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FOI - Practice Exam BC
Insurance plays an important role in managing financial risk. The main purpose of Insurance is to a. Enable the consumer to obtain a loan or ,a' mortgage b. Provide employment and investment capital c. Allow the spread of risk d. Reduce losses through loss prevention and loss reduction - Answer-c. Allow the spread of risk The definition of insurance in the Insurance Act includes all of the following important points, except one. Pick the exception: a. Payment is made only when a certain peril has damaged the object of insurance b. Payment is limited to the actual amount of the loss - no more and no less c. There is no payment for losses that are deliberately caused by an insured d. The indemnity must always be in the form of a sum of money; no other method is permitted by law - Answer-d. The indemnity must always be in the form of a sum of money; no other method is permitted by law The majority of insurance companies use independent brokers to sell their insurance policies to the public. Which of the following statements does NOT apply to this system of distribution? a. Independent brokers are employees of the insurance companies they represent b. · Independent brokers receive commissions from their insurers for the business they produce c. Independent brokers can represent more than one insurance company
d. Independent brokers own all of their client files - Answer-a. Independent brokers are employees of the insurance companies they represent When dealing with financial risk a person has several options available. In your opinion, which of the following is the best option for most people? a. Avoidance of risk b. Retention of the risk c. Controlling the risk d. Transfer of the risk - Answer-d. Transfer of the risk Risk as the "chance of financial loss" can be classified as either speculative or pure. Which of the following best describes the meaning of pure risk? a. There is no chance of financial loss b. There is a chance of financial gain c. Financial loss and financial gain are both present d. There is only the chance of financial loss with no chance of profiting from it - Answer-d. There is only the chance of financial loss with no chance of profiting from it A contract is legally enforceable only when all legal elements are present. Only an insurance contract contains the following element: a. Genuine intention b. Legality of the object c. Consideration d. Indemnity - Answer-d. Indemnity "Consideration" is required of all parties to a contract. Consideration means: a. Thinking about purchasing insurance
In Canada the General Insurance Industry is strictly regulated by federal and provincial statutes. The Provincial Government performs all of the following functions, except one. Pick the exception. a. Supervising the terms and conditions of insurance contract b. Establishing premium levels for insurance contracts c. Licensing insurance companies to transact business in the province d. Monitoring the financial stability of insurers that are not federally licensed - Answer-b. Establishing premium levels for insurance contracts The financial solvency of insurers is a crucial matter. Solvency refers to: a. Selling shares to shareholders b. The ability of an insurer to pay all insured losses c. The payment of commissions to brokers selling the policies of the insurer d. Survival of the fittest - Answer-b. The ability of an insurer to pay all insured losses Both, insurance companies and brokers are considered fiduciaries. Under the Insurance Act the fiduciary responsibility of a broker requires that: a. The broker must regularly remit the collected premiums to the insurers b. All policies not paid for within sixty (60) days of the effective date must be terminated c. Unearned commissions are held in trust to be available should the policy be terminated before expiry d. The full amount of the commission must be held in trust until the expiry of the policy - Answer-c. Unearned commissions are held in trust to be available should the policy be terminated before expiry Th~ Insurance Act determines when a contract of insurance takes effect. Coverage commences at a. 12:01 pm standard time at the address of the Named Insured b. 12:01 am standard time at the address of the location of the risk c. 12:01 am standard time at the address of the insurer
d. 12:01 am standard time at the address of the Named Insured - Answer-d. 12:01 am standard time at the address of the Named Insured The Removal Clause requires the insurer to extend coverage to another location where the insured property is kept, even if this location is not stated on the policy. Only one of the following situations would qualify for this coverage a. The insured moved to a new residence five (5) days ago and has not yet advised the insurer of the new location b. The insured keeps furniture and fixtures in a rented storage locker because there is no more room at the principle residence c. The insured moved personal property to a storage facility to protect it from loss because of an encroaching forest fire d. The insured keeps some personal property at her seasonal dwelling but only during the summer months - Answer-c. The insured moved personal property to a storage facility to