I85PREP
⌘ K
CIIN Certificate CF2 study materials
CIIN Certificate CF2 study resources

CIIN Certificate CF2 practice questions

One question at a time. Build your CIIN Certificate CF2 understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Principles and Practice of Insurance

For a life assurance policy, insurable interest must exist at which point?

  1. At the time the policy is effected Correct answer.
  2. At the time of the insured person's death
  3. At the time the claim is submitted to the insurer
  4. At each policy renewal date

Explanation

A life policy is not a contract of indemnity, so the law requires insurable interest only when the contract is made. The person receiving the sum assured may have no financial interest at the date of death and the claim is still valid.

Question 2Principles and Practice of Insurance

Which principle restores an insured who has suffered a loss to the same financial position occupied immediately before the loss?

  1. Insurable interest
  2. Utmost good faith
  3. Indemnity Correct answer.
  4. Contribution

Explanation

Indemnity means the insured is put back in the financial position held before the loss, no better and no worse. It governs most property, liability and marine covers, which is why the sum insured is linked to the value at risk.

Question 3Principles and Practice of Insurance

Which of the following is a peril?

  1. Defective electrical wiring
  2. Poor housekeeping
  3. Fire Correct answer.
  4. Storage of oily rags

Explanation

A peril is the event that actually causes the loss, such as fire, storm, burglary or collision. Hazards are the conditions that make such an event more likely or more severe.

Question 4Principles and Practice of Insurance

Under the duty of utmost good faith, a proposer for insurance is required to disclose which of the following?

  1. Only the facts the insurer asks about on the proposal form
  2. Only facts that have already been recorded in writing
  3. All material facts that would influence a prudent insurer's decision Correct answer.
  4. All details of the proposer's personal income

Explanation

Utmost good faith obliges the proposer to volunteer every material fact, meaning every fact a prudent underwriter would regard as relevant to accepting the risk or fixing the terms. The duty is wider than simply answering the questions printed on the proposal form.

Question 5Principles and Practice of Insurance

Why is a speculative risk unsuitable for insurance?

  1. It is always caused by dishonest employees
  2. It offers a chance of gain as well as loss, so the outcome is not a pure risk Correct answer.
  3. It involves no uncertainty of outcome
  4. It can arise only in marine and aviation business

Explanation

Insurance deals with pure risks, where the only possible outcomes are loss or no loss. A speculative risk, such as a business venture or share dealing, may produce a profit as well as a loss, so there is no insurable loss to indemnify.

Question 6Principles and Practice of Insurance

The right of an insurer, after paying a claim, to pursue a negligent third party in the name of the insured is known as

  1. Subrogation Correct answer.
  2. Abandonment
  3. Contribution
  4. Salvage

Explanation

Subrogation lets the insurer stand in the insured's shoes and enforce the insured's rights against the party who caused the loss. It supports indemnity by preventing the insured from recovering twice for the same loss.

Question 7Principles and Practice of Insurance

The principle that requires insurers covering the same loss to share it rateably is called

  1. Subrogation
  2. Salvage
  3. Contribution Correct answer.
  4. Reinsurance

Explanation

Contribution applies where more than one policy covers the same interest against the same peril, so that each insurer bears its proper share. It prevents the insured from recovering more than a full indemnity from several sources.

Question 8Principles and Practice of Insurance

The minimum motor insurance cover required by law for a private car in Nigeria is

  1. Comprehensive cover
  2. Personal accident cover for the driver alone
  3. Third party, fire and theft cover
  4. Third party only cover Correct answer.

Explanation

Compulsory motor insurance legislation requires only cover for the insured's liability to third parties for bodily injury and property damage. Comprehensive and third party, fire and theft covers are wider, optional extensions.

Question 9Principles and Practice of Insurance

Insurance depends on the law of large numbers because

  1. It removes the need for insurers to collect statistical data
  2. It guarantees that every policyholder will eventually receive a claims payment
  3. As the number of similar independent exposures increases, actual loss experience tends towards the expected level Correct answer.
  4. It ensures that an insurer makes a profit in every financial year

Explanation

The law of large numbers holds that the more similar independent units are pooled, the more closely actual losses reflect the expected rate. This predictability allows the insurer to calculate premiums and hold adequate reserves.

