### Answers to Sample Questions for RIBO Exam
#### General Insurance Principles
1. **What is insurance?**
A contractual agreement providing financial protection against potential losses in exchange for
premiums.
2. **Define risk.**
The possibility of loss or damage occurring.
3. **What are the types of risk?**
Pure risk (only loss) and speculative risk (possibility of gain or loss).
4. **Explain the principle of indemnity.**
Insurance should restore the insured to the same financial position as before the loss, without allowing
for profit.
5. **What is the difference between insurable interest and insurance?**
Insurable interest is a financial stake in the insured item, whereas insurance is a contract that provides
financial compensation for loss.
6. **What is the law of large numbers?**
The principle stating that as the number of similar risks increases, actual loss will more closely
approximate expected loss.
7. **Describe adverse selection.**
A situation where individuals with higher risk are more likely to purchase insurance, leading to
unbalanced risk pools.
8. **What is moral hazard?**
The tendency of insured individuals to take on higher risks because they do not bear the full
consequences of their actions.
9. **Define subrogation.**
The insurer's right to pursue a third party responsible for a loss after compensating the insured.
10. **Explain the concept of premium.**
The amount paid by the insured to the insurer for coverage.
11. **What factors influence insurance premiums?**
Risk factors, claims history, coverage amounts, deductibles, and market conditions.
12. **What is the purpose of deductibles in an insurance policy?**
To share the cost of loss between the insurer and insured, thereby reducing minor claims.
13. **Differentiate between actual cash value and replacement cost.**
Actual cash value includes depreciation; replacement cost does not, reflecting the cost to replace the
item at current prices.
14. **Explain what a policy limit is.**
The maximum amount the insurer will pay for a covered loss.
15. **What is a co-insurance clause?**
A provision requiring the insured to maintain coverage at a specified percentage of the property's
value to receive full benefits.
16. **Describe the concept of exclusions in an insurance policy.**
Specific conditions or circumstances that are not covered by the policy.
17. **What is a rider or endorsement in insurance?**
A document that modifies the coverage of a standard insurance policy, adding or excluding specific
coverage.
18. **How does reinsurance work?**
Insurance that insurers purchase to share risk, protecting themselves against significant losses.
19. **Explain the difference between claims-made and occurrence policies.**
Claims-made covers claims made during the policy period; occurrence covers incidents occurring
during the policy period, regardless of when the claim is made.
20. **What is the purpose of a binder in insurance?**
A temporary agreement providing proof of insurance until the actual policy is issued.
#### Types of Insurance Products
21. **What are the key features of a homeowner’s insurance policy?**
Coverage for the dwelling, personal property, liability protection, and additional living expenses.
22. **Describe term life insurance.**
Provides coverage for a specified period, paying a death benefit if the insured dies during that term,
with no cash value.
23. **What is whole life insurance?**
A type of permanent life insurance providing coverage for the insured's lifetime and includes a cash
value component that grows over time.
24. **Explain the concept of universal life insurance.**
A flexible premium permanent life insurance that allows policyholders to adjust premiums and death
benefits while accumulating cash value.
25. **What is critical illness insurance?**
Provides a lump-sum payment if the insured is diagnosed with a specified critical illness, helping cover
medical expenses or loss of income.
26. **What are the main types of auto insurance coverage?**
Liability, collision, comprehensive, personal injury protection (PIP), and uninsured/underinsured
motorist coverage.
27. **Describe liability insurance.**
Protects against claims for bodily injury or property damage caused to third parties.
28. **What is travel insurance?**
Provides coverage for trip cancellations, medical emergencies, lost luggage, and other risks while
traveling.
29. **Explain commercial general liability insurance.**
Protects businesses against claims for bodily injury, property damage, and personal injury occurring on
their premises or as a result of their operations.
30. **What is professional liability insurance?**
Covers professionals against claims of negligence or inadequate work in providing professional
services.
31. **Differentiate between business interruption insurance and property insurance.**
Business interruption insurance covers lost income due to a disruption in operations, while property
insurance covers physical loss or damage to property.
