Fundamentals of Insurance Practice Exam Answers

Fundamentals of Insurance Practice Exam 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

 

1. To share the losses of the few among the many

 

 



A peril if best defined as:

1. The chance of a loss
   b. The occurrence of a loss
   c. The cause of a loss
   d. The result of a loss

 

1. The cause of a loss

 

Indemnify means:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. Avoidance of Risk
   b. Retention of Risk
   c. Controlling of Risk
   d. Transfer of Risk

 

1. Transfer of Risk

 

In a contract of insurance, consideration means:

1. 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

 

1. 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:

1. The corner store
   b. John’s Corner Store
   c. J.D.’s Corner Store
   d. The Corner Store Ltd

 

1. 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:

1. Insurable Interest, Utmost Good Faith
   b. Insurable Interest, Consideration, Indemnity
   c. Insurable Interest, Indemnity, Utmost Good Faith
   d. Insurable Interest, Indemnity, Genuine Intention

 

1. 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:

1. Legality of Object
   b. Utmost good faith
   c. Insurable Interest
   d. Indemnity

 

1. Utmost good faith

 

 

To bind a risk means:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. 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

 

1. For seven days or until the policy expires

 

Subrogation refers to:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. Direct fire
   b. Indirect fire
   c. Hostile fire
   d. Friendly fire

 

1. Friendly fire

 

Statutory conditions found in all policies of “fire” insurance:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. 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

 

1. 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:

1. Breach of Warranty
   b. Fraud
   c. Misrepresentation
   d. Material Change

 

1. Fraud

 

Your clients building is insured against fire, with loss payable to Dogwood trust company as a mortgagee. The property is destroyed by fire, but, before he can file proof of loss, your client dies without a will and with no one to look after his affairs. A proof of loss may ne filed by:

1. No one
   b. The insurance Company
   c. The superintendent of insurance
   d. The dogwood trust company

 

1. The dogwood trust company

 

 

Your client has made application for appraisal. The intent of the appraisal process is to settle the dispute between your client and the insured regarding:

1. The amount of the settlement being offered
   b. The denial of insurance coverage under the policy
   c. The right of the insured to purchase the salvage after an insured loss
   d. The premium change for coverages being provided by the insurer

 

1. The amount of the settlement being offered

 

Under a policy of “fire” insurance, the insurer must make payments for a loss within:

1. 60 days after completion of the proof of loss
   b. 90 days after completion of the proof of loss
   c. 60 days after completion of the proof of loss, unless the contract provides a shorter period
   d. One year from the dates the loss occurred

 

When the insurer opts to repair, rebuild, or replace damaged property rather than make payment in the form of a cash settlement it must:

1. First provide the insured with the option of accepting or rejecting the proposed basis of settlement
   b. Provide the insured with written notice of the 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

 

This is the most common of errors and omissions claims, accounting for nearly 50% of all claims

1. Policy change errors
   b. Processing delays
   c. Cancellation of renewal errors
   d. Inadequate coverage

 

A physical hazard is:

a. A type of peril
b. The same as a moral hazard
c. A condition relating to the premises which may cause a peril to occur
d. The possibility of a loss due to the character of the insured

 

There is no one standard policy. Insurance companies provide consumers with a variety of operation or choices from which they can select the policy which is best for them. When you sell broad form of comprehensive form, your should advise the client that the policy insures:

1. All risks it is possible to assume, without exception
   b. All risks, except earthquake and radioactive contamination
   c. All risk, except theft from the interior of an unlocked car
   d. All risks of direct physical loss or damage, subject to the policy conditions and exclusions

 

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:

1. Automobiles
   b. Yard and maintenance equipment
   c. Money and securities
   d. Property which has been vacant for more than 30 consecutive days

 

Under a policy of insurance, a “deductible” is:

1. payable by the insureds only if they are responsible for the loss
   b. Payable by the insured’s 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

 

Every property insurance policy describes the method used to pay claims. Normally, the insurer will pay the lesser of the three amounts in the event of a claim. One factor which does not enter into this calculation is:

1. The actual cash value of the property
   b. The original cost of the property
   c. The insured’s interest in the property
   d. The policy limit

 

Your clients furniture store is insured under a commercial property insurance policy to which a replacement cost endorsement is attached. To qualify for settlement on a replacement cost basis. The insured must comply with all of the following obligations, except one. Pick the exception:

1. Replacement shall be effective by the insured with due diligence and dispatch
   b. Replacement shall be on the same site on 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

 

 

The chief advantage of replacement cost coverage is:

1. No deductible for depreciation
   b. Only limited depreciation is charged to the insured
   c. The insured receives a settlement based on replacement cost, even if the property is not replaced
   d. It removes the effect of the bylaws exclusion

 

 

Which of the following statements is true when a standard mortgagee clause is attached to the policy?

