Insurance Terms and Related Concepts

An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices. If the roof has been depreciating at $200 per year and his policy is ACV, how much will it pay toward the insured's a new roof? A. $1,000 B. $4,000 C. $5,000 D. $6,000

$5,000: $6,000 - $200/Yr = $5,000. ACV is calculated as replacement cost less depreciation.

If a liability policy has split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person? A. $30,000 B. $50,000 C. $100,000 D. $180,000

$50,000: The first limit shown ($50,000 in this case) is the most the policy will pay for bodily injury to any one person. - Split limits are separately stated limits of liability for different coverages. The limits may be stated on a per person per occurrence, or per policy period bases, or can be split between bodily injury and property damage. May auto liability policies are written with split limits.

Which terms includes damage where the insured peril was the proximate cause of loss?

Direct Loss: Direct loss is direct, physical damage to buildings and/or personal property. Direct loss also includes other damage where the insured peril was the proximate cause of loss.

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? A. Law of Group Evolution B. Law of Large Numbers C. Law Of Masses D. Law of Averages

Law of Large Numbers: The Law of Large Numbers, which states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated.

Most insurance policies exclude losses by A. Robbery B. Mysterious Disappearance C. Theft D. Burglary

Mysterious Disappearance: Losses by the reasoning are excluded by most insurance polices.

The case of a loss, the indemnity provision in insurance policies

Restores an insured person to the same financial state as before the loss. Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the vent of loss, an insured or beneficiary is permitted to collect only to the extend of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method?

Stated Amount: A stated amount is an amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.

when the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as A. Replacement Cost B. Actual Cash Value C. Specific Insurance D. Stated Amount

Stated Amount: In stated amount coverage, the value of the insured property is determined at the time the policy is written. In the event of a loss, the amount is paid without regard to any coinsurance provision, However, if the loss is less than total, the insurer has salvage rights with the insured having first right of refusal of the salvage.

The policy provision found in property insurance policies that prevent the insured from collecting twice for the same loss is called A. Consent to settle the loss. B. Right to salvage. C. Appraisal D. Subrogation

Subrogation: The insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss. Subrogation is based on the principle of indemnity by preventing the insured from collecting on the loss twice: once from the insurer and a second time from the party that caused the damage.

A $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage; the owner has a policy with $60,000 coverage. How much can the owner collect for his loss?

$30,000. For the total amount of a partial loss to be paid, a house must be insured for at least 80% of its value on the date of loss. In this case, because the house is insured for only $60,000 or 75% of the minimum requirement, the policy will only pay 75% of the loss, or $30,000.

An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?

$30,000: The insured only carried 75% of the amount of insurance he had agreed to carry ($120,000 of the agreed is $160,000) so the insurer will play only 75% of the loss, or $30,000. If the insured had carried the required amount of insurance, partial losses would be paid in full. In the event of a total loss, the face of the policy would be paid. If the full amount is not carried, divide the actual amount carried by the amount that should be carried (the coinsurance amount), and multiply by the loss.

An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how should he much should he insure the property for? A. 100% of the market value? B. $400,000 C. $32,000 D. 80% of the property's replacement cost or more

80% of the property's replacement cost or more: The coinsurance clause states that in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. In the event of a covered loss, insurance is designed to pay replacement cost minus depreciation. (Insurance carried/Insurance Required) x Loss Amount = Loss Payment $100,000 Building insured with an 80% coinsurance percentage. ($100,000 x .80) = $80,000 to meet coinsurance requirment.

All of the following statements describes the concept of strict liability EXCEPT A.It is applied in product liability cases B. It is imposed on defendants engaged in hazardous activities C. Claimants may need to provide proof that a product defect caused an injury D. It is imposed regardless of fault

It is imposed on defendants engaged in hazardous activities. Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence.

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become A. More active B. Larger C. Smaller D. Older

Larger: According to the law of large numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums.

Liability imposed on one party as a result of the actions of another person is known as

Vicarious liability; Liability imposed on one party as a result of the actions of another person i.e parent/child/or employer/employee