Chapter 1

Question 1

Why is property insurance first party and not 3rd party ?

Answer 1

Property insurance is first party insurance because it protects “ the insured “ the first party to the insurance contract

Question 2

Explain the role property insurance plays in financing a large purchase ?

Answer 2

Property insurance protects the named insured and others with an insurable interest in or mortgage on the property or who entrust their property to the insured against loss or damage to the insured party

Question 3

Why would an insurer only cover events that are sudden and accidental in nature ?

Answer 3

To limit moral hazards, fraud, misrepresentation and indemnifying individuals for monetary advancement. The point of insurance is to place the individual or insured back in the same financial situation they were in before the loss, not to make money from the loss. That’s why insurance contracts require insurable interest.

Question 4

Explain insurable interest. Why does the insurer require that the policy holder demonstrate it in order to qualify for insurance ?

Answer 4

An interest that the insured must have in the subject matter of insurance purchased so that if the event insured against occurs the insured will suffer economic loss.

Question 5

Insurance is intangible, what does that mean?

Answer 5

Insurance is unable to be touched or grasped, it’s a promise that is legally enforceable

Question 6

Explain what it means to indemnify someone after financial loss. why is the concept so important to insurance? Why in particular property insurance?

Answer 6

The principle of indignity is that the insured shall not receive more than the actual lost suffered. The object of the contract is to return the injured back to the financial position they enjoyed before the loss this is important to limit fraud

Question 7

Give an example of a loss that is deliberately caused, but still fortuitous.

Answer 7

Vandalism is a good example. It was deliberately done by the person but unforseen by the insured.

Question 8

5 requirements of a contract

Answer 8

Offer and Acceptance 
Consideration
Genuine intent
Legality of the object
Capacity to contract

Question 9

What are the 4 key elements of an agreement between the insured and insurer ?

Answer 9

Terms
Clauses
Stipulations
Requirements

Question 10

Explain how insurance policy makes an intangible agreement tangible ?

Answer 10

The insurer promises to do, and what coverage they will provide, and what the insured promises to do and what coverage they will receive

Question 11

What are the two main types of property insurance and explain each one

Answer 11

Personal lines - also known as habitual insurance, insurance policies include homeowners policies that cover damage to or destruction of the insureds dwelling detached private structures and personal property

Commercial lines - commercial insurance policies cover such property as buildings stock and equipment

Question 12

List 7 classes of insurance

Answer 12

Aviation insurance - policies provide insurance coverage on the actual airplane itself

Builder’s risk insurance - policies cover physical loss or damage to property while it’s in the course of construction

Crop insurance policies - cover loss or damage to crop that is being grown

Earth quake insurance - covers loss or damage arising from the perils of earthquake

Equipment breakdown insurance - covers accidental physical damage to items

Flood insurance policies - cover loss or damage arising from the perils flood

Marine insurance - including marine cargo insurance and inland marine insurance covers of or damage to property in transit at sea or in inland waterways and on land.

Question 13

List 11 key elements that every insurance policy should contain

Answer 13

1. The name of the Insurer
2. The name of the insured
3. The name of the person or persons to whom the insurance money is payable
4. The amount or method of determining the amount of premium for the insurance
5. The subject matter of insurance
6. The indemnity for which the insurer may become liable
7. The event on the happening of which liability is to accrue
8. The effective date of the insurance
9. The expiry date or method by which it is to be fixed
10. Provusions outlining what type of property is covered by the policy
11. Include detail on causes of loss that the policy will provide coverage for

Question 14

List 2 types of exclusions

Answer 14

1. Excluding certian types of property

2. Excluding certian types of losses

Question 15

Explain how deductibles limit the liability of the insurer and why they are employed

Answer 15

A deductible is the insureds portion of a covered loss. Small, frequent losses are expensive for insurers to handle and process. To avoid the expenses of handling and processing small losses, and to reduce premiums for insurance, a deductible is applied to each loss

Question 16

What was the first type of property insurance.

Answer 16

First type of property insurance was fire insurance

Question 17

What does the fire policy also cover other than fire?

Answer 17

Lightning, explosion of natural gas or coal

Question 18

What does the basic fire policy exclude?

Answer 18

the basic fire policy does not cover damage to or destruction of electrical devices or appliances caused by lightning or other electrical current unless fire originates outside the object

Question 19

Define what a policy exclusion is

Answer 19

Exclusions remove certain losses from the policies coverage exclusion risks, perils, or properties defined in the policy is not covered

Question 20

Describe one way that exclusions and endorsements can interact

Answer 20

Some exclusions can be revoked and the excluded coverage restored by an endorsement to the policy

Question 21

List two groups of exclusions in fire policies

Answer 21

1. Exclusions for legislative considerations

2. Exclusions for underwriting and rating considerations

Question 22

List four exclusions for legislative considerations

Answer 22

1. electrical devices- there is no coverage for lost to electrical devices or appliances if the damage is caused by lightning or other electrical currents
2. Application of heat exclusion. There is no coverage for loss or damage to items of property that occurs as a result of heat being applied to the item. However, resultant fire damage to other property is covered
3. war risks exclusion Dash there is no coverage for loss or damage arising from foreign or civil war, riot, or other civil disturbance
4. nuclear incident exclusion - loss or damage caused by a nuclear incident is excluded under the basic fire policy. Coverage is however, provided for resultant loss caused directly by fire, lightning, or explosion of natural coal or manufactured gas. this exclusion also rules out coverage for loss by contamination of radioactive materials.

Question 23

List exclusions for underwriting and rating considerations

Answer 23

There is no coverage for loss or damage to: money, books of account, securities for money, evidences of debt or title, aircraft or watercraft, this exclusion identifies types of movable property that may present unusual hazards, require specialized insurance, or raise under writing issues. It also encourages an insured to seek Insurance more specific to such property, which benefits both the insured and insurer

Question 24

For how long can a property remain vacant before coverage is excluded?

Answer 24

30 consecutive days

Question 25

What is volatile substance exclusion and define flashpoint

Answer 25

Volatile substance exclusion: a gallon flashpoint:the lowest temp at which a liquid gives off sufficient vapors to form an ignitable mixture with the air