1. The insurer could be called upon to pay a loss of the mortgagee, even though the insured violated a policy or other condition
   b. The insurer can reduce the coverage at any time at the request of the insured, even if such changes prejudice the position of the mortgagee
   c. The insurer may cancel the policy at any time by providing the mortgagee with seven days notice of cancellation by registered mail
   d. Neither the insured nor the insurer may cancel the policy until the mortgage has been paid off

 

 

The personal property of all the following persons would be insured under the homeowners form, except one. Pick the exception.

1. Grandmother living with the insured
   b. Roomers or boarders living with the insured
   c. Daughter over 21 years of age living with the insured
   d. Common-Law spouse who has lived with the insured for five years

 

 

The homeowners forms contain a number of “extensions of coverage”. All of the following statements, respecting these coverage extensions are true, except one. Pick the exception.

1. Coverage is provided for lock replacement when the keys to the insured dwelling have been lost or stolen
   b. Property which is necessarily removed to protect it from loss or damage is insured for 30 days or until the expiry of the policy. Whichever occurs first
   c. If the amount payable for loss, including expenses for debris removal, is greater than the amount of insurance, an additional 5% of that amount will be available to cover debris removal expenses
   d. Coverage is automatically extended for a minimum of 30 days to insure personal property while in transit to and at another location in Canada which is to be occupied by the insured’s as their principal dwelling

 

 



The homeowners forms contain a number of extensions of coverage. One such coverage is that for freezer food. All of the following statement respecting this extension of coverage are true, except one. Pick the exception.

 

1. Coverage is provided when there is an accidental interruption of electrical power on or off the insured’s premises
   b. Coverage is provided for loss of freezer food due to mechanical breakdown of the food freezer
   c. Coverage is provided for loss to freezer food due to the accidental or intential disconnection of the power supply or the operation of circuit breakers of fuses
   d. Coverage is provided for damage to a food freezer when it is due to food spoilage coverage by this extension

 

 

Homeowners forms provide limited coverage for outdoor trees, shrubs, and plants. There is no coverage for loss or damage caused by peril:

1. Lightening
   b. Impact by land vehicle
   c. Vandalism or Malicious Acts
   d. Windstorm

 

 

Your client recently purchased a homeowners comprehensive form (IBC 1155) which she was told covered her property for “all risks” of direct physical loss or damage. Last week, her home was broken into and 30,000 in jewelry was stolen. The insurance company would pay:

1. 2,000
   b. 5,000
   c. 30,000
   d. 50% immediately and the remaining 50% upon replacement of the jewelry

 

 

Under the homeowners forms, all of the following personal property items are subject to special limits of insurance, except one. Pick the exception.

 

1. books, tools, and instruments relating to a business, profession or occupation
   b. Watercraft, including equipment
   c. Computer Hardware
   d. Money

 

 

The additional living expenses coverage provided under the homeowners forms:

1. Pays those increased costs only, if any, for temporary accommodations occupied by the insured after an insured loss
   b. Pays all costs as incurred by the insured for food, transportation, and accommodations after an insured loss
   c. Pays those increased costs for items such as food, transportation, and accommodations which are incurred by the insured after an insured loss, so long as such costs do not serve to increase the insured’s standard of living
   d. Pays all mortgage payments which the insured must continue to make after an insured loss

 

 

 

Personal property insured on the homeowners form is covered:

1. Only at the location described on the coverage summary page
   b. Anywhere in the world
   c. Anywhere in North America excluding Mexico
   d. Anywhere in Canada, Mexico, or the United States

 

 

 

Under the homeowners basic form (IBC 1151), only the following loss is covered:

1. Water hammer
   b. Damage to a garage door caused by a vehicle driven by insured
   c. Smoke damage due to the faulty operation of the basement furnace
   d. Sewer backup

 

 

Loss caused by freezing during the usual heating season is covered by homeowners forms. However, when the insureds are away for more than four consecutive days, the must:

1. Advise the insurer that the dwelling building will be occupied
   b. Obtain written permission from the insurer for continuation of coverage during the period of no-occupancy
   c. Ensure all windows and doors are securely locked and heating maintained
   d. Arrange for a competent person to enter the dwelling daily to ensure heating is being maintained or shut the water supply off and drain all pipes and appliances

