Insurance Ch - 9 Flashcards
1
Q
What are the 3 policies most commonly used to protect against personal property and liability risks ?
A
3 Polices used to protect against personal property and liability risks.
____________________________________________________________________
Homeowner’s insurance policy (HO)
Automobile insurance policy (PAP)
Personal Liability umbrella insurance policy (PLUP)
2
Q
COVERED PERILS (1 OF 2)
- Coverage to property is on a basic, broad, or open perils basis.
- “Basic” Named Perils:
A
COVERED PERILS (1 OF 2)
- Coverage to property is on a basic, broad, open perils basis.
- “Basic” Named Perils:_________________
Fire cars lightening
Smoke explosion vandalism
Hail aircraft Riot
Theft WINDSTORM Volcano
3
Q
COVERED PERILS (2 OF 2)
A
COVERED PERILS ( 2 OF 2)
- Broad Named Perils
- “Basic” Named Perils (previous slide), plus:
- Losses resulting from perils not listed in the policy are not
covered.
Falling objects - weight of ice , snow Sleet
accidental overflow of water - sudden bursting of appliances
Freezing of system or appliance - Damage to electrical current
4
Q
OPEN PERILS POLICY
A
OPEN PERILS POLICY
- ALL PERILS ARE COVERED - except those specifically excluded.
- Exclusions include : neglect (termite damage), flood, earth
movement, war, intentional acts, etc.
5
Q
GENERAL EXCLUSIONS FOR ALL HO POLICIES
A
GENERAL “EXCLUSIONS “ FOR ALL HO POLICIES
- MOVEMENT of ground: Includes earthquake, mud/landslide and sink hole
- ORDINACE or law: Loss resulting from regulations regarding
construction or demolition - WATER DAMAGE : Floods, water from underground and sewer backup
- WAR or nuclear hazard: Including nuclear power plant
- POWER FAILURE-: power plant failure that causes a loss
- INTENTONAL act: Burning down your own house
- NEGLET : Must take reasonable means to save property and mitigate loss
6
Q
FLOOD INSURANCE
A
FLOOD INSURANCE
- The National Flood Insurance Program provides subsidized flood insurance to property owners in qualified areas.
- Flood policy is enforceable immediately during the first 30 days that coverage is available in a community, or if required by the mortgage lender upon purchase of a home.
– Otherwise, a 30-day waiting period applies before the policy
becomes effective.
7
Q
PERSONAL PROPERTY & LIABILITY INSURANCE
- Homeowners (HO) insurance: basic coverages
A
PERSONAL PROPERTY & LIABILITY INSURANCE (form HO)
- Homeowners (HO) insurance: basic coverages
______________________________________________________________ - Section 1 Coverages: “ D O P L “
Coverage A: D welling - $ based on replacement cost
Coverage B: O ther structures - 10% of Coverage A
Coverage C: P ersonal property - 50% of Coverage A
Coverage D: L oss of use - 30% of Coverage A
______________________________________________________________
- Section 2 Coverages: “P M “
Coverage E: Personal Liability $100,000 / $1000 damage to prop oth
Coverage F: Medical Payments to Others - $1000
______________________________________________________________
- Section 3 “ F E A “
-Flood Insurance
-Earthquake
-Additional coverage
8
Q
SECTION I COVERAGES: Coverage A: Dwelling
- Covers ?
A
SECTION I COVERAGES: Coverage A: Dwelling
- Covers repair or replacement of the house, attached structures and building materials on premises.
- Best to purchase an amount =to replacement cost (cost to
rebuild) of the building. - Must carry at least 80% of replacement cost of building or coinsurance will apply to partial losses.
9
Q
COINSURANCE
Formula ?
A
COINSURANCE
- Actual Cash Value (ACV)
- Represents depreciated value of the property
- Replacement Cost (RC)
- Amount necessary to purchase, repair or replace with similar
quality at current prices
- Amount necessary to purchase, repair or replace with similar
- To be fully covered for partial losses, the Insured must carry
coverage for at least 80% of the replacement cost at the time
of the loss. - Formula$ of Insurance Carried
_______________________________ x Amount of loss - Deductible
Coinsurance Requirement
10
Q
COINSURANCE: EXAMPLE (1 OF 2)
Johan owns his home valued at $500,000. The replacement cost of the house is $400,000 and the value of the land is $100,000. He purchased $250,000 of insurance with an 80% coinsurance requirement.
A tornado caused $100,000 in damage to his house. If Johan has a $500 deductible,
how much will the insurance company pay?
A
COINSURANCE: EXAMPLE (1 OF 2)
Johan owns his home valued at $500,000. The replacement cost of the house is $400,000 and the value of the land is $100,000. He purchased $250,000 of insurance with an 80% coinsurance requirement. A tornado caused $100,000 in damage to his house. If Johan has a $500 deductible,
how much will the insurance company pay?
$ 250,000
—————— x $ 100,000 (damage) - $500 (deductible) = $ 77,625
80% x $400,000
11
Q
COINSURANCE: EXAMPLE (2 OF 2)
- Alternatively, if Johan had $320,000 in insurance coverage, then 100% of the loss would be covered, less the deductible
A
COINSURANCE: EXAMPLE (2 OF 2)
- Alternatively, if Johan had $320,000 in insurance coverage, then 100% of the loss would be covered, less the deductible
$320,000
———————–x $100,000 - $500 = $99,500
80% x $400,000
12
Q
SECTION I COVERAGES: COVERAGE B
Coverage B: Other Structures
A
SECTION I COVERAGES: COVERAGE B
Coverage B: Other Structures
- Detached garages, storage buildings, etc.
- 10% limit of coverage A.
- NOT covered other structure if used for business purposes
13
Q
SECTION I COVERAGES: COVERAGE C (1 OF 2)
Coverage C: Personal Property
A
SECTION I COVERAGES: COVERAGE C (1 OF 2)
Coverage C: Personal Property
- Standard coverage is for actual cash value.
- Need an endorsement to have replacement cost
- Limits are placed on certain personal property losses, e.g., cash,
coin collections ($200), jewelry ($1,500). - 50% of Coverage A but be sure to read the policy.
- Coverage is effective regardless of where the property is located.
- Need a scheduled personal property endorsement for high value jewelry and other high-value items because of low policy limits.
14
Q
SECTION I COVERAGES: COVERAGE C (2 OF 2)
Coverage C: Personal Property
- The following personal property items are specifically EXCLUDED from coverage in package policies: ??
A
SECTION I COVERAGES: COVERAGE C (2 OF 2)
Coverage C: Personal Property
- Personal property items that are EXCLUDED
Animals, birds, and fish
Articles separately described and specifically insured
Motorized land vehicles used off premises
Property of roomers or boarders not related to the insured
Aircraft and parts
Furnishings on property rented out to others
Property held as samples, held for sale, or sold but not delivered
Business data, credit cards, and funds transfer cards
Business property held away from the residence premises
15
Q
SECTION I COVERAGES: COVERAGE D
Coverage D: Loss of Use
A
SECTION I COVERAGES: COVERAGE D
Coverage D: Loss of Use
- A combination of additional living expenses and loss of rental income.
- The limit is usually 30% of the Coverage A amount.
- The loss resulting from living in a hotel because residence is
damaged or being repaired. - If rental income is lost due to a property being damaged, the insured may collect loss of use.
16
Q
SECTION II COVERAGES: