Chapter 9 Flashcards
principle that states that the insurer agrees to pay no more than the actual amount of the loss; stated differently, the insured should not profit from a loss.
principle of indemnity
the principle of indemnity has two fundamental purposes. the first purpose is to ________
prevent the insured from profiting from a loss.
the second purpose of indemnity is to _____
reduce moral hazard.
in property insurance, the basic method for indemnifying the insured is based on the ___ ____ ____ of the damaged property at the time of loss.
actual cash value
courts have used a number of methods to determine actual cash value, including the following:
replacement cost less depreciation
fair market value
___ ____ rule
broad evidence
rule of actual cash value that takes into consideration both inflation and depreciation of property values over time.
replacement cost less depreciation.
the price a willing buyer would pay a willing seller in a free market.
fair market value
many states use the ____ ____ rule to determine the actual cash value of a loss.
broad evidence.
means that the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property.
broad evidence rule.
several exceptions to the principle of indemnity, including the following: valued policy \_\_\_ \_\_\_\_ laws \_\_\_\_ \_\_\_\_\_ insurance life insurance
valued policy, replacement cost
a policy that pays the face amount of insurance if a total loss occurs.
valued policy.
law that exists in some states that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law.
valued policy law
means there is no deduction for physical depreciation in determining the amount paid for a loss.
replacement cost insurance.
states that the insured must be in a position to lose financially if a covered loss occurs.
principle of insurable interest
insurance contracts must be supported by an insurable interest for the following reasons:
to prevent gambling
to reduce moral hazard
to measure the amount of the insured’s __ ___ ___ ___
loss in property insurance
if an insurable interest were not required, the contract would be a ____ ____ and against the public interest.
gambling contract
in property insurance, the insurable interest must
exist at the time of the loss.
in contrast, in life insurance, the insurable interest requirement must be met only at
the inception of the policy, not at the time of death.
means 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. stated differently, the insurance company is entitled to recover from a negligent third party any loss payments made to the insured
subrogation
subrogation has three purposes; first, it prevents the insured from
collecting twice for the same loss.
the second purpose of subrogation is used to
hold the negligent person responsible for the loss.
the third purpose of subrogation helps to
hold down insurance rates.
insurance is based on the principle of
utmost good faith
a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on both parties to other contracts.
principle of utmost good faith
