Fundamentals of Insurance (BC) - Self-
Examination Chapter Questions &
Answers | 100% Verified solutions |
Questions with Correct Answers 2026
latest update!!
What is the major function of insurance? - ANSWER To allow the spread of risk.
Define "Spread of Risk" - ANSWER "The losses of the few are shared among the
many"
What are the 4 other functions of insurance? - ANSWER 1. Basis of Credit System
2. Eliminates worry - Encourages Entrepreneurship
3. Loss Prevention and Loss Reduction
4. Source of Employment and Investment Capital
What are the 3 types of property and casuality (general) insurance? - ANSWER 1.
Automobile
2. Property
3. Liability
What are the 2 types of insurer organizations? (including the 2 subtypes) - ANSWER
1. Private Insurers
- Stock Companies
- Mutual Companies
2. Government Insurers
How do stock companies work? - ANSWER The money to operate a stock company
may come from private funds or via a public sale of stock. Ownership rests in the hand's
of the company's shareholders whose main purpose is to derive profit from their
investment.
How do mutual companies work? - ANSWER A mutual company is a corporation
owned by its policy holders. The creation of profit is not a primary incentive. Instead, the
main goal is to provide policyholders with insurance at as low a cost as possible. When
the company makes money it's refunded to the policy holders via dividends or rate
adjustments.
Which insurance are government insurers most involved in? - ANSWER Federal and
provincial governments are involved in medical insurance, employment insurance and
workers' compensation.
In BC, Saskatchewan, Manitoba and Quebec the government provides compulsory auto
insurance.
What are 2 ways insurers use to sell their products? - ANSWER 1. Direct Writing
System
2. Independent Brokerage System
How does the Direct Writing System work? - ANSWER - In the direct writing system,
the producers are employees of the insurer and are limited to selling only products of
the insurer.
,- Remuneration may be via salary or commission basis or a combination
- Insurer owns all business and performs administrative functions
- Examples of direct writers include: Belair, RBC Insurance, and Desjardin
How does the Independent Brokerage System work? - ANSWER - Brokerage owners
are NOT employees of insurers and in most cases choose to represent more than 1
insurance company as well as the facility association.
- The brokerage owns the business it produces and is responsible for providing
policyholders with several client services.
- The brokerage is paid a commission by the insurer on all the business it writes which
is then used to pay salaries, rent, postage and other operating expenses.
How does the agency system work? - ANSWER - Agents are distinct from brokers and
direct writers as they are small business owners.
- Like direct writers, they represent 1 insurer and the Facility Association.
- Agents are paid commission and bonuses for the business they sell and the agents
themselves have ownership in their book of business.
- Examples of agent companies are Desjardin and Cooperators General Insurance
Company.
Define Risk. - ANSWER Risk is "the chance of financial loss to which the object of
insurance may be exposed"
Define Peril. - ANSWER Peril is simply defined as "the cause of loss"
- Examples can include and are not limited to: fire, wind, hail, etc.
Of the 2 distribution methods, which is most common? - ANSWER The majority of
insurance business in Canada is transacted by private insurers.
What are 3 major categories of insurance needs? - ANSWER 1. Personal Risk
2. Property Risk
3. Liability Risk
What are the 4 options an insured may use when dealing with risk? - ANSWER 1.
Avoidance of Risk
2. Controlling of Risk
3. Retention of Risk
4. Transfer of Risk
Which method of dealing with risk the LEAST practical? - ANSWER Avoidance of risk
What are the 2 types of risk? And which of them is insurable? - ANSWER 1.
Speculative risk
2. Pure risk
- Only pure risk is insurable.
Describe Pure Risk. - ANSWER Pure risk involves the chance of financial loss with no
chance of financial gain. When there is no opportunity for a person to profit from a loss,
the risk is pure. Only pure risk is insurable.
Describe Speculative Risk. - ANSWER Speculative risk involves the possibility of
financial loss or gain.
What are the 5 elements required to be present in all contracts? - ANSWER 1.
Agreement
2. Consideration
3. Legality of Object
4. Legal Capacity of the Parties to Contract
, 5. Genuine Intention
What are 3 elements of a contract, that are unique to insurance contracts which must be
present if an insurance contract is to be enforceable at law. - ANSWER 1. Insurance
Interest
2. Utmost Good Faith
3. Indemnity
Define "bind" - ANSWER In insurance, to "bind" means that the broker has committed
the insurer to provide a contract of insurance on the subject matter under discussion.
