Level 1 Fundamentals of Insurance Practice Exam Correct 100%

Your client has made application for "appraisal". The intent of the appraisal process is to settle the dispute between your client and the insurer regarding the: a. Amount of the settlement being offered b. Denial of insurance coverage under the policy c. Right of the insured to purchase the salvage after an insured loss d. Premium charged to coverages being provided by the insurer - Answera An indifferent attitude towards losses because of the presence of insurance indicates the presence of: a. Gross negligence b. Physical hazard c. A material change d. Moral hazard - Answerd Insurable interest means the: a. Interest gained on money in a bank b. Interest payable on a loan c. Personal interest people have in something they expect to inherit d. Financial interest a person has in something of value - Answerd Every policy of "fire" insurance: a. Usually covers fire, smoke, and specified types of explosions b. Is required by law to cover fire, windstorm, and lightning c. Covers, fire, explosion, and windstorm d. Is required by law to cover at least fire, lightning, and specified types of explosions - Answerd Your client's insurance policy was cancelled for non-payment of premium. 6 days after the notice of termination was mailed, your client had a loss. a. The loss would not be covered because no premiums had been paid b. The mailing of the notice automatically cancels the policy after 5 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. - Answerc Under a policy of "fire" insurance, the insurer must make payment for a loss within: a. 75 days after completion of the proof of loss. b. 90 days after completion of the proof of loss. c. 60 days after the completion of the proof of loss unless the contract provides for a shorter period. d. One year from the date the loss occurred. - Answerc Every property insurance policy describes the method used to pay claims. Normally the insurer will pay the lesser of three amounts in the event of a claim. One factor which does not enter into this calculations is the: a. Actual cash value of the property. b. Original cost of the property. c. Insured's interest in the property. d. Policy limit. - Answerb Your client recently had a burglary. In the documents filed with the insurance company, she made a claim for a $1,200 television set she never had. This is a: a. Breach of warranty b. Fraud c. Misrepresentation d. Material change - Answerb It can be said that the concept of insurance is based on sharing, which is the fundamental principle of a functioning society. Insurance is an undertaking that: a. Spreads the risk of loss among many people b. Obtains financing for a risky capital venture c. Protects oneself against loss due to bankruptcy d. Prevents the happening of certain types of losses - Answera When the insurer terminates an insurance policy, all of the following conditions apply, except one. Pick the Exception: a. The insured is entitled to 15 days' written notice of termination sent by registered mail of five days' written notice personally delivered. b. The refund due the insured shall be calculated on a short rate basis c. Unless otherwise stated, the refund shall accompany the notice of termination. d. The refund shall be in the form of money, postal or express company money order or cheque payable at par. - Answerb The major function of insurance is to: a. Reduce the cost of losses. b. Share the losses of the few among the many. c. Safeguard the interest of mortgagees. d. Serve as the basis of existing credit system. - Answerb Under a policy of "fire" insurance, the insurer would be obligated to pay the following loss only: a. Fire damage caused to appliance following a sudden power surge b. Fire damage to insured buildings occurring during a rebellion. c. Damage to insured property due to radioactive contamination. d. Loss to property caused by a process involving the application of heat. - Answerb Property policies contain two types of exclusions - one for property excluded and one for perils excluded. All of the following property items are normally excluded by property policies, except one. Pick the exception: a. Automobiles b. Yard maintenance equipment. c. Money and securities. d. Property which has been vacant for more than 30 consecutive days. - Answerb "Indemnity" means: a. Returning the premium to the insureds. b. Restoring the insureds to the same financial position as they were in immediately prior to the loss. c. Paying the insureds the face amount of the policy. d. Restoring the insureds to the same financial position as they were in at the inception date of the policy. - Answerb When an insured knowingly fails to reveal all material information when applying for insurance and there 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. - Answerc In the following case, the insurer must give its consent to the transfer of an existing insurance contract when: a. The insureds sell their home and the new owners want to continue the existing policy b. There has been a change in title to the insured property after the death of the insured. c. There has been an authorized assignment under the Bankruptcy Act d. The Insured becomes insane and title to the insured property is given to another by order of the court. - Answera A physical hazard is: a. A type of peril b. The same as a moral hazard. c. A condition relating to the premises which cause a peril to occur. The possibility of a loss due to the character of the insured. - Answerc Statutory Conditions found in all policies of "fire" insurance: a. Outline the duties and responsibility of the insured and the insurer. b. Specify the coverage provided. c. State the rights of third parties. d. Are not expressly required by law. - Answera 1) Generally, all of the following, except one, are seen to be "incompetent" or lacking the legal capacity to contract. Pick the Exception: a. A corporation. b. A child. c. A trade name. d. A senile person. - Answera When the insurer opts to repair, rebuild or replace damaged property rather than make payment in the form of a cash settlement, it must: a. First