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UGA RMIN 4000 Brown Test 3 (2024) Questions and Answers Fully Solved
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UGA RMIN 4000 Brown Test 3 (2024)
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UGA RMIN 4000 Brown Test 3 (2024)Legal principles of insurance - answer Principle of indemnity
Principle of insurable interest
Principle of subrogation
Principle of utmost good faith
Principle of indemnity - answer The insurer agrees to pay no more than the actual
amount of the loss
Purpose is to prevent the insured from profiting from the loss
Why is this important?
Prevents moral hazard
Replacement cost - answer The cost to replace property with an item of like kind and
quality (similar workmanship and materials)
Not the same as historical cost
Actual cash value (ACV) - answerReplacement cost less depreciation
In property insurance, indemnification is usually based on the actual cash value of the
property at the time of loss
ACV = RC - depreciation
Depreciation = age/useful life
ex: Samsung TV
Cost $750 when purchased in 2016
Useful life is 10 years
Current model (like kind/quality) is $450
calculate deprecation % and ACV - answer70%
$135
ex: warehouse building
Cost $2,500,000 when build in 2016
,Useful life of 20 years
Fire completely destroys building in 2023
Current reconstruction cost is $3,000,000
calculate deprecation % and ACV - answer35%
$1,950,000
Other types of indemnity - answermarket value
value policy
valued policy law (in some states)
market value - answerPrice a buyer would be willing to pay in a free market
Value policy - answerA policy that pays the face amount of insurance if a total loss
occurs (life insurance)
Valued policy law (in some states) - answerRequires 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 - answerThe insured/beneficiary must be in a position to
lose financially if a covered loss occurs
Ex: can't buy insurance for someone else or other persons house
Why?
Prevents gambling on losses
Reduces moral hazard
Examples of insurable interest - answerOwnership of property (house, car)
Potential legal liability (business owner)
Secured creditors (mortgage company, auto lender)
Contractual right (goods in transit)
When must an insurable interest exist? - answerProperty insurance
-At time of loss
-Can't collect on an insurance policy after you sell your home
Life insurance
-At inception of policy
-Ex spouse can still collect on life insurance if listed as policy beneficiary
, Principle of subrogation - answerSubstitution of the insurer in place of the insured for
the purpose of claiming indemnity from a third party loss covered b y insurance
Example:
Someones else hits your car
Your insurance company pays you for the damages to your vehicle
Your Insurance company sues the other driver for reimbursement
Reasons for subrogation - answerPrevents 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 utmost good faith - answerA higher degree of honesty is imposed on both
parties to insurance contracts than is imposed on parties to other contracts
Going out of way to make sure insurer gets correct information
Supported by three legal doctrines:
-Representations
-Concealment
-Warranty
Representations - answerStatements made by the applicant for insurance
What if the statements are false (misrepresentations)?
Contract is voidable if the misrepresentation is:
Material, False, and
Relied on by the insurer
Many don't void and just subtract what premium would have been if had true facts
A smoker lies on their life insurance application and later dies in an auto accident
Is the contract voidable - answerYes, voidable
Insureds birthday on a application is listed as august 1 when its august 11
is the contract voidable - answerIn general no, not material fact
Concealment - answerIntentional failure of the applicant for insurance to reveal a
material fact to the insurer
Ex: not telling insurer your running a meth lab from your house
Contract can be voided if:
-Concealed fact was known by the insured to be material
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