Question 10Principles and Practice of Insurance

A building worth ₦20,000,000 is insured for ₦15,000,000 under a policy containing a condition of average. A fire causes damage of ₦8,000,000. Ignoring any excess, the insurer will pay

  1. ₦8,000,000
  2. ₦6,000,000 Correct answer.
  3. ₦15,000,000
  4. ₦4,000,000

Explanation

Under average, the insured bears a rateable share of the loss where the sum insured is below the value at risk. The payment is ₦15,000,000 ÷ ₦20,000,000 × ₦8,000,000 = ₦6,000,000.

Question 11Principles and Practice of Insurance

A policy covers fire and expressly excludes lightning damage. Lightning strikes a warehouse and starts a fire that destroys the stock. The insurer will

  1. Pay half of the loss, because two perils were involved
  2. Pay, because fire is the proximate cause of the destruction Correct answer.
  3. Decline, because the stock was destroyed by a natural event
  4. Decline, because lightning is an excluded peril

Explanation

Liability depends on the proximate, that is the dominant and effective, cause of the loss. Here the lightning merely set the sequence in motion and the destruction was brought about by fire, which is a covered peril.

Question 12Principles and Practice of Insurance

A policy contains a warranty that an intruder alarm must be kept in working order. The insured disconnects the alarm and the premises are later burgled. At common law the insurer

  1. Must pay the claim but may recover the amount from the alarm installer
  2. Must pay, because the breach did not cause the loss
  3. May treat liability as discharged from the date of the breach and decline the claim Correct answer.
  4. May only cancel cover from the date of the burglary

Explanation

At common law a warranty is a condition that must be complied with exactly, and breach discharges the insurer from liability from the moment of breach. It does not matter that the breach did not bring about the particular loss.

Question 13Principles and Practice of Insurance

Which of the following need not be disclosed by a proposer when completing a proposal for insurance?

  1. The fact that another insurer declined the same proposal
  2. Well-established points of law that a competent insurer is presumed to know Correct answer.
  3. A fire at the same premises two years earlier
  4. A criminal conviction for obtaining money by fraud

Explanation

The duty of disclosure covers facts material to the risk that the proposer knows or ought to know. It does not extend to matters of law or general knowledge that an insurer is presumed to know, nor to matters the insurer has waived.

Question 14Principles and Practice of Insurance

An insured deliberately raises the sum insured on his stock far above its true value shortly before a fire occurs. This behaviour is an example of

  1. A moral hazard Correct answer.
  2. A physical hazard
  3. A speculative risk
  4. Adverse selection

Explanation

Moral hazard arises from the attitude or dishonesty of the insured and increases the likelihood or size of a claim. Deliberately over-insuring in anticipation of a claim is a classic moral hazard that underwriters guard against.

Question 15Principles and Practice of Insurance

A reinsurance arrangement under which the reinsurer pays the part of each loss that exceeds an agreed retention is called

  1. Surplus reinsurance
  2. Facultative reinsurance
  3. Excess of loss reinsurance Correct answer.
  4. Quota share reinsurance

Explanation

Excess of loss reinsurance responds to the size of individual losses, with the reinsurer taking everything above the cedant's retention. It differs from proportional methods, which share premiums and losses in fixed proportions.

Question 16Principles and Practice of Insurance

Life assurance differs from property insurance mainly because life assurance

  1. Is available only to employers covering their staff
  2. Pays a fixed sum on the happening of an event rather than reimbursing a loss Correct answer.
  3. Requires no insurable interest at any stage
  4. Can be cancelled by the insurer at any time without notice

Explanation

Life assurance is a benefit policy: the sum assured is agreed when the contract is made and is paid when the insured event occurs, without measuring the beneficiary's financial loss. Property insurance is a contract of indemnity limited to the value of the damage.

Question 17Principles and Practice of Insurance

The part of an insurance policy that contains the insurer's promise to pay for losses caused by the insured perils is the

  1. Schedule
  2. Endorsement
  3. Recital
  4. Operative clause Correct answer.

Explanation

The operative, or insuring, clause sets out the scope of cover and the insurer's promise to indemnify. The schedule records variable details such as the sum insured and period, while recitals give background and endorsements later amend the terms.

