CAIB 2 Chapter 1 Practice exam 1 with complete solutions

Explain what it means to issue insurance on a scheduled basis - Answer- Only the property listed or scheduled on the policy is insured Explain what is meant to issue insurance on the basis of Property of Every Description - Answer- Building, stock and equipment are insured under a single limit of insurance Explain what it means to issue insurance on an all property (blanket) basis - Answer- All property owned by the insured is insured under a single limit of insurance. All property blanket may insure property at more than one location In commercial property policies, identify six components used to define a building - Answer- 1) Building described on the declaration page 2) Fixed structures pertaining to the building and located on the premises 3) Additions and extensions communicating and in contact with the building 5) Materials, equipment and supplies on the premises for maintenance of, and normal repairs and minor alterations to the building or for building services 6) Growing plants, trees, shrubs or flowers inside the building used for decorative purposes when the insured is the owner of the building In Commercial policies, identify three components used to define stock - Answer- Merchandise of every description usual to the insured's business 2) Packing, wrapping and advertising materials 3) similar property belonging to others which the insured is under obligation to keep insured or for which he is legally liable In commercial policies, identify three component used to define equipment - Answer- 1) Generally all contents usual to the insured's business other than building or stock as herein defined 2) Similar property belonging to others which the insured is under obligation to keep insured or is legally liable for (copier/coffee machine) 3) Tenant's improvements which are defined as the building improvements, alterations and betterments made at the expense of the insured to a building What are three ways property may be values - Answer- 1) Actual cash value 2) Replacement cost 3) Book vale Explain the traditional meaning of ACV - Answer- Repair or replacement of lost or damaged property, less the application of any depreciation Describe two methods used to determine depreciation using Formula/Cost Approach Method - Answer- i) Straight Line Depreciation - applies depreciation based on the normal life expectancy of the buildings (building with 50 years expectancy and was 25 years at time of loss; worth 50%) ii) Plateau Accelerated depreciation - applies large amounts of depreciation during the first few years, then depreciation 'plateaus' or levels out (electronics) Describe the difference between Replacement Value and ACV - Answer- Replacement Value is different than ACV because there is no deduction for depreciation Which method used to value property is the least appropriate for insurance? - Answer- Book value is the most inappropriate method of valuing property for insurance purposes because book value is based on accounting fun