1 Insurable Interest Quiz

What is Factual Expectancy?

factual expectancy: A situation in which a party experiences an economic advantage if an insured event does not occur or, conversely, economic harm if the event does occur.

Sandi purchased a $130,000 home three years ago and took out a $100,000 mortgage. Today her home is worth $150,000 and she still owes $55,000 on the home. The mortgage holder has an insurable interest of how much in Sandi's home? Select one: A. $55,000 B. $100,000 C. $130,000 D. $150,000

A. $55,000 CorrectCorrect. The mortgage holder has an insurable interest of $55,000.

Alice bought furniture for her home using store credit. There were no liens attached, and when Alice could not pay the full amount for the furniture, the store owner sued her. The store owner was Select one: A. An unsecured creditor. B. A secured creditor. C. A bailor. D. A lessor.

A. An unsecured creditor.

Tom is insured under a Personal Auto Policy (PAP). He recently purchased a used car from an individual. Shortly after purchasing the car, it was stolen and Tom filed a claim with his insurance company. During the investigation, the claim representative discovered that the person from whom Tom purchased the car did not have legal title, and therefore Tom did not have legal title to the car. The insurer denied the claim based on the lack of an insurable interest. Many courts would hold that Tom did have an insurable interest in the value of the car based on the legal basis of Select one: A. Factual expectancy. B. Contractual obligations. C. Representation of another party. D. Exposure to legal liability.

A. Factual expectancy.

Jeremy is a bailee who insures bailor Sam's property for Sam's benefit. Jeremy has an insurable interest in the property, but if Sam's property becomes damaged or destroyed, Jeremy Select one: A. Pays any awarded insurance proceeds to Sam. B. Retains all payable insurance proceeds. C. Splits the proceeds from any insurance settlement with Sam. D. Has no right to any insurance proceeds because it is not his property.

A. Pays any awarded insurance proceeds to Sam.

Alva and Mehmet are married and own their home, which is valued at $250,000. The combined interest of Alva and Mehmet is $500,000. In the event of loss, the insurer would pay no more than the value of the property. This type of ownership is referred to as Select one: A. Tenancy by entirety. B. Tenancy in partnership. C. Tenancy in common. D. Joint tenancy.

A. Tenancy by entirety.

Martin, Sara, Adam, and Laura concurrently own and operate a riding stable. Each of them has rights of survivorship and an insurable interest worth the full value of the business. This type of ownership is referred to as Select one: A. Tenancy in partnership. B. Tenancy by the entirety. C. Joint tenancy. D. Tenancy in common.

A. Tenancy in partnership.

An insured under a property policy must have an __________ in property that is damaged or destroyed in order to have a legitimate claim.

An insured under a property policy must have an insurable interest in property that is damaged or destroyed in order to have a legitimate claim.

Alex sold his insured auto to Harry, but Alex did not cancel his insurance on the auto. Harry was subsequently involved in an accident and asked Alex to make a claim under his policy for the damages to the auto, knowing that Alex had not yet canceled his policy. The insurance coverage will be denied because Select one: A. Alex did not property assign his policy to Harry. B. Alex no longer has an insurable interest in the auto. C. Harry has no insurable interest in the auto. D. Harry has no factual expectancy that coverage will apply.

B. Alex no longer has an insurable interest in the auto. CorrectCorrect. Alex no longer has an insurable interest in the auto.

Jack and Susan own and manage a hotel. They are concerned about their responsibility for the property of their guests and whether they have an insurable interest in that property and thus could buy insurance to cover their responsibility. Most courts would hold that they do have an insurable interest in their guests' property based on which one of the following legal bases? Select one: A. Representation of another party B. Exposure to legal liability C. Factual expectancy D. Contractual obligations

B. Exposure to legal liability

Brenda wrote a poem that she sent to her sister who sold the poem to a recording company. Learning of the sale, Brenda became upset. If Brenda has an insurable interest in the poem she wrote as a type of "property," the legal basis of her insurable interest arises out of Select one: A. Representation of another party. B. Ownership interest in property. C. Contractual obligations. D. Factual expectancy.

