FREE RIBO Customer Service and Sales Skills Test 3

Question 1

If a company cancels an auto policy mid-term, the refund will be made on:

Accepted Answer

Pro-rata basis

Answer

When an insurance company cancels a policy mid-term, the unearned premium is refunded to the insured on a pro-rata basis. This means the refund is calculated proportionally to the exact amount of time remaining on the policy period. This method ensures the insured receives a fair refund for the unused portion of the coverage, as the cancellation was initiated by the insurer.

Question 2

What is the term used to describe terminating the insurance relationship at the end of the policy period?

Accepted Answer

Nonrenewal

Answer

Nonrenewal specifically refers to the termination of an insurance policy at its scheduled expiration date, meaning the insurer chooses not to offer coverage for the subsequent policy period. This differs from cancellation, which terminates a policy before its natural expiration. Both the insurer and the insured can initiate nonrenewal, typically requiring advance notice as stipulated in the policy terms.

Question 3

Which is the best example of an indirect loss?

Accepted Answer

Loss of use

Answer

An indirect loss, also known as a consequential loss, is a financial loss that results from a direct physical loss but is not the direct physical damage itself. 'Loss of use' perfectly exemplifies this, as it refers to the financial impact of not being able to use damaged property, such as the cost of temporary housing after a home fire or lost business income after a commercial property is damaged. This loss is a consequence of the direct damage.

Question 4

Which is a two-party contract?

Accepted Answer

Property

Answer

A property insurance contract is typically considered a two-party contract because it primarily involves an agreement between the insurer and the insured regarding the protection of the insured's own property. The contract specifies the conditions under which the insurer will pay the insured for direct losses to their covered property. While other parties might have an interest (like a mortgagee), the core agreement is bilateral.

Question 5

Insurance contracts offset:

Accepted Answer

Pure risk

Answer

Insurance contracts are designed to manage and offset pure risk, which involves only the possibility of loss or no loss, with no chance of gain. Examples include the risk of fire, theft, or accident. Speculative risk, on the other hand, involves the possibility of either gain or loss (like gambling or investing) and is generally not insurable because it is undertaken voluntarily for potential profit.

RIBO - Registered Insurance Broker of Ontario Practice Test

RIBO - Registered Insurance Broker of Ontario Practice Test

FREE RIBO Customer Service and Sales Skills Test 3