WAEC Insurance 2019
Questions & Answers

Learners might choose 'Increase premiums' (Option A) or 'Reduce claims' (Option C) thinking insurers manage revenue or payouts directly to prevent losses. Reinsurance enables primary insurers to transfer portions of their risk portfolios to reinsurers, thereby diversifying and stabilizing their financial exposure to large or catastrophic losses, ensuring solvency and capacity to underwrite more policies. Common mistake: Assuming reinsurance stops losses from happening rather than transferring financial exposure.

Students often pick 'Policy document' (Option A), incorrectly believing the contract itself originates the negotiation process. The proposal form serves as the insured's formal offer to enter into an insurance contract, providing details about the risk to be covered, which the insurer accepts or rejects by issuing a policy. Common mistake: Confusing the final contract document with the application form that constitutes the legal offer.

A test-taker might select 'Only favorable facts' (Option A) assuming disclosure is meant to highlight positive risk attributes to secure better coverage terms. The principle of utmost good faith (uberrimae fidei) mandates both parties to disclose all material facts that could influence the risk assessment or terms of the contract, ensuring transparency and fair pricing. Common mistake: Withholding unfavorable information under the assumption that only good traits need to be shared.

Candidates might choose 'Survival to age 65' (Option C) because many insurance or retirement products target specific age milestones. A whole life policy provides lifelong coverage, paying the sum assured to beneficiaries upon the death of the insured, regardless of when it occurs, and often includes cash value accumulation. Common mistake: Confusing whole life coverage with endowment or term policies tied to specific survival ages.

Students might mistakenly pick 'Minimum capital requirements' (Option B) or 'Broker licensing' (Option C) in isolation, seeing only one true requirement among the choices. The Insurance Act 2003 in Nigeria requires insurers to undergo annual audits, maintain minimum capital levels for solvency, and mandates licensing for brokers to ensure regulatory compliance and market integrity. Common mistake: Selecting a single compliance rule when multiple regulatory mandates apply simultaneously.

A student might mistakenly select 'Accidental damage' (Option A) or 'Theft' (Option C), forgetting that comprehensive policies are designed precisely to protect against those unexpected perils. Comprehensive motor insurance covers a wide range of risks but explicitly excludes losses from intentional or deliberate acts by the insured, such as self-inflicted damage, to prevent moral hazard. Common mistake: Assuming comprehensive insurance covers all possible losses regardless of intent.

Candidates could opt for 'Proposal' (Option B) by confusing a change to an existing contract with the initial application documentation. An endorsement, or rider, is an amendment or addendum to an existing insurance policy that modifies its terms, coverage, or conditions to reflect changes in risk or insured requirements. Common mistake: Confusing contract modifications with initial application submissions.

Learners might mistakenly pick 'Marine insurance' (Option A) if they associate livestock movement with transit or shipping sectors. Agricultural insurance encompasses coverage for farm-related risks, including livestock against perils like disease, theft, or natural disasters, supporting farmers and ensuring food security. Common mistake: Misclassifying farm asset coverage under transport-related categories.

Students might choose 'Wait for insurer's advice' (Option C) assuming the policyholder should remain passive until loss adjusters arrive. The principle of mitigation obligates the insured to take reasonable steps to prevent or minimize further loss after an insured event, allowing the insurer to reduce indemnity payments accordingly. Common mistake: Waiting idly for instructions while preventable damage continues to compound.

Test-takers might pick 'Single life only' (Option B), missing the multi-party nature of joint coverage arrangements. A last survivor policy, often used in joint life assurance, continues coverage on multiple lives and pays the benefit upon the death of the last surviving insured, commonly for estate planning. Common mistake: Confusing joint-life last survivor products with policies that terminate upon the first person's death.

A candidate might select 'Excluded' (Option A) or 'Charged extra' (Option C), assuming civil unrest requires special endorsements or riders. In standard property insurance policies, riot damage is covered as one of the basic or extended perils, protecting against losses from civil unrest, vandalism, or malicious acts. Common mistake: Assuming civil commotion requires special standalone policy riders.

Students might mistakenly choose 'Risks only' (Option C), overlooking the financial quantification aspect necessary for running an insurance business. Actuarial science applies mathematical and statistical methods to assess risks and determine appropriate premium rates, ensuring the insurer's long-term financial sustainability based on probability of claims. Common mistake: Viewing actuarial work as purely qualitative risk identification rather than quantitative pricing.

Candidates might choose 'Public liability' (Option B) or 'Product liability' (Option C), confusing general liability classes with specialized occupational coverages. Professional indemnity insurance, also known as malpractice insurance, protects professionals against claims of negligence or errors in services rendered, covering legal defense and compensation costs. Common mistake: Confusing general business liability with professional service malpractice protection.

