RMIN 4000 Test 3 Brown Exam
Questions and Answers Graded A+
Principal of Indemnity - Correct answer-insurer pays no more than actual amount
of the loss; insurer should not profit from the loss
Replacement cost - Correct answer-the cost to replace an inventory item in its
identical form (similar workmanship and quality)
Actual Cash Value - Correct answer-replacement cost - depreciation
in property ins, usually based on the actual cash value of the property at the time of
loss
Market Value - Correct answer-the price at which property would sell
Valued Policy - Correct answer-a policy that pays the face amount of insurance if a
total loss occurs (life insurance)
Value Policy Law - Correct answer-requires payment of the face amount of
insurance if a total loss to real property occurs from a peril specified in law
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,Principle of Insurable Interest - Correct answer-The insured must be in a position
to lose financially if a covered loss occurs
Examples of Insurable Interest - Correct answer--ownership of property (house,
car)
-potential legal liability (business owners)
-secured creditors
-contractual rights (goods in transit)
When must an insurable interest legally exist in life insurance? - Correct answer-at
inception of the policy; ex-spouse can still collect on life insurance if listed as
policy beneficiary
Principle of Subrogation - Correct 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
Reasons for subrogation - Correct answer--prevents insured from collecting twice
(once from insurer, once from responsible party)
- holds the negligent party responsible for the loss
- reduces insurance claims costs and therefore rates
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, principle of upmost good faith - Correct answer-a higher degree of honesty is
imposed on both parties to insurance contracts than is imposed on parties to other
contracts
What three legal doctrines support the principle of upmost good faith? - Correct
answer--representations
-concealment
-warranty
Representations - Correct answer-statements made by the applicant for insurance
What makes a contract voidable on the premise of misrepresentation? - Correct
answer-1. material
2. false, and
3. relied on by the insurance company
concealment - Correct answer-intentional failure of the applicant for insurance to
reveal a material fact to the insurer
What makes a contract voidable on the premise of concealment? - Correct answer--
concealed fact was known by the insured to be material
-insured intended to defraud the insurer
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
Questions and Answers Graded A+
Principal of Indemnity - Correct answer-insurer pays no more than actual amount
of the loss; insurer should not profit from the loss
Replacement cost - Correct answer-the cost to replace an inventory item in its
identical form (similar workmanship and quality)
Actual Cash Value - Correct answer-replacement cost - depreciation
in property ins, usually based on the actual cash value of the property at the time of
loss
Market Value - Correct answer-the price at which property would sell
Valued Policy - Correct answer-a policy that pays the face amount of insurance if a
total loss occurs (life insurance)
Value Policy Law - Correct answer-requires payment of the face amount of
insurance if a total loss to real property occurs from a peril specified in law
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,Principle of Insurable Interest - Correct answer-The insured must be in a position
to lose financially if a covered loss occurs
Examples of Insurable Interest - Correct answer--ownership of property (house,
car)
-potential legal liability (business owners)
-secured creditors
-contractual rights (goods in transit)
When must an insurable interest legally exist in life insurance? - Correct answer-at
inception of the policy; ex-spouse can still collect on life insurance if listed as
policy beneficiary
Principle of Subrogation - Correct 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
Reasons for subrogation - Correct answer--prevents insured from collecting twice
(once from insurer, once from responsible party)
- holds the negligent party responsible for the loss
- reduces insurance claims costs and therefore rates
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, principle of upmost good faith - Correct answer-a higher degree of honesty is
imposed on both parties to insurance contracts than is imposed on parties to other
contracts
What three legal doctrines support the principle of upmost good faith? - Correct
answer--representations
-concealment
-warranty
Representations - Correct answer-statements made by the applicant for insurance
What makes a contract voidable on the premise of misrepresentation? - Correct
answer-1. material
2. false, and
3. relied on by the insurance company
concealment - Correct answer-intentional failure of the applicant for insurance to
reveal a material fact to the insurer
What makes a contract voidable on the premise of concealment? - Correct answer--
concealed fact was known by the insured to be material
-insured intended to defraud the insurer
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
