AIC L2 — Alberta General Insurance Level 2 Cheat Sheet

Use the tables for a quick pre-exam check. Expand a topic’s notes for explanations, examples, and additional distinctions.

Scope and study context

Item	Reference
Official vendor/provider	Alberta Insurance Council.
Official exam title	Alberta Insurance Council - General Insurance Level 2
Official exam code	AIC L2
Page purpose	Independent Cheat Sheet for final review and original practice support
Best use	Review after studying the official materials; use it to test distinctions, calculations, and scenario judgment

AIC L2 questions are usually applied, not purely definitional. Expect scenarios requiring you to identify the correct coverage, recognize a regulatory or ethics issue, calculate an insurance result, or choose the best broker action.

Item	Details
Provider	Alberta Insurance Council.
Official exam title	Alberta Insurance Council - General Insurance Level 2
Official exam code	AIC L2
Page purpose	Independent Cheat Sheet before topic drills, mock exams, and detailed explanations

This is independent companion practice support, not an official publication of Alberta Insurance Council. Always confirm current licensing rules, forms, and exam guidance with the official provider materials.

High-yield exam map

Alberta regulation, licensing, and market conduct

Regulator-facing vocabulary

Notes and examples

Compliance and ethics decision table

Scenario clue	Best exam response	Why it matters
Client asks, “Can you say my business is just storage, not manufacturing?”	Refuse and explain disclosure obligations	Misrepresentation of a material fact can void coverage and create discipline/E&O exposure
Broker receives premium payable to insurer	Treat as fiduciary/trust money; record and remit as required	Premium funds are not operating cash
Client wants coverage effective immediately	Bind only if you have authority and all binding conditions are met; otherwise request insurer approval	A broker cannot create insurer liability outside authority
Insurer declines or restricts coverage	Communicate promptly, accurately, and document	Delay can create uncovered loss and E&O exposure
Client rejects recommended coverage	Document the offer, explanation, and rejection	A signed rejection or clear file note is key evidence
Advertising says “lowest premiums guaranteed” without support	Avoid unsupported or misleading claims	Marketing statements are conduct evidence
Referral fee or inducement offered	Confirm legality, disclosure, and agency/insurer rules before proceeding	Secret or unauthorized inducements are high-risk
Complaint received	Acknowledge, escalate according to procedure, preserve file, avoid retaliation	Complaint handling is a compliance function
Conflict of interest	Disclose, manage, or avoid the conflict	Client must not be misled about the broker’s role or incentives
Confidential client data requested by third party	Obtain authority or confirm legal basis before disclosure	Privacy and confidentiality duties continue after sale

Level 2 operational and supervision focus

Function	Level 2 exam emphasis
File quality	Applications, quotes, coverage comparisons, client instructions, binder terms, insurer correspondence, declinations, and renewal notes should be clear enough for another licensed person to reconstruct the advice.
Supervision	Less experienced staff need procedures, referral points, file review, and limits on what they may bind or advise.
Escalation	Refer complex risks, complaints, coverage disputes, authority questions, and potential E&O incidents to management, insurer, or designated responsible person.
Renewal control	Track renewal dates, insurer changes, coverage reductions, premium changes, outstanding subjectivities, and client decisions.
Binding control	Confirm effective date/time, insurer, named insured, location/risk, limits, deductibles, subjectivities, and endorsements.
E&O prevention	Use checklists, confirmations, written recommendations, rejection documentation, diaries, and peer review.

Insurance contract principles

Notes and examples

Representation, warranty, condition, exclusion

Concept	Meaning	Trap
Representation	Statement made to induce the insurer to provide coverage	A false material representation can affect coverage even if not labelled “warranty”
Warranty	Promise that a fact is true or that something will/ will not be done	Breach can have severe coverage consequences
Condition	Policy obligation before or after loss	Breach may limit or defeat recovery depending on wording and law
Exclusion	Removes coverage otherwise inside the insuring agreement	Endorsements may carve back part of an exclusion
Definition	Controls scope of a term	Many coverage answers turn on defined words like “insured,” “automobile,” “business,” “occurrence,” or “vacant”

Core Insurance Principles

Principle	Quick meaning	Exam trap
Utmost good faith	Parties must disclose material facts honestly	Treating silence about a material fact as harmless
Insurable interest	The insured must have a financial or recognized interest in the subject	Assuming anyone can insure property they do not own or have responsibility for
Indemnity	Insurance aims to restore, not create profit	Ignoring ACV, depreciation, limits, deductibles, and co-insurance
Subrogation	Insurer may recover from a responsible third party after paying	Forgetting the insured must not prejudice recovery rights
Contribution	Multiple policies may share a loss	Paying one policy as if no other insurance exists
Proximate cause	Dominant cause determines coverage where wording requires it	Jumping to the first event instead of the effective cause
Fortuity	Insurance generally covers accidental/uncertain events	Covering expected, intentional, or inevitable losses
Materiality	Facts affecting underwriting or rating must be disclosed	Assuming a fact matters only if the client thinks it matters

