III IC-22 common mistakes
III IC-22 · Understand the traps and how to avoid them.
Treating insurable interest as a single moment of proof at policy inception and applying that same timing rule to every class, so questions asking when interest must exist in life versus marine or fire business are answered with one blanket date.
Candidates memorize 'insurable interest must exist at inception' from life insurance and then mechanically apply it to indemnity classes, where interest is generally required at the time of loss and, in marine insurance, at the time of loss (having existed at some point, often at inception, per the statutory rule). The underlying principle - life insurance is not a contract of indemnity, so interest is fixed at inception - is not connected to the reason it differs.
What to do instead
Build a three-column table: class of insurance, when interest must exist, and why (indemnity versus non-indemnity). For each class write one sentence of reasoning, then practise ten scenario questions where the loss occurs after the policy has been assigned or the subject matter sold, and state the timing rule before answering.
Confusing the principle of indemnity with the doctrine of subrogation, describing subrogation as 'the insured gets back to their pre-loss position' and indemnity as 'the insurer steps into the insured's shoes'.
Both concepts cluster around 'putting the insured back in position' and are taught together, and candidates learn the labels without the causal link: indemnity is the objective, subrogation is one of the mechanisms (with contribution and salvage) that protects it. Under exam pressure the definitions swap.
What to do instead
Write the relationship as a one-line chain: indemnity is the principle; subrogation, contribution and salvage are the corollaries that prevent the insured profiting. For each corollary, write a two-sentence scenario and identify which corollary applies and why. Test yourself by explaining why subrogation cannot arise in a life policy - the answer anchors the distinction.
Answering 'utmost good faith' questions by saying the duty applies only to the proposer, and omitting the insurer's reciprocal duties of disclosure and fair presentation of cover.
Textbook treatments emphasise the proposer's duty to disclose material facts, and candidates stop reading at that point, missing that the duty is reciprocal and that the insurer must also disclose material facts and avoid unfair terms. Modern fair presentation standards (as in the UK Insurance Act 2015 regime) are also missed because candidates revise from older summaries.
What to do instead
Learn the duty as a two-sided obligation with named duties on each side: the proposer's duty of fair presentation (disclosure, no misrepresentation, reasonable search) and the insurer's duty to disclose and to take reasonable steps to ensure terms are clear and not unfairly disadvantageous. Write out both sides from memory and check against your study text.
Describing proximate cause as 'the last event before the loss' and then misclassifying interrupted or multi-cause claims, for example treating a fire following an earthquake as excluded because the earthquake came first.
The phrase 'proximate' suggests 'nearest in time' to many candidates, and everyday reasoning about cause-and-effect reinforces the error. The legal test is the dominant, effective or efficient cause - the cause that sets in motion the chain of events without which the loss would not have occurred.
What to do instead
Memorise the test as 'dominant and effective cause, not last in time' and practise with chains: earthquake then fire, theft then vandalism, storm then water damage. For each chain, name the dominant cause and state whether the exclusion or the peril operates, giving a one-sentence justification each time.
Treating 'reinstatement' in a life policy as restoring the full sum assured after a claim, rather than restoring the sum assured less the amount already paid, and confusing it with the reinstatement of a lapsed policy.
The word reinstatement carries two distinct meanings in life insurance - restoring cover after a lapse (usually with evidence of insurability and payment of arrears) and restoring the sum assured after a partial payment or survival benefit - and candidates collapse them into one. The arithmetic of reducing the sum assured by claims paid is also skipped.
What to do instead
Write two separate definitions with their conditions: reinstatement after lapse (time limit, evidence of insurability, payment of overdue premiums with or without interest, possible new contestability period) and reinstatement of sum assured after claim (sum assured reduced by amounts paid). Work three numerical examples where a partial payment is followed by reinstatement and calculate the remaining cover.
Confusing surrender value, paid-up value and non-forfeiture options, quoting a surrender value as the paid-up sum assured or assuming a policy has a surrender value from the first premium.
All three options arise from the same reserve build-up and are presented together in policy-options tables, so candidates learn the names but not the mechanics: surrender value is the cash value paid on termination; paid-up value is a reduced sum assured for the original term with no further premiums; automatic premium loan uses the value to keep the policy in force. The early-year absence of value (due to acquisition costs) is frequently overlooked.
What to do instead
Build a table with columns: option, what the policyholder receives, whether premiums continue, whether the policy continues to maturity, and the condition for availability. Add a row noting that surrender values are typically nil or minimal in early durations because of initial expenses. Then answer five scenario questions requiring you to choose the option matching a stated need.
Applying 'average' (proportional payment) to every underinsurance question, including non-indemnity or agreed-value covers, and applying it without first checking whether the policy is on a sum insured or a declared-value basis.
Average is drilled as the standard response to underinsurance in property insurance, so candidates apply it reflexively. It only operates where the policy contains an average or underinsurance condition and the subject is insured on a value basis; agreed-value, reinstatement and first-loss covers change the calculation, and life policies are not indemnity contracts at all.
What to do instead
Before calculating, write three checks: is this a contract of indemnity, does the policy contain an average clause, and is the sum insured compared with the value at risk or the declared value? Then compute the claim as (sum insured / value at risk) x loss, less any deductible, and state the assumption explicitly. Practise with one agreed-value and one first-loss example to see the contrast.
Omitting the deductible or excess from the final claim calculation, or applying it before rather than after the average calculation, and forgetting policy limits and sub-limits on top of the sum insured.
Candidates focus on the headline formula and treat the excess as a footnote. The order of operations matters: average is applied to the loss first, then the excess is deducted, and the result is capped by the sum insured and any sub-limit. Applying the excess first changes the answer when average applies.
What to do instead
Adopt a fixed four-step working template for every claim: (1) establish the value at risk and sum insured, (2) apply average if the clause exists, (3) deduct the excess, (4) cap at the sum insured and any sub-limit. Write the steps at the top of your answer before calculating, and mark each step so partial credit is visible.
Confusing registration and licensing of insurers and intermediaries with solvency supervision, and describing the regulator's role as only 'protecting policyholders' without naming the specific regulatory tools.
Candidates learn a list of regulatory objectives and a list of regulatory tools but do not map one to the other, so answers stay at the level of slogans. They also mix up which body performs which function where registration, licensing, conduct supervision and prudential supervision sit with different authorities.
What to do instead
Draw a two-column map: objective (solvency protection, market conduct, consumer protection, market development) against tool (capital adequacy and solvency margin, registration and licensing, conduct-of-business rules, disclosure and advertising rules, intermediary registration, complaints and ombudsman arrangements). For each tool, write one sentence on how it serves its objective, and check which authority performs it in your jurisdiction.
Answering 'utmost good faith' questions by saying the duty applies only to the proposer, and omitting the insurer's reciprocal duties of disclosure and fair presentation of cover.
This mistake recurs because the duty is taught from the proposal form outward, and candidates rarely see the insurer's side tested. It also surfaces in regulation questions where the duty is confused with the regulator's disclosure requirements.
What to do instead
Separate the two duties in your notes: the contractual duty of fair presentation by the proposer, and the regulatory disclosure requirements imposed on insurers. For each, write who owes it, to whom, and what the consequence of breach is. Then write one sentence explaining how the two are different in kind, not just in who performs them.