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FOUNDATIONS OF ACTUARIAL SCIENCE CHAPTER 9 QUESTIONS AND VERIFIED ANSWERS|100% CORRECT|GRADE A+
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FOUNDATIONS OF ACTUARIAL SCIENCE CHAPTER 9 QUESTIONS AND VERIFIED ANSWERS|100% CORRECT|GRADE A+
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FOUNDATIONS OF ACTUARIALSCIENCE CHAPTER 9 QUESTIONS AND
VERIFIED ANSWERS|100%
CORRECT|GRADE A+
What is indemnity? - ANSWER Indemnity: The insurer agrees to pay no more than the actual amount of
the loss.
What is the first purpose of indemnity? - ANSWER • First Purpose: Prevent insured from profiting from
loss.
What is the second purpose of indemnity? - ANSWER • Second Purpose: Reduce moral hazard.
In property insurance, what is indemnification based on? - ANSWER • In property insurance,
indemnification is based on the actual cash value (A C V) of the property at the time of loss
What are the main methods to determine actual cash value? - ANSWER - replacement cost less
depreciation
- fair market value
- broad evidence rule
What does replacement cost less depreciation consider? - ANSWER § Considers the use insured has
already received
What is fair market value? - ANSWER - Fair market value is the price a willing buyer would pay a willing
seller in a free market
What does the broad evidence rule consider? - ANSWER - Broad evidence rule considers all relevant
factors
, What are some exceptions to the principle of idemnity? - ANSWER valued policy
valued policy laws
replacement cost insurance
life insurance
Describe valued policy? - ANSWER A valued policy pays the face amount of insurance if a total loss
occurs.
What is an example of a valued policy? - ANSWER A life insurance contract is a valued policy that pays a
stated sum to the beneficiary upon the insured's death.
What do certain states have valued policy laws for? - ANSWER - Certain states have valued policy laws for
defined perils. Was a protection to policyholder if over-insured.
- Can lead to moral hazard.
What does replacement cost insurance mean? - ANSWER - Replacement cost insurance means there is
no deduction for depreciation in determining the amount paid for a loss.
What are some examples of replacement cost insurance? - ANSWER • E.g., roof damage. - might be 30
years before you replace a roof, so people don't budget for it
Do people budget for replacement cost insurance? - ANSWER • People don't often budget for this.
What does life insurance often target? - ANSWER • Often targets lost income instead for breadwinners.
What does Key Person Insurance help a business to do? - ANSWER • Key Person Insurance will help a
business keep operating if a key employee dies.
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