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Class test on Insurance [50 marks]

Grade 10
Name: Class:
PART 1:Answer the following Multiple choice questions. Choose the one you
consider correct and record your choice in the given box. [10 marks]
1. The insured is the name given to the
A insurance company offering insurance. B payment made for
insurance.
C person who is covered by insurance. D property that is covered
by insurance.

2. Tariqs new sports car is worth $30 000 but he has insured it for $24 000.
Yesterday the car was involved in an accident and will cost $15 000 to repair. If
Tariq claims on his policy, what is the maximum amount that the insurance
company is likely to pay out?
A $9000 B $12 000 C $15 000 D $18 750

3. A fire has destroyed the insured house owned by Mr Maboto.

What is the first thing he should do when making an insurance claim?
A complete a proposal form B contact his insurance company
C hire an assessor D refer to his cover note

4. What does public liability insurance cover?

A faulty products B injury to customers
C injury to employees at work D theft by employees

5. Which statement is true about a comprehensive motor vehicle insurance policy?

A It covers the owner, the owners vehicle and the occupants.
B It covers the owner, the owners vehicle and third parties.
C It is cheaper than third-party insurance.
D It is compulsory for licensing purposes.

6. For what does an insurance company use past statistical information to

calculate?
A claims B commission C insurable interest D
premiums

7. The Safeguard Insurance Company needs a pool of $500 000 out of which claims
are met. It has 2500 policy holders who are each charged a premium of $200.
If the company were able to double its number of policy holders to 5000, what
effect would this have on the premiums payable?
A They would go down to $100. B They would stay the same.
C They would go up slightly to $300. D They would double to
$400.

8. Ahmed owns a factory. He obtained the following information about insuring his
factory building with an insurance company.
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The factory, situated in Area 2, is valued at $250 000.

What would be the annual cost to Ahmed of insuring the factory building for its full
value?
A $12 500 B $15 000 C $17 500 D $20 000

9. An insured van is written off in an accident.

According to the principle of indemnity, the insurer pays compensation and
A gives the scrap value of the van to the policy-holder.
B pays profits to the policy-holder.
C purchases a new van for the policy-holder.
D takes possession of the damaged van.

10. If a trader wishes to insure his stock, from whom would he seek advice?
A an actuary B an assessor C a broker D an
underwriter

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Answer
PART 2: Answer the following

1. Fig.1 shows the pooling of risk in insurance.

Use the diagram shown in Fig. 1 to help you answer the following questions.
(a) Explain the benefits of the pooling of risk to the 500 companies. [3]
(b) (i) Calculate the total premiums paid to the insurance company for fire insurance. Show
your working. [2]
(ii) Apart from paying claims, state two other uses for the insurance premiums. [2]
(c) Explain how the principle of insurable interest applies to each of the 500 companies. [4]
(d) (i) Name three other business risks against which the 500 companies might insure.
[3]
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(ii) Explain why it is important that the companies insure against these risks. [6]

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2. Mr Ahmed and Mrs Singh are sole traders owning shops of equal size in the same street.
(a) Explain two business risks, apart from fire, against which both Mr Ahmed and Mrs Singh
should insure. [4]
(b) Explain why Mr Ahmed and Mrs Singh should obtain quotations from several insurance
companies. [2]
(c) Mr Ahmed and Mrs Singh will complete a proposal-form provided by the insurance company
they decides to use. Why is this necessary? [4]
(d) Explain two reasons why an insurance company may refuse to provide Mr Ahmed and Mrs
Singh with a fire insurance policy. [4]
(e) Mr Ahmed and Mrs Singh could use an insurance broker or she could contact several
insurance companies to arrange motor insurance. Discuss both options. Which would you
recommend? Give reasons for your answer. [6]

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