FUNDAMENTALS OF INSURANCE FINAL EXAM,
PRACTICE EXAM AND STUDYGUIDE NEWEST 2025
ACTUAL EXAM COMPLETE QUESTIONS AND
CORRECT DETAILED ANSWERS
•
Chapter 1 - ✔✔ANSW✔✔Introduction to General Insurance
The major function of insurance is to achieve a spread of risk. Explain what is meant by
spread of risk. - ✔✔ANSW✔✔the major function of insurance is to share the losses of
the few among the many
What are the five functions of insurance? - ✔✔ANSW✔✔1. spread of risk (major
function)
2. basis of credit system
3. eliminates worry and encourages entrepreneurship
4. loss prevention and loss reduction
5. source of employment and investment capital
An analysis of the definition of insurance reveals five important points. Identify them and
provide a brief explanation for each. - ✔✔ANSW✔✔1. insurance 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 the happening of a certain risk or peril
3. the amount of payment is restricted to the amount required to indemnify the insured
4. insurance covers losses to which the object of insurance *may* be exposed
5. the indemnity provided can be in the form of a sum of money or other thing of value
Define risk. - ✔✔ANSW✔✔the chance of financial loss to which the object of insurance
may be exposed
Define peril. - ✔✔ANSW✔✔the cause of loss
,What are the three types of property and casualty insurance in Canada?
What is another name for this type of insurance? - ✔✔ANSW✔✔automobile insurance
property insurance
liability insurance
There are two major types of insurers. Identify them and provide examples of
organizational differences. - ✔✔ANSW✔✔private insurers
government insurers
What are the two most common types of private insurers? Provide a brief explanation of
them both. (money and main goal) - ✔✔ANSW✔✔(a) stock companies
-money to operate a stock company may come from private funds or through public sale
of stock
-ownership rests in the hands of the company's shareholders whose main purpose is to
derive a profit from their investment
(b) mutual companies
-money made is refunded to policyholders directly through dividends or through
subsequent rate adjustments
-main goal is to provide policyholders with insurance at as low of a cost as possible
Which types of insurance are government insurers most often involved with? -
✔✔ANSW✔✔medical insurance, employment insurance, workers' compensation,
compulsory automobile insurance
Identify two methods used by insurers to sell their products. - ✔✔ANSW✔✔direct writing
system
independent brokerage system
Explain how direct writing system deals with:
(a) remuneration
(b) ownership of client files
(c) administration functions - ✔✔ANSW✔✔(a) either salary or commission or both
(b) insurer owns all of the business
(c) insurer performs all administrative functions
Explain how independent brokerage system deal with:
(a) remuneration
(b) ownership of client files
(c) administration functions - ✔✔ANSW✔✔(a) brokerage is paid commission by insurer
which pays costs, salaries, rent
(b) brokerage owns business it produces
(c) brokerage responsible for providing policyholders with a number of client services
, Of the two distribution methods, which is the most common? -
✔✔ANSW✔✔independent brokerage system
Chapter 2 - ✔✔ANSW✔✔Insurance Contracts
Identify three major categories of insurance needs/ risk. - ✔✔ANSW✔✔personal risk
property risk
liability risk
Identify four options an insured may use in dealing with risk.
Which of these options is the least practical? - ✔✔ANSW✔✔avoidance of risk
controlling of risk
retention of risk
transfer of risk
avoidance is least practical, transfer is most practical and popular
There are two types of risk. Identify them and provide a brief description for each.
Of these types of risk, which are insurable? - ✔✔ANSW✔✔speculative risk: the
possibility of either financial loss or gain
pure risk: the chance of financial loss with no chance of financial gain
only pure risk is insurable
Define contract. - ✔✔ANSW✔✔an agreement between two or more parties which is
enforceable at law
Identify the five elements required to be present in all contracts.
Identify the three additional elements which are unique to insurance contracts and
which must be present if an insurance contract is to be enforceable at law. -
✔✔ANSW✔✔agreement
consideration
legality of object
legal capacity of the parties to contract
genuine intention
insurable interest
utmost good faith
indemnity
In the insurance business, it is common for brokers to "bind" an insurer on a risk.