Risk, underwriting, and pricing

Risk management choices

Notes and examples

Hazards and underwriting indicators

Item	Meaning	Underwriting relevance
Physical hazard	Tangible feature increasing chance or severity of loss	Poor wiring, wood heat, poor housekeeping, obsolete building
Moral hazard	Dishonesty or intent to cause/benefit from loss	Fraud history, financial distress, suspicious claims
Morale hazard	Carelessness because insurance exists	Poor maintenance, weak controls
Legal hazard	Lawsuits, legal environment, contract exposure	High-liability operations, unfavorable contracts
Adverse selection	Higher-risk insureds seek coverage more actively than lower-risk insureds	Underwriting questions and pricing protect the pool
Spread of risk	Many similar independent exposure units improve predictability	Concentrated catastrophe exposure is harder to insure
Frequency	How often losses occur	Deductibles and prevention may target frequency
Severity	Size of losses	Limits, reinsurance, risk control, and underwriting authority target severity

Rating concepts

Rating concept	Exam use
Exposure basis	Unit to which rate applies: vehicle, payroll, sales, area, value, receipts, or operations.
Manual rating	Rate from filed/manual class and territory factors.
Schedule rating	Debits/credits for risk-specific features.
Experience rating	Past loss experience affects future premium.
Deductible	Insured retains first portion of covered loss; can reduce frequency claims and premium.
Limit	Maximum insurer payment, subject to policy terms.
Aggregate	Maximum for all covered claims in a period for certain coverages.
Minimum retained premium	Premium retained despite cancellation if policy wording/contract allows.
Subjectivity	Condition to be met for quote/binder/coverage continuation, such as inspection, repairs, or documentation.

Core calculations

Coinsurance

Coinsurance requires the insured to carry insurance equal to a stated percentage of the property value. If the limit carried is too low, the insured shares the loss.

\[ \text{Required insurance} = \text{Insurable value} \times \text{Coinsurance percentage} \]\[ \text{Coinsurance factor} = \frac{\text{Limit carried}}{\text{Required insurance}} \]\[ \text{Claim payment before deductible} = \min\left(\text{Loss},\ \text{Policy limit},\ \text{Coinsurance factor} \times \text{Loss}\right) \]\[ \text{Final payment} = \max\left(0,\ \text{Claim payment before deductible} - \text{Deductible}\right) \]

Example logic: if the insured should have carried 800,000 but carried 600,000, the factor is 600,000 / 800,000 = 75%. On a partial loss, the insurer pays 75% of the covered loss before applying the deductible, subject to the policy limit.

Property valuation

\[ \text{Actual cash value} = \text{Replacement cost} - \text{Depreciation} \]

Premium and performance formulas

\[ \text{Earned premium} = \text{Written premium} \times \frac{\text{Time expired}}{\text{Policy term}} \]\[ \text{Unearned premium} = \text{Written premium} - \text{Earned premium} \]\[ \text{Loss ratio} = \frac{\text{Incurred losses}}{\text{Earned premium}} \]\[ \text{Expense ratio} = \frac{\text{Underwriting expenses}}{\text{Written premium}} \]\[ \text{Combined ratio} = \text{Loss ratio} + \text{Expense ratio} \]

Notes and examples

Key Property Terms

Term	Meaning
Building	Structure and usually permanent fixtures
Contents	Personal property inside or related to premises
Stock	Goods held for sale or processing
Equipment	Business personal property used in operations
Improvements and betterments	Tenant-paid upgrades that become part of the building
Actual cash value	Replacement cost less depreciation, subject to wording
Replacement cost	Cost to repair or replace without depreciation, subject to conditions
Functional replacement cost	Replaces with modern equivalent performing same function
Agreed value/stated amount	Valuation approach intended to reduce disputes if conditions are met
Pair and set	Loss to part of a set may not mean full set replacement unless wording provides
Vacancy	Absence of occupants/contents/activity; often triggers restrictions
Unoccupancy	Temporary absence while intent to return remains; different from vacancy

Named Perils vs Broad/Comprehensive Forms

Form type	How to think about it
Named perils	Covered only if the peril is listed
Broad form	Often broader on building than contents, depending on wording
Comprehensive/all risks	Covers direct physical loss unless excluded; “all risks” does not mean all losses
Endorsed coverage	Coverage added or modified by endorsement; often crucial for water, earthquake, sewer backup, glass, equipment, or special property

Property Exclusion Traps

• Wear and tear, gradual deterioration, rust, corrosion, marring, scratching.
• Faulty design, material, workmanship, or maintenance.
• Mechanical breakdown unless equipment breakdown coverage applies.
• Settling, expansion, contraction, earth movement, or water exclusions, subject to wording.
• Intentional or criminal acts by insureds.
• Losses after vacancy beyond policy-permitted conditions.
• Property illegally acquired, used, stored, or misrepresented.
• Business property at a residence beyond policy limits.
• High-value items subject to special limits unless scheduled.

