Insurance Processes - Quiz 2

Utmost good faith refers to the principle that both the insurer and the insured have a duty to disclose all relevant information honestly and completely before entering into an insurance contract. This means that both parties must provide accurate information about any material facts that could influence the decision to insure or the terms of the policy. By doing so, it ensures that both parties have a clear understanding of the risks involved and allows for fair and equitable coverage. Failing to disclose such information may result in the contract being voided or claims being denied.

Indemnity refers to the principle in insurance where the insurer compensates the insured for their losses, aiming to bring them back to the same financial position they were in prior to the loss. This means that the insured will be reimbursed for the actual value of their loss, rather than making a profit from the insurance claim. The concept of indemnity ensures that the policyholder is not financially disadvantaged due to an insured event and helps restore them to their pre-loss condition.

If the cell phone is completely destroyed, the insurer will pay the current value of the phone, which is $100. However, since the insured would be able to get $50 for an old cell phone, the insurer will deduct this amount from the payment. Therefore, the insurer will pay $50 in case the cell phone is completely destroyed.

The correct answer includes three types of non-life insurance: fire insurance, personal accident insurance, and theft insurance. Fire insurance provides coverage for damages caused by fire to property or belongings. Personal accident insurance offers financial protection in case of accidental injuries or death. Theft insurance covers losses or damages resulting from theft or burglary. Annuities, on the other hand, are a type of financial product that provides regular income payments and are not classified as non-life insurance.

Insurable interest is a fundamental principle in insurance that states that you can only insure something if you have ownership or a financial interest in it. This means that you must have a stake in the property or asset being insured in order to have a valid reason to protect it through insurance. Therefore, the statement that you can only insure something that you own or have a financial interest in is true.

The statement is false because once an insurance claim is fully paid to the insured, the insurance company does not have any rights to take possession of the remains of the cell phone. Once the claim is settled, the ownership of the cell phone and its remains remains with the insured.

Subrogation refers to the transfer of ownership rights after compensation for a claim has been made. In this process, the insurer assumes the rights of the insured and can pursue legal action against a third party responsible for the loss. It allows the insurer to recover the amount paid to the insured, thus ensuring that the insured is fully indemnified. Subrogation helps prevent the insured from receiving double compensation and enables the insurer to mitigate its losses.

Insurers have the right to salvage or recover some value from a damaged item after paying a claim. In the case of a cell phone, if the insurer pays a claim, they may take possession of the damaged phone and sell it to recover some of the money they paid out. Therefore, the statement is false.

If an insurer finds out that the insured made some material misrepresentation, they can deny a claim because the insured provided false information that affected the policy. Additionally, the insurer can adjust the premium because the misrepresentation may have led to an incorrect calculation of the premium. Lastly, the insurer can adjust the benefit amount to reflect the true information provided by the insured.

The explanation for the given correct answer is that proximate cause refers to the immediate or direct cause of a loss or damage. In insurance, it is important for the peril or event that caused the loss to be covered by the policy. This means that the policy should provide coverage for the specific cause of the loss and not exclude it. Therefore, the statement that proximate cause is the peril that should be covered by the policy and that had a direct effect on the loss is true.

The proximate cause in this scenario is the accident. The insured falling from a horse is the initial event that directly led to the subsequent chain of events - getting wet, catching pneumonia, and eventually dying. While illness (pneumonia) is a factor in the insured's death, it is a result of the accident. Therefore, the accident is the primary cause, making "Accident" the correct answer.

Underinsurance is when property is insured for less than its full value.

Coinsurance is a term used in insurance to describe a situation where a property is insured with more than one insurer. This means that the risk and responsibility of insuring the property is divided among multiple insurance companies. This can be beneficial for the insured as it allows for a broader coverage and potentially lower premiums. It also helps to spread the risk among multiple insurers, reducing the financial burden on a single insurer.

An ideal insurable risk should have a calculable chance of loss, meaning that the probability of the risk occurring can be determined. Additionally, the risk should be homogeneous, meaning that it is similar in nature and characteristics to other risks in the same category. Catastrophic loss refers to a large-scale event that causes significant damage or loss, and is not necessarily a characteristic of an ideal insurable risk. Non-measurable loss, on the other hand, implies that the loss cannot be quantified or measured, which is not desirable for an insurable risk.

The correct answer is Life insurance and Non-life insurance. Life insurance refers to insurance policies that provide financial protection to the insured's beneficiaries in the event of the insured's death. It aims to provide financial support to the insured's family or dependents after their passing. Non-life insurance, on the other hand, includes various types of insurance policies that cover risks other than death, such as property insurance, health insurance, automobile insurance, etc. These policies protect against financial losses resulting from accidents, theft, damage to property, or medical expenses.

The statement that "in life insurance risk is uncertain, and in non-life risk is certain" is incorrect. In both life and non-life insurance, risk is present, but the nature of the risks differs. In life insurance, the risk is uncertain as it involves the possibility of death or disability, which cannot be predicted with certainty. On the other hand, in non-life insurance (also known as property and casualty insurance), the risk is more certain as it involves insuring against specific events such as accidents, natural disasters, or property damage, which can be quantified and assessed more accurately. Therefore, the correct answer is false.

Annuities and life insurance are both types of life insurance policies. Annuities provide a steady stream of income during retirement, while life insurance provides a lump sum payment to beneficiaries upon the insured person's death. Therefore, the answer is correct as it includes both annuities and life insurance as types of life insurance policies.