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RMIN 2005 Test 2 Questions and Correct
Answers
Indemnity Ans: financial restoration or making whole again
without profiting, restore someone financially as they were before
the loss; whole not better
Indemnity Ans: reduce moral and morale hazard; indemnity is
violated when the value of the loss cannot be clearly known
Moral hazard Ans: insurance fraud
Morale hazard Ans: indifference to loss or carelessness
Exceptions to Principle of Indemnity Ans: 1) Valued Policies-
over/under value such as life insurance, works of art, jewelry,
antiques; value is determined before loss
2) Replacement Costs
3) Cost Sharing
Valued Policy Laws Ans: requires insurer to pay policy limits for a
total loss which prevents insurer/agent from encouraging insured
to over insure (includes moral and morale hazard)
Replacement Cost Ans: allows insured to obtain new property or
replace old property at the new cost (best) with no depreciation
Cost Sharing Ans: helps to reduce moral and morale hazard; Ex.
pay $500 out of pocket before insurance helps
Includes deductibles, co-payments, co-insurance
Common in property and health insurance
Insured will be under paid because you only get your deductable
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, 2 | Page
3 Ways Companies Force Indemnification Ans: 1) Insurance
Interest
2) Subrogation
3) Actual Cash Value
Insurable Interest Ans: insurance must be in a financial chance to
lose (skin in the game)
Insurable Interest in Property and Casualty Ans: Ownership,
Bailee (care, custody, control), Secured Creditor,
Customer/Buyer/Supplier, Leader
Insurable Interest in Life Insurance Ans: Self, Close Relation (wife,
child), Precuniary (financial interest such as a business partner)
Subrogation Ans: insurance company "steps in the shoes" of the
insured in order to collect damages the insurer has already paid to
the insured, cannot collect twice and guilty party is responsible
Subrogation Ans: common when a loss is someone else's fault but
the "victim" has property insurance; property insurer pays loss
first and pays cost sharing to the insured; Ex. neighbor's tree falls
on my car, my insurance will pay the damages minus my
deductible but in return they will subrogate against my neighbor
to collect, the guilty party will be help responsible
Actual Cash Value Ans: the older the property, the less you get;
replacement cost minus depreciation
The Doctrine of Utmost Good Faith Ans: means a higher degree of
honesty (mutual trust) disclosure and trust must be imposed on
this transaction than other contracts; (material) must know of any
risks beforehand or else a damaged policy will go into effect and
apply new coverage
Causes of a Void Good Faith Ans: 1) Misrepresentations such as a
lie on an application (material)
© 2025 All rights reserved
RMIN 2005 Test 2 Questions and Correct
Answers
Indemnity Ans: financial restoration or making whole again
without profiting, restore someone financially as they were before
the loss; whole not better
Indemnity Ans: reduce moral and morale hazard; indemnity is
violated when the value of the loss cannot be clearly known
Moral hazard Ans: insurance fraud
Morale hazard Ans: indifference to loss or carelessness
Exceptions to Principle of Indemnity Ans: 1) Valued Policies-
over/under value such as life insurance, works of art, jewelry,
antiques; value is determined before loss
2) Replacement Costs
3) Cost Sharing
Valued Policy Laws Ans: requires insurer to pay policy limits for a
total loss which prevents insurer/agent from encouraging insured
to over insure (includes moral and morale hazard)
Replacement Cost Ans: allows insured to obtain new property or
replace old property at the new cost (best) with no depreciation
Cost Sharing Ans: helps to reduce moral and morale hazard; Ex.
pay $500 out of pocket before insurance helps
Includes deductibles, co-payments, co-insurance
Common in property and health insurance
Insured will be under paid because you only get your deductable
© 2025 All rights reserved
, 2 | Page
3 Ways Companies Force Indemnification Ans: 1) Insurance
Interest
2) Subrogation
3) Actual Cash Value
Insurable Interest Ans: insurance must be in a financial chance to
lose (skin in the game)
Insurable Interest in Property and Casualty Ans: Ownership,
Bailee (care, custody, control), Secured Creditor,
Customer/Buyer/Supplier, Leader
Insurable Interest in Life Insurance Ans: Self, Close Relation (wife,
child), Precuniary (financial interest such as a business partner)
Subrogation Ans: insurance company "steps in the shoes" of the
insured in order to collect damages the insurer has already paid to
the insured, cannot collect twice and guilty party is responsible
Subrogation Ans: common when a loss is someone else's fault but
the "victim" has property insurance; property insurer pays loss
first and pays cost sharing to the insured; Ex. neighbor's tree falls
on my car, my insurance will pay the damages minus my
deductible but in return they will subrogate against my neighbor
to collect, the guilty party will be help responsible
Actual Cash Value Ans: the older the property, the less you get;
replacement cost minus depreciation
The Doctrine of Utmost Good Faith Ans: means a higher degree of
honesty (mutual trust) disclosure and trust must be imposed on
this transaction than other contracts; (material) must know of any
risks beforehand or else a damaged policy will go into effect and
apply new coverage
Causes of a Void Good Faith Ans: 1) Misrepresentations such as a
lie on an application (material)
© 2025 All rights reserved
