S-08- Loss of Profits Insurance Mock Test 01

1. What is required for a business to be successful in the marketplace when it comes to internal and external dependencies?

a) Only understanding internal processes
b) Only tracking external market trends
c) Fully understanding what factors exert impact on the development of their Organization - both positive and negative effects within and outside the Organization
d) Only understanding financial reporting requirements
e) Only understanding government regulations

2. What characteristic of Revenue basis makes it appropriate for churches, schools, and hospitals?

a) These organizations have large amounts of physical assets that need protection
b) These organizations provide a service or amenity where revenue is the appropriate measure of loss, as opposed to manufacturing units where raw materials would normally be the largest single item in accounts
c) These organizations have complex stock inventory management needs
d) These organizations are exempt from normal insurance regulations
e) These organizations have predictable and stable revenue streams throughout the year

3. How long can the indemnity period chosen by the insured vary from?

a) From 1 month to 1 year
b) From 6 months to 5 years
c) From 1 year to 10 years
d) From 3 months to 3 years
e) From 6 months to 2 years

4. What is another name for Consequential Loss Insurance?

a) Fire Loss Indemnity Insurance
b) Material Damage Supplement Insurance
c) Third Party Liability Insurance
d) Revenue Protection Insurance
e) Business Interruption Insurance

5. What is Business risk defined as in terms of what a company faces?

a) The risk of bankruptcy only
b) Only the risk of market competition
c) Only the risk of technological failure
d) Only employee-related risks
e) The exposure a company faces that could eventually lead to lower revenue, profits, and financial losses

6. What is the first step to be taken in the unfortunate event of a claim under a Business Interruption Loss of Profit policy?

a) Submit all documents immediately to the nearest court of law
b) Immediately intimate the loss/damage to the nearest office of the insurers with a copy to the policy issuing office so that a Competent Surveyor may be deputed for loss assessment
c) Arrange for independent auditor to assess the loss on your behalf
d) File a police report as the primary action
e) Contact the reinsurer directly to establish coverage

7. What example of Increased Cost of Working is given in Chapter 4?

a) Purchasing additional raw materials at higher prices
b) Hiring more permanent staff to replace absent workers
c) Rent for temporary premises, payment of overtime, hire charges for machinery and sub-contracting
d) Filing insurance claims for lost profits
e) Marketing expenses to win back lost customers

8. What must underwriters understand when evaluating loss exposures?

a) Only the financial worth of the applicant
b) The activities, operations and character of every applicant - trade-offs are necessary to control underwriting expenses and to handle a reasonable number of applications
c) Only the type of property insured
d) Only the location of the risk
e) Only the past claims history

9. What is the significance of a large sum insured beyond reinsurance retaining capacity?

a) The insurer must reject the application
b) The insurer must charge the minimum premium
c) The insurer must get government approval
d) The rates to be charged shall also depend upon the reinsurance rate when a very large sum insured is beyond retaining capacity of insurers
e) The insurer must split the policy into smaller parts

10. In Australia, for smaller clients, many insurers moved to a similar calculation of Turnover less purchases meaning the net profit/loss was insured along with:

a) All other business expenses other than purchases
b) Only fixed costs
c) Only variable costs
d) Administrative expenses only
e) Direct labor costs only