32. **What are the key components of a health insurance policy?**
Coverage for medical expenses, hospitalization, preventive care, and sometimes prescription
medications.
33. **Describe the purpose of long-term care insurance.**
Provides coverage for long-term care services, such as assistance with daily living activities, often not
covered by regular health insurance.
34. **What is pet insurance?**
Covers veterinary expenses related to the health and care of pets.
35. **What coverage does flood insurance provide?**
Coverage for property damage caused by flooding, typically excluded from standard homeowners
policies.
36. **Explain the difference between an insurance policy and an annuity.**
An insurance policy provides risk coverage, while an annuity is a financial product designed to provide
a series of payments over time.
37. **What is a whole life insurance policy's cash value?**
The savings component that grows over time, which can be borrowed against or withdrawn.
38. **Describe the purpose of accident insurance.**
Provides benefits for injuries sustained in accidents, covering medical expenses and loss of income.
39. **What are the main types of group insurance plans?**
Health insurance, life insurance, dental insurance, and disability insurance offered to a group, typically
through an employer.
40. **Explain the differences between personal and commercial insurance.**
Personal insurance covers individuals and families, while commercial insurance covers businesses and
organizations.
#### Regulatory Environment
41. **Who regulates insurance brokers in Ontario?**
The Financial Services Regulatory Authority (FSRA) of Ontario.
42. **What is the purpose of the Financial Services Regulatory Authority (FSRA)?**
To protect consumers and oversee the financial services sector to ensure fairness and transparency.
43. **What are the licensing requirements for insurance brokers in Ontario?**
Completion of an approved licensing course, passing the licensing exam, and meeting other regulatory
requirements.
44. **Explain the importance of consumer protection in insurance.**
Ensures consumers are treated fairly and can access accurate information about insurance products.
45. **What is the role of the Insurance Bureau of Canada (IBC)?**
Represents the property and casualty insurance industry and advocates for consumer interests and the
industry's effectiveness.
46. **Describe the concept of “fiduciary duty” for insurance brokers.**
The obligation to act in the best interests of clients, placing their interests above the broker's own.
47. **What are the penalties for non-compliance with insurance regulations?**
Fines, suspension or revocation of licenses, and potential legal action.
48. **How often must an insurance broker renew their license?**
Typically every two years, depending on provincial regulations.
49. **What is the importance of the Code of Conduct for insurance brokers?**
Establishes ethical standards and guidelines for professional behavior and client interactions.
50. **Describe the process for filing a complaint against an insurance broker.**
Clients can file a complaint with the FSRA, detailing the issue and providing relevant documentation
for review.
#### Risk Management
51. **What are the steps involved in the risk management process?**
Identify risks, assess risks, develop strategies, implement solutions, and monitor and review.
52. **How can an insurance broker assist a client in assessing their risk exposure?**
By conducting comprehensive risk assessments and advising on appropriate coverage options.
53. **What are the common risk management strategies?**
Risk avoidance, risk reduction, risk sharing, and risk retention.
54. **Explain risk transfer.**
Shifting the financial burden of risk to another party, typically through insurance.
55. **What is risk avoidance?**
Eliminating activities that expose one to risk.
56. **Describe risk retention.**
Accepting the risk and budgeting for potential losses, often through deductibles.
57. **What is a risk assessment matrix?**
A tool used to evaluate risks based on their likelihood and potential impact, helping prioritize risk
management efforts.
58. **How do brokers help clients mitigate risk?**
By providing tailored advice on coverage options, implementing safety measures, and recommending
loss prevention strategies.
59. **What are the indicators of a high-risk client?**
Poor claims history, engaging in high-risk activities, and lacking adequate safety measures.
60. **Explain the importance of regular insurance reviews.**
Ensures that coverage remains appropriate as clients' circumstances and needs evolve.
#### Claims Handling
61. **What is the process for filing an insurance claim?**
Notify the insurer of the claim, provide necessary documentation, and follow up on the status of the
claim.
62. **Describe the broker's role in the claims process.**
Assisting clients with claim filing, providing guidance, advocating for them, and ensuring proper
communication with the insurer
