WAEC Insurance 2020
Questions & Answers

1) Distractor check: A student might mistakenly pick eliminate risks by confusing risk management with absolute hazard removal, or select increase risks through a misunderstanding of financial protection mechanisms. 2) Reasoning to the answer: Insurance operates by transferring the financial burden of potential losses from an individual or business to an insurer in exchange for periodic premiums. This setup helps manage uncertainty effectively without removing the underlying hazard itself. 3) Common mistake: Believing that purchasing insurance completely eliminates the physical or operational risks associated with an activity.

Students might mistakenly choose aleatory contract or adhesion contract because these are also technical legal terms used to describe insurance agreements, but they refer to the exchange of unequal values or standardized take-it-or-leave-it conditions rather than the core ethical requirement of honesty. The correct choice is uberrimae fidei because this doctrine demands that both parties disclose all material facts honestly, as insurance contracts rely on accurate risk information for fair premium setting. Common mistake: confusing the legal nature of an insurance agreement with the foundational ethical duty of absolute disclosure.

A student might incorrectly select the time of claim, thinking that a financial stake only matters when money is actually paid out, or choose the time of renewal if they confuse ongoing policy maintenance with the birth of the contract. The correct answer is the time of proposal because, for life assurance, insurable interest—defined as a financial or emotional stake in the insured's life—must exist at the policy's inception to prevent wagering, though it need not persist later. Common mistake: assuming insurable interest must continue throughout the entire life of the policy just like in property insurance.

An examinee could easily select fire insurance or motor insurance since these are everyday forms of coverage people encounter frequently. However, those are forms of indemnity insurance rather than the correct option, life assurance, which pays a fixed sum assured upon death or maturity regardless of financial loss, unlike indemnity insurances that compensate actual loss. Common mistake: failing to distinguish between policies that pay out a predetermined amount upon an event and those that reimburse exact monetary damages.

Test-takers might mistakenly guess the CBN or SEC because both are prominent financial regulatory institutions in the country, but they oversee banking and capital markets respectively rather than the insurance sector. The correct body is NAICOM, which was established in 1997 to oversee insurance companies in Nigeria, ensuring solvency, policyholder protection, and market stability. Common mistake: mixing up the central financial regulators and attributing the insurance mandate to the central bank.

A candidate might lean toward market value or salvage value, assuming that premiums relate strictly to physical asset pricing or leftover asset worth rather than the underlying likelihood of an accident. The correct option is risk assessment because premiums are determined through underwriting, which assesses the risk level, such as age, health, and location, to set a fair price reflecting the probability and cost of potential claims. Common mistake: treating an insurance premium like a retail price tag rather than a calculated probability of future loss.

A student might mistakenly think subrogation applies to liability or property insurance, overlooking the fact that the question asks where it does NOT apply, or they might guess marine insurance. The correct answer is life assurance because subrogation allows the insurer to recover costs from third parties after indemnity, applying to property, liability, and marine coverage, but it does not apply to life assurance, which is non-indemnity. Common mistake: forgetting that human life has no measurable financial value for recovery purposes, exempting it from third-party recovery rules.

An examinee might select claim settlement or renewal, confusing the initiation of a brand-new policy with later stages of the policy lifecycle. The correct choice is proposal acceptance because, upon acceptance of the application and premium payment, the insurer issues the policy document outlining coverage terms, starting the contract. Common mistake: believing the policy document is sent out before the proposal is formally reviewed and accepted by the insurer.

A test-taker could mistakenly choose theft of vehicle or fire damage to vehicle, thinking that third-party policies exclude all vehicle-related incidents completely. The correct option is damage to own vehicle because third-party fire and theft covers damage and injury to others' property as well as theft and fire affecting the insured vehicle, but it excludes own vehicle damage from accidents. Common mistake: assuming third-party cover means absolutely no protection is afforded to the policyholder's own automobile under any circumstance.