protect it from loss because of an encroaching forest fire When the insurer has indemnified the insured for a loss caused by a third party, the insurer has a legal right of recover from that party. This legal process is referred to as a. Arbitration b. Restitution c. Subrogation d. Mediation - Answer-c. Subrogation The Insurance Act provides that a policy insuring the peril of "fire" must also include coverage for a. Windstorm and Lightning b. Lightning, including damage to electrical appliances and devices c. Lightning and all types of Explosion d. Explosion of natural, coal or manufactured gas and Lightning, excluding damage to electrical appliances and devices - Answer-d. Explosion of natural, coal or manufactured gas and Lightning, excluding damage to electrical appliances and devices
d. When the insured terminated the policy, the insured is not entitled to a premium refund - Answer-d. When the insured terminated the policy, the insured is not entitled to a premium refund In the event of a claim there are also a number of Statutory Conditions that affect both the insurer and the insured. One of the following statements regarding these conditions is incorrect. Select the statement that is incorrect. a. The insured must provide the insurer with a Proof of Loss as soon as practicable b. In the claim the insured included an article she did not even own, therefore, the insurer will only pay for those articles for which the insured can prove ownership c. When the insurer opts for a cash settlement, payment must be made to the insured within sixty (60) days after receipt of the Proof of Loss or less, if the contract provides for a shorter period d. If the insurer denies a claim and the insured wishes to sue the insurer, legal action must be taken within one year after the date of the loss - Answer-b. In the claim the insured included an article she did not even own, therefore, the insurer will only pay for those articles for which the insured can prove ownership All of the following statements apply to the Statutory Conditions except one. Pick the except1on: a. After a loss has been reported the insurer has the immediate right of access and entry to the property to investigate the loss b. When the insurer elects to repair or rebuild the damaged property, it must give written notice to the insured within thirty (30) days after receipt of the Proof of Loss c. When the insured is unable to notify the insurer of a loss and provide Proof of Loss, an agent of the insured is permitted to give notice and proof d. Even if the insured had a reasonable chance to protect property from loss but failed to do any such thing, this usually does not affect the claim settlement - Answer-d. Even if the insured had a reasonable chance to protect property from loss but failed to do any such thing, this usually does not affect the claim settlement The role of agents and brokers is to serve as an intermediary between the client and the insurer. Which of the following best reflects the duties of the broker? a. A broker acts exclusively in the best interest of the client
b. A broker must always place insurance with the insurer that charges the lowest premium c. A broker must always present the client's risk truthfully and disclose all material facts to the insurer d. A broker does not owe any duty to the insurer he or she represents - Answer-c. A broker must always present the client's risk truthfully and disclose all material facts to the insurer The law requires that insurance brokers exercise "reasonable skill, care and diligence" in carrying out their duties. Failure to do so can result in an Errors and Omissions claim against the broker. The main reason for Errors and Omissions claims is due to a. Providing the client with coverage he doesn't need b. The failure to properly identify the client's loss exposures and offering the required coverages c. The failure to cancel the policy when requested by the insured d. A violation of the Agency Agreement - Answer-b. The failure to properly identify the client's loss exposures and offering the required coverages An Underwriter is required to perform numerous task, however, the primary function of an Underwriter is to a. Select those risks that are most likely to be profitable to the insurer b. Bind coverage on all risks the insurer accepts c. Set the premium rates mostly for commercial risks d. Process cancellation certificates and issue premium refund cheques - Answer-a. Select those risks that are most likely to be profitable to the insurer Determining whether a risk meets the criteria for insurance the Underwriter must assess the hazards that could cause a peril to occur. When checking into an applicant's prior claims history or financial condition the Underwriter is concerned about the existence of a. Other parties with an insurable interest b. Abnormal physical hazards c. A moral hazard d. Smoking material on the premises - Answer-c. A moral hazard
