BCP - Basic Insurance Concepts and Principles Singapore Fundamental Principles of Insurance Questions and Answers

Question 1

Under Singapore's Insurance Act (Cap. 142), which of the following parties is presumed to have an insurable interest in the life of the person being insured?

Accepted Answer

The insured person's spouse.

Answer

Section 57(1)(b) of the Singapore Insurance Act (Cap. 142) explicitly states that a person is presumed to have an insurable interest in the life of their spouse. While creditors and business partners may be able to prove an insurable interest, it is not automatically presumed by the Act. The presumption for a child only applies if they are under 18 years of age or are a dependant.

Question 2

An applicant for a fire insurance policy in Singapore failed to disclose that the premises were used for storing highly flammable chemicals, a fact that would have influenced the insurer's decision to accept the risk. This non-disclosure is a breach of which fundamental insurance principle?

Accepted Answer

Utmost Good Faith (Uberrima Fides)

Answer

The principle of Utmost Good Faith, or Uberrima Fides, requires both the insured and the insurer to be transparent and disclose all material facts. In Singapore, this common law principle is strictly applied. The storage of flammable chemicals is a material fact that affects the risk, and its non-disclosure is a clear breach of this duty, which could allow the insurer to void the policy.

Question 3

Mr. Tan's provision shop was damaged by a fire which was the insured peril. However, subsequent water damage was caused by firefighters extinguishing the fire. According to the principle of Proximate Cause as applied in Singapore, what is the insurer's likely liability?

Accepted Answer

The insurer is liable for both the fire and water damage as the fire was the dominant and effective cause of the entire loss.

Answer

The principle of Proximate Cause states that the insurer is liable for losses where the insured peril is the dominant and effective cause, even if it is not the last event in time. In this scenario, the fire is the proximate cause of the loss. The water damage from firefighting is a direct and foreseeable consequence of the fire, creating an unbroken chain of causation. Therefore, the insurer is liable for both types of damage.

Question 4

A vehicle insured for S$80,000 is declared a total loss in an accident. The pre-accident market value was S$75,000 and the salvage value is S$5,000. Based on the principle of Indemnity, what is the maximum amount the insured is entitled to receive from the insurer?

Accepted Answer

S$75,000, to be restored to their pre-loss financial position.

Answer

The principle of Indemnity aims to restore the insured to the same financial position they were in immediately before the loss, but not to provide a profit. Therefore, the compensation is based on the actual loss suffered, which is the market value of the vehicle just before the accident. The sum insured (S$80,000) is the maximum limit of liability, not the amount automatically paid. The insurer is entitled to the salvage after paying the claim.

Question 5

After an insurer pays for the damages to its policyholder's car caused by a negligent third party, the insurer attempts to recover the costs from that third party. This action is an exercise of which insurance principle?

Accepted Answer

Subrogation

Answer

Subrogation is the insurer's right to 'step into the shoes' of the insured after paying a claim, allowing the insurer to pursue the rights and remedies the insured has against a responsible third party. This prevents the insured from being compensated twice (by the insurer and the third party) and ensures the at-fault party is held responsible.

BCP Insurance Practice Test

BCP Insurance Practice Test

BCP - Basic Insurance Concepts and Principles Singapore Fundamental Principles of Insurance Questions and Answers