Free AIC Level 1 Practice Questions: Ethics and Professionalism

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These are original Finance Prep practice questions aligned to this topic area. They are not official exam questions, copied live-exam content, or exam dumps. Use them for self-assessment, scope review, and deciding what to drill next.

Question 1

Topic: Ethics and Professionalism

A supervised Level 1 broker in an Alberta brokerage is helping a tenant client renew a policy. The client asks to remove sewer backup coverage to reduce the premium. The broker explains the possible gap, the client still declines, and a coworker says, “Do not worry about notes; the brokerage has E&O insurance if there is a complaint later.”

What is the best action for the Level 1 broker?

• A. Document the advice and the client’s decision, confirm the change in writing, and ask a supervisor if there is any uncertainty.
• B. Refuse to process the client’s request because removing coverage creates an E&O exposure for the brokerage.
• C. Remove the coverage without further documentation because E&O insurance will respond if the client later disputes the decision.
• D. Tell the client that E&O insurance will pay for any sewer backup loss if the tenant policy no longer covers it.

Best answer: A

What this tests: Ethics and Professionalism

Explanation: Errors and omissions risk control is about preventing avoidable professional liability problems, not relying on insurance after something goes wrong. E&O insurance can help protect a broker or agency against allegations that a professional error, omission, or negligent advice caused a client financial loss. It does not replace careful work. For a supervised Level 1 broker, good controls include explaining the coverage consequence within competence, documenting the discussion, confirming the client’s instruction, using agency procedures, and escalating uncertainty to a supervisor. In this situation, the client may later forget or dispute that sewer backup coverage was declined. A clear file note and written confirmation help protect the client, the broker, and the brokerage.

• Relying on E&O insurance instead of keeping notes misses the purpose of risk control and increases the chance of a preventable dispute.
• Refusing the request is not automatically required when the client understands the consequence and still chooses the change.
• E&O insurance does not convert an excluded or removed coverage into a policy benefit for the client.

E&O insurance is a financial backstop for professional negligence allegations, but proper documentation, confirmation, and supervision are key E&O risk controls.

Question 2

Topic: Ethics and Professionalism

A supervised Level 1 broker at an Alberta brokerage receives a call from a tenant client. The client says a visitor slipped on an icy front step at the rented home and is demanding $3,000. The client asks the broker to confirm that the tenant is legally liable, promise that the tenant policy will pay, and call the visitor to settle it today. What is the best action?

• A. Assure the client the personal liability section will pay because visitor injuries are normally liability claims.
• B. Document the facts, avoid deciding liability or promising coverage, and refer the matter to the supervising broker and insurer claims process.
• C. Call the visitor and offer a settlement if the client agrees to reimburse the brokerage later.
• D. Tell the client the tenant is legally liable because the injury happened at the rented premises.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: A Level 1 broker may collect information, document the client’s report, explain the general claims process, and involve the proper supervisor or insurer. The broker should not make a legal liability determination, guarantee that coverage applies, or negotiate a settlement independently. Those actions create unauthorized-practice and errors and omissions risk because coverage and liability depend on policy wording, facts, exclusions, and claims handling authority. A safe client-facing response is to acknowledge the concern, gather accurate details, avoid admissions or promises, and explain that the insurer or adjuster will investigate and respond under the policy.

• Deciding that the tenant is legally liable goes beyond the Level 1 role and may amount to unauthorized legal interpretation.
• Promising that the policy will pay creates an improper coverage guarantee before the insurer reviews the facts and wording.
• Settling directly with the visitor exceeds the broker’s claims authority and could prejudice the insurer’s position.

A Level 1 broker must not independently interpret legal liability, promise coverage, or settle a dispute outside their authority.

Question 3

Topic: Ethics and Professionalism

A supervised Level 1 broker receives an email from a tenant policy client that says, “The premium is too high. I probably don’t need that water coverage anymore. Do whatever makes sense.” The file has no note showing that sewer backup limits, deductibles, or consequences of removing the endorsement were discussed. The renewal is due tomorrow. What is the best action to control the E&O exposure?

