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RIBO Training > Principles & Practices (Word Problems) > Flashcards

Principles & Practices (Word Problems) Flashcards

Understanding RIBO Principles & Practices via word problems

1
Q

Who owns a mutual insurance company?

A

The policy holders

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2
Q

What did factory mutual insurance companies specialize in?

A

Fire risk management

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3
Q

How often will a policy with an aggregate policy limit pay out on claims?

A

Until the limit is used up for the term

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4
Q

How often will a policy with an occurrence limit pay out on claims?

A

Every time a loss occurs

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5
Q

What is the difference between an agent and a broker?

A

Agent = one company
Broker = multiple companies

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6
Q

What is the difference between actual cash value and replacement cost?

A

Actual cash value is the replacement cost less depreciation and replacement cost is the cost of the item at the time of loss without depreciation

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7
Q

What is a bailee?

A

Someone in the care custody and control of someone else’s property

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8
Q

What are the four reasons a property insurance policy may be automatically assigned?

A
  1. Bankruptcy
  2. Operation of Law
  3. Death
  4. Succession
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9
Q

What is binding authority and who grants it to a broker?

A

Binding authority is the authority to put a contract of insurance in effect without contacting the insurer for permission and it is granted by the insurer

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10
Q

What are the three elements necessary for a contract of insurance only?

A
  1. Utmost good faith
  2. Indemnity
  3. Insurable interest
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11
Q

What is a claim reserve?

A

Once a claim is reported, insurers are required to put money aside to pay the claim

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12
Q

To whom are the rights of subrogation granted once a claim if paid?

A

The insurance company

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13
Q

What value is depreciation taken off in the settlement of a claim on an actual cash value basis?

A

It is taken off the replacement cost of the item at the time of the loss

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14
Q

Is proximate cause the last event that occurs and causes a loss?

A

No. It is the immediate and effective cause of the loss but not necessarily the last in a chain of events.

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15
Q

What is earned premium? What is unearned premium?

A

Earned premium is the premium that is used up while unearned premium is the premium that has not yet been used up

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16
Q

What is an endorsement used to do?

A

Used to change or amend a policy

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17
Q

What does exclusion mean?

A

Not included

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18
Q

What type of refund is required when an insurer cancels an insurance policy?

A

Pro rata

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19
Q

What type of refund is required when an insured cancels his insurance policy?

A

Short rate

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20
Q

What is a franchise or disappearing deductible?

A

A deductible that no longer exists once the loss reaches a certain amount

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21
Q

What is a material fact?

A

A fact that is so important that it determines on its own whether a risk is acceptable or not and the basis on which the premium will be determined

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22
Q

What is misrepresentation?

A

A lie about a material fact

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23
Q

What is a hazard?

A

A condition that may cause a loss to occur

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24
Q

What are the two types of hazards?

A

Physical and moral

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25
Q

When is the principle of general average used?

A

When cargo on a ship or cars on a ferry are jettisoned to save the ship or ferry. All the insurers of the cargo or cars not jettisoned will contribute towards the loss

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26
Q

What is a stock insurance company?

A

An insurance company that trades on the stock market and is owned by its shareholders

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27
Q

In regards to Lloyds of London, who makes up groups of syndicates?

A

Investors

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28
Q

What is common law based on?

A

Law of the common people and precedents

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29
Q

Who is the lessee? Who is the lessor?

A

Lessee is the person leasing the car and lessor is the leasing company

30
Q

What is statute law?

A

Law enacted by the government

31
Q

What is a lien?

A

A loan or financial interest someone holds on a property

32
Q

How does the mortgage clause protect the mortgagee if the insured violates the policy?

A

if insured violated the policy, they will not receive any benefits from the policy, but the insurable interest of the mortgagee is protected

33
Q

What insurance coverage requires that the insured be negligent before it will pay out?

A

Liability

34
Q

What is a peril?

A

An event that may cause a loss to occur

35
Q

What is risk? What type of risk can be insured?

A

Risk is the chance of a loss and only pure risk can be insured

36
Q

What is reinsurance?

A

Insurance companies taking out insurance on what they insure

37
Q

What is a rate?

A

The price of a unit of insurance

38
Q

What three types of policies require statutory conditions?

A
  1. Fire
  2. Auto
  3. Accident and sickness
39
Q

Who is the first party and who is the third party in a contract of insurance?

