Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What does the term 'peril' specifically refer to in insurance?

1. A specific risk assessment process

2. A method of calculating insurance losses

3. A documented agreement between parties

4. The cause of a loss that may trigger a claim

The correct answer is: The cause of a loss that may trigger a claim

The term 'peril' in insurance refers to the specific cause of a loss that may trigger a claim. It is a fundamental concept in the insurance industry, as it identifies what risks the insurance policy covers. For example, perils can include fire, theft, windstorm, or other events that could result in damages to property or injury to individuals. Understanding what constitutes a peril is crucial when determining the coverage provided by an insurance policy, as the insurer will only pay claims for losses caused by the perils explicitly included in the policy. The other options touch on different aspects of insurance but do not define 'peril' accurately. For example, risk assessment processes and methods for calculating losses are related to how insurance works but do not describe what a peril is. Similarly, a documented agreement between parties refers to the insurance contract itself, which outlines the terms, coverages, and exclusions but does not address the specific causes of loss covered by the policy.