Students might mistakenly pick the first cause of loss or the remote cause by tracing the chain of events either too far back or focusing on temporal sequence rather than operational impact. The correct choice is the effective cause of loss because proximate cause identifies the dominant, effective cause of loss closest to the policy's coverage, determining if the claim is payable. Common mistake: confusing the chronological beginning of a sequence of events with the legal and operational trigger recognized by the insurer.

A candidate might mistakenly select death only, confusing an endowment policy with standard whole life protection. The correct answer is maturity or death because endowment policies pay the sum assured if the insured survives to maturity or upon death if earlier, combining protection and savings. Common mistake: overlooking the savings element that rewards the policyholder for surviving the specified term.

An examinee might select collect premiums or settle claims, assuming that back-end administrative tasks or money collection are the primary drivers for passing off liabilities. The correct option is spread risks because reinsurance allows primary insurers to transfer portions of risk to reinsurers, stabilizing finances and enabling larger policies by spreading exposure. Common mistake: viewing reinsurance as a customer-facing service rather than a behind-the-scenes financial stabilization tool for insurers.

A student might mistakenly choose over-insurance, thinking that having too much coverage triggers the average clause penalty. The correct answer is under-insurance because the principle of average, or pro rata, reduces claim payouts proportionally if the sum insured is less than the actual loss value, preventing under-insurance incentives. Common mistake: confusing the penalty for insuring property below its actual value with the penalties associated with excess coverage.

A test-taker might select relates to the broker or concerns the claim, mistaking where administrative duties lie or focusing on the payout phase instead of the underwriting stage. The correct option is affects the risk assessment because a material fact significantly influences the insurer's risk assessment and premium calculation, and non-disclosure can void the policy under utmost good faith. Common mistake: waiting until a claim is filed to disclose crucial information that should have been shared during application.

Students could mistakenly pick fire loss or flood damage, conflating fidelity insurance with standard property or peril-based insurance lines. The correct answer is employee theft because fidelity or fidelity guarantee insurance indemnifies employers against financial losses from employee dishonesty, such as theft or fraud. Common mistake: assuming fidelity insurance protects against external property hazards instead of internal human risks.

An examinee might guess 7 days or 15 days, assuming a shorter timeline applies to administrative lapses in standard non-life coverage. The correct option is 30 days because a thirty-day grace period allows policyholders to pay overdue premiums without lapse, maintaining coverage during that time. Common mistake: underestimating the duration of the grace window provided for premium settlement.

A candidate might mistakenly choose a shared loss or total loss, confusing particular average with general average or a complete write-off. The correct answer is partial loss borne by one party because particular average refers to partial damage or loss to specific cargo or a ship, borne solely by the owner, unlike general average which is shared. Common mistake: mixing up particular average with the shared nature of general average maritime principles.

A student could mistakenly choose motorists or homeowners, associating professional indemnity with physical assets like cars or houses rather than human expertise. The correct option is doctors and lawyers because professional indemnity, also known as errors and omissions, covers professionals like doctors and lawyers against claims of negligence or malpractice causing client loss. Common mistake: failing to recognize that service-based professionals require liability protection for mental or physical errors just as property owners do for physical damages.

An examinee might mistakenly choose a premium refund, thinking that reporting a higher risk results in getting money back rather than facing contractual penalties. The correct answer is policy avoidance because failure to disclose material changes, such as an increased risk, breaches utmost good faith, allowing the insurer to avoid or nullify the policy. Common mistake: assuming that failing to update an insurer about risk changes only adjusts the future rate rather than invalidating the contract.

A test-taker might select theft or collision, applying standard property or motor insurance perils to an agricultural context where they do not fit. The correct answer is pests and drought because crop insurance compensates farmers for yield losses from perils like pests, diseases, drought, or excessive rain, stabilizing agricultural income. Common mistake: applying urban or industrial risk categories to farming operations.

