Property Insurance Tests Part 2
Terms in this set (95)
named peril or specified peril
Policies that list the specific perils or causes of loss insured against under the contract, such as lightning, fire, and windstorm. Named peril contracts insure property only against the perils specifically listed in the policy.
policy insures against all risks of physical loss except those specifically excluded in the policy. This type of contract is sometimes called all-risk or special coverage.
actual cash value (ACV)
Actual cash value is usually calculated by determining the item's replacement cost (what it would cost to buy a replacement) and subtracting an amount for depreciation
functional replacement cost basis
in which damaged property is repaired or replaced with less expensive, but functionally equivalent, materials. This method is used most frequently for losses to antique, ornate, or custom construction.
pair or set condition
a loss settlement condition that appears in many property contracts. It states that if part of a pair or set is lost or damaged, the loss will be valued as a fair proportion of the total value of the set, giving consideration to the importance of the damaged article to the set.
Suppose Mat throws a brick through the glass window at Deermont's. Mat refuses to pay the damages. Deermont's insurance company pays for the repairs and then goes to court to collect from Mat. This is an example of subrogation.
pro rata method
Probably the most common method for handling other insurance is to agree to pay only a proportion of any loss that is also covered by other insurance. For instance, if the insured carried 30% of the total insurance coverage on her house with Company X, Company X would not pay more than 30% of a loss.
provides that if the insurer broadens coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will be construed to contain the broadened coverage.
a person or organization that has temporary possession of someone else's personal property. Examples of bailees include dry cleaners and storage facilities.
these are contracts for which a flat premium is charged every time the policy is renewed. Auto and homeowners policies are examples of non-reporting forms.
an instance where an insurer takes title to damaged property after payment of a loss in order to reduce claim expenses
Coverage C—personal property
covers the insured's personal property that is at the described location and is usual to the dwelling occupancy. Personal property belonging to the insured's guests or servants may be covered at the insured's request.
Coverage D—fair rental value
is available if a covered property loss to the dwelling or other structure makes the building uninhabitable and the insured cannot collect the rent he would have been able to receive if the loss had not occurred.
Automatically covers fire, lightning, and internal fire.
Loss settlement condition
states that covered property losses are valued at actual cash value but are not to exceed the amount necessary to repair or replace.
Collects and analyzes data to determine the rates to be charged for insurance.
An example: J&M Industries does not have a group health insurance plan for its employees. Instead, it pays employees' medical expenses out of a fund specifically created for this purpose.
CLOAC (elements of a legal contract)
Offer and Acceptance
an unequal exchange between the parties in the contract.
Condition means "ground rules"
a form of merit rating that modifies the manual premium on the basis of the insured's loss experience over some period, generally the three years proceeding the current policy year.
this bases the insured's premium on losses incurred during the policy period.
An agreement between the insured and the insurer that certain conditions will be met. These are guaranteed to be true.
Best known as a voluntary surrender of a known right.
Also show the policy limit, the limit of liability, and limit of insurance.
Special compensatory damages
Include all direct and specific expenses involved in a particular loss, such as medical expenses, lost wages, funeral expenses, and the cost to repair or replace damaged property.
General compensatory damages
Compensate for such things as pain and suffering and disfigurement. These also include mental anguish and loss of companionship.
Total amount of coverage that you have during one policy period.
per occurrence limit
tells you how much your maximum amount of coverage is per accident/loss.
Failure to use the care that is required to protect others from the unreasonable chance of harm.
Liability that is imposed as a matter of law without regard to negligence.
Liability that an insured incurs because of the actions of others, such as employees.
Homeowners policy vs. Dwelling
- Owner occupancy is not required for dwelling
- The dwelling policy does not automatically include theft or liability coverage. Must add those by endorsement.
- Three dwelling policy forms: DP-1 which is basic form and a named peril. DP-2 which is broad form and named peril. DP-3 which is special form and open peril.
Covers only fire, lightning, and internal explosion. But with an additional premium, you can be covered for additional coverage's.
