Fundamentals of Insurance Level One Practice Exam Flashcards
Insurance plays an important role in managing financial risk. The main purpose of Insurance is to:
Reduce losses through loss prevention and loss reduction.
The definition of insurance in the Insurance Act includes all of the following, except one:
a. Payment is made only when a certain peril has damaged the object of insurance.
b. Payment is limited to the actual amount of the loss - no more and no less.
c. There is no payment for losses that are deliberately caused by an insured.
d. The Indemnity must always be in the form of a sum of money; no other method is permitted by law.
C. There is no payment for losses that are deliberately caused by an insured.
The majority of insurance companies use independent brokers to sell their insurance policies to the public. Which of the following statements does NOT apply to this system of distribution?
a. Independent brokers are employees of the insurance companies they represent.
b. Independent brokers receive commissions from their insurers for the business they produce.
c. Independent brokers can represent more than one insurance company.
d. Independent brokers own all of their client files.
a. Independent brokers are employees of the insurance companies they represent.
When dealing with financial risk, a person has several options available. In your opinion, which of the following is the best option for most people?
a. Avoidance of risk.
b. Retention of the risk.
c. Controlling of the risk.
d. Transfer of the risk.
d. Transfer of the risk.
Risk as the “chance of financial loss” can be classified as either speculative or pure. Which of the following best describes the meaning of pure risk?
a. There is no chance of financial loss.
b. There is a chance of financial gain.
c. Financial loss and financial gain are both present.
d. There is only the chance of financial loss, with no chance of profiting from it.
d. There is only the chance of financial loss, with no chance of profiting from it.
A contract is legally enforceable only when the legal elements are present. Only an insurance contract contains the following element:
a. Genuine intention.
b. Legality of the object.
c. Consideration.
d. Indemnity.
d. Indemnity.
“Consideration” is required of all parties to a contract. Consideration means:
a. Thinking about purchasing insurance.
b. An agreement by the insurer to treat the insured fairly.
c. An exchange of something of value between parties.
d. A commitment by the broker to represent an insurance company.
c. An exchange of something of value between parties.
Legal capacity of the parties is an important element to a contract. Only the following party has the legal capacity to enter into a contract of insurance:
a. Sweet Cravings Bakery.
b. Tools 4 U Enterprises.
c. Mario Montana Sportswear, Ltd.
d. jack Daniels a.k.a. Jacks Liquors
c. Mario Montana Sportswear, Ltd.
Insurance brokers are often asked to provide a binder to the insured. A binder is:
a. When a broker has committed an insurer to a contract of insurance.
b. A cover for an insurance manual.
c. Permitted only for risks and limits authorized by the insurer.
d. Never legal when given orally.
c. Permitted only for risks and limits authorized by the insurer.
All changes to an existing insurance policy must be in writing. Which document does the insurer issue when both the insurer and insured have agreed to a change in the terms of the policy?
a. A rider.
b. An endorsement.
c. A binder.
d. A floater.
b. An endorsement.
In Canada, the General Insurance Industry is strictly regulated by federal and provincial statutes. The Provincial Gov’t performs all of the following functions, EXCEPT one:
a. Supervising the terms and conditions of the insurance contract.
b. Establishing the premium levels for insurance contracts.
c. Licensing insurance companies to transact business in the province.
d. Monitoring the financial stability of insurers that are not federally licensed.
b. Establishing the premium levels for insurance contracts.
The financial solvency of insurers is a crucial matter. Solvency refers to:
a. Selling shares to shareholders.
b. The ability of an insurer to pay all insured losses.
c. The payment of commissions to brokers to sell the policies of the insurers.
d. Survival of the fittest.
b. The ability of an insurer to pay all insured losses.
Both insurance companies and brokers are considered fiduciaries. Under The Insurance Act, the fiduciary responsibility of a broker requires that:
a. The broker must regularly remit the collected premiums to the insurers.
b. All policies no paid for within 60 days of the effective date must be terminated.
c. Unearned commissions are held in trust to be available should the policy be terminated before expiry.
d. The full amount of the commission must be held in trust until the expiry of the policy.
c. Unearned commissions are held in trust to be available should the policy be terminated before expiry.
The Insurance Act determines when a contract of insurance takes effect. Coverage commences at:
a. 12:01 pm standard time at the address of the Named Insured.
b. 12:01 am std time at the address of the location of the risk.
c. 12:01 am Std time at the address of the insurer.
d. 12:01 am std time at the address of the Named Insured.
d. 12:01 am std time at the address of the Named Insured.
The Removal Clause requires the insurer to extend coverage to another location where insured property is kept, even if this location is not stated on the policy. Only one of the following situations would qualify for this coverage:
a. The insured moved to a new residence 5 days ago, and has not yet advised the insurer of the new location.
b. The insured keeps furniture and fixtures in a rented storage locker because there is no more room at the principle residence.
c. The insured moved personal property to a storage facility to protect it from loss because of an encroaching forest fire.
d. The insured keeps some personal property at her seasonal dwelling, but only during summer months.
c. The insured moved personal property to a storage facility to protect it from loss because of an encroaching forest fire.
When the insurer has indemnified the insured for a loss caused by a third party, the insurer has a legal right of recovery from that party. This legal process is referred to as:
a. Arbitration.
b. Restitution.
c. Subrogation.
d. Mediation.
c. Subrogation.