C11 IIC Principles and Practice of Insurance Free Practice Exam Questions (2026 Updated)

Chattelrefers tomovable personal property(as opposed to real property/land). Insurance policies that cover chattels protect items such as furniture, machinery, mobile homes, and other movable property.

Amobile homeis specifically recognized as chattel because it is transportable and not permanently affixed to land. Therefore, a mobile home qualifies for chattel insurance coverage.

Option A is atravel insurancerisk.

Option C is anevent prize indemnity risk, not related to chattel.

Option D isprofessional liability(errors & omissions), which covers negligence, not movable property.

Thus, the risk insurable under chattel coverage is amobile home, makingBthe correct choice.

Brokers hold client premiums in trust accounts, separate from operating funds. This is a legal requirement under provincial insurance legislation. Trust funds belong to insurers (or insureds) until properly remitted. If TOY Insurance Brokers used trust funds to pay their own expenses, they violated both fiduciary duty and regulatory obligations. This constitutes serious professional misconduct and is one of the most common and serious reasons for immediate termination of a broker contract—often accompanied by regulatory investigation or license suspension.

Option A would not justify termination because service standards should be defined by the insurer, not the broker. Option B reflects good insurer practice and is unrelated to termination. Option C is incorrect because brokers do not remit commissions to insurers—insurers pay commissions to brokers.

Therefore, the only correct answer is D: failure to maintain premiums in a trust account.

Anet premiumis the amount remainingafter commission is deducted. Therefore, the policy premium must behigherthan the net premium, because the insurer must pay the broker their commission out of the gross premium.

Formula:

Net Premium=Policy Premium×(1−Commission Rate)\text{Net Premium} = \text{Policy Premium} \times (1 - \text{Commission Rate})Net Premium=Policy Premium×(1−Commission Rate)4,000=P×0.804,000 = P \times 0.804,000=P×0.80P=4,0000.80=5,000P = \frac{4,000}{0.80} = 5,000P=0.804,000​=5,000

Thus, the policyholder must be charged$5,000, so that:

$1,000 (20%) goes to the broker, and

$4,000 remains as the net premium for the insurer.

Correct answer:C: $5,000.

When more than one insurer covers the same property under policies with identical terms, the loss is often shared according to the proportion of insurance each company provides. This is commonly referred to as contribution “pro rata by limits.”

First, determine the total amount of insurance:

Insurer X: $400,000

Insurer Y: $100,000

Total insurance: $500,000

Next, determine each insurer’s percentage of the total:

Insurer X: 400,000 ÷ 500,000 = 80%

Insurer Y: 100,000 ÷ 500,000 = 20%

The total loss is $100,000, so each insurer pays its proportion of the loss:

Insurer X: 80% × $100,000 = $80,000

Insurer Y: 20% × $100,000 = $20,000

There is no deductible to adjust these amounts. Thus, Insurer X pays $80,000 and Insurer Y pays $20,000, making Option C correct.

When apolicyholder(the insured) cancels a policy before its natural expiry date, insurers applyshort rate cancellation. Under short rate cancellation, the insurer refunds the unearned premiumminus a penalty. This penalty is applied because early cancellation disrupts expenses already incurred by the insurer, such as acquisition and administrative costs.

By contrast:

Pro rata cancellation (A)applies when theinsurercancels the policy — this provides the insured with thefullunearned premium refund, without penalties.

Half-term (B)is not a recognized cancellation method.

Partial-term (D)is also not an insurance cancellation method.

Thus, when the insured initiates cancellation, the correct method applied isshort rate.

When two insurers cover the same property, theprinciple of contributionapplies. Each insurer pays a proportion of the loss based on its share of the total insurance in force. Here:

Total insurance = $300,000 + $100,000 = $400,000

Insurer A’s share = 300,000 / 400,000 =75%

Insurer B’s share = 100,000 / 400,000 =25%

Loss = $80,000

Insurer A pays 75% × 80,000 =$60,000

Insurer B pays 25% × 80,000 =$20,000

Thus,Cis correct.

Under theCivil Code of Québec, a valid contract requires four essential elements:

Capacity– Parties must be legally capable of contracting.

Cause– The reason or purpose each party has for contracting.

Consent– Agreement must be free and informed, without error, fear, or fraud.

Object of the contract– The subject matter of the agreement must be sufficiently defined and lawful.

These elements mirror common-law principles but differ in terminology. Option D is close but inaccurate—“acceptance” is part of consent, and “subject” is a less precise term than “object.” Options A and B include incorrect or irrelevant components.

Thus, the correct answer reflecting Quebec civil law requirements isC.

Interim covers—also called binders or cover notes—are legal proof of temporary coverage. Because they function as contracts, any additional terms the insurer wishes to impose must be clearly written and communicated to the insured at the time coverage is bound. Courts consistently require that policy terms be in writing to be enforceable, especially when modifying or restricting standard coverage.

Option B is incorrect because verbal instructions can lead to disputes and are not enforceable under contract law or statutory requirements. Option C is incorrect because statutory conditions apply automatically but do not add insurer-specific terms. Option D is unrelated—interim covers exist precisely to provide immediate insurance before the policy is issued.

Therefore, if the insurer wants additional conditions or limitations to apply, they must be set down in writing as part of the interim contract, making A the correct answer.

Insurance policies require the insured to report all accidents promptly, even when they appear minor. By settling privately and failing to notify the insurer, Mark violated a fundamental policy condition. This breach is significant because it prejudices the insurer’s rights: the insurer lost the opportunity to investigate, defend, or control settlement negotiations. Under the statutory conditions (especially for automobile insurance), failure to report may result in the forfeiture of the insured’s right to recovery.

Option A is incorrect because limitation periods vary and do not automatically cause a denial; moreover, the issue is the insured's breach, not limitation law. Option C is incorrect because this is a liability claim, not accident benefits. Option D is incorrect because the current policy does not automatically cover past unreported accidents, and coverage can be denied if the insured breached statutory reporting conditions.

Thus, the insurer will most likely deny coverage because Mark forfeited his rights by failing to report the loss, making B correct.