Registered Insurance Brokers of Ontario (RIBO) Practice Exam

What is a material fact in the context of insurance?

1. A fact that is relevant to the payment of a claim

2. A fact that changes the insurer's decision regarding coverage or premium

3. A fact that is insignificant to the contract

4. A fact that only affects the underwriting process

The correct answer is: A fact that changes the insurer's decision regarding coverage or premium

A material fact is one that influences the decision of an insurer regarding the terms of coverage, including whether to provide coverage and the level of premium charged. This is because material facts directly impact the risk assessment made by the insurer. If an applicant fails to disclose a material fact, it could lead to the denial of a claim or even the cancellation of the policy. In the context of insurance, options that imply irrelevance or insignificance, such as facts that are insignificant to the contract or only affect certain internal processes (like underwriting) do not reflect the true nature of a material fact. These other options fail to capture the critical importance of how a material fact can alter the expectations and responsibilities laid out in the policy agreement. Thus, the focus on the insurer's changed decision regarding coverage or premium accurately represents the significance of material facts in insurance transactions.