BusFin 3300 Exam 2 Exam with
Accurate Solutions
Purpose of The insurer agrees to pay no more than the
actual amount of the loss - ANSWER-To prevent the insured from profiting from a
loss
-
To reduce moral hazard
There are three main methods to determine
actual cash value: - ANSWER-Replacement cost less depreciation
-
Fair market value
-
Broad evidence rule
Fair market value - ANSWER-is the price a willing buyer
would pay a willing seller in a free market
Broad evidence rule - ANSWER-means that the
determination of ACV should include all relevant
factors an expert would use to determine the
value of the propert
valued policy - ANSWER-pays the face amount of insurance
if a total loss occurs
Replacement cost insurance - ANSWER-there is no
deduction for depreciation in determining the
amount paid for a loss
why The insured must be in a position to lose
financially if a covered loss occurs - ANSWER-Purposes:
-
To prevent gambling
-
To reduce moral hazard
-
To measure the amount of the insured's loss
•
,An insurable interest can be supported by:
-
Ownership of property
-
Potential legal liability
-
Serving as a secured creditor
-
Contractual rights
When must insurable interest exist for Property and Life? - ANSWER-Property
insurance: at the time of the loss
-
Life insurance: only at inception of the policy
Subrogation - ANSWER-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.
purpose of subrogation - ANSWER-To prevent the insured from collecting twice for
the same loss
-
To hold the negligent person responsible for the
loss
-
To hold down insurance rates
Principle of Utmost Good Faith - ANSWER-A higher degree of honesty is imposed on
both parties to an insurance contract than
is imposed on parties to other contracts
Representations - ANSWER-statements made by
the applicant for insurance
Material - ANSWER-if the insurer knew the true
facts, the policy would not have been issued, or
would have been issued on different terms
Reliance - ANSWER-the insurer relies on the
misrepresentation in issuing the policy at a
specified premium
innocent misrepresentation - ANSWER-a material
fact, if relied on by the insurer, makes the
contract voidable
, concealment - ANSWER-intentional failure of the
applicant for insurance to reveal a material
fact to the insurer
warranty - ANSWER-a statement that becomes
part of the insurance contract and is
guaranteed by the maker to be true in all
respects
To be legally enforceable, an insurance
contract must be - ANSWER-Offer and acceptance
Exchange of Consideration-- the value that
each party gives to the other
Competent parties--legal capacity to enter
into a binding contract
legal purpose
Aleatory (Contract Characteristic) - ANSWER-values exchanged are not equal
Unilateral (Contract Characteristic) - ANSWER-only the insurer makes a legally
enforceable promise
Conditional (Contract Characteristic) - ANSWER-policyowner must comply with all
policy provisions to collect for a covered loss
Personal (Contract Characteristic) - ANSWER-property insurance policy cannot be
validly assigned to another party without the
insurer's consent
contract of adhesion - ANSWER-he insured must accept
the entire contract with all of its terms and
conditions
principle of reasonable expectations - ANSWER-states that an insured is entitled to
coverage under a policy that he or she
reasonably expects it to provide, regardless
of policy provisions
An agent's authority comes from three
sources - ANSWER-Express authority
-
Implied authority
Accurate Solutions
Purpose of The insurer agrees to pay no more than the
actual amount of the loss - ANSWER-To prevent the insured from profiting from a
loss
-
To reduce moral hazard
There are three main methods to determine
actual cash value: - ANSWER-Replacement cost less depreciation
-
Fair market value
-
Broad evidence rule
Fair market value - ANSWER-is the price a willing buyer
would pay a willing seller in a free market
Broad evidence rule - ANSWER-means that the
determination of ACV should include all relevant
factors an expert would use to determine the
value of the propert
valued policy - ANSWER-pays the face amount of insurance
if a total loss occurs
Replacement cost insurance - ANSWER-there is no
deduction for depreciation in determining the
amount paid for a loss
why The insured must be in a position to lose
financially if a covered loss occurs - ANSWER-Purposes:
-
To prevent gambling
-
To reduce moral hazard
-
To measure the amount of the insured's loss
•
,An insurable interest can be supported by:
-
Ownership of property
-
Potential legal liability
-
Serving as a secured creditor
-
Contractual rights
When must insurable interest exist for Property and Life? - ANSWER-Property
insurance: at the time of the loss
-
Life insurance: only at inception of the policy
Subrogation - ANSWER-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.
purpose of subrogation - ANSWER-To prevent the insured from collecting twice for
the same loss
-
To hold the negligent person responsible for the
loss
-
To hold down insurance rates
Principle of Utmost Good Faith - ANSWER-A higher degree of honesty is imposed on
both parties to an insurance contract than
is imposed on parties to other contracts
Representations - ANSWER-statements made by
the applicant for insurance
Material - ANSWER-if the insurer knew the true
facts, the policy would not have been issued, or
would have been issued on different terms
Reliance - ANSWER-the insurer relies on the
misrepresentation in issuing the policy at a
specified premium
innocent misrepresentation - ANSWER-a material
fact, if relied on by the insurer, makes the
contract voidable
, concealment - ANSWER-intentional failure of the
applicant for insurance to reveal a material
fact to the insurer
warranty - ANSWER-a statement that becomes
part of the insurance contract and is
guaranteed by the maker to be true in all
respects
To be legally enforceable, an insurance
contract must be - ANSWER-Offer and acceptance
Exchange of Consideration-- the value that
each party gives to the other
Competent parties--legal capacity to enter
into a binding contract
legal purpose
Aleatory (Contract Characteristic) - ANSWER-values exchanged are not equal
Unilateral (Contract Characteristic) - ANSWER-only the insurer makes a legally
enforceable promise
Conditional (Contract Characteristic) - ANSWER-policyowner must comply with all
policy provisions to collect for a covered loss
Personal (Contract Characteristic) - ANSWER-property insurance policy cannot be
validly assigned to another party without the
insurer's consent
contract of adhesion - ANSWER-he insured must accept
the entire contract with all of its terms and
conditions
principle of reasonable expectations - ANSWER-states that an insured is entitled to
coverage under a policy that he or she
reasonably expects it to provide, regardless
of policy provisions
An agent's authority comes from three
sources - ANSWER-Express authority
-
Implied authority
