RIBO LEVEL 1 PRACTICE
TEST CANADA 115
QUESTION EXAM
SIMULATION
Question 1: Which insurance principle is intended to place an insured, as nearly as possible, in the same �nancial position occupied immediately before a covered loss?
Choices:
1) Contribution 2) Indemnity 3) Subrogation 4) Salvage
Correct Answer: Indemnity
Explanation: Indemnity is the principle that insurance should compensate for a covered loss without allowing the insured to pro�t from it. The goal is to restore the insured's �nancial position as nearly as practical to what it was immediately before the loss.Page 1
Question 2: A homeowner leaves oily rags beside a furnace, increasing the chance of �re. In insurance terminology, the oily rags are best described as what?
Choices:
1) A peril 2) A physical hazard 3) A moral hazard 4) An indemnity
Correct Answer: A physical hazard
Explanation: A physical hazard is a tangible condition that increases the probability or severity of loss. The �re would be the peril; the oily rags are a physical condition that makes a �re more likely.
Question 3: What is the primary function of an insurance underwriter?
Choices:
1) To negotiate settlements after a loss 2) To determine whether a risk is acceptable and on what terms 3) To represent only the insured during a claim 4) To regulate insurance brokers
Correct Answer: To determine whether a risk is acceptable and on what terms
Explanation: An underwriter evaluates the characteristics of a proposed risk, compares them with the insurer's appetite and underwriting rules, and decides whether coverage can be o�ered and on what terms and price.Page 2
Question 4: A policyholder intentionally exaggerates the value of stolen property when submitting a claim. This behaviour is most accurately described as what type of hazard?
Choices:
1) Physical hazard 2) Moral hazard 3) Legal hazard 4) Speculative hazard
Correct Answer: Moral hazard
Explanation: A moral hazard arises from dishonesty or character traits that increase the likelihood or amount of a loss. Deliberately in�ating a claim is dishonest conduct and is therefore a moral hazard.
Question 5: What does an endorsement generally do to an insurance contract?
Choices:
1) It always cancels the policy 2) It amends the policy wording, coverage, or conditions 3) It replaces the insurer with a reinsurer 4) It guarantees that every claim will be paid
Correct Answer: It amends the policy wording, coverage, or conditions
Explanation: An endorsement is an amendment attached to a policy. Depending on its wording, it may add, delete, restrict, clarify, or otherwise modify coverage or conditions.Page 3