Chapter 5: Property Insurance Policies - Common Characteristics

Question 1

Define personal property insurance

Answer 1

policies for property having a personal or non-business use

Question 2

Define commercial property insurance

Answer 2

policies for property having a business use

Question 3

What does Named Perils insure..

Answer 3

insures losses by perils listed on the policy

Question 4

What does Broad Form insure…

Answer 4

insures against all direct physical losses not excluded on the policy

Question 5

Types of property insured by personal property insurance

Answer 5

1. dwelling building
2. detached private structures
3. personal property

Question 6

Types of property insured by commercial property insurance

Answer 6

1. building
2. stock
3. equipment

Question 7

Direct loss is…

Answer 7

damage by peril directly attacking the property (ie. fire damaging a building)

Question 8

Indirect loss is…

Answer 8

result of direct loss (ie. loss of income due to fire)

Question 9

What is a “condition” and identify 2 types and give examples

Answer 9

Condition= requirement to do or not do something

1. statutory condition: established by statues (applies to everyone)
2. policy condition: developed by insurers

Question 10

Define “warranty”

Answer 10

a promise that something is true and shall remain true

exact compliance is required, if warranty is breached, the policy is VOID

Question 11

Why insurance policies contain exclusions

Answer 11

1. property excluded: because there is greater than normal loss potential, expensive to insure or had specialized forms for it already
2. perils excluded: because there is potential for catastrophic loss; naturally occurring or cumulative damage

Question 12

Define “deductible” and what it accomplishes

Answer 12

deductible = cost the insured is required to pay per loss (higher deductible = cheaper premium)

accomplishes the rationale: eliminate small losses and keeps insurance affordable

Question 13

State the Pair Set / Parts Rule

Answer 13

pay only for item lost, not the full set

Question 14

State the 3 criteria considered by the adjuster in determining the amount of loss

Answer 14

1. actual cash value: replacement cost minus depreciation
2. interest of the insured: insurable interest (how much of that property do you own)
3. limit of insurance: will only pay up to this limit

Question 15

4 factors used to determine the amount of depreciation when insured property is lost or damaged

Answer 15

1. condition of the item
2. obsolescence
3. resale value
4. normal life expectancy

Question 16

Identify 3 provisions relating to replacement cost coverage

Answer 16

1. replacement shall be affected by the insured with due diligence and dispatch
2. replacement shall be on the same site or an adjacent site
3. settlement on a replacement cost basis shall be made only when replacement has actually been affected

Question 17

Define “replacement cost”

Answer 17

cost to repair or replace with materials of like kind without depreciation

Question 18

The basis of settlement under a “valued” policy

Answer 18

require valuation by a qualified appraiser

Question 19

Who can be a “mortgagee”?

Answer 19

anyone having an insurable interest in the property insured

Question 20

Identify 2 guarantees provided to mortgagees by the Standard Mortgage Clause

Answer 20

1. guarantees payment to mortgagee when insured is denied coverage due to breach of conditions
2. guarantees that insurer will not reduce coverage or terminate policy without notice nor at the request of insured without mortgagee’s consent