CPCU 500, Questions Set, Chapters 1 - 8
Key questions in determining insurable interest - Answer-1. What is insurable interest
2. When must insurable interest exist
3. Why require insurable interest
4. What is the legal basis of insurable interest
5. What happens when insurable interest overlap
Problems associated with maintain insurance to value - Answer-1. The amount of insurance required to
maintain insurance to value is based on the property's value at the time of loss, but the limit is chosen at
the time of policy inception
2. The insured often selects the policy limits based on his best guess, not on a valid appraisal.
3. Even with an appraisal, the true insurable value at the time of loss cannot be measured exactly until
the property is actually repaired or replaced
4. Values fluctuate over time
Insurance buyers can minimize those four problems by - Answer-1. Using a professional appraiser to
determine the current replacement cost value and then reappraising the property every few years
2. Adjusting the appraisal annually using indexes and/or a record of additions and deletions
3. Reviewing and revising limits periodically
4. Using appropriate coverage options such as
Agreed value optional coverage
Inflation guard protection
Peak season endorsement
,Approaches used in property insurance to value property - Answer-1. actual cash value
2. replacement cost
3. agreed value approach
4. functional value
Valuation of Liability Losses are typically based on - Answer-1. The relevant policy provisions and
2. The extent of the bodily injury and/or property damage to others
The most the insurer will pay is the lesser of - Answer-1. The applicable policy limit
2. The compensable amount of the loss
Purposes of deductibles - Answer-1. To reduce the insurer's cost by eliminating the inefficiencies of
dollar trading and eliminating insurer loss settlement and other administrative expense for loss under
the deductable.
2. To encourage risk control
3. To reduce the morale and moral hazard incentive
How deductibles are handled in liability insurance: the insurer - Answer-1. Defends the claim on a first -
dollar basis
2. Pays all covered losses
3. Bills the insured for the amount of losses up to the deductible.
Limited use of liability deductibles - Answer-1. The insurer wants the insured to report every claim and
not play adjuster and attorney. Simply, the insurer wants to control the claim settlement.
2. The premium credit would be small
3. Few people sue for small amounts
, 4. The insurer must try to collect the deductible amount from the insured.
Other sources of recovery that affect amounts payable - Answer-1. Noninsurance agreements,
warranties, guarantees, lease agreements, service agreements etc.
2. Third parties
3. Other insurance in the same policy
4. Other insurance in a similar policy
5. Other insurance in a dissimilar policy
Courts Take Three Approaches to ACV - Answer-1. Replacement cost minus depreciation
2. market value
3. the braod evidence rule
Distinguishing Characteristics of Insurance Contracts - Answer-1. The principle of indemnity
2. Utmost good faith
3. Fortuitous losses
4. Contract of adhesion
5. Exchange of unequal amounts
6. Conditional
7. Nontransferable
Two concepts reduce the moral hazards associated with indemnification - Answer-1. Insurance should
not over indemnify
2. Insured's should only be indemnified once per loss
Methods by which insurers achieve an equitable distribution of risk cost - Answer-1. Insurance rating
plans
Key questions in determining insurable interest - Answer-1. What is insurable interest
2. When must insurable interest exist
3. Why require insurable interest
4. What is the legal basis of insurable interest
5. What happens when insurable interest overlap
Problems associated with maintain insurance to value - Answer-1. The amount of insurance required to
maintain insurance to value is based on the property's value at the time of loss, but the limit is chosen at
the time of policy inception
2. The insured often selects the policy limits based on his best guess, not on a valid appraisal.
3. Even with an appraisal, the true insurable value at the time of loss cannot be measured exactly until
the property is actually repaired or replaced
4. Values fluctuate over time
Insurance buyers can minimize those four problems by - Answer-1. Using a professional appraiser to
determine the current replacement cost value and then reappraising the property every few years
2. Adjusting the appraisal annually using indexes and/or a record of additions and deletions
3. Reviewing and revising limits periodically
4. Using appropriate coverage options such as
Agreed value optional coverage
Inflation guard protection
Peak season endorsement
,Approaches used in property insurance to value property - Answer-1. actual cash value
2. replacement cost
3. agreed value approach
4. functional value
Valuation of Liability Losses are typically based on - Answer-1. The relevant policy provisions and
2. The extent of the bodily injury and/or property damage to others
The most the insurer will pay is the lesser of - Answer-1. The applicable policy limit
2. The compensable amount of the loss
Purposes of deductibles - Answer-1. To reduce the insurer's cost by eliminating the inefficiencies of
dollar trading and eliminating insurer loss settlement and other administrative expense for loss under
the deductable.
2. To encourage risk control
3. To reduce the morale and moral hazard incentive
How deductibles are handled in liability insurance: the insurer - Answer-1. Defends the claim on a first -
dollar basis
2. Pays all covered losses
3. Bills the insured for the amount of losses up to the deductible.
Limited use of liability deductibles - Answer-1. The insurer wants the insured to report every claim and
not play adjuster and attorney. Simply, the insurer wants to control the claim settlement.
2. The premium credit would be small
3. Few people sue for small amounts
, 4. The insurer must try to collect the deductible amount from the insured.
Other sources of recovery that affect amounts payable - Answer-1. Noninsurance agreements,
warranties, guarantees, lease agreements, service agreements etc.
2. Third parties
3. Other insurance in the same policy
4. Other insurance in a similar policy
5. Other insurance in a dissimilar policy
Courts Take Three Approaches to ACV - Answer-1. Replacement cost minus depreciation
2. market value
3. the braod evidence rule
Distinguishing Characteristics of Insurance Contracts - Answer-1. The principle of indemnity
2. Utmost good faith
3. Fortuitous losses
4. Contract of adhesion
5. Exchange of unequal amounts
6. Conditional
7. Nontransferable
Two concepts reduce the moral hazards associated with indemnification - Answer-1. Insurance should
not over indemnify
2. Insured's should only be indemnified once per loss
Methods by which insurers achieve an equitable distribution of risk cost - Answer-1. Insurance rating
plans
