Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What term describes the cause of a loss in insurance?

1. Peril

2. Risk

3. Liability

4. Exposure

The correct answer is: Peril

The term that describes the cause of a loss in insurance is "peril." A peril refers specifically to an event or happening that can cause damage or loss to property, or result in liability. Understanding the concept of peril is fundamental in the insurance industry, as it helps to identify the specific risks that policies will cover. For instance, common perils in property insurance include fire, theft, vandalism, and natural disasters like floods or earthquakes. When a policyholder files a claim, they must typically prove that the loss was due to a covered peril outlined in their insurance policy. In contrast, the term "risk" refers to the uncertainty of the occurrence of a loss, which encompasses the likelihood that a peril will result in a loss, but it is not as specific as "peril." "Liability" pertains to the legal responsibility for the financial consequences of an action or situation, often associated with claims made against an individual or organization, rather than the cause of a loss itself. "Exposure," on the other hand, indicates the potential for loss or the extent to which a person or business could be affected by perils, but it is not a direct cause of a loss. Understanding these distinctions is vital for anyone studying insurance concepts or