Practice Exam for CAIB 1 questions with correct answers

Insurers are in the business of assuming the financial risks of others which involves entering into a formal contract. A contract is enforceable at law only when all legal elements have been observed. Insurance contracts differ from other formal agreements and are subject to what three additional elements? - Answer Insurable Interest Utmost Good Faith Indemnity Explain the meaning and disadvantage of the following approaches: Avoidance of Risk & Control of Risk - Answer Avoidance: Avoidance means that all chance of financial loss has been eliminated or a decision not to do something. The disadvantage is its not very effective as often the elimination of one exposure creates another in its place. Control: taking measures to reduce the frequency and severity of losses. The disadvantage is that not all losses can be controlled, because equipment will not work 100% of the time Identify the three elements that are unique to contracts of insurance: - Answer Insurable Interest, Utmost Good Faith, and Indemnity The Insurance Act restricts payment for an insured loss to those amounts required to indemnify the Insured. Indicate the amount the Insured is legally entitled to receive and the measure used to determine this value. - Answer Entitled to receive payment for the actual amount of the loss, no more and no less. The measure is the value of the object of insurance as it was immediately before the loss. Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate the Statutory Condition and the applicable rules: During the policy term