CAIB 2 - CHAPTER 7 EXAM | Questions & Answers (100% CORRECT)

CAIB 2 - CHAPTER 7 EXAM | Questions & Answers (100% CORRECT) CAIB 2 - CHAPTER 7 EXAM | Questions & Answers (100% CORRECT) - Seen as being too technical; - Reluctant to reveal earnings; - Lack of consumer knowledge. - ANSWER - Why some clients may be reluctant to discuss business interruption Insurance. - Physical damage to property; - Failure or breakdown of public utilities; - Transportation-related accidents; - Physical damage to neighbouring premises; - Loss caused to property of major supplier or customer; - Ancillary causes - strikes/lockouts. - ANSWER - Sources of business interruption losses. 1) Use capital reserves to pay expenses; 2) Bank loan; 3) Increase product prices to cover the loss. - ANSWER - Three other sources of funding to pay continuing expenses, other than business interruption insurance. Includes all monies from sales or services rendered by a business. - ANSWER - "Income." Expenses that continue during the period of an interruption. Includes mortgage interest, interest on accounts payable, management salaries and salaries under contract, etc. - ANSWER - "Fixed expenses." Expenses that may or may not continue during the period of interruption. Includes advertising, short-term salary continuation, warehousing costs, etc. - ANSWER - "Semi-variable expenses." 1) Insure against same perils as insured by the property policy; 2) Contracts of indemnity; 3) Period of indemnity is not limited by the policy period; 4) Provide payment of expenses necessarily incurred to reduce amount of loss; 5) Provide payment when access to insured's premises is prohibited by order of civil authority. - ANSWER - Five common characteristics of business interruption insurance forms. The sum of "net profit" and "standing charges." - ANSWER - "Gross profit" in insurance terms. Gross profit minus all other expenses earned by the business. - ANSWER - "Net profit" in insurance terms. "Gross profit" on a financial statement allows more deductions than "gross profit" calculated for insurance. If the accounting amount were used, the insured would be under-insured in the event of a loss. - ANSWER - How "gross profit" in accounting terms is different from "gross profit" in insurance terms.