Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What is a common exclusion found in Valuable Papers and Records Insurance?

1. Loss due to physical theft

2. Loss due to electrical or magnetic injury

3. Loss due to natural disasters

4. Loss due to improper handling

The correct answer is: Loss due to electrical or magnetic injury

Valuable Papers and Records Insurance typically excludes loss that results from electrical or magnetic injury. This exclusion exists because the insurance is designed to cover the tangible loss or damage to important documents and records, such as contracts, legal documents, or manuscripts. However, damages arising from electrical or magnetic interference could be more complex and often involve broader issues related to electronic media and digital storage. This exclusion acknowledges that while physical damage to papers and records due to fire, theft, or natural disasters may be covered, incidents that affect documents through electrical or magnetic means can fall outside the scope of this specific coverage. Insurers may prefer to limit their liability for such kinds of damage, which can often be mitigated through other means or different types of insurance policies, such as equipment breakdown or cyber insurance. Understanding the exclusions in this type of insurance is crucial for policyholders as it helps them assess their overall risk management strategy and may guide them to obtain additional coverage if they handle sensitive or valuable records that could be impacted by electrical or magnetic issues.