Insurance Multiple-Choice Questions

Question 1

The Basis of risk is

A) liability
B) uncertainty
C) possibility of loss
D) insurance

Answer 1

C) possibility of loss

Question 2

A fire destroyed Ethan’s store. Investigators determined the fire originated in the garbage dumpster behind the store, and the his insurance company indemnified him for his loss. What insurance term describes the fire that caused the destruction of Ethan’s store?

A) Hazard
B) Severity of loss
C) Peril
D) Captive

Answer 2

C) Peril

Question 3

Which of the following is an example of a hazard?

A) Fire
B) Vandalism
C) Slippery floor
D) Flood

Answer 3

C) Slippery floor

Question 4

JT Rawlings Ltd. is a very large corporation that set up its own offshore insurance company, Full Coverage Insurance, to cover its risks.

Offshore insurance companies like Full Coverage are called

A) risk managers.
B) captives.
C) reserves.
D) employer’s liability

Answer 4

B) captives.

Question 5

To indemnify means to

A) put back in the same financial position just prior to the loss.
B) put aside funds to pay for losses reported but not yet paid.
C) transfer risk to someone who has better financial resources and can withstand loss..
D) make financial provisions for dealing with potential losses.

Answer 5

A) put back in the same financial position just prior to the loss.

Question 6

Which of the following contained one of the earliest applications of insurance principles?

A) Napoleonic Code
B) Magna Carta
C) Code of Hammurabi
D) Charter of London

Answer 6

C) Code of Hammurabi

Question 7

The first Canadian insurer grew from which organization?

A) Nicholas Barbon Insurance
B) Nova Scotia Fire Insurance Association
C) Western Assurance Company
D) Halifax Fire Protection Company

Answer 7

A) Nicholas Barbon Insurance

Question 8

The Three (3) major categories of insurance are

A) social insurance, automobile insurance, and life and health insurance
B) social insurance, life and health insurance, and general insurance/property and casualty insurance.
C) general insurance/property and casualty insurance, automobile insurance, and liability insurance.
D) general insurance/property and casualty insurance, property insurance, and life and health insurance.

Answer 8

B) social insurance, life and health insurance, and general insurance/property and casualty insurance.

Question 9

What is the largest single class of general insurance sold in Canada?

A) Property insurance
B) Liability insurance
C) Automobile insurance
D) Crime insurance

Answer 9

C) Automobile insurance

Question 10

The Caregiver Insurance Company chose to write insurance for risk in many different locations. It found that this was an effective way to balance premiums with losses and expenses. Selecting risk in this manner is called

A) diversity of type of risk.
B) diversity of location.
C) volume.
D) risk concentration.

Answer 10

B) diversity of location.

Question 11

To determine the premiums required; actuaries apply the principle derived from

A) the law of averages and the theory of probability.
B) underwriting.
C) rating.
D) the size of the sample

Answer 11

A) the law of averages and the theory of probability.

Question 12

Ratemaking is

A) a request for insurance, which can be oral or written.
B) the process of establishing rates for each class of insurance.
C) applying the established rate to a specific items that are to be insured.
D) related to the character of the insured.

Answer 12

B) the process of establishing rates for each class of insurance.

Question 13

On their way home from school, teenagers Jack and Tim enjoyed throwing rocks at vehicles from a bridge overlooking the freeway. One day, a rock they threw smashed the front windshield of a vehicle and startled the driver, who crashed into the guardrail. The driver was not injured, but the damage to the vehicle was substantial. Both Jack and Tim were later caught by the police, and their parents were forced to pay for the damages to the vehicle involved in the accident.

Jack and Tim’s actions can be described as an example of

A) the theory of probability.
B) negligence.
C) exposure to risk.
D) the law of large numbers.

Answer 13

B) negligence.

Question 14

Shield Insurance Ltd. agreed to insure a large commercial client. Due to the size of this client’s operations, there is the potential that it could suffer a substantial loss. It would be financially difficult for Shield Insurance Ltd. to pay the entire claim itself. To spread this risk, Shield Insurance Ltd. contacted Adequate Insurance Company to request that it cover a portion of the risk. Adequate Insurance Company agreed, but only on the condition that it receive a portion of the premium the client has paid to Shield Insurance Ltd.

The term that best describes this scenario is

A) retention.
B) reinsurance.
C) loadings.
D) casualty insurance.

Answer 14

B) reinsurance.

Question 15

Full Coverage Insurance Ltd. issues policies on behalf of other insurance companies and charges them a fee for the use of its name.

This arrangement is an example of

A) unearned premium reserves.
B) fronting.
C) a reciprocal insurance exchange.
D) insurance pools.

Answer 15

B) fronting.