All DP-1 perils are covered, and then some additional perils like weight of snow damage, falling objects, and freezing will be covered.
Covers all direct physical damages except the ones that are excluded.
Eligibility for DP coverage
- Residential structures with 1-4 units
- Property does not need to be owner occupied.
- Farms are not eligible.
This exists because of the likelihood of partial losses over total losses. When a building is insured to value, the company will fully pay for the loss incurred. Standard coinsurance requirement is 80%.
(Insurance carried / Insurance Required) * Loss - Deductible = Claim payment
or broad form, provides broad coverage for the dwelling and personal property. The covered perils are similar to those covered by the DP-1 with the extended coverage perils and V&MM coverage. Breakage of glass and theft are also covered. In addition, it broadens certain perils and adds others.
or special form, provides open peril coverage for loss to the dwelling and other structures. It provides broad coverage for personal property, which is identical to the HO-2's coverage of personal property.
or contents broad form, insures tenants—people who do not own the building where they reside. It provides broad coverage for personal property only that is similar to the HO-2's and HO-3's broad coverage of personal property, and no coverage for the dwelling.
(Remember, there is no Coverage A or Coverage B in the HO-4.)
or comprehensive form, provides open peril coverage for both the dwelling and other structures and personal property.
or unit-owners form, provides broad coverage on the personal property of condominium owners, similar to that provided under the HO-2, HO-3, and HO-4. It provides very limited dwelling coverage.
The accidental discharge or overflow of water or steam peril includes coverage for the costs to tear out and replace any part of the building necessary to repair the system or appliance from which the water or steam escaped.
or modified coverage form, is designed for older homes with replacement values that may far exceed their market values. It provides basic coverage on the dwelling and personal property similar to the DP-1 with the extended coverage perils and V&MM coverage, but it also includes certain restrictions on valuation of losses. In many areas, the HO-8 is no longer available.
Coverage A - Property
Dwelling: covers the dwelling and structures attached to the dwelling as well as materials and supplies for repair and construction of those structures if they are located on or next to the residence premises (the dwelling listed in the declarations).
Coverage B - Property
Other Structures: covers buildings on the described premises that are separated from the dwelling by clear space.
Coverage C - Property
Personal Property: provides coverage for personal property owned or used by an insured while it is anywhere in the world. At the insured's request, coverage will also apply to property owned by others while in the part of the residence premises occupied by the insured or to the property of a guest or residence employee while in any residence occupied by the insured.
Property normally kept at a residence other than the residence premises is covered for 10% of the Coverage C limit or $1,000, whichever is greater.
Coverage D - Property
Loss of use: provides two types of coverage. First, if a covered property loss makes the residence premises uninhabitable, the policy will cover additional living expenses related to maintaining the insured's normal standard of living.
Second, if a covered loss to the insured's property makes a part of the residence premises uninhabitable that is rented to others or held for rental by the insured, the policy will cover the loss of fair rental value, less any expenses that are not required while the premises is uninhabitable.
Coverage E - Personal Liability
covers damages that the insured becomes legally obligated to pay because of bodily injury or property damage caused by an occurrence to which coverage applies. As used in the homeowners policy:
• bodily injury means bodily harm, sickness, or disease, including required care, loss of services, and death; and
• property damage means physical injury to or destruction of tangible property, including loss of use.
Coverage F—medical payments to others
Sometimes called "Guest Medical". pays all necessary medical expenses incurred within three years of an accident that causes bodily injury.
Coverage F covers injuries to others that occur on the insured's premises or result from the insured's activities, whether the insured is liable or not.
Additional Homeowners coverage's
Debris Removal: Pays expenses to remove debris from covered property if a covered peril caused the loss and ash or other particles from a volcanic eruption caused direct loss to covered property.
Reasonable Repairs: Pays the reasonable costs incurred by the insured for repairs necessary to protect covered property from further loss after being damaged by a covered peril.