What are 3 types of insurance forms used by insurers to make changes to an existing
policy? - ANSWER 1. Endorsement or Riders
2. Floaters
3. Separate Policies
Explain what an endorsement does. - ANSWER An endorsement or rider
acknowledges a change in the terms of the contract.
Explain what Floaters are. - ANSWER A floater is used to provide coverage for
property having a high degree of mobility. The terms floater and rider are used
interchangeably.
Explain why separate policies may be required. - ANSWER Sometimes a separate
policy is required in order to provide addition coverages needed by the insureds. In
these cases, there is no actual change to the original contract.
- For example, the Butler's commercial property insurance covers the office building
they own, but it does not cover Mr. Butler's professional liability for errors and omissions
he might make as an accountant. He would need a separate policy for errors and
omission insurance.
Define Agreement. - ANSWER Agreement is said to exist where an unconditional
acceptance of an offer has been made.
Define Consideration. - ANSWER Consideration is an exchange of something in value
between the parties.
Define Legality of Object - ANSWER When a contract insures property which is stolen,
"Legality of Object" is said not to be present
Define Legal Capacity - ANSWER Persons considered to be competent to contract are
said to have "legal capacity".
- A minor does not have legal capacity to contract (Except for food, clothing and
lodging)
Define Genuine Intention. - ANSWER Genuine Intention is present when it can be
shown the contract was not affected by fraud, duress, concealment or mistake.
Define Insurable Interest. - ANSWER People who are able to show that they would
suffer financially by a loss are said to have "insurable interest"
Define Utmost Good Faith. - ANSWER "Utmost Good Faith" is breached when an
applicant for insurance deliberately withholds information about previous claims,
cancellations, or refusals of insurance.
Define Indemnity. - ANSWER A part of all insurance contracts which attempts to
provide insureds with the actual amount of their loss, no more and no less.
Which is the most popular and most practical means of dealing with risk? - ANSWER
Transfer of Risk via Insurance.
Examination Chapter Questions &
Answers | 100% Verified solutions |
Questions with Correct Answers 2026
latest update!!
What is the major function of insurance? - ANSWER To allow the spread of risk.
Define "Spread of Risk" - ANSWER "The losses of the few are shared among the
many"
What are the 4 other functions of insurance? - ANSWER 1. Basis of Credit System
2. Eliminates worry - Encourages Entrepreneurship
3. Loss Prevention and Loss Reduction
4. Source of Employment and Investment Capital
What are the 3 types of property and casuality (general) insurance? - ANSWER 1.
Automobile
2. Property
3. Liability
What are the 2 types of insurer organizations? (including the 2 subtypes) - ANSWER
1. Private Insurers
- Stock Companies
- Mutual Companies
2. Government Insurers
How do stock companies work? - ANSWER The money to operate a stock company
may come from private funds or via a public sale of stock. Ownership rests in the hand's
of the company's shareholders whose main purpose is to derive profit from their
investment.
How do mutual companies work? - ANSWER A mutual company is a corporation
owned by its policy holders. The creation of profit is not a primary incentive. Instead, the
main goal is to provide policyholders with insurance at as low a cost as possible. When
the company makes money it's refunded to the policy holders via dividends or rate
adjustments.
Which insurance are government insurers most involved in? - ANSWER Federal and
provincial governments are involved in medical insurance, employment insurance and
workers' compensation.
In BC, Saskatchewan, Manitoba and Quebec the government provides compulsory auto
insurance.
What are 2 ways insurers use to sell their products? - ANSWER 1. Direct Writing
System
2. Independent Brokerage System
How does the Direct Writing System work? - ANSWER - In the direct writing system,
the producers are employees of the insurer and are limited to selling only products of
the insurer.
,- Remuneration may be via salary or commission basis or a combination
- Insurer owns all business and performs administrative functions
- Examples of direct writers include: Belair, RBC Insurance, and Desjardin
How does the Independent Brokerage System work? - ANSWER - Brokerage owners
are NOT employees of insurers and in most cases choose to represent more than 1
insurance company as well as the facility association.
