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

A telephone adjuster (often called an inside adjuster) handles claims that can be resolved quickly without requiring in-person investigation. Their main role is to efficiently process a high volume of straightforward claims, such as small auto physical-damage losses, minor property losses, and simple theft claims.

Because these claims do not require field investigations, telephone adjusters focus on gathering information by phone, confirming coverage, arranging payments, and closing files promptly.

Option B is incorrect—telephone adjusters do not take instructions from staff adjusters; they operate independently within their own authority levels.

Option C is incorrect—they do not process paperwork for independent adjusters.

Option D is incorrect—they are not intermediaries; they serve the insurer directly.

The correct function is A: processing a large volume of claims.

Apro rata cancellationoccurs when an insurer cancels a policy or when the insured cancelswithout penalty, and the insurer refunds thefullunexpired portion of the premium. The refund is calculated strictly based on time remaining in the policy period. No service charges, cancellation penalties, or retained percentages apply.

This is different fromshort rate cancellation, where a penalty is applied when the insured cancels voluntarily.

“Total rate,” “fully fixed,” and “non-adjusted rate” are not recognized forms of cancellation methods.

Thus, refunding the entire unused premium confirms the cancellation ispro rata.

Brokers without claims-handling authority must be extremely careful in the statements they make to insureds, especially at the time of a loss. Samuel improperly promised coverage, something he had neither the authority nor sufficient information to confirm. Claims are determined by the insurer based on policy wording, exclusions, and investigation. The proper action would have been to reassure the insured emotionally while clearly stating that the insurer must first investigate the circumstances before any determination of coverage can be made.

Option B is inappropriate; the insured should not admit liability at the scene. Option C is improper because a broker has no authority to intervene in a police investigation. Option D is also incorrect; Samuel cannot deny coverage, as this is solely the insurer’s role. Therefore, the only correct response is A, which aligns with proper professional conduct and avoids misrepresentation

The Facility Association is the Canadian automobile insurance mechanism designed to ensure that high-risk drivers, who cannot obtain insurance in the voluntary market, are still able to secure the legally required automobile insurance coverage. All auto insurers in participating provinces must be members, and losses and premiums in the pool are shared among them according to market share.

Option B, “Substandard Group,” is not an official Canadian mechanism. Option C does not refer to any recognized underwriting pool for high-risk auto insurance. Option D is not an actual insurance entity.

Only the Facility Association accurately represents the mandatory pooling arrangement for high-risk drivers.

The Institute for Catastrophic Loss Reduction (ICLR) is a research-based organization supported by the Canadian property and casualty insurance industry. Its mission is to reduce the loss of life and property caused by natural hazards by promoting scientifically grounded mitigation strategies. One of its central goals is to encourage the development of resilient buildings and communities by advocating for improved building codes, retrofitting standards, and construction methods that reduce vulnerability to severe weather events such as hurricanes, floods, wildfires, and earthquakes.

Options A and B do not reflect the ICLR's mandate; the organization does not focus on personal weather prediction or creating mandatory evacuation procedures. Option C describes a risk-financing mechanism, not risk reduction. ICLR’s true focus is loss prevention and mitigation, specifically through cost-effective, research-supported construction and community planning measures. Therefore, the correct answer is D.

A mortgage clause is specifically designed to protect the financial institution (the mortgagee) that holds a registered interest in real property. Under this clause, the mortgagee receives certain rights independent of the insured. For example, even if the insured voids the policy through misrepresentation, material change, or failure to comply with policy conditions, the mortgagee may still retain coverage so long as they meet their obligations, such as paying premiums or notifying the insurer of increased hazards.

A bailee clause relates to goods in the custody of another party, not real property. A lienholder clause may apply to movable property like vehicles but does not grant the same broad, independent protection provided to mortgagees. An additional interest clause merely notifies the insurer of a party’s interest but does not extend full rights. Therefore, the clause that ensures robust contractual protection to an entity with a registered interest in real property is the mortgage clause.

Thepure premiumrepresents theexpected loss costper exposure unit. It is calculated as:

Pure Premium=Probability of Loss×Severity of Loss\text{Pure Premium} = \text{Probability of Loss} \times \text{Severity of Loss}Pure Premium=Probability of Loss×Severity of Loss

Here:

Probability of loss = 1 in 5 homes =0.20

Severity (loss amount) =$50,000

0.20×50,000=10,0000.20 \times 50,000 = 10,0000.20×50,000=10,000

But here is the key detail: one loss of $50,000 spread overfive homesmeans:

50,0005=10,000\frac{50,000}{5} = 10,000550,000​=10,000

But the answer choices do not include $10,000 except option C, yet the correct pure premium per homeownerwith equal distribution per yearequals:

$10,000 per home per year

Thus the correct answer isC: $10,000.

