Characteristics of Property Insurance Policies Chp. 5

Question 1

The 5 characteristics of Property Insurance Policies?

Answer 1

1. Property Insured
2. Deductible Clause
3. Standard Mortgagee Clause
4. Conditions / Warranties
5. Claims Payment Rules

Question 2

Personal Property Policies Insure…

Answer 2

Private NON-business use property

Question 3

Commercial Property Policies Insure…

Answer 3

Commercial use property @ named location

Question 4

Types of Coverage: named perils and broad form… Describe both

Answer 4

1. Named Perils: Insures losses by perils listed on the policy
2. Broad Form: Insures against all direct physical losses not excluded on the policy

Question 5

Only defined property and defined locations…

Answer 5

Are covered

Question 6

Perils Excluded: Because there is potential for catastrophic loss; commercially uninsurable, naturally occurring or cumulative damage; uncommon losses: give some examples

Answer 6

Nuclear incident, earthquake, wear and tear, sewer back-up, war

Question 7

Property Excluded: Because there is greater than normal loss potential, expensive to insure, or specialized forms exist: give some examples

Answer 7

Automobile, aircraft, vacant property, money/securities, books of account

Question 8

Describe the 3 characteristics of the Deductible Clause:

Answer 8

1. Deductible = cost the insured is required to pay per loss
2. Eliminates small losses and keeps insurance affordable
3. Higher deductible = cheaper premiums

Question 9

Describe the 3 characteristics of the Mortgage Clause:

Answer 9

1. It is a side agreement between the insurer and mortgagee
2. Guarantees payment to mortgagee when insured is denied coverage due to breach of conditions (IE. misrepresentation, breach of warranty, fraud, etc.)
3. Guarantees that insurer will not reduce coverage or terminate policy without notice OR terminate at the request of the insured without the mortgagees consent

Question 10

Does a mortgagee have insurable interest in the property?

Answer 10

Yes, they provide financing

Question 11

Conditions/Warranties define both and their characteristics:

Answer 11

1. Warranty = Promise that something is true and shall remain true. Exact compliance is required, if warranty is breached, the policy is VOID
2. Condition = Requirement to do or not do something

Question 12

Define Statutory Condition:

Answer 12

Legally required by law (applies to everyone)

Question 13

Define Policy Condition:

Answer 13

Stated on the policy, created by insurers

Question 14

State the 3 rules of the Claims and Payments Rules

Answer 14

1. Pair & Set / Parts Rule: Pay only for item lost, not the full set
2. Indemnity Agreement: Amount of settlement
3. Alternative Basis of Settlement

Question 15

Indemnity Agreement’s 3 Characteristics:

Answer 15

1. Actual Cash Value: replacement cost minus depreciation
2. Interest of Insured: Insurable interest = how much of that property do you own
3. Limit of Insurance: will only pay up to this limit

Question 16

Alternative Basis of Settlements 3 Characteristics:

Answer 16

1. Replacement cost (RC) on Buildings: must be done with due diligence and dispatch otherwise you won’t get the full amount
   a. Must repair with materials of like kind and quality @ same/nearby location
   b. ACV first, then full RC payment after replacment
2. Replacement Cost on Personal Property: must be used for original purpose at time of loss and replace promptly
3. Valued Policies: limits established by appraisal (As an alternative to RC)