Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

Which statement is true regarding coverage for partial losses caused by perils of the sea?

1. Coverage is only for total losses

2. Partial losses are covered if they exceed a certain percentage of the insured value

3. Partial losses cannot be covered under any circumstances

4. Only losses under $10,000 are covered

The correct answer is: Partial losses are covered if they exceed a certain percentage of the insured value

Partial losses caused by perils of the sea are indeed covered under marine insurance policies, and one specific aspect of this coverage may include a stipulation that these losses must exceed a certain threshold percentage of the insured value. This means that for a partial loss to qualify for coverage, it typically needs to be significant enough to warrant a claim, reflecting the principle of materiality in insurance. This principle recognizes that not all losses are of equal significance and that minor losses may not justifiably trigger the complexities of a claim process. Many marine insurance policies include this sort of provision to ensure that minor damages, which may be deemed manageable or negligible by the insured, do not create an administrative burden on the insurer. Additionally, the existence of such a percentage threshold aligns with risk management strategies, ensuring that insurers remain financially stable and capable of covering larger claims. In comparison to other options, the choice stating that coverage is only for total losses is incorrect as marine insurance is specifically designed to cater to both total and partial losses caused by perils of the sea. The assertion that partial losses cannot be covered under any circumstances contradicts the fundamental principles of marine insurance, which covers various loss scenarios. Lastly, the idea that only losses under $10,000 are covered is