Question 16

People First Insurance Inc. is able to offer affordable insurance policies to its insureds. The low premiums enjoyed by its policyholders can be attributed to the company’s community involvement and low operating costs, since it is a corporation owned by its policyholders. The policyholders take part in the company’s operations through voting rights and by sharing in the financial successes and failures of the company.

What kind of insurance company is People First Insurance Inc.

A) Captive insurance company.
B) Mutual insurance company.
C) Stock company.
D) Lloyd’s insurance market.

Answer 16

B) Mutual insurance company.

Question 17

The main purpose of a stock company is

A) allow members to share in the payment of each other’s losses.
B) make a profit for the members, but uphold the cooperative principal of one vote for one shareholder.
C) make a profit for the shareholders.
D) provide boiler and machinery coverage to industrial, commercial and institutional risks on a worldwide basis..

Answer 17

C) make a profit for the shareholders.

Question 18

As part of their claims services, some insurers have set up special investigation units (SIUs) Their responsibilities include

A) establishing underwriting policies and risk and class limits to serve as guidelines for all business offered.
B) investigating suspicious claims involving fraud and insurance crime.
C) establishing yearly targets.
D) overseeing the overall management of the administration and efficiency of the company’s claims service.

Answer 18

B) investigating suspicious claims involving fraud and insurance crime.

Question 19

Jenny Lee manages all insurance within Ontario for Al Insurance Ltd. To manage her territory effectively, Jenny has the authority to appoint other agents and to settle claims.

What type of intermediary is Jenny Lee?

A) Provincial broker
B) Agent
C) General agent
D) Broker

Answer 19

C) General agent

Question 20

The Champion Insurance Company deals directly with the public and has a staff of producers to generate new business. These producers are full-time employees of the company who are paid a salary plus commission. Business they write belongs to the insurer, which issues and services policies and collects the premiums.

What type of company is Champion Insurance Company?

A) Independent brokerage
B) Direct writer
C) Exclusive broker profit company
D) Provincial agency

Answer 20

B) Direct writer

Question 21

Ron Goodfellow is an agent for Granite Insurance. Although he only sells Granite Insurance, he is not a company employee, and is responsible for his own expenses. Ron is paid a commission for the policies he sells, but the client list belongs to Granite Insurance.

What type of company is Granite Insurance?

A) Exclusive agent company
B) Partnership
C) Independent agent selling company
D) Sole proprietorship

Answer 21

C) Independent agent selling company

Question 22

The rules for mandatary and mandator are set out in the

A) broker/agent authority
B) Civil Code of Quebec
C) common law
D) agency/brokerage agreement

Answer 22

B) Civil Code of Quebec

Question 23

Under an automobile insurance policy, Accidents Benefits

A) Are paid only to innocent victims of an automobile accident
B) Are paid regardless of fault
C) Can only be collected if the injured person has no other source of income
D) Must be awarded by courts

Answer 23

b) Are paid regardless of fault

Question 24

The minimum limits under the Third Party Liability coverage are $200,000 in every province and territory except

a) Alberta
b) British Columbia
c) Manitoba
d) Quebec

Answer 24

d) Quebec

Question 25

With respect to automobile insurance, no fault insurance means

a) A strict tort system of compensation
b) Minimum limits under the Third Party Liability coverage.
c) That legislation has been passed prohibiting or severely limiting lawsuits for injuries.
d) That legislation has been passed prohibiting or severely limiting lawsuits for injuries

Answer 25

d) That legislation has been passed prohibiting or severely limiting lawsuits for injuries.

Question 26

The words of automobile policy forms and endorsements are

a) designed by each individual insurer.
b) standard throughout Canada
c) approved by the federal Superintendent of Insurance
d) approved by the provincial Superintendent of Insurance

Answer 26

d) approved by the provincial Superintendent of Insurance.

Question 27

No policy is issued for the basic compulsory coverage in

a) British Columbia
b) Manitoba
c) Saskatchewan
d) All of the above

Answer 27

d) All of the above.

Question 28

Which of the following is a true statement?

a) A tort is another name for criminal law.
b) Codified law is written law arranged in a systematic collection.
c) In law, a code is a symbol used in numbering.
d) Statues exist only in Common Law.

Answer 28

b) Codified law is written law arranged in a systematic collection.

Question 29

Which of the following is true of Common Law?

a) It is another term for Statute Law.
b) It applies all across Canada.
c) It is based upon case law.
d) It is written law.

Answer 29

c) It is based upon case law.

Question 30

Which of the following is true of the law of contracts?

a) a conditional acceptance allows the parties to negotiate the definite terms of the contract upon the completion of the contract.
b) a contract is an agreement enforceable at law.
c) a contract must be in writing.
d) an agreement requires a definite offer and an indefinite acceptance.

Answer 30

b) a contract is an agreement enforceable at law.

