FUNDAMENTALS OF INSURANCE
CORRECT QUESTIONS & ANSWERS
The coverage limits on Homeowners Insurance Policies are determined after calculating
the Replacement Cost of the dwelling building. Once this value is determined, the rest
of the coverage limits are calculated. Which of the following coverage limits is correct?
a) Personal Property- 100% of Coverage A
b) Detached Private Structures - 10% of Coverage A
c) Additional Living Expenses- - 10% of Coverage A
d) Dwelling- 100% of Personal Property Coverage - ANSWERThe answer is B
Insurance has been around for a long time and can be traced back hundreds of years.
The birth of Fire insurance can be traced back to:
A) London, England in June 1660
B) London, England in September 1666
C) London, England in June 1666
D) London, England in September 1888 - ANSWERThe answer is B
London, England in September 1666
Which of the following is NOT one of the 5 "Functions of Insurance"?
A) Spread of Risk
B) Employment
C) Loss Prevention and Loss Reduction
D) Loss Control and Loss Transfer - ANSWERThe answer is D
Loss Control and Loss Transfer
Insurance is based on the "Principle of Indemnity". Which of the following definitions
best describes this principle?
a) Ensures that people receive the actual amount of their loss, no more no less
b) Ensures that the limits of insurance are always reinstated after a loss
c) Ensures that people will receive a cash settlement for all insured losses
d) Ensures that people will be provided with a place to stay when their dwelling is
deemed unfit for occupancy after a loss - ANSWERThe answer is A
Ensures that people receive the actual amount of their loss, no more no less
The 2 different types of Private Insurers are Stock Companies and Mutual Companies.
These 2 types of companies have many similarities and some differences. One main
difference is the ownership. Who are mutual Companies owned by?
a) Stockholders
b) Policyholders
c) Employees
d) The Federal Government - ANSWERThe answer is B
Policyholders
,There are several different types of Government Insurance plans in Canada. Which of
the following is NOT considered one of these plans?
a) Compulsory Government Automobile Insurance
b) Provincial Medical Plans
c) The Facility Association in Automobile Insurance (available in Private Insurance
provinces)
d) Workers Compensation plans - ANSWERThe answer is C
The Facility Association in Automobile Insurance (available in Private Insurance
provinces)
Lloyds of London has proven to be a valuable option for clients and their specific risks.
Which of the following statements about "Lloyds of London" is true?
a) Provides Habitational Insurance for New Homes
b) Is an Insurance Company specifically for complex risks
c) Operates as an insurance market
d) Is not available in Canada as it is based in London, England, and is not licensed in
North America - ANSWERThe answer is C)
Operates as an insurance market
Insureds may choose from a number of different ways to deal with the chance of
financial loss associated with their property. One of these ways is "Controlling of Risk",
which of the following would be a way for an insured to control their risk?
a) Elect to stay home as it is safer than the outside world
b) Install an immobilizer in their vehicle
c) Purchase Insurance
d) Decide to not claim damage to a window in their dwelling as their deductible is
substantially high than the cost to replace the window - ANSWERThe answer is B
Install an immobilizer in their vehicle
When it comes to Contracts, there are 5 elements that must be present for the contract
to be enforceable by law. Which of the following best describes "Consideration"?
a) When all parties are considered to be legally capable to enter the contract
b) When an unconditional offer has been made and accepted
c) The exchange of something of value between parties
d) The consent of both parties in the contract - ANSWERThe answer is C
The exchange of something of value between parties
Insurance Contracts contain 3 additional elements that must be present. One of these is
"Insurable Interest". Which of the following would be considered to have an "Insurable
Interest"?
a) Mortgages
b) Owners
c) Any person who may be held legally responsible to a third party for injury or damage
d) All of the above - ANSWERThe answer is D
All of the above
, Insurers grant the ability to Brokers/Agents to "Bind" coverage on their behalf without
approval; provided the risk falls within their established guidelines, called "Binding
Authority."
Where can "Binding Authority" be found and referenced?
a) The policy documents
b) The policy wordings
c) The application
d) The Insurers Agency Agreement - ANSWERThe answer is D
The Insurers Agency Agreement
Mr. Smith is interested in adding additional coverage to his Habitational Insurance
Policy for a new piece of fine art he purchased on a recent trip to Europe. Which of the
following documents would be used to add coverage to the policy?
a) A Rider
b) A Floater
c) An Endorsement
d) A separate policy is required as "fine art" is an exclusion under Section I -
ANSWERThe answer is A
A Rider
Both the Federal and Provincial governments have specific responsibilities when it
comes to the Regulation of Insurers. Which of the following is NOT the responsibility of
the Provincial Government when it comes to the Regulation of Insurers?
a) Supervising the terms and conditions of insurance contracts
b) Issuing licenses to insurance brokers and agents
c) Issuing licenses to insurers
d) Monitoring financial stability of provincially licensed insurers - ANSWERThe answer
is B
Issuing licenses to insurance brokers and agents
In the event an Insurance Company cannot meet their financial obligations, they are
considered to be "insolvent". Which of the following corporations is responsible for
paying all valid claims of insolvent insurers?
a) Property and Casualty Insurance Payment Association (PACIPA)
b) Property and Casualty Insurance Insolvency Board (PACIIB)
c) Property and Casualty Insurance Company Association (PACICA)
d) Property and Casualty Insurance Compensation Corporation (PACICC) -
ANSWERThe answer is D
Property and Casualty Insurance Compensation Corporation (PACICC)
Both Insurers and Brokers/Agents are "Fiduciaries" which means that they handle the
money of others. Due to this, they have certain responsibilities. What is the "Fiduciary
Responsibility" of Insurance Brokers?
a) Premiums must be held in trust in the event the insured cancels their policy and is
owed a refund
CORRECT QUESTIONS & ANSWERS
The coverage limits on Homeowners Insurance Policies are determined after calculating
the Replacement Cost of the dwelling building. Once this value is determined, the rest
of the coverage limits are calculated. Which of the following coverage limits is correct?
a) Personal Property- 100% of Coverage A
b) Detached Private Structures - 10% of Coverage A
c) Additional Living Expenses- - 10% of Coverage A
d) Dwelling- 100% of Personal Property Coverage - ANSWERThe answer is B
Insurance has been around for a long time and can be traced back hundreds of years.
