RMIN 4000 BROWN EXAM 3 FINAL PAPER
QUESTIONS WITH VERIFIED SOLUTION
REVIEW
●● replacement cost (RC)
Answer: the cost to replace property with an item of like kind and
quality (similar workmanship and materials) (not the same as historical
cost!)
●● actual cash value (ACV)
Answer: - replacement cost - depreciation
- in property insurance, indemnification is usually based on the actual
cash value of the property at the time of loss
●● market value
Answer: price buyer would be willing to pay in a free market
●● valued policy
Answer: a policy that pays the face amount of insurance if a total loss
occurs (life insurance)
●● valued policy law (in some states)
,Answer: requires payment of the face amount of insurance if a total loss
to real property occurs from a peril specified in law
●● principle of insurable interest
Answer: the insured/ beneficiary must be in a position to lose financially
if a covered loss occurs
- prevents gambling on losses
- reduces moral hazard
●● examples of insurable interest
Answer: - ownership of property (house, car)
- potential legal liability (business owner)
- secured creditors ( mtg co, auto lender)
- contractual right (goods in transit
●● property insurance
Answer: - must exist at time of loss
- can't collect on an insurance policy after you sell your home
●● life insurance
Answer: - exists at inception of policy
- ex-spouse can still collect on life insurance if listed as policy
beneficiary
, ●● principle of 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
●● reasons for subrogation
Answer: - prevents insured from collecting twice
- holds negligent party responsible for the loss
- reduces insurance claims costs (and therefore, rates)
●● principle of 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 contracts
- representations
- concealment
- warranty
●● representations
Answer: statements made by the applicant for insurance
- contract is voidable if the misrepresentation is: material, false, and
relied on by the insurer
QUESTIONS WITH VERIFIED SOLUTION
REVIEW
●● replacement cost (RC)
Answer: the cost to replace property with an item of like kind and
quality (similar workmanship and materials) (not the same as historical
cost!)
●● actual cash value (ACV)
Answer: - replacement cost - depreciation
- in property insurance, indemnification is usually based on the actual
cash value of the property at the time of loss
●● market value
Answer: price buyer would be willing to pay in a free market
●● valued policy
Answer: a policy that pays the face amount of insurance if a total loss
occurs (life insurance)
●● valued policy law (in some states)
,Answer: requires payment of the face amount of insurance if a total loss
to real property occurs from a peril specified in law
●● principle of insurable interest
Answer: the insured/ beneficiary must be in a position to lose financially
if a covered loss occurs
- prevents gambling on losses
- reduces moral hazard
●● examples of insurable interest
Answer: - ownership of property (house, car)
- potential legal liability (business owner)
- secured creditors ( mtg co, auto lender)
- contractual right (goods in transit
●● property insurance
Answer: - must exist at time of loss
- can't collect on an insurance policy after you sell your home
●● life insurance
Answer: - exists at inception of policy
- ex-spouse can still collect on life insurance if listed as policy
beneficiary
, ●● principle of 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
●● reasons for subrogation
Answer: - prevents insured from collecting twice
- holds negligent party responsible for the loss
- reduces insurance claims costs (and therefore, rates)
●● principle of 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 contracts
- representations
- concealment
- warranty
●● representations
Answer: statements made by the applicant for insurance
- contract is voidable if the misrepresentation is: material, false, and
relied on by the insurer