Question 18Principles and Practice of Insurance

An insurer inserts an exclusion into a policy primarily to

  1. Define the losses that fall outside the cover being granted Correct answer.
  2. Increase the premium payable by the insured
  3. Transfer the whole risk to a reinsurer
  4. Satisfy the requirement that the insured has an insurable interest

Explanation

An exclusion delimits the cover by removing perils or losses the insurer is unwilling to bear, such as uninsurable risks or risks covered by another policy. This keeps the scope of cover clear and the premium affordable.

Question 19Principles and Practice of Insurance

A sum insured of ₦5,000,000 is rated at ₦3 per ₦1,000. Ignoring expenses and statutory charges, the annual premium is

  1. ₦1,500
  2. ₦15,000 Correct answer.
  3. ₦5,000
  4. ₦150,000

Explanation

The rate is applied to each ₦1,000 of sum insured, so the sum insured is divided by 1,000 and multiplied by the rate. Here 5,000 units × ₦3 = ₦15,000.

Question 20Principles and Practice of Insurance

A person who advises the insured, places the risk with insurers and is normally remunerated by commission from the insurer is

  1. An insurance agent
  2. An insurance broker Correct answer.
  3. A loss adjuster
  4. An underwriter

Explanation

A broker acts for the insured in analysing needs and placing the risk in the market, while receiving commission from the insurer that accepts it. An agent, by contrast, acts for the insurer and can bind the insurer to cover.

Question 21Principles and Practice of Insurance

An insurer discovers that a proposer deliberately concealed a material fact when applying for cover. The contract is

  1. Voidable at the insurer's option, so the insurer may avoid it and refuse the claim Correct answer.
  2. Voidable at the insured's option
  3. Binding on the insurer, because the insurer should have investigated the proposal
  4. Automatically void, so the insurer must return the premium in full

Explanation

Breach of the duty of utmost good faith renders the contract voidable at the election of the innocent party, which is the insurer. Where the concealment is deliberate the insurer may avoid the policy from inception, decline the claim and retain the premium.

Question 22Principles and Practice of Insurance

Fire fighters break down doors and flood a building with water while putting out a fire. The policy covers fire only. The resulting damage is

  1. Covered, because the damage flows directly from the fire as the proximate cause Correct answer.
  2. Covered only if a special fire brigade extension has been bought for an extra premium
  3. Not covered, because the damage was caused by water rather than by flame
  4. Not covered, because the fire itself did not damage that part of the building

Explanation

Proximate cause looks for the dominant and effective cause of the whole chain of events. Damage done by emergency services in fighting a fire is treated as part of the fire loss, so it is recoverable under a fire policy.

Question 23Principles and Practice of Insurance

Property worth ₦10,000,000 is insured against fire by Policy A for ₦6,000,000 and by Policy B for ₦4,000,000. Both policies contain a condition of average. A fire causes ₦5,000,000 of damage. Using the independent liability method, Policy A will contribute

  1. ₦2,500,000
  2. ₦6,000,000
  3. ₦2,000,000
  4. ₦3,000,000 Correct answer.

Explanation

Independent liability asks what each policy would have paid had it been the only cover. Policy A alone would pay ₦6,000,000 ÷ ₦10,000,000 × ₦5,000,000 = ₦3,000,000, and Policy B alone ₦2,000,000; the two amounts exactly equal the loss, so no further reduction is needed.

Question 24Principles and Practice of Insurance

A negligent third party destroys property valued at ₦5,000,000. The policy sum insured is ₦3,000,000 and the insurer pays that amount in full. The insurer then recovers ₦4,000,000 from the third party. The insurer should

  1. Keep ₦3,000,000 and account to the insured for the remaining ₦1,000,000 Correct answer.
  2. Keep ₦4,000,000 and also claim the insured's uninsured ₦2,000,000 shortfall
  3. Keep the whole ₦4,000,000 because it paid the claim
  4. Hand the whole ₦4,000,000 to the insured

Explanation

Subrogation exists to support indemnity and cannot be used by the insurer to profit from a loss. The insurer keeps only what it has paid out, and the insured must be allowed the balance of the recovery to reduce the uninsured part of the loss.