The following perils, except one, are also excluded under property policies. Select the Exception: a. Lightning, including lightning damage to electrical devices b. War and Nuclear Incident c. Earthquake and Flood d. Sewer Back-up - Answer-a. Lightning, including lightning damage to electrical devices Your client lost jewelry during a recent burglary and reported the loss of a matching gold necklace with pendant and earrings. However, the insured found one of the earrings under her bed, but she claimed the full set value. How will the insurer settle this loss? a. Your client will receive a payment based on the full value of the set b. Your client will be paid for the necklace and one earring, plus 10% percent to compensate for loss of value because the set is incomplete c. Your client will receive a settlement for the value claimed less the value of one earring d. Your client will receive nothing, because her claim is fraudulent - Answer-c. Your client will receive a settlement for the value claimed less the value of one earring The Indemnity Agreement describes how the amount of a loss settlement is determined. One of the following values is not a factor in arriving at the amount of the settlement. Select this value: a. Replacement cost of the lost or damaged property less depreciation b. The financial interest of the insured in the property that was lost or damaged c. The future investment value of the property that was lost or damaged d. The amount of insurance purchased on the property that was lost or damaged - Answer-c. The future investment value of the property that was lost or damaged A fire totally destroyed the building owned by your client, I.M. Broke. The Actual Cash Value of the building was $400,000. 1.M. Broke still carries a mortgage of $200,000 on his property. The building was insured for $350,000. Based on the Indemnity Agreement what is the amount of the settlement that I.M., Broke is entitled to?
a. $400, b. $200, c. $350, d. $150,000 - Answer-d. $150, Actual Cash Value means a. The value of property at the time it was purchased b. The re-sale value of the property c. Replacement cost less the amount for depreciation d. Replacement cost less the sentimental value the insured has in the property - Answer-c. Replacement cost less the amount for depreciation The Standard Mortgage Clause contained in property policies provides a. A guarantee to the insured that the mortgage will be paid off if the insured became sick or unemployed b. A guarantee to the mortgagee that even if the insured breached a condition or warranty the mortgagee's interests will still be protected c. A guarantee that, if the policy is cancelled by the insured, the insurer will issue a separate policy to the mortgagee d. A guarantee that a payment will be made to the insured, if the mortgagee has breached a certain policy condition - Answer-b. A guarantee to the mortgagee that even if the insured breached a condition or warranty the mortgagee's interests will still be protected All Homeowners policies define the persons who are deemed to be an Insured. All of the following persons are insured, except one. Pick the Exception: a. The insured's common law spouse who has lived with the insured for five years b. The parents who are permanently living with the insured c. The insured's daughter who lives in the dorm while attending university in a neighboring province
c. The insured's stereo and speakers d. The insured's laptop computer that she used for personal and business purposes - Answer-d. The insured's laptop computer that she used for personal and business purposes A fire partially damaged the insured's garage and destroyed some of the personal property, which was stored there. The insured called you because the insurer has advised that, except for one, all of the following damaged items are subject to a special limit. Select the item for which the insured will receive the full value. a. An industrial pressure washer valued at $25,000 used in the insured's business b. A leather coat lined with fur valued at $2,500 kept in a closet in the garage for winter storage c. A riding lawn mower valued at $12, d. A kayak, oars and life jackets valued at $9,500 - Answer-b. A leather coat lined with fur valued at $2,500 kept in a closet in the garage for winter storage Your clients were forced to temporarily move out of the home after a tree, which was uprooted during a serious windstorm, hit the house causing structural damage. Coverage D - Additional Living Expenses under the Homeowners policy pays additional living expenses due to an insured loss. Which of the following expenses will not be paid under this coverage? a. Cost of the hotel accommodation b. Loss of rental income from the tenant living in the basement suite who also had to leave; the occupancy is indicated on the policy c. Mortgage payments to the insured's bank until the insured is able to return home d. Costs to keep the insured's dog in a kennel because the hotel does not permit animals - Answer-c. Mortgage payments to the insured's bank until the insured is able to return home Under the Homeowners Basic Form (IBC1151) all of the following losses are excluded, except one. Select the loss that is covered under this form. a. Smoke damage from the fire place in the insured's living room b. Damage to a water pipe which exploded as a result of water hammer c. Damage to the front porch caused by impact of a vehicle driven by the insured