 

 

 

The windstorm or hail coverage provided by the homeowners basic form (IBC 1151) would pay for the following loss or damage only:

1. Damage to dwelling building shingles
   b. Damage to satellite dish
   c. Damage to interior of building by rain which entered through an open window
   d. Damage to insureds waterfront dwelling caused by high waves, which resulted directly from a severe thunderstorm

 

 

While the glass breakage coverage provided by the homeowners basic form (IBC 1151) is very broad, there is no coverage for:

1. Damage to glass in picture window due to shifting of the ground or other earth movement
   b. Damage to lamp which broke when accidentally knocked off night stand
   c. Damage caused by vandals to glass in garage door
   d. Damage to glass in screen door which broke when insureds son accidental shot a hockey puck through it

 

 

All of the following coverages are provided to commercial property insured under the broad form, except one. Pick the exception:

1. Smoke from agricultural smudging or industrial operations
   b. Collapse of building due to snow or ice load
   c. Loss or damage caused by land vehicles
   d. Theft of stock and equipment

 

 

Generally, the fire rate charged by the insured on a commercial property insurance will not be effected by:

1. The type of building construction
   b. The occupancy or use of the building by the insured
   c. The level of available fire protection
   d. The type of burglar protection system installed

 

 

 

The named perils form and broad form insure the property of a business. All of the following items would be insured within the limit of insurance selected for “stock” except one. Pick the exception:

1. Advertising materials
   b. Packing and wrapping materials
   c. Leased photocopier
   d. Similar property of others for which the insured is legally liable

 

 

The named perils form and broad insure the property of a business. Your client, a dentist, is a tenant in a building formerly occupied by a hairdresser. When her took possession of the building, the dentist made several building improvements and betterments. The value of such improvements and betterments should be insured under the amount of insurance provided for:

1. Stock
   b. Equipment
   c. Building
   d. Personal Property

 

 

The co-insurance clause is designed to:

 

1. Prevent the chance of a total loss
   b. Transfer of the risk to another insurer
   c. Discourage the insured from gambling on suffering only a partial loss
   d. Penalize the insured in the event of over insurance

 

 

A building is worth $360,000 is insured for $90,000 and the policy contains 80% co-insurance clause. A fire causes $72,000 damage. The insured will cover:

a. 18,000
b. 22,500
c. 72,000
d. 90,000

 

 

A building valued at $120,000 is insured for $30,000 and there is an 80% co-insurance clause on the policy. The building was totally destroyed by fire last weekend. The insured would receive a settlement of:

a. 7,000
b. 12,000
c. 30,000
d. 37,5000

 

 

$120,000 is insured for $30,000 and there is an 80% co-insurance clause on the policy. The building was totally destroyed by fire last weekend. The insured would receive a settlement of:

a. 7,000
b. 12,000
c. 30,000
d. 37,5000

1. 30,000

 

 

 

The reinstatement clause contained in most policies of commercial property insurance provided that:

1. The insureds shall have as much insurance on the property after an insured loss as they had immediately prior to it
   b. Coverage which is suspended due to a breach of policy conditions is automatically reinstated when that breach is corrected
   c. Coverage which has been terminated by the insurer may be re-instated at the request of the insured upon application to the insurer in writing
   d. Property lost or damaged shall be re-instated with equivalent property of like kind and quality

 

 

 

The locked vehicle warranty requires that:

1. The vehicle be equipped with a theft deterrent system
   b. The vehicle locked between the house of 9:00 p.m. and 6:00 a.m. and when not in motion
   c. The vehicle containing the property insured be properly licensed and registered by the highway traffic board
   d. Visible signs of forcible entry must be present before the insurer will agree to pay any claim for theft

 

 

Loss resulting from the taking of property by a person breaking into the premises is defined as:

a. Theft
b. Robbery
c. Burglary
d. Hold-up

 

 

Crime policies define certain terms as they relate to coverage. The broadest meaning is given to:

a. Burglary
b. Theft
c. Kidnapping
d. Robbery

 

 

 

In addition to the coverage provided for the explosion of boilers and pressure vessels, boiler, and machinery policies also provide this important coverage:

a. Wear and Tear
b. Gradual Deterioration
c. Mechanical and Electrical Breakdown
d. Latent Defect

 

 

 



