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Exam 3 RMIN 4000- Questions and Answers
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Exam 3 RMIN 4000- Questions and Answers
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Exam 3 RMIN 4000- Questions andAnswers
Principle of Indemnity - -- The insurer agrees to pay no more than the actual
amount of the loss.
- Purpose is to prevent the insured from profiting from the loss.
Why is principle of indemnity important? - -You do not want people to get off
on insurance companies.
Replacement cost - -The cost to replace property with an item of like kind
and quality (similar workmanship and materials).
Is replacement cost the same as historical cost? - -NO!!!
Historical Cost - -you're thinking about how much it costed when I bought it,
how much was this building when it was built. It is NOT relevant. From an
insurers perspective it matters how much it will cost to replace TODAY.
Actual Cash Value Formula: - -replacement cost - depreciation = actual cash
value
Depreciation= - -Age / Useful Life
Market Value - -Price a buyer would be willing to pay in a free market. It is
NOT the same thing as replacement cost.
Valued Policy - -A policy that pays the face amount of insurance ($ amount)
if a total loss occurs (life insurance). These are very rare in properties
Example: A picasso painting, also a life insurance
Valued Policy Law (in some states): - -Requires payment of the face amount
of insurance if a total loss to real property occurs from peril specified law.
Applied to real property only. GA has a value policy law if a building is
destroyed as a whole. The insurance is liable to pay the face amount. Applies
to peril of fire only in GA.
Principle of Insurable Interest - -The insured/beneficiary must be in a
position to lose financially if a covered loss occurs.
Why?
- Prevents gambling on losses
- Reduces moral hazard
, Examples of Insurable Interest - -- ownership of property (house, car,
engagement ring, a tractor, commercial building)
- potential legal liability (business owner, driving my car and hurting
someone, if I spill hot coffee on someone)
- secured creditors (mortgage company (the house is collateral), auto lender
(your car is collateral)
- Contractual rights (goods in transit) goods traveling in a cargo ship across
the Atlantic ocean.
When must an Insurable Interest exist? - -Property Insurance:
- at time of loss
- Can't collect on an insurance policy after you sell your home.
At inception of policy: - -when the policy was written/issued. NOT when they
die.
- 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 loss covered by
insurance.
Example of Principle of Subrogation: - -- someone else hits your car
- your insurance company pays you for the damages to your vehicle.
- your insurance company sues the other driver for reimbursement.
(Life insurance is not included in this)
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 Utmost Good Faith - -A higher degree of honesty is imposed on
both parties to insurance contracts than is imposed on parties to other
contracts. The insured is responsible for application disclosure. Required
insured to be honest and require accurate information.
What are the three legal doctrines supported by the Principle of Utmost Good
Faith? - -1.) Representations
2.) Concealment
3.) Warranty
Representations - -- Statements made by the applicant for insurance.
- What if the statements are false though? = misrepresentation
Misrepresentation: - -is when you provide inaccurate information.
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