Chapter 2: Property Basics Flashcards
Continuous or repeated exposure
Occurence
The termination of an insurance policy before its expiration date
Cancellation
A proportionate cancellation of insurance that refunds premium to the insured based on the precise number of days coverage was in effect
Unearned premium is the premium refunded to the insured for the number of days coverage was not in place
Pro Rata Cancellation
Cancellation of insurance that incurs a financial penalty. Sometimes when the insured cancels the policy before its expiration date
Short Rate Cancellation
Termination of a policy at the expiration of its term
Non-renewal
First event in the unbroken chain of events that resulted in loss
Most significant impact
Proximate Cause
A fire that burn outside its intended boundaries
Hostile fire
A fire that was intentionally set and stays within its intended boundaries
Friendly fire
Rust, rot, and the fading of paint. not covered by a property policy
Inherent vice
Temporary proof of insurance until the insurer is able to issue an insurance policy
Binder
Process were disputed claim is settled by a neutral third part
Arbitration
Right of the insurer to take possession
Right of Salvage
Alters or adds to the provisions of a property and casualty insurance contract
Endorsement
A principle holding that when two perils simultaneously cause a loss, the insurer must pay the loss even if one of the perils is excluded by the policy
Concurrent Causation
The existence of two or more policies covering the same exposures, having the same policy periods, and the same coverage triggers.
ex. auto and umbrella written with the same policy dates
Concurrency/ Concurrent Policies
The existence of two or more policies covering the same exposures that don’t have the same policy periods
Non-Concurrency/Non-Concurrent Policies
Tool to limit small claims
Deductible
Words, terms, and phrases that are clearly described and used in an insurance policy
Definitions
A person or any organization to which property has been entrusted, usually for repairs, servicing or storage
Bailee
A person or organization that entrust property to a bailee
Bailor
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.
Excess Insurance
A property that contains personal property but has no occupants
Unoccupancy
Does not contain sufficient personal property to support intended occupancy
(like a motel)
-no contents, no people
Vacancy
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
Burglary
The taking of property from the care and custody of a person who has been caused or threatened with bodily hard
Robbery
The broadest of the crime coverages, the act of stealing
Theft
Which of the following is attached to the policy to alter or add to the policy provisions?
a. binder
b. endorsement
c. definitions
d. excess insurance
b
A person who takes possession of another person’s property in order to repair it is called?
a. assignee
b. bailor
c. subrogee
d. bailee
d
If the insured does not agree with the insurer’s decision regarding a claim, what process helps decide the outcome
a. Insurance company conference
b. Arbitration
c. Inspection
d. Consequential hearing
b
Direct damage to property without an intervening cause
Direct loss
A loss that is not the direct result of a peril
Indirect loss
Only provides insurance for the causes of loss, or perils, listed. If a peril is not “named” in the policy, no coverage applies
Named perils
Provides insurance for all causes of loss that are not specifically excluded
Open perils
Cost to replace property with property of a like kind and quality, at current pricing, without a deduction for depreciation
Replacement Value
Cost to repair or replace property at its replacement value minus depreciation
Actual Cash Value (ACV)
The insurance company and insured agree to a specific value of a particular property before the policy is issued
Agreed Value
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
Stated Value
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
Valued Policy
The cost to replace property with other property that performs the same function with similar efficiency
Functional Replacement Value
The price a willing buyer would pay for property purchased
Market Value
A building that has a roof, floor, and supports of combustible material, usually wood, and combustible interior walls
Frame
Building with exterior walls of masonry or fire-resistive construction
Joisted Masonry
Constructed of noncombustible material
Noncombustible
Exterior walls of masonry or made fire resistive construction with a rating of not less than one hour
Masonry Noncombustible
Reinforced concrete and steel. Must have at least a 2-hour fire resistive rating
Fire Resistive
Fire resistive rating of at least 1 hour, but less than 2 hours
Modified Fire Resistive
Each of the following is a direct loss, except:
a. loss of income
b. fire damage
c. cracked windshield
d. broken pipe water damage
a
_____ is the method of loss valuation that values damages property at the cost to replace with property of like kind and quality, at current prices, and without deduction for depreciation
a. functional replacement cost
b. actual cash value
c. replacement value
d. market value
c
What calculation is used to determine the actual cash value (ACV) of a loss?
