This Quick Reference supports candidates preparing for the IBABC Fundamentals of Insurance (FOI) exam offered by the Insurance Brokers Association of British Columbia. Use it as compact, independent review support for core property and casualty insurance concepts, scenario wording, and calculation practice.
Exam-Day Orientation
| Task | What to do quickly | Common trap |
|---|
| Identify the insured | Named insured, spouse/partner, relatives, employees, mortgagee, loss payee, tenant, condo corporation | Assuming every household member or business associate is automatically insured |
| Identify the property or exposure | Building, contents, liability, auto, business income, money, customer goods, tools, equipment | Treating all property at the premises the same |
| Identify the cause of loss | Fire, theft, water escape, wind, collision, negligence, product defect | Confusing a peril with the resulting damage |
| Check the policy basis | Named perils, broad form, comprehensive/all risks, occurrence, claims-made | Assuming “all risks” means all losses are covered |
| Apply exclusions and conditions | Vacancy, intentional acts, wear and tear, business use, illegal activity, notice, proof of loss | Calculating a payment before checking whether the loss is covered |
| Apply valuation and limits | ACV, replacement cost, special limits, sublimits, deductibles, coinsurance | Forgetting special limits or applying the deductible in the wrong place |
| Consider recovery rights | Subrogation, salvage, contribution, other insurance, appraisal | Paying twice or ignoring another responsible party |
Core Insurance Vocabulary
| Term | Compact meaning | Exam use |
|---|
| Risk | Chance of financial loss or uncertainty about loss | Insurance deals mainly with pure risk, not speculative risk |
| Pure risk | Possibility of loss or no loss | Usually insurable if other conditions are met |
| Speculative risk | Possibility of loss, no loss, or gain | Not normally insurable, such as business profit speculation |
| Peril | Cause of loss | Fire, theft, windstorm, collision |
| Hazard | Condition that increases chance or severity of loss | Poor wiring, icy steps, careless attitude |
| Physical hazard | Tangible condition increasing risk | Worn roof, flammable storage |
| Moral hazard | Dishonesty or intent to cause loss | Fraudulent claim, deliberate damage |
| Morale hazard | Carelessness because insurance exists | Leaving doors unlocked because theft is insured |
| Exposure | Person, property, activity, or liability subject to loss | Used in underwriting and rating |
| Indemnity | Restoring insured to financial position before loss, not better | Key principle behind ACV, subrogation, contribution |
| Insurable interest | Financial interest in the subject of insurance | Must exist to prevent wagering; timing depends on policy type |
| Utmost good faith | Duty to disclose material facts and act honestly | Material misrepresentation can affect coverage |
| Material fact | Fact that would influence an insurer’s decision or terms | Prior losses, occupancy, business use, renovations |
| Fortuity | Loss must be accidental or unexpected from insured’s standpoint | Intentional loss by insured is not fortuitous |
| Pooling | Many insureds contribute premiums to pay losses of the few | Basis of insurance pricing |
| Adverse selection | Higher-risk applicants seek coverage more than lower-risk applicants | Controlled by underwriting, pricing, exclusions |
| Spread of risk | Insurer needs many similar but independent exposures | Avoids concentration of catastrophic losses |
| Proximate cause | Dominant effective cause of loss | Important where multiple perils contribute |
| Direct loss | Physical damage caused directly by an insured peril | Fire damages building |
| Indirect or consequential loss | Financial loss resulting from direct loss | Additional living expense, business interruption |
| Salvage | Damaged property recovered by insurer after claim payment | Supports indemnity |
| Subrogation | Insurer assumes insured’s recovery rights against responsible third party | Prevents insured from collecting twice |
| Contribution | Sharing loss among insurers covering same interest and peril | Applies when more than one policy responds |
| Deductible | Amount insured bears before insurer pays | Reduces small claims and moral/morale hazard |
Insurable Risk and Underwriting Logic
Characteristics of an Insurable Risk
| Characteristic | Practical meaning | If missing |
|---|
| Large number of similar exposures | Losses can be predicted statistically | Pricing becomes unstable |
| Accidental and fortuitous loss | Insured does not control whether loss occurs | Intentional or expected losses are excluded |
| Definite and measurable loss | Time, place, cause, and amount can be determined | Claim cannot be adjusted reliably |
| Financially significant loss | Loss is worth insuring | Small predictable costs are better retained |
| Affordable premium | Premium is reasonable compared with potential loss | Risk may be impractical to insure |
| Not catastrophic to the pool | One event should not ruin the insurer | Insurer may use exclusions, limits, reinsurance |