Question 25Principles and Practice of Insurance

A policy makes notification of any claim within 30 days a condition precedent to liability. The insured notifies after 60 days, prejudicing the insurer's investigation. The insurer may

  1. Pay in full after applying a small administrative charge
  2. Avoid the policy from inception and return the premium
  3. Repudiate liability for that claim Correct answer.
  4. Pay in full, because the delay did not cause the loss itself

Explanation

A condition precedent to liability must be satisfied before the insurer's obligation to pay arises. Breach entitles the insurer to decline that particular claim, although it does not automatically entitle the insurer to avoid the whole policy.

Question 26Principles and Practice of Insurance

Insurance is best described as a mechanism that

  1. guarantees that the insured will never suffer a financial loss
  2. transfers all of an individual's risks to the government
  3. allows an individual to gamble on the occurrence of an uncertain event
  4. pools the risks of many people so that the losses of the few are met from the contributions of the many Correct answer.

Explanation

Insurance brings together a large number of similar exposure units, each of which contributes a premium to a common fund. The losses of the unfortunate few are then paid out of that fund, so the cost of an uncertain large loss is converted into a certain small cost for each member of the pool.

Question 27Principles and Practice of Insurance

In life assurance, insurable interest must exist

  1. both at the time the policy is taken out and at the time of the claim
  2. at no time, because a person's life has no monetary value
  3. only at the time the claim is made
  4. at the time the policy is taken out Correct answer.

Explanation

A life policy is not a contract of indemnity; the sum assured is agreed in advance. The law therefore requires insurable interest to exist when the contract is formed, but not afterwards, because the interest may legitimately cease later, for example on divorce or when a key employee leaves.

Question 28Principles and Practice of Insurance

The principle of indemnity requires that after a loss the insured is

  1. paid the full sum insured regardless of the actual loss
  2. compensated for the sentimental value of the damaged property
  3. allowed to profit from the loss so as to discourage negligence
  4. restored to the same financial position as before the loss Correct answer.

Explanation

Indemnity means the insured is put back in the financial position occupied before the loss, no better and no worse. This prevents profit from loss and reduces the temptation to destroy or exaggerate damage to insured property.

Question 29Principles and Practice of Insurance

The person who investigates and quantifies a large or complex claim on behalf of the insurer is the

  1. actuary
  2. underwriter
  3. insurance broker
  4. loss adjuster Correct answer.

Explanation

A loss adjuster is appointed by the insurer to establish the cause and amount of a claim and to negotiate settlement. The role demands both technical knowledge of the class of business and skill in handling claimants.

Question 30Principles and Practice of Insurance

The part of a policy document that records the insured's name, the sum insured, the period of insurance and the premium is the

  1. recital clause
  2. schedule Correct answer.
  3. conditions
  4. exclusion

Explanation

The schedule is the section that identifies the particular risk, the parties, the sums insured, the period and the premium. It personalises the standard printed wording for each individual policy.

Question 31Principles and Practice of Insurance

Which of the following is a peril rather than a hazard?

  1. a fire Correct answer.
  2. an overloaded electrical circuit
  3. the absence of a fire extinguisher on the premises
  4. untrained staff operating machinery

Explanation

A peril is the event that causes the loss, such as fire, theft or storm. A hazard is a condition or circumstance that increases the likelihood or severity of that peril occurring.

Question 32Principles and Practice of Insurance

Insurance business in Nigeria is supervised by the

  1. Federal Ministry of Finance
  2. Central Bank of Nigeria
  3. National Pension Commission
  4. National Insurance Commission Correct answer.

Explanation

The National Insurance Commission is the statutory regulator charged with licensing insurers, brokers and loss adjusters and with supervising market conduct and solvency.

Question 33Principles and Practice of Insurance

The process by which an insurer decides whether to accept a proposed risk and on what terms is called

  1. reinsurance
  2. claim settlement
  3. actuarial valuation
  4. underwriting Correct answer.

Explanation

Underwriting is the selection and rating of risks: the insurer decides whether to accept the proposal and, if so, at what premium and subject to what terms, conditions and exclusions.

