Basics of Property and Casualty Insurance

Question 1

Property insurance

Answer 1

Provides insurance protection on belongings (from perils such as fire, theft, and weather damage)

Question 2

Casualty insurance

Answer 2

Liability insurance-provides insurance protection against the “other guy”-coverage that an individual or organization needs for negligent acts or omissions-provides financial protection against the “other guy”-If you didn’t have enough money to cover the damages, then you’d have to pay with your assets

Question 3

First party losses

Answer 3

Property insurance pays the insurance for covered losses to the property (buildings and personal belongings)-referred to as first party losses-for example: if a person is injured at your house due to your negligence, your casualty policy will pay for the expense of their injury-if you, the insured, were also injured due to your negligence, your casualty policy would not pay for your injury

Question 4

Casualty Insurance

Answer 4

“The other guy”-casualty=liability, always pays the other guy, never me

Question 5

Third party loss types

Answer 5

first, second, third

Question 6

First party

Answer 6

Me (the insured)

Question 7

Second party

Answer 7

My insurer

Question 8

Third party

Answer 8

The other guy

Question 9

DICEE

Answer 9

DICEE
D-declarations
Insuring agreements
C-Conditions
E-Endorsements and additional supplementary coverages
E-Exclusions

Question 10

What is on the declarations page?

Answer 10

Information relative to who, what, when, and where is found on the first page of the policy-the declarations page

Question 11

Declaration page details specific

Answer 11

The name of the insured(s), a current address, a legal description of the insured property, the policy deductibles, and the term of the coverage are contained in this section

Question 12

Insuring agreement

Answer 12

Describes the covered perils or risks assumed by the insurer and makes reference to the contra by the insurer and makes reference to the contractual agreement between the insurer and insured

Question 13

Conditions section

Answer 13

States the policy provisions, rules of conduct, duties, and obligations required for coverage-examples of conditions could include that the insured must file a claim and notify the police if the loss is crime-related, and that the insurer has the right to inspect the property being insured-if the insured does not adhere to the conditions of the policy-the insurer may deny coverage or a claim

Question 14

Endorsements

Answer 14

Add, modify, or take away coverage-attached to the policy and is part of the legal contract

Question 15

Exclusions

Answer 15

Take coverage away from the insuring agreement by describing property, perils, hazards, or losses arising from specific causes which are not covered by the policy-for example, flood damage may be an exclusion in a policy

Question 16

Policy sections (DICEE) definitions

Answer 16

-Declarations-who, what, when, where, and how much
-Insuring agreement(s)-promise to pay and perils covered
-Conditions-rules for the policy
-Endorsements-changes to the original policy
-Exclusions-items not covered

Question 17

Definitions section of policy

Answer 17

Clarifies the meanings of certain terms used in the policy. Definitions common to the entire policy are found in this section. Insurance contracts are legal documents, so there must be an attempt made to clearly define terms used in the contract

Question 18

Additional/supplementary coverage

Answer 18

Provides payment for certain additional expenses. Depending on the policy, this coverage may have separate limits of insurance and may be paid in addition to the maximum limit of liability. The cost to pay attorney fees for the insured if the insured is sued by another party, the cost of making temporary repairs to a damaged building, bail and appeal bonds, and other court-related costs are examples of additional/supplementary coverage

Question 19

Additional/supplementary coverage continued

Answer 19

Payment for additional expenses not normally covered
May have separate limit of insurance

Question 20

Name insured

Answer 20

-The person, business, or other entity named in the declarations to which the policy is issued

Question 21

First-name insured

Answer 21

The person listed first on the declarations page when there is more than one named insured. The policy may assign a higher level of duties or rights to the first-named insured (This is used in commercial insurance when there are multiple partners in a business)

Question 22

In addition, the policy may also cover

Answer 22

Other persons, businesses, or entities as insureds, such as the name insured’s resident relatives-These insureds are not listed by name but are insureds by definition

Question 23

Additional insured

Answer 23

In some circumstances, another individual or business may be listed-usually done by endorsement

Question 24

Policy period

Answer 24

Duration of the policy-the date and time, including where and in what time zone, coverage begins and ends-six months, one year, or even three years are common policy periods

Question 25

Policy territory

Answer 25

The territory may vary, but typically includes the US, Canada, Puerto Rico, and other US territories and possessions-most insurance policies do not extend coverage into Mexico

Question 26

Inception date

Answer 26

beginning date of policy

Question 27

Expiration date

Answer 27

stop policy date

Question 28

Unearned premium

Answer 28

If the insured had premiums paid in advance for future months, any unused premium-must be returned to the insured upon cancellation of a policy

Question 29

In a case where the insurer cancels the insured’s policy

Answer 29

Unearned premium is returned on a prorated basis

Question 30

Prorated basis

Answer 30

the insured will receive a portion of the premium back, depending on when the policy is cancelled

Question 31

Short-rated basis

Answer 31

When an insured cancels a policy before the expiration date, the insurer is entitled to retain a larger percentage of the unearned premium-a surcharge or a penalty for early cancellation

Question 32

T/F? Each state has the same rules and regulations regarding insurance policy cancellation

Answer 32

False-each state has it’s unique method for insurance policy/cancellation

Question 33

Flat cancellation

Answer 33

When a policy is cancelled on the effective date, by either the insurer or insured, called a flat cancellation-It is common that a policy is extended at the end of its term or policy period. However, the insurer may choose to not renew a policy for another term or the insured may choose to end their coverage and not pay the premium.