Personal property insurance

Habitational forms

Notes and examples

Homeowners coverage parts

Coverage	What it protects	Common issue
Dwelling/building	Main residence and attached structures	Renovations, occupancy change, bylaws, replacement cost conditions
Detached private structures	Garages, sheds, fences, other separated structures	Business use or rental use may restrict coverage
Personal property	Contents owned/worn/used by insured	Special limits for valuables, money, securities, watercraft, business property
Additional living expense	Extra cost to maintain normal standard of living after insured loss	Requires insured damage making premises unfit or access prohibited under covered circumstances
Fair rental value	Lost rent when rented portion cannot be occupied due to insured loss	Not the same as business income coverage
Personal liability	Legal liability for bodily injury/property damage	Business, auto, professional, and intentional acts are common exclusions
Voluntary property damage/medical payments	Goodwill payments without legal liability	Small, condition-based coverage; not a substitute for liability limits

Property peril distinctions

Peril/loss	Exam distinction
Fire	Direct fire damage usually covered; intentional fire by insured is not.
Smoke	Sudden accidental smoke may differ from repeated/industrial smoke.
Explosion	Usually covered as a peril, but boilers/equipment may require equipment breakdown for full treatment.
Windstorm/hail	Exterior opening and water entry rules matter.
Theft	Vacancy, mysterious disappearance, and property away from premises can restrict coverage.
Vandalism/malicious acts	Vacancy restrictions are common.
Freezing	Heat maintenance and shut-off requirements matter.
Water escape	Sudden escape from plumbing differs from seepage, flood, ground water, sewer backup, or overland water.
Sewer backup	Often endorsement-dependent.
Overland water/flood	Often limited, excluded, or endorsement-dependent; do not assume standard coverage.
Earthquake	Usually excluded unless endorsed.
Wear and tear	Maintenance issue, not fortuitous insured loss.
Faulty workmanship/design	Often excluded, but resulting damage may be treated separately depending on wording.

Vacancy vs unoccupancy

Concept	Meaning	Coverage impact
Unoccupied	Insured is temporarily away but intends to return; contents remain	Conditions may require heat, inspections, or water shutoff
Vacant	Occupants have moved out with no intent to return or premises lacks normal contents/use	Stronger restrictions; vacancy permit may be needed
Material change	Occupancy/use changes from what insurer accepted	Must be reported promptly

Personal Lines Comparison

Policy/exposure	Key points
Homeowners	Building, contents, additional living expense, personal liability, voluntary payments
Tenants	Contents, additional living expense, personal liability; no building ownership coverage
Condo unit owner	Unit improvements, contents, loss assessment, additional living expense, personal liability
Dwelling fire	Often used for rental or non-owner-occupied dwellings; coverage depends heavily on form
Seasonal/secondary home	Occupancy, heating, water shutoff, theft, and vacancy conditions are high-yield

Personal Property and Liability Traps

• Replacement cost is conditional. The insured may need to repair/replace within required terms.
• Special limits matter. Jewellery, money, collectibles, bicycles, tools, and business property often have limits.
• Home business is not automatically covered. Property and liability may require endorsement or commercial policy.
• Water is wording-sensitive. Sewer backup, overland water, seepage, flood, and sudden escape are not interchangeable.
• Vacancy is more serious than absence. Do not confuse vacation travel with a vacant dwelling.
• Personal liability excludes many business, auto, intentional, and professional exposures.

Commercial property

Commercial property components

Notes and examples

Commercial property forms

Form	Scope	When to choose
Named perils	Only listed perils	Lower cost, simpler risks, limited appetite
Broad/all risks	Direct physical loss unless excluded	Better for businesses needing wider protection
Floater	Property that moves or is at various locations	Contractors equipment, tools, installation property
Builders risk/course of construction	Building under construction/renovation	Project-based property coverage
Installation floater	Materials/equipment being installed	Contractors installing property at customer sites
Transportation/cargo	Property in transit	Shipment exposure beyond premises
Equipment breakdown	Pressure, mechanical, electrical breakdown	Boiler/machinery-type losses not treated as ordinary property perils
Crime	Dishonesty, theft of money/securities, fraud	Crime is not the same as property theft coverage

