CAIB 1 Practice Exam Questions With Complete Solutions(Updated Version)

CAIB 1 Practice Exam Questions With Complete Solutions(Updated Version) Consideration is... a. The law of insurance b. A promise between parties c. A contract's binding force d. An exchange of something of value - correct answer...d. An exchange of something of value A stock company is... a. A company that invests in other companies b. A company owned by stockholders who provide the capital to start and run the company c. Is owned by customers of the company d. A company that owns livestock - correct answer...b. A company owned by stockholders who provide the capital to start and run the company The difference between pure and speculative risk is... a. Speculative risk is insurable but pure risk is not b. Speculative risk means that there is a chance to gain or lose whereas one can only lose with pure risk c. Speculative risk means that there is only the chance to lose whereas pure risk means you have a chance to win too d. Speculative risk is a term invented by marine insurance companies in 1864 - correct answer...b. Speculative risk means that there is a chance to gain or lose whereas one can only lose with pure risk A legally enforceable agreement between 2 or more parties is defined as... a. A contract b. An agreement c. A will d. A contract of consideration - correct answer...a. A contract What are the 4 methods of dealing with risk? - correct answer...Avoidance, control, retention, transfer A reduction in value is called a... a. Loss b. Unlucky situation c. Claim d. Transfer - correct answer...a. Loss What elements must be present to constitute a legal contract? a. Parties to the contract, the contract itself, consideration b. Parties to the contract, a written document, consideration, and legal purpose c. Agreement, consideration, legality of object, legal capacity, genuine intention d. Competent parties, consideration, warranty, and legal purpose - correct answer...c. Agreement, consideration, legality of object, legal capacity, genuine intention The act of intentionally giving up some right or privilege is... a. A representation b. A transfer c. A waiver d. Subrogation - correct answer...c. A waiver Insurance purchased by an insurance company is called a. Reinsurance b. Risk avoidance insurance c. Full protection d. Umbrella insurance - correct answer...a. Reinsurance The main purpose of an insurance contract is to... a. Allow the spread of risk b. Allow insured's to take more risk c. Protect you from loss d. Manage income risk - correct answer...a. Allow the spread of risk A person has a few options when dealing with financial risk: avoidance, retention, control, and transfer. Which is usually the best option for most people? a. Avoidance b. Retention c. Transfer d. Control - correct answer...c. Transfer Legal capacity of parties is an important part of a contract. Who below has the legal capacity to enter into an insurance contract? a. ABC Bakery b. Black's Hardware c. Tess' Restaurants Ltd. d. Blue Duck a.k.a Grey Goos - correct answer...c. Tess' Restaurants Ltd. Often times, brokers are asked to provide binders to the insured. A binder is... a. A preliminary contract of insurance b. Permitted for all risks c. Binds the insured to certain terms specified by the insurer d. Binds the insured to certain terms specific by the brokerage - correct answer...a. A preliminary contract of insurance All changes to an insurance policy must be made in writing. What does an insurer issue when both parties have agreed on a change to the policy terms? - correct answer...An endorsement In Canada, the insurance industry is regulated on both a federal and provincial level. The provincial government performs which of the following functions: a. Supervising the terms and conditions of insurance contracts b. Licensing insurance companies to allow them to do business in the province c. Monitor the financial stability of insurers that are not federally licensed d. All of the above e. Only a and b - correct answer...d. All of the above The financial solvency of insurers is critical. Solvency means... - correct answer...The ability of an insurer to pay all insured losses Both insurance companies and brokers act as fiduciaries. What is the fiduciary responsibility of a broker in regards to commissions? - correct answer...Unearned commissions are to be held in trust and paid back if the policy is cancelled before expiry When does the Insurance Act dictate a contract of insurance takes effect? a. 12:01 am standard time at the address of the named insured b. 12:01 am standard time at the address of the risk location c. 12:01 am local time at the address of the named insured d. 12:01 am local time at the address of the insurance company - correct answer...a. 12:01 am standard time at the address of the named insured