Insurance Fundamentals Exam Level 1 Questions & Answers

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 Insolvent Insurers - Answerthose who aren't able to pay all insured losses PACICC - AnswerProperty and Causality Insurance Compensation Corporation; takes over the business of insurers who are insolvent Provincial Government - AnswerApproves the contents of the insurance contract; licensed insurers operating within the province (provincial and federal); monitors the financial health of the insurers (provincial only) Fiduciary Relationship - Answerwhen one handles someone else's money (ie. insurers and brokers handle client's money therefore they are fiduciaries) Policy Alteration - AnswerChanges to a policy can only be made by a person authorized by the insurer for the purpose Removal Clause - AnswerWhen a property is removed to an unnamed location to protect it from damage or from further damage; covered at the location for seven days or for remaining period of policy (whichever is less) Commencement of Insurance Policy - AnswerInsurance policy starts at 12:01am standard time at the address of the named insured as stated herein Subrogation - AnswerInsurer retains the right; insurers can sue the party responsible for the loss of their client to recover money after paying a claim Effect of delivery of insurance policy - AnswerInsured is eligible for a claim if the policy document has been delivered to him/her even if no premium has been paid Fire policies - AnswerFriendly fire and Hostile fire; only damage by hostile fire is insured Friendly Fire - AnswerWhen a fire stays where it belongs Hostile Fire - AnswerWhen a fire escapes the place where it belongs and starts burning outside Fire policy - Answercovers three perils: fire, lightening and explosion of natural coal/manufactured gas Statutory Conditions - Answerconditions apply to all fire policies even if these are not written on the policy; required by provincial government; insurer cannot amend these conditions Misrepresentation - Answermaking the insurance company to believe there is less risk at your property even though the risk is more Misrepresentation includes - Answera. misrepresenting material facts b. fraudulent omission of material facts c. wrong description of property to harm the owner Other's Property - Answerinsurer is required to cover the damage to its client's property Change in Interest - Answerexisting policy may continue if ownership changes during the term of the policy; if ownership changes due to sale of the property, existing policy can continue only with insurer consent Material Change - Answera change that alters the risk in a way that greatly increases the potential for some losses Termination - Answera. termination by insured (client) b. termination by insurer Termination by insured - Answerinsured can terminate anytime; refund calculated on short-rate basis (cancellation fee) Termination by insurer - Answer15 days notice by registered mail or 5 days notice in writing if personally delivered; refund pro-rated (no cancellation fee) Requirements after loss - Answera. to give forthwith notice of loss to the insurer in writing