Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What is included under the increased cost to rebuild in the By-Law Endorsement?

1. The cost to demolish old buildings

2. The loss of rental income during rebuilding

3. The cost associated with improvements mandated by new building codes

4. The cost of temporary housing for displaced tenants

The correct answer is: The cost associated with improvements mandated by new building codes

The inclusion of costs associated with improvements mandated by new building codes under the By-Law Endorsement is essential for understanding the context of modern insurance practice. When a property is damaged and requires rebuilding, there may be new building codes in place that necessitate upgrades or improvements compared to the original construction. This requirement can lead to increased costs that would not have been incurred if the rebuilding was allowed to follow the original structure's specifications. The By-Law Endorsement is designed to cover the gap in insurance that arises when these increased compliance costs become a factor. It helps protect the policyholder from financial burdens that arise from having to meet current standards that did not exist when the original structure was built. By covering these additional costs, the endorsement ensures that the insured can fully comply with new regulations without suffering a significant financial setback due to the changes in laws or codes after the time of the original construction. The other options, while relevant to aspects of property damage and recovery, do not specifically relate to the increases in costs due to changes in building regulations. Demolition costs, loss of rental income, and temporary housing costs, while important considerations in the broader context of property insurance, do not fall under the specific provision of increments enforced by building by-laws or