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Fundamentals to Insurance Entrance Exam 2025-2026 WITH
COMPLETE QUESTIONS AND CORRECTLY WELL DEFINED
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EXAM 2025- 2026/ Fundamentals to Insurance Entrance
Exam
5 important points in the definition of insurance
- Insurance shifts financial responsibility from one party to another
- Payment will be made only in event of certain risk or peril 3.Amount restricted to amount required to indemnify insurer
- Covers accidental and future losses to which object may be exposed
- Indemnity provided in form of money or repair/replacement Definition of "spread of risk" Losses shared among many to reduce the financial impact/burden (losses of few shared among many) Major function of insurance Spread of risk 4 other functions of insurance
- Basis of credit system - protects investment of lenders
- Eliminates worry - small amount spend now to cover potential large losses in future
- Loss prevention and reduction through community partnerships
- Source of employment and investment capital Three types of general insurance
- Automobile
- Property (habitational or business)
- Liability (protection for injury or damage to others) Two types of insuring organizations
- Private
- Government How do mutual and stock work Stock - money comes from private funds or public sale of stock Mutual - corporation owned by policyholders, main goal is to provide insurance at lowest possible cost Government insurance Mostly provide compulsory automobile insurance (ICBC) provincially and federally Two ways insurers use to sell their products
- Direct writing
Two types of risk Speculative - not insurable (chance of gain, chance of loss) Pure - no chance for profit, insurable Definition of a contract Agreement by two or more parties that is enforceable by law Agreement Offer is made and unconditional acceptance of offer Consideration Exchange of something of value (payment by insured) Legality of object Contract cannot break any laws and must be for public good Legal capacity of parties to contract Will only enforce contracts where parties deemed competent.
3 reasons for incompetence
- Minors except for rights of food, clothing, and shelter
- Mental incompetence as determined by courts not brokers
- Personas under the influence proving they were drugged or not capable of understanding the contract Genuine intention Agreement can't be affected by fraud, duress, concealment, mistake 3 elements unique to insurance contracts and their definitions
- Insurable interest - able to show that the insured would suffer a financial loss
- Utmost good faith - complete honesty of both the insurer and insured
- Indemnity - people receive actual amount of loss, no more no less, in the form Void contract vs voidable Both occur in case of missing one of the 3 essentials to insurance contracts Void contract As if the contract never existed
Endorsement/rider Acknowledges change IN the original contract Floater Additional coverage for property with high mobility Separate policies Adds additional coverage to main policy (earthquake, top-up, etc) Role of federal government in licensing Provided to companies that meet strict financial standards, monitored by the superintendent of financial institutions 3 roles of provincial government
- Supervises terms and conditions of insurance contracts
- Licenses insurer's (still required with federal license)
- Monitors stability of insurers using reports that monitor assets, liabilities, receipts, expenditures, and loss stats
What part of the government is the superintendent of insurance from Provincial Property and causality insurance compensation corporation (PACICC) Pays all claims in cases of insurer bankruptcy - max $250,000 for single occurrence, refunds up to 70% unearned premiums ($700 per policy maximum) Fiduciary One who handles other's money Fiduciary responsibility of insurer Premiums not paid to insurer until expiration in case of cancellation Fiduciary responsibility of broker Commissions not earned until end of policy (Ontario requires separate trust for premiums to be held) Contents of insurance policies (6 items)
- Parties involved
- Policy period of effectiveness
- Payees in event of loss
- Specific coverages applicable and amounts
Who is entitles to amend terms and conditions of insurance contracts (waiver) Officer of the insurance agency After binding but before being paid by insured... Policy is binding on the insurer Basic coverages for policies insuring peril of fire (3) Fire, lightening, explosion of natural gas, coal, or manufactured gas Meaning of fire (that is covered) Only hostile fires (unintentional fires) are not covered Exclusions of peril of fire (4) Application of heat, lightning damage to electronics, electrical currents from sudden power surge, contamination from radioactive material What are statutory conditions and their purpose Duties and responsibilities of parties contract that cannot be changed after the policy is bound
