Insurance Fundamentals Exam Level 1 Questions And
Answers(GRADED A)
Insurance - Answerassurance given to the insured by the insurer to lessen the financial damage suffered
during an insured occurrence
Peril - Answerthe cause of a financial loss (ie. fire, water, earthquake)
Risk - Answerthe chance of financial loss
Purpose of insurance - Answerto allow the spread of risk of few among many
Indemnity - Answerrestoring the insured to the same financial position as they were in immediately prior
to the loss; insurer will pay the actual amount of loss, no more no less
Direct Writers - Answerproducers are employees of the insurer; paid through salary; owns customer files
Independent Brokerage - Answerself employed; not employees of the insurance company they
represent; paid through commission; customer files are owned by brokerage
Pure Risk - Answerthe chance of financial loss with no chance of profiting from it (ie. fire loss)
Speculative Risk - Answerchance of of financial loss and gain (gambling/trading never covered)
Four alternatives to live with a risk - Answer1. Avoidance of risk (drive safely/follow road safety rules)
2. Controlling of risk (AEB system/ helps prevent risk)
3. Retention of risk (Avoid filing claim/pay claim from own money)
4. Transfer of risk Transfer of risk - AnswerPurchasing an insurance policy is the most popular and practical way of risk
transfer
Contracts - Answerlegal promise made by two or more persons or organizations which can be enforced
through the court of law
Five Elements required for all valid contracts - AnswerA: Agreement
C: Consideration
L: Legality of Object
L: Legal capacity of parties
G: Genuine Intention
Agreement - AnswerWhen both parties agree on a particular point
Consideration - Answeran exchange of something of value between the parties to a contract (Premium is
required for claim)
Legality of Object - Answeran object for which a contract is written should be a legal object
Legal capacity of parties - Answerall parties to a contract should have legal capacity to enter into a
contract
Who lacks legal capacity? - Answera) Minors: under the age of 19
b) Insane or senile person
c) Persons under the influence of alcohol or drugs
d) Trade name: corporation are separate legal entities
e) Genuine Intention: no influence or violence is used on either party to enter into a contract Trade name - Answername used to operate a business; when trade name is used for business, any
contract entered must identify owner's legal names
Genuine Intention - Answerno influence or violence is used on either party to enter into a contract
Elements required for insurance contract - Answer1. Insurable Interest
2. Utmost Good Faith
3. Indemnity
Insurable Interest - Answerthe financial interest one may have in something of value (Owners,
mortgagees, bailees are all eligible for this)
Utmost Good Faith - Answerthe complete honesty of all parties to the insurance contract
Void - Answercontract will no longer exist
Voidable - Answerone which an injured party may choose to void it
Binder - Answerthe broker has committed an insurer to a contract of insurance on any risk
Endorsement - Answerto change the terms and conditions of an existing insurance policy (changing or
upgrading)
Rider - Answercoverage of an additional peril over and above the existing perils covered in the policy
(adding something new)
Federal Government - AnswerMonitors financial health of federally licensed insurers
Solvent Insurers - Answerthose who are able to pay all insured losses
Answers(GRADED A)
Insurance - Answerassurance given to the insured by the insurer to lessen the financial damage suffered
during an insured occurrence
Peril - Answerthe cause of a financial loss (ie. fire, water, earthquake)
Risk - Answerthe chance of financial loss
Purpose of insurance - Answerto allow the spread of risk of few among many
Indemnity - Answerrestoring the insured to the same financial position as they were in immediately prior
to the loss; insurer will pay the actual amount of loss, no more no less
Direct Writers - Answerproducers are employees of the insurer; paid through salary; owns customer files
Independent Brokerage - Answerself employed; not employees of the insurance company they
represent; paid through commission; customer files are owned by brokerage
Pure Risk - Answerthe chance of financial loss with no chance of profiting from it (ie. fire loss)
Speculative Risk - Answerchance of of financial loss and gain (gambling/trading never covered)
Four alternatives to live with a risk - Answer1. Avoidance of risk (drive safely/follow road safety rules)
2. Controlling of risk (AEB system/ helps prevent risk)
3. Retention of risk (Avoid filing claim/pay claim from own money)
4. Transfer of risk Transfer of risk - AnswerPurchasing an insurance policy is the most popular and practical way of risk
transfer
Contracts - Answerlegal promise made by two or more persons or organizations which can be enforced
through the court of law
Five Elements required for all valid contracts - AnswerA: Agreement
C: Consideration
L: Legality of Object
L: Legal capacity of parties
G: Genuine Intention
Agreement - AnswerWhen both parties agree on a particular point
Consideration - Answeran exchange of something of value between the parties to a contract (Premium is
required for claim)
Legality of Object - Answeran object for which a contract is written should be a legal object
Legal capacity of parties - Answerall parties to a contract should have legal capacity to enter into a
contract
Who lacks legal capacity? - Answera) Minors: under the age of 19
b) Insane or senile person
c) Persons under the influence of alcohol or drugs
d) Trade name: corporation are separate legal entities
e) Genuine Intention: no influence or violence is used on either party to enter into a contract Trade name - Answername used to operate a business; when trade name is used for business, any
contract entered must identify owner's legal names
Genuine Intention - Answerno influence or violence is used on either party to enter into a contract
Elements required for insurance contract - Answer1. Insurable Interest
2. Utmost Good Faith
3. Indemnity
Insurable Interest - Answerthe financial interest one may have in something of value (Owners,
mortgagees, bailees are all eligible for this)
Utmost Good Faith - Answerthe complete honesty of all parties to the insurance contract
Void - Answercontract will no longer exist
Voidable - Answerone which an injured party may choose to void it
Binder - Answerthe broker has committed an insurer to a contract of insurance on any risk
Endorsement - Answerto change the terms and conditions of an existing insurance policy (changing or
upgrading)
Rider - Answercoverage of an additional peril over and above the existing perils covered in the policy
(adding something new)
Federal Government - AnswerMonitors financial health of federally licensed insurers
Solvent Insurers - Answerthose who are able to pay all insured losses