The birth of Fire insurance can be traced back to:
A) London, England in June 1660
B) London, England in September 1666
C) London, England in June 1666
D) London, England in September 1888 - ANSWERThe answer is B
London, England in September 1666
Which of the following is NOT one of the 5 "Functions of Insurance"?
A) Spread of Risk
B) Employment
C) Loss Prevention and Loss Reduction
D) Loss Control and Loss Transfer - ANSWERThe answer is D
Loss Control and Loss Transfer
Insurance is based on the "Principle of Indemnity". Which of the following definitions
best describes this principle?
a) Ensures that people receive the actual amount of their loss, no more no less
b) Ensures that the limits of insurance are always reinstated after a loss
c) Ensures that people will receive a cash settlement for all insured losses
d) Ensures that people will be provided with a place to stay when their dwelling is
deemed unfit for occupancy after a loss - ANSWERThe answer is A
Ensures that people receive the actual amount of their loss, no more no less
The 2 different types of Private Insurers are Stock Companies and Mutual Companies.
These 2 types of companies have many similarities and some differences. One main
difference is the ownership. Who are mutual Companies owned by?
a) Stockholders
b) Policyholders
c) Employees
d) The Federal Government - ANSWERThe answer is B
Policyholders
,There are several different types of Government Insurance plans in Canada. Which of
the following is NOT considered one of these plans?
a) Compulsory Government Automobile Insurance
b) Provincial Medical Plans
c) The Facility Association in Automobile Insurance (available in Private Insurance
provinces)
d) Workers Compensation plans - ANSWERThe answer is C
The Facility Association in Automobile Insurance (available in Private Insurance
provinces)
Lloyds of London has proven to be a valuable option for clients and their specific risks.
Which of the following statements about "Lloyds of London" is true?
a) Provides Habitational Insurance for New Homes
b) Is an Insurance Company specifically for complex risks
c) Operates as an insurance market
d) Is not available in Canada as it is based in London, England, and is not licensed in
North America - ANSWERThe answer is C)
Operates as an insurance market
Insureds may choose from a number of different ways to deal with the chance of
financial loss associated with their property. One of these ways is "Controlling of Risk",
which of the following would be a way for an insured to control their risk?
a) Elect to stay home as it is safer than the outside world
b) Install an immobilizer in their vehicle
c) Purchase Insurance
d) Decide to not claim damage to a window in their dwelling as their deductible is
substantially high than the cost to replace the window - ANSWERThe answer is B
Install an immobilizer in their vehicle
When it comes to Contracts, there are 5 elements that must be present for the contract
to be enforceable by law. Which of the following best describes "Consideration"?
a) When all parties are considered to be legally capable to enter the contract
b) When an unconditional offer has been made and accepted
c) The exchange of something of value between parties
d) The consent of both parties in the contract - ANSWERThe answer is C
The exchange of something of value between parties
Insurance Contracts contain 3 additional elements that must be present. One of these is
"Insurable Interest". Which of the following would be considered to have an "Insurable
Interest"?
a) Mortgages
b) Owners
c) Any person who may be held legally responsible to a third party for injury or damage
d) All of the above - ANSWERThe answer is D
All of the above
, Insurers grant the ability to Brokers/Agents to "Bind" coverage on their behalf without
approval; provided the risk falls within their established guidelines, called "Binding
Authority."
Where can "Binding Authority" be found and referenced?
a) The policy documents
b) The policy wordings
c) The application
d) The Insurers Agency Agreement - ANSWERThe answer is D
The Insurers Agency Agreement
Mr. Smith is interested in adding additional coverage to his Habitational Insurance
Policy for a new piece of fine art he purchased on a recent trip to Europe. Which of the
following documents would be used to add coverage to the policy?
a) A Rider
b) A Floater
c) An Endorsement
d) A separate policy is required as "fine art" is an exclusion under Section I -
ANSWERThe answer is A
A Rider
Both the Federal and Provincial governments have specific responsibilities when it
comes to the Regulation of Insurers. Which of the following is NOT the responsibility of
the Provincial Government when it comes to the Regulation of Insurers?
a) Supervising the terms and conditions of insurance contracts
b) Issuing licenses to insurance brokers and agents
c) Issuing licenses to insurers
d) Monitoring financial stability of provincially licensed insurers - ANSWERThe answer
is B
Issuing licenses to insurance brokers and agents
In the event an Insurance Company cannot meet their financial obligations, they are
considered to be "insolvent". Which of the following corporations is responsible for
paying all valid claims of insolvent insurers?
a) Property and Casualty Insurance Payment Association (PACIPA)
b) Property and Casualty Insurance Insolvency Board (PACIIB)
c) Property and Casualty Insurance Company Association (PACICA)
d) Property and Casualty Insurance Compensation Corporation (PACICC) -
ANSWERThe answer is D
Property and Casualty Insurance Compensation Corporation (PACICC)
Both Insurers and Brokers/Agents are "Fiduciaries" which means that they handle the
money of others. Due to this, they have certain responsibilities. What is the "Fiduciary
Responsibility" of Insurance Brokers?
a) Premiums must be held in trust in the event the insured cancels their policy and is
owed a refund