A candidate might mistakenly choose the grace period or the cooling-off period, confusing brand-new policy windows with the formal reactivation of an expired contract. The correct option is revival terms because revival or reinstatement allows lapsed policies to be restored under specific terms, such as back premium payment and possible health checks, within a limited time. Common mistake: treating a lapsed policy revival as an automatic extension rather than a conditional process.

Students might mistakenly pick own property damage or employee wages, confusing public liability with first-party property coverage or internal payroll liabilities. The correct answer is third-party injury because public liability protects against claims for injury or property damage to third parties arising from business operations or premises. Common mistake: thinking public liability covers the business's own internal assets instead of external claims made by outsiders.

An examinee might mistakenly choose the premium amount or the excess, confusing what the insured pays out of pocket or upfront with the boundary of financial recovery. The correct answer is the maximum payout because the sum insured is the maximum amount the insurer will pay under the policy, based on the value at risk, subject to indemnity principles. Common mistake: confusing the total coverage limit with the cost of the policy or the deductible amount.

A student might incorrectly select investment profits or the sum assured on death, assuming money-back plans act like mutual funds or pure whole life coverage. The correct option is premiums periodically because money-back or return of premium life policies return a portion of premiums at fixed intervals during the term, plus the full sum on maturity or death. Common mistake: missing the unique periodic payout feature of money-back policies that separates them from standard deferred payouts.

A candidate might pick fire insurance or health insurance, incorrectly assuming that a boiler is either a standard building fixture or a medical apparatus. The correct answer is engineering insurance because engineering insurance covers machinery breakdowns, including boiler explosions, due to defects or operation failures. Common mistake: filing boiler-related industrial claims under ordinary fire policies.

An examinee might choose a premium increase or cover extension, assuming the insurer simply adjusts the price rather than threatening the validity of the contract itself. The correct answer is policy voidance because material misrepresentation, which is a false statement affecting risk, allows the insurer to void the policy ab initio, treating it as never existing. Common mistake: assuming a dishonest statement on an application only incurs a financial penalty instead of rendering the entire contract null and void.

Distractor check: A student might mistakenly select individual assessment, high risks, or long terms, assuming that personal medical reviews or riskier profiles naturally drive cost reductions. Reasoning to the answer: Group policies cover many individuals simultaneously, which optimizes administrative efficiency by spreading operational expenses among a larger base. Furthermore, this collective volume gives the insurer greater bargaining power to secure reduced premiums. Common mistake: Confusing individual underwriting methods with the inherent scale efficiencies of a collective pool.

Distractor check: Candidates could mistakenly choose options indicating the insurer pays it, or that it alters the premium directly, because all figures relate to monetary insurance adjustments. Reasoning to the answer: An excess, also known as a deductible, represents the initial loss portion that the policyholder is personally responsible for covering. By requiring this upfront contribution from the insured, moral hazard is minimized, which in turn helps keep overall premiums lower for the insurance company. Common mistake: Mixing up who bears the initial financial burden during a claim.

Distractor check: Options like home contents, vehicle repair, or business interruption might catch the eye of a student who generalizes property or commercial policies to personal travel scenarios. Reasoning to the answer: This specific policy safeguards travelers against unexpected disruptions during international journeys. It provides financial relief for healthcare treatments abroad, costs related to repatriation, and compensation for missing baggage. Common mistake: Failing to distinguish between static property insurance and mobile international journey coverage.

Distractor check: Students may erroneously select claim payment, policy renewal, or broker appointment, thinking that post-sale administration or sales representation constitutes the core risk assessment phase. Reasoning to the answer: Underwriting evaluates proposed risks to determine their overall acceptability, decide applicable terms, and calculate the appropriate premium. This thorough evaluation guarantees that the insurance portfolio remains financially viable over time. Common mistake: Confusing the initial risk evaluation phase with subsequent actions like claims settlement or policy renewals.

