FIN 138 - EXAM #2 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Principle of Indemnity - Answers insurer agrees to pay no more than the actual amount of the loss
Insurable Interest - Answers - insured must be in a position to lose financially if a covered loss occurs
Principle of Subrogation - Answers substitution of the insurer in place of the insured for the purpose
of claiming indemnity from a 3rd party for a loss covered by insurance
Principle of Reasonable Expectations - Answers states that an insured is entitled to coverage under a
policy that he/she reasonably expects to provide, regardless of policy provisions
Principle of Utmost Good Faith - Answers a higher degree of honesty is imposed on both parties to an
insurance contract that is imposed on parties to other contracts
1. offer and acceptance
2. Exchange of consideration (the value that each party gives to another)
3. Competent parties
4. Contract exists for a legal purpose - Answers What are the four requirements that must be met to
form a valid insurance contract?
- aleatory
-unilateral
-conditional
-personal
-adhesion - Answers characteristics associated with insurance contracts:
Aleatory - Answers values exchanged are not equal
Unilateral - Answers only the insurer makes a legally enforceable promise
Conditional - Answers policyowner must comply with all policy provisions to collect for a covered loss
Personal - Answers property insurance policy cannot be validly assigned to another party without the
insurer's consent
Contract of Adhesion - Answers the insured must accept the entire contract with all of its terms and
conditions
1. Representations
2. Concealment
3. Warranty - Answers The Principle of Utmost Good Faith is supported by 3 legal doctrines:
Representations - Answers statements made by the applicant for insurance
Concealment - Answers intentional failure of the applicant for insurance to reveal a material fact to
the insurer
Warranty - Answers a statement that becomes part of the insurance contract and is guaranteed by
the maker to be true in all respects
-declarations
-definitions
-insuring agreement
-exclusions
-deductibles
-endorsements and riders
-conditions - Answers Common elements of insurance contract
Declarations - Answers executive summary of the policy, usually the 1st page
includes: name of insured, location of property, period of protection, amount of insurance, premium
and deductible
Definitions - Answers spells out specific definitions of terms
Insuring Agreement - Answers summarizes the major promises of the insurer
1. named perils coverage - what perils are covered
2. open-perils or special coverage - where all losses are covered except those losses specifically
excluded
Conditions - Answers things that the policy owner must fulfill to file claim
Endorsements and Riders - Answers modifications to contract, "rider" = modification
amends or changes original contract
Negligence - Answers the failure to exercise the standard of care required by law to protect others
-existence of a legal duty to use reasonable care
-failure to perform that duty
-damage/injury to the claimant
Principle of Indemnity - Answers insurer agrees to pay no more than the actual amount of the loss
Insurable Interest - Answers - insured must be in a position to lose financially if a covered loss occurs
Principle of Subrogation - Answers substitution of the insurer in place of the insured for the purpose
of claiming indemnity from a 3rd party for a loss covered by insurance
Principle of Reasonable Expectations - Answers states that an insured is entitled to coverage under a
policy that he/she reasonably expects to provide, regardless of policy provisions
Principle of Utmost Good Faith - Answers a higher degree of honesty is imposed on both parties to an
insurance contract that is imposed on parties to other contracts
1. offer and acceptance
2. Exchange of consideration (the value that each party gives to another)
3. Competent parties
4. Contract exists for a legal purpose - Answers What are the four requirements that must be met to
form a valid insurance contract?
- aleatory
-unilateral
-conditional
-personal
-adhesion - Answers characteristics associated with insurance contracts:
Aleatory - Answers values exchanged are not equal
Unilateral - Answers only the insurer makes a legally enforceable promise
Conditional - Answers policyowner must comply with all policy provisions to collect for a covered loss
Personal - Answers property insurance policy cannot be validly assigned to another party without the
insurer's consent
Contract of Adhesion - Answers the insured must accept the entire contract with all of its terms and
conditions
1. Representations
2. Concealment
3. Warranty - Answers The Principle of Utmost Good Faith is supported by 3 legal doctrines:
Representations - Answers statements made by the applicant for insurance
Concealment - Answers intentional failure of the applicant for insurance to reveal a material fact to
the insurer
Warranty - Answers a statement that becomes part of the insurance contract and is guaranteed by
the maker to be true in all respects
-declarations
-definitions
-insuring agreement
-exclusions
-deductibles
-endorsements and riders
-conditions - Answers Common elements of insurance contract
Declarations - Answers executive summary of the policy, usually the 1st page
includes: name of insured, location of property, period of protection, amount of insurance, premium
and deductible
Definitions - Answers spells out specific definitions of terms
Insuring Agreement - Answers summarizes the major promises of the insurer
1. named perils coverage - what perils are covered
2. open-perils or special coverage - where all losses are covered except those losses specifically
excluded
Conditions - Answers things that the policy owner must fulfill to file claim
Endorsements and Riders - Answers modifications to contract, "rider" = modification
amends or changes original contract
Negligence - Answers the failure to exercise the standard of care required by law to protect others
-existence of a legal duty to use reasonable care
-failure to perform that duty
-damage/injury to the claimant