Trees, Shrubs, and Other Plants: Covers trees, shrubs, and plants on the residence premises for loss by fire, lightning, explosion, riot, aircraft, vehicles not owned or operated by a resident, theft, and vandalism or malicious mischief.
Fire Department Service Charge: Pays up to $500 when the fire department is called to save or protect covered property from a covered peril.
Checks, Forgery, or Counterfeit Money.
Insures the dwelling, other structures, and personal property against loss by the package of special perils. In effect, form HO-5 provides coverage for personal property on the same basis as Coverage's A and B on form HO-3, with only minor variations.
proportional replacement cost
(Insurance Carried / Insurance Covered) * Amount of Loss
National Flood Insurance Program (NFIP)
In 1968, Congress created this to make flood insurance available to eligible communities through federal subsidization. The program is managed by the Federal Insurance Administration (FIA), which is a branch of the Federal Emergency Management Agency (FEMA).
Emergency Flood Insurance
Under the emergency program, insured's may purchase limited amounts of flood insurance for buildings and contents at subsidized rates. After the regular program goes into effect, additional coverage may be purchased.
Loss of use is not covered.
Regular Flood Insurance
Lot more coverage is available to you then what is available under the emergency plan.
Loss of use is not covered.
Coverage for flood insurance
Single-family dwellings (other than mobile homes) are the only buildings that may be insured on a replacement cost basis under a flood policy. Replacement cost coverage is automatically provided when the building is insured for at least 80% of its replacement value or for the maximum amount of insurance allowed by the flood program. All other losses are paid on an actual cash value basis.
The personal property form
Provides open peril coverage on a blanket basis for most kinds of personal property found in a typical home. It is similar to the coverage provided for personal property under Coverage C in a homeowners policy endorsed to provide open peril coverage for personal property.
The personal effects form
Designed for individuals and families who want to insure their personal belongings while traveling. Open peril coverage on an unscheduled basis is provided for the types of property usually carried by tourists, such as clothing, cameras, sports equipment, and souvenirs.
Boatowners/watercraft package policies,
developed by individual insurance companies, combine property, liability, and medical payments insurance on an open peril basis. They are used to insure boats under a specified length—such as 30 feet—or under a maximum dollar value, such as $25,000. Losses are usually paid on an actual cash value basis.
Outboard motor and boat insurance
This insurance is commonly provided under open peril inland marine floaters. Outboard policies typically cover motors, motor boats, accessories, and trailers. Losses are usually paid on an actual cash value basis.
commercial package policy (CPP)
The CPP can be used to provide almost any commercial insurance the insured might need. Almost all commercial risks are eligible for coverage under the CPP. The CPP can include almost any commercial coverage the insured might need, with the exception of ocean marine, workers' compensation, and aviation insurance.
commercial package policy
• common policy declarations;
• common policy conditions; and
• two or more coverage parts.
endorsements that may be used with more than one line of insurance. Some interline endorsements are mandatory, while others are optional.
common policy declarations
• the name and mailing address of the named insured;
• the policy period, including the time and date coverage begins and ends;
• a description of the covered business;
• the coverage parts purchased and their premiums; and
• a list of forms applicable to all coverage parts.
Common policy conditions
certain responsibilities and obligations are assigned to the first named insured.
sets forth the circumstances under which the policy may be canceled. The first named insured must cancel the policy in writing, and any premium refund due will be sent to the first named insured. This refund may be less than a pro rata refund to make up for the expense of issuing the contract.
If the insurance company cancels, it must mail a written notice to the last known address of the first named insured. 10 days' notice is required for cancellation for nonpayment of premium; 30 days' notice is required for cancellation for any other reason permitted by the policy.
business owners policy (BOP)
a commercial package policy that provides property and liability insurance to certain types of small businesses. While the CPP allows the insured to choose the coverage's to be included in the CPP, the business owners policy prepackages a group of coverage's desirable to small businesses.
