Fundamental Legal Principles

This question bank verified by Studydeets
All Questions
Filter by:
Question 1
Free
Multiple Choice

Fundamental purposes of the principle of indemnity include which of the following?
I)To reduce physical hazards
II)To prevent the insured from profiting from insurance

Choose correct answer/s
A

I only

B

II only

C

both I and II

D

neither I nor II

Check answer
Question 2
Free
Multiple Choice

Which of the following is a fundamental purpose of the principle of indemnity?

Choose correct answer/s
A

to reduce moral hazard

B

to minimize physical hazards

C

to settle property insurance losses on a replacement cost basis

D

to require deductibles in all property insurance policies

Check answer
Question 3
Free
Multiple Choice

Sam's furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Sam's loss?

Choose correct answer/s
A

$600

B

$900

C

$1200

D

$1800

Check answer
Question 4
Free
Multiple Choice

The loss settlement under which of the following supports the principle of indemnity?

Choose correct answer/s
A

life insurance

B

valued policies

C

replacement cost property insurance

D

actual cash value property insurance

Check answer
Question 5
Free
Multiple Choice

Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?

Choose correct answer/s
A

the circumstantial evidence rule

B

the broad evidence rule

C

the property indemnity rule

D

the objective value rule

Check answer
Question 6
Multiple Choice

A total loss under a valued policy is settled on the basis of the

Choose correct answer/s
A
market value of the loss.
B
actual cash value of the loss.
C
replacement value of the loss.
D
amount of insurance covering the loss.
To unlock the question
Question 7
Multiple Choice

Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?

Choose correct answer/s
A
Losses are settled without the applicable deductible.
B
Losses are settled without a deduction for depreciation.
C
The insurer must replace the damaged or destroyed property in lieu of a cash settlement.
D
The policy is converted to a valued policy.
To unlock the question
Question 8
Multiple Choice

Which of the following statements about the principle of insurable interest is (are) true?
I)It makes it difficult to measure the amount of an insured's loss.
II)It reduces moral hazard.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 9
Multiple Choice

All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT

Choose correct answer/s
A
former ownership of property.
B
potential legal liability.
C
secured creditors.
D
contractual right.
To unlock the question
Question 10
Multiple Choice

Which of the following statements about an insurable interest in life insurance is (are) true?
I)It is required of any person named as beneficiary.
II)It may result from a pecuniary (financial) interest.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 11
Multiple Choice

When must an insurable interest legally exist in life insurance?

Choose correct answer/s
A
only at the time of the insured's death
B
only at the inception of the policy
C
only at the time the beneficiary is paid
D
both at the time of the insured's death and at the inception of the policy
To unlock the question
Question 12
Multiple Choice

When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?

Choose correct answer/s
A
only at the time of the loss
B
only at the inception of the policy
C
only at the time the loss settlement takes place
D
both at the time of the loss and at the inception of the policy
To unlock the question
Question 13
Multiple Choice

Sue's office building was damaged by a fire caused by a careless tenant. After paying Sue for the loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle of

Choose correct answer/s
A
warranty.
B
insurable interest.
C
utmost good faith.
D
subrogation.
To unlock the question
Question 14
Multiple Choice

Which of the following statements about subrogation is true?

Choose correct answer/s
A
Subrogation eliminates adverse selection.
B
Subrogation helps to hold down the cost of insurance.
C
Subrogation results in violation of the principle of indemnity.
D
Subrogation permits a party who caused a loss to avoid responsibility for the loss.
To unlock the question
Question 15
Multiple Choice

Which of the following statements about subrogation is true?

Choose correct answer/s
A
It is used primarily for losses paid under life insurance policies.
B
It allows the insurer to sue its own insured who is negligent.
C
The insured's right to collect benefits may be forfeited if the insured interferes with the insurer's subrogation rights after a loss occurs.
D
The insurer is required to exercise its subrogation rights.
To unlock the question
Question 16
Multiple Choice

The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT

Choose correct answer/s
A
representations.
B
warranty.
C
subrogation.
D
concealment.
To unlock the question
Question 17
Multiple Choice

What is the legal significance of a material concealment by an insurance applicant?

Choose correct answer/s
A
The contract is automatically voided from its inception.
B
The contract is voidable at the insurer's option.
C
Loss payments are reduced by the degree of the concealment.
D
The insurer is immediately entitled to a higher premium.
To unlock the question
Question 18
Multiple Choice

What is the legal significance of a material misrepresentation in an insurance application?

Choose correct answer/s
A
The contract is automatically voided from its inception.
B
The contract is voidable at the insurer's option.
C
Loss payments are reduced by the degree of the misrepresentation.
D
The insurer is immediately entitled to a higher premium.
To unlock the question
Question 19
Multiple Choice

A false material statement made by an applicant for insurance is an example of

Choose correct answer/s
A
concealment.
B
breach of warranty.
C
lack of offer and acceptance.
D
misrepresentation.
To unlock the question
Question 20
Multiple Choice

Which of the following statements about a warranty in an insurance contract is (are) true?
I)It is part of the insurance contract.
II)Statements made by an insurance applicant are considered warranties rather than representations.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question