CAIB 1 - Chapter 1 ACTUAL QUESTIONS
AND CORRECT ANSWERS
Define "Risk" - CORRECT ANSWERS The chance of a financial loss to which the object
of insurance may be exposed to
List 3 Categories of Risk - CORRECT ANSWERS 1) Personal 2) Property 3) Liability
List 4 Types of Risk Management Techniques - CORRECT ANSWERS 1) Risk Avoidance
2) Risk Retention 3) Risk Control 4) Risk Transfer
Define "Risk Avoidance" - CORRECT ANSWERS To avoid doing something in order to
eliminate the chance of risk
Define "Risk Retention" - CORRECT ANSWERS To self-insure or to pay for losses
themselves
Define "Risk Control" - CORRECT ANSWERS To reduce the frequency or severity of the
loss
Define "Risk Transfer" - CORRECT ANSWERS To shift the financial obligation to
someone better equipped to handle it (an insurance company)
List 2 Types of Risks - CORRECT ANSWERS 1) Speculative Risk 2) Pure Risk
Define "Speculative Risk" - CORRECT ANSWERS Chance of Financial Loss or Financial
Gain
, Define "Pure Risk" - CORRECT ANSWERS Chance of Financial Loss only
What type of risk is insurable? - CORRECT ANSWERS Pure Risk
What is a Contract? - CORRECT ANSWERS An agreement between 2 or more parties
that creates an obligation or do or not to do a specific thing
List the 5 components of a contract - CORRECT ANSWERS 1) Agreement 2)
Consideration 3) Legality of Object 4) Legal Capacity 5) Genuine Intention
Define "Agreement" - CORRECT ANSWERS a meeting of the minds where an offer has
been made and accepted unconditionally
Define "Consideration" - CORRECT ANSWERS the exchange of something of value
Define "Legality of Object" - CORRECT ANSWERS must be legal and cannot violate the
public good
Define "Legal Capacity" - CORRECT ANSWERS all parties must be competent and of
sound mind
Define "Genuine Intention" - CORRECT ANSWERS basic level of honesty
Who cannot enter into contracts? - CORRECT ANSWERS Minors, people with mental
illness' or under the influence of drugs or alcohol, business who operate under a trade name
AND CORRECT ANSWERS
Define "Risk" - CORRECT ANSWERS The chance of a financial loss to which the object
of insurance may be exposed to
List 3 Categories of Risk - CORRECT ANSWERS 1) Personal 2) Property 3) Liability
List 4 Types of Risk Management Techniques - CORRECT ANSWERS 1) Risk Avoidance
2) Risk Retention 3) Risk Control 4) Risk Transfer
Define "Risk Avoidance" - CORRECT ANSWERS To avoid doing something in order to
eliminate the chance of risk
Define "Risk Retention" - CORRECT ANSWERS To self-insure or to pay for losses
themselves
Define "Risk Control" - CORRECT ANSWERS To reduce the frequency or severity of the
loss
Define "Risk Transfer" - CORRECT ANSWERS To shift the financial obligation to
someone better equipped to handle it (an insurance company)
List 2 Types of Risks - CORRECT ANSWERS 1) Speculative Risk 2) Pure Risk
Define "Speculative Risk" - CORRECT ANSWERS Chance of Financial Loss or Financial
Gain
, Define "Pure Risk" - CORRECT ANSWERS Chance of Financial Loss only
What type of risk is insurable? - CORRECT ANSWERS Pure Risk
What is a Contract? - CORRECT ANSWERS An agreement between 2 or more parties
that creates an obligation or do or not to do a specific thing
List the 5 components of a contract - CORRECT ANSWERS 1) Agreement 2)
Consideration 3) Legality of Object 4) Legal Capacity 5) Genuine Intention
Define "Agreement" - CORRECT ANSWERS a meeting of the minds where an offer has
been made and accepted unconditionally
Define "Consideration" - CORRECT ANSWERS the exchange of something of value
Define "Legality of Object" - CORRECT ANSWERS must be legal and cannot violate the
public good
Define "Legal Capacity" - CORRECT ANSWERS all parties must be competent and of
sound mind
Define "Genuine Intention" - CORRECT ANSWERS basic level of honesty
Who cannot enter into contracts? - CORRECT ANSWERS Minors, people with mental
illness' or under the influence of drugs or alcohol, business who operate under a trade name
