Chapter 7 - Indemnity Flashcards
Arnold has two personal accident policies in force, each with a sum insured of £20,000 for a loss of a limb. What amount will he receive in total if he loses an arm?
- £10,000
- £20,000
- £30,000
- £40,000
£40,000
Mr Smith’s garage buildings are valued at £200,000 and insured for £150,000 under a policy which is subject to average. If he suffers £50,000 insured loss, how much will is insurers pay?
- £12,500
- £33,333
- £37,500
- £50,000
Value insured / True value x Loss
£37,500
A home insurance policy does not state any specific settlement options. In the event of a claim, the policyholder is therefore:
- Legally entitled to financial compensation
- Legally entitled to reinstatement
- Only entitled to repair
- Only entitled to replacement
Legally entitled to financial compensation
Reinstatement is a settlement option which:
- Replaces the subject matter with one of the same condition
- Restores the subject matter to the same condition it was in before the loss
- Provides a cash payment to the value of the subject matter
- Repairs the subject matter is original condition
Restores the subject matter to the same condition it was in before the loss
Property and liability proceeds are contracts of indemnity because:
- They are long-term, non-renewable contracts
- A value can be placed on the subject matter issued
- They only offer cash settlement options
- They provide fixed benefits
A value can be placed on the subject matter issued
The sum insured on a property insurance is defined as the full value at the time of reinstatement with a 15% margin for error. This is an example of:
- A reinstatement memorandum clause
- Basic cover
- Betterment
- Day one reinstatement
A reinstatement memorandum clause
When calculating the indemnity value of a manufactures stock, it will be defined as the cost of raw materials at the time and place of loss, plus:
- Labour and costs of all stock, including lost profit
- The retail price of all stock
- Labour and the retail price of a stock less a deduction for wear and tear
- Labour and costs in respect of work in progress and finished stock
Labour and costs in respect of work in progress and finished stock
For which type of stock is the insured entitled to receive any potential profit on sale?
- Household goods
- Farming stock
- Manufacturer’s stock
- Wholesaler’s stock
Farming stock
If an insured does not wish to ensure the full value of the stock for theft, I am most likely to need a(n):
- New for old policy
- Agreed value policy
- First loss policy
- Fixed value policy
First loss policy
A claim for £2000 has been made on a household contents insurance policy which has a sum insured of £25,000. The policyholder may receive less than £2000 if:
- The item claim for cannot be replaced
- The policyholder has already made a claim on the policy
- There is a single item limit
- There is an agreed value policy
There is a single item limit
China industries are claiming that £2000 following a break in at their warehouse. The loss adjuster has applied the average condition as the accounts show goods in stock of £10,000, whereas the sum insured is £7500. What was the final settlement amount be?
- £2000
- £2500
- £2666
- £1500
£1500
Insured value / True value x Loss
7,500 / 10,000 x 2,000 = 1,500