PRACTICE EXAM AND STUDYGUIDE NEWEST 2025
ACTUAL EXAM COMPLETE QUESTIONS AND
CORRECT DETAILED ANSWERS
•
Chapter 1 - ✔✔ANSW✔✔Introduction to General Insurance
The major function of insurance is to achieve a spread of risk. Explain what is meant by
spread of risk. - ✔✔ANSW✔✔the major function of insurance is to share the losses of
the few among the many
What are the five functions of insurance? - ✔✔ANSW✔✔1. spread of risk (major
function)
2. basis of credit system
3. eliminates worry and encourages entrepreneurship
4. loss prevention and loss reduction
5. source of employment and investment capital
An analysis of the definition of insurance reveals five important points. Identify them and
provide a brief explanation for each. - ✔✔ANSW✔✔1. insurance 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 the happening of a certain risk or peril
3. the amount of payment is restricted to the amount required to indemnify the insured
4. insurance covers losses to which the object of insurance *may* be exposed
5. the indemnity provided can be in the form of a sum of money or other thing of value
Define risk. - ✔✔ANSW✔✔the chance of financial loss to which the object of insurance
may be exposed
Define peril. - ✔✔ANSW✔✔the cause of loss
,What are the three types of property and casualty insurance in Canada?
What is another name for this type of insurance? - ✔✔ANSW✔✔automobile insurance
property insurance
liability insurance
There are two major types of insurers. Identify them and provide examples of
organizational differences. - ✔✔ANSW✔✔private insurers
government insurers
What are the two most common types of private insurers? Provide a brief explanation of
them both. (money and main goal) - ✔✔ANSW✔✔(a) stock companies
-money to operate a stock company may come from private funds or through public sale
of stock
-ownership rests in the hands of the company's shareholders whose main purpose is to
derive a profit from their investment
(b) mutual companies
-money made is refunded to policyholders directly through dividends or through
subsequent rate adjustments
-main goal is to provide policyholders with insurance at as low of a cost as possible
Which types of insurance are government insurers most often involved with? -
✔✔ANSW✔✔medical insurance, employment insurance, workers' compensation,
compulsory automobile insurance
Identify two methods used by insurers to sell their products. - ✔✔ANSW✔✔direct writing
system
independent brokerage system
Explain how direct writing system deals with:
(a) remuneration
(b) ownership of client files
(c) administration functions - ✔✔ANSW✔✔(a) either salary or commission or both
(b) insurer owns all of the business
(c) insurer performs all administrative functions
Explain how independent brokerage system deal with:
(a) remuneration
(b) ownership of client files
(c) administration functions - ✔✔ANSW✔✔(a) brokerage is paid commission by insurer
which pays costs, salaries, rent
(b) brokerage owns business it produces
(c) brokerage responsible for providing policyholders with a number of client services
, Of the two distribution methods, which is the most common? -
✔✔ANSW✔✔independent brokerage system
Chapter 2 - ✔✔ANSW✔✔Insurance Contracts
Identify three major categories of insurance needs/ risk. - ✔✔ANSW✔✔personal risk
property risk
liability risk
Identify four options an insured may use in dealing with risk.
Which of these options is the least practical? - ✔✔ANSW✔✔avoidance of risk
controlling of risk
retention of risk
transfer of risk
avoidance is least practical, transfer is most practical and popular
There are two types of risk. Identify them and provide a brief description for each.
Of these types of risk, which are insurable? - ✔✔ANSW✔✔speculative risk: the
possibility of either financial loss or gain
pure risk: the chance of financial loss with no chance of financial gain
only pure risk is insurable
Define contract. - ✔✔ANSW✔✔an agreement between two or more parties which is
enforceable at law
Identify the five elements required to be present in all contracts.
Identify the three additional elements which are unique to insurance contracts and
which must be present if an insurance contract is to be enforceable at law. -
✔✔ANSW✔✔agreement
consideration
legality of object
legal capacity of the parties to contract
genuine intention
insurable interest
utmost good faith
indemnity
In the insurance business, it is common for brokers to "bind" an insurer on a risk.