A

First party is the insured and the third party is anyone else involved in claiming from the insurance contract

40
Q

What is time on risk?

A

The length of time in days that the policy has been in force

41
Q

What is a tort? What does it usually result in?

A

A tort is a legal wrong done against another and it usually results in the injured party suing the person who caused their injury

42
Q

What is the unearned premium reserve fund?

A

A fund to guarantee an insurer’s unearned premium as of any given valuation date

43
Q

What does a valued policy do?

A

It guarantees the amount set out in the policy

44
Q

What is the difference between vacant and unoccupied?

A

Intent to return

45
Q

What occurs when a policy is made void?

A

It is treated as if it never existed, cancelled back to inception date, and all premium is returned

46
Q

An insurance policy will pay the lesser of these three things?

A
  1. Actual cash value
  2. Insurable interest
  3. Policy Limit
47
Q

When does an insurance policy expire?

A

12:01 a.m. on the date stated

48
Q

What is an example of a contract of compensation?

A

A life insurance policy

49
Q

What is necessary when determining what name an insurance policy will be set up in?

A

The owner of the property or vehicle, whether it be a person or organization

50
Q

What is a writ?

A

A notice that someone is being sued

51
Q

How is a binder or temporary insurance canceled?

A

It should be canceled the same way as permanent insurance

52
Q

Consideration as it related to insurance is?

A

The premium (aka some form of payment to enter into the agreement)

53
Q

A binder is a?

A

Temporary insurance undertaking

54
Q

What are the three ways to deal with risk?

A
  1. Reduce the risk
  2. Assume or retain the risk (Self Insurance)
  3. Transfer the risk (Purchasing Insurance)
55
Q

What is the Lloyds of London?

A

An insurance market whose members are private investors and are managed by underwriters.

56
Q

What is the different between a sole proprietorship and incorporation/limited?

A

In a sole proprietorship the owner and business are one entity. In an incorporation the business is considered a separate legal entity and can enter into contracts e.g. insurance.

57
Q

Hint: BALLVP

Written applications are required for which types of insurance?

A
  1. Bonds
  2. Accident and Sickness
  3. Liability
  4. Life
  5. Valued Items
  6. Personal Articles Coverage/Floater
58
Q

What is a declaration?

A

A Declaration is a statement signed by the insured declaring all the information given in the applicatio
for insurance is correct

59
Q

What is a fiduciary?

A

A Fiduciary is a person or firm who occupies a position of special trust or confidence in handling or supervising the affairs or funds of others

60
Q

What are the five requirements for any contract?

A
  1. Offer & Acceptance
  2. Consideration (Payment)
  3. Legal Capacity
  4. Meeting of the Minds
  5. Legality of Object
61
Q

What are the three doctrines that uphold the principles of indemnity?

A
  1. Salvage (taking possession)
  2. Subrogation (right to sue)
  3. Contribution (insurers work together)
62
Q

What is loss ratio?

A

The comparison of how much money the insurer spent settling claims versus how much premium it collected from paying customers

63
Q

What is the difference between direct loss and indirect loss?

A

Direct loss is damage cause by an insured peril. Indirect loss is the financial loss resulting from direct loss.

64
Q

What is negligence?

A

Negligence is the failure to use the degree of care expected of a reasonable and prudent person.

65
Q

What is concurrent insurance?

A

Concurrent insurance occurs when two or more insurance policies provide coverage for the same risk and have identical effective and expiration dates

66
Q

What is a concurrent clause?

A

The clause states that if damage is caused by two or more perils -one being covered and another excluded- then the loss should be covered.

67
Q

What is sharing economy?

A

People using online platforms to sell or rent under-utilized property, goods or services and rating each other’s trustworthiness through online reputation systems

68
Q

What is co-insurance?

A

Co-Insurance is designed to apply to partial losses rather than a total loss. The insured may end up self-insuring part of their property while the insurer covers the remainder.

69
Q

When a dwelling is declared vacant, what coverages will be lost immediately?

A
  1. Water escape/damage
  2. Vandalism/malicious acts
  3. Glass breakage
70
Q

When is a must a vacancy permit be added to a policy? How long will it extend coverage?

A

Vacant dwelling beyond 30 days. It will extend coverage a maximum of 60-90 days.

71
Q

What is fraud?

A

Fraud is the concealment of facts which should have been made known to the insurance company.

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