Practice Exam for CAIB 1
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 the insured installed a wood burning stove as
a secondary heating device. The application indicates that a gas furnace is used to heat the premises. -
Answer-Material Change. The insured must notify the insurer promptly of any change that serves to
increase the chance of loss. After receiving notification of the Material Change the insurer has the option
to cancel the policy and return the unearned portion of the premium to the insured; or continue to
insure the risk and advise the insured in writing of the additional premium payable.
All Homeowners policies describe the Basis of Claim Payment for loss or damage to dwelling building,
detached private structures and personal property. Indicate the basis of settlement and conditions:
Water used to extinguish a small fire at the Insured's home destroyed all electronic media and records
kept by the Insured. - Answer-Cost to reproduce lost or damage media from duplicates or from originals
of the previous generation of the media. The payment for lost records is the cost of blank books, pages,
cards or other materials plus the cost of actually transcribing or copying such records.
Another option for insuring property values under Homeowners policies is the "Single Limit" basis.
Explain how this basis differs from the usual coverage format and the advantage that this approach
offers: - Answer-Coverages A to D are combined into one single limit. The advantage is that this
approach eliminates the coverage restriction otherwise applicable to Coverages B, C and D.
The Homeowners Comprehensive Form (IBC 1155) is superior to all other Homeowners policies. State
how this policy describes "Insured Perils" - Answer-This policy "insures against all risks of direct physical
loss or damage subject to the exclusions and conditions of this form"
Indicate the coverage provided for Emergency Removal Expense under the Mobile Homeowners Form. -
Answer-Covered up to 5% of the amount of insurance on the dwelling and covers reasonable expenses
incurred in disconnecting water and power, and towing or transporting costs.
What is the basis of claim payment for loss or damage to the mobile home, detached private structures
and personal property under a Mobile Homeowners Policy? - Answer-The basis of claim is Actual Cash
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 the insured installed a wood burning stove as
a secondary heating device. The application indicates that a gas furnace is used to heat the premises. -
Answer-Material Change. The insured must notify the insurer promptly of any change that serves to
increase the chance of loss. After receiving notification of the Material Change the insurer has the option
to cancel the policy and return the unearned portion of the premium to the insured; or continue to
insure the risk and advise the insured in writing of the additional premium payable.
All Homeowners policies describe the Basis of Claim Payment for loss or damage to dwelling building,
detached private structures and personal property. Indicate the basis of settlement and conditions:
Water used to extinguish a small fire at the Insured's home destroyed all electronic media and records
kept by the Insured. - Answer-Cost to reproduce lost or damage media from duplicates or from originals
of the previous generation of the media. The payment for lost records is the cost of blank books, pages,
cards or other materials plus the cost of actually transcribing or copying such records.
Another option for insuring property values under Homeowners policies is the "Single Limit" basis.
Explain how this basis differs from the usual coverage format and the advantage that this approach
offers: - Answer-Coverages A to D are combined into one single limit. The advantage is that this
approach eliminates the coverage restriction otherwise applicable to Coverages B, C and D.
The Homeowners Comprehensive Form (IBC 1155) is superior to all other Homeowners policies. State
how this policy describes "Insured Perils" - Answer-This policy "insures against all risks of direct physical
loss or damage subject to the exclusions and conditions of this form"
Indicate the coverage provided for Emergency Removal Expense under the Mobile Homeowners Form. -
Answer-Covered up to 5% of the amount of insurance on the dwelling and covers reasonable expenses
incurred in disconnecting water and power, and towing or transporting costs.
What is the basis of claim payment for loss or damage to the mobile home, detached private structures
and personal property under a Mobile Homeowners Policy? - Answer-The basis of claim is Actual Cash