Learners might choose '60 days' (Option D) by misremembering regulatory timelines or confusing grace periods with extended credit terms. Under Nigerian insurance regulations, general insurance policies have a 30-day grace period for renewal, during which coverage remains in force despite late premium payment, to accommodate administrative delays. Common mistake: Overestimating the duration of the official statutory grace period.

A student might mistakenly pick 'Discounts' (Option B) or 'Refunds' (Option C), focusing on cost savings rather than profit-sharing features. Participating (with-profits) policies allow policyholders to share in the insurer's profits through bonuses added to the sum assured, enhancing the policy's maturity or death benefit value. Common mistake: Confusing premium discounts with dividend bonuses distributed from insurer profits.

Candidates might select 'Uncertain events' (Option A) by failing to distinguish between general property/casualty contracts and life agreements. Life assurance covers certain future events like death, which is inevitable, whereas general insurance deals with uncertain events; the distinction lies in the certainty of occurrence. Common mistake: Treating life events as uncertain risks rather than inevitable occurrences.

Students could choose only 'Solvency margins' (Option A) or 'Ethical practices' (Option B) if they overlook the broad regulatory mandate of the commission. The National Insurance Commission (NAICOM) regulates the insurance industry in Nigeria by enforcing solvency margins to ensure financial stability and ethical practices to maintain market integrity and consumer protection. Common mistake: Selecting only one regulatory pillar when multiple mandates apply.

A candidate might pick 'Specific goods' (Option A), confusing a blanket transit arrangement with a specific policy. A floating policy provides blanket coverage for cargo shipments in transit without specifying individual consignments or values each time, ideal for frequent shippers, with claims settled based on actual values. Common mistake: Confusing open or floating arrangements with specific, single-voyage policies.

Students might choose 'Burglary insurance' (Option B) because safe theft involves unlawful entry and break-ins. Money insurance covers cash and valuables held in safes or transit against risks like theft, robbery, or employee dishonesty, with specific limits and security requirements to mitigate moral hazard. Common mistake: Categorizing cash-specific protection under general burglary instead of money insurance.

Candidates might mistakenly select 'Insured perils' (Option A) or 'All causes' (Option C) through a misunderstanding of how loss chains are evaluated. The doctrine of proximate cause identifies the dominant and effective cause of a loss; if it is an uninsured peril, the claim is excluded, ensuring coverage only applies to insured risks. Common mistake: Assuming remote causes override the dominant proximate cause of loss.

A student might choose 'Vehicle purchase' (Option C) or 'Business loans' (Option D) through wild misassociation, though holiday policies focus on travel-related disruptions. Holiday or travel insurance typically includes trip cancellation coverage, reimbursing non-refundable expenses if the trip is canceled due to unforeseen events like illness or natural disasters. Common mistake: Confusing travel protection features with commercial loan or asset acquisition policies.

Learners might choose 'Treaty classes' (Option C) thinking surplus insurance operates on broad categories rather than individual policies. Surplus reinsurance allows the primary insurer to cede portions of a single risk exceeding its retention limit to reinsurers, sharing liability on an individual basis rather than classes of business. Common mistake: Confusing individual risk surplus treaties with aggregate quota share arrangements.

Students might mistakenly look at options like cover extension or claim bonus because they sound like positive administrative outcomes, but these do not relate to the negative consequences of hiding risk changes. When an insured party fails to inform the insurer about material changes in risk, the original assessment is compromised. Upholding the principle of utmost good faith means that this lack of notification can cause the contract to face policy suspension or avoidance. Common mistake: Confusing an underwriting penalty with policy rewards like a claim bonus.

Students might select stock theft or employee injury because shop environments frequently experience burglaries or staff accidents. However, shop front insurance focuses entirely on a specific physical component of the business premises. Also known as plate glass insurance, it is designed to pay for repairing or replacing broken glass in shop windows and doors caused by vandalism, accidents, or other perils. Common mistake: Assuming all property and liability risks of a retail store are covered under a single glass-specific policy.

Students might choose only non-payment of premium or just fraudulent claim, missing that forfeiture can stem from multiple contract violations. Non-payment of premiums causes the policy to lapse, while fraudulent claims and misrepresentations render the contract void entirely. Both scenarios protect the insurer from undue liability when obligations or honesty are breached. Common mistake: Believing that policy termination only happens due to missed payments rather than dishonest claims.

Students might pick market changes or currency fluctuations because they represent financial risks businesses face globally. However, political risk insurance specifically targets government-driven actions rather than standard economic shifts. It safeguards international investments against perils like nationalization, political violence, or government expropriation, which frequently occur in emerging markets featuring unstable regimes. Common mistake: Mixing up economic volatility with direct government intervention.

Students might select only extension without medical exam or conversion to endowment, missing that renewable term assurance offers a combination of these flexible features. The policyholder is allowed to extend coverage without new medical underwriting, decrease the sum assured, or convert the arrangement into an endowment policy to gain savings benefits. Common mistake: Forgetting that term policies can sometimes provide multiple flexibility options rather than just a single extension feature.