Distractor check: A student might mistakenly pick agreed value, nominal value, or replacement value, assuming policies always lock in a pre-determined figure or standard retail price. Reasoning to the answer: Because unvalued, or open, policies lack a predetermined value specified at the inception of the contract, the final payout relies on the actual market value or replacement value calculated at the exact moment the loss occurs. Common mistake: Assuming all insurance contracts pre-determine the payout amount regardless of market fluctuations.

Distractor check: Test-takers could mistakenly choose under-insurance, risk transfer, or policy lapse, since these all represent common insurance concepts related to coverage adequacy and contract management. Reasoning to the answer: Contribution ensures that when multiple insurers cover the exact same risk, they share any resulting losses proportionally. This proportional distribution stops the insured from collecting more than their actual loss, thereby preventing any profit from the event. Common mistake: Confusing contribution with the distinct remedy used to penalize under-insured properties.

Distractor check: Options such as fire damage, theft, or flood might be selected by a student who confuses executive liability with standard commercial property or hazard insurance. Reasoning to the answer: Directors and officers liability insurance shields corporate executives from legal actions involving wrongful acts, everyday negligence, or executive mismanagement occurring within their decision-making duties. Common mistake: Mixing up management-focused executive protection with physical asset protection policies.

Distractor check: Candidates might mistakenly select new illnesses, accidents, or surgeries, believing that policy exclusions target recent health incidents rather than historical conditions. Reasoning to the answer: Waiting periods, which typically span anywhere from 30 days to 4 years, temporarily exclude coverage for pre-existing diseases. Implementing this delay effectively deters adverse selection by individuals who already know they represent high risks. Common mistake: Assuming waiting periods apply universally to newly contracted illnesses instead of pre-existing conditions.

Distractor check: A student might select fire, theft, or storm, mistakenly thinking that broad policies omit standard catastrophic perils. Reasoning to the answer: While all-risks policies broadly cover accidental losses, they explicitly exclude gradual deterioration such as wear and tear because these represent expected depreciation rather than sudden, unforeseen perils. Common mistake: Forgetting that gradual degradation is universally excluded from sudden accidental loss coverage.

Distractor check: Students could mistakenly choose principal, underwriter, or regulator, assuming brokers either act on their own behalf or exercise direct underwriting authority. Insurance brokers act as the representative of the insured, offering professional advice on necessary coverage, negotiating policy terms, and placing risks with suitable insurance companies. Common mistake: Misidentifying the broker as an employee or agent of the insurance company rather than the policyholder.

Distractor check: Candidates might mistakenly pick the term of the policy, grace period, or revival period, assuming the exclusion extends across the entire contract duration or deals with late payments. Reasoning to the answer: Suicide clauses explicitly exclude claims if death by suicide happens within the first year, or sometimes two years, of the policy inception in order to deter moral hazard. Common mistake: Assuming suicide exclusions apply indefinitely throughout the entire lifetime of a life assurance contract.

Distractor check: A student could mistakenly choose employees, customers, or brokers, thinking that liability policies protect internal staff or intermediaries instead of external parties. Reasoning to the answer: Product liability insurance safeguards manufacturers and sellers against legal claims for physical injury or property damage triggered by defective products. Common mistake: Confusing product liability protection for makers and sellers with employer liability or broker errors and omissions.

Distractor check: Test-takers might mistakenly select total loss, partial damage, or sue and labour, given that these are all technical maritime vocabulary terms. Reasoning to the answer: General average mandates that all involved parties, including the ship and cargo owners, proportionally share any extraordinary sacrifices or expenses made deliberately to rescue the maritime adventure from impending peril. Common mistake: Confusing a shared sacrifice made for the common safety with an individual partial loss.

Distractor check: Candidates could mistakenly choose premium calculations, risk assessments, or policy issuances, assuming the ombudsman handles technical underwriting tasks. Reasoning to the answer: The insurance ombudsman serves as a mediator for complaints filed by policyholders against insurers, delivering free and binding resolutions designed to guarantee fair treatment. Common mistake: Confusing regulatory dispute resolution with the internal mathematical and underwriting functions of an insurance firm.