Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What defines a physical hazard?

1. Subjective characteristics of a person

2. Conditions related to premises such as construction and occupancy

3. Financial instability of the insured

4. Legal liabilities of the insured party

The correct answer is: Conditions related to premises such as construction and occupancy

A physical hazard is specifically defined as conditions related to the premises, including their construction and occupancy. This encompasses factors such as the type of building materials used, the age and condition of the structure, and how the property is utilized. For example, a building that is poorly maintained or constructed from flammable materials presents a greater risk of loss than a well-constructed and maintained one. In this context, the other choices do not align with the definition of physical hazards. Subjective characteristics of a person pertain more to personal characteristics or behavioral traits, which do not directly influence physical risk assessments of a property. Financial instability of the insured relates to the economic situation of a person or business rather than the physical attributes of a location or structure. Lastly, legal liabilities of the insured party involve legal obligations and potential financial consequences rather than the physical conditions that pose a potential risk of loss. By focusing on the tangible aspects of a premises that contribute to potential risk, the correct answer effectively captures the concept of physical hazards in insurance.