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PRACTICE EXAM FOR CAIB 1 2026
QUESTIONS WITH COMPLETE ANSWERS
GRADED A+
Insurers are in the business of assuming the financial risks of others which involves
entering into a formal contract. A contract is enforceable at law only when all legal
elements have been observed. Insurance contracts differ from other formal
agreements and are subject to what three additional elements? - ANSWER
Insurable Interest
Utmost Good Faith
Indemnity
Explain the meaning and disadvantage of the following approaches: Avoidance of
Risk & Control of Risk - ANSWER Avoidance: Avoidance means that all chance
of financial loss has been eliminated or a decision not to do something. The
disadvantage is its not very effective as often the elimination of one exposure
creates another in its place.
Control: taking measures to reduce the frequency and severity of losses. The
disadvantage is that not all losses can be controlled, because equipment will not
work 100% of the time
Identify the three elements that are unique to contracts of insurance: - ANSWER
Insurable Interest, Utmost Good Faith, and Indemnity
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