be under-insured in the
event of a loss. - ✔✔How "gross profit" in accounting terms is different from "gross profit" in
insurance terms.
Gross Earnings - ends upon reinstatement of the lost or damaged property;
Profits - continues until income is restored to the level it would have been at if the loss hadn't
occurred. - ✔✔Difference in indemnity period between the Gross Earnings Form and the Profits
Form.
12 months. May be extended for additional premium. - ✔✔Indemnity period maximum under
both the Gross Earnings Form and the Profits Form.
1) Nature of the business;
2) Types of perils likely to cause interruption.
Both affect length of possible interruption. - ✔✔Two factors to determine type of business
interruption coverage required.
