Basic Insurance Concepts & Principles (Fourth Edition - 2013) from SCI website

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Basic Insurance Concepts & Principles (Fourth Edition - 2013) Mock Paper
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Question 1

Question
________ are set up primarily to insure the risks of their parent and related companies.
Answer
  • Reinsurers
  • Direct insurers
  • Captive insurers
  • Composite insurers

Question 2

Question
Insurers are using alternative distribution channels to market their insurance products. Which one of the following is NOT an alternative distribution channel?
Answer
  • Post offices
  • The Internet
  • Credit card providers
  • Marketing staff of the insurer.

Question 3

Question
A vehicle collision that causes a driver to suffer personal injury and physical damage to his vehicle is an example of a:
Answer
  • pure risk
  • speculative risk
  • non-financial risk
  • fundamental risk

Question 4

Question
________ is NOT a speculative risk.
Answer
  • Running in a marathon
  • Betting on a horse race
  • Venturing into a food business
  • Investing in stocks and securities

Question 5

Question
________ are uninsurable.
Answer
  • Pure risks
  • Financial risks
  • Particular risks
  • Speculative risks

Question 6

Question
The potential loss of an insurable risk must be:
Answer
  • caused intentionally
  • indefinite in terms of time and amount
  • large enough to create a financial burden for the insured
  • certain to happen to a large number of insureds at the same time

Question 7

Question
The lightning that caused the factory owned by Adrian to be burnt down is referred to as the:
Answer
  • peril
  • hazard
  • damage
  • non-financial risk

Question 8

Question
Betsy has a fear of drowning, so she chooses not to swim. This is an example of risk:
Answer
  • transfer
  • control
  • phobia
  • avoidance

Question 9

Question
Strict enforcement of safety rules in construction sites is an example of loss:
Answer
  • transfer
  • reduction
  • avoidance
  • prevention

Question 10

Question
As specified in Session 57(1)(b) of the Insurance Act (Cap. 142), insurable interest is NOT present when the:
Answer
  • husband purchases insurance on the life of his wife
  • creditor purchases insurance on the life of his debtor
  • grandmother purchases insurance on the life of her grandson
  • father purchases insurance on the life of his son below 18 years old

Question 11

Question
Which one of the following insurance policies does NOT require proof of insurable interest in the event of a claim?
Answer
  • Life Insurance policy
  • Marine Insurance policy
  • Liability Insurance policy
  • Property Insurance policy

Question 12

Question
Under the doctrine of utmost good faith, the parties to an insurance contract have the duty to disclose all:
Answer
  • commonly known facts
  • facts only when asked for
  • material facts relating to the risk being proposed
  • material assumptions relating to the loss reduction

Question 13

Question
In his proposal form for Fire Insurance, Donald states that his warehouse is installed with fire extinguishers when it is not. This is an example of ________ misrepresentation.
Answer
  • innocent
  • negligent
  • fraudulent
  • speculative

Question 14

Question
Under the principle of indemnity, there are a number of methods by which an insurer can provide the necessary indemnity to the insured in the event of a loss. Which one of the following is NOT a method of providing indemnity?
Answer
  • Replacement
  • Cash payment
  • Reinstatement
  • Policy renewal discount

Question 15

Question
The principle of indemnity applies to ________ Insurance policies.
Answer
  • Life
  • Pecuniary
  • Critical Illness
  • Personal Accident

Question 16

Question
Max Hardware Storage, a warehouse, caught fire recently. Its owner claimed a loss of S$80,000 (hardware stock) against its Fire Insurance policy that included an Average Clause. The loss adjuster appointed by the insurer was satisfied that the quantum of loss claimed was correct. However, the lost adjuster was of the opinion that there was at least S$160,000 in stock, but only S$120,000 was insured. As such, on application of average, the insurer's liability for loss under the policy amounts to
Answer
  • S$30,000
  • S$60,000
  • S$90,000
  • S$120,000

Question 17

Question
An explosion at his neighbour's factory caused a fire which spread to Calvin's factory and caused extensive damage. The insurer having paid the claim to Calvin under his Fire Insurance policy assumes his rights to recover the loss from his neighbour, who was responsible for the fire. This legal doctrine is known as:
Answer
  • excess
  • average
  • indemnity
  • subrogation

Question 18

Question
The principle of contribution arises when there is a loss that involves two or more insurance policies covering:
Answer
  • different perils
  • the common interests
  • different subject matters
  • the same amount of sum insured

Question 19

Question
Which one of the following statements about a general insurance agent is NOT correct?
Answer
  • He procures new business for the insurer.
  • He services his existing business for the insurer.
  • He is also the principal party in an agency agreement.
  • He is essentially an intermediary acting for the insurer.

Question 20

Question
________ authority is the power that is granted to an agent by the principal in specific terms in the agency agreement.
Answer
  • Usual
  • Actual
  • Implied
  • Apparent

Question 21

Question
The situation where the principal accepts its agent's actions that are made outside the scope of the agency agreement is known as:
Answer
  • estoppel
  • ratification
  • reinstatement
  • ostensible authority

Question 22

Question
Which of the following statements relating to the Law of Contract is CORRECT?
Answer
  • Undischarged bankrupts have the legal right to enter into contracts.
  • Mutual agreement of a contract can be evidenced by the making of an offer either orally or in writing.
  • A contract is enforceable by law without a consideration being passed from the promisee to the promisor.
  • All of the others.