a. market value - depreciation = ACV
b. replacement cost - depreciation = ACV
c. market value - original purchase price = ACV
d. Replacement cost - market value = ACV
b
Single item of property for a single limit of insurance
- 1 item
- 1 limit
Specific Limit
One or more items of property on a single policy
- per item
- all on 1 policy
Scheduled Limit
Property located at more than one location OR more than one type of property at the same location OR both
-covers everything
Blanket Limit
D
I
C
E
declarations
insuring agreement
conditions
exclusions
Which of the following BEST describes a scheduled limit of insurance on a property policy?
a. insures multiple items of property on multiple policies
b. insures multiple items of property on a single policy
c. insures a single item of property on a single policy for a specific limit
d. insures a single item of property at a blanket limit
b
What part of the policy includes the who, what, where, when, how much
Declarations
Insurance company’s promise to pay the insured
Insuring Agreement
States the obligations of the parties to the contract
Conditions
When the policy is in force
Policy Period
Broadens coverage with no increase
Liberalization Clause
Specifies the terms under which the policy can be cancelled
Cancellation
addresses the requirements of the insurer if it elects not to renew a policy
Nonrenewal
Specifies that the insured may not transfer rights of ownership
Assignment
- prevents the insured from collecting twice
- helps the insurer control expenses
- holds the responsible third party accountable
Subrogation
The insurer will not be responsible for payment of loss in an amount greater than the financial interest of an insured
Insurable Interest and Limit of Liability
To restore a policy to its initial face value or not reduce limits of coverage after the insurer has paid a claim
Restoration/Non-reduction of Limits
- Giving prompt written notice
- Notify the police if a theft occurred
- Cooperating
- Protecting property
- Inventory of damaged property
- Allow insurer to inspect damaged property
- Submit proof of loss
Duties in the Event of Loss
Proof of loss includes:
- time and cause of loss
- any other insurance that may cover loss
- appropriate receipts, evidence, or affidavits to support the loss
Addresses disputes about the mount of a loss
Appraisal
Specifies the process to be followed when more than one policy covers the same loss
Other insurance
No one may bring suit against the insurer until all terms and conditions of the policy have been complied with
Legal Action Against Us
How the insurer will make payment for loss
Loss payment
Insurer is not obligated to accept any property abandoned by an insured
Abandonment of Property
Specifies how the policy protects the mortgagee’s financial interest
Mortgage Clause
Specifies how the policy protects the interests of a loss payee. A loss payee has insurable interest in personal property
Loss Payable Clause
Specifies that no coverage applies if loss payment benefits a bailee
Non Benefit to Bailee
Insured has the right of keeping the claim payment or returning the claim payment and retaining right to the property after adjustments have been made for any damage
Recovered property
Perils that are NOT covered by the policy
Exclusions
What are the exclusions:
Ordinance or Law Earth movement War Water perils Utility failure Neglect of the insured Intentional loss Nuclear hazard, war, and military action Governmental action Fungus, wet rot, dry rot, and bacteria
Coverages that are automatically included in property policies without an additional premium
Additional coverages
The duties and obligations of the insured are found under what part of the insurance policy?
a. declarations
b. insuring agreement
c. additional coverages
d. conditions
d
A liberalization clause serves which of the following purposes?
a. at each annual renewal, the policy limit automatically increases in value
b. the insurer has the right to recover from any party causing a loss
c. the insured is given permission to bring suit against the insurer
d. broadened coverage applies automatically to all policies without a premium charge
d
Each of the following is a typical property insurance policy exclusion, except:
a. ordinance or law
b. flood
c. fire
d. neglect
c
a provision used to encourage the insured to purchase and maintain insurance to value
Coinsurance
80%
Which of the following has the broadest coverage under the insurance policy?
a. named insured
b. insured
c. first named insured
d. additional insured
a
Which of the following is not true of coinsurance?
a. it is a common policy provision
b. it encourages the insured to maintain insurance to value
c. it applies in the event of a loss
d. the higher the coinsurance percentage purchased, the lower the rate the insured pays
c