B. Ownership interest in property.

Ren was married to Anna but they have since divorced. Because Ren is aware of Anna's financial status, he wants to take out a life insurance policy on her. In terms of insurable interest, Ren may Select one: A. Purchase a life insurance policy on Anna, but it cannot exceed one half of Anna's net worth. B. Purchase a life insurance policy on Anna with any face amount. C. Not purchase a life insurance policy on Anna since he does not have an insurable interest in her life. D. Not purchase a life insurance policy on Anna since he has no right to her assets after the divorce.

C. Not purchase a life insurance policy on Anna since he does not have an insurable interest in her life.

Spouses Ed and LeeAnn own a home. If Ed dies, LeeAnn will become the sole owner of the house. Both Ed and LeeAnn have an insurable interest in the property equal to the full value of the property. This is a Select one: A. Tenancy in common. B. Life estate. C. Tenancy by the entirety. D. Joint tenancy.

C. Tenancy by the entirety.

Customer Mary gave dry cleaner Ike her fur coat so he could remove a large stain. Ike could not eliminate the stain so he asked restoration specialist Peter to attempt to remove it. The bailor in this scenario is Select one: A. Ike. B. Both Ike and Peter. C. Peter. D. Mary.

D. Mary.

Ella, the owner of a dry cleaning establishment, maintains insurance on customers' clothing and other property. She does so because she is acting as a bailee of customers' property while it is in her possession. In the event that a customer's property becomes damaged while in her care, Ella will pay any insurance proceeds to the customer. Which one of the following is the legal basis for insurable interest demonstrated by this example? Select one: A. Factual expectancy B. Ownership interest in property C. Contractual obligation D. Representation of another party

D. Representation of another party

Charlotte, Chloe, and Jessica have concurrent ownership in a restaurant, each owning one third. Their combined interests equal the value of the restaurant. If one of them should die, her share would pass to her heirs. This type of ownership is referred to as Select one: A. Tenancy by entirety. B. Joint tenancy. C. Tenancy by partnership. D. Tenancy in common.

D. Tenancy in common. CorrectCorrect. This is known as tenancy in common.

Insurance policies have an insurable interest requirement for these three reasons:

Insurance policies have an insurable interest requirement for these three reasons: 1.It supports the principle of indemnity. 2.It prevents the use of insurance as a wagering mechanism. 3.It reduces the moral hazard incentive that insurance may create for the insured.

Joint tenancy Tenancy by the entirety

Joint tenancy - Each owner, referred to as a "tenant," owns the entire property and has a right of survivorship—an automatic right of one tenant to the share of the other tenant when that other tenant dies Tenancy by entirety -This is joint tenancy between a husband and wife. As with a joint tenancy, if spouses jointly own a property, each of them owns the entire property.

Tenancy in common

Tenants in common do not have survivorship rights Each party's insurable interest is limited to that owner's share of the property and any insurance payouts would probably be made to the first named insured, who would be responsible for distributing the appropriate share to the other tenants in common.

Stone, Rajdev, Lee & Partners is a civil engineering consulting firm. The three original founders, Stone, Rajdev, and Lee, were all major partners in the company, which had several minor partners as well. The company rents space in an office tower, and the insurable value of the office contents is $750,000. The three principal partners chartered a small airplane to attend a meeting with a potential client. The plane crashed, and Stone, Rajdev, and Lee were killed. Who has an insurable interest in the contents of the office, and what is the value of those interests?

The partnership entity and each of the remaining minor partners has an insurable interest in the office contents. The value of each of those interests is the full $750,000.

Tenancy in partnership

This is concurrent ownership by a partnership and its individual partners of personal property used by the partnership. The partnership and all partners have rights of survivorship.