Students might incorrectly select health insurance or life assurance because they mistake 'lifts' for human elevators or people-moving systems. However, mechanical and electrical equipment such as lifts fall under engineering insurance. This coverage protects against breakdowns, failures, and accidents, and it incorporates inspection and maintenance protocols to guarantee operational safety. Common mistake: Interpreting 'lift' as a medical or personal term instead of mechanical machinery.

Students might choose increase premiums or deny claims because insurers interact with payments and payouts regularly. Yet, the principle of subrogation specifically operates after a payout occurs. Once the insurer indemnifies the insured, it gains the legal right to step into the insured's shoes and pursue recovery from third parties responsible for the loss, preventing double recovery and managing costs. Common mistake: Confusing subrogation with an insurer's right to raise rates or reject initial claims.

Students might select adjustment of terms or refund of excess, thinking minor corrections are made for mistakes. However, fraudulent misrepresentation involves intentional false statements rather than innocent errors. This misconduct renders the contract void ab initio, permitting the insurer to rescind coverage completely and recover any premiums paid. Common mistake: Assuming intentional fraud can be fixed simply by adjusting policy terms later.

Students might select claim filing or sum increase because they relate to active policy management. Nevertheless, the free-look period—lasting typically 15 to 30 days in life policies—is designed for evaluation rather than alterations. It gives the insured time to review and cancel the policy for a full refund if dissatisfied, thereby encouraging informed decision-making. Common mistake: Believing the free-look window is meant for filing initial claims or changing coverage limits.

Students might select third-party claims or property damage because business liability policies often cover outside parties and assets. Yet, workmen's compensation insurance is specifically tailored for internal personnel. It provides mandatory legal benefits to employees for work-related illnesses, injuries, or deaths, covering medical costs, lost wages, and rehabilitation. Common mistake: Mixing up workers' compensation with general public liability coverage.

Students might select individual liability or salvage recovery, focusing on single-party loss or post-loss asset retrieval. In marine insurance, general average deals with collective actions taken during a voyage. It involves voluntary sacrifice or expenditure for common safety, requiring losses to be shared proportionally among all benefiting parties in accordance with maritime law. Common mistake: Confusing shared voyage sacrifices with individual shipowner liabilities.

Students might choose fees from clients or salary only, thinking of independent brokers or hourly workers. Direct agents, conversely, are employed directly by insurers. They earn commissions determined by the premiums generated from the policies they sell, which aligns their personal incentives with the overall revenue goals of the insurance company. Common mistake: Assuming direct agents operate independently and charge direct advisory fees to clients.

Students might pick monthly income or medical costs, assuming ongoing support is standard for all injuries. Under personal accident policies, however, permanent total disablement triggers a lump sum payment. This compensates for the irreversible loss of the ability to work and addresses the resulting long-term financial impacts. Common mistake: Expecting ongoing periodic disbursements instead of a single capitalized payout for permanent total disablement.

Students might choose agreed amount or nominal sum, confusing unvalued policies with valued contracts where a fixed payout is predetermined. Unvalued policies do not feature a fixed sum insured. Instead, indemnity is calculated based on the actual market value of the lost or damaged item right at the time of the loss, ensuring fair compensation. Common mistake: Applying a fixed valuation mindset to policies that rely on fluctuating market worth.

Students might select single policies or reinsurance, misinterpreting how multiple risk carriers interact. The contribution clause specifically activates in co-insurance scenarios where multiple policies cover the identical risk. It ensures that each insurer contributes proportionally to the loss, stopping the insured from recovering more than the total value of the loss. Common mistake: Thinking the contribution clause refers to transferring risk via reinsurance rather than splitting claims among concurrent insurers.

Students might select general partnership or liability only, focusing on broad business operations instead of specific personnel risks. Partnership or key man insurance is designed to protect against the financial fallout of losing a vital partner or key employee. It supplies the necessary funds to buy out shares or handle operational disruptions caused by the loss. Common mistake: Viewing partnership insurance as general liability coverage rather than protection against human capital loss.

Students might choose full payment by insured or waiting period, thinking the insured either pays everything out-of-pocket or faces a time delay before coverage begins. Co-payment requires the insured to cover a fixed percentage or specific amount of each medical expense, while the insurer pays the remainder. This mechanism encourages responsible healthcare utilization and shares financial costs. Common mistake: Confusing co-payment with policy deductibles or total self-insurance.

Students might select single voyage only or facultative, confusing open covers with individual or spot-transaction policies. An open cover policy in marine insurance automatically insures all shipments under specified terms and limits over a designated period. This simplifies administration for regular exporters who do not want to declare every single cargo individually. Common mistake: Believing every cargo shipment requires a separate individual declaration under marine rules.