COPE Underwriting

COPE factor	What to review
Construction	Frame, masonry, fire-resistive, age, roof, electrical, heating
Occupancy	What the insured and neighbours do; hazards from operations
Protection	Public fire protection, sprinklers, alarms, extinguishers, security
Exposure	Nearby hazards, flood/water exposure, crime, weather, separation

Commercial Property Coverage Areas

Coverage	Exam focus
Building	Ownership, tenant obligations, bylaw exposure, replacement cost conditions
Equipment	Machinery, tools, furniture, computers, production equipment
Stock	Raw materials, work in process, finished goods, seasonal fluctuation
Tenants’ improvements	Tenant interest in upgrades; lease obligations matter
Business interruption	Loss of income due to insured property damage
Extra expense	Additional costs to continue operations after insured damage
Equipment breakdown	Sudden accidental breakdown of covered equipment, if purchased
Crime	Employee dishonesty, money/securities, forgery, robbery, burglary, computer fraud
Inland marine	Property in transit, mobile equipment, installation floaters, contractors’ equipment
Glass/signs	Often limited or specifically endorsed

Co-insurance Formula

Co-insurance encourages the insured to carry insurance to value. If the carried limit is too low, a partial loss may be reduced.

\[ \text{Loss payment before deductible} = \frac{\text{Limit carried}}{\text{Limit required}} \times \text{Covered loss} \]

Where:

\[ \text{Limit required} = \text{Value of property} \times \text{Co-insurance percentage} \]

Quick trap: co-insurance can penalize a partial loss even when the loss is less than the policy limit.

Business Interruption Review

Term	Meaning
Gross earnings/gross profits approach	Measures income loss according to policy wording
Period of restoration/indemnity	Time coverage responds after covered damage
Waiting period	Time deductible before BI begins, if applicable
Ordinary payroll	May be limited or optional
Extra expense	Costs to reduce or avoid business income loss
Civil authority/access	Coverage depends on wording and cause
Contingent business interruption	Loss due to damage at supplier/customer location, if covered

Commercial Property Traps

• “All risks” still has exclusions.
• Stock values may fluctuate; underinsurance can occur at peak season.
• Replacement cost may require actual replacement.
• Bylaw or code upgrades may need specific coverage.
• Flood, sewer backup, earthquake, and equipment breakdown are wording-sensitive.
• Tenant improvements can be missed when only building and contents are discussed.
• Business interruption requires covered property damage unless wording says otherwise.

Business interruption and time element coverage

Notes and examples

BI exam approach

1. Was there insured physical damage?
2. Did it affect insured operations?
3. What income would have been earned but for the loss?
4. What expenses continued?
5. What expenses were saved?
6. What extra expenses reduced the loss?
7. What waiting period, limit, coinsurance, and indemnity period apply?

Liability insurance

CGL structure

Notes and examples

Occurrence vs claims-made

Trigger	Coverage responds when	Exam trap
Occurrence	Injury/damage occurs during policy period, even if claim is made later	Current policy may not respond to old damage
Claims-made	Claim is first made during policy period, subject to retroactive date and reporting rules	Missing reporting deadline can defeat coverage
Retroactive date	Claims from acts before this date are excluded	A “new” policy may not cover prior acts
Extended reporting period	Allows reporting after policy ends for acts within covered period	It does not cover new acts after expiry

Liability coverage selection

Exposure	Better coverage fit
Retail customer slip and fall	CGL premises liability
Product injures customer after sale	CGL products-completed operations
Contractor damages worksite while working	CGL, but care/custody/control and “your work” exclusions must be checked
Accountant gives negligent advice	Professional liability/E&O
Director sued for governance decision	Directors and officers liability
Data breach and notification costs	Cyber/privacy coverage
Employee theft of money	Commercial crime, not CGL
Pollution release	Pollution liability or specific endorsement
Large catastrophic liability	Umbrella/excess liability
Rented premises fire damage	Tenants legal liability if included and adequate

CGL Coverage Structure

Coverage area	What to know
Bodily injury and property damage	Third-party injury/damage caused by an occurrence
Personal and advertising injury	Specific offences such as libel, slander, wrongful eviction, advertising injury, subject to wording
Medical payments	No-fault minor medical payment coverage, if included
Tenants’ legal liability	Liability for damage to rented premises, subject to terms
Products-completed operations	Liability after products are sold or work is completed
Defence costs	Duty to defend may be broader than duty to indemnify, depending on allegations and wording

Occurrence vs Claims-Made

Policy trigger	Key point	Trap
Occurrence	Event causing injury/damage must occur during policy period	Claim may be made after policy expires
Claims-made	Claim must be made during policy period, often with retroactive date rules	Late reporting or prior acts can defeat coverage

