Fundamentals of Insurance Questions & Answers Latest Updated

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 b) Commissions must be held in trust in the event the insured cancels their policy and is owed a refund c) To exercise reasonable care, skill, and diligence d) To tell the truth about all risks submitted to an underwriter - AnswerThe answer is B Commissions must be held in trust in the event the insured cancels their policy and is owed a refund "Removal Coverage" is legislated by the Insurance Act, and provides coverage for the contents of an insured dwelling when the property was removed to prevent further loss or damage. What is the timeframe that coverage will be provided by this coverage? a) 7 days, or until policy expiry, whichever is sooner b) 30 days, or until policy expiry, whichever is sooner c) 14 days , or until policy expiry, whichever is sooner d) Coverage is provided until policy expiry - AnswerThe answer is A 7 days, or until policy expiry, whichever is sooner Insurers may exercise their right of "Subrogation". Which of the following best describes this? a) To allow the insurer to deny a claim b) To put oneself into another's shoes c) To ensure all losses are settled promptly d) To ensure premiums are paid by their due date - AnswerThe answer is B To put oneself into another's shoes The Insurance Act legislates the minimum coverages that must be provided by Insurance Policies insuring the peril of fire. Which of the following are the "Basic Coverages Legislated" by the Insurance Act? a) Fire, Lightning, and Windstorm b) Fire, Lightning, and Water Damage c) Fire, Lightning, and Explosion of Natural Gas, Coal, or Manufactured Gas d) Application of heat, Lightning damage to electrical devices or appliances, Electrical currents, Contamination by radioactive material - AnswerThe answer is C Fire, Lightning, and Explosion of Natural Gas, Coal, or Manufactured Gas Which of the following best describes a "Material Change"? a) Must be reported to the insurer b) Is any change within the control and knowledge of the insured which occurs after the policy has been issued and increases the exposure to loss c) Will likely be eligible for discounts d) Both A and B - AnswerThe answer is D Both A and B When an insured suffers a claim, there are specific steps that must be followed by both the Insured and Insurer. After the Insured completes the Proof of Loss, when must the loss be settled by the Insurer as per the Statutory Condition " When Loss is Payable"? a) 30 days b) 90 days c) 14 days d) 60 days - AnswerThe answer is D 60 days Which of the following is NOT a "Basic Exclusion" legislated by the Insurance Act? a) Application of Heat b) Flood c) Contamination by radioactive material d) Electrical Currents - AnswerThe answer is B Flood The Statutory Condition "notice" clearly states when is "notice" considered to be given to an insured. When would this be? a) When the insured receives the registered letter b) When the insurance company sends out the registered letter c) When the insurance company issues a refund cheque to the insured d) When the registered letter arrives at the post office of the latest known address - AnswerThe answer is D When the registered letter arrives at the post office of the latest known address "Errors and Omissions" Insurance protects Insureds from potential financial loss in the event of a mistake by a Broker/Agent. Which of the following is the most common "Errors and Omissions" exposure for Brokers/Agents? a) Cancellation Errors b) Renewal change errors c) Processing delays d) Providing inadequate coverage - AnswerThe answer is D Providing inadequate coverage An "Underwriter" is an employee of an Insurance Company. What is the Underwriter responsible for? a) Providing advice to clients b) Analyzing the application to assess potential physical hazards c) Completing an inspection d) Contacting the client - AnswerThe answer is B Analyzing the application to assess potential physical hazards Which of the following statements about an Underwriter is FALSE? a) They do not require an Insurance license, as they do not deal with the public b) They will occasionally contact the client directly if the broker is unavailable c) They are responsible for accepting or rejecting risks d) They are responsible for preparing policy documents - AnswerThe answer is B