4.1 - Personal Property Policies: Structures and Types

Question 1

Declarations

Answer 1

-statements included in a policy that are agreed to by the insured and form the basis of the contract of insurance

Question 2

Structure of a Personal Property policy

Answer 2

Main Sections of a Property Policy:

1. Declarations or Coverage Summary > usually appears first in the policy, showing details that apply to all applicable policy forms. Commonly also bears the words “This policy contains a clause that may limit the amount payable”
   - Name of the insured
   - Mailing address
   - Location(s) of the property
   - Coverage provided
   - Limits insured
   - Deductibles
   - Names and addresses of mortgagees and loss payees
2. Policy Wordings
   - preamble describing the general agreements between the insured and insurer
   - definitions of terms found in the policy
   - coverages
   - extensions of coverage
   - exclusions
   - basis of claim settlement
   - additional conditions
   - statutory conditions
   - general conditions (Quebec)
3. Endorsement or Floaters added to the Policy
   - additional insurance provided for items that may be limited in coverage, not covered, or excluded from coverage in the policy contract

Question 3

Plain-Language Wordings

Answer 3

personal property policies are generally issued in a plain-language format which means the average layperson can read the policy and generally understand what it means
-language is less formal so, clearer to the people who buy them

-in the IBC forms, even the size of the type fonts and the length of lines of text have been chosen for readability and to reduce the public’s suspicion of fine print in insurance policies

Question 4

Types of Personal Property policies

Answer 4

1. Package policy
2. Non-package policy
3. Subscription policy
   4, Multiple-limit policy
4. Single-limit policy

Question 5

Types of Personal Property policies:
1. Package policy

Answer 5

• any insurance policy that covers two or more lines or types of insurance in the same policy (multi-peril policies)

-extensions and settlement options were added to the insured perils to make their packages more attractive to insurance buyers

-packaging embraces both insured perils and the subject matter of insurance, for example, homeowners basic form packages property coverage for buildings together with liability coverage in one policy

-personal property is generally a percentage of the dwelling limit (unless coverage is written on a single-limit or blanket basis). Percentage varies depending on the insurer

-some perils are more likely to cause loss than others. Insurers risk adverse selection by covering such perils individually. Packaging perils allows them to collect premium both for the perils more likely to cause loss and for the perils less likely to cause loss

-the package approach allows insurer to reduce premiums in two ways: first, by reducing risk of adverse selection; second, by issuing uniform contracts - simplifies policy-issuing and claims adjustment.
-The insurer preserves UW profitability with rules of eligibility and with rating criteria

Question 6

adverse selection

Answer 6

occurs when those with higher risks may purchase insurance in greater amounts than those with lower risks. Much of insurance law and practice is designed to control adverse selection. Insurer protect themselves from adverse selection by attempting to measure risk and either charging more for the higher risks or refusing to cover them at all.

Question 7

Types of Personal Property policies:
2. Non-Package policy

Answer 7

-certain types of residential property do not fit a package policy

-the residential basic form for those that prefer simpler policies or more modest than the popular packages of property and liability insurance
-it may be thought of as the habitational version of the basic fire policy
-also serves those who are ineligible for an insurer’s package policy or who have a location that is ineligible for broader coverage

Question 8

Types of Personal Property policies:
3. Subscription policy

Answer 8

-a single policy covering a risk that is divided among a number of insurers; the policy is issued by the “lead” company (usually the one with the largest percentage) and signed by all participating companies
-when the property portion of a risk is shared proportionally among several insurers

-a risk may be so large or complex or of such a high hazard that no one insurer is able or willing to assume the entire risk

-for such a risk, the same submission is sent to each insurer, but only the lead insurer quotes on the coverages. All other insurers indicate the property rates, deductibles, and wordings they require and the percentage of the risk they are prepared to insure

Question 9

Types of Personal Property policies:
4. Multiple-Limit policy

Answer 9

-a type of habitation policy where separate insurance amounts are shown for the building and for the personal property
-also called multi-limit

Question 10

Types of Personal Property policies:
5. Single-Limit policy

Answer 10

-a type of habitational policy where one insurance amount is shown encompassing the building and personal property
-the single limit is often two times the primary dwelling limit
-single-limit policy may be more expensive than a multiple-limit policy, there are benefits to choosing the single-limit - in the event of a partial loss, the insured has the full limit of insurance to apply to the loss, whether the loss is to personal property or to the building