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Intermediate Accounting14th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield 1,471 solutions An insured has a special form dwelling policy written for $100,000 on a dwelling. The dwelling's replacement cost is $115,000. Fire causes $75,000 in damage to the dwelling, $15,000 damage to a separate garage, and kills 10 trees valued at $600 each. How much will the policy pay for the trees? Answer: A. $5,000 An insured has $5,000 of medical coverage on a personal auto policy at the time of a covered accident. The insured and two passengers are injured.
Medical treatment costs $7,000 for the insured, $4,000 for the first passenger, and $8,000 for the third passenger. How much will the policy pay under medical payments coverage? Students also viewed What are characteristics of an insurable risk? The loss exposure must be large, the loss must be due to chance, the loss must be measurable. A producer who fails to segregate premium monies from his own personal funds is guilty of... Events in which a person has both the chance of winning or losing are classified as... What must an insurer obtain in order to transact insurance within a given state? What is not true regarding insurable risks? Insureds cannot be randomly selected. An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issued the policy and learns of his history one year later. What will probably happen? The policy will not be affected. On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are... Not taxable since the IRS treats them as a return of a portion of the premium paid. The insurer may suspect that a moral hazard exists if the policyholder... Is not honest about his health on an application for insurance. What is a foreign insurer? An insurer with a home office in another state Hazard is best defined as... Something that increases the risk of loss What is considered to be a morale hazard? A situation in which a person can only lose or have no change represents... Pertaining to insurance, what is the definition of a fiduciary responsibility? Promptly forwarding premiums to the insurance company In insurance, an offer is usually made when... The completed application is submitted What is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which insurance principles has the insurer violated? Consideration, which is the binding force in any contract. The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as... Peril is most easily defined as... The cause of loss insured against The causes of loss insured against in an insurance policy are known as... An insured intentionally did not disclose a material fact on an application or insurance. This would be considered... If an insurance company is domicile in Montana and transacts insurance in Wyoming, which term best describes the insurer's classification in Wyoming? What is the major difference between a stock company and a mutual company? In what way can an agent demonstrate a high standard of ethics? Putting the client's best interests before their own What is the basis for a claim against an insurance policy? What is a foreign insurer? An insurer with a home office in another state The requirement that agents not commingle insurance monies with their own funds is known as... What is material misrepresentation? A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company A participating insurance policy may... Pay dividends to the policyowner What is an example of apparent authority of an agent appointed by an insurer? The agent accepts a premium payment after the end of the grace period. A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard? The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as... When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of... When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as... Transferring risk of loss from an individual or business entity to an insurance company The uncertainty or chance of a loss occurring Refers to situations that can only result in a loss or no change; the only type of risk insurance companies are willing to accept Involves the opportunity for loss or gain Conditions or situations that increase the probability of an insured loss occurring Characteristics that increase the chances of the cause of loss; things you can see Tendencies towards increased risk; Applicants who may lie on an application; Things that you do Arise from a state of mind that causes indifference to loss, such as carelessness; things you don't do The causes of loss insured against in an insurance policy Defined as the reduction, decrease, or disappearance of value of the person or property STARR: Sharing, Transfer, Avoidance, Retention, Reduction Eliminate exposure to loss Use of deductibles, copayments, or self-insurance Dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses Attempt to lessen the possibility or severity of a loss The loss borne by another party through harmless agreements and other contractual agreements Due to chance (outside the insured's control); Definite and measurable (cause, time, place, amount); Statistically predictable (able to estimate the average frequency and severity of future losses); Not catastrophic (loss will not exceed certain limits); Randomly selected/large loss exposure Nonparticipating policies; owned by stockholders; don't pay dividends Has no stock; owned and controlled by policyholders; surplus money returned as dividends which are nontaxable Incorporated in the same state Incorporated in another state or territorial possession Incorporated outside the United States Authority granted to an agent by means of the contract; written in the contract Not expressed or written into the contract, but agent is assumed to have this authority to transact business The appearance or the assumption of authority because of circumstances created by principal Something of value each party gives to the other. Insured - premium. Insurer - promise to pay in the event of loss. Reimbursement; restore but not let an insured or beneficiary profit from loss Implies that there will be no fraud, no misrepresentation or concealment between the parties Statements believed to be true to the best of one's knowledge Untrue statements that could void the contract Material misrepresentation Statement that could alter the underwriting decision of the insurance company; if it is intentional, it is considered fraud Grounds for voiding policy or returning premium Intentional withholding of information Intentional misrepresentation or intentional concealment of a material fact Which of the following would you find in the conditions section of an insurance policy?Policy Conditions — the section of an insurance policy that identifies general requirements of an insured and the insurer on matters such as loss reporting and settlement, property valuation, other insurance, subrogation rights, and cancellation and nonrenewal.
How would you describe the agreement between the insurer and the insured?The Insuring Agreement
This is a summary of the major promises of the insurance company and states what is covered. In the Insuring Agreement, the insurer agrees to do certain things such as paying losses for covered perils, providing certain services, or agreeing to defend the insured in a liability lawsuit.
What is insurance the transfer of?Transfer of Risk — a risk management technique whereby risk of loss is transferred to another party through a contract (e.g., a hold harmless clause) or to a professional risk bearer (i.e., an insurance company).
Which of the following people would receive a commission from the sale of a policy?Broker - an individual who receives commissions from the sale and service of insurance policies. These individuals work on behalf of the customer and are not restricted to selling policies for a specific company but commissions are paid by the company with which the sale was made.
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Which of the following must an insurer obtain in order to transact insurance within a given state?
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