• A. Tell the client sewer backup is unlikely to matter for a tenant and remove the endorsement to meet the renewal deadline.
• B. Remove the sewer backup endorsement because the client indicated the premium was too high and asked the broker to do what makes sense.
• C. Leave the renewal unchanged and make no note, because no formal signed request to reduce coverage was received.
• D. Contact the client to clarify the instruction, review the coverage change at a basic level, document the discussion, and seek supervision if needed before making any change.

Best answer: D

What this tests: Ethics and Professionalism

Explanation: E&O risk control depends on clear client instructions, accurate documentation, and advice that is supported by the broker’s role and knowledge. The client’s email is not a clear instruction to remove coverage. It also invites the broker to make a judgment without documented discussion of the coverage, limit, deductible, or possible consequences. A Level 1 broker should not guess at the client’s intent or give unsupported assurance. The safer professional response is to contact the client, clarify what the client wants, document the discussion in the file, and involve a supervisor if the advice or authority required goes beyond the Level 1 role.

• Removing the endorsement based only on vague wording could leave the client uninsured and the file unable to support the decision.
• Doing nothing without a note fails to show follow-up on a time-sensitive client request.
• Giving a broad opinion that the coverage is unlikely to matter is unsupported advice and increases E&O risk.

Unclear instructions and undocumented advice create E&O exposure, so the broker should clarify, document, and work within supervised authority before changing coverage.

Question 4

Topic: Ethics and Professionalism

A supervised Level 1 broker is completing a homeowner renewal review. The client says they have started renting the basement on a short-term basis most weekends but asks the broker to “leave that off the renewal notes unless the insurer asks” because they are worried about a premium increase. Which action best protects the client, insurer, and broker?

• A. Tell the client the rental use does not need to be disclosed until a claim occurs because no loss has happened yet.
• B. Explain that the rental use is a material fact, obtain the client’s direction to disclose it to the insurer, document the discussion, and refer the matter to the supervising broker if needed.
• C. Renew the policy as expiring and keep a private note in the file so the brokerage can prove the client mentioned the rental use.
• D. Remove the rental detail from the renewal information and suggest the client contact the insurer directly if they want confirmation later.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: Material facts are facts that could influence an insurer’s decision to accept, rate, restrict, or decline a risk. A change from owner-occupied residential use to regular short-term rental use can affect property and liability exposure, so it should not be hidden or delayed. The broker should explain the duty of honest disclosure, document the client conversation, and ensure the information is provided to the insurer through proper brokerage procedures. If the client resists disclosure or the Level 1 broker is unsure how to proceed, the matter should be escalated to the supervising broker. This protects the client from possible coverage problems, protects the insurer’s underwriting decision, and reduces the broker’s E&O risk.

• Keeping a private file note does not correct the non-disclosure to the insurer.
• Waiting until a claim occurs defeats the purpose of underwriting disclosure and may prejudice coverage.
• Sending the client away while removing the fact from the renewal information creates a misrepresentation risk.

A material change must be disclosed accurately so the insurer can underwrite the risk and the broker can avoid misrepresentation or E&O exposure.

Question 5

Topic: Ethics and Professionalism

A client phones an Alberta brokerage and asks for the expiry date and coverage details for her adult son’s tenant policy because she is helping him arrange a move. The son is the named insured. The client says she pays some of his bills, but she is not listed on the policy file and there is no note of consent to share information. What is the most appropriate Level 1 response?

• A. Provide only the expiry date because it is not a claim or payment detail.
• B. Politely decline to discuss the policy details, document the call, and offer to contact the named insured or obtain his consent before releasing information.
• C. Confirm the policy details after asking the caller to verify the insured’s address and date of birth.
• D. Email the policy declaration page to the caller because she is assisting with the move.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: A Level 1 broker must protect client confidentiality and disclose policy information only to authorized persons or with proper consent. Even basic coverage details, expiry dates, declarations, and account information belong to the named insured’s file. The caller may have a genuine reason for asking, but paying bills or helping with a move does not automatically authorize access to insurance information. The appropriate response is to avoid confirming or releasing details, document the request, and help by contacting the named insured or obtaining consent through the brokerage’s normal procedure. This protects privacy while still providing service and preserving an accurate file record.

• Verifying personal identifiers may help authenticate an authorized client, but it does not create authority for an unlisted third party.
• An expiry date is still policy information and should not be released without proper authority.
• Sending a declaration page would disclose detailed confidential information and create a privacy and E&O concern.

