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RMIN 4000 Test 3 Brown/Questions and Solutions
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RMIN 4000 Test 3 Brown/Questions and Solutions
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RMIN 4000 Test 3 Brown/Questionsand Solutions
Principal of Indemnity - -insurer pays no more than actual amount of the
loss; insurer should not profit from the loss
- Replacement cost - -the cost to replace an inventory item in its identical
form (similar workmanship and quality)
- Actual Cash Value - -replacement cost - depreciation
in property ins, usually based on the actual cash value of the property at the
time of loss
- Market Value - -the price at which property would sell
- Valued Policy - -a policy that pays the face amount of insurance if a total
loss occurs (life insurance)
- Value Policy Law - -requires payment of the face amount of insurance if a
total loss to real property occurs from a peril specified in law
- Principle of Insurable Interest - -The insured must be in a position to lose
financially if a covered loss occurs
- Examples of Insurable Interest - --ownership of property (house, car)
-potential legal liability (business owners)
-secured creditors
-contractual rights (goods in transit)
- When must an insurable interest legally exist in life insurance? - -at
inception of the policy; ex-spouse can still collect on life insurance if listed as
policy beneficiary
- Principle of Subrogation - -substitution of the insurer in place of the
insured for the purpose of claiming indemnity from a third party for a loss
covered by insurance
- Reasons for subrogation - --prevents insured from collecting twice (once
from insurer, once from responsible party)
- holds the negligent party responsible for the loss
- reduces insurance claims costs and therefore rates
, - principle of upmost good faith - -a higher degree of honesty is imposed on
both parties to insurance contracts than is imposed on parties to other
contracts
- What three legal doctrines support the principle of upmost good faith? - --
representations
-concealment
-warranty
- Representations - -statements made by the applicant for insurance
- What makes a contract voidable on the premise of misrepresentation? - -
1. material
2. false, and
3. relied on by the insurance company
- concealment - -intentional failure of the applicant for insurance to reveal a
material fact to the insurer
- What makes a contract voidable on the premise of concealment? - --
concealed fact was known by the insured to be material
-insured intended to defraud the insurer
- Warranty - -a statement that becomes part of the insurance contract and
is guaranteed by the maker to be true in all respects
a condition agreed to by an insured in order to receive coverage
- What is bad faith? - -law that allows lawsuits against insurance companies
for: improper denial of claims and improper delay of claims
- Bad faith damages can exceed policy limits and include: - --attorney's fees
-emotional distress
-punitive damages
- Requirements of an Insurance Contract - -1. offer and acceptance
2. consideration
3. competent parties
4. legal purpose
- Offer and Acceptance - -insured completes application (offer) and
insurance company issues a binder or policy (acceptance) or company
rejects the offer
- conditional premium receipt - -Provides temporary insurance coverage
only if specified conditions are met
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