Other Than Life (OTL) Practice Exam

Which of these statements is FALSE regarding temporary insurance?

1. Temporary insurance is limited to a fixed term

2. Binders are usually issued by insurers

3. Cover notes are usually issued by brokers

4. Oral binders are effective and legal

The correct answer is: Binders are usually issued by insurers

The focus here is on the statement that temporary insurance, which includes binders and cover notes, operates with specific characteristics and legal standing. One of the defining aspects of temporary insurance is that it typically serves to provide immediate, but short-term coverage while the details of a policy are being finalized. The assertion that binders are usually issued by insurers is accurate. Binders are formal, written agreements provided by insurers that confirm coverage for a specified term until a full policy is issued. This means that, fundamentally, the binding nature of these agreements rests with the insurer, which makes the statement about binders being issued by insurers true. In contrast, cover notes are indeed generally issued by brokers, reflecting the nature of the broker's role in facilitating the coverage while ensuring the client understands that the document is not a full policy, but a temporary measure indicating coverage has been applied for or is in effect. The statement regarding oral binders being effective and legal aligns with industry practice, acknowledging that an oral agreement can also create binding coverage under certain circumstances, although it is typically more difficult to verify and enforce than written agreements. Thus, understanding the structure and roles within temporary insurance clarifies why the assertion about binders being issued by insurers is true, establishing this statement