Principles of Insurance Quiz

The principle of "utmost good faith" in insurance means:

• The insurer must inform the insured about the risks covered by the policy.

• Both the insurer and the insured must disclose all material facts honestly and fully.

• The insured is only required to disclose information when asked.

• The insurer is obligated to make the final decision in all disputes.

What does the principle of "proximate cause" relate to in insurance?

• The insurance policy must cover all possible causes of damage.

• The closest or most direct cause of the loss must be identified for a claim to be valid.

• The insurance policy excludes all indirect causes of loss.

• The insured must prove they were not at fault for the loss.

The principle of indemnity ensures that:

• The insured can make a profit from the insurance policy.

• The insurer always pays the maximum sum insured.

• The insured is reimbursed only for the premiums paid.

• The insurer pays the exact amount of the insured's loss, no more, no less.

The principle of subrogation allows the insurer to:

• Recover from a third party responsible for the insured's loss after paying the claim.

• Cancel the insurance policy if the insured causes the damage.

• Increase the premium after a claim is made.

• Transfer the claim to another insurer after settlement.

Which of the following describes the principle of contribution in insurance?

• The insurer has no obligation to share the loss if the policyholder has other insurance.

• Contribution only applies to policies issued by the same insurer.

• The insurer pays the full claim amount, regardless of the number of policies held by the insured.

• If the insured has multiple policies covering the same risk, each insurer will pay a proportionate share of the loss.

Which of the following statements is true regarding insurable interest?

• Insurable interest must exist at the time of loss, not necessarily when the policy is purchased.

• A person can take out an insurance policy on any property, even without ownership or financial interest

• The right to insure arising out of legally recognizes financial interest which a person has in the subject matter of insurance.

• A person can insure property owned by someone else, even if there is no risk of financial loss.

If an insured party fails to disclose a material fact during the application process, which of the following may happen?

• The insurer is required to pay the claim anyway.

• The insurer may cancel the policy or refuse to pay the claim.

• The insured is entitled to a refund of the premium.

Which of the following situations would be a valid claim under the principle of proximate cause?

• An insured's house is damaged by fire after an earthquake.

• An insured's house is damaged by a flood that was predicted by weather forecasts.

• An insured's house is damaged by a fire caused by a lightning strike.

• An insured's house is damaged by theft while the homeowner is away on vacation.

The principle of indemnity means that:

• The insured will receive a new item of equal value to the damaged property.

• The insured cannot receive a payout that exceeds the actual amount of the loss.

• The insurer must always pay the full sum insured, regardless of the loss amount.

• The insured will receive a fixed payout regardless of the damage.

In a subrogation scenario, the insurer:

• Surrenders the right to recover damages from a third party.

• Allows the insured to sue a third party responsible for the loss.

• Seeks compensation from the responsible party after paying the claim to the insured.

• Only applies to property insurance claims, not liability claims.