Name: House:

Class:
Instructions: Type your name, class and house in the spaces provided at the top of the page.
Read the instructions for each question carefully. Please take your time when typing in this
document.

1. State whether the following sentences are true or false by typing T or F next to the
following sentences. Bold the T or F to emphasize it. [9 marks]

a. Indemnity means that in the event of a loss, the insured party should be able to be
made better off through the compensation given for the loss.

b. Indemnity seeks to restore the individual to the same financial position they were in
before the loss occurred.

c. If Pedram owns a mini bus valued at EC$100,000 but his insurance policy for the mini
bus is worth EC$120,000, this means the mini bus is over insured.

d. The maximum compensation Pedram can get for the mini bus is EC$120,000.

e. If Sarah’s property is worth EC$400,000 and she insures the property for EC$300,000,
her property is over insured.

f. If Sarah suffers a property loss worth EC$100,000, her compensation will be three-
quarters of EC$100,000, which is EC$75,000.

g. If a person has two insurance policies with different companies to cover the same risk,
the person can submit a claim to both insurance companies.

h. Both insurance companies will chip in or contribute towards paying the claim.

i. The policyholder can benefit or profit from having two insurance policies with different
companies, since he can get twice as much compensation this way.

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 2. Bold and Underline the correct answers in the situation below. [3 marks]

Samdaye is a business teacher who loves to do her own gardening as a hobby. She lives
a healthy lifestyle, which is why naturally grown fruits and vegetables are important to
her. Samdaye will likely have insurable interest in which of the following:

a. Her house
b. Her neighbor’s pit bull dog who acts as security
c. Her van
d. Her neighbor’s swimming pool
e. Her appliances tools, and equipment
f. Her cousin’s dairy farm

3. Fill in the numbered blanks using the following words, by typing the letter of the word
next to the appropriate number. [8marks]

[Link] B. sue C. insurance policy holder D. compensation

E. subrogation F. damages G. indemnified H. insurer

The principle of (1) ______________ means that if the (2) _______________ was (3)
___________ for a loss of an asset, ownership of that (4) ______________ now lies with the (5)
_____________________. The insurer can now (6) _______________ the insurance company
of the person responsible for (7) _____________________ for the (8) _____________ incurred.

1.
2.
3.
4.
5.
6.
7.
8.

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 4. Match the principles of insurance to their definitions by typing the letter next to the
appropriate number. [6 marks]

1. Principle of Utmost Good Faith. A. To restore the insured to his same financial
position before the loss occurred.

2. Principle of Insurable Interest. B. If the insured party has been compensated for a
loss of an asset, ownership of that asset now lies
with the insurer.
The insured person must take all steps
3. Principle of Indemnity. C. necessary to minimize losses.
The insurer and the insured must honestly
4. Principle of Subrogation. D. disclose all relevant facts and issues pertaining
to the insurance contract.
The main cause of an event, where there may
5. Principle of Loss Minimization. E. have been several contributing causes.

6. Principle of Nearest Cause. F. An individual can only insure something that he

1.

2.

3.

4.

5.

6.

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5. Case Study [Total 4marks]

Read the case study below and answer the questions that follow.

Mr. James was unfortunately the victim of a house burglary, so he claimed for
compensation under his Homeowner’ Insurance Policy, which covered theft. When the
insurance company’s employees examined the claim, they noticed that Mr. James had also
included Spiderman DVDs in addition to other household appliances. This caused suspicion
of a hoax since the Spiderman DVDs were not yet released when the burglary occurred. The
insurance company refused to pay compensation, claiming that Mr. James had not acted in
utmost good faith and was in fact trying to profit from the event, through false declaration.

a) Do you think Mr. James acted in utmost good faith by claiming for the Spiderman
DVDs which were not yet released at the time of the burglary? [2marks]

b) Was the insurance company justified in withholding compensation? [2marks]

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6. Answer the following questions by typing the answers in the spaces provided below
each question. [Total 16marks]

a) Differentiate between insurance and assurance. [2marks]

b) Explain the following types of insurance: [6marks]

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c) Explain the TWO principles of insurance below: [6marks]
i. The principle of loss minimization
ii. The principle of contribution

d) Explain ONE role of insurance in trade. [2 marks]

TOTAL TEST 46 MARKS