What are the 15 statutory conditions
- Misrepresentation
- Property of others
- Change of interest
- Material change
- Termination
- Requirement after loss
- Fraud
- Who may give notice and proof
- Salvage
- Entry, control, abandonment
- Appraisal
- When loss payable
- Replacement
- Action
- Notice Misrepresentation Accidental or purposeful withhold of information that could've changed the coverage provided or premium price Property of others Third party property not covered unless specifically stated
Salvage Insured must prove all steps were taken to avoid loss if there was opportunity to do so Entry, control, abandonment Would be impossible for insurer to determine amount of loss if representative were not able to access the site so access must be granted Appraisal Disagreements settled by assessment of value of loss When loss payable Loss is payable within 60 days of reported loss unless specifies Replacement Insurer can replace or repair property unless otherwise stated Action Action against insurer barred unless commenced within one year of loss
Notice Establishes rules regarding communication between insured and insurer and how communication will be received Role of agent and duty to client Intermediary between insurer and client, works for insurance company Role of broker and duty to client Intermediary between insurer and client, works for client Broker duty to insurer Must tell truth to insurers about risks they submit and not conceal important information Errors and omissions claim (4) Can be filed because of broker failure to advise client of exclusions, failure to place coverage (or too late), providing incorrect coverage, or incorrect advice as to availability of coverages Broker duty to client To exercise care, diligence, and skill
Types of risks rated by brokers Simple smaller business applications have a rate sheet for broker, rate manuals provided by underwriters for personal property Types of risk rated by underwrtiers More complex commercial risks Why is the attitude of the broker important The claim may be insignificant to broker but not to client, hence why they submitted a claim 2 steps of adjusting a claim
- Insured reports claim to brokerage, if it appears covered by policy, the brokerage will reach out to insurer
- Broker will deal with adjuster 2 types of adjusters
- Insurance company adjuster - insurer's staff who settles claims
- Independent adjuster - have particular skills used or when company's adjuster is not available (must be approved by insurer) Types of property insured by homeowners form (6) Personal property
- Tenant's insurance
- Homeowner's insurance
- Condominium unit owner insurance
- Mobile home insurance
- Secondary dwelling insurance
- Seasonal dwelling insurance Types of property insured by commercial property insurance policies Business Direct damage Damage to item listed in policy directly impacted by peril listed on policy, insured by the policy Indirect damage Damage to items not listed on the policy as the result of a peril, not covered by insurance (ex. freezer breakdown from a fire resulting in stock expiring) Function of conditions To do or not do something on a promise and if said promises are breached contract is nullified 2 types of conditions and where you will find them
How indemnity is determined when loss is only to one part of a whole Indemnity confined to the part damaged, including the cost of installation How is actual cash value determined Replacement cost minus depreciation Replacement cost basis Must be added to policy as endorsement and approved by insurer Provisions for replacement cost basis for buildings (3)
- Must replace as soon as possible as material costs increase with time
- Replacement occurs on same site or adjacent
- Settlement made only when replacement has actually been affected Provision for replacement cost basis for properties Only if property is usable for its original purpose and repaired promptly Replacement cost
Replacing loss without accounting for depreciation, payment will be made for costs of materials and labor for repair when replacement is not an option Properties insured by values policies Property that can't be replaced such as antiques, memorabilia. This normally requires a qualified appraiser Requirements for insured when purchasing property by loan Purchase insurance naming the mortgagee as a payee and provide them with a certified copy of the policy Who is a mortgagee Anyone having insurable interest in property (lending money to insured) Guarantees of mortgagees (2)
- Guarantees of repayment when insured breaches any policy conditions
- Guarantees mortgagee gets the same level of of notice from the insurer that the insured gets (reduction of coverage, policy termination, etc) Common characteristics of homeowners forms (6)
- Clear language
- Common format or structure