- The brokerage owns the business it produces and is responsible for providing
policyholders with several client services.
- The brokerage is paid a commission by the insurer on all the business it writes which
is then used to pay salaries, rent, postage and other operating expenses.
How does the agency system work? - ANSWER - Agents are distinct from brokers and
direct writers as they are small business owners.
- Like direct writers, they represent 1 insurer and the Facility Association.
- Agents are paid commission and bonuses for the business they sell and the agents
themselves have ownership in their book of business.
- Examples of agent companies are Desjardin and Cooperators General Insurance
Company.
Define Risk. - ANSWER Risk is "the chance of financial loss to which the object of
insurance may be exposed"
Define Peril. - ANSWER Peril is simply defined as "the cause of loss"
- Examples can include and are not limited to: fire, wind, hail, etc.
Of the 2 distribution methods, which is most common? - ANSWER The majority of
insurance business in Canada is transacted by private insurers.
What are 3 major categories of insurance needs? - ANSWER 1. Personal Risk
2. Property Risk
3. Liability Risk
What are the 4 options an insured may use when dealing with risk? - ANSWER 1.
Avoidance of Risk
2. Controlling of Risk
3. Retention of Risk
4. Transfer of Risk
Which method of dealing with risk the LEAST practical? - ANSWER Avoidance of risk
What are the 2 types of risk? And which of them is insurable? - ANSWER 1.
Speculative risk
2. Pure risk
- Only pure risk is insurable.
Describe Pure Risk. - ANSWER Pure risk involves the chance of financial loss with no
chance of financial gain. When there is no opportunity for a person to profit from a loss,
the risk is pure. Only pure risk is insurable.
Describe Speculative Risk. - ANSWER Speculative risk involves the possibility of
financial loss or gain.
What are the 5 elements required to be present in all contracts? - ANSWER 1.
Agreement
2. Consideration
3. Legality of Object
4. Legal Capacity of the Parties to Contract
, 5. Genuine Intention
What are 3 elements of a contract, that are unique to insurance contracts which must be
present if an insurance contract is to be enforceable at law. - ANSWER 1. Insurance
Interest
2. Utmost Good Faith
3. Indemnity
Define "bind" - ANSWER In insurance, to "bind" means that the broker has committed
the insurer to provide a contract of insurance on the subject matter under discussion.
What are 3 types of insurance forms used by insurers to make changes to an existing
policy? - ANSWER 1. Endorsement or Riders
2. Floaters
3. Separate Policies
Explain what an endorsement does. - ANSWER An endorsement or rider
acknowledges a change in the terms of the contract.
Explain what Floaters are. - ANSWER A floater is used to provide coverage for
property having a high degree of mobility. The terms floater and rider are used
interchangeably.
Explain why separate policies may be required. - ANSWER Sometimes a separate
policy is required in order to provide addition coverages needed by the insureds. In
these cases, there is no actual change to the original contract.
- For example, the Butler's commercial property insurance covers the office building
they own, but it does not cover Mr. Butler's professional liability for errors and omissions
he might make as an accountant. He would need a separate policy for errors and
omission insurance.
Define Agreement. - ANSWER Agreement is said to exist where an unconditional
acceptance of an offer has been made.
Define Consideration. - ANSWER Consideration is an exchange of something in value
between the parties.
Define Legality of Object - ANSWER When a contract insures property which is stolen,
"Legality of Object" is said not to be present
Define Legal Capacity - ANSWER Persons considered to be competent to contract are
said to have "legal capacity".
- A minor does not have legal capacity to contract (Except for food, clothing and
lodging)
Define Genuine Intention. - ANSWER Genuine Intention is present when it can be
shown the contract was not affected by fraud, duress, concealment or mistake.
Define Insurable Interest. - ANSWER People who are able to show that they would
suffer financially by a loss are said to have "insurable interest"
Define Utmost Good Faith. - ANSWER "Utmost Good Faith" is breached when an
applicant for insurance deliberately withholds information about previous claims,
cancellations, or refusals of insurance.
Define Indemnity. - ANSWER A part of all insurance contracts which attempts to
provide insureds with the actual amount of their loss, no more and no less.
Which is the most popular and most practical means of dealing with risk? - ANSWER
Transfer of Risk via Insurance.
