IIC Principles and Practice of Insurance C11 Question # 4 Topic 1 Discussion
C11 Exam Topic 1 Question 4 Discussion:
Question #: 4
Topic #: 1
[Insurance as a Contract – Indemnity]
Kamal’s home has an actual cash value (ACV) of $380,000 and is insured for $400,000. The house suffers $180,000 damage. Which amount indemnifies Kamal?
Indemnity means restoring the insured to the financial position they occupied immediately before the loss—no better, no worse. Since the loss amount is$180,000, this is the amount required to fully indemnify the insured.
Although the policy limit is$400,000, the insurer does not pay policy limits unless the loss equals or exceeds the limit. The ACV of $380,000 is irrelevant here because the loss ispartial, not total. ACV only caps reimbursement in cases of total loss or when replacement cost is not available.
Option B ($200,000) has no basis in any indemnity or co-insurance formula.
Options C and D refer to total loss payouts, not applicable here.
Thus, the amount that indemnifies Kamal isA: $180,000.
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