LESSON 3

Question 1

The principle that states that the insurer agrees to pay no more than the actual amount of the loss; stated differently, the ensured should not profit from a loss. Most property and casualty insurance contacts are contacts of endemnity. If covered loss of course the insurer should not pay more than the actual amount of loss. A contact of identity does not mean that all covered losses are always paid in full. Because of deductibles dollar limits on the amount paid and the contractual provisions, the amount paid is often less than the actual loss.

Answer 1

Principle of Indemnity

THE TWO FUNDAMENTAL PURPOSES:

1. To prevent the insured from profiting from a loss
2. To reduce moral hazard

Question 2

This rule has been used traditionally to determine the actual cash value of property and property insurance. It takes into consideration most inflation and depreciation of property values over time.

the current cost of restoring the damage property with new materials of a kind and quality

Answer 2

Replacement Cost less Depreciation

Question 3

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

Answer 3

Fair market value

Question 4

It means that the determination of actual cash value should include all relevant factors and expert would use to determine the value of the property.

Answer 4

Broad evidence rule

Question 5

EXCEPTIONS TO THE PRINCIPLE OF INDEMNITY:

1. ________ a policy that pays the face amount of insurance if a total loss occurs.
2. ________ a lawthat exist in some states that requires payment of the face amount of insurance to the insured if a loss to a deal property occurs from a peril specified in the law.
3. ____________ means that there is no deduction for physical depreciation and determining the amount paid for a loss
4. ____________ not a contract of indemnity but a valued policy that pays a stated amount to the beneficiary at the time of the insurance death.

Answer 5

1. Valued policy
2. Valued policy laws
3. Replacement cost insurance
4. Life insurance

Question 6

States that the insured must be in a position to lose financiallyif a covered loss occurs

Answer 6

Principle of Insurable Risk

Question 7

PURPOSE OF AN INSURABLE INTEREST:

Answer 7

• To prevent gambling
• To reduce moral hazard
• To measure the amount of the insured’s loss in property insurance

Question 8

It means substitution of the insurer in place of the insured for the purpose of claiming indemnity through a third party for a lost covered by insurance.

The insurer then entitled to recover from a negligent third party and he lost payments made to the insured

Answer 8

Principle of Subrogation

Question 9

The __________ is the principle where both parties the insurer and the insured must act with a higher level of honesty than in standard contracts

It is supported by three important legal Doctrines:

1. __________ are the statements made by the applicant for insurance. Example your age, your weight, height, occupation etc. these are called representations.
2. ____________ this is the intentional failure of the applicants for insurance to reveal a material fact to the insurer. Similar to non disclosure; that is the applicant for insurance deliberately withholds material information from the insurer.
3. _____________ a statement that becomes part of the insurance contract and is guaranteed by the maker to be true and all respects.

Answer 9

PRINCIPLE OF UTMOST GOOD FAITH

1. Representations
2. Concealment
3. Warranty

Question 10

REQUIREMENTS OF AN INSURANCE CONTRACT

Answer 10

1. Offer and acceptance
2. Exchange of consideration
3. Competent parties
4. Legal Purpose

Question 11

A contract where the values exchange may not be equal but depend on an uncertain event

While_______in contrast is one in which the body’s exchange by both parties are theoretically equal.

Answer 11

1. Aleatory contract
2. Commutative contract

Question 12

A contract that means that only one party makes a legally enforceable promise. In this case, only the intruder makes a legally enforceable promise to pay a claim or provide other services to the insured.

Answer 12

Unilateral contract

Question 13

An insurance contract is a ________. The insurance obligation to pay a claim depends on whether the insured or the beneficiary has compiled with the policy conditions.

________ are provisions inserted in the policy that qualify or place limitation on the insurance promise to perform.

Answer 13

1. Conditional contract
2. Conditions

Question 14

In property insurance, insurance is a ___________, which means the contact is between the insured and the insurer. Strictly speaking, a property insurance contract does not insured property but insures the owner of property against laws.

Answer 14

Personal contract

Question 15

It means that the insured must accept the entire contract, with all of its terms and conditions. The ensurer drops and prints the policy, and the ensured generally must accept the entire document and cannot insist that certain provisions be added or donated or the contract related to suit the insured

Answer 15

Contract of Adhesion

Question 16

LAW OF AGENCY

Answer 16

There’s no presumption of an agency relationship

An agent must have authority to represent the principal

A principle is responsible for the acts of agent acting within the scope of their authority

Limitations can be placed on the powers of agents

Question 17

There’s no automatic presumption that one person legally can act as an agent for another. Some visible evidence of an agency relationship must then exist

Answer 17

No presumption of an agency relationship

Question 18

___________: An agents must be authorized to represent the principal. An agents authority comes from three sources:

___________ refers to the power specifically conferred on the agent

___________ the authority of the agent to perform all incidental acts necessary to fill the purposes of the agency agreement.

___________ if a third party reasonably believes the agent has authority, the insurer may be bound by the agents actions

Answer 18

AUTHORITY TO REPRESENT THE PRINCIPAL

(1) express authority,
(2) implied authority, and
(3) apparent authority

Question 19

Another agency rule that states that the principal is responsible for all acts of agents when they are acting within the scope of their authority. Just include fraudulent acts, omissions, and misinterpretations

Answer 19

Principal Responsible for Acts of Agents

Question 20

Insurers can limit an agents power but things limits must be clearly communicated to policy holders

Answer 20

Limitations on the Power of Agents

Question 21

________ define as the voluntary relinquishments of unknown legal right. If the insurer voluntarily waves illegal right under the contract, it cannot later deny payment of a claim by the insured on the grounds that such legal right was violated

_________ means the loss of legal defense because of previous actions that are now inconsistent with that defense. If one person makes a statement of fact to another person who then reasonably relies on the statement to her or his detriment, the first person cannot later deny the statement was made. This principle is designed to prevent persons from changing their minds to the detriment of another party

Answer 21

1. Waiver
2. Estoppel

Question 22

Statements that provide information about the particular property or activity to be insured. It typically contains information concerning the identification of the insurer, name of the insured, location of the property, period of protection, amount of insurance, amount of the premium size deductible etc

Answer 22

Declarations

Question 23

A page dedicated or a section highlighting words or phrases. The purpose of this is to define clearly the meaning of keywords or phrases so that the coverage under the policy can be determined more easily

Answer 23

Definitions

Question 24

Summarizes the major promises of the insurer. Insurers agree to do certain things, such as paying losses from covered perils, providing certain services, or agreeing to defend the insured in the liability lawsuit

Answer 24

Insuring Agreement

Question 25

These are **provisions in the policy** that qualify or place limitation on the insurance promise to perform.

Answer 25

Conditions

Question 26

This include cancellations, subrogations, and requirements if loss occurs, assignment of the policy and other insurance provisions.

Answer 26

Miscellaneous Provisions

Question 27

__________ is the **person or party named** on the declaration page of the policy. Can be one or more parties or persons. The words "You" "your" appear referring to the name insured ___________ the **first name** that appear on the declaration page of the policy as an insured. They have certain additional rights and responsibility that do not apply to other names insureds. ___________ **other person** or party who is added to the named insured's policy by an **endorsement** ____________ are persons or parties who are **insured under the named insured's policy** even though they are not specifically named in the

Answer 27

1. Named insured 2. First named insured 3. Additional insureds 4. Other insureds

Question 28

A common **policy provision that requires the ensure to pay part of the loss**. It is a provision by which a specified amount is subtracted from the total loss payment that otherwise would be payable

Answer 28

Deductibles

Question 29

PURPOSE OF DEDUCTIBLES

Answer 29

1. To eliminate small claims 2. To reduce premiums 3. To reduce moral hazard and attitudinal hazard

Question 30

DEDUCTIBLES AND PROPERTY INSURANCE 1. ___________ the **insured must be a certain number of dollars of loss before the insurer is required to make a payment**, such an adaptable typically applies to each loss 2. ___________ means that **all losses** that occur during a specified time period, usually a policy year, **are accumulated to satisfy the deductible** amount

Answer 30

1. Straight deductible 2. Aggregate deductible

Question 31

DEDUCTIBLES IN HEALTH INSURANCE 1. _________ a type of aggregate deductible that is **found in individual and group medical expense policies**. Eligible medical expenses are **accumulated during the calendar year** and once they exceedeductible amount the ensurer must then pay the benefits promise under the contract. 2. _____________ is **a stated period of time at the beginning of a loss during which no insurance benefits are paid**. Is appropriate for a single loss that occurs over some time period, such as loss of work earnings. Commonly used in disability income contracts

Answer 31

1. Calendar-Year deductible 2. Elimination (waiting) period

Question 32

A **provision and insurance contracts** particularly in property and health insurance that requires the ensured to **maintain a certain percentage of insurance coverage relative to the properties values** or the medical expenses incurred.

Answer 32

Coinsurance

Question 33

OTHER INSURANCE PROVISIONS 1. _________a genetic term for **a provision that applies when two or more policies of the same type cover the same insurable interest in the property**. The purpose of this is to preserve the principle of indemnity and prevent profiting from insurance 2. ____________ **each insurer contributes equally to the loss** until the amount paid by the insurer reaches the lowest policy limit or until the total loss is covered 3. ____________ another type of insurance provision. **The primary insurer pays first, and the excess insurer pays only after** the policy limits under the primary policy are exhausted

Answer 33

1. Pro Rata liability 2. Contribution by Equal Shares 3. Primary and excess insurance