General Insurance Essentials – C81 + C82 Study Guide and Exam
Preparation Material
What is a hazard? - ANS ✔✔A condition that may cause a loss to be more severe
What is a peril? - ANS ✔✔An event that may give rise to a loss
What is the immediate and effective action in a chain of circumstances that leads naturally and
directly to the loss? - ANS ✔✔Proximate cause
What is the proximate cause of a loss? - ANS ✔✔The immediate and effective cause of the loss
or damage
What cause of loss would be insured? - ANS ✔✔Proximate cause
Which type of risk can be insured? - ANS ✔✔Pure risk
A firm's decision to change insurers or brokers or accept policy renewal costs usually requires
approval by which of the following? - ANS ✔✔The firm's senior management
All costs associated with managing pure risk are known as which of the following? - ANS
✔✔Cost of risk
Members of an organization are subject to the possibility of illness, disability, or premature
death. What category is this subject of loss? - ANS ✔✔Human assets
What is a consequence of not using a risk management approach to setting up insurance for a
client? - ANS ✔✔A major loss may not be covered
,What is a simple definition of earnings? - ANS ✔✔The difference between revenues and
expenses—the profits (net income) of a business
What method allows a broker to identify and analyze the risks an organization faces? - ANS
✔✔Risk Management
What is a risk management technique whereby the risk of loss is prevented by not engaging in
activities that present the risk? - ANS ✔✔Avoidance
What is both a pre-loss and a post-loss objective of risk management? - ANS ✔✔Social
Responsibility
What is the duty of a risk manager? - ANS ✔✔Identifying loss exposures
Which type of professional would be responsible for educating other corporate managers about
risk and acting as a resource to other managers, in much the same way as a broker would for a
small business client? - ANS ✔✔Risk Manager
A small, popular coffee shop is severely damaged by fire.Which party has insurable interest in
the coffee shop? - ANS ✔✔bank that holds a mortgage on the building in which the coffee shop
is located
How can insurance be an aid to credit? - ANS ✔✔Because it is virtually impossible to obtain
credit without having insurance on the item concerned
How can insurance be an aid to security? - ANS ✔✔By substituting a certain premium payment
in place of an uncertain loss payment
,How can risk be spread? - ANS ✔✔By volume, diversity of risks, and diversity of location
What does a broker do? - ANS ✔✔Acts on behalf of an insured in placing business with
insurance companies
What does it mean to indemnify? - ANS ✔✔To provide compensation for loss or expenses
incurred
What is the premium? - ANS ✔✔The price of insurance protection for a specified risk for a
specified period of time
What is the specific risk covered by life insurance? - ANS ✔✔The death of the insured
What type of insurance covers goods in transit on land? - ANS ✔✔Inland transportation
What concept upholds the principle of indemnity? - ANS ✔✔Insurable Interest
What 3 departments are unique to insurance companies? - ANS ✔✔Actuarial, claims, and
underwriting
What is facultative reinsurance? - ANS ✔✔Reinsurance of risks on an individual case-by-case
basis subject to acceptance or rejection by the insurer (the opposite of Treaty reinsurance)
What is subscribed capital? - ANS ✔✔The amount of stock sold by a corporation
What is the basic task of an underwriting department? - ANS ✔✔Select risks to insure
, What is the term used when an insurance company re-insures its liability with another
insurance company? - ANS ✔✔Cession
What is treaty insurance? - ANS ✔✔Reinsurance in which an agreement between the insurer
and the reinsurer provides for automatic reinsurance without the insurer having to submit every
risk to the reinsurer.
(opposite of faculative reinsurance)
What is underwriting profit? - ANS ✔✔The amount of money an insurance company gains as a
result of its insurance operations
what math term relates to the degree of certainty in predicting future losses? - ANS ✔✔the law
of large numbers
Describe mutual insurance companies - ANS ✔✔They are based on the principle of mutual aid,
where each policyholder is a member.
Describe stock companies - ANS ✔✔They are companies whose main purpose is making a profit
for shareholders.
Agents and brokers obtain their authority from the agreement entered into with their insurers.
True or False? - ANS ✔✔True
Most provinces and territories require intermediaries to have certain minimum qualifications
and to satisfactorily pass an examination on which of the following topics? - ANS
✔✔Government regulations pertaining to insurance intermediaries
What are the duties of insurance intermediaries? - ANS ✔✔Identify insurance needs, match
those needs with products available in the market, and facilitate insurance contracts
Preparation Material
What is a hazard? - ANS ✔✔A condition that may cause a loss to be more severe
What is a peril? - ANS ✔✔An event that may give rise to a loss
What is the immediate and effective action in a chain of circumstances that leads naturally and
directly to the loss? - ANS ✔✔Proximate cause
What is the proximate cause of a loss? - ANS ✔✔The immediate and effective cause of the loss
or damage
What cause of loss would be insured? - ANS ✔✔Proximate cause
Which type of risk can be insured? - ANS ✔✔Pure risk
A firm's decision to change insurers or brokers or accept policy renewal costs usually requires
approval by which of the following? - ANS ✔✔The firm's senior management
All costs associated with managing pure risk are known as which of the following? - ANS
✔✔Cost of risk
Members of an organization are subject to the possibility of illness, disability, or premature
death. What category is this subject of loss? - ANS ✔✔Human assets
What is a consequence of not using a risk management approach to setting up insurance for a
client? - ANS ✔✔A major loss may not be covered
,What is a simple definition of earnings? - ANS ✔✔The difference between revenues and
expenses—the profits (net income) of a business
What method allows a broker to identify and analyze the risks an organization faces? - ANS
✔✔Risk Management
What is a risk management technique whereby the risk of loss is prevented by not engaging in
activities that present the risk? - ANS ✔✔Avoidance
What is both a pre-loss and a post-loss objective of risk management? - ANS ✔✔Social
Responsibility
What is the duty of a risk manager? - ANS ✔✔Identifying loss exposures
Which type of professional would be responsible for educating other corporate managers about
risk and acting as a resource to other managers, in much the same way as a broker would for a
small business client? - ANS ✔✔Risk Manager
A small, popular coffee shop is severely damaged by fire.Which party has insurable interest in
the coffee shop? - ANS ✔✔bank that holds a mortgage on the building in which the coffee shop
is located
How can insurance be an aid to credit? - ANS ✔✔Because it is virtually impossible to obtain
credit without having insurance on the item concerned
How can insurance be an aid to security? - ANS ✔✔By substituting a certain premium payment
in place of an uncertain loss payment
,How can risk be spread? - ANS ✔✔By volume, diversity of risks, and diversity of location
What does a broker do? - ANS ✔✔Acts on behalf of an insured in placing business with
insurance companies
What does it mean to indemnify? - ANS ✔✔To provide compensation for loss or expenses
incurred
What is the premium? - ANS ✔✔The price of insurance protection for a specified risk for a
specified period of time
What is the specific risk covered by life insurance? - ANS ✔✔The death of the insured
What type of insurance covers goods in transit on land? - ANS ✔✔Inland transportation
What concept upholds the principle of indemnity? - ANS ✔✔Insurable Interest
What 3 departments are unique to insurance companies? - ANS ✔✔Actuarial, claims, and
underwriting
What is facultative reinsurance? - ANS ✔✔Reinsurance of risks on an individual case-by-case
basis subject to acceptance or rejection by the insurer (the opposite of Treaty reinsurance)
What is subscribed capital? - ANS ✔✔The amount of stock sold by a corporation
What is the basic task of an underwriting department? - ANS ✔✔Select risks to insure
, What is the term used when an insurance company re-insures its liability with another
insurance company? - ANS ✔✔Cession
What is treaty insurance? - ANS ✔✔Reinsurance in which an agreement between the insurer
and the reinsurer provides for automatic reinsurance without the insurer having to submit every
risk to the reinsurer.
(opposite of faculative reinsurance)
What is underwriting profit? - ANS ✔✔The amount of money an insurance company gains as a
result of its insurance operations
what math term relates to the degree of certainty in predicting future losses? - ANS ✔✔the law
of large numbers
Describe mutual insurance companies - ANS ✔✔They are based on the principle of mutual aid,
where each policyholder is a member.
Describe stock companies - ANS ✔✔They are companies whose main purpose is making a profit
for shareholders.
Agents and brokers obtain their authority from the agreement entered into with their insurers.
True or False? - ANS ✔✔True
Most provinces and territories require intermediaries to have certain minimum qualifications
and to satisfactorily pass an examination on which of the following topics? - ANS
✔✔Government regulations pertaining to insurance intermediaries
What are the duties of insurance intermediaries? - ANS ✔✔Identify insurance needs, match
those needs with products available in the market, and facilitate insurance contracts
