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AIC All Chapters Review Practice Exam Questions & Answers. 1) The philosophy behind insurance is to a) provide a vehicle through which wealthy individuals and corporations may protect their property against catastrophic loss b)allow insurers to grow larger and more stable, thus creating jobs...

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  • December 15, 2024
  • 33
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • aic
  • aic all chapters review practice exam questions

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AIC All Chapters Review Practice Exam
Questions & Answers.
1) The philosophy behind insurance is to



a) provide a vehicle through which wealthy individuals and corporations may protect their property
against catastrophic loss

b)allow insurers to grow larger and more stable, thus creating jobs and supporting the economy

c) spread the losses of the few amongst the premiums of the many

d) spread the losses of the many amongst the premiums of the few - CORRECT ANSWER c



2) Identify and briefly describe four benefits of insurance to society - CORRECT ANSWER 2) 1.Spread the
losses of the few among the premiums of the many. This benefits society in that it allows an insured to
have "peace of mind."

Money needed for premiums can be budgeted for and large amounts of money need not be set aside in
case of loss.

When an insured does not have to set funds aside in case of a loss, these funds can be used in other
ways.



When losses are indemnified by insurance companies, insureds have the resources to replace or repair
damaged objects. This stimulates the economy.



2. Employment opportunities: The insurance industry directly employs over 115,000 people; also other
organizations employ people as losses are paid for and replacement and repairs are undertaken. This
results in a need for employees in the construction industry, auto body shops, and other industries.



3. The security provided by insurance leads to an increase in the availability of credit. Lenders would not
be willing to extend credit without insurance.



4.Insurers support loss prevention initiatives—fire prevention, safer vehicles, influence on lawmakers for
stricter penalties with respect to drinking and driving, and programs to combat fraud

,3) Identify and briefly describe four basic types of insurance companies or market - CORRECT ANSWER
1. A stock insurance company is a corporation owned by its shareholders.

2. Shareholders purchase shares and are interested in making a return on their investment.
Policyholders pay a premium for insurance protection but have no financial interest in the company.

3. Mutual insurance companies are a type of co-operative owned by its policyholders. The primary
purpose of a mutual company is to insure the losses of its members. Profits made by a mutual company
will be paid as a dividend to the members or used to reduce premiums.

4. A captive insurance company is owned by its parent company for the purpose of funding their losses.

Lloyds of London is an insurance market. Syndicates are set up to accept risk on behalf of the syndicate.
They are known for insuring complex, unusual risks.



4) Once an underwriter decides to accept a risk, they must establish an appropriate premium. They
apply base rates established by actuaries, add loadings, and then multiply the final rate by the amount
insured to obtain the premium. A loading applied by an underwriter



a) is an additional charge included in an insurance rate to reflect a hazard not contemplated in the basic
rate for the class

b)is accomplished by applying the established rates to the specific items that are to be insured

c) is the rate multiplied by the amount of insurance

d) reflects the danger of loss arising from what happens to other nearby risks - CORRECT ANSWER a



5) When an insurer pays a claim to its insured under a contract of insurance and attempts to recover the
amount from a third party whom it believes is responsible for the damage, this is known as



a) indemnity

b)insurable interest

c) coinsurance

d) subrogation - CORRECT ANSWER d



6) What are the differences between treaty and facultative reinsurance? - CORRECT ANSWER Treaty
Reinsurance

Automatic reinsurance

,Insurer must cede risk and reinsurer

must accept risk



Facultative Reinsurance Not automatic—per risk basis

Choice to reinsure or not



7) Reinsurance is insurance for insurance companies. It is a method of spreading risk for insurers. Which
of the following is NOT a reason for reinsuring?



a) To reduce the effect of a catastrophic loss

b) To increase the insurer's capacity to write business

c) To promote the collection and pooling of loss information

d) To provide stability in a fluctuating market - CORRECT ANSWER c



8) What is the difference between an agent and a broker? - CORRECT ANSWER A broker is an
independent business person who is authorized to sell insurance policies on behalf of an insurer. They
usually represent many insurers.

An agent represents one company only. They are employees of an insurance company.



9) Carlos Marrero is an agent for Elite Insurance Company. Although he represents only Elite Insurance,
he is not a company employee and is responsible for his own expenses. Carlos is paid a commission for
the policies he sells, but the client list belongs to Elite Insurance Company. What type of company is Elite
Insurance?



a) Exclusive agency company

b)Partnership

c) Independent agent selling company

d) Sole proprietorship - CORRECT ANSWER a



2-1)What is the difference between an independent brokerage system and a direct writer? - CORRECT
ANSWER A direct writer markets their products directly to the public. An independent brokerage sys-
tem does not. It uses independent brokers to sell their products.

, 2-2) You are a broker for Creative Solutions Brokerage Ltd. Your top priority is to produce business. You
understand that it is not easy to sell something without having substantial knowledge about it.
Continuing education is essential and aligns with the mandate of the provincial regulatory body. Brokers
and agents must take _____ hours annually of approved courses and seminars relating to their business.



a) 10

b)15

c) 24

d) 30 - CORRECT ANSWER b



2-3) Based on the principal and agent legal relationship, it is understood that an insurer's (principal's)
knowledge of a risk is the same as that of the intermediary (agent). What does this mean?



a) Full disclosure to the intermediary by the client is required

b)Information given to the intermediary by the client is deemed to be given to the insurer

c) Both the insurer and the intermediary are expected to be knowledgeable

d) Both the insurer and the intermediary are partners in protecting the client from fortuitous events -
CORRECT ANSWER b



2-4) Which of the following is considered to be a fiduciary?



a) An insured

b)An insurance agent

c) A lessor

d) The Alberta Insurance Council - CORRECT ANSWER b



2-5) As an insurance broker, you must communicate factual statements about a risk to an underwriter,
so the risk may be properly assessed. This duty of disclosure



a) is fundamental to the principle of utmost good faith that underlies all insurance transactions

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