Fundamentals of Insurance - Practice Exam Questions With Correct Answers

The major function of insurance is: a. To reduce the cost of the losses b. To share the losses of the few among the many c. The safeguard the interest of mortgages d. To serve as a basis of existing credit system - Answer b. To share the losses of the few among the many A peril if best defined as: a. The chance of a loss b. The occurrence of a loss c. The cause of a loss d. The result of a loss - Answer c. The cause of a loss Indemnify means: a. Returning the premium of the insured b. Restoring the insured's to the same financial position as they were in immediately prior to the loss c. Paying the insured's the face amount of the policy d. Restoring the insured's to the same financial position as they were - Answer b. Restoring the insured's to the same financial position as they were immediately prior to the loss Property insurance contracts are designed to pay for loss or damage arising out of the happening of a specific event. Only the following statement regarding the events insured by property insurance contract is correct: a. The event must be a future event and it must be accidental b. The event may happen with the co-operation of the insured c. The event may happen with the intent of the insured d. The event may occur accidentally or be caused deliberately by the insured - Answer a. The event must be must be a future event and it must be accidental The following is the most practical way in which to deal with risk: a. Avoidance of Risk b. Retention of Risk c. Controlling of Risk d. Transfer of Risk - Answer d. Transfer of Risk In a contract of insurance, consideration means: a. The exchange of something of value parties b. The amount the insurance can collect in event of a claim c. The object of insurance d. The reviewing of the details of the risk to be insured by an underwriter - Answer a. The exchange of something of value between parties Which of the following would be correct legal name of the insured in a contact of insurance: a. The corner store b. John's Corner Store c. J.D.'s Corner Store d. The Corner Store Ltd - Answer d. The Corner Store Ltd All contracts require that five elements be present if the contract is to be enforceable by law. An insurance contract is enforceable only if it contains the following three additional interest: a. Insurable Interest, Utmost Good Faith b. Insurable Interest, Consideration, Indemnity c. Insurable Interest, Indemnity, Utmost Good Faith d. Insurable Interest, Indemnity, Genuine Intention - Answer c. Insurable Interest, Indemnity, Utmost Good Faith If your clients do not advise the insurer of previous losses when required to do so, they have violated an essential principle of insurance contracts. This principle is: a. Legality of Object b. Utmost good faith c. Insurable Interest d. Indemnity - Answer b. Utmost good faith To bind a risk means: a. That the broker has committed an insurer to provide a contract of insurance on the subject matter under discussion b. Finding a company willing to give a quote on a risk c. Getting underwriting information from a client d. Automatically renewing an existing policy - Answer a. That the broker has committed an insurer to provide a contract of insurance on the subject matter under discussion The property and casualty insurance compensation corporation (PACICC) was formed for this purpose: a. To have all insurers share in the payment of claims arising out of a single catastrophe b. To spread the costs of suspected fraudulent claims amongst all insurers c. To provide consumers with insurance protection in the event of an insurer insolvency d. To monitor the solvency of federally licensed insurers - Answer c. To provide consumers with insurance protection in the event of an insurer insolvency Insurance brokers have a fiduciary responsibility to their clients. The following statement best summarizes the extent of the broker's fiduciary responsibility: a. The commission for the policy is considered to be fully earned b. The total commission earned is returned to the insured c. The unearned portion of the commission is returned to the insured d. The commission, less 50%, is required to be returned to the insured - Answer c. The unearned portion of the commission is returned to the insured Under the terms of the Insurance Act, property which is necessarily removed to prevent further damage is covered at the new location: a. For seven days or until the policy expires b. For seven days, but only if a removal permit is attached to the policy c. For a reasonable time d. Until the original location is repaired - Answer a. For seven days or until the policy expires Subrogation refers to: a. The amount the insurance company receives from a person who is legally responsible for loss b. The right of the insurance company to recover payments made under the policy from another person who is legally responsible for the loss c. The right of the insurance to take over the salvage after the claim has been made d. The right of the insured's to collect the amount of their loss from either the insurer or the person responsible - Answer b. The right of the insurance company to recover payments made under the policy from another person who is legally responsible for the loss Every policy of "Fire" insurance: a. Usually covers fire, smoke, and specific types of explosions b. Is required by law to cover fire, windstorm, and lightening c. Covers fire, explosion, and windstorm d. Is required by law to cover at least fire, lightening, and specified types of explosions - Answer d. Is required by law to cover at least fire, lightening and specified types of explosions Your clients recently burnt a large pot roast when a fire broke out in their kitchen oven. This loss to the roast is considered to be a result of: a. Direct fire b. Indirect fire c. Hostile fire d. Friendly fire - Answer d. Friendly fire Statutory conditions found in all policies of "fire" insurance: a. Outline the duties and responsibilities of the insured and the insurer b. Specify the coverages provided c. State the rights of third parties d. Are not expressly required by law - Answer a. Outline the duties and responsibilities of the insured and the insurer When an insured knowingly fails to reveal all material information when applying for insurance and their is a subsequent loss under the policy, the insurer: a. Must pay the insured's claim b. Must continue the policy until expiry, but may choose not to renew it c. May void the policy only if it is able to show that the misrepresentation was directly linked to the loss d. May sue the insured for misrepresentation - Answer c. May void the policy only if it is able to show that the misrepresentation was directly linked to the loss In the following case, the insurer must give consent to transfer an existing insurance contract: a. When the insured's sell their home and the new owners want to continue the existing policy b. When there has been a change in title to the insured's property after the death of the insured c. When there has been an authorization assignment under the bankruptcy act d. When the insured becomes insane and title to the insured property is given to another by order of the court - Answer a. When the insured's sell their home and the new owners want to continue the existing policy The statutory conditions provide that the insured must promptly notify the insurer of any material change. A material change is one which: a. Results in damage to goods caused by their undergoing a process involving the application of heat b. Due to a bylaw change, provides for use of materials inferior to those that existed at the time the insurance policy was purchased c. Results in damage to buildings/contents caused by alterations or additions d. Introduces a new feature which increases the chance of loss - Answer d. Introduces a new feature which increases the chance of loss Your clients insurance policy was recently cancelled for non-payment of premium, six days after the notice of termination was mailed by the insurer, your client has a loss: a. The loss would not be covered because not premium has been paid b. The mailing of the notice automatically cancels the policy after five days c. The loss is covered because 15 days notice must be given by registered mail d. The loss would be covered but only in proportion to the time the policy was in effect - Answer c. The loss is covered because 15 days notice must be given by registered mail Your client recently had a burglary, in the documents filed with the insurance company, she made a claim for a $12,000 TV set she never had. This is an example of: a. Breach of Warranty b. Fraud c. Misrepresentation d. Material Change - Answer b. Fraud