CGL Exclusion Themes

Exclusion theme	Reason
Expected or intended injury	Liability insurance is for fortuitous loss
Contractual liability	Assumed obligations may exceed common-law liability
Workers/employers liability	Handled by other systems or policies
Auto liability	Covered by automobile policy, not CGL
Professional services	Requires E&O/professional liability
Pollution	Often restricted or excluded unless endorsed
Care, custody, or control	Property being worked on or controlled by insured may be excluded
Damage to your product/work	Business risk, not fortuitous third-party liability
Recall	Product recall expense usually needs special coverage

Liability Limits

Limit type	Meaning
Per occurrence	Maximum for one occurrence
Aggregate	Maximum for all covered losses in a period
Products-completed operations aggregate	Separate aggregate for completed work/products
Personal and advertising injury limit	Specific limit for that coverage
Tenants’ legal liability limit	Specific limit for rented premises damage
Umbrella/excess limit	Additional layer above underlying coverage, subject to its own wording

Additional Insured vs Certificate

Item	Meaning
Additional insured	Entity added to policy for specified liability exposure
Certificate holder	Receives evidence of insurance; not automatically insured
Waiver of subrogation	Insurer gives up recovery rights against named party if validly endorsed
Primary and non-contributory wording	Determines how policies respond when multiple policies apply

Automobile insurance in Alberta

Core policy concepts

Notes and examples

Automobile physical damage comparison

Coverage	Responds to	Does not replace
Collision/upset	Collision with object/vehicle, upset/rollover	Liability coverage
Comprehensive	Fire, theft, vandalism, glass, windstorm, hail, falling object, other non-collision perils as worded	Collision if excluded
Specified perils	Only named physical damage perils	Broad comprehensive protection
All perils	Broadest common physical damage option	Exclusions, deductibles, and conditions still apply

Common Alberta SEF endorsement decision table

Endorsement concept	Use when client needs	Trap
SEF 20 Loss of Use	Rental vehicle/taxi/transportation after insured physical damage claim	Requires covered loss and wording conditions
SEF 27 Legal Liability for Damage to Non-Owned Automobiles	Coverage for liability for damage to rented/borrowed vehicles	Not the same as owned-auto collision coverage
SEF 43 / limited waiver of depreciation concept	Newer vehicle protection from depreciation after covered total/partial loss	Eligibility and duration are wording-specific
SEF 44 Family Protection	Additional protection when at-fault motorist has insufficient insurance	Does not increase third-party liability owed to others
Glass limitation/deletion concept	Reduce or restrict glass coverage	Client may be surprised by windshield limitations
Permission/excluded driver endorsement concept	Restrict or clarify who may drive	Breach can jeopardize coverage

Auto scenario traps

Scenario	Correct reasoning
Client drives for delivery/rideshare but policy says personal use	Use change may be material; insurer must be told before assuming coverage
Employee uses own car for company errands	Employer may need non-owned auto liability; employee still needs personal auto coverage
Rental car on vacation	Consider SEF 27-type coverage, credit card terms, rental contract, territory, vehicle type, and liability limits
New expensive vehicle	Discuss collision/comprehensive/all perils, deductible, depreciation waiver, replacement cost options if available
Commercial fleet	Rating, drivers, radius, use, cargo, filings, loss history, and fleet controls matter
Garage/dealer risk	Standard owner’s policy is not enough; garage automobile coverage may be required
Vehicle modified or used off-road	Eligibility, value, and use must be disclosed
Driver has poor record	Underwriting, facility/market placement, deductibles, and restrictions may apply

Automobile Insurance

For Alberta automobile questions, know the structure of the standard automobile policy and how endorsements modify it. Avoid memorizing unsupported numbers unless your official study materials provide them.

Standard Auto Coverage Logic

Coverage area	What it generally addresses
Third-party liability	Legal liability to others for injury or property damage arising from automobile use
Accident benefits	Benefits to eligible persons as defined by the policy and law
Physical damage	Damage to the insured automobile, depending on selected coverage
Uninsured/underinsured issues	Protection may be affected by statutory schemes and endorsements
Endorsements	Add, restrict, or clarify coverage for specific drivers, vehicles, depreciation, rented vehicles, loss of use, and family protection

Physical Damage Terms

Coverage	Typical idea
Collision or upset	Damage from collision with another object or upset
Comprehensive	Non-collision losses, subject to exclusions
Specified perils	Only listed perils
All perils	Combines collision and comprehensive-type protection, subject to wording

