Chapter 1

Question 1

Risks faced by people fall into these categories

Answer 1

• Personal Risk
• Property Risk
• Liability Risk

Question 2

Common ways to deal with risk

Answer 2

• Avoidance of Risk
• Controlling of Risk
• Retention of Risk
• Transfer of Risk

Question 3

Risk control

Answer 3

Taking measures to reduce the frequency and severity of losses. (alarm systems)

Question 4

Avoidance of Risk

Answer 4

All chance of financial loss eliminated. (rent rather than own building) generally one exposure is replaced with another.

Question 5

Risk Retention

Answer 5

Self insuring - suitable for large corporation - more cost effective than other options available to them

Question 6

Transfer of Risk

Answer 6

The transfer of risk through insurance is the most popular and practical means of dealing with risk.

Question 7

Major function of Insurance

Answer 7

Spread the losses of the few among the many

Question 8

Definition of Insurance

Answer 8

The undertaking by one person to indemnify another person against loss or liability for loss n respect of a certain risk or peril to which the object of the insurance may be exposed.. or to pay a sum of money or other thing of value upon the happening of a certain event.

Question 9

Two types of risk

Answer 9

• Speculative Risk

- Pure risk

Question 10

Speculative Risk

Answer 10

• Possibility of either financial loss or gain. (investments, gambling)
• Insurers will not provide insurance for speculative risk, as the interests of society would not be served if people were able to profit from these losses

Question 11

Pure Risk

Answer 11

• Possibility of financial loss which does not offer a chance of financial gain.
• No opportunity for people to profit from a loss
• Only pure risk is insurable.

Question 12

Five elements of a contract

Answer 12

• Agreement
• Consideration
• Legality of Object
• Legal Capacity of Parties to Contract
• Genuine Intention

Question 13

Define Contract

Answer 13

An agreement between two or more persons which creates an obligation to do or not to do a particular thing.

Question 14

For an agreement to exist, there must be:

Answer 14

• An offer made

- An unequivocal and unconditional acceptance of the terms of that offer.

Question 15

Consideration

Answer 15

An exchange of something of value between the parties.

• A return promise
• An act performed
• An agreement not to act

Question 16

Legal Capacity to Contract

Answer 16

Law enforces only those contracts of persons it recognizes as being competent. Incompetents are protected in law from exploitation.

• Minors
• Mental Incompetents
• Persons under the influence
• Trade Names

Question 17

To prove Genuine Intention, it is necessary to show that the agreement between the parties was not affected by:

Answer 17

• Fraud
• Duress
• Concealment
• Mistake

Question 18

Elements unique to insurance contracts

Answer 18

• Insurable interest
• Utmost good faith
• Indemnity

Question 19

Define void contract

Answer 19

one which is unable in law to support the purpose for which it was intended

Question 20

Define voidable contract

Answer 20

one which is void as to the wrongdoer but not void as to the wronged party, unless he elects to so treat it.

Question 21

Depreciation is influenced by the following factors:

Answer 21

• Condition of the object
• Resale value
• Normal life expectancy

Question 22

Define insurable interest

Answer 22

Someone has insurable interest when they can show that they would suffer financially from a loss.

Question 23

Define utmost good faith

Answer 23

-Complete honesty of all parties critical to the contract

Question 24

Indemnity

Answer 24

-Ensures that people receive the actual amount of their loss, no more and no less.

Question 25

What is an insurance binder?

Answer 25

-Broker has committed the insurer to provide a contract of insurance on the subject matter under discussion. May be oral or written. Written binders should include all details to be incorporated into the policy.

Question 26

Peril

Answer 26

Cause of the loss

Question 27

Direct Loss

Answer 27

Object of insurance attacked by insured peril

Question 28

Indirect Loss

Answer 28

Losses which arise as a consequence of a direct loss. (food spoilage, rental income, etc)

Question 29

Actual Cash Value

Answer 29

Depreciation is reflected in the settlement. - Condition of the Object - Resale Value - Normal Life Expectancy

Question 30

Replacement Cost

Answer 30

Repair or replace with like kind and quality, without deduction for depreciation

Question 31

Valued Policy

Answer 31

Insured and Insurer agree at the time the policy is issued as to the cash value of that property. This amount will be paid in the event of a loss.

Question 32

Blanket coverage

Answer 32

Selecting a single limit of insurance for all property falling within a specific class. (Golf Equipment)

Question 33

Scheduled coverage

Answer 33

Property which is itemized on a policy

Question 34

Role of Provincial Government (ICM)

Answer 34

- Supervise terms and conditions of insurance contracts - License insurers, agents, brokers, and adjusters - Monitor solvency of provincially licensed insurers.

Question 35

PACICC

Answer 35

Property and Casualty Insurance Compensation Corporation

Question 36

What amounts can be claimed under PACICC?

Answer 36

- Maximum of $250,000 for all claims arising from a single occurrence. - A refund of up to 70% of unearned premiums, max $700 per policy

Question 37

Basic Coverages

Answer 37

- Fire - Lightning - Explosion of Natural, Coal, or Manufactured Gas

Question 38

Two types of exclusions

Answer 38

- Property | - Losses

Question 39

Exclusions exist to remove coverage for property or losses:

Answer 39

- Which should be insured elsewhere (auto, aircraft) | - Which are uninsurable and would bankrupt an insurer

Question 40

Fire Insurance policies do not insure:

Answer 40

- losses due to direct application of heat - lightning damage to electrical devices and appliances - other electrical currents - contamination by radioactive material

Question 41

Three forms of misrepresentation

Answer 41

- False description of property to the prejudice of insurer - Misrepresentation of material fact - Fraudulent omission of material fact.