RMIN 4000 test 2, UGA
Principle of Indemnity - answer The insurer agrees to pay no more than the actual
amount of the loss (make you whole again, no gain).
Purpose:
-To prevent the insured from profiting from a loss
-To reduce moral hazard
Indemnification in property insurance is - answer based on the actual cash value (ACV)
of the property at the time of loss
3 main methods to determine actual cash value: - answer-Replacement cost less
depreciation
-Fair market value
-Broad evidence rule
There are some exceptions to the principle of indemnity: - answer-valued policy
-Some states have a valued policy law
-Replacement cost insurance
Replacement cost insurance - answermeans there is no deduction for depreciation in
determining the amount paid for a loss
valued policy law - answerrequires 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
valued policy - answerpays the face amount of insurance if a total loss occurs
Principle of Insurable Interest - answerThe insured must be in a position to lose
financially if a covered loss occurs (ex: can't buy life insurance policy on a random
person, but if that person owes you $100,000 you can buy one for that amount).
Purposes of the principle of insurable interest - answer-To prevent gambling
-To reduce moral hazard
-To measure the amount of the insured's loss
An insurable interest can be supported by: - answer-Ownership of property
-Potential legal liability
-Serving as a secured creditor
-Contractual rights
Principle of Indemnity - answer The insurer agrees to pay no more than the actual
amount of the loss (make you whole again, no gain).
Purpose:
-To prevent the insured from profiting from a loss
-To reduce moral hazard
Indemnification in property insurance is - answer based on the actual cash value (ACV)
of the property at the time of loss
3 main methods to determine actual cash value: - answer-Replacement cost less
depreciation
-Fair market value
-Broad evidence rule
There are some exceptions to the principle of indemnity: - answer-valued policy
-Some states have a valued policy law
-Replacement cost insurance
Replacement cost insurance - answermeans there is no deduction for depreciation in
determining the amount paid for a loss
valued policy law - answerrequires 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
valued policy - answerpays the face amount of insurance if a total loss occurs
Principle of Insurable Interest - answerThe insured must be in a position to lose
financially if a covered loss occurs (ex: can't buy life insurance policy on a random
person, but if that person owes you $100,000 you can buy one for that amount).
Purposes of the principle of insurable interest - answer-To prevent gambling
-To reduce moral hazard
-To measure the amount of the insured's loss
An insurable interest can be supported by: - answer-Ownership of property
-Potential legal liability
-Serving as a secured creditor
-Contractual rights