Common Alberta Auto Endorsement Concepts

Endorsement concept	Why it matters
Loss of use	Pays transportation expenses after insured loss, subject to terms
Legal liability for damage to non-owned automobiles	Extends protection for rented/borrowed vehicles, subject to terms
Limited waiver of depreciation	Newer vehicle settlement without depreciation for a limited period, subject to conditions
Family protection	Responds when an at-fault party has insufficient insurance, subject to wording
Restricted driver or excluded driver	Changes who may operate the vehicle for coverage purposes
Permission to rent/lease	Addresses use by others or leasing situations

Auto Scenario Traps

• The driver may not be the named insured but may still be a permitted operator.
• Physical damage coverage is optional and depends on selected coverage.
• Business use, delivery use, ridesharing, or commercial use may require disclosure and proper rating.
• A newly acquired vehicle may have temporary coverage only under policy conditions.
• Non-owned vehicle coverage is not the same as owned vehicle coverage.
• Do not assume depreciation waiver, loss of use, or rental vehicle protection exists without endorsement.
• Liability and physical damage have different triggers and exclusions.

Specialty commercial coverages

Notes and examples

Specialized Commercial Coverages

Coverage	High-yield purpose
Professional liability / E&O	Financial loss from negligent professional advice or service
Directors and officers	Management liability for wrongful acts in governance
Cyber	Privacy breach, network security, data restoration, business interruption, cyber liability
Umbrella liability	Broader or higher-limit liability layer, depending on wording
Excess liability	Follows underlying policy more closely than umbrella, depending on form
Environmental liability	Pollution cleanup and third-party pollution claims
Builders risk	Property under construction
Wrap-up liability	Project-specific liability for multiple parties
Garage/automobile business coverage	Auto-related business exposures
Marine/inland marine	Transit, cargo, mobile property, installation, equipment floaters

Claims and loss handling

Claims workflow

    flowchart TD
	A[Loss reported] --> B[Record facts and policy details]
	B --> C[Advise insured to protect property and prevent further loss]
	C --> D[Notify insurer promptly]
	D --> E[Confirm coverage is not admitted by broker]
	E --> F[Insurer investigates and reserves rights if needed]
	F --> G[Proof/documentation/valuation]
	G --> H[Coverage decision and settlement negotiation]
	H --> I[Payment, denial, appraisal, or dispute process]
	I --> J[Subrogation/salvage/recovery and file closure]

Notes and examples

Claims duties and documents

Item	Purpose	Exam trap
Notice of loss	Alerts insurer so investigation can begin	Late notice can prejudice insurer
Proof of loss	Formal claim details and amount claimed	Broker should help process, not fabricate facts
Mitigation	Insured must protect property from further damage	Reasonable emergency repairs are different from full unauthorized reconstruction
Inventory	Supports contents/stock claim	Lack of records affects recovery
Reservation of rights	Insurer investigates without waiving coverage defenses	Not a denial by itself
Non-waiver agreement	Confirms investigation does not waive rights	Protects insurer while facts are developed
Appraisal	Resolves amount of loss disputes, not usually coverage disputes	Do not use appraisal to decide whether policy covers the cause
Subrogation	Insurer recovery against responsible third party	Insured should not release third party without insurer consent
Salvage	Damaged property value after insurer pays	Insurer may be entitled to salvage depending on settlement
Fraud	False claim or false statements	Can void claim and create legal/disciplinary consequences

Broker role in claims

Do	Do not
Report promptly to insurer	Admit liability or guarantee payment
Explain process and policy obligations	Tell client to hide facts or alter documents
Document all communications	Adjust the claim unless licensed/authorized
Encourage mitigation and records	Authorize major repairs without insurer direction
Flag urgent limitation or coverage issues	Ignore denial letters or missed deadlines
Escalate complaints and E&O concerns	Debate coverage casually without reviewing wording

Claim Workflow

Step	What matters
First notice of loss	Record facts, date, time, location, parties, damage, injuries
Acknowledge and advise	Explain process without admitting coverage beyond authority
Verify coverage	Policy period, insured, cause, property, exclusions, endorsements
Reserve	Estimate probable cost; update as facts change
Investigate	Statements, documents, photos, police/fire reports, experts
Evaluate liability/damages	Legal responsibility, quantum, policy response
Apply conditions	Notice, proof of loss, cooperation, mitigation, no voluntary payments
Settle or deny	Communicate clearly and document reasons
Subrogation/salvage	Preserve recovery and salvage rights
Close/reopen	Maintain records; respond to new information

Claim Duties of the Insured

• Give prompt notice.
• Protect property from further damage.
• Cooperate with investigation.
• Provide proof of loss or supporting documents when required.
• Do not make false statements.
• Do not assume liability or make voluntary payments where prohibited.
• Preserve damaged property and evidence where reasonable.
• Notify police or authorities when required by the type of loss.

