Common Policy Concepts

Question 1

Factual expectancy

Answer 1

A situation in which a party experiences an economic advantage if an insured event does not occur or, conversely, economic harm if the event does occur.

Question 2

Agent

Answer 2

In the agency relationship, the party that is authorized by the princi- pal to act on the principal’s behalf.

Question 3

Trustee

Answer 3

Someone who has the legal title to a property but is responsible that it be used, handled, and transferred solely for the benefit of the benefi- ciary.

Question 4

Bailee

Answer 4

The party temporarily possessing the personal property in a bailment.

Question 5

Bailor

Answer 5

The owner of the personal property in a bailment.

Question 6

Insurance to value

Answer 6

Insurance written for an amount approximating the full value of the asset(s) insured.

Question 7

Loss frequency

Answer 7

The number of losses that occur within a specified period.

Question 8

Loss severity

Answer 8

The amount of loss, typically measured in dollars, for a loss that has occurred

Question 9

Insurance-to-value provision

Answer 9

A provision in property insurance policies that encourages insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property.

Question 10

Coinsurance clause

Answer 10

A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property’s value.

Question 11

Agreed Value optional coverage

Answer 11

Optional coverage that suspends the Coinsurance condition if the insured carries the amount of insurance agreed to by the insurer and insured.

Question 12

Inflation guard protection

Answer 12

A method of protecting against inflation by increasing the applicable limit for covered property by a specified percentage over the policy period.

Question 13

Peak season endorsement

Answer 13

Endorsement that covers the fluctuating values of business personal property by providing differing amounts of insurance for certain time periods during the policy period.

Question 14

Actual cash value (ACV)

Answer 14

Cost to replace property with new property of like kind and quality less depreciation.

Question 15

Replacement cost

Answer 15

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

Question 16

Market value

Answer 16

The price at which a particular piece of property could be sold on the open market by an unrelated buyer and seller.

Question 17

Broad evidence rule

Answer 17

A court ruling explicitly requiring that all relevant factors be consid- ered in determining actual cash value.

Question 18

Agreed value method

Answer 18

A method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss.

Question 19

Functional valuation method

Answer 19

A valuation method in which the insurer is required to pay no more than the cost to repair or replace the damaged or destroyed property with property that is its functional equivalent.

Question 20

Damages

Answer 20

Money claimed by, or a monetary award to, a party who has suffered bodily injury or property damage for which another party is legally responsible.

Question 21

Dollar trading

Answer 21

An insurance premium and loss exchange in which the insured pays the insurer premiums for low value losses, and the insurer pays the same dollars back to the insured, after subtracting expenses.

Question 22

Self-insured retention (SIR)

Answer 22

A dollar amount specified in an insurance policy that the insured must pay before the insurer will make any payment for a claim.

Question 23

Insurable interest

Answer 23

An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred.