FIN 341 EXAM 1 FINAL PAPER 2026 QUESTIONS
WITH FULL SOLUTION GRADED A+
◉ what is the purpose of indemnity. Answer: - to prevent the insured
from profiting from a loss
- to reduce moral hazard
◉ in property insurance, indemnification is based on the
_________________ of the property at the time of loss. Answer: actual
cash value (ACV)
◉ 3 methods to determine actual cash value. Answer: - replacement
cost less depreciation
- fair market value
- broad evidence rule
◉ fair market value. Answer: the price a willing buyer would pay a
willing seller in a free market
,◉ broad evidence rule. Answer: the determination of ACV should
include all relevant factors an expert would use to determine the
value of the property
◉ exceptions to the principle of indemnity. Answer: - valued policy
- replacement cost insurance
- a life insurance contract is a valued policy that pays a stated sum to
the beneficiary upon the insured's death
◉ 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
◉ principle of insurable interest. Answer: the insured must be in a
position to lose financially if a covered loss occurs
◉ when must insurable interest exist. 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
◉ principle of subrogation. Answer: - the insurer is entitled only to
the amount it has paid under the policy
- the insured cannot impair the insurer's subrogation rights
- subrogation does not apply to life insurance contracts
- the insurer cannot subrogate against its own insureds
◉ 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 contacts
◉ representations. Answer: statements made by the applicant for
insurance
- a contract is voidable if the representation is material, false, and
relied on by the insurer
WITH FULL SOLUTION GRADED A+
◉ what is the purpose of indemnity. Answer: - to prevent the insured
from profiting from a loss
- to reduce moral hazard
◉ in property insurance, indemnification is based on the
_________________ of the property at the time of loss. Answer: actual
cash value (ACV)
◉ 3 methods to determine actual cash value. Answer: - replacement
cost less depreciation
- fair market value
- broad evidence rule
◉ fair market value. Answer: the price a willing buyer would pay a
willing seller in a free market
,◉ broad evidence rule. Answer: the determination of ACV should
include all relevant factors an expert would use to determine the
value of the property
◉ exceptions to the principle of indemnity. Answer: - valued policy
- replacement cost insurance
- a life insurance contract is a valued policy that pays a stated sum to
the beneficiary upon the insured's death
◉ 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
◉ principle of insurable interest. Answer: the insured must be in a
position to lose financially if a covered loss occurs
◉ when must insurable interest exist. 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
◉ principle of subrogation. Answer: - the insurer is entitled only to
the amount it has paid under the policy
- the insured cannot impair the insurer's subrogation rights
- subrogation does not apply to life insurance contracts
- the insurer cannot subrogate against its own insureds
◉ 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 contacts
◉ representations. Answer: statements made by the applicant for
insurance
- a contract is voidable if the representation is material, false, and
relied on by the insurer
