Principles of Insurance Exam 3 Seth Pounds
Questions With Correct Answers
principle of indemnity - CORRECT ANSWER✔✔-One of the most important
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principles of insurance. States that the insurer agrees to pay no more than the
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actual amount of the loss. The insured should not profit from a loss.
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Purposes of Indemnity - CORRECT ANSWER✔✔-1) To prevent the insured from
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profiting from a loss | | |
2) Reduce moral hazard
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Ways to determine Actual Cash Value - CORRECT ANSWER✔✔--Replacement cost
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less depreciation
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-fair market value
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-broad evidence rule | |
Replacement Cost Less Depreciation - CORRECT ANSWER✔✔-Used to determine
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the actual cash value of property in property insurance. Takes into consideration
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both inflation and depreciation of property values over time.
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Replacement is the current cost of restoring the damaged property with new
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materials of like and quality. Depreciation is a deduction for physical wear and
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tear, age, and economic obsolescence
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, Example of Replacement Cost Less Depreciation - CORRECT ANSWER✔✔-Sarah
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has a favorite couch that burns in a fire. Assume she bought the couch 5 years
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ago, the couch is 50% depreciated, and a similar couch today would cost 1000.
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Under the actual cash value rule, Sarah will collect 500 for the loss because the
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replacement cost is 1000 and the depreciation is 500. | | | | | | | | |
$1,000-500= $500 |
Borad Evidence Rule - CORRECT ANSWER✔✔-The determination of actual cash
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value should include all relevant factors an expert would use to determine the
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value of the property.
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Relevant factors include replacement cost less depreciation, fair market value,
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present value of expected income from the property, comparison sales of similar
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property, opinion of appraisers, and numerous other factors
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Fair Market Value - CORRECT ANSWER✔✔-The price a willing buyer would pay a
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willing seller in a free market. Difference between this and replacement cost less
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depreciation is due to several factors: poor location, deteriorating neighborhood,
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or economic obsolesce of the building.
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Exceptions to the Principle of Indemnity - CORRECT ANSWER✔✔-Valued policy
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Valued policy laws | |
Replacement cost insurance | |
Life Insurance
|
Questions With Correct Answers
principle of indemnity - CORRECT ANSWER✔✔-One of the most important
| | | | | | | | | |
principles of insurance. States that the insurer agrees to pay no more than the
| | | | | | | | | | | | | |
actual amount of the loss. The insured should not profit from a loss.
| | | | | | | | | | | |
Purposes of Indemnity - CORRECT ANSWER✔✔-1) To prevent the insured from
| | | | | | | | | | |
profiting from a loss | | |
2) Reduce moral hazard
| | |
Ways to determine Actual Cash Value - CORRECT ANSWER✔✔--Replacement cost
| | | | | | | | | |
less depreciation
|
-fair market value
| |
-broad evidence rule | |
Replacement Cost Less Depreciation - CORRECT ANSWER✔✔-Used to determine
| | | | | | | | |
the actual cash value of property in property insurance. Takes into consideration
| | | | | | | | | | | |
both inflation and depreciation of property values over time.
| | | | | | | | |
Replacement is the current cost of restoring the damaged property with new
| | | | | | | | | | | |
materials of like and quality. Depreciation is a deduction for physical wear and
| | | | | | | | | | | | |
tear, age, and economic obsolescence
| | | |
, Example of Replacement Cost Less Depreciation - CORRECT ANSWER✔✔-Sarah
| | | | | | | | |
has a favorite couch that burns in a fire. Assume she bought the couch 5 years
| | | | | | | | | | | | | | | |
ago, the couch is 50% depreciated, and a similar couch today would cost 1000.
| | | | | | | | | | | | | |
Under the actual cash value rule, Sarah will collect 500 for the loss because the
| | | | | | | | | | | | | | |
replacement cost is 1000 and the depreciation is 500. | | | | | | | | |
$1,000-500= $500 |
Borad Evidence Rule - CORRECT ANSWER✔✔-The determination of actual cash
| | | | | | | | | |
value should include all relevant factors an expert would use to determine the
| | | | | | | | | | | | |
value of the property.
| | |
Relevant factors include replacement cost less depreciation, fair market value,
| | | | | | | | | |
present value of expected income from the property, comparison sales of similar
| | | | | | | | | | | |
property, opinion of appraisers, and numerous other factors
| | | | | | |
Fair Market Value - CORRECT ANSWER✔✔-The price a willing buyer would pay a
| | | | | | | | | | | | |
willing seller in a free market. Difference between this and replacement cost less
| | | | | | | | | | | | |
depreciation is due to several factors: poor location, deteriorating neighborhood,
| | | | | | | | | |
or economic obsolesce of the building.
| | | | |
Exceptions to the Principle of Indemnity - CORRECT ANSWER✔✔-Valued policy
| | | | | | | | |
Valued policy laws | |
Replacement cost insurance | |
Life Insurance
|