Question 23

Question
Which one of the following insurance policies is an example of a "master contract" that is effected by a company to offer optional employee benefits?
Answer
  • Marine Hull
  • Building and Contents
  • Group Personal Accident
  • Directors' and Officers' Liability

Question 24

Question
Which one of the following documents does NOT form part of an insurance contract?
Answer
  • Declaration
  • Cover Note
  • Claim Form
  • Certificate of Insurance

Question 25

Question
In the proposal form for Fire Insurance, the information that has a material bearing on the potential hazards of the risk is the:
Answer
  • insured's address
  • period of insurance cover
  • insurer's warning statement
  • insured's means of identification

Question 26

Question
Which one of the following statements BEST describes a cover note?
Answer
  • It can be used as a renewal notice.
  • It replaces the lost policy document.
  • It has the same legal status as the actual policy.
  • It forms the basis of risk assessment by the insurer.

Question 27

Question
A Certificate of Insurance is typically NOT required for ________ Insurance.
Answer
  • Liability
  • Marine Cargo
  • Private Motor Car
  • Commercial Vehicle

Question 28

Question
An implied condition is one that must be complied with, but does not appear in the policy document. Which one of the following is an example of an implied condition?
Answer
  • Warranties
  • Subrogation of rights
  • Notification of claims
  • Existence of subject matter

Question 29

Question
Which one of the following question is NOT usually included in a check list used to perform a preliminary validation of a Property Insurance claim by an insurance company?
Answer
  • Is the claimant entitled to the payment?
  • Is the property covered under the policy?
  • Did the loss occur in a place covered by the policy?
  • Is the loss the indirect result of a hazard covered under the policy?

Question 30

Question
In the event of a loss or damage, the onus of proving that the loss has occurred rests solely with the:
Answer
  • agent
  • insured
  • lawyers
  • reinsurer

Question 31

Question
A "Sue and Labour" clause enables the insured to recover expenses incurred in averting or minimising a loss under a policy. This clause is commonly found in a/an ________ Insurance policy.
Answer
  • Marine Cargo
  • Product Liability
  • Commercial Vehicle
  • Errors and Omissions

Question 32

Question
________ are independent intermediaries who can help policyholders to ensure that the eventual claim settlement recommended to the insurers is fair to both parties within the terms of the policy.
Answer
  • Enginners
  • Risk surveyors
  • Loss adjusters
  • Forensic scientists

Question 33

Question
In Singapore, Section 24A of the Limitation Act (Cap. 163) provides for legal actions pertaining to damages for negligence, nuisance or breach of duty in respect of personal injuries to commence before the expiration of a certain limitation period from the date on which the course of action accrued. The limitation period in Singapore is ________ years.
Answer
  • one
  • three
  • six
  • nine

Question 34

Question
The common method of settlement of the loss of a jewellery under a Theft Insurance policy is by:
Answer
  • repair
  • avoidance
  • replacement
  • reinstatement

Question 35

Question
________ is a risk transfer mechanism whereby the reinsurer transfers part of a risk to another reinsurer.
Answer
  • Insurance
  • Contribution
  • Retrocession
  • Co-insurance

Question 36

Question
Which one of the following regarding treaty reinsurance is FALSE?
Answer
  • It may be placed on a proportional basis.
  • The reinsurers are obliged to accept all risks ceded.
  • Surplus Reinsurance is one example of treaty reinsurance.
  • It is more costly to administer as compared to facultative reinsurance.

Question 37

Question
A contract of reinsurance is strictly between the ________ and the reinsurer.
Answer
  • direct insurer
  • original insured
  • insurance agent
  • reinsurance broker

Question 38

Question
After retaining S$3,000,000 on a risk with an original sum insured of S$5,000,000, Gold Insurer reinsured the balance with Silver Reinsurer on a Proportional Facultative Reinsurance basis. If there is a loss of S$2,000,000 on the risk, Silver Reinsurer will be liable to pay its share of loss amounting to:
Answer
  • S$200,000
  • S$400,000
  • S$600,000
  • S$800,000

Question 39

Question
The Monetary Authority of Singapore (MAS) Guideline No: FSG-G01 sets out fit and proper criteria applicable to all relevant persons in relation to the carrying out of any activity regulated by MAS. Examples of relevant persons are:
Answer
  • director of a registered insurer
  • broking staff of a registered insurance broker
  • substantial shareholder of a registered insurer
  • all of the others

Question 40

Question
Which of the following statements relating to the Singapore General Insurance Code of Practice ("The Code") is FALSE?
Answer
  • The objective of the Code is to ensure that the general insurance customer is treated fairly.
  • The Code covers how an insurance agent should maintain confidentiality of information relating to any of his customers.
  • The Code covers all types of general insurance products (including commercial lines) which are sold to corporate clients.
  • All of the others.
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