Risk and insurance 9-12

Denise purchased a dining room set for $2,800 and insured it on an actual cash value (ACV) basis. At the time the dining room set was destroyed by a covered peril, the set was 40 percent depreciated. A replacement set will cost $3,000. Assuming no deductible, how much will Denise collect from her insurer?

1,800

Janice insured a building valued at $200,000 for $150,000 under a property insurance policy that included an 80 percent coinsurance provision. If a $32,000 insured loss occurs, how much will Janice collect from her insurer, assuming no deductible?

30,000

For a legally binding property insurance contract to be in force, all of the following elements are necessary EXCEPT

written document.

Dale and his wife Jenny are legally separated. The couple owns a vacation cabin. Dale purchased a $25,000 property insurance policy on the cabin. Unaware that Dale had purchased this coverage, Jenny purchased a $50,000 property insurance policy on the cabin. While both policies were in force, a $12,000 covered property loss occurred. The insurers agreed to settle the claim on a pro rata basis. What is each insurer's liability?

Dale's insurer pays $4,000 and Jenny's insurer pays $8,000.

Which of the following statements about the principle of insurable interest is (are) true? In life insurance, the insurable interest requirement must be met only at the time of the loss to receive life insurance proceeds after the insured has died. The insurable interest requirement helps to reduce the problem of moral hazard.

II only

Which of the following statements is (are) true about the insuring agreement? The insuring agreement provides a description of the property or activity to be insured. The insuring agreement can be written on an "open-perils" basis or on a "named-perils" basis.

II only

Bill borrowed Linda's car with her permission. Both Bill and Linda have automobile liability insurance with a $100,000 bodily injury liability limit. While driving Linda's car, Bill negligently caused an accident. The accident victim was awarded $80,000 in damages. How will this claim be settled, assuming that the policy written by Linda's insurer is primary and Bill's insurance coverage is excess?

Linda's insurer will pay the entire $80,000 claim.

Which of the following statements about law and the insurance agent is (are) true? An insurer is responsible for the acts of its agents when the agents are acting within the scope of the agency agreement. Consumers should not assume that an agency relationship exists just because someone claims to represent an insurance company.

both I and II

Which of the following statements is (are) true with respect to endorsements and riders? Endorsements and riders are used to amend provisions of insurance contracts. If the endorsement or rider conflicts with terms in the underlying contract, the endorsement or rider takes precedence unless it conflicts with the law.

both I and II

In which section of an insurance contract will you find provisions that qualify or place limitations on the insurer's promise to perform?

conditions

An insurance contract must be accepted in its entirety and any ambiguity in the contract is construed against the insurer. Because of these characteristics, we can describe insurance contracts as

contracts of adhesion.

In which part of an insurance contract would you find information about the property or activity to be insured?

declarations

Disability income insurance uses a special type of deductible. No benefits are paid during the initial period of disability (e.g. two weeks, a month, five months, etc.). What is this type of deductible, which is expressed in time rather than in dollars, called?

elimination (waiting) period

When someone reasonably relies upon a representation of fact, what legal doctrine prevents the representation of fact from being retracted if the individual who relied upon the representation of fact would be harmed?

estoppel

The assignment of property insurance by the seller of the property to the purchaser of the property is only valid if the insurer approves the assignment. The reason that the insurer must approve the assignment of a property insurance policy is that

insurance contracts are personal contracts.

When Maria applied for a life insurance policy, she answered "No" in response to the question "Have you visited a doctor for any reason during the previous 12 months?" In fact, Maria visited a doctor five weeks ago after experiencing chest pains. She was referred to a specialist who determined that Maria has severe heart disease. If Maria dies shortly after the life insurance policy is issued, on what grounds will the insurer be successful in denying the claim?

misrepresentation

Kyle purchased collision insurance on his new car. While Kyle was driving home from work, another driver failed to stop at a stop sign and hit Kyle's car. Kyle phoned his insurance agent and reported the accident. The agent said, "Don't worry, Kyle, we'll pay to get your car fixed. After we pay for the damage to your car, we will try to collect from the driver who damaged your car." The process the agent described is called

subrogation

Property insurance contracts have all of the following distinct legal characteristics EXCEPT

they are bilateral contracts.

Exclusions are found in insurance policies for all of the following reasons EXCEPT

to add coverage for certain perils

Deductibles are used for all of the following reasons EXCEPT

to reduce loss control efforts.