Question 34

Nonrenewal process

Answer 34

Has mandated state rules that must be followed

Question 35

Cancellation

Answer 35

Occurs before the policy’s expiration date- insurer cancellation requires advance notice (full refund of unearned premium-pro rata)

Question 36

Pro-rata

Answer 36

Full refund of unearned premium

Question 37

Insured cancellation

Answer 37

No advance notice-partial refund of unearned premium (short rate)

Question 38

Short-rate

Answer 38

Partial refund of unearned premium

Question 39

Non-renewal

Answer 39

occurs at the expiration date

Question 40

Non-renewal

Answer 40

Occurs at the expiration date

Question 41

Non-renewal qualifications

Answer 41

-Insurer must give advance notice
-No advance notice required by the insured

Question 42

Deductive

Answer 42

-The amount that must be paid out of pocket by the policy owner before an insurer pays any expenses-purpose of a deductible is to prevent small insurance claims and overuse of insurance claims-deductibles are normally provided as clauses in an insurance policy that dictate how much of an insurance-covered expense is paid by the policyholder

Question 43

Deductible

Answer 43

Amount of the loss paid by the insured-the higher the deductible, the lower the premium

Question 44

Inemnity

Answer 44

Insurance is to restore the insured to their original pre-loss condition-no better and no worse-insurance payment should not make a profit for the policy owner-there could be a situation where more than one of multiple policies covers the same loss or claim

Question 45

Other insurance condition

Answer 45

Defines how reimbursement will occur when this happens and is also called other sources of recovery or insurance under

Question 46

Formula for calculating pro rata method

Answer 46

Policy of one company/policy limit of all companies x loss

Question 47

Under the contribution by equal shares provision, all insurers pay equal amounts

Answer 47

when that company pays its policy limit, it stops paying and the other companies share in the remainder of the loss-this continues until each company has paid its policy limit or the loss is paid in full

Question 48

Duties after Loss

Answer 48

Conditions section of a property insurance policy lists the duties and rights of both the named insured and the insurer-commonly known as provisions

Question 49

Loss provisions

Answer 49

Most contracts include conditions that specify what the named insured and insurer must do when a lost occurs-together they may be referred to as loss provisions

Question 50

Duties after loss

Answer 50

PROMPT-notice of claim to the insurer or agent
PROTECT the property from further damage
COMPLETE detailed proof of loss (an official inventory of the damages)
MAKE the property available for inspection by the company
SUBMIT to examination under oath if required; and
COOPERATE with the insurer as required during the claim investigation

Question 51

Assignment

Answer 51

condition specifies that a policy may not be transferred to anyone else without the written consent

Question 52

Abandonment

Answer 52

condition states that the insured may not abandon property to the insurance company and ask to be reimbursed for it’s full value

Question 53

Abandonment provision

Answer 53

Prohibits the insured from abandoning the car and demanding payment for the total loss of the automobile-insurance company has the option to repair, rebuild, or replace the vehicle with like kind and quality

Question 54

Salvage condition

Answer 54

Many property insurance policies contain a salvage condition that states that the insurance company can take possession of damaged property after payment of a total loss-when the insurance company determines it will cost more to fix the body damage than its actual cash value, the company will pay a total loss-the insured will receive what the insurance company deems as the actual cash value, the company will pay a total loss.

Question 55

Example of salvage condition

Answer 55

Car accident that causes extensive damage to the body of the car but very little damage to the engine and tires-it would still cost your insurance company more money to fix the body damage-so they decide to salvage the vehicle-the insurance company could potentially sell the tires and the engine to reduce the cost of the claim

Question 56

Liberalization

Answer 56

condition states 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-for example an auto insurer has decided to include in their auto policy-1,000 coverage for electronic items stolen from a covered auto-includes cell phones, laptop computers, and any electronics found in the covered auto. This benefit is included in all new policies for no additional premium. If you already had an existing policy from this company, your policy would have this new benefit without having to wait until your policy is renewed.

Question 57

Liberalization

Answer 57

Extended coverage to insured
No additional premium charged
No action required to be insured

Question 58

Subrogation

Answer 58

The transfer to the insurance company of the insured’s right of recovery against others

Question 59

Subrogation provision may also be called?

Answer 59

Right of recovery

Question 60

Subrogation

Answer 60

Insurer has the right to sue an at-fault party for damages the insurer had to pay to the insured-common when at-fault party for damages the insurer had to pay to the insured (common when at-fault party does not have insurance)