| Input | What underwriter looks for | Examples |
|---|
| Applicant details | Identity, occupation, experience, loss history | Prior cancellations, claims frequency |
| Property details | Construction, occupancy, protection, exposure | Building age, wiring, heating, fire protection |
| Use of property | Personal, rental, business, vacant, seasonal | Home business, short-term rental, workshop |
| Location | Theft, fire, weather, flood, earthquake, distance to services | Remote dwelling, wildfire exposure |
| Coverage requested | Limits, deductibles, endorsements, valuation basis | Replacement cost, sewer backup, scheduled jewelry |
| Moral/morale indicators | Honesty, care, maintenance, attitude | Late disclosures, inconsistent facts |
| Loss control | Measures to reduce frequency or severity | Alarms, sprinklers, safe storage, maintenance |
Insurance Contracts and Policy Structure
Contract Concepts
| Concept | Insurance meaning | Exam trap |
|---|
| Offer and acceptance | Application and insurer acceptance create agreement | A quote is not always a binding contract |
| Consideration | Premium from insured; promise to pay covered losses by insurer | Premium payment rules matter |
| Legal capacity | Parties must be legally able to contract | Minors or impaired capacity can complicate contracts |
| Legal purpose | Contract must not insure illegal activity | Illegal use may defeat coverage |
| Aleatory contract | Exchange may be unequal; small premium may trigger large claim payment | Not the same as a wager because insurable interest exists |
| Adhesion contract | Insurer drafts wording; ambiguity may be interpreted against insurer | Do not rewrite clear exclusions |
| Conditional contract | Insured must meet policy conditions | Breach of condition can affect claim |
| Unilateral contract | Insurer’s promise is enforceable if insured performs required acts | Insured is not promising to have a loss |
| Personal contract | Policy usually follows insured, not automatically the property | Sale of property does not automatically transfer policy |
| Contract of indemnity | Most P&C policies pay actual financial loss, subject to wording | Some valued or agreed-value policies modify this |
Policy Parts
| Policy part | Purpose | Look for |
|---|
| Declarations | Identifies insured, policy period, limits, deductibles, premises, forms | Names, addresses, coverage amounts, endorsements |
| Insuring agreement | States what the insurer agrees to cover | Covered property, insured perils, liability promise |
| Definitions | Gives technical meaning to words | “Insured,” “premises,” “business,” “occurrence,” “pollutant” |
| Exclusions | Removes coverage | Intentional acts, wear and tear, business use, auto liability |
| Conditions | Duties and rules for coverage | Notice, proof of loss, protection of property, cooperation |
| Endorsements | Add, remove, or change coverage | Scheduled property, sewer backup, earthquake, home business |
| Statutory or mandated conditions | Required policy conditions where applicable | Misrepresentation, notice, proof, appraisal, subrogation concepts |
High-Yield Contract Distinctions
| Distinction | Correct exam logic |
|---|
| Warranty vs representation | Warranty is a promise or condition that must be complied with; representation is a statement made to induce the contract |
| Misrepresentation vs non-disclosure | Misrepresentation is an inaccurate statement; non-disclosure is failure to reveal a material fact |
| Void vs voidable | Void means no legal effect; voidable means one party may choose to avoid it if legal grounds exist |
| Binder vs policy | Binder gives temporary evidence of coverage before policy issuance; it must match authority and terms |
| Certificate vs policy | Certificate evidences coverage but usually does not replace the full policy wording |
| Endorsement vs separate policy | Endorsement changes an existing policy; separate policy stands on its own |
| Loss payee vs mortgagee | Loss payee is named for property payment; mortgagee clause may give lender stronger independent protection |
| Cancellation vs expiry | Cancellation ends policy before scheduled expiry; expiry occurs at end of term if not renewed |
Broker Role, Agency, and Professional Conduct
| Area | Practical rule | Exam focus |
|---|
| Broker as intermediary | Broker often deals with both client and insurer obligations | Identify who the broker represents in the specific act |
| Authority | Express, implied, or apparent authority may bind insurer | Do not exceed binding authority |
| Duty to client | Obtain information, explain coverage options, place requested coverage if available, document advice | Failure to recommend key coverage can create E&O exposure |
| Duty to insurer | Submit accurate information, follow binding rules, remit premiums as required | Material facts must not be withheld |
| Documentation | Keep clear records of instructions, declinations, changes, and advice | “If it is not documented, it is harder to prove” |
| Confidentiality | Protect client information and use it for proper insurance purposes | Do not casually disclose client details |
| Errors and omissions | Professional liability exposure for negligent advice or placement | Common trigger: client says they requested coverage |
