CAIB 1 - General Questions- Chapter 1
List the 3 categories of risk generally faced by people. - Answer-1) Personal Risk
2) Property Risk
3) Liability Risk
State 4 possible options people can choose to deal with risk. (explain each and example) - Answer-1)
Risk Avoidance - "not doing something" in such cause there is kot chance of loss. ex: Renting vs. owning
property
2)Risk Control - taking measures to reduce the frequency and severity of losses. ex: fire detection alarms
3) Risk Retention - bigger companies can often assume financial responsibility for their own losses. Not
many people can afford to do this and may opt to only self insure a portion of their policy. ex: insuring
for all property losses, excluding glass breakage
4) Risk Transfer - people unable to withstand a financial loss look to transfer all or a portion of this risk.
ex: Insurance (most practical means of dealing with risk)
Give 2 examples of loss control measures that can be taken to reduce the frequency and severity of
losses. - Answer-1) Installing intrusion detection equipment
2) Fire detection alarms
,State 2 reasons why loss control measures are not a total solution in eliminating financial loss. - Answer-
1) Equipment will not work 100% of the time
2) Certain types of losses such as wind, hail and lightning cannot be effectively controlled
Which of the four possible options is generally not an effective means of dealing with risk? - Answer-
Risk Avoidance
Which of the four possible options is the most popular and practical means of dealing with risk? -
Answer-Transfer of Risk
Explain using an example, "speculative risk" - Answer-Placing a bet at a blackjack table in Las Vegas,
there is a chance of financial loss but also a chance of financial gain.
Explain using an example, "pure risk" - Answer-Owning and operating an automobile, there is no chance
in financial gain only financial loss if there were to be a loss or damage.
Which types of these risks will insurers not provide an insurance policy for? - Answer-Speculative Risks
All contracts contain 5 elements. Identify and explain these elements - Answer-1) Agreement - a
meeting of the minds. An offer was made and an unequivocal and unconditional acceptance of the
terms of that offer (not necessary to be in writing)
2) Consideration - is an exchange of something of value between the parties
3) Legality of object - a contract intended for a purpose which is contrary to public policy is not
enforceable by law.
, 4) Legal Capacity of the Parties to Contract - the law will enforce only those contracts of persons it
recognizes as competent or having the legal capacity to contract
5) Genuine Intention - that the parties actually intended to enter into a contract
List the 2 items that are required for a proper agreement, or meeting of the minds, to be valid - Answer-
1) An offer was made
2) An unconditional acceptance of that offer was made
Identify four persons who might have an insurable interest in a contract of insurance - Answer-1)
Owners of property, including their business partners
2) Mortgagee
3) Bailees to whom property is entrusted for repair, service or safekeeping
4) Any person who may be held legally responsible to a third party for bodily injury or property damage
At what point in time is the true measure of indemnity determined? - Answer-Immediately prior to the
loss
In an insurance contract, from your clients perspective, explain what they must do, or be present, to
meet the following elements.
i) Consideration ii) Legal Capacity iii) Insurable Interest iv) Utmost Good Faith - Answer-i) Considerstion -
is payment of the premium or the promise to pay the premium at a later date.
ii) Legal Capacity - mentally competent, not under the influence and over the age of 21
List the 3 categories of risk generally faced by people. - Answer-1) Personal Risk
2) Property Risk
3) Liability Risk
State 4 possible options people can choose to deal with risk. (explain each and example) - Answer-1)
Risk Avoidance - "not doing something" in such cause there is kot chance of loss. ex: Renting vs. owning
property
2)Risk Control - taking measures to reduce the frequency and severity of losses. ex: fire detection alarms
3) Risk Retention - bigger companies can often assume financial responsibility for their own losses. Not
many people can afford to do this and may opt to only self insure a portion of their policy. ex: insuring
for all property losses, excluding glass breakage
4) Risk Transfer - people unable to withstand a financial loss look to transfer all or a portion of this risk.
ex: Insurance (most practical means of dealing with risk)
Give 2 examples of loss control measures that can be taken to reduce the frequency and severity of
losses. - Answer-1) Installing intrusion detection equipment
2) Fire detection alarms
,State 2 reasons why loss control measures are not a total solution in eliminating financial loss. - Answer-
1) Equipment will not work 100% of the time
2) Certain types of losses such as wind, hail and lightning cannot be effectively controlled
Which of the four possible options is generally not an effective means of dealing with risk? - Answer-
Risk Avoidance
Which of the four possible options is the most popular and practical means of dealing with risk? -
Answer-Transfer of Risk
Explain using an example, "speculative risk" - Answer-Placing a bet at a blackjack table in Las Vegas,
there is a chance of financial loss but also a chance of financial gain.
Explain using an example, "pure risk" - Answer-Owning and operating an automobile, there is no chance
in financial gain only financial loss if there were to be a loss or damage.
Which types of these risks will insurers not provide an insurance policy for? - Answer-Speculative Risks
All contracts contain 5 elements. Identify and explain these elements - Answer-1) Agreement - a
meeting of the minds. An offer was made and an unequivocal and unconditional acceptance of the
terms of that offer (not necessary to be in writing)
2) Consideration - is an exchange of something of value between the parties
3) Legality of object - a contract intended for a purpose which is contrary to public policy is not
enforceable by law.
, 4) Legal Capacity of the Parties to Contract - the law will enforce only those contracts of persons it
recognizes as competent or having the legal capacity to contract
5) Genuine Intention - that the parties actually intended to enter into a contract
List the 2 items that are required for a proper agreement, or meeting of the minds, to be valid - Answer-
1) An offer was made
2) An unconditional acceptance of that offer was made
Identify four persons who might have an insurable interest in a contract of insurance - Answer-1)
Owners of property, including their business partners
2) Mortgagee
3) Bailees to whom property is entrusted for repair, service or safekeeping
4) Any person who may be held legally responsible to a third party for bodily injury or property damage
At what point in time is the true measure of indemnity determined? - Answer-Immediately prior to the
loss
In an insurance contract, from your clients perspective, explain what they must do, or be present, to
meet the following elements.
i) Consideration ii) Legal Capacity iii) Insurable Interest iv) Utmost Good Faith - Answer-i) Considerstion -
is payment of the premium or the promise to pay the premium at a later date.
ii) Legal Capacity - mentally competent, not under the influence and over the age of 21
