Chapter 9 Vocab (Text)

Question 1

Principle of Indemnity

Answer 1

states that the insurer agrees to pay no more than the actual amount of the loss; state differently, the insured should not profit from a loss

Question 2

Actual Cash Value

Answer 2

replacement cost less depreciation

Question 3

Fair Market Value

Answer 3

the price a willing buyer would pay a willing seller in a free market

Question 4

Broad Evidence Rule

Answer 4

the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property

Question 5

Valued Policy

Answer 5

policy that pays the face amount of insurance if a total loss occurs

Question 6

Valued Policy Law

Answer 6

law that exists in some states that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law

Question 7

Replacement Cost Insurance

Answer 7

there is no deduction for physical depreciation in determining the amount paid for a loss

Question 8

Principle of Insurable Interest

Answer 8

the insured must be in a position to lose financially if a covered loss occurs

Question 9

Pecuniary Interest

Answer 9

the insurable interest requirement in life insurance can be met

Question 10

Subrogation

Answer 10

the 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

Question 11

Principle of Utmost Good Faith

Answer 11

a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

Question 12

Representations

Answer 12

statements made by the applicant for insurance

Question 13

Innocent Misrepresentation

Answer 13

a misrepresentation that is unintentional; if it is relied on by the insurer, it also makes the contract voidable

Question 14

Concealment

Answer 14

intentional failure of the applicant for insurance to reveal a material fact to the insurer

Question 15

Warranty

Answer 15

a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects

Question 16

Offer and Acceptance

Answer 16

The first requirement of a binding insurance contract; in most cases, the applicant makes the offer and the company accepts or rejects the offer

Question 17

Binder

Answer 17

temporary contract for insurance and can be either written or oral

Question 18

Consideration

Answer 18

the value that each party gives to the other

Question 19

Legally Competent

Answer 19

the parties must have legal capacity to enter into a binding contract

Question 20

Commutative Contract

Answer 20

the values exchanged y both parties are theoretically equal

Question 21

Unilateral Contract

Answer 21

means that only one party makes a legally enforceable promise

Question 22

Conditional Contract

Answer 22

the insurer’s obligation to pay a claim depends on whether the insured or the beneficiary has complied with all policy conditions

Question 23

Conditions

Answer 23

provisions inserted in the policy that qualify or place limitations on the insurer’s promise to perform

Question 24

Personal Contract

Answer 24

the contract is between the insured and the insurer

Question 25

Contract of Adhesion

Answer 25

the insured must accept the entire contract, with all of its terms and condiitons

Question 26

Principle of Reasonable Expectations

Answer 26

an insured is entitled to coverage under a policy that he or she reasonably expects it to provide, and that to be effective, exclusions or qualifications must be conspicuous, plain, and clear

Question 27

Express Authority

Answer 27

refers to powers specifically concerned on the agent

Question 28

Agency Agreement

Answer 28

agreement between the agency and the principal

Question 29

Implied Authority

Answer 29

refers to the authority of the agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement

Question 30

Apparent Authority

Answer 30

If an agent acts with ______ to do certain things, and a third party is led to believe that the agent is acting within the scope of reasonable and appropriate authority, the principal can be bound by the agent’s actions

Question 31

Waiver

Answer 31

defined as the voluntary relinquishment of a known legal right