d. Water damage from a ruptured pipe due to freezing which occurred while the insured was away on a short ski holiday and returning from it on the fourth day - Answer-d. Water damage from a ruptured pipe due to freezing which occurred while the insured was away on a short ski holiday and returning from it on the fourth day The Homeowners Basic Form (IBC 1151) insures loss or damage caused by Windstorm or Hail. Only one of the following losses would be covered under this peril; select the loss for which coverage is provided. a. Damage to the exterior and interior during a severe windstorm which had ripped off a section of the roof on the insured's house b. The radio and TV antennae permanently installed on the insured's property collapsed during a storm c. Collapse of the insured's storage shed caused by the accumulation of snow during a snowstorm with winds reaching 50 km/hr d. Damage to the interior of the house caused by heavy rain that entered through a window, which was left open by the insured - Answer-a. Damage to the exterior and interior during a severe windstorm which had ripped off a section of the roof on the insured's house The Homeowners Basic Form (IBC1151') provides coverage for Glass Breakage. Under this peril all of the following losses, except one, are insured. Select the loss for which coverage is excluded under this form a. While practicing his golf swing in the backyard a flying golf ball shattered a large pane of glass of the enclosed sunroom b. Accidental breakage occurred during a party when one of the guests stepped into the closed glass patio door c. Breakage of the glass table top which slipped out of the helpers' hands during the move to the insured's new residence d. Breakage of the large picture window at the front of the insured's house caused by a rock thrown up by the wheels of a passing vehicle - Answer-c. Breakage of the glass table top which slipped out of the helpers' hands during the move to the insured's new residence Although the Homeowners Comprehensive Form (IBC1155) insures on the basis of all risks of direct physical loss or damage" coverage is subject to conditions and exclusions. All of the following losses, except one, are excluded; select the loss, which is covered by this form.
a. It is possible to remove the coverage for detached private structures from the policy, as long as the insured can prove that he has no such structures on the premises b. It is possible to decrease the limit of insurance for personal property, provided the insured completes an inventory with photographs c. Anything covered in a homeowner policy can be changed or deleted at the request of the insured d. Limits cannot be changed nor can coverages be removed from the Package, but the limits automatically provided by the policy can be increased, if they are not sufficient - Answer-d. Limits cannot be changed nor can coverages be removed from the Package, but the limits automatically provided by the policy can be increased, if they are not sufficient All of the following statements regarding the Condominium Unit Owners Form (IBC1132) are correct, except one. Select the statement, which is incorrect. a. This form covers the purchase value of the unit, plus the value of personal property and all improvements and betterments made by the insured b. This form is designed to cover the value of personal property and all improvements and betterments made by the insured c. This form is designed to cover the value of personal property, unit improvements and betterments made by the insured, and Loss Assessment d. This form provides coverage for personal property and unit improvements and betterments made by the insured on a Replacement Cost basis - Answer-a. This form covers the purchase value of the unit, plus the value of personal property and all improvements and betterments made by the insured The Loss Assessment coverage included in the Condominium Unit Owners Form (IBC1132) would respond to pay in all of the following instances, except one. Select the exception. a. When the Condominium Corporation carries a large deductible on its policy b. When the Condominium Unit Owner carries a large deductible on his policy c. The Condominium Corporation's policy only pays a portion of a partial loss because of a co-insurance penalty d. The Condominium Corporation's policy does not respond to pay a loss because the corporation breached a policy condition - Answer-b. When the Condominium Unit Owner carries a large deductible on his policy
Commercial property insurance policies are designed to insure property, which has a business or commercial use. The Commercial Property Insurance Broad Form (IBC4037) is the policy that provides commercial risks with the broadest coverage. It covers loss or damage from all of the following, except one. Select the one, which is not covered. a. All sources of smoke damage, except from agricultural smudging or industrial operations b. Vehicle impact damage to building even when operated by the insured or an employee of the insured c. Theft of money from a cash register d. Water damage resulting from the rupture or freezing of a water pipe - Answer-c. Theft of money from a cash register When determining the required premium for insuring commercial property the underwriter will first establish the fire rate. For this purpose the underwriter Will consider all of the following factors, except one. Select the one, which is not a factor in