Business liability coverage
covers the insured's legal liability that arises from bodily injury, property damage, and personal and advertising injury. Personal and advertising injury is injury, including consequential bodily injury
a party who is not an insured who is under contract to provide goods or services to an insured
utility services—direct damage coverage endorsement
covers loss or damage to property caused by an interruption in water, communication, or power supply service. For coverage to apply, the property must be scheduled for coverage on the endorsement and the service interruption must be caused by a covered cause of loss.
utility services—time element coverage endorsement
pays for loss of business income or extra expense if damage to certain utility services property located outside the covered building by a covered cause of loss results in an interruption of service to the described premises.
automatic sprinkler system: any automatic fire protective system, including related supervisory services and connected sprinklers, pipes, pumps, and similar devices
automatic fire alarm system: an automatic fire alarm system that protects the entire building and is connected to a central station or reports to a public or private fire alarm station
security service: a security service with a guard that makes hourly rounds of the premises while the business is closed
service contract: a privately owned fire department that provides fire protection service to the premises
any other protective system described in the endorsement
hired auto and non-owned auto liability endorsement
covers the insured's liability for one or both of the following:
• Bodily injury or property damage that arises out of the maintenance or use of a hired auto by the insured or the insured's employees in the course of the insured's business
• Bodily injury or property damage that arises out of the use of any non owned auto in the insured's business by any person
insurance on real property such as office buildings, factories, and warehouses, and insurance on business personal property such as furniture, fixtures, machinery, and inventory.
causes of loss forms
list the perils that the property is insured against. There are three separate causes of loss forms:
control of property condition
states that an act of neglect of a person beyond the insured's direction or control will not affect the insurance. In addition, if the insured violates a condition of the policy with regard to a specific location, the insurance applicable to other locations will not be affected.
legal action against us condition
gives the insured two years from the date that direct physical loss occurred to bring an action against the insurer. Such an action cannot be brought unless the insured has complied with all conditions of the policy.
policy period, coverage territory condition
states that a loss must occur during the policy period and in the coverage territory to be covered. The coverage territory is the United States, its territories and possessions, Puerto Rico, and Canada.
the building and personal property coverage form.
The most commonly purchased form, and the form that is the core of the commercial property coverage part.
It covers buildings, the insured's business personal property, and the personal property of others located at the business premises.
Debris Removal Example:
Suppose a tornado strikes the insured's business, resulting in $75,000 in damages to the building and $25,000 in debris removal expenses. The building is insured for $200,000 with a $5,000 deductible. The insured will receive $23,750 for the debris removal expenses (75,000 × 25% = 18,750; 18,750 + 5,000 = 23,750).
builders risk reporting form
The condominium association coverage form
insures a condominium association against direct physical loss or damage to:
• business personal property; and
• personal property of others in the care, custody, or control of the association
business income with extra expense coverage form
a coverage that reimburses the insured for expenses incurred to keep a business going after a loss caused by a covered peril.
Business income without extra expense coverage form
Replaces the extra expense coverage with an expenses to reduce loss coverage that covers expenses the insured incurs to reduce loss, up to the amount the loss is reduced.
The extended period of indemnity option
gives the insured extended business income coverage for the number of days stated in the declarations, rather than the 30 days allowed by the extended business income additional coverage.
The maximum period of indemnity optional coverage
limits reimbursement for extra expenses or loss of business income to no more than the amount of loss incurred during the first 120 days following the direct loss.
The monthly limit of indemnity optional coverage
allows the insured to establish the amount of reimbursement for loss of business income during each 30-day period. The insured selects a fraction that is multiplied by the limit of insurance to determine the maximum that could be paid for each 30 days.
The causes of loss—broad form
covers all of the perils listed in the basic form and:
• falling objects
• weight of snow, ice, or sleet; and
• water damage
The causes of loss—special form studied.
covers any direct physical loss not specifically excluded or limited in the form. In other words, it provides open perils coverage. Because of this, the list of exclusions is more extensive and detailed than in the other causes of loss forms you've
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