CAIB 1 Practice Exam | 100% Correct
Answers | Verified | Latest 2024 Version
Insurers are in the business of assuming the financial risks of others which involves entering into a formal
contract. A contract is enforceable at law only when all legal elements have been observed. Insurance
contracts differ from other formal agreements and are subject to what three additional elements? -
✔✔Insurable Interest
Utmost Good Faith
Indemnity
Explain the meaning and disadvantage of the following approaches: Avoidance of Risk & Control of Risk -
✔✔Avoidance: Avoidance means that all chance of financial loss has been eliminated or a decision not
to do something. The disadvantage is its not very effective as often the elimination of one exposure
creates another in its place.
Control: taking measures to reduce the frequency and severity of losses. The disadvantage is that not all
losses can be controlled, because equipment will not work 100% of the time
Identify the three elements that are unique to contracts of insurance: - ✔✔Insurable Interest, Utmost
Good Faith, and Indemnity
The Insurance Act restricts payment for an insured loss to those amounts required to indemnify the
Insured. Indicate the amount the Insured is legally entitled to receive and the measure used to
determine this value. - ✔✔Entitled to receive payment for the actual amount of the loss, no more and
no less. The measure is the value of the object of insurance as it was immediately before the loss.
Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate the Statutory
Condition and the applicable rules: During the policy term the insured installed a wood burning stove as
a secondary heating device. The application indicates that a gas furnace is used to heat the premises. -
✔✔Material Change. The insured must notify the insurer promptly of any change that serves to increase
the chance of loss. After receiving notification of the Material Change the insurer has the option to
cancel the policy and return the unearned portion of the premium to the insured; or continue to insure
the risk and advise the insured in writing of the additional premium payable.
, All Homeowners policies describe the Basis of Claim Payment for loss or damage to dwelling building,
detached private structures and personal property. Indicate the basis of settlement and conditions:
Water used to extinguish a small fire at the Insured's home destroyed all electronic media and records
kept by the Insured. - ✔✔Cost to reproduce lost or damage media from duplicates or from originals of
the previous generation of the media. The payment for lost records is the cost of blank books, pages,
cards or other materials plus the cost of actually transcribing or copying such records.
Another option for insuring property values under Homeowners policies is the "Single Limit" basis.
Explain how this basis differs from the usual coverage format and the advantage that this approach
offers: - ✔✔Coverages A to D are combined into one single limit. The advantage is that this approach
eliminates the coverage restriction otherwise applicable to Coverages B, C and D.
The Homeowners Comprehensive Form (IBC 1155) is superior to all other Homeowners policies. State
how this policy describes "Insured Perils" - ✔✔This policy "insures against all risks of direct physical loss
or damage subject to the exclusions and conditions of this form"
Indicate the coverage provided for Emergency Removal Expense under the Mobile Homeowners Form. -
✔✔Covered up to 5% of the amount of insurance on the dwelling and covers reasonable expenses
incurred in disconnecting water and power, and towing or transporting costs.
What is the basis of claim payment for loss or damage to the mobile home, detached private structures
and personal property under a Mobile Homeowners Policy? - ✔✔The basis of claim is Actual Cash Value;
payment for loss or damage to personal property is made on the same basis as under Homeowners
Forms.
Identify two (2) other coverages included under C - Personal Property, which are not found in a
Homeowners policy - ✔✔Improvements or betterments made by or acquired at the expense of the
tenant; $500 for damage (excluding fire damage) to the portion of the building occupied by the tenant
resulting from theft or attempted theft; Damage caused to the interior of the building by vandalism or
malicious acts.
Individuals who own one or more units in a multiple unit building have an insurable interest in the
building structure, common elements and personal property. Identify and briefly explain three coverages
that are unique to the Condominium Unit Owners Policy: - ✔✔Unit Improvements and Betterments:
insures the value of improvements and betterments by the insured, including any building, structure or
swimming pool, and materials and supplies on the premises for use in such improvements or
betterments.