Question 34Principles and Practice of Insurance

For the purposes of the duty of disclosure, a fact is material if

  1. it is known to the proposer's spouse but not to the proposer
  2. it would influence a prudent insurer in deciding whether to accept the risk Correct answer.
  3. it appears as a question on the proposal form
  4. the proposer considers it important, whether or not the insurer would agree

Explanation

Materiality is judged objectively by reference to what a prudent and experienced underwriter would regard as relevant to acceptance or rating of the risk. The proposer's own opinion of importance is not the test.

Question 35Principles and Practice of Insurance

A policy carries an excess of ₦50,000 on each and every loss. A covered loss of ₦180,000 occurs. The insurer pays

  1. ₦130,000 Correct answer.
  2. ₦180,000
  3. ₦230,000
  4. ₦50,000

Explanation

An excess is the first part of each loss that the insured bears, so it is deducted from the amount otherwise payable. Here ₦180,000 less ₦50,000 leaves ₦130,000 for the insurer.

Question 36Principles and Practice of Insurance

Under a fire policy, the insurer's option to rebuild or replace damaged property instead of paying cash is known as

  1. salvage
  2. contribution
  3. reinstatement Correct answer.
  4. abandonment

Explanation

Reinstatement gives the insurer the right to make good the damage by repair, rebuilding or replacement rather than by a money payment. It keeps the settlement tied to restoring the property rather than to the sum insured.

Question 37Principles and Practice of Insurance

An insurer wishes to extend an existing policy to cover storm damage for the remainder of the period of insurance. The document that records this alteration is

  1. a cover note
  2. a proposal form
  3. a certificate of insurance
  4. an endorsement Correct answer.

Explanation

An endorsement is the document used to vary, extend or restrict the terms of a policy after it has been issued. It is read together with the original wording and takes effect from the date shown.

Question 38Principles and Practice of Insurance

Public liability insurance protects the insured against

  1. injury sustained by the insured's own employees at work
  2. liability to third parties for injury or damage arising from the business Correct answer.
  3. loss of profits following a fire at the insured's premises
  4. damage to the insured's own property caused by its own employees

Explanation

Public liability cover responds to legal liability owed to members of the public for bodily injury or property damage caused in connection with the insured's business. The insured's own property and its own employees are dealt with under other covers.

Question 39Principles and Practice of Insurance

After settling a total loss on a machine, the insurer is entitled to take over and sell the damaged machine. This right is known as the right of

  1. average
  2. salvage Correct answer.
  3. abandonment
  4. betterment

Explanation

Once the insurer has paid a total loss it owns the remains of the insured property and may realise their value. The proceeds reduce the net cost of the claim and support the indemnity principle.

Question 40Principles and Practice of Insurance

An annual policy with a premium of ₦120,000 is cancelled after four months have run. Ignoring fees and charges, the pro rata refund is

  1. ₦80,000 Correct answer.
  2. ₦40,000
  3. ₦60,000
  4. ₦90,000

Explanation

A pro rata refund returns the premium for the unexpired portion of the period of insurance. Eight of the twelve months remain, so the refund is eight-twelfths of ₦120,000, which is ₦80,000.

Question 41Principles and Practice of Insurance

An insured stops locking his warehouse because he knows the insurer will pay for any theft. This behaviour is an example of

  1. speculative risk
  2. morale hazard Correct answer.
  3. physical hazard
  4. moral hazard

Explanation

Morale hazard is the carelessness or indifference that arises from the existence of insurance. It differs from moral hazard, which involves a deliberate and dishonest intent to bring about a loss in order to claim.

Question 42Principles and Practice of Insurance

A reinsurance arrangement under which the reinsurer must accept, and the insurer must cede, all business falling within its terms is called

  1. a treaty Correct answer.
  2. facultative reinsurance
  3. coinsurance
  4. retrocession

Explanation

A treaty is an agreement covering a defined class or portfolio of business in which both parties are obliged to cede and accept. Facultative reinsurance, by contrast, is arranged risk by risk with freedom of choice on both sides.

Question 43Principles and Practice of Insurance

An insurer's agent issues a cover note outside the limits set in the agency agreement, but within the usual authority of agents of that insurer. The insurer is

  1. not bound unless the insurer later ratifies the document in writing
  2. bound only if the insured had read the agency agreement
  3. not bound, because the agent acted outside the agency agreement
  4. bound, because the agent had apparent authority to issue the document Correct answer.

