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.