Protecting confidentiality requires consent from the named insured before sharing policy information, while documentation and follow-up maintain accurate service.

Question 6

Topic: Ethics and Professionalism

A supervised Level 1 broker at an Alberta brokerage is helping with payment follow-up. Two clients contact the office on the same day:

• A tenant policy is on agency billing. The brokerage invoice shows the premium is payable to the brokerage today.
• An automobile policy is on direct billing. The insurer’s notice shows the instalment is past due and payable to the insurer. The client asks the broker to take cash and give a receipt saying the auto policy is paid and in force.

What should the broker do?

• A. Collect both payments at the brokerage and issue receipts stating that both policies are paid and in force.
• B. Refuse to issue any receipt for the agency-billed payment because only insurers can acknowledge premium payments.
• C. Collect the agency-billed premium according to brokerage procedures, issue a receipt for the money received, and direct the direct-billed client to the insurer’s approved payment method without confirming the policy is paid or in force.
• D. Tell the direct-billed client that the missed instalment is not a brokerage concern and no file note is needed.

Best answer: C

What this tests: Ethics and Professionalism

Explanation: Agency billing and direct billing create different payment handling responsibilities. With agency billing, the brokerage bills and collects the premium from the client, so the broker may accept payment if authorized by office procedures and should issue an accurate receipt for the funds received. With direct billing, the insurer bills the client and controls the payment account, so the client should normally pay the insurer through approved methods. A Level 1 broker should not give a receipt suggesting the insurer has been paid or that coverage is definitely in force when that has not been confirmed. Payment follow-up should be documented, and overdue or cancellation-risk situations should be escalated according to brokerage procedures.

• Treating both payments the same ignores the difference between agency billing and direct billing.
• Refusing a receipt for agency-billed money is incorrect because the brokerage can acknowledge money it actually receives.
• Dismissing the overdue direct-bill account is poor service and creates an E&O risk; follow-up and documentation still matter.

Agency-billed money is collected by the brokerage, while direct-billed payments are handled by the insurer, and a receipt should not overstate payment status or coverage.

Question 7

Topic: Ethics and Professionalism

A supervised Level 1 broker at an Alberta brokerage is helping a client renew a commercial property policy. The broker’s sibling recently started working for one of the insurers being quoted. The insurer’s premium is lower, but its quote includes a higher deductible and excludes one coverage extension the client currently has. The client asks, “Is this the best policy for me?” What is the broker’s best action?

• A. Avoid mentioning the family connection because the broker will not personally receive a commission from the insurer.
• B. Disclose the family connection, explain the material quote differences, document the discussion, and seek supervisory guidance before making a recommendation.
• C. Tell the client the quote provides the same protection as the current policy because both are commercial property policies.
• D. Recommend the lower premium quote because saving money is usually the client’s main concern at renewal.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: Professional conduct requires a broker to act honestly, competently, and in the client’s interests. A family connection to an insurer may create a real or perceived conflict and should be disclosed. The client also needs clear information about material coverage differences, not just premium. A Level 1 broker should not overstate coverage or independently give advice beyond authority; the proper approach is to explain the known facts, document the file, and involve the supervising broker before a recommendation is finalized.

• Choosing the lower premium ignores the higher deductible and reduced coverage, which could mislead the client.
• Keeping the family connection private fails to address a potential conflict of interest, even if no direct commission is received.
• Saying the policies provide the same protection is inaccurate because the quote changes both deductible and coverage extension terms.

The broker must manage the conflict transparently, avoid misleading advice, document material facts, and work within Level 1 supervision.

Question 8

Topic: Ethics and Professionalism

A supervised Level 1 broker is arranging tenant insurance for a new client. The brokerage charges a separate $35 policy administration fee in addition to the insurer’s premium, and the broker may receive a small referral fee if the client also agrees to use a moving company listed on the brokerage’s welcome sheet. What is the most appropriate way for the broker to handle these costs?

• A. Disclose the referral fee only if the client asks whether the brokerage is paid by the moving company.
• B. Avoid discussing either cost because compensation arrangements are internal brokerage matters.
• C. Mention the administration fee only after the policy is issued because it is not part of the insurer’s premium.
• D. Clearly disclose the administration fee and the possible referral fee before the client agrees to proceed.