Explanation

A principal is bound by acts that fall within the authority a person in that position would ordinarily be understood to have, even if private instructions have been exceeded. The insured is entitled to rely on the appearance of authority created by the insurer.

Question 44Principles and Practice of Insurance

Which of the following lists methods by which an insurer may settle a claim?

  1. Cash payment, repair, replacement and reinstatement Correct answer.
  2. Arbitration, mediation and litigation
  3. Underwriting, rating and loading
  4. Cessation, cancellation and avoidance

Explanation

A claim may be met in money, or by the insurer arranging repair, replacement or reinstatement of the damaged property. The choice depends on the policy wording and on what is needed to restore the insured's position.

Question 45Principles and Practice of Insurance

A large company sets aside a fund out of which it meets its own predictable losses instead of buying insurance for them. This is

  1. reinsurance
  2. double insurance
  3. self-insurance, a form of risk retention Correct answer.
  4. coinsurance

Explanation

Self-insurance is the deliberate retention of a risk by setting aside funds to meet expected losses. It is practicable only where the number of exposures is large and the losses are reasonably predictable, and it gives no protection against a catastrophic loss.

Question 46Principles and Practice of Insurance

Under a fire policy, the sum insured is not automatically restored after a partial loss. To have the full sum insured available again for a later fire, the insured must

  1. provide a certificate of value from a loss adjuster
  2. submit a fresh proposal form for the property
  3. pay an additional premium proportionate to the loss and the unexpired period Correct answer.
  4. wait until the next renewal date

Explanation

The sum insured is reduced by the amount of any loss that is paid, because the insurer's liability is correspondingly exhausted. It can be reinstated if the insured pays an additional premium calculated on the amount restored and the period remaining until renewal.

Question 47Principles and Practice of Insurance

An insurer continues to accept premiums with full knowledge that the insured has breached a policy condition. When a claim is later made, the insurer

  1. may reduce the claim by half as a penalty for the breach
  2. may repudiate liability because the breach automatically ended the cover
  3. must refund all premiums paid before denying liability
  4. may be treated as having waived the breach and so cannot rely on it Correct answer.

Explanation

A party who, with knowledge of a breach, acts in a way that shows the contract is still regarded as binding waives the right to rely on that breach. Continuing to collect premiums is such conduct, and the insurer is afterwards estopped from denying liability on that ground.

Question 48Principles and Practice of Insurance

A painting is insured under a valued policy for an agreed sum of ₦8,000,000. It is destroyed by fire at a time when its market value is ₦10,000,000. The insurer will pay

  1. ₦10,000,000, because indemnity requires full market value
  2. ₦8,000,000, the sum agreed in the policy Correct answer.
  3. nothing, because the property was under-insured
  4. ₦2,000,000, being the difference between the two figures

Explanation

In a valued policy the sum agreed at inception is conclusive evidence of the value of the subject matter. The settlement is therefore the agreed figure, and neither party may afterwards dispute the value.

Question 49Principles and Practice of Insurance

A vessel insured for ₦50,000,000 is stranded and the cost of repairing her would be ₦60,000,000. In marine insurance this loss is best described as

  1. an actual total loss
  2. a constructive total loss Correct answer.
  3. a partial loss
  4. a general average sacrifice

Explanation

Where the subject matter is not physically destroyed but the cost of recovering and repairing it would exceed its insured value, the loss is constructive total. The insured may then abandon the vessel to the insurer and claim as for a total loss.

Question 50Principles and Practice of Insurance

A bank lends money against a factory, the loan being secured by a mortgage over the property. Which statement is correct?

  1. The bank has an insurable interest to the extent of the outstanding loan Correct answer.
  2. The borrower loses all insurable interest once the mortgage is created
  3. The bank has no insurable interest because it does not occupy the factory
  4. The bank and the borrower may each recover the full value of the factory

Explanation

A mortgagee has a pecuniary interest in the property to the extent of the debt secured on it, because destruction of the property would leave the loan unsecured. Recovery by the bank is limited to that interest, so indemnity is preserved.