| Trust handling | Premium funds must be handled according to applicable rules and office procedures | Do not mix personal use with client funds |
| Renewal review | Check changes in risk, limits, forms, deductibles, and markets | Renewal is not just repeating last year’s policy |
Property Insurance Reference
Property Concepts
| Concept | Meaning | Exam cue |
|---|
| Real property | Land and attached structures | Dwelling building, garage, fixtures |
| Personal property | Movable property | Furniture, clothing, stock, equipment |
| Building coverage | Physical structure and attached components | Home Coverage A or commercial building |
| Contents coverage | Personal property inside or temporarily away | Tenants rely heavily on contents coverage |
| Detached private structures | Separate structures on premises | Garage, shed; business or farming use may be restricted |
| Additional living expense | Extra cost to maintain normal living standard after insured loss | Not the same as lost wages |
| Fair rental value | Rental income lost due to insured damage | Often relevant to rented premises |
| Debris removal | Cost to remove insured damaged property debris | Usually tied to covered loss |
| Bylaws coverage | Increased cost due to building code or ordinance | Not automatically unlimited |
| Actual cash value | Replacement cost less depreciation | Default indemnity measure in many contexts |
| Replacement cost | Cost to replace with new property of like kind and quality | Conditions often require actual repair or replacement |
| Agreed value | Value agreed in advance | Reduces valuation dispute if conditions met |
| Scheduled property | Items individually listed | Used for high-value jewelry, fine arts, equipment |
| Blanket coverage | One limit applies over multiple items or locations | Watch for margin clauses or sublimits if present |
| Pair and set clause | Addresses loss to part of a pair or set | Insurer may pay value reduction, not replace entire set |
| Vacancy | No occupants and often no contents or intent of use | More serious than temporary absence |
| Unoccupancy | Occupants temporarily away but contents remain | Still may require notice after certain periods if policy says |
| Change in risk | Material change in use, occupancy, or hazard | Must be disclosed promptly |
Named Perils vs Broad vs Comprehensive
| Form type | Coverage approach | Strength | Weakness |
|---|
| Named perils | Covers only listed causes of loss | Clear, often lower premium | Insured must fit loss into named peril |
| Broad form | Usually broader building coverage and narrower contents coverage, depending on wording | Middle ground | Must check which property is broad vs named peril |
| Comprehensive or all risks | Covers fortuitous direct physical loss unless excluded | Broader starting point | Exclusions are critical; not “everything” |
| Difference in conditions or specialty form | Fills specific gaps or special exposures | Tailored protection | Usually has precise wording and exclusions |
Common Property Perils and Exclusions
| Wording cue | Likely classification | Review point |
|---|
| Fire or lightning | Common insured peril | Cause and intentional-act exclusions still matter |
| Explosion | Common insured peril | Boiler/equipment breakdown may require separate coverage |
| Smoke | May be covered if sudden and accidental | Smoke from repeated industrial operations may be treated differently |
| Windstorm or hail | Common insured peril | Exterior water entry exclusions may apply unless opening created by insured peril |
| Theft | Common insured peril | Vacancy, mysterious disappearance, employee dishonesty, and special limits matter |
| Vandalism or malicious acts | Common insured peril | Vacancy exclusions are common |
| Water escape from plumbing | Often covered with conditions | Gradual leakage, seepage, sewer backup, flood may differ |
| Sewer backup | Often needs specific endorsement | Do not treat as ordinary plumbing escape without checking wording |
| Flood or surface water | Often excluded or separately endorsed | “Water damage” is not one single peril |
| Earthquake | Often excluded unless endorsed | Deductibles and limits can be special |
| Wear and tear | Exclusion | Insurance covers resulting insured damage only if wording allows |
| Inherent vice | Exclusion for property’s own defect or nature | Rot, latent defect, spontaneous deterioration |
| Mechanical breakdown | Often excluded under property form | Equipment breakdown coverage may respond |
| Intentional act | Exclusion | Fortuity and public policy issue |
| War, nuclear, contamination | Common exclusions | Do not look for normal property coverage |
Habitational Insurance Matrix
| Policy or exposure | Primary insured property | Key coverages | High-yield traps |
|---|
| Homeowner | Dwelling, detached private structures, personal property | Additional living expense, personal liability, voluntary payments, extensions | Home business, vacancy, water exclusions, special limits |
| Tenant | Personal property and tenant improvements if covered | Additional living expense, personal liability, tenants’ legal liability | Tenant does not insure building structure owned by landlord |
