Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What does the By-Law Endorsement cover regarding expenses?

1. Loss of rental income

2. Increased cost to rebuild

3. Legal fees for compliance

4. Valuation of physical assets

The correct answer is: Increased cost to rebuild

The By-Law Endorsement is designed to provide coverage for increased costs associated with rebuilding or repairs that arise due to changes in building codes or municipal regulations following a loss. When a property is damaged, the costs to reconstruct or repair it may exceed what would be covered under a standard policy because the new construction must comply with current legal specifications, which often include more stringent safety or environmental standards. This endorsement acknowledges that policyholders may face additional financial burdens due to these necessary upgrades. By including this coverage, it ensures that insured parties will not be left underinsured if they need to comply with such regulations when restoring their property to its pre-loss condition, thereby protecting them from unexpected financial strains. In contrast, loss of rental income pertains to revenue loss rather than physical reconstruction, legal fees for compliance are related to costs incurred for adhering to regulations rather than the actual rebuilding or repairs, and the valuation of physical assets focuses on determining the worth of property and equipment rather than the specific costs incurred for compliance with building codes.