Best answer: D

What this tests: Ethics and Professionalism

Explanation: A client should be told clearly about fees, referral payments, or compensation arrangements that may affect the cost of service or the broker’s recommendation. The key issue is transparency before the client commits. A separate brokerage administration fee is a client-facing cost, so it should not be hidden within the transaction or revealed only after issuance. A referral fee from a moving company is also relevant because it may create a perceived conflict or influence the client’s view of the recommendation. A Level 1 broker should follow brokerage procedures, document the disclosure, and seek supervision if unsure how the disclosure must be worded.

• Waiting until after issuance is too late because the client should know the separate fee before agreeing to proceed.
• Disclosing a referral fee only if asked is not sufficiently transparent when the broker may benefit from the referral.
• Treating compensation as purely internal ignores the duty to communicate client-facing costs and relevant compensation clearly.

Client-facing fees and referral compensation should be explained clearly before the client makes a decision.

Question 9

Topic: Ethics and Professionalism

A supervised Level 1 broker is helping a client arrange a tenant policy. The insurer’s premium is $280. The brokerage also charges a $35 service fee for new policies, and the broker is considering referring the client to a moving company that pays the brokerage a referral fee. What is the best client-facing action before the client agrees to proceed?

• A. Bind the policy first, then show the brokerage fee on the final invoice because it is a standard office charge.
• B. Quote the total amount as $315 and mention the brokerage fee only if the client asks for a breakdown.
• C. Clearly disclose the $35 brokerage fee separately from the insurer premium and disclose the referral arrangement before making the referral.
• D. Avoid mentioning the moving company referral fee because it is paid by the mover, not directly by the client.

Best answer: C

What this tests: Ethics and Professionalism

Explanation: A client should be told clearly about costs and compensation arrangements that are connected to the transaction or recommendation. In this situation, the brokerage fee is a separate client-facing cost in addition to the insurer’s premium, so it should be disclosed before the client agrees to proceed. A referral fee can also affect how the client views the recommendation, so the arrangement should be disclosed before making the referral. A Level 1 broker should use the brokerage’s approved disclosure process, document the discussion, and seek supervision if unsure how the disclosure must be worded.

• Quoting only a combined total does not clearly identify the separate brokerage charge.
• Waiting until after binding can leave the client committed before understanding the full cost.
• A referral payment can still require disclosure even when the client does not pay it directly.

Client-facing fees and compensation arrangements that may affect the client’s decision should be explained clearly before the client commits.

Question 10

Topic: Ethics and Professionalism

A supervised Level 1 broker at an Alberta brokerage receives a call from a client whose basement sewer backup claim was denied. The client says they paid for sewer backup coverage at renewal and emails a credit card receipt showing the premium was charged. The broker opens the file and sees that the sewer backup endorsement was discussed in notes, but the declaration page does not show the endorsement. The client is upset and asks the broker to “just tell the insurer the coverage was added.” What is the best first action?

• A. Tell the insurer the endorsement was added because the client paid a premium for it.
• B. Document the facts and immediately refer the file to the supervising broker or designated authority for review before making any coverage statement.
• C. Refund the sewer backup premium to the client and close the matter as a brokerage error.
• D. Tell the client the claim is not covered because the declaration page does not list the endorsement.

Best answer: B

What this tests: Ethics and Professionalism

Explanation: When an ethical concern overlaps with coverage, a claim, or payment, the first step is to protect the integrity of the file and involve the proper supervisor or authority. A Level 1 broker should not make unsupported coverage representations, alter the claim position, or handle a potential premium-processing error independently. The broker should document the client’s statement, receipt, policy documents, and file notes, then escalate promptly for review. The supervisor or appropriate brokerage authority can determine what must be reported to the insurer, whether an error occurred, and what E&O or client-service steps are required. This approach avoids misrepresentation while still treating the client’s concern seriously.

• A payment receipt alone does not prove the insurer added the endorsement, so telling the insurer coverage was in place may be a misrepresentation.
• The declaration page is important, but denying coverage to the client is not the Level 1 broker’s role when there is conflicting file evidence.
• Refunding premium and closing the matter assumes an error and a remedy before the brokerage has reviewed the file and claim implications.

The issue involves possible payment or processing error, coverage uncertainty, and claim handling, so a supervised Level 1 broker should preserve facts and escalate before representing coverage.

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