| Condo unit owner | Personal property, unit improvements/betterments, assessments if covered | Additional living expense, personal liability, possible loss assessment | Condo corporation policy and unit owner policy cover different interests |
| Seasonal or secondary dwelling | Dwelling and contents with seasonal-use restrictions | Named or limited perils may apply | Theft, water, vacancy, and maintenance conditions are often tighter |
| Rented dwelling | Building owned by landlord, rental income exposure | Fair rental value, premises liability | Tenants’ property is not landlord’s insurable interest |
| Mobile or manufactured home | Unit and personal property | Similar personal lines concepts with form-specific rules | Tie-down, location, additions, and transport exposures matter |
| Farm or hobby farm exposure | Dwelling plus farm property or liability if insured | May need farm forms | Do not assume normal homeowner policy covers farming operations |
| Home-based business | Business property and liability exposure | May need endorsement or commercial policy | Personal liability usually excludes business activities |
Personal Property Special Limits and Coverage Gaps
| Property type | Why exam questions use it | Likely solution |
|---|
| Jewelry, watches, gems | Theft limits and valuation disputes | Schedule or personal articles floater |
| Money, bullion, securities | Highly theft-prone and hard to verify | Special limit; consider specialty coverage |
| Bicycles, sporting equipment | High value and theft exposure | Check limits and off-premises rules |
| Watercraft and motors | Home policies often restrict size, value, or liability | Watercraft endorsement or separate policy |
| Business property | Personal policy usually limits or excludes | Home business endorsement or commercial policy |
| Property of roomers or boarders | Not automatically insured as family property | Separate tenant or contents policy |
| Tools and equipment used for work | Business-use issue | Commercial property or contractor’s equipment |
| Fine arts, collectibles | Valuation and breakage issues | Scheduled coverage or agreed-value wording |
| Property in storage | Location and duration restrictions | Check off-premises coverage and exclusions |
| Property while moving | Transit and breakage limitations | Moving endorsement or cargo coverage |
Liability Insurance Reference
Negligence Framework
| Element | Meaning | Exam question cue |
|---|
| Duty of care | Legal obligation to avoid foreseeable harm | Occupier, driver, professional, manufacturer |
| Breach of duty | Conduct fell below required standard | Failure to shovel ice, unsafe product |
| Causation | Breach caused injury or damage | “But for” and proximate cause reasoning |
| Damages | Actual compensable harm occurred | Bodily injury, property damage, financial loss |
| Defences | Facts reducing or defeating liability | Contributory negligence, voluntary assumption of risk, waiver, limitation issues |
Liability Coverage Types
| Coverage | What it addresses | Do not confuse with |
|---|
| Personal liability | Non-business bodily injury or property damage to others | Auto liability or business liability |
| Premises liability | Injury/damage arising from ownership or occupancy of premises | Products or professional errors |
| Tenants’ legal liability | Tenant’s legal liability for damage to rented premises | Tenant’s own contents coverage |
| Commercial general liability | Business premises, operations, products, completed operations | Professional liability or auto liability |
| Products liability | Injury/damage caused by products sold or supplied | Product recall cost unless specifically insured |
| Completed operations | Work completed away from premises that later causes harm | Ongoing operations |
| Professional liability / E&O | Financial loss from negligent professional service or advice | CGL bodily injury/property damage only |
| Directors and officers | Management liability for wrongful acts as directors/officers | Entity property or CGL claims |
| Employer’s liability | Employee injury exposure outside workers compensation response | General public bodily injury |
| Umbrella or excess liability | Additional limit and sometimes broader coverage | Primary policy replacement |
Occurrence vs Claims-Made
| Trigger | Coverage responds when | Key trap |
|---|
| Occurrence | Injury or damage occurs during policy period | Claim may be reported later, subject to wording |
| Claims-made | Claim is first made during policy period | Retroactive date and reporting requirements are crucial |
| Claims-made and reported | Claim must be made and reported within required period | Late reporting may defeat coverage |
| Retroactive date | Cuts off acts before a stated date | Continuous coverage matters |
| Extended reporting period | Allows later reporting of claims from covered acts | Does not cover new acts after expiry |
Automobile Insurance Reference
For FOI review, separate mandatory/basic automobile concepts, optional physical damage, and extensions or endorsements. Avoid assuming a coverage is automatic just because many drivers buy it.
