Insurance Principles and Concepts

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Questions and Answers

What is a stockholder's interest in a corporation's property based on?

The company's dividends

The total assets of the corporation

His existing stock ownership (correct)

The corporation's net income

How is insurable interest in property different from insurable interest in life?

Property interest must exist when the loss occurs.

Life interest is limited to the actual value of the interest.

Property interest must exist at the time the policy takes effect.

Life interest can exist without a legal basis. (correct)

What insurable interest does a mortgagor have on mortgaged property?

Only to the extent of the mortgage debt.

None, as they are not the owner of the property.

To the extent of the property's value. (correct)

Only until the mortgage debt is paid in full.

Which statement regarding the mortgagee's insurable interest is true?

It remains until the mortgage debt is completely paid off. Signup and view all the answers

What happens under a loss payable mortgage clause when the mortgagee is designated as the beneficiary?

The mortgagee has full insurance rights upon policy assignment. Signup and view all the answers

In terms of beneficiaries, which statement is true for life insurance policies?

Beneficiaries can be anyone if the insured takes the policy on their own life. Signup and view all the answers

Under what condition does a third party must have insurable interest when taking out life insurance?

When the insured's life is linked to financial risk for the third party. Signup and view all the answers

What is required for a valid insurance assignment regarding property?

The insurer must consent to the assignment. Signup and view all the answers

Which of the following does NOT suspend the insurance despite a change of interest?

Change of interest of a single insured item. Signup and view all the answers

In a consensual contract of insurance, what primarily leads to its perfection?

The mutual agreement between the insured and the insurer. Signup and view all the answers

If a policy includes a prohibition against alienation, what is the consequence of alienation?

The contract of insurance becomes void. Signup and view all the answers

Which situation allows a change of interest in insured property without suspending insurance?

Death of the insured leading to inheritance. Signup and view all the answers

What happens if an insurance application is submitted but not approved?

The contract remains unperfected. Signup and view all the answers

What characterizes premiums in a contract of insurance?

They are amounts paid for risk assumption by the insurer. Signup and view all the answers

What can lead to the suspension of insurance when a change in interest occurs?

An assignment of benefits without insurer's consent. Signup and view all the answers

Study Notes

Insurable Interest

Property: Limited to the actual value of the interest. Insurable interest must exist when the insurance takes effect and when the loss occurs, but need not exist in between.
Life: Unlimited (except in creditor-issued life insurance). Insurable interest exists at the time the policy takes effect and need not exist at the time of loss. No requirement for a legal basis for expectation of benefit.
Mortgagor: Holds insurable interest to the full value of the property, even if the mortgage equals that value.
Mortgagee: Holds insurable interest up to the amount of the secured debt; this interest continues until the debt is paid.
Loss Payable Clause: Mortgagor secures insurance and names mortgagee as beneficiary. Insurance covers the mortgagor's interest, and prior acts by mortgagor impacting the insurance can still affect the mortgagee. The mortgagee can perform acts required of the mortgagor.

Beneficiary and Assignee

Property: Must have insurable interest.
Life: If taken out by the insured, any beneficiary can be named, even without insurable interest. If taken out by a third party, the beneficiary must have insurable interest.
Assignee: Must have insurable interest. Assignment must have insurer consent.

Change of Interest in Insured Property

General Rule: A change in insured property ownership suspends insurance until both interests (property and insurance) vest in the same person.
Exceptions:
- Change after the loss occurs.
- Change in one or more of several distinct things insured separately.
- Change via will or succession after death.
- Transfer from one partner/joint owner to others, if jointly insured.
- Policies crafted to benefit owners after an insured's interest is transferred.
Prohibition on Alienation: If a policy specifically prohibits it, a transfer voids the contract.

Consent: Insurer consent usually needed for changes, since they consider the insured's qualifications. Necessary only for property transfers.
Perfection: A contract forms when the insured and insurer agree. An application alone does not constitute a binding contract without approval.

Premiums

Premiums are the consideration for the insurer's risk undertaking.
A binding insurance contract generally requires premium payment.

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Description

This quiz delves into the essential concepts of insurable interest, including the distinctions between property and life insurance. It also explores the roles of mortgagors and mortgagees, as well as the implications of loss payable clauses. Test your understanding of these crucial insurance principles.