The builders risk – Broad Form can be used to insure all of the following items, except one. Pick the exception:

1. All materials and supplies entering into the completed project
   b. Value of landscaping
   c. Temporary building on project site
   d. Contractors tools and equipment

 

 

 

The basic principle behind business interruption insurance is:

1. To restore the building to the condition it was in before the loss
   b. To find a place for the employees to work during the period that the business is out of operation
   c. Restore the income that would have been earned had the loss not occurred
   d. To maintain a higher level of operation during the period of repair than exsisted prior to the loss

 

 

 

Payment is made for as long as the business results are affected by the interruption, subject to specified limits. This statement is a characteristic of:

1. Earnings form
   b. Profits form
   c. Extra Expense Insurance
   d. Broad Form

 

 

 

Liability policies are concerned with matters of civil liability. Civil Law:

1. Deals with wrongs against society
   b. Uses fines, penalties, probation or imprisonment as a means of enforcing its many rules
   c. Focuses on compensating the victim for the financial loss or damage suffered
   d. Deals primarily with settling disputes on contractual matters

 

 

 

All of the following “elements” must be present if your clients legal liability for a tort is to be established, except one. Pick the exception:

1. The plaintiff was owed a legal duty
   b. The duty owed to the plaintiff was breached by the defendant
   c. The defendant’s actions was the proximate cause of all damages
   d. The results of the defendants actions were unforeseeable

 

 

 

“Negligence” is the most important tort in the study of liability insurance. Negligence is:

1. Failing to use that degree of care which a reasonable person would use under the given circumstances
   b. Acting prudently, having regard to the circumstances
   c. Any deliberate violation of the law
   d. Aiding and abetting another person in the commission of felony

 

 

The occupier of a property owes the greatest duty to care to:

1. Children
   b. Invitees
   c. Trespassers
   d. Licenses

 

 

Generally, Employers cannot be sued for bodily injuries sustained by their employees in the course of their employment. This is because:

a. Employers cannot be expected to provide for continuous supervision of their employees
b. Employees are responsible to obtain their own coverage under a separate accident and sickness policy
c. Workers compensation plans provide employees with “no fault” insurance benefits and remove their right to sue their employers for injuries received on the job
d. employees are fully insured through contributions made to the federal employment insurance plan

 

 

 

Your client is considered hiring a contractor to preform renovations to a building. She would share in any liability for injury or damage caused by such contractor in all of the following instances, except one. Pick the exception.

a. When the work being contracted in inherently dangerous
b. When she supplied “blue prints” and leaves the contractor to his own resources to arrive at the desired result
c. When she supplies effective machinery or equipment from which injury or damage arises
d. When she provides an on-site direction and on-going supervision of work

 

 

Parents will be requires to respond financially for injury or damage caused by their children in all of the following instances, except one. Pick the exception:

1. When child shoots farmers cow while hunting with father
   b. When child swerves to avoid a pot-hole in the road and runs over a toddler with her bicycle
   c. When child damages neighbour’s fence will assist her farther in landscaping their yard
   d. When child employed part-time in the family business closes the door on customers hand

 

 

 

The following statements respecting liability insurance are all true except one. Pick the exception:

1. Insure bodily injury and property damage caused to a third party
   b. Are not intended to insure injury or damage intentionally caused
   c. Provided for payment only when the insured is deemed to be legally liable
   d. Provide for the payment of compensatory punitive and exemplary damages

 

 

 

Liability insurance policies provide coverage on an “occurrence” basis. An occurrence basis policy:

1. Provides coverage only for a sudden and usual event
   b. Provides coverage for accidents including injury or damage caused by continuous and repeated exposure to substantially the same harmful conditions
   c. Provides excess insurance over the existing liability policies
   d. Provides coverage for bodily injury and property damage caused intentionally

 

 

 

The only expense that insured is entitled to incur on behalf of the insurer in respect to potential claim under a liability policy that is related to:

1. First aid
   b. Legal Fees
   c. Interest payments from the date the judgement is rendered
   d. Amount of the judgement

 

 

 

Supplementary payments include all of the following costs, except one. Pick the exception:

 

1. Cost of establishing the insureds defense
   b. Court costs
   c. Transportation
   d. Meals and accommodations

 

 

The liability coverage provided by homeowners form insure all of the following premises owned or used by the insured, except on. Pick the exception:

a. Vacant farm land
b. Family cemetery plot
c. Vacant land purchased as a future dwelling site
d. Land where independent contractor is building a single family dwelling for the insured