| Coverage concept | Main purpose | Exam distinction |
|---|
| Third party liability | Protects against legal liability to others for bodily injury or property damage | Liability to others, not damage to insured’s own vehicle |
| Accident benefits / injury benefits | Benefits for injured insured persons as defined by the applicable plan | Not the same as tort liability damages |
| Uninsured or underinsured motorist protection | Responds when at-fault motorist lacks adequate insurance, if applicable | Different from collision coverage |
| Collision | Damage to insured vehicle from collision or upset | Applies even if insured driver is at fault, subject to deductible and exclusions |
| Comprehensive | Non-collision physical damage, such as theft, fire, vandalism, glass, certain natural events | Does not cover collision unless wording says so |
| Specified perils | Only listed non-collision perils | Narrower than comprehensive |
| All perils | Combines collision and comprehensive-type protection, often with theft by certain persons included | Still subject to exclusions |
| Loss of use | Cost of substitute transportation after covered loss | Usually depends on an insured physical damage claim |
| Rental vehicle coverage | Extends coverage to rented or borrowed vehicles if conditions met | Check territory, vehicle type, use, and limit |
| Family protection-type coverage | Protects insured family where other motorist lacks enough coverage, if included | Not a substitute for mandatory basic coverage |
| Commercial auto | Business vehicle use and ownership exposure | Personal auto rating may not fit delivery, livery, or fleet use |
Auto Rating and Underwriting Cues
| Cue | Why it matters |
|---|
| Principal operator | Affects risk classification |
| Vehicle use | Pleasure, commute, business, delivery, rideshare, artisan use |
| Territory | Location affects loss frequency and severity |
| Vehicle type and value | Physical damage premium and repair cost exposure |
| Driving record | Frequency and severity predictor |
| Annual distance | More use generally increases exposure |
| Modifications | May affect value, safety, theft risk, or eligibility |
| Leased or financed vehicle | Lessor/lienholder may need to be named |
| Material change | Use, operator, garaging, or modifications may need disclosure |
Commercial Lines Snapshot
| Product | Covers | Choose when scenario says | Not designed for |
|---|
| Commercial property | Buildings, stock, equipment, contents | Business owns or leases property | Third-party injury claims |
| Business interruption | Lost income and continuing expenses after insured property loss | “Business closed after fire” | Loss without insured physical damage unless wording extends it |
| Extra expense | Costs to continue operations after insured loss | Temporary premises, rush repairs | Long-term profit decline unrelated to damage |
| Commercial general liability | Bodily injury/property damage to third parties | Customer slips, product causes damage | Professional advice errors |
| Crime | Employee dishonesty, money, securities, forgery | Cash handling, employee theft | Ordinary shoplifting unless insured |
| Equipment breakdown | Sudden mechanical/electrical pressure breakdown | Boiler, HVAC, production equipment failure | Wear and tear maintenance |
| Inland marine / floater | Movable property, tools, equipment, transit | Contractor tools at job sites | Fixed building coverage |
| Cargo / transportation | Goods in transit | Shipment damaged while transported | Warehouse premises liability |
| Professional liability / E&O | Negligent service or advice | Broker, consultant, designer error | General slip-and-fall |
| Cyber | Data breach, cyber extortion, privacy response | Customer data compromised | Ordinary property fire loss |
| Directors and officers | Management wrongful acts | Board decisions, governance allegations | Damage to company-owned equipment |
