Jimmy Reed, an 18-year-old, needs motor insurance after passing his driving test and buying a sports car. He has been asked to complete the insurance document in Fig. 4.1 before he can obtain insurance cover. [Figure 4.1 'Private Car Insurance' document] Use the information above and Fig. 4.1 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2022). The mark or mark type is shown in brackets.

1. [1] (a)(i) Proposal form/proposal
2. [1] (a)(ii) Jimmy Reed
3. [1] (a)(iii) To show that he consents to be accepted for insurance; To show that he accepts the terms and conditions / proof of agreement; For record purposes / to prevent fraud; Evidence of signature to identity the person; Evidence that he completed the form
4. [3] (b) Yes - The risk is high (1) he is young/only 18 years old (1) lacks driving experience (1) just obtained driving licence/new driver (1) young drivers can be more careless or e.g. talking on phone when driving (1) sports cars are fast/powerful (1) so increase chance of accident/insurance claim (1) would be considered a high/bad risk (1). No - He has insurable interest (1) is old enough to drive (1) has passed his driving test/has driver's licence (1) Insurance is available for any insurable risk (1) potential risk/loss can be calculated / taken into consideration (1) premiums will be very high (1)
5. [6] (c) Utmost good faith is an insurance principle that states all parties in insurance must tell the truth and give all relevant facts. Proposal form questions must be answered truthfully – if not, Jimmy's policy will be cancelled / made null and void; All relevant/honest facts must be given by Jimmy – e.g. he cannot say he is over 25 years of age to obtain a lower premium; The information that Jimmy gives will determine the risk and allow the insurance company to decide whether or not to accept/cover the risk; The insurer may not accept the proposal if they believe questions have not been answered truthfully; Giving fraudulent information – is a crime / punishable by law. Evaluation: Jimmy is required to complete the application/proposal as honestly as possible so that he does not break the principle of utmost good faith and end up without any insurance. The principle is very important because if he does not tell the truth, and later has an accident, no compensation will be paid by the insurer and Jimmy might have to pay compensation himself to anyone else who suffered a loss through his fault. Although utmost good faith is important, there are other insurance principles, such as indemnity, that are just as important when applying for insurance cover.