RMIN 4000 Exam 3 Brown Questions and
Answers Graded A+
Legal Principles of Insurance - Correct answer-• Principle of Indemnity
• Principle of Insurable Interest
• Principle of Subrogation
• Principle of Utmost Good Faith
Principal of Indemnity - Correct answer-insurer pays no more than actual amount
of the loss; insurer should not profit from the loss
Replacement Cost (RC) - Correct answer-The cost to replace property with an item
of like kind
and quality (similar workmanship and materials).
• Not the same as historical cost
Actual Cash Value (ACV) - Correct answer-replacement cost less depreciation
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,in property insurance, indemnification is usually based on the actual cash value of
the property at the time of loss
Market Value - Correct answer-Price a buyer would be willing to pay in a free
market.
Valued Policy - Correct answer-a policy that pays the face amount of insurance if a
total loss occurs (life insurance)
Value Policy Law (some states) - Correct answer-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 - Correct answer-• The insured must be in a position
to lose financially if a covered loss occurs
•Prevents gambling on losses/reduces moral hazard
Examples of Insurable Interest - Correct answer--ownership of property (house,
car)
-potential legal liability (business owners)
-secured creditors (mortgage company, auto lender)
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,-contractual rights (goods in transit)
When must an insurable interest exist? - Correct answer-Property Insurance
• At time of loss.
• Can't collect on an insurance policy after you sell your
home.
Life Insurance
• At inception of policy.
• Ex-spouse can still collect on life insurance if listed as
policy beneficiary.
Principle of Subrogation - Correct 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
Examples:
• Someone else hits your car.
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, • Your insurance company pays you for the damages to
your vehicle.
• Your insurance company sues the other driver for
reimbursement
Reasons for subrogation - Correct answer--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 - Correct answer-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? - Correct
answer--representations
-concealment
-warranty
Representations - Correct answer-statements made by the applicant for insurance
Contract is voidable if the misrepresentation is...? - Correct answer-1. material
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Answers Graded A+
Legal Principles of Insurance - Correct answer-• Principle of Indemnity
• Principle of Insurable Interest
• Principle of Subrogation
• Principle of Utmost Good Faith
Principal of Indemnity - Correct answer-insurer pays no more than actual amount
of the loss; insurer should not profit from the loss
Replacement Cost (RC) - Correct answer-The cost to replace property with an item
of like kind
and quality (similar workmanship and materials).
• Not the same as historical cost
Actual Cash Value (ACV) - Correct answer-replacement cost less depreciation
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,in property insurance, indemnification is usually based on the actual cash value of
the property at the time of loss
Market Value - Correct answer-Price a buyer would be willing to pay in a free
market.
Valued Policy - Correct answer-a policy that pays the face amount of insurance if a
total loss occurs (life insurance)
Value Policy Law (some states) - Correct answer-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 - Correct answer-• The insured must be in a position
to lose financially if a covered loss occurs
•Prevents gambling on losses/reduces moral hazard
Examples of Insurable Interest - Correct answer--ownership of property (house,
car)
-potential legal liability (business owners)
-secured creditors (mortgage company, auto lender)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,-contractual rights (goods in transit)
When must an insurable interest exist? - Correct answer-Property Insurance
• At time of loss.
• Can't collect on an insurance policy after you sell your
home.
Life Insurance
• At inception of policy.
• Ex-spouse can still collect on life insurance if listed as
policy beneficiary.
Principle of Subrogation - Correct 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
Examples:
• Someone else hits your car.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, • Your insurance company pays you for the damages to
your vehicle.
• Your insurance company sues the other driver for
reimbursement
Reasons for subrogation - Correct answer--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 - Correct answer-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? - Correct
answer--representations
-concealment
-warranty
Representations - Correct answer-statements made by the applicant for insurance
Contract is voidable if the misrepresentation is...? - Correct answer-1. material
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