Chapter 1 - Introduction to General Insurance

Question 1

Risk

Answer 1

Chance of financial loss to which an object of insurance is exposed

Question 2

Speculative risk

Answer 2

The chance of a financial loss or gain

Question 3

Pure risk

Answer 3

The chance of financial loss but no chance of financial gain.

Question 4

Insurance

Answer 4

The undertaking by one person to indemnify another person against loss or liability for loss in 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 5

Contract

Answer 5

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

Question 6

Consideration

Answer 6

An exchange of something of value between parties.

Question 7

Insurable Interest

Answer 7

One has an insurable interest in the subject matter of the insurance when they will suffer financially by a loss.

Question 8

Utmost good faith

Answer 8

The law requires insurance contracts maintain a higher standard of honesty than is needed of other contracts. (The duty of utmost good faith applies to the insured, the insurer and the broker.)

Question 9

Indemnity

Answer 9

Application of the principle of indemnity ensures people receive the actual amount of their loss, no more and no less.

Question 10

Insurance Binder

Answer 10

A temporary agreement in which the insurer agrees to provide certain coverages pending the issuance of the policy.

Question 11

Agency agreement

Answer 11

A written agreement or contract between the insurer and the brokerage which acknowledges their relationship

Question 12

Void contract

Answer 12

One which is unable in law to support the purpose for which it was intended. Such contracts are deemed never to have existed

Question 13

Voidable contract

Answer 13

A contract that may be voided at the option of the wronged party only and not the wrongdoer

Question 14

Peril

Answer 14

The cause of a loss

Question 15

Direct loss

Answer 15

A direct loss occurs when the peril insured actually attacks the object of insurance

Question 16

Indirect loss

Answer 16

Losses which arise as a consequence of a direct loss

Question 17

Actual cash value

Answer 17

New or replacement cost of the property at the time of the loss, less depreciation.

Question 18

Replacement cost

Answer 18

The cost to repair or replace the lost or damaged property with new property of like kind and quality, without deduction for depreciation.

Question 19

Valued policy

Answer 19

Both the insured and insurer agree at the time the policy is issued as to the cash value of the property. In the event of a loss, the agreed amount would be paid.

Question 20

Blanket coverage

Answer 20

Policy which provides a single limit of insurance for all property falling within a specific class

Question 21

Scheduled coverage

Answer 21

Covered property is itemized on the policy

Question 22

Fiduciary

Answer 22

One who occupies a special position of trust or confidence in the handling or supervising of the affairs or funds of another.

Question 23

Unearned premiums

Answer 23

Premiums not yet earned by the insurer. Such premiums are deemed to be held in trust in order to refund the insureds in the event the policy is cancelled prior to expiry date.

Question 24

Fire

Answer 24

Involves the presence of a visible flame or glow, actual ignition or burning is required.

Question 25

Friendly fire

Answer 25

A fire that is contained in its proper receptacle

Question 26

Hostile fire

Answer 26

A fire that passes outside of the limits assigned to it. (e.g. spark thrown from a fireplace that burns a carpet is hostile fire)

Question 27

Proximate result

Answer 27

Damage which arises from a natural or continuous sequence of the peril causing the loss

Question 28

Material change

Answer 28

Is any change within the control and knowledge of the insured and which arises after the policy has been issued and serves to increase the chance of loss.

Question 29

Pro rate

Answer 29

Basis of return premium calculation when the insurer cancels a policy. The amount of the return premium is arrived at by dividing the amount of premium paid by the number of days in the policy period. The number so obtained is then multiplied by the number of days remaining in the policy period.

Question 30

Short rate

Answer 30

The basis of return premium calculation when the insured cancels the policy. The amount of the return premium is equivalent to that provided on a pro-rata basis, less any administrative charge or cancellation penalty.

Question 31

Notice of loss

Answer 31

Immediate report of loss to insurer by the insured or his representative (agent) in writing.

Question 32

Proof of loss

Answer 32

A formal verification, under oath, of the details and amounts being claimed under the policy.

Question 33

Fraud

Answer 33

Is a deliberate attempt to deceive, with a view to securing some profit.

Question 34

Deductible

Answer 34

Represents the amount the insured is required to absorb for each loss for which insurance coverage is provided before receiving any payment from the insurer

Question 35

Subrogation

Answer 35

When the insurer has paid a claim for loss caused by a third party, the Insurance Act allows the insurer to place itself “in the insureds shoes” in respect of their right to recover the amount of the loss from the responsible party

Question 36

Proprietary insurers

Answer 36

Insurance companies which exist to make a profit or return on their investment.

Question 37

Non-proprietary insurers

Answer 37

Insurance companies which are organized for reasons other than profit. They are owned and controlled by their policyholders and their mandate is to secure insurance at as low a cost as possible.