New business clients often want to present themselves aslow-riskto secure better premium rates. As a result, they may be cautious about reporting small claims or may practice better loss prevention—at least initially. This can make new business perform better from a loss-ratio perspective.

However,renewal clients may become less cautiousover time or more willing to submit smaller claims once they are already insured. Additionally, insurers sometimes relax underwriting scrutiny on renewals compared to new applications, which can further widen performance differences.

Option A (automated renewals) does not inherently affect claims behaviour.

Option B is incorrect—renewal underwriting is typicallyless strict, not more.

Option C is false; reinsurance availability does not differ based on new vs. renewal status.

Thus, the factor most likely contributing to poorer renewal performance isD: New business clients limit claims to keep premiums low, improving their initial results relative to renewals.

If you haveQuestions 85 onward, feel free to send them!

Comprehensive Explanation (150–250 words):

The termindemnifyis fundamental in insurance. To indemnify means tocompensate an insured party for actual losses or expenses incurred, restoring them as closely as possible to the financial position they occupied immediately before the loss. This principle ensures that insurance does not create profit or gain for the insured but instead acts as a financial safety mechanism to cover legitimate losses.

Indemnity is applied across many types of policies—property, automobile, liability, and more—and forms the basis of how claims are settled. When an insurer indemnifies an insured, the insurer may pay for repairs, replacement, medical expenses, or financial judgments depending on the policy coverage.

Option A,Salvage, is the insurer’s right to recover value from damaged property after paying a claim.

Option C,Pure captive, refers to an insurance company created by a parent company to insure its own risks.

Option D,Utmost good faith, is the legal duty requiring both insurer and insured to disclose all material facts.

Only“indemnify”directly describes providing compensation for an incurred loss.

A hazard is a condition that increases the likelihood or severity of a loss. Installing anti-slip flooring reduces the chance of slips and falls, thereby reducing a hazard. This is an example of loss prevention—altering physical conditions to make an environment safer.

Option B increases danger because high beams on a busy highway can blind other drivers. Option C significantly increases fire hazard because sprinkler systems provide automatic fire suppression. Option D exposes items to damage during transit, increasing rather than decreasing hazard.

Therefore, the only option that clearly reduces a hazard is A: installing anti-slip floor tile.

This question is identical to Question 25, so the correct answer and reasoning are the same. Whether an adjuster is a staff employee or an independent contractor, they are hiredto represent the insurerin the claims process. They are both compensated by the insurer—staff adjusters through salary and benefits, independent adjusters through fees or billing arrangements. Both must meet licensing requirements established by provincial regulatory bodies, conduct investigations, and report their findings to the insurer. They are also both subject to authority limits on claim settlement.

Thus, the only option that correctly reflects their similarity isB: both serve and are paid by insurers.

To be insurable, a peril must befortuitous, measurable, and not within the direct control of the insured.Cybersecurity risksmeet these criteria, which is why insurers offercyber liability and data breach insurance. These policies cover hacking, ransomware, privacy breaches, and business interruption caused by cyber events.

Mismanagement (B) is uninsurable because it results from internal decision failure.

Under-capitalization (C) is a business failure, not a fortuitous peril.

Product obsolescence (D) is a predictable business cycle risk and cannot be insured.

Thus, the only insurable peril listed isA: Cybersecurity.

Abrokeris an independent insurance intermediary who represents theinsured, not the insurer, yet also interacts professionally with insurers to place coverage. Brokers typicallyown their client lists, have the freedom to place business with multiple insurers, and earn income throughcommissionsonce policies are sold or renewed. They are obligated to provide impartial advice and ensure clients receive suitable coverage.

Underwriters (option B) do not own client lists and do not earn commissions; they work for insurers evaluating risks. Exclusive agents (option C) representone insurer onlyand generally do not own their book of business. Independent adjusters (option D) investigate and adjust claims—they do not sell insurance nor hold client lists.

Orianna’s described attributes—ownership of clients, acting for both parties, and earning commissions—match precisely the role of abroker, makingAcorrect.

For a legally binding contract, there must beoffer and acceptance—a clear proposal and a clear, communicated acceptance. In this case, George attempts to treatsilenceas acceptance. According to contract law,silence cannot constitute acceptance, unless there is a prior agreement between the parties stating otherwise. Because his cousin has not actively communicated acceptance, the contract remains incomplete.

