Fundamental Legal Principles

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Questions Bank

Risk and Its Treatment
Insurance and Risk
Introduction to Risk Management
Enterprise Risk Management and Related Topics
Types of Insurers and Marketing Systems
Insurance Company Operations
Financial Operations of Insurers
Government Regulation of Insurance
Fundamental Legal Principles
Analysis of Insurance Contracts
Life Insurance
Life Insurance Contractual Provisions
Buying Life Insurance
Annuities and Individual Retirement Accounts
Health-Care Reform; Individual Health Insurance Coverages
Employee Benefits: Group Life and Health Insurance
Employee Benefits: Retirement Plans
Social Insurance
The Liability Risk
Auto Insurance
Auto Insurance (continued)
Homeowners Insurance, Section I
Homeowners Insurance, Section II
Other Property and Liability Insurance Coverages
Commercial Property Insurance
Commercial Liability Insurance
Crime Insurance and Surety Bonds

All Questions

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

I only

II only

both I and II

neither I nor II

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Question 2

Free

Multiple Choice

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

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to reduce moral hazard

to minimize physical hazards

to settle property insurance losses on a replacement cost basis

to require deductibles in all property insurance policies

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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?

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$600

$900

$1200

$1800

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Question 4

Free

Multiple Choice

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

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life insurance

valued policies

replacement cost property insurance

actual cash value property insurance

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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?

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the circumstantial evidence rule

the broad evidence rule

the property indemnity rule

the objective value rule

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Question 6

Multiple Choice

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

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market value of the loss.

actual cash value of the loss.

replacement value of the loss.

amount of insurance covering the loss.

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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?

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Losses are settled without the applicable deductible.

Losses are settled without a deduction for depreciation.

The insurer must replace the damaged or destroyed property in lieu of a cash settlement.

The policy is converted to a valued policy.

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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

I only

II only

both I and II

neither I nor II

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Question 9

Multiple Choice

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

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former ownership of property.

potential legal liability.

secured creditors.

contractual right.

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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.

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I only

II only

both I and II

neither I nor II

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Question 11

Multiple Choice

When must an insurable interest legally exist in life insurance?

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only at the time of the insured's death

only at the inception of the policy

only at the time the beneficiary is paid

both at the time of the insured's death and at the inception of the policy

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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?

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only at the time of the loss

only at the inception of the policy

only at the time the loss settlement takes place

both at the time of the loss and at the inception of the policy

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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

warranty.

insurable interest.

utmost good faith.

subrogation.

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Question 14

Multiple Choice

Which of the following statements about subrogation is true?

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Subrogation eliminates adverse selection.

Subrogation helps to hold down the cost of insurance.

Subrogation results in violation of the principle of indemnity.

Subrogation permits a party who caused a loss to avoid responsibility for the loss.

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Question 15

Multiple Choice

Which of the following statements about subrogation is true?

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It is used primarily for losses paid under life insurance policies.

It allows the insurer to sue its own insured who is negligent.

The insured's right to collect benefits may be forfeited if the insured interferes with the insurer's subrogation rights after a loss occurs.

The insurer is required to exercise its subrogation rights.

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Question 16

Multiple Choice

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

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representations.

warranty.

subrogation.

concealment.

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Question 17

Multiple Choice

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

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The contract is automatically voided from its inception.

The contract is voidable at the insurer's option.

Loss payments are reduced by the degree of the concealment.

The insurer is immediately entitled to a higher premium.

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Question 18

Multiple Choice

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

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The contract is automatically voided from its inception.

The contract is voidable at the insurer's option.

Loss payments are reduced by the degree of the misrepresentation.

The insurer is immediately entitled to a higher premium.

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Question 19

Multiple Choice

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

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concealment.

breach of warranty.

lack of offer and acceptance.

misrepresentation.

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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

I only

II only

both I and II

neither I nor II

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Fundamental Legal Principles

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

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

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?

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

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?

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

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

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.

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

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.

When must an insurable interest legally exist in life insurance?

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

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

Which of the following statements about subrogation is true?

Which of the following statements about subrogation is true?

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

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

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

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

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.

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

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.

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.

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.