RMIN 4000 Test 3 Brown Latest Version Already Passed

RMIN 4000 Test 3 Brown Latest Version Already Passed Principal of Indemnity insurer pays no more than actual amount of the loss; insurer should not profit from the loss Replacement cost the cost to replace an inventory item in its identical form (similar workmanship and quality) Actual Cash Value replacement cost - depreciation in property ins, usually based on the actual cash value of the property at the time of loss Market Value the price at which property would sell Valued Policy a policy that pays the face amount of insurance if a total loss occurs (life insurance) Value Policy Law requires payment of the face amount of insurance if a total loss to real property occurs from a peril specified in law Principle of Insurable Interest The insured must be in a position to lose financially if a covered loss occurs Examples of Insurable Interest -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? at inception of the policy; ex- spouse can still collect on life insurance if listed as policy beneficiary Principle of Subrogation 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 -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 principle of upmost good faith 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? -representations -concealment -warranty Representations statements made by the applicant for insurance What makes a contract voidable on the premise of misrepresentation? 1. material 2. false, and 3. relied on by the insurance company concealment 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? - concealed fact was known by the insured to be material -insured intended to defraud the insurer Warranty a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects a condition agreed to by an insured in order to receive coverage What is bad faith? law that allows lawsuits against insurance companies for: improper denial of claims and improper delay of claims Bad faith damages can exceed policy limits and include: -attorney's fees -emotional distress -punitive damages Requirements of an Insurance Contract 1. offer and acceptance 2. consideration 3. competent parties 4. legal purpose Offer and Acceptance insured completes application (offer) and insurance company issues a binder or policy (acceptance) or company rejects the offer conditional premium receipt Provides temporary insurance coverage only if specified conditions are met exchange of consideration the value that each party gives to the other Competent Parties Those who are legally capable of entering into contracts. must be: old enough to enter into contract, not be intoxicated, not be insane legal purpose contract that encourages something illegal or immoral is contrary to public interest and cannot be enforced Distinct Legal Characteristics of Insurance Contracts -aleatory