determining the fire rate. a. The use or occupancy of the building by the insured and others b. The type of construction of the buildi11g c. The type of public and private fire protection d. The number of employees in the insured's business - Answer-d. The number of employees in the insured's business All commercial property insurance policies describe the classes of property insured. Under "building" all of the following values, except one, are included. Select the value, which is not covered under "building" a. A large neon sign displaying the company name, which the insured erected on the premises b. Air conditioning units mounted on the roof of the building c. Building materials on the insured's premises for use in the construction of a new warehouse d. A live palm tree surrounded by other growing plants installed in the centre of the entrance of the insured's office building - Answer-c. Building materials on the insured's premises for use in the construction of a new warehouse
Another important clause found in most commercial property insurance policies is the Reinstatement Clause. The effect of this clause is that a. After a loss has been paid by the insurer the insured must purchase additional insurance equal to the amount of the loss. b. After a loss has been paid the original amount of insurance does not change but the insured is charged an additional premium c. After a loss has been paid by the insurer the amount of insurance stated on the policy does not change nor does the insured have to pay any additional premium d. After a total loss the insurer will cancel the existing policy arid then issue a new policy with a higher premium - Answer-c. After a loss has been paid by the insurer the amount of insurance stated on the policy does not change nor does the insured have to pay any additional premium Generally, commercial property policies cover stock and equipment only while at the location stated on the policy. However, businesses usually have an exposure to loss of property away from the business premises and, therefore, need to add coverage at a temporary location. Temporary Location means a. A location, which is not owned, rented or controlled by the insured in whole or in part b. The insured's garage where stock or equipment is temporarily stored c. A vehicle carrying the insured's stock or equipment until it arrives at the premises of the insured d. A booth at a trade show, where the insured is displaying their manufactured goods - Answer-a. A location, which is not owned, rented or controlled by the insured in whole or in part Your client is transporting goods in their own vehicles and, because he is concerned about theft of property from a vehicle, has purchased the Commercial Building, Equipment and Stock Broad Form. The insurer has imposed the "Locked Vehicle Warranty", which requires the insured to a. Lock the vehicle securely at all times, except during business hours b. Never to leave the vehicle unattended, when is contains the insured property c. Lock the vehicle only when away from the business premises d. Keep the insured property in a fully enclosed metal compartment in or on the vehicle, close all windows and lock all doors when the vehicle is left unattended - Answer-d. Keep the insured property in
a fully enclosed metal compartment in or on the vehicle, close all windows and lock all doors when the vehicle is left unattended Loss of property, money and securities due to burglary, robbery or theft is a major concern for many business owners. For this reason, your client has purchased Safe Burglary insurance. All of the following statements regarding this coverage are correct, except one. Select the statement that is incorrect. a. To qualify for this coverage the safe must be equipped with a combination lock b. This coverage will respond to a loss of property from a safe regardless of the cause, so long as the insured is able to prove the value lost c. This coverage will respond to a loss only when the insured is able to prove that the safe was locked, which is evidenced by visible signs of forced entry into the safe d. This coverage will also respond to a loss when the safe holding the insured property has been removed from the premises by thieves - Answer-b. This coverage will respond to a loss of property from a safe regardless of the cause, so long as the insured is able to prove the value lost Owners and contractors can purchase the Builder's Risk - Broad Form to insure buildings while in the course of construction. This policy is designed to insure all of the following property except one. Select the property, which is not covered by this Form. a. Materials and supplies owned by the insured and others used in construction and arming part of the completed project b. All contractors' tools and equipment on the construction site c. Trees, shrubs and plants for landscaping when part of the contract d. Temporary buildings, such as trailers, scaffolding and hoarding - Answer-b. All contractors' tools and equipment on the construction site Coverage under the Builder's Risk - Broad Form usually ends automatically a. Upon the expiry of the policy term b. Thirty (30) days after construction is completed c. When construction of the project is completed and the building is occupied
