Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

How does a rider enhance an insurance policy?

1. It changes the terms of the policy

2. It adds coverage to the existing policy

3. It provides a separate coverage for high-value items

4. It cancels part of the original policy

The correct answer is: It adds coverage to the existing policy

A rider enhances an insurance policy by adding coverage to the existing policy. This addition can help tailor coverage to better meet the specific needs of the policyholder. Riders allow individuals to customize their insurance options by providing extra benefits or protections that are not included in the standard policy. For instance, a rider can be utilized to include coverage for specific risks, like additional property protection or life insurance benefits, thereby broadening the scope of the existing insurance. In comparison, while other choices touch upon aspects of policy modifications, they do not capture the essence of what a rider fundamentally does. Changing the terms of the policy refers to adjusting existing coverage provisions rather than supplementing them. Providing separate coverage for high-value items, while a valid insurance practice, would typically fall under endorsements or special provisions rather than being defined as a rider. Cancelling part of the original policy would imply a reduction of coverage, which is contrary to the purpose of a rider, aimed at enhancing, not diminishing, the insurance protection.