Fundamentals of Insurance Exam Study Questions
Correctly Solved to Score A+
What are the 5 functions of insurance? - Answer 1. Spread of Risk
2. Basis of Credit System
3. Eliminates Worry - Encourages Entrepreneurship
4. Loss Prevention and Loss Reduction
5. Source of Employment and Investment Capital
There are 5 important points when it comes to the definition of insurance. What are they? - Answer 1.
Provides a means of shifting one's financial responsibility for a loss to another party.
2. Payment will be made only in the event of a certain risk or peril.
3. The amount of payment is restricted to the amount required to indemnify the insured.
4. Insurance cover losses that are accidental and future.
5. The indemnity provided can be in the form of money or other thing of value.
Define the term "risk" - Answer The object of insurance
Define the term "peril" - Answer The cause of loss
Define the term "indemnity" - Answer A form of compensation from insurance.
What is the proper application of the Principle of Indemnity? - Answer Ensuring that people receive the
actual amount of their loss (as it was moments prior to loss).
No more, no less
Insurance in Canada is distributed by 2 distinct types of organizations. What are they? - Answer 1.
Private Insurers
2. Government Insurers
, There are two types of private insurers. What are they? - Answer 1. Stock Company
2. Mutual Company
Stock Company vs. Mutual Company - Answer Stock companies are owned by the shareholders whose
main goal is to make a profit; Mutual companies are owned by the policy owners who receive all
dividends/profits shared by the company at the end of the year. Their main goal is to provide insurance
at as low cost as possible.
What is another name for Property and Casualty Insurance? - Answer P&C is also known as General
Insurance
What 3 types of insurance are included in General Insurance? - Answer 1. Auto
2. Property
3. Liability
How is insurance distributed? - Answer 1. Direct Writing System
2. Independent Brokerage System
3. Agency System
How does direct writing work? - Answer They are employees of the insurer and are limited to selling
ONLY their products.
How does an independent brokerage work? - Answer They are employees of the brokerage NOT the
insurer. They normally chose to represent multiple insurers.
How does an agent work? - Answer Agent represents ONE insurer and the Facility Association. Agents
are small business owners and are paid commissions and bonuses.
What is Lloyd's of London? - Answer An association formed to underwrite and issue insurance like
coverage on certain items and areas that might otherwise be uninsurable
Correctly Solved to Score A+
What are the 5 functions of insurance? - Answer 1. Spread of Risk
2. Basis of Credit System
3. Eliminates Worry - Encourages Entrepreneurship
4. Loss Prevention and Loss Reduction
5. Source of Employment and Investment Capital
There are 5 important points when it comes to the definition of insurance. What are they? - Answer 1.
Provides a means of shifting one's financial responsibility for a loss to another party.
2. Payment will be made only in the event of a certain risk or peril.
3. The amount of payment is restricted to the amount required to indemnify the insured.
4. Insurance cover losses that are accidental and future.
5. The indemnity provided can be in the form of money or other thing of value.
Define the term "risk" - Answer The object of insurance
Define the term "peril" - Answer The cause of loss
Define the term "indemnity" - Answer A form of compensation from insurance.
What is the proper application of the Principle of Indemnity? - Answer Ensuring that people receive the
actual amount of their loss (as it was moments prior to loss).
No more, no less
Insurance in Canada is distributed by 2 distinct types of organizations. What are they? - Answer 1.
Private Insurers
2. Government Insurers
, There are two types of private insurers. What are they? - Answer 1. Stock Company
2. Mutual Company
Stock Company vs. Mutual Company - Answer Stock companies are owned by the shareholders whose
main goal is to make a profit; Mutual companies are owned by the policy owners who receive all
dividends/profits shared by the company at the end of the year. Their main goal is to provide insurance
at as low cost as possible.
What is another name for Property and Casualty Insurance? - Answer P&C is also known as General
Insurance
What 3 types of insurance are included in General Insurance? - Answer 1. Auto
2. Property
3. Liability
How is insurance distributed? - Answer 1. Direct Writing System
2. Independent Brokerage System
3. Agency System
How does direct writing work? - Answer They are employees of the insurer and are limited to selling
ONLY their products.
How does an independent brokerage work? - Answer They are employees of the brokerage NOT the
insurer. They normally chose to represent multiple insurers.
How does an agent work? - Answer Agent represents ONE insurer and the Facility Association. Agents
are small business owners and are paid commissions and bonuses.
What is Lloyd's of London? - Answer An association formed to underwrite and issue insurance like
coverage on certain items and areas that might otherwise be uninsurable