| Surety bond | Guarantees performance or obligation of principal to obligee | Contractor performance bond | Insurance indemnity for accidental loss; surety expects reimbursement |
| Umbrella / excess | Higher liability limits | Severe liability exposure | First-dollar primary coverage |
Claims and Loss Settlement
Claims Process
| Step | Insured or broker action | Adjuster or insurer action | Exam trap |
|---|
| Notice of loss | Report promptly with basic facts | Open claim and confirm policy | Late notice can prejudice insurer |
| Mitigation | Protect property from further damage | Review reasonableness of expenses | Insured cannot let damage worsen |
| Investigation | Provide documents, statements, access | Determine cause, coverage, amount | Investigation is not admission of coverage |
| Proof of loss | Submit formal claim details if required | Review amount and compliance | Notice and proof are different |
| Coverage analysis | Cooperate and disclose facts | Apply insuring agreement, exclusions, conditions | Do not jump straight to payment |
| Valuation | Provide receipts, estimates, inventory | Determine ACV, replacement cost, depreciation | Sentimental value is not indemnity value |
| Settlement | Accept payment or repair arrangement if agreed | Pay covered amount less deductible/limits | Payment cannot exceed policy terms |
| Salvage | Transfer damaged property if insurer pays for it | Recover salvage value | Insured should not keep salvage and full payment unless allowed |
| Subrogation | Preserve recovery rights | Pursue responsible third party | Insured must not impair insurer’s recovery |
| Appraisal | Use valuation dispute process if applicable | Resolve amount dispute, not coverage dispute | Appraisal does not decide whether policy covers the loss |
Recovery Rights and Other Insurance
| Concept | Applies when | Result |
|---|
| Subrogation | Third party caused insured loss and insurer paid | Insurer may recover from responsible party |
| Contribution | Multiple policies insure same interest, subject, and peril | Insurers share loss according to policy wording |
| Salvage | Insurer pays for damaged property | Insurer may take or sell remaining property |
| Abandonment | Insured attempts to give property to insurer and claim total loss | Usually not allowed unless insurer agrees |
| Appraisal | Amount of loss is disputed | Independent valuation mechanism |
| Waiver | Insurer intentionally gives up a known right | Must be clear; investigation alone is not necessarily waiver |
| Estoppel | Party is prevented from denying a position another relied on | Often tied to conduct and reliance |
Actual Cash Value
\[
\text{Actual Cash Value} = \text{Replacement Cost New} - \text{Depreciation}
\]
Use ACV when the policy settles on depreciated value, when replacement cost conditions are not met, or when the property type is not eligible for replacement cost.
Replacement Cost
Replacement cost generally means the cost to repair or replace with new property of like kind and quality, subject to policy wording. Watch for conditions such as actually repairing or replacing, doing so within required time, and insuring to value.
Deductible Application
\[
\text{Basic Payment} = \min(\text{Covered Loss}, \text{Applicable Limit}) - \text{Deductible}
\]
If multiple deductibles, sublimits, or special deductibles apply, follow the policy order given in the question.
Coinsurance
\[
\text{Insurance Required} = \text{Value at Time of Loss} \times \text{Coinsurance Percentage}
\]\[
\text{Coinsurance Recovery Before Deductible} =
\text{Loss} \times
\frac{\text{Insurance Carried}}{\text{Insurance Required}}
\]
Then apply the applicable policy limit and deductible according to the question. If insurance carried is equal to or greater than insurance required, there is no coinsurance penalty.
Rate-Based Premium
\[
\text{Premium} =
\frac{\text{Amount of Insurance}}{\text{Rate Unit}}
\times
\text{Rate}
\]
Example: if the rate is per 100 of insurance, divide the amount of insurance by 100 before multiplying by the rate.
