Principles of Risk Management and
Insurance Chapter 9 quiz
The principle of indemnity - ANSWER states that the insurer agrees to pay no more than the
actual amount of the loss; stated differently, the insured
should not profit from a loss .
actual cash value - ANSWER actual cash value is defined as replacement cost
less depreciation
Principle of Indemnity - ANSWER In property insurance, indemnification is based on the actual cash
value (ACV) of the property at the time of loss
Fair market value - ANSWER is the price a willing buyer would pay a willing seller in a free market
Broad evidence rule - ANSWER means that the determination of ACV should include all relevant factors
an expert would use to determine the value of the property
A valued policy - ANSWER pays the face amount of insurance if a total loss occurs
Some states have a valued policy law - ANSWER 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
Replacement cost insurance - ANSWER means there is no deduction for depreciation in determining the
amount paid for a loss
, 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.
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 - ANSWER are statements made by the applicant for insurance
An innocent misrepresentation - ANSWER of a material fact, if relied on by the insurer, makes the
contract voidable
A concealment - ANSWER is intentional failure of the applicant for insurance to reveal a material fact to
the insurer
A warranty - ANSWER is a statement that becomes part of the insurance contract and is guaranteed by
the maker to be true in all respects
Offer and acceptance - ANSWER of the terms of the contract
Consideration - ANSWER the value that each party gives to the other
Competent parties - ANSWER with legal capacity to enter into a binding contract
Aleatory - ANSWER values exchanged are not equal
Unilateral - ANSWER only the insurer makes a legally enforceable promise
Insurance Chapter 9 quiz
The principle of indemnity - ANSWER states that the insurer agrees to pay no more than the
actual amount of the loss; stated differently, the insured
should not profit from a loss .
actual cash value - ANSWER actual cash value is defined as replacement cost
less depreciation
Principle of Indemnity - ANSWER In property insurance, indemnification is based on the actual cash
value (ACV) of the property at the time of loss
Fair market value - ANSWER is the price a willing buyer would pay a willing seller in a free market
Broad evidence rule - ANSWER means that the determination of ACV should include all relevant factors
an expert would use to determine the value of the property
A valued policy - ANSWER pays the face amount of insurance if a total loss occurs
Some states have a valued policy law - ANSWER 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
Replacement cost insurance - ANSWER means there is no deduction for depreciation in determining the
amount paid for a loss
, 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.
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 - ANSWER are statements made by the applicant for insurance
An innocent misrepresentation - ANSWER of a material fact, if relied on by the insurer, makes the
contract voidable
A concealment - ANSWER is intentional failure of the applicant for insurance to reveal a material fact to
the insurer
A warranty - ANSWER is a statement that becomes part of the insurance contract and is guaranteed by
the maker to be true in all respects
Offer and acceptance - ANSWER of the terms of the contract
Consideration - ANSWER the value that each party gives to the other
Competent parties - ANSWER with legal capacity to enter into a binding contract
Aleatory - ANSWER values exchanged are not equal
Unilateral - ANSWER only the insurer makes a legally enforceable promise