Claim Traps

• Confusing cause of loss with resulting damage.
• Ignoring a policy condition after finding a covered peril.
• Assuming the agent can decide coverage without insurer authority.
• Advising a client to discard damaged property before inspection.
• Forgetting deductibles and special limits.
• Treating liability allegations as proven facts.
• Missing subrogation against a negligent third party.
• Missing salvage rights after total loss settlement.

Statutory and policy conditions to recognize

Coverage selection matrix

Common AIC L2 traps

Final review checklist

• Can you explain the difference between insurer authority, broker advice, and client instruction?
• Can you identify when a fact is material to underwriting?
• Can you calculate coinsurance, ACV, earned premium, loss ratio, and combined ratio?
• Can you choose between homeowners comprehensive, broad, tenants, and condo coverage?
• Can you separate water escape, sewer backup, overland water, flood, seepage, and freezing issues?
• Can you distinguish commercial property, business interruption, equipment breakdown, and crime?
• Can you select CGL, professional liability, D&O, cyber, umbrella, or pollution coverage from a scenario?
• Can you explain occurrence vs claims-made triggers?
• Can you identify SPF/SEF automobile coverage gaps and endorsement solutions?
• Can you describe proper claims handling without admitting coverage or liability?
• Can you spot trust-money, conflict, disclosure, complaint, and E&O issues?
• Can you document a client’s rejection of recommended coverage in a defensible way?

High-Yield Review Priorities

Focus your final review on decisions the exam can test through short scenarios:

1. Who is insured? Named insured, additional insured, mortgagee, loss payee, permissive user, tenant, condo unit owner, business entity, employee, volunteer.
2. What property or liability is involved? Building, contents, stock, equipment, improvements and betterments, automobile, third-party bodily injury, professional advice, product, completed operation.
3. What caused the loss? Named peril, excluded peril, concurrent cause, proximate cause, accidental damage, intentional act, wear and tear, defective workmanship, vacancy, flood/water, theft, collision.
4. Which policy section responds? Property, liability, automobile Section A/B/C, crime, equipment breakdown, business interruption, umbrella/excess, endorsement.
5. What limits, deductibles, conditions, and exclusions apply? Do not stop at “covered peril.” Check valuation, special limits, sublimits, deductibles, reporting duties, and endorsements.
6. What must the agent/broker/intermediary do? Act within licence and authority, document advice, disclose material facts, avoid misrepresentation, handle funds properly, protect privacy, and manage conflicts.

Policy Interpretation Checklist

When reviewing any coverage scenario, use this order:

1. Identify the policy and coverage part.
2. Confirm the insured and the insured’s interest.
3. Confirm the policy period and territory.
4. Identify the property, vehicle, activity, or liability claim.
5. Match the cause of loss to an insuring agreement.
6. Apply exclusions.
7. Apply exceptions to exclusions, if any.
8. Apply conditions, warranties, statutory conditions, and endorsements.
9. Apply limits, sublimits, deductibles, co-insurance, and valuation.
10. Consider other insurance, contribution, subrogation, salvage, and recovery.

    flowchart TD
	    A[Loss or claim scenario] --> B{Policy in force?}
	    B -- No --> Z[No coverage unless special rule applies]
	    B -- Yes --> C{Insured has insurable interest?}
	    C -- No --> Z
	    C -- Yes --> D{Insuring agreement triggered?}
	    D -- No --> Z
	    D -- Yes --> E{Exclusion applies?}
	    E -- No --> H[Calculate payable amount]
	    E -- Yes --> F{Exception or endorsement restores coverage?}
	    F -- No --> Z
	    F -- Yes --> G{Conditions satisfied?}
	    G -- No --> Z
	    G -- Yes --> H
	    H --> I[Apply limits, deductible, valuation, co-insurance]

Contract Formation and Documentation

Notes and examples

Common Documentation Mistakes

• Binding coverage without authority or before required underwriting approval.
• Saying “you are covered” when the policy has exclusions, limits, or underwriting conditions.
• Failing to document client instructions, declined coverages, and renewal discussions.
• Issuing a certificate that implies broader protection than the policy provides.
• Not updating underwriting information after a material change.
• Treating an endorsement request as effective before confirmation.

Alberta Licensing, Conduct, and Professional Duties

For AIC L2, expect scenario questions that test professional judgment as much as definitions. Review the Alberta Insurance Council. role, licensing expectations, and the practical obligations of a general insurance professional.

Notes and examples

Ethics Decision Rule

If a question asks what the agent should do, choose the answer that:

1. Protects the client from misunderstanding.
2. Stays within licensing and binding authority.
3. Discloses material facts to the insurer.
4. Documents the advice and client decision.
5. Avoids pressure, concealment, or personal benefit over client interest.