Pro Rata Cancellation or Refund
\[
\text{Unearned Premium} =
\text{Premium} \times
\frac{\text{Unexpired Term}}{\text{Total Policy Term}}
\]
Pro rata is proportionate. Short-rate cancellation is less favourable to the insured and is usually based on a table or factor supplied in the question.
Calculation Examples
| Scenario | Calculation logic | Result style |
|---|
| ACV | Replacement cost 10,000 minus depreciation 3,000 | ACV is 7,000 |
| Deductible | Covered loss 8,000, limit 20,000, deductible 1,000 | Payment is 7,000 |
| Limit caps loss | Covered loss 30,000, limit 25,000, deductible 1,000 | Payment is 24,000 |
| Coinsurance penalty | Value 200,000, coinsurance 80%, required 160,000, carried 120,000, loss 40,000 | Recovery before deductible is 40,000 × 120,000 / 160,000 = 30,000 |
| No coinsurance penalty | Value 200,000, coinsurance 80%, required 160,000, carried 180,000 | Loss paid up to limit, less deductible |
| Pro rata refund | Premium 1,200, 90 unexpired days out of 365 | Unearned premium is 1,200 × 90 / 365 |
Endorsement Selection Matrix
| Client need | Likely endorsement or policy change | Why |
|---|
| Expensive jewelry | Scheduled personal articles | Overcomes special limits and valuation issues |
| Sewer backup concern | Sewer backup endorsement | Usually separate from ordinary water escape |
| Earthquake exposure | Earthquake endorsement | Commonly excluded from base property coverage |
| Home business | Home business endorsement or commercial package | Personal property/liability forms restrict business use |
| Rental suite or tenant exposure | Landlord/rental dwelling coverage | Occupancy and liability differ from owner-occupied home |
| Condo assessment risk | Loss assessment coverage | Condo corporation may assess unit owners after insured events |
| Valuable tools off premises | Contractor’s equipment floater | Property moves among job sites |
| Customer property in insured’s care | Bailee or legal liability coverage | Insured may not own the property |
| High liability exposure | Umbrella or excess liability | Adds limit above primary liability |
| Professional advice | E&O/professional liability | CGL may not cover pure financial loss from advice |
| Business shutdown after fire | Business interruption | Property policy pays damage, not necessarily lost income |
| Employee theft | Crime or fidelity coverage | Theft by employees often excluded from property theft coverage |
Scenario Decision Rules
Property Loss Scenarios
| If the question says | Think first | Then check |
|---|
| “Water seeped over several months” | Gradual damage or seepage | Exclusion for wear, leakage, maintenance |
| “Pipe suddenly burst” | Sudden water escape | Freezing, heat maintenance, vacancy, shut-off conditions |
| “Sewer backed up” | Sewer backup | Endorsement or exclusion |
| “River overflowed” | Flood/surface water | Separate endorsement or exclusion |
| “Jewelry stolen from home” | Theft plus special limit | Scheduled item? deductible? proof of value? |
| “Laptop used for business stolen from car” | Business property and off-premises limits | Auto exclusion, contents limit, business use |
| “House vacant for weeks” | Vacancy condition | Vandalism, water, glass, theft restrictions |
| “Condo unit damaged by building pipe” | Condo corporation vs unit owner interests | Unit improvements, deductible assessment, loss assessment |
| “Tenant accidentally starts kitchen fire” | Tenant contents plus tenants’ legal liability | Landlord building policy may subrogate |
| “Wind damages roof and rain enters” | Windstorm-created opening | Interior water coverage may depend on opening caused by insured peril |
Liability Scenarios
| If the question says | Likely issue | Coverage direction |
|---|
| Guest slips on icy steps | Occupiers’ liability/negligence | Personal or premises liability |
| Insured punches someone | Intentional act | Likely excluded |
| Dog bites neighbour | Personal liability, subject to exclusions | Check ownership, breed/use exclusions if stated |
| Business customer slips in store | Commercial premises liability | CGL, not homeowner liability |
| Product sold injures customer | Products liability | CGL products/completed operations |
| Consultant gives bad advice | Professional negligence | E&O, not ordinary CGL |
| Employee steals cash | Crime/employee dishonesty | Property theft may not cover employee theft |
| Contractor damages customer’s property while working | Operations liability | CGL; care/custody/control exclusions may matter |