Question 31

For a contract to be binding, all parties to it must have legal capacity to contract and be legal persons. Which of the following is NOT able to contract?

a) Betsy Brinker, an elderly pensioner, who still lives alone but whose memory is not as sharp as it used to be.
b) Ken Jones, a twenty-five year old, who is now living on his own.
c) Little Leopold’s Lunch Ltd.
d) Pete’s Pizza Parlour.

Answer 31

d) Pete’s Pizza Parlour.

Question 32

Which of the following is true of indemnity?

a) life insurance policies are contracts of indemnity.
b) Indemnity is determined by the insurer.
c) The principle of indemnity demands that an insured should neither lose nor gain as a result of a loss.
d) To indemnify means to put someone back in the same financial position as he was when the policy was purchased.

Answer 32

c) The principle of indemnity demands that an insured should neither lose nor gain as a result of a loss.

Question 33

Choose the associates principles that reinforce the principle of indemnity.

a) consideration,contribution and coinsurance.
b) contribution, replacement cost and subrogation.
c) contribution, salvage and subrogation.
d) negotiation, utmost good faith and stated amount.

Answer 33

c) contribution, salvage and subrogation.

Question 34

Utmost good faith

a) can void an insurance policy.
b) implies a high standard of honesty.
c) is a mystical faith in the goodness of people.
d) is a requirement of all legal contracts.

Answer 34

b) implies a high standard of honesty.

Question 35

Which of the following is NOT a contract of insurance within the terms of the Insurance Acts?

a) a certificate.
b) an application.
c) an interim receipt.
d) an oral agreement.

Answer 35

b) an application.

Question 36

Who protects the public by regulating and supervising the administration of funds held by Canadian and foreign insurance companies?

a) the office of the Superintendent of Financial Institutions.
b) the Insurance Bureau of Canada.
c) the Federation of Independent Business.
d) the Finance Department of each provincial government.

Answer 36

a) the Office of the Superintendent of Financial Institutions.

Question 37

Which organization specializes in loss prevention and control services?

a) Canadian Insurance Claims Managers Association.
b) Insurers Advisory Organization.
c) Association of Canadian Insurers.
d) Underwriters Laboratories of Canada.

Answer 37

b) Insurers Advisory Organization.

Question 38

Which organization is a joint venture between brokers and insurers to work toward better computer communications in order to avoid duplication of work?

a) Centre for Study of Insurance Operations.
b) Insurance Brokers Association of Canada.
c) Insurance Bureau of Canada
d) Insurance Institute of Canada.

Answer 38

a) Centre for Study of Insurance Operations.

Question 39

Which of the following is true of the Facility Association?

a) It provides automobile insurance for those who are considered higher than average risks.
b) It provides insurance for foreign residents who drive in Canada.
c) It provides property insurance for hard-to-insure risks.
d) Premiums in the Facility are more reasonable than in the regular insurance market.

Answer 39

a) It provides automobile insurance for those who are considered higher than average risks.

Question 40

Which of the following conditions is NOT necessary for an occurrence to be classified as a fire under basic fire insurance policy?

a) actual ignition.
b) heat.
c) something in the nature of an accident.
d) something on fire that should not be on fire.

Answer 40

b) heat.

Question 41

In addition to “fire” coverage, the basic fire policy must also provide

a) unlimited explosion damage.
b) explosion of natural, coal or manufactured gas and lightning.
c) lightning damage to electrical appliances.
d) windstorm and smoke coverage.

Answer 41

b) explosion of natural, coal or manufactured gas or lightning.

Question 42

Under the basic fire policy, which of the following is covered?

a) lightning strikes the insured’s chimney and causes extensive damage.
b) the insured gets caught in a civil war while travelling overseas and his luggage gets blown up.
c) the insured owns several rental houses on of which has been empty for the last six months - it is now vandalized and burns down.
d) while soldering the leg on a brass table, the insured burns a hole through it.

Answer 42

a) lightning strikes the insured chimney and causes extensive damages.

Question 43

Under the Statutory Condition relating to Salvage, the insured

a) can abandon the damage property to the insurer.
b) must arrange for repair of the damaged property immediately.
c) must take all reasonable steps to prevent further loss or damage to the property.
d) must make arrangements to deliver property which cannot be repaired to the salvage dealer

Answer 43

c) must take all reasonable steps to prevent further loss or damage to the property.

Question 44

Which of the following would qualify for a Homeowners Form?

a) a man who lives in a townhouse condominium that he owns.
b) a woman who lives in a triplex and rents out the other two units.
c) a corporation that owns an eight-suite, two-story apartment building and the manager lives in one suite on the main floor.
d) a family that rents a bungalow in a good neighbourhood.

Answer 44

b) a woman who lives in a triplex and rents out the other two units.