Option A is incorrect—consideration exists (money in exchange for books).

Option B is irrelevant—buying textbooks is legal.

Option C does not apply—George is 18 and has legal capacity in Alberta.

The missing element isacceptance, so the correct answer isD.

Risk mitigation refers to reducing the frequency or severity of potential losses. A first-time homeowner can mitigate risk by taking proactive measures such as installing smoke alarms, securing doors and windows, maintaining the property, or eliminating hazards. These actions directly decrease the homeowner’s volume of risk by reducing the probability of a loss or limiting its potential impact.

Option A—purchasing insurance—is not risk mitigation; it is risk transfer, where the financial consequences of loss are shifted to an insurer. Insurance does not reduce the likelihood of loss; it only provides compensation after loss.

Option B is the opposite of mitigation.

Option D is irrelevant to risk management.

Thus, the correct answer is C: Decrease their volume of risk.

AGuaranteed Replacement Cost (GRC)clause is a special provision in homeowners’ insurance that ensures the insurer will pay thefull cost to rebuild or repairthe dwellingeven if the loss exceeds the stated policy limit, provided all policy conditions are met (such as insuring to value and notifying the insurer of changes to the building).

This clause protects homeowners from unexpected increases in construction costs due to inflation, labour shortages, or material price spikes. The insurer guarantees complete reconstruction of the home, not merely up to policy limits.

Option A is not a recognized policy clause.

Option B (total replacement cost clause) is not the standard industry term.

Option C (pure restitution clause) does not exist in homeowners insurance terminology.

The only accurate clause that obligates the insurer to pay above policy limits is theGuaranteed Replacement Cost clause.

A stock insurance company operates with the same capital structure as other conventional for-profit corporations. Ownership is represented by shares of stock, held by shareholders who supply capital and expect a return on investment. Profits are distributed as dividends or reinvested into the company. This structure aligns closely with traditional corporate financial frameworks in Canadian commerce.

Option B, a captive company, is owned by a parent business to insure its own risks—not structured like a general capital corporation. Option C, a co-operative company, is owned by its policyholders or members, not shareholders. Option D (factory mutual company) refers to a mutual insurer owned by its policyholders and requiring high loss-prevention standards.

Thus, the only insurer type that mirrors the capital structure of typical Canadian corporate enterprises is the stock company, making A correct.

Comprehensive Explanation (150–250 words):

When a vehicle is deemed a total loss, the insurer typically pays theactual cash value (ACV)minus thedeductible. If the insured decides to keep the salvage, thesalvage valuemust also be deducted from the settlement, because the insured retains something of monetary worth.

The formula for this situation is:

Settlement=ACV−Deductible−Salvage Value\text{Settlement} = \text{ACV} - \text{Deductible} - \text{Salvage Value}Settlement=ACV−Deductible−Salvage Value

Using Ivana’s numbers:

ACV = $17,000

Deductible = $1,500

Salvage value = $3,000

17,000−1,500−3,000=12,50017,000 - 1,500 - 3,000 = 12,50017,000−1,500−3,000=12,500

Therefore, Ivana receives$12,500, and she keeps the damaged vehicle, which she values for personal reasons.

Option B ($14,000) ignores the salvage deduction.

Option C ($15,500) ignores the deductible.

Option D ($17,000) ignores both deductible and salvage, which is not permitted.

The only correct settlement amount is$12,500.

Comprehensive and Detailed Explanation (150–250 words):

Amortgage clauseis a specialized provision within property insurance policies that protects the financial interest of amortgagee—typically a bank or lending institution—when real property is used as collateral for a loan. Under thePrinciples and Practice of Insurance, this clause creates aseparate contract of insurancebetween the mortgagee and the insurer. This is critical because it ensures that the mortgagee’s protection remains intact even if the insured violates policy conditions (such as failing to maintain the property or committing fraud).

This clause ensures that any loss settlement will first satisfy the mortgagee’s insurable interest before any residual payment goes to the property owner. It also obligates the insurer to notify the mortgagee of policy cancellation or material changes, providing the lender an opportunity to take protective measures, such as force-placed insurance.

The mortgage clause is distinct from other clauses: abailee clauserelates to property held by others for repair or cleaning, alienholder clauseis used for movable property like automobiles, and anadditional interest clauseoffers limited notice but not the full contractual protection afforded to a mortgagee. Thus, the correct and most protective clause for real property isB. Mortgage clause.