BCP Insurance Contracts & Underwriting 1 — Questions and Answers
Question 1: What are the four essential elements of a valid insurance contract in Singapore?
- Offer, acceptance, premium payment, and policy issuance
- Offer, acceptance, consideration, and legal capacity (with insurable interest) (Correct answer)
- Written policy, agent signature, MAS approval, and premium receipt
- Proposal form, survey report, premium invoice, and cover note
Correct answer: Offer, acceptance, consideration, and legal capacity (with insurable interest)
A valid insurance contract requires: offer (proposal), acceptance (by insurer), consideration (premium), and legal capacity of the parties, plus insurable interest to distinguish it from wagering.
Question 2: What is 'risk selection' in the underwriting process?
- Selecting the cheapest premium to offer
- The process of evaluating and deciding which risks to accept, decline, or modify (Correct answer)
- Selecting which claims to pay
- Choosing which agents to appoint
Correct answer: The process of evaluating and deciding which risks to accept, decline, or modify
Risk selection is the underwriting process of evaluating proposed risks, deciding which to accept (and on what terms), which to decline, and which require modifications (such as exclusions or higher premiums).
Question 3: What is a 'proposal form' in the insurance context?
- A marketing brochure from the insurer
- The insured's formal application for insurance, providing material facts for underwriting assessment (Correct answer)
- A form completed after a claim is made
- A government registration form for insurers
Correct answer: The insured's formal application for insurance, providing material facts for underwriting assessment
A proposal form is the formal application completed by the prospective insured, disclosing all material facts about the risk so the insurer can make an informed underwriting decision.
Question 4: What is the underwriting significance of a 'moral hazard' assessment?
- It assesses the physical condition of the property
- It assesses the character, integrity, and attitude of the insured toward risk and potential claims (Correct answer)
- It calculates the probability of a catastrophic loss
- It determines the appropriate premium rate
Correct answer: It assesses the character, integrity, and attitude of the insured toward risk and potential claims
Moral hazard assessment evaluates the insured's character, honesty, and attitude — an insured who is dishonest or careless represents a higher risk of inflated or fraudulent claims, affecting the underwriting decision.
Question 5: What is an 'endorsement' on an insurance policy?
- The insurer's confirmation that the premium has been paid
- A document that modifies the terms, conditions, or coverage of an existing policy (Correct answer)
- The insured's signature on the policy
- A government certification of the policy's validity
Correct answer: A document that modifies the terms, conditions, or coverage of an existing policy
An endorsement is a written document attached to an insurance policy that modifies its original terms — adding, removing, or amending coverage, exclusions, or conditions during the policy period.
Question 6: What is the difference between 'renewal' and 'replacement' of an insurance policy?
- They mean the same thing in Singapore insurance practice
- Renewal continues the existing policy on (possibly revised) terms; replacement involves taking out a new policy with potentially different coverage (Correct answer)
- Renewal is compulsory; replacement is optional
- Replacement can only be done if the original policy was cancelled
Correct answer: Renewal continues the existing policy on (possibly revised) terms; replacement involves taking out a new policy with potentially different coverage
Renewal continues the existing insurance relationship, typically on the same or revised terms, maintaining coverage continuity. Replacement involves taking out a new policy, which may involve new underwriting and different terms.
BCP Insurance Contracts & Underwriting 1
What are the four essential elements of a valid insurance contract in Singapore?