provide the insured with the option of accepting or rejecting the proposed basis of settlement. b. Provide the insured with written notice of its intention to do so within 30 days after receipt of proof of loss. c. Seek the consent of the insured's mortgagee. d. Advise the insured's broker or agent of its decision - Answerb If a burning log rolls out of your clients fireplace grate across the hearth and onto the rug in front, the loss to the rug is considered to be the result of a(n): a. Direct fire. b. Indirect fire. c. Friendly fire. d. Hostile fire. - Answerd The Property and Casualty Insurance Compensation Corporation (PACICC) was formed to: a. Have all insurer share in the payment of claims arising out of a single catastrophe. b. Spread the costs of suspected fraudulent claims amongst all insurers. c. Provide consumers with insurance protection in the event of an insurer's insolvency. d. Monitor the solvency of federally licensed insurers. - Answerc Insurance brokers are often asked to issue a "binder" as confirmation of the existence of valid insurance. A broker's authority to commit the insurer to a contract: a. Is unlimited as to the amounts of coverage. b. Is stated in the "Agency Agreement" between the insurer and the brokerage and applies to specific types of risks and limits. c. Must be obtained from the underwriter for all risks submitted to the Insurer. d. Applies to all risks the broker is requested to insure. - Answerb Which of the following would be the correct legal name of the insured in a contract of insurance? a. The Corner Store b. John's Corner Store c. J.D.'s Corner Store. d. The Corner Store Ltd. - Answerd Your client's furniture store is insured under a commercial property insurance policy to which a Replacement Cost Endorsement is attached. To qualify to settlement on a replacement cost basis, the insured must comply with all of the following obligations, except one. Pick the exception. a. Replacement shall be effected by the insured with due diligence and dispatch. b. Replacement shall be on the same site or an adjacent site. c. Replacement shall commence within 45 days of the insurer agreeing to pay the loss. d. Payment of the loss on a replacement cost basis shall be provided only after the insured has actually repaired or replaced the property. - Answerc Statutory Condition Five: Termination, sets out the provisions for cancellation of a contract of insurance that must be complied with by the insured and the insurer. All of the following provisions regarding termination by the insurer are true, except one. Select the Exception: a. When written notice of the termination is sent by registered mail, the insurer must give the insured 15 days' notice starting the day after the letter is received by the insured's post office. b. When written notice of termination is sent hand-delivered, the insurer must give the insured 15 days' notice starting on the date the letter was registered by the insurer's post office. c. When written notice of termination is sent hand delivered, the insurer must give the insured 5 days' notice When the insured is entitled to a premium refund, the amount of the refund is calculated on a pro-rata (per diem) basis - Answerb Your clients own a furniture store. The railing on the steps leading down to the basement level of their store is in need of repair. Also, two steps have rotten and great care must be taken by persons using the stairs not to fall through. These stairs constitute a: a. Peril. b. Moral hazard. c. Physical hazard. d. Material change. - Answerc The Insurance Act provides that a Waiver of Term or Condition of an insurance contract is: a. Permitted to be made by the insurance broker as long as it is in favour of the insured. b. Not binding, unless it is in writing and under the signature of a person authorized by the insurer. c. Valid only when signed by both the insurer and the insured. d. Bonding even when provided orally. - Answerb One of the elements that determines whether a contract is legally enforceable or not is the "legal capacity of the parties". In all of the following contracts, except one, are the parties considered to have "legal capacity". Select the one which does not meet this element. a. An insurance contract issued in the name of Marry Poppin d.b.a. Little People Day Care Centre b. A lease agreement naming the tenant as the No Risk Denied Insurance Corporation c. A building contract showing the General Contractor as Bricks and Mortar Inc. d. An invoice for merchandise shipped to the order of Mandy's Souvenir and Gift Shop. - Answerd Under a policy of insurance, a "deductible" is: a. Payable by the insureds only if they are responsible for the loss. b. Payable by the insureds only when the insurer disputes the amount of its liability for the loss. c. The amount the insured is required to absorb for each loss before receiving any payment from the insurer d. The responsibility of the broker - Answerc The insurance meaning given to "risk refers to the: a. Chance of financial loss to which the object of insurance may be exposed. b. Subject of insurance. c. Potential for a peril to occur. - Answera Risk selection is based on the Underwriter's assessment of the hazards pertaining to the risk that has been submitted for insurance. An underwriter must determine whether or not there is a potential Moral Hazard. The following does not apply as a condition indicating the presence of a Moral Hazard: a. The moral character of the applicant for insurance. b. The financial condition of the applicant for insurance. c. The physical condition of the premises which may cause a loss to occur d. The indifference to loss of the applicant for insurance - Answerb A warranty is a: a. Promise by the broker to remit premiums to the insurer in accordance with the terms stated in the Agency Agreement b. Guarantee of insureds that certain facts are truly as they are represented to be and that they will remain so. c. Piece of paper similar to an Endorsement which makes changes to the policy. d. Promise by the insurer to make payment of all claims submitted to it within a 21 day period. - Answerb