chapter 4 Anatomy of a Property Policy: Overview Flashcards

1
Q

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

A

a. And, or

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2
Q

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

A

d. Package policies

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3
Q

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.

A

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

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4
Q

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.

A

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

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5
Q

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.

A

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

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6
Q

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

A

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

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7
Q

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.

A

b. When the limits on property are very high.

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8
Q

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.

A

a. deductible clause

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9
Q

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.

A

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

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10
Q

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

A

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

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11
Q

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

A

d) The pricing

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12
Q

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

A

b) Christian Dior Wedding dress

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13
Q

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

A

b) Plain language format

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14
Q

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

A

a) Policy wordings

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15
Q

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

A

d) Subscription policy

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16
Q

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

A

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

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17
Q

What is the Co-insurance Formula?

A

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

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18
Q

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?

A

$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

19
Q

What do policies have in common

A

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

20
Q

The key elements are arranged in 3 main sections

A

-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.

21
Q

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?

A

package policy or multi peril policies

22
Q

why is package policy beneficial to the insurer

A

cut cost

23
Q

what is adverse selection in relation to insurance

A

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

24
Q

How can packaging reduce premiums?

A

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

25
Q

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

A

b. subscription policy

26
Q

Why do we have deductible

A

-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.

27
Q

Special limits of insurance

A

-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

28
Q

Special limits that apply only to loss caused by theft

A

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

29
Q

Additional interests

A

parties not listed as named insured such as a mortgage

30
Q

Loss payee

A

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

31
Q

Mortgage clause what does it do?

A

-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

32
Q

Obligation of the mortgagee

A

-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

33
Q

What is rateable contribution

A

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

34
Q

Why read a policy

A

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

35
Q

what is in section one coverage summary

A

-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

36
Q

What is in section 2,

A

policy wording

37
Q

Section 3 .

A

Endorsement Wording

38
Q

Role of Brokers

A

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

39
Q

Role of Underwritter

A

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

40
Q

Role of an claims adjuster

A

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

41
Q

Best practice when reading a policy

A

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

42
Q

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.

A

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

43
Q

Dwelling Building includes

A

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

44
Q

Personal property

A

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.