chapter 4 Anatomy of a Property Policy: Overview

Question 1

In reading a policy, it’s particularly important to distinguish between these two words.

a. And, or
b. Simply, merely
c. Understand, comprehend
d. Cost, fee

Answer 1

a. And, or

Question 2

What are multi-peril policies covering various classes of business also known as?

a. Homeowners comprehensive policies
b. All-risks forms
c. Named-perils forms
d. Package policies

Answer 2

d. Package policies

Question 3

What does contra proferentem mean when a policy wording has been drafted by the insurer?

a. Any ambiguity in the policy wording will be interpreted against the insurer.
b. Any ambiguity in the policy wording will be interpreted against the insured.
c. No claims will be paid.
d. An insured’s right to claim would be limited by statute.

Answer 3

a. Any ambiguity in the policy wording will be interpreted against the insurer.

Question 4

What is a main benefit of having a single-limit policy?

a. One limit of insurance is applied on a blanket basis for all insurance coverages.
b. Perils insured are broader.
c. No deductible applies.
d. It only applies to commercial property policies.

Answer 4

a. One limit of insurance is applied on a blanket basis for all insurance coverages.

Question 5

What is the key benefit of the IBC standard mortgage clause to a mortgagee?

a. No exclusions apply to coverage applicable to mortgagee.
b. The mortgagee will always receive the full amount of the mortgage.
c. A separate contract is created between the mortgagee and the insurer; this provides the mortgagee with greater protection.
d. Coverage applicable to the mortgagee will be on an ACV basis.

Answer 5

c. A separate contract is created between the mortgagee and the insurer; this provides the mortgagee with greater protection

Question 6

What is the purpose of the declarations or coverage summary?
Select one:
a. Is only used with personal property policies
b. Is of limited value with subscription policies
c. States the coverage and limits agreed to by the insured and the insurer
d. States the coverage and limits agreed to by the insurer

Answer 6

c. States the coverage and limits agreed to by the insured and the insurer

Question 7

When may a subscription policy be used?
Select one:
a. When the limits on property are low.
b. When the limits on property are very high.
c. The property risk is well protected by fire hydrants.
d. The property risk is loss free.

Answer 7

b. When the limits on property are very high.

Question 8

Which of the following clauses potentially limits an insurer’s liability?

a. deductible clause
b. breach of condition clause
c. replacement cost clause
d. The property risk is clause.

Answer 8

a. deductible clause

Question 9

Which of the following is part of a broker or agent’s main role?
Select one:
a. Accept or reject the application.
b. Assess the risk and determine what coverage the insured will require.
c. Determine whether an endorsement or further coverage is required.
d. Determine whether to pay the loss that has been reported or to deny it.

Answer 9

b. Assess the risk and determine what coverage the insured will require.

Question 10

Why is there a need for coinsurance?

a. Enables an insurer to spread risk
b. Provides all-risks coverage automatically
c. Encourages insureds to carry adequate limits of insurance since most losses are partial
d. Insured will pay less premium

Answer 10

c. Encourages insureds to carry adequate limits of insurance since most losses are partial

Question 11

Which of the following is the easiest way for any one insurer to distinguish themselves from another?
a) Layout of the policy documents
b) How quickly they issue policies
c) The number of exclusions
d) The pricing

Answer 11

d) The pricing

Question 12

Which of the following items insured on a habitational policy would not have a special limit?

a) Jetski
b) Christian Dior Wedding dress
c) John Deere Ride on lawnmower
d) Baseball cards

Answer 12

b) Christian Dior Wedding dress

Question 13

Which of the following is a distinguishing feature of personal property policies?

a) Co-insurance
b) Plain language format
c) Deductible clause
d) Mortgage clause

Answer 13

b) Plain language format

Question 14

Which of the following is one of the main sections of the habitational policy?

a) Policy wordings
b) Policy exclusions
c) Definitions clause
d) Statutory conditions

Answer 14

a) Policy wordings

Question 15

What type of policy would be best for a large, complex risk that is a high hazard?

a) Non-package policy
b) Multiple limit policy
c) Single limit policy
d) Subscription policy

Answer 15

d) Subscription policy

Question 16

What does the Co-Insurance clause require of the insured? What happens if they don’t comply with the requirements

Answer 16

Insured is required to have a specified minimum amount of insurance in relation to the value of the building insured and if they don’t they will have to share any partial loss with the insurer making them a co-insurer of the loss

Question 17

What is the Co-insurance Formula?

Answer 17

Amount Carried/Amount Required X Loss = amount recovered
Did/Shoulda X Loss = payment

Question 18

If Co-insurance requirement is 80%, Value of the Building $400,000, the Amount of insurance $160,000 and the Loss $360,000, what is the amount the insured will recover?

