Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What does an insurer issue when both parties agree to a change in policy terms?

1. A cancellation notice

2. An endorsement

3. A claim form

4. A binder amendment

The correct answer is: An endorsement

When both parties agree to a change in policy terms, an insurer issues an endorsement. An endorsement is a document that alters the terms of an existing insurance policy, modifying coverage or conditions as agreed upon by the insurer and the policyholder. This can include adding or removing coverage, changing deductibles, adjusting policy limits, or updating named insureds. Endorsements are essential because they provide a formal record of the adjustments made, ensuring that both the insurer and the insured have a clear understanding of the new terms. This clarity helps prevent disputes in the future regarding what coverage is provided under the policy. The other options listed do not apply in this context. A cancellation notice relates to terminating a policy rather than modifying it. A claim form is used to report a loss and initiate the claims process, not to change policy terms. A binder amendment pertains to temporary coverage agreements that may also change terms, but it is less common than endorsements as a method of updating insurance policy terms. Therefore, the endorsement is the most appropriate answer in the context of modifying policy agreements.