Principles of Risk Management and Insurance, 11e (Rejda)Chapter 9 Fundamental Legal Principles1) 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.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition2) Which of the following is a fundamental purpose of the principle of indemnity?A) to reduce moral hazardB) to minimize physical hazardsC) to settle property insurance losses on a replacement cost basisD) to require deductibles in all property insurance policiesAnswer: AQuestion Status: Previous Edition3) Sams 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 Sams loss?A) $600B) $900C) $1200D) $1800Answer: BQuestion Status: Revised4) All of the following are exceptions to the principle of indemnity EXCEPTA) life insurance.B) valued policies.C) replacement cost property insurance.D) actual cash value property insurance.Answer: DQuestion Status: Previous Edition5) 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) the circumstantial evidence ruleB) the broad evidence ruleC) the property indemnity ruleD) the objective value ruleAnswer: BQuestion Status: Previous Edition6) A total loss under a valued policy is settled on the basis of theA) 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.Answer: DQuestion Status: Previous Edition7) Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?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.Answer: BQuestion Status: Previous Edition8) 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 insureds loss.II.It reduces moral hazard.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition9) All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPTA) close family relationship. B) potential legal liability.C) secured creditors.D) a contract right.Answer: AQuestion Status: Previous Edition10) 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. A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Revised11) When must an insurable interest legally exist in life insurance?A) only at the time of the insureds deathB) only at the inception of the policyC) only at the time the beneficiary is paidD) both at the time of the insureds death and at the inception of the policyAnswer: BQuestion Status: Previous Edition12) When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?A) only at the time of the lossB) only at the inception of the policyC) only at the time the loss settlement process takes placeD) both at the time of the loss and at the inception of the policyAnswer: AQuestion Status: Revised13) Sues office building was damaged by a fire caused by a careless tenant. After paying Sue for her loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle ofA) warranty.B) insurable interest.C) utmost good faith.D) subrogation.Answer: DQuestion Status: Previous Edition14) All of the following are basic purposes of subrogation EXCEPTA) to eliminate adverse selection.B) to hold down the cost of insurance.C) to prevent an insured from collecting twice for the same loss.D) to hold the negligent person responsible for a loss.Answer: AQuestion Status: Previous Edition15) Which of the following statements about subrogation is true?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 insureds right to collect benefits may be forfeited if the insured interferes with the insurers rights after a loss occurs.D) The insurer is required to exercise its