Chapter 2 Property Flashcards
Accident –
A sudden, unforeseen, unintended, and unplanned event from which loss or damage results.
Occurrence –
An accident includes continuous or repeated exposure to the same general harmful conditions
Cancellation –
The termination of an insurance policy before its expiration date. Once cancelled, a policy provides no coverage. A policy may be cancelled by the insured or insurer.
Pro Rata Cancellation
A proportionate cancellation of insurance that refunds premium to the insured based on the precise number of days coverage was in effect. The earned premium is the premium charged and retained by the insurer for the number of days coverage was in place; the unearned premium is the premium refunded to the insured for the number of days coverage was not in place.
Short Rate Cancellation
A cancellation of insurance that incurs a financial penalty. Sometimes when the insured cancels the policy before its expiration date, a short-rate cancellation is issued. The insurer retains a portion of the unearned premium to cover costs.
Flat Cancellation
A cancellation of insurance that is retroactive to the effective date of the policy. No coverage is provided and the insurer must refund the policy premium paid by the insured.
Nonrenewal
The termination of a policy at the expiration of its term. The policy does not renew and no coverage is provided after the expiration date.
Proximate Cause
The primary cause of loss. If only one peril caused the loss, the proximate cause is the first event in the unbroken chain of events that resulted in loss. If more than two perils caused or contributed to the loss, the proximate cause is the peril having the most significant impact in generating the loss or damage.
Arbitration –
Process whereby a disputed claim is decided by a neutral third party. The disputing parties choose the impartial third party and agree in advance to accept the final decision of the arbitrator, who makes a decision after a hearing where both parties offer evidence.
Right of Salvage –
The right of the insurer to take possession of damaged property after paying for its loss. The salvage belongs to the insurer.
Salvage Value
The amount for which property can be sold at the end of its useful life. In property insurance, the salvage value is the scrap value of damaged property.
Binder
A legal agreement issued by an insurance company or a producer that provides temporary proof of insurance until the insurer is able to issue an insurance policy. Binders are issued for specific time periods (maximum of 60 days) and automatically end when the policy is issued. Binders contain the name of the insurer, the amount and type of insurance, and the perils insured against.
Inherent Vice
A quality within property that causes it to damage or destroy itself. Examples include rust, rot and the fading of paint. Inherent vice is not covered by a property policy.
Friendly Fire
A fire that was intentionally set and stays within its intended boundaries (e.g., a fireplace) and results in smoke damage to the inside of a fireplace. Property insurance does not cover damage from a friendly fire.
Hostile Fire
A fire that burns outside its intended boundaries, or becomes uncontrollable. Examples of a hostile fire include a wildfire or a fire that damages a home when a spark from a fire in the fireplace ignites a piece of furniture.
Endorsement
– A policy form that alters or adds to the provisions of a property and casualty insurance contract.
If the insured does not agree with the insurer’s decision regarding a claim, what process helps decide the outcome?
Arbitration
If the insured does not agree with the insurer’s decision regarding a claim, what process helps decide the outcome?
Arbitration
During arbitration a neutral third party decides the outcome of a claim.
Which of the following is attached to the policy to alter or add to the policy provisions?
Endorsement
Concurrent Causation
A principle holding that when two perils simultaneously cause a loss (i.e., they are both considered the proximate cause of loss), the insurer must pay the loss even if one of the perils is excluded by the policy.
Concurrency/Concurrent Policies
The existence of two or more policies covering the same exposures, having the same policy periods, and the same coverage triggers. For example, if an auto policy and an umbrella policy are written with the same policy dates, they are considered to be concurrent.
Non-Concurrency/Non-Concurrent Policies
The existence of two or more policies covering the same exposures that don’t have the same policy periods. Non-concurrency may create a coverage gap when underlying liability policies and an umbrella policy are non-concurrent because if an underlying liability policy exhausts its aggregate, it may violate the umbrella’s underlying limits requirement.
Deductible
he specified amount of each loss that the insured must bear. In property insurance (and with a per claim, or per occurrence, deductible), the insurer subtracts the deductible from the amount of loss when making payment. By accepting a larger deductible, the insured’s premium may be reduced. An insurer may require a larger deductible as an underwriting tool to limit small claims.
Definitions
Words, terms, and phrases that are clearly described and used in an insurance policy for the purpose of clarifying the intent of the insurer and to avoid coverage disputes with respect to the extent of coverage provided by the policy. Most policies contain a definitions section in the policy and emphasize policy definitions by enclosing them within quotes or highlighting them with bold text.
Bailee
A person or any organization to which property has been entrusted, usually for repairs, servicing or storage. Because bailees are legally responsible for property in their care, property insurance policies specifically exclude coverage for property in the care of a bailee.
Bailor
A person or organization that entrusts property to a bailee.
Primary Insurance
Any type of coverage that responds to a loss before all other coverage responds.
Excess Insurance
Any form of insurance coverage that provides protection against certain perils or causes of loss ONLY after loss or damage exceeds a stated amount or the limits stated in specific policies or self-insurance. Excess insurance may be written over primary, excess, or umbrella insurance.
A person who takes possession of another person’s property in order to repair it is called?
Bailee
Unoccupancy
property that contains personal property but has no occupants.
Vacancy
provision in a property policy that eliminates or limits coverage for buildings that don’t contain sufficient personal property to support intended occupancy or use.
Burglary
The taking of property from inside the premises or a locked safe or vault by a person who commits forcible entry into, or exit from, the property of another while trespassing.
Robbery
The taking of property from the care and custody of a person who has been caused or threatened with bodily harm.
Theft
The broadest of the crime coverages, theft includes any act of stealing.
The loss of property when the cause of loss is not known. This is NOT theft, burglary, or robbery.
Mysterious Disappearance
Types of Property Losses
Direct Loss – A loss that causes direct damage to property without an intervening cause.
Indirect Loss or Consequential Loss – A loss that is not the direct result of a peril.
Each of the following is a direct loss, except
Loss of income
Loss of income is an indirect loss, as it is paid as a consequence of a direct loss such as a total fire loss to a home.
Two type of Perils that may be covered by property insurance policies is:
Named Peril – This type of property coverage only provides insurance for the causes of loss, or perils, listed. If a peril is not “named” in the policy, no coverage applies for loss or damage caused by that peril. Typical “named perils” are fire and theft.
Named perils may contain coverage for up to 16 named perils; coverage for additional perils may be added by endorsement. Open Peril (Special Form, All–Risk) – This type of property coverage provides insurance for all causes of loss that are not specifically excluded under the policy. Typical exclusions in an “open perils” policy are flood and earthquake.
Loss Valuation
A property policy pays for losses to property based on the valuation method contained in the policy or chosen by the insured in an endorsement added to the policy.
Replacement Value
The cost to replace property with property of like kind and quality, at current pricing, without a deduction for depreciation. Many property policies providing loss valuation at replacement value require covered property to be insured to a certain percentage of its replacement value, such as 80% or 90%.
Actual Cash Value (ACV
he cost to repair or replace property at its replacement value, minus depreciation.
Agreed Value –
The insurance company and insured agree to a specific value of a particular property before the policy is issued. If a total loss occurs, the insurer will pay the Agreed Value.
Stated Value
A valuation method that states the value of a particular property on the declarations page, but provides for the insurer to pay the lesser of the stated value or ACV of the property following a loss.
Valued Policy
A policy that states the value of property as the amount shown on the Declarations page and will pay that full face value in the event of a total loss, regardless of the actual cash value.