Mark CPCU 500 Ch. 4 KEY Questions and Correct Answer

Principle of indemnity - The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured. Contract of idemnity - A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss. Collateral source rule - A legal doctrine that provides that the damages owed to a victim should not be reduced because the victim is entitled to recover money from other sources, such as an insurance policy. Contract of adhesion - Any contract in which one party must either accept the agreement as written by the other party or reject it. Reasonable expectations doctrine - A legal doctrine that provides for an ambiguous insurance policy clause to be interpreted in the way that an insured would reasonably expect. Consideration - Something of value or bargained for and exchanged by the parties to a contract. Conditional contract - A contract that one or more parties must perform only under certain conditions. 1-1. List the distinguishing characteristics of an insurance policy. - The distinguishing characteristics of insurance policies are these: - Indemnity - Utmost good faith - Fortuitous losses - Contract of adhesion - Exchange of unequal amounts - Conditional - Nontransferable 1-2. Identify reasons that an insurance policy might not fully indemnify an insured after a covered loss. - An insurance policy might not fully indemnify an insured after a covered loss because most insurance policies contain a dollar limit, a deductible, or other provisions or limitations on the amount to be paid. Furthermore, insurance policies do not always indemnify the insured for the inconvenience, time, and other nonfinancial expenses involved in recovering from an insured loss. 1-3. Explain the distinction between a contract of indemnity and a value policy. - A contract of indemnity compensates the insured only for the value of the loss. In a valued insurance policy, the insurer agrees to pay a pre-established dollar amount in the event of an insured total loss, which may overindemnify or underindemnify the insured.