Answer 18

$160,000
Amount of insurance required = $320,000
Amount Carried $160,000/Amount required $320,000 X Loss $360,000 =
$180,000 however amount recovered can never be more than the limit
carried

Question 19

What do policies have in common

Answer 19

Terms
clauses
Stipulations
requirement that form the key elements of the agreement between insurer and insured

Question 20

The key elements are arranged in 3 main sections

Answer 20

-declarations or coverage summary stating agreed coverage & limits, location of property, name of insured and property insured
-Policy wordings which outline perils insured against, excluded perils & property, how claims will be settled and –policy conditions
Endorsement wordings that apply to any endorsements or floaters added to the policy.

Question 21

The insurance industry is highly competitive so in order to get the most attractive business insurers distinguish themselves in the price and scope of coverage and how they issue the policy . this is know as what?

Answer 21

package policy or multi peril policies

Question 22

why is package policy beneficial to the insurer

Answer 22

cut cost

Question 23

what is adverse selection in relation to insurance

Answer 23

when those with higher risks may purchase insurance in greater amounts than those with lower risks.
Insurers protect themselves from this by trying to measure risks and either charge more for a higher risk

Question 24

How can packaging reduce premiums?

Answer 24

Reducing the risk of adverse selection
Simplifying policy issuing and claims adj by issuing uniform contracts.

Question 25

When a risk is too large or complex or the risk is so high that no one insurance company will assume the risk a policy holder may use:

a. simplified policy
b. subscription policy
c. co-insurance
d. adverse selection

Answer 25

b. subscription policy

Question 26

Why do we have deductible

Answer 26

-Because small, frequent claims are expensive
-If the total amount of insurance is subdivided into more than one item, the deductible may apply separately to the amount recoverable under each item
-The deductible may be applied on an occurrence basis.

Question 27

Special limits of insurance

Answer 27

-Used to limit the insurers exposure to certain types of personal property
-property could be covered under other forms
examples, collections, art, money, securities, water crafts, tractors, wine spare parts business property and cannibas

Question 28

Special limits that apply only to loss caused by theft

Answer 28

-art work
-Jewelry
-fur
- stamp collections
-collections
-bicycles and their equipment

Question 29

Additional interests

Answer 29

parties not listed as named insured such as a mortgage

Question 30

Loss payee

Answer 30

someone other than the named insured to whom the insurance proceeds will be paid. if the insured cannot collect neither can the loss payee

Question 31

Mortgage clause what does it do?

Answer 31

-creates a separate contract between the insurer and mortgagee. even if the maned insured can’t collect because of a breach of contract.
-amends statutory condition #a allowing the mortgagee to give notice of loss
broadens statutory condition #3 to include the mortgagee who acquires title

Question 32

Obligation of the mortgagee

Answer 32

-If they learn of a vacancy or non-occupancy extended past 30 consecutive days
-if there is any transfer of interest
-If there is any increase in hazard

Question 33

What is rateable contribution

Answer 33

If more than one policy covers the same risk each insurer is responsible for their share.

Question 34

Why read a policy

Answer 34

To determine how to insure a risk
what guideline & coverages apply
whether or not a claim is covered.

Question 35

what is in section one coverage summary

Answer 35

-Named insured
-All the details of who and what is insured
-Claims people review this as a starting point to figure out if a loss is covered

Question 36

What is in section 2,

Answer 36

policy wording

Question 37

Section 3 .

Answer 37

Endorsement Wording

Question 38

Role of Brokers

Answer 38

gather relevant info
asses the risk and figure out what coverage is needed
complete the application
help answer questions the underwriter has
help report a loss

Question 39

Role of Underwritter

Answer 39

Review the application to ensure it meets guidelines
make sure the coverage is appropriate
Determine if any endorsements should be added
accept or reject the application or modify coverage
help claims answer any coverage questions

Question 40

Role of an claims adjuster

Answer 40

Determine if the claim falls within the claim period
does the loss fall with in the ensuing agreement
Do any exclusions apply
Do any endorsements apply
Have all policy condition been met
Is there a deductible
How much should be paid
is there a reason not to pay the claim
Notify underwriter of any material change

Question 41

Best practice when reading a policy

Answer 41

Step one Review definitions clause
Step two review the property that is covered and the property that is not covered

Question 42

Basic coverages in homeowners forms are
a. Dwelling, detached private structures and contents
b. detached private structures, contents and property
c. contents, private structures and addition living expense
d. dwelling building, detached private structures and additional living expense.

Answer 42

d. dwelling building, detached private structures and additional living expense.

Question 43

Dwelling Building includes

Answer 43

permanently installed outdoor equipment
Outdoor swimming pool and attached equipment
Construction materials on or adjacent to the premised
A limited amount for outdoor trees, plants and shrubs

Question 44

Personal property

Answer 44

Contents of the dwelling
Personal property away form premises temporarily
Personal property of a student insured by the policy who is living away from home temporarily.