C11 Exam Dumps : Principles and Practice of Insurance

The coinsurance clause requires the insured to carry insurance equal to a specified percentage (commonly 80%, 90%, or 100%) of the property's value. If the insured carries less than the required amount, they become a coinsurer and share in any partial loss. This prevents underinsurance and encourages insureds to maintain adequate coverage levels.

Here, Deanna insures a $1,000,000 property for only $500,000—50%. If the policy requires 80% coinsurance, she should be carrying at least $800,000. Because she does not, she will not be fully reimbursed for partial losses; her payment will be reduced proportionally based on the coinsurance formula.

Option A (forfeiture) applies to breaches of policy conditions. Option C (contribution) applies when multiple insurers cover the same risk. Option D (subscription) applies when several insurers share a single risk by percentage participation.

Thus, the clause that could reduce Deanna’s recovery is B: Coinsurance.

Insurable interest exists when someone would suffer a financial loss if a person or property were damaged, lost, or deceased. Employers have a legitimate, recognized insurable interest in the lives of key employees, as their death or disability could result in financial loss—for example, reduced productivity, training costs, or loss of specialized expertise. Therefore, A represents a valid and legally recognized insurable interest.

Option B involves investment income earned by insurers—this is not an insurable interest but a financial outcome of operations. Option C reflects a business motive but not an insurable interest because an underwriter does not stand to personally lose financially if a policyholder dies or property is damaged. Option D is generally invalid unless the employee can demonstrate a direct financial dependency, which is typically not the case.

Thus, the only clear example of insurable interest is A: the employer’s interest in the life of an employee.

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.