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Exam 9: Fundamental Legal Principles

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Question 21

Multiple Choice

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ABC Life Insurance Company insures both smokers and nonsmokers.Beth lied on her life insurance application,checking the box for "no" in response to the question of whether she smokes cigarettes or uses other tobacco products.Even though Beth smokes 10 to 15 cigarettes each day,the policy was issued at the "preferred nonsmoker rate." Beth's lie is material in this case because

A) it was in writing on the application.
B) it was given with the intent to deceive.
C) the policy would have been issued on different terms if the insurer knew the true facts.
D) the policy would have been issued for a lower face value if the insurer knew the true facts.

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Question 22

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The voluntary relinquishment of a legal right is called

A) subrogation.
B) adhesion.
C) estoppel.
D) waiver.

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Question 23

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The authority of an agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement is called

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 Ben applied for life insurance,he was asked on the application if he smoked or used tobacco products.Ben answered "No." In reality,Ben smokes two packs of cigarettes a day.The policy was issued at the "preferred,nonsmoker rate." If Ben dies 6 months after the policy is issued,upon what grounds will the insurer be able to legally deny the claim?

The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle.This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would provide,and exclusions must be conspicuous,plain,and clear.This principle is known as

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

Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law.These laws are called

Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis.Two years later the living room set was destroyed by a covered peril.At the time of loss,the property had depreciated in value by 25 percent.The replacement cost of the furniture at the time of loss was $1,200.Assuming no deductible,how much will Janice receive from her insurer?

Which of the following statements about subrogation is true?

Powers specifically conferred on an agent to act on behalf of a principal are

David owns a liquor store in a high-crime area.In order to obtain a reduced insurance premium,David promised to have a burglar alarm operating at the store when the store was closed.This agreement,which was incorporated into the insurance contract,is an example of a

Robin plans to open a bar in a high-crime area.She had difficulty obtaining insurance for the business.She found an insurer willing to write the coverage,but only if Robin agreed to have a security alarm system in operation at all times when the business is closed.Robin's promise to have a security alarm system operational as a condition of having the insurance coverage in force is a

Some courts have ruled that an alternative to "replacement cost less depreciation" should be used to determine the actual cash value of a property loss.Under this alternative,the value of property lost is determined by the price a willing buyer would pay a willing seller for the property in a free market.This method of determining actual cash value is called the

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.

If a third party is led to reasonably believe that an agent is acting within the scope of his/her authority,even though the agent is exceeding his/her authority,the principal may still be bound by the agent's actions.In this case,the agent has bound the principal by

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

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.

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

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