Fundamentals of Insurance
Questions and Correct
Answers
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.
In the event that a contract is missing 1 or more of the 8 essential elements of a
contract, the contract may be considered: - ANSWER✓- Void (a contract that is
considered never to have existed) or Voidable (void as to the wrongdoer, but
not void as to the wronged party).
,Describe Avoidance of Risk. - ANSWER✓- Avoidance of risk means that all
chance of financial loss has been eliminated. For example, selling a furniture
store completely avoids any risk of loss.
Describe Controlling of Risk. - ANSWER✓- Risk control is concerned with
taking measures to reduce the frequency and severity of losses. Example: fire
and burglar alarms.
Describe Retention of Risk. - ANSWER✓- Retention of risk is also known as
self-insurance. Large corporations or governments often assume financial
responsibility for their losses.
Describe Transfer of Risk. - ANSWER✓- When people decide they are unable
to withstand the financial consequences of a loss, they may choose to transfer
a risk via an insurer.
What is the role of the Property and Casualty Insurance Corporation (PACICC)
when an insurer becomes insolvent? - ANSWER✓- PACICC pays all valid
claims. All participating insurers are assessed based on total direct premiums
written. Maximum claim: $250,000 per occurrence; unearned premium
refund up to 70% subject to $700 per policy.
Define "fiduciary". - ANSWER✓- "Fiduciary" is one who handles other
people's money. Insurance is fiduciary in nature.
What are the fiduciary obligations of Insurers? - ANSWER✓- Unearned
premiums are to be held in trust to refund to insureds if the policy is cancelled
prior to expiry.
,What are the fiduciary obligations of brokers? - ANSWER✓- Unearned
commissions are held in trust to refund to insureds if the policy is cancelled.
Brokers deduct total commission from payment made to insurer.
Summarize the provisions of the "removal" clause contained in policies of fire
insurance. - ANSWER✓- The "Removal" clause extends coverage to insured
property when temporarily moved to a location not listed on the policy.
Property saved during a fire remains insured at the new, unnamed location.
Define Risk. - ANSWER✓- Risk is the chance of financial loss.
Define Pure Risk. - ANSWER✓- A situation where there is only the possibility
of loss or no loss (no chance of gain).
Define Speculative Risk. - ANSWER✓- A situation where there is a chance of
loss, gain, or no loss (e.g., gambling, investing).
Which type of risk is insurable? - ANSWER✓- Pure Risk.
Define Peril. - ANSWER✓- The immediate cause of a loss (e.g., fire, theft,
windstorm).
Define Hazard. - ANSWER✓- A condition that increases the likelihood or
severity of a loss (e.g., icy steps, poor wiring).
Name three types of hazards. - ANSWER✓- Physical hazard, moral hazard, and
morale hazard.
, Define Physical Hazard. - ANSWER✓- A tangible condition that increases the
chance of loss (e.g., defective wiring).
Define Moral Hazard. - ANSWER✓- Dishonesty or character defects that
increase the chance of loss (e.g., arson).
Define Morale Hazard. - ANSWER✓- Carelessness or indifference to loss
because of insurance (e.g., leaving doors unlocked).
What is a Direct Loss? - ANSWER✓- A loss that is the immediate result of a
peril (e.g., building burned by fire).
What is an Indirect Loss (Consequential Loss)? - ANSWER✓- A loss that results
from a direct loss (e.g., lost rental income after a fire).
Define Proximate Cause. - ANSWER✓- The first, unbroken cause in a chain of
events leading to a loss.
What is the Principle of Indemnity? - ANSWER✓- Insurance should restore the
insured to the same financial position as before the loss, no more and no less.
Name five methods of indemnity. - ANSWER✓- Cash payment, repair,
replacement, rebuild, and reinstatement.
What is Actual Cash Value (ACV)? - ANSWER✓- Replacement cost minus
depreciation.
Questions and Correct
Answers
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.
In the event that a contract is missing 1 or more of the 8 essential elements of a
contract, the contract may be considered: - ANSWER✓- Void (a contract that is
considered never to have existed) or Voidable (void as to the wrongdoer, but
not void as to the wronged party).
,Describe Avoidance of Risk. - ANSWER✓- Avoidance of risk means that all
chance of financial loss has been eliminated. For example, selling a furniture
store completely avoids any risk of loss.
Describe Controlling of Risk. - ANSWER✓- Risk control is concerned with
taking measures to reduce the frequency and severity of losses. Example: fire
and burglar alarms.
Describe Retention of Risk. - ANSWER✓- Retention of risk is also known as
self-insurance. Large corporations or governments often assume financial
responsibility for their losses.
Describe Transfer of Risk. - ANSWER✓- When people decide they are unable
to withstand the financial consequences of a loss, they may choose to transfer
a risk via an insurer.
What is the role of the Property and Casualty Insurance Corporation (PACICC)
when an insurer becomes insolvent? - ANSWER✓- PACICC pays all valid
claims. All participating insurers are assessed based on total direct premiums
written. Maximum claim: $250,000 per occurrence; unearned premium
refund up to 70% subject to $700 per policy.
Define "fiduciary". - ANSWER✓- "Fiduciary" is one who handles other
people's money. Insurance is fiduciary in nature.
What are the fiduciary obligations of Insurers? - ANSWER✓- Unearned
premiums are to be held in trust to refund to insureds if the policy is cancelled
prior to expiry.
,What are the fiduciary obligations of brokers? - ANSWER✓- Unearned
commissions are held in trust to refund to insureds if the policy is cancelled.
Brokers deduct total commission from payment made to insurer.
Summarize the provisions of the "removal" clause contained in policies of fire
insurance. - ANSWER✓- The "Removal" clause extends coverage to insured
property when temporarily moved to a location not listed on the policy.
Property saved during a fire remains insured at the new, unnamed location.
Define Risk. - ANSWER✓- Risk is the chance of financial loss.
Define Pure Risk. - ANSWER✓- A situation where there is only the possibility
of loss or no loss (no chance of gain).
Define Speculative Risk. - ANSWER✓- A situation where there is a chance of
loss, gain, or no loss (e.g., gambling, investing).
Which type of risk is insurable? - ANSWER✓- Pure Risk.
Define Peril. - ANSWER✓- The immediate cause of a loss (e.g., fire, theft,
windstorm).
Define Hazard. - ANSWER✓- A condition that increases the likelihood or
severity of a loss (e.g., icy steps, poor wiring).
Name three types of hazards. - ANSWER✓- Physical hazard, moral hazard, and
morale hazard.
, Define Physical Hazard. - ANSWER✓- A tangible condition that increases the
chance of loss (e.g., defective wiring).
Define Moral Hazard. - ANSWER✓- Dishonesty or character defects that
increase the chance of loss (e.g., arson).
Define Morale Hazard. - ANSWER✓- Carelessness or indifference to loss
because of insurance (e.g., leaving doors unlocked).
What is a Direct Loss? - ANSWER✓- A loss that is the immediate result of a
peril (e.g., building burned by fire).
What is an Indirect Loss (Consequential Loss)? - ANSWER✓- A loss that results
from a direct loss (e.g., lost rental income after a fire).
Define Proximate Cause. - ANSWER✓- The first, unbroken cause in a chain of
events leading to a loss.
What is the Principle of Indemnity? - ANSWER✓- Insurance should restore the
insured to the same financial position as before the loss, no more and no less.
Name five methods of indemnity. - ANSWER✓- Cash payment, repair,
replacement, rebuild, and reinstatement.
What is Actual Cash Value (ACV)? - ANSWER✓- Replacement cost minus
depreciation.
