S-08- Loss of Profits Insurance Mock Test 04
Loss of Profits Insurance provides protection against financial losses resulting from interruption of business following insured material damage. Important concepts include insured standing charges, business environment, gross profit, policy excess, and conditions relating to standby machinery. The policy covers only those standing charges specifically named in the proposal and policy. Underwriters evaluate risks so that expected losses and premiums remain balanced. Company representatives have rights to inspect and examine the insured risk and obtain necessary information. Consequential Loss Insurance consists of several components designed to address business interruption losses. Time Loss policies provide compensation based on time periods such as daily or weekly periods.
1. What does Condition (c)(iv) about Retention of Standby machinery state regarding conditions for policy avoidance?
a) The policy is avoided if standby machinery is not declared in the policy
b) The policy may be avoided if the retention of standby or spare machinery or any other loss minimizing factors in existence when this insurance was effected be reduced or discontinued unless its continuance is admitted by an endorsement signed by or on behalf of the Company
c) Standby machinery is always excluded from the policy
d) The insured must maintain standby machinery or face premium surcharge
e) Standby machinery reduces the sum insured proportionately
2. What is the formal definition of Business Environment as stated in Chapter 2?
a) The set of competitive forces in a market
b) The collection of all government regulations affecting a business
c) The technological infrastructure available to businesses
d) The sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but the business still depends upon them as they affect the overall performance and sustainability of the business
e) The financial performance indicators of a business
3. What does an indemnity for material damage NOT provide complete protection for?
a) Material damage to buildings
b) Material damage to machinery
c) Material damage to fixtures and fittings
d) The insured who will also suffer trading losses due to total or partial stoppage of business - the object of loss of profit insurance is to make good some of these losses
e) Material damage to stock in trade
4. What are Insured Standing Charges?
a) All possible overhead expenses whether insured or not
b) The Standing Charges covered by the insurance are those specified in the proposal form and named in the policy and no other charges
c) Government-mandated minimum standing charges for all businesses
d) Standing charges set by the insurance regulator for each industry
e) All standing charges as defined by the accounting standards
5. How does the Financial Function of the underwriter work?
a) The underwriter maximizes premiums at any cost
b) The function of the underwriter is to accept applicants so that the losses paid by the insurance company closely match the losses that the company expects to pay
c) The underwriter only processes renewals
d) The underwriter denies claims to protect revenue
e) The underwriter invests premiums in financial markets
6. In Case Study 4 (Claim falling within excess of FLOP Policy), what was the net claim amount and what was the Policy Excess?
a) Net claim Rs.5,00,000 vs excess Rs.3,00,000
b) Net claim Rs.7,50,000 vs excess Rs.9,58,904 (= Rs.5 Cr X 7/365). Since the claim amount of the insured is within the compulsory excess to be borne by the insured, no amount is payable to the insured
c) Net claim Rs.15,00,000 vs excess Rs.10,00,000
d) Net claim Rs.20,00,000 vs excess Rs.25,00,000
e) Net claim Rs.2,00,000 vs excess Rs.1,00,000
7. In the example where Rate of Gross Profit is 30% and reduction in turnover is Rs.25,00,000 what is the Loss in Gross Profit?
a) Rs.5,00,000
b) Rs.7,50,000
c) Rs.10,00,000
d) Rs.15,00,000
e) Rs.25,00,000
8. How many components make up the Consequential Loss Insurance Policy according to Chapter 4?
a) 5
b) 7
c) 9
d) 11
e) 13
9. What does Condition (e)(i) - Representatives of the Company - entitle the insurer's representatives to do?
a) Inspect the books of accounts only after a claim is made
b) Representatives of the Company shall at any reasonable time have the right to inspect and examine the risk, and the insured shall provide the representatives of the Company with all details and information necessary for the assessment of the risk
c) Representatives can only visit the insured premises after giving 30 days notice
d) Representatives can physically test and operate the insured machinery
e) Representatives can modify the policy terms based on risk assessment
10. In which year was the Time Loss policy (per diem/daily or weekly compensation) introduced in England?
a) 1817
b) 1819
c) 1821
d) 1825
e) 1830
