Important Concepts (CH8)

Question 1

insurable interest

Answer 1

arises from a relationship with a person or a right with respect to property.

Question 2

insurable interest (Life)

Answer 2

must have an insurable interest at the time the policy is purchased, not necessarily at the point of death

Question 3

insurable interest (P&C)

Answer 3

must have an insurable interest at the time of loss

Question 4

why do policies have insurable interest requirement?

Answer 4

1. supports the principle of indemnity
2. prevents the use of insurance as a wagering mechanism
3. reduces moral hazard incentive

Question 5

factual expectancy

Answer 5

party needs to only demonstrate potential financial harm resulted from the event of the insured, rather than an insurable interest

Question 6

joint tenancy

Answer 6

each person owns the entire propety and have the right of survivorship. The tenants have an insurable interest in the property’s full value

Question 7

tenancy by the entirety

Answer 7

joint tenancy between husband and wife. Each owns the entire property and they both have an insurable interest of the property’s full value

Question 8

tenancy in common

Answer 8

concurrent ownership of property of two or more ppl. They do not have survivorship rights and their insurable interest is limited to their share of the property

Question 9

tenancy in partnership

Answer 9

concurrent ownership by a partnership and its individual partners. The partnership and all the partners have survivorship rights. Have an insurable interest in the property used by the partnership

Question 10

insurance to value

Answer 10

insurance written that approximates the full value of the covered property

Question 11

coinsurance clause

Answer 11

makes the insured responsible for retaining part of any loss if the property is underinsured below some specified percentage of the property’s value

Question 12

coinsurance formula

Answer 12

(Did/Should have) x loss

Question 13

actual cash value (ACV)

Answer 13

replacement cost - depreciation (economic)

depreciation = Replacement cost - current market value

Question 14

replacement cost

Answer 14

used for policies covering buildings and personal property. Violates the rule of indemnity as the insurance payment can be greater than the cost of the property

Question 15

Agreed value method

Answer 15

if a total loss occurs, the insurer will pay the agreed valiue specified in the policy. Both parties must agree upon the value. Used for unique items like watercraft, antiques, and paintings.

Question 16

liability payments

Answer 16

the lesser of:

1. the compensable amount of the claim
2. the applicable policy limit(s)

Question 17

SIR

Answer 17

insurer pays only losses that exceed the SIR amount. Does not defend those claims below the SIR amount.