| Completed repair later causes damage | Completed operations | CGL completed operations |
| Auto accident injures third party | Auto liability | Not personal liability under home policy |
High-Yield Distinctions
| Pair | Distinction |
|---|
| Peril vs hazard | Peril causes the loss; hazard increases likelihood or severity |
| Hazard vs risk | Hazard is a condition; risk is uncertainty or chance of loss |
| Direct vs indirect loss | Direct is physical damage; indirect is financial consequence |
| ACV vs replacement cost | ACV deducts depreciation; replacement cost uses new cost subject to conditions |
| Named perils vs all risks | Named perils covers listed causes; all risks covers fortuitous loss unless excluded |
| Vacancy vs unoccupancy | Vacancy suggests no occupant/contents/use; unoccupancy is temporary absence |
| Mortgagee vs loss payee | Mortgagee may have independent rights; loss payee usually only shares payment |
| Binder vs quote | Binder creates temporary coverage; quote is pricing indication |
| Proof of loss vs notice of loss | Notice reports occurrence; proof formally documents claim amount and facts |
| Subrogation vs contribution | Subrogation pursues responsible third party; contribution shares among insurers |
| Salvage vs abandonment | Salvage is insurer’s right after payment; abandonment by insured needs acceptance |
| Occurrence vs claims-made | Occurrence focuses on when damage happened; claims-made focuses on when claim is made |
| CGL vs E&O | CGL covers BI/PD-type liability; E&O covers professional service errors |
| Collision vs comprehensive | Collision is upset/impact; comprehensive is non-collision physical damage |
| Tenants’ legal liability vs tenant contents | Legal liability covers damage to rented premises; contents covers tenant’s property |
Common FOI Traps to Drill
- “All risks” is not all losses. Always check exclusions.
- A policy limit is not a guaranteed payment. Coverage, valuation, sublimits, coinsurance, and deductibles still apply.
- Replacement cost is conditional. If the insured does not repair or replace, ACV may apply.
- Business use changes personal coverage. Home and auto questions often turn on undisclosed business use.
- Water losses are wording-sensitive. Burst pipe, sewer backup, flood, seepage, and surface water are different.
- Liability requires legal liability unless coverage is voluntary. Voluntary payments are not the same as negligence damages.
- The broker should document advice and client decisions. Especially when coverage is declined.
- Material facts matter before and after binding. Changes in occupancy, use, value, and operators can affect coverage.
- Do not pay sentimental value. Indemnity is financial value, not emotional value.
- Do not ignore the insured’s duties after loss. Notice, mitigation, cooperation, and proof of loss are commonly tested.
- Auto physical damage is not liability. Collision/comprehensive protect the insured vehicle; liability protects against claims by others.
- Condo insurance has multiple policies. Unit owner, condo corporation, mortgagee, and deductible assessments may all appear in one scenario.
Last-Minute Review Checklist
| Can you do this quickly? | Drill prompt |
|---|
| Define peril, hazard, risk, indemnity, insurable interest | Give one example of each |
| Classify hazards | Physical, moral, morale |
| Read a policy scenario | Identify insured, property, peril, exclusion, condition, limit |
| Apply coinsurance | Calculate required insurance and penalty |
| Apply ACV and replacement cost | Decide which valuation basis applies |
| Explain broker authority | Express, implied, apparent |
| Distinguish binder, certificate, endorsement, policy | State legal effect of each |
| Choose habitational coverage | Homeowner, tenant, condo, seasonal, rental |
| Identify liability coverage | Personal liability, CGL, E&O, auto |
| Separate auto coverages | Liability, benefits, collision, comprehensive, specified perils |
| Work through claim steps | Notice, mitigation, proof, adjustment, settlement |
| Explain subrogation and contribution | Identify which applies in a scenario |
| Spot material changes | Occupancy, use, operator, value, business activity |
| Recommend endorsements | Jewelry, sewer backup, earthquake, home business, tools |
Practical Next Step
Next, complete a timed mixed practice set: calculate coinsurance and ACV questions, then review scenario items by marking the insured, peril, exclusion, condition, valuation basis, and correct coverage form before checking the answer.