Risk Management Framework

Frequency and Severity

Underwriting Essentials

Notes and examples

Underwriting Red Flags

• Vacant or poorly maintained property.
• Prior cancellations for non-payment or underwriting reasons.
• Unexplained claim frequency.
• Business operations inconsistent with the application.
• High-value property without appraisals or protective systems.
• Contractual liability assumed without review.
• New ventures with no loss history or safety controls.
• Mixed personal and commercial use.

Crime, Fidelity, and Surety

Crime and Fidelity

Notes and examples

Surety vs Insurance

Feature	Insurance	Surety
Parties	Usually two: insurer and insured	Three: principal, obligee, surety
Purpose	Indemnify insured for covered loss	Guarantee principal’s obligation to obligee
Expected loss	Losses expected across a pool	No loss expected if principal performs
Recovery	Insurer may subrogate	Surety usually seeks reimbursement from principal
Underwriting	Risk of loss	Principal’s character, capacity, capital, and contract ability

Common Surety Bonds

Bond	Purpose
Bid bond	Assures bidder will enter contract if awarded
Performance bond	Assures completion of contract obligations
Labour and material payment bond	Protects subcontractors/suppliers if unpaid
License/permit bond	Supports compliance with legal or permit obligations
Fiduciary bond	Protects beneficiaries from fiduciary misconduct

Cancellations, Renewals, and Material Changes

Common Material Changes

• Renovation, vacancy, change in occupancy, rental use.
• New driver, vehicle use, territory, business use, or delivery exposure.
• Change in business operations, products, payroll, receipts, subcontracting.
• New location, storage, hazardous materials, or increased values.
• Security/fire protection changes.
• Ownership or named insured changes.

Agency/Brokerage Operations and E&O Prevention

Best Answer Pattern for Conduct Questions

Choose the response that is documented, transparent, within authority, and client-focused. Be suspicious of answers that:

• Hide information from an insurer or client.
• Promise coverage before confirmation.
• Delay reporting a possible error.
• Prioritize commission over suitability.
• Ignore licence limits or supervision.
• Treat informal verbal assurances as enough.

Calculations You Should Be Comfortable With

Actual Cash Value Concept

Actual cash value is commonly understood as replacement cost less depreciation, subject to policy wording and applicable rules.

\[ \text{ACV} = \text{Replacement cost} - \text{Depreciation} \]

Deductible Application

\[ \text{Insurer payment} = \text{Covered loss} - \text{Deductible} \]

Subject to policy limits, exclusions, valuation, and co-insurance.

Co-insurance Example

If the property value is 1,000,000 and the co-insurance requirement is 80%, the required insurance is 800,000. If the insured carried 600,000, a covered partial loss may be reduced by the ratio 600,000 / 800,000 before deductible.

Key exam point: the policy limit is not the only issue. The insured may still be underinsured for co-insurance purposes.

Fast Coverage Comparison Table

Common Exam Traps by Question Style

“Most Correct” Conduct Question

The right answer may not be the fastest or most convenient. Look for professional duties:

• Explain limitations.
• Obtain accurate information.
• Refer to insurer or supervisor when needed.
• Document the file.
• Avoid unauthorized legal, claims, or coverage promises.

Notes and examples

Coverage Trigger Question

Do not answer based only on the type of loss. Ask:

• Was the cause covered?
• Was the item insured?
• Was the person an insured?
• Was the location covered?
• Was the policy active?
• Did an exclusion or condition apply?

Endorsement Question

If the scenario includes special use, special property, or special limit, assume the base policy may be insufficient. Look for the endorsement that directly matches the gap.

Liability Question

Separate these ideas:

• Negligence/liability of the insured.
• Coverage for defence.
• Coverage for damages.
• Policy exclusions.
• Limits and aggregates.
• Additional insured status.

Property Valuation Question

Do not assume replacement cost payment. Check:

• Was replacement cost coverage purchased?
• Did the insured actually repair or replace?
• Are there time limits or conditions?
• Is the property subject to ACV, special limit, or agreed value?
• Does co-insurance apply?

Final 48-Hour Review Plan

Day Before Practice

1. Review policy structure: declarations, insuring agreement, exclusions, conditions, endorsements.
2. Drill Alberta auto coverage sections and common endorsement purposes.
3. Review property valuation, co-insurance, vacancy, water, and special limits.
4. Review CGL structure, occurrence vs claims-made, products-completed operations, and exclusions.
5. Review professional conduct, documentation, privacy, authority, and complaint/error handling.

During Question-Bank Practice

Use original practice questions in focused sets:

Notes and examples

Review Missed Questions This Way

For every missed question, write one short note:

• Rule missed: What concept did I not know?
• Clue missed: What wording in the stem mattered?
• Trap: What distractor tempted me?
• Fix: What will I check next time?

Quick Memory Prompts

Put the review into practice