CAIB 1 Practice Exam Questions and Answers All Correct

Insurers are in the business of assuming the financial risks of others which involves entering into a formal contract. A contract is enforceable at law only when all legal elements have been observed. Insurance contracts differ from other formal agreements and are subject to what three additional elements? - Answer-Insurable Interest Utmost Good Faith Indemnity Explain the meaning and disadvantage of the following approaches: Avoidance of Risk & Control of Risk - Answer-Avoidance: Avoidance means that all chance of financial loss has been eliminated or a decision not to do something. The disadvantage is its not very effective as often the elimination of one exposure creates another in its place. Control: taking measures to reduce the frequency and severity of losses. The disadvantage is that not all losses can be controlled, because equipment will not work 100% of the time Identify the three elements that are unique to contracts of insurance: - Answer-Insurable Interest, Utmost Good Faith, and Indemnity The Insurance Act restricts payment for an insured loss to those amounts required to indemnify the Insured. Indicate the amount the Insured is legally entitled to receive and the measure used to determine this value. - Answer-Entitled to receive payment for the actual amount of the loss, no more and no less. The measure is the value of the object of insurance as it was immediately before the loss. Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate the Statutory Condition and the applicable rules: During the policy term the insured installed a wood burning stove as a secondary heating device. The application indicates that a gas furnace is used to heat the premises. - Answer-Material Change. The insured must notify the insurer promptly of any change that serves to increase the chance of loss. After receiving notification of the Material Change the insurer has the option to cancel the policy and return the unearned portion of the premium to the insured; or continue to insure the risk and advise the insured in writing of the additional premium payable.