105-7 Property, Casualty, and Liability Insurance

Question 1

3 types of coverage in a standard homeowners insurance policy

Answer 1

1. Basic coverage
   - covers financial loss due to fire, lightning, windstorm, hail, riots or civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief, explosion, theft, volcanic eruption
2. Broad coverage
   - covers basic coverage perils plus falling objects, ice/snow/sleet, accidental discharge or overflow of water or steam
   - sudden and accidental tearing of appliances
   - freezing of appliances
   - sudden electrical damage
3. Open perils coverage
   - all perils covered except those that are excluded

Question 2

Perils excluded from most homeowners policies

Answer 2

• earthquake
• flood
• neglect
• war or nuclear hazard
• power failure
• intentional loss

Question 3

Standard homeowners policy 2 sections

Answer 3

Section 1: protects property and belongings

Section 2: provides liability and medical payments coverage to the homeowner for acts occurring in and off of the insured’s property

Question 4

Homeowners Section 1 Coverages

Answer 4

Coverage A: Dwelling

Coverage B: Other Structures

Coverage C: Personal Property
-cash is considered personal property

Coverage D: loss of use
-provides reimbursement to an insured homeowner for additional living expenses incurred living elsewhere while the home is being repaired

Coverage E: personal liability
-protects the insured homeowner and all resident family members against personal liability for bodily injury and property damage that may occur on or off of the premises due to negligence

Coverage F: Medical Payments to Others

Question 5

Fair market value (FMV)

Answer 5

The price at which an exchange will take place between a willing buyer and a willing seller

Question 6

Replacement cost value

Answer 6

The current cost of replacing property with new materials of like kind and quality

Clients should be recommended they insure their home to match the replacement cost

Question 7

Actual cash value

Answer 7

The depreciated value of personal property per an internal insurance company table and is not the value of the property after depreciation for income tax purposes

Question 8

Agreed-value basis

Answer 8

How coverage is written on scheduled items

Question 9

Basic homeowners (HO) Insurance forms available in the marketplace today

Answer 9

HO-2: broad form (named perils)

HO-3: special form (open perils)

HO-4: contents broad form (for tenants or renters)

HO-5: comprehensive form (open perils)

HO-6: unit owners form (for condominium owners)

HO-8: modified form (for older or historic home)

Question 10

HO-2: Broad Form

Answer 10

Provides broad coverage for the dwelling and personal property

Question 11

HO-3: Special Form

Answer 11

Most popular and widely purchased of the basic homeowners policies

Real property is covered on an open-perils basis

Personal property is covered on a named-perils basis

Question 12

HO-4: Tenants or Renters

Answer 12

Designed for tenants who do not own their dwelling

Question 13

HO-5: comprehensive form

Answer 13

Similar to the HO-3 except that Coverage C (personal property) for an HO-5 policy is written on an open perils basis

Question 14

HO-6 Condominium Owners

Answer 14

Provides coverage for the condo owner’s personal belongings and any owned structural part of the building

This type of policy also provides liability protection

Question 15

HO-8: Modified Form for Special Risks

Answer 15

Provides coverage for those who live in an older home whose replacement cost exceeds its market value
The HO-8 policy uses a functional replacement cost provision for loss

Question 16

Flood insurance

Answer 16

Provides coverage for physical loss from a flood

The predominant provider is the federal government through the National Flood Insurance Program (NFIP)

Question 17

Earthquake Insurance

Answer 17

Provides coverage for physical loss due to an earthquake

These policies generally have high deductibles which may be as high as 10% or the face amount to avoid numerous small claims after an earthquake

Question 18

Inland marine coverage

Answer 18

Insurance on specific items of personal property that are not covered under the homeowners policy is provided under inland marine coverage

Items typically covered: furs, jewelry, silverware

Coverage is on an open perils basis

Question 19

Insurance on watercraft

Answer 19

An individual boat owner’s policy covers liability, physical damages medical payments, and bodily injuries caused by uninsured boaters

Question 20

Personal automobile policy

Answer 20

Provides protections against the following 3 major losses:

1. Damage to or loss of the jnsured’s vehicle
2. Injury to the insured or family members
3. Legal liability for personal injuries and damages to property

Part A: liability coverage
Part B: Medical payments
Part C: uninsured motorists
Part D: coverage for property damage to your auto
Part E: Duties after an accident or loss
Part F: general provisions

Question 21

Personal Automobile Policy (PAP)

Other-than-collision or comprehensive coverage

Answer 21

Protects the insured from damages incurred where the perils are typically viewed as accidental and out of the insured’s control

Because the expected claim cost is usually lower, the premium for comprehensive coverage is typically lower than that for collision coverage

Question 22

Personal liability umbrella policy (PLUP)

Answer 22

Structured to provide a layer of liability insurance coverage on top of the individual’s homeowners and automobile insurance policy

When both the umbrella policy and underlying homeowners or automobile policies cover a loss, the PLUP will not pay any claims until the underlying coverage has been exhausted

Question 23

Commercial package policy (CPP)

Answer 23

The basic commercial a
property and liability insurance policy

Comprehensive, has no gaps in overall coverage

Question 24

Businessowners policy (BOP)

Answer 24

Another type of commercial property and liability insurance

Question 25

Malpractice insurance

Answer 25

Generally used where the deficient conduct of the insured may result in bodily harm (e.g. a physician, surgeon, or dentist)

Question 26

Errors and omissions (E&O Insurance)

Answer 26

Provides protection against the deficient acts of a professional that handles money

Question 27

Workers’ compensation insurance

Answer 27

Most states require workers’ compensation for the benefit of the employees

Benefits are funded through premiums paid by the employer

Question 28

Unemployment compensation

Answer 28

Not so much indemnity insurance (to make one whole) as it is in lieu of salary

Unlike workers’ compensation benefits that are nontaxable, unemployment compensation is fully taxable to the recipient

Question 29

Collision definition under Part D of a personal automobile policy

Answer 29

The upset of your covered auto or its impact with another vehicle or object

Covers damages incurred in an accident involving other vehicles or those sustained when an automobile runs off the road into a tree