Answers | Verified | Latest 2024 Version
Insurers are in the business of assuming the financial risks of others which involves entering into a formal
contract. A contract is enforceable at law only when all legal elements have been observed. Insurance
contracts differ from other formal agreements and are subject to what three additional elements? -
✔✔Insurable Interest
Utmost Good Faith
Indemnity
Explain the meaning and disadvantage of the following approaches: Avoidance of Risk & Control of Risk -
✔✔Avoidance: Avoidance means that all chance of financial loss has been eliminated or a decision not
to do something. The disadvantage is its not very effective as often the elimination of one exposure
creates another in its place.
Control: taking measures to reduce the frequency and severity of losses. The disadvantage is that not all
losses can be controlled, because equipment will not work 100% of the time
Identify the three elements that are unique to contracts of insurance: - ✔✔Insurable Interest, Utmost
Good Faith, and Indemnity
The Insurance Act restricts payment for an insured loss to those amounts required to indemnify the
Insured. Indicate the amount the Insured is legally entitled to receive and the measure used to
determine this value. - ✔✔Entitled to receive payment for the actual amount of the loss, no more and
no less. The measure is the value of the object of insurance as it was immediately before the loss.
Policies insuring against the peril of fire must contain Fire Statutory Conditions. Indicate the Statutory
Condition and the applicable rules: During the policy term the insured installed a wood burning stove as
a secondary heating device. The application indicates that a gas furnace is used to heat the premises. -
✔✔Material Change. The insured must notify the insurer promptly of any change that serves to increase
the chance of loss. After receiving notification of the Material Change the insurer has the option to
cancel the policy and return the unearned portion of the premium to the insured; or continue to insure
the risk and advise the insured in writing of the additional premium payable.
, All Homeowners policies describe the Basis of Claim Payment for loss or damage to dwelling building,
detached private structures and personal property. Indicate the basis of settlement and conditions:
Water used to extinguish a small fire at the Insured's home destroyed all electronic media and records
kept by the Insured. - ✔✔Cost to reproduce lost or damage media from duplicates or from originals of
the previous generation of the media. The payment for lost records is the cost of blank books, pages,
cards or other materials plus the cost of actually transcribing or copying such records.
Another option for insuring property values under Homeowners policies is the "Single Limit" basis.
Explain how this basis differs from the usual coverage format and the advantage that this approach
offers: - ✔✔Coverages A to D are combined into one single limit. The advantage is that this approach
eliminates the coverage restriction otherwise applicable to Coverages B, C and D.
The Homeowners Comprehensive Form (IBC 1155) is superior to all other Homeowners policies. State
how this policy describes "Insured Perils" - ✔✔This policy "insures against all risks of direct physical loss
or damage subject to the exclusions and conditions of this form"
Indicate the coverage provided for Emergency Removal Expense under the Mobile Homeowners Form. -
✔✔Covered up to 5% of the amount of insurance on the dwelling and covers reasonable expenses
incurred in disconnecting water and power, and towing or transporting costs.
What is the basis of claim payment for loss or damage to the mobile home, detached private structures
and personal property under a Mobile Homeowners Policy? - ✔✔The basis of claim is Actual Cash Value;
payment for loss or damage to personal property is made on the same basis as under Homeowners
Forms.
Identify two (2) other coverages included under C - Personal Property, which are not found in a
Homeowners policy - ✔✔Improvements or betterments made by or acquired at the expense of the
tenant; $500 for damage (excluding fire damage) to the portion of the building occupied by the tenant
resulting from theft or attempted theft; Damage caused to the interior of the building by vandalism or
malicious acts.
Individuals who own one or more units in a multiple unit building have an insurable interest in the
building structure, common elements and personal property. Identify and briefly explain three coverages
that are unique to the Condominium Unit Owners Policy: - ✔✔Unit Improvements and Betterments:
insures the value of improvements and betterments by the insured, including any building, structure or
swimming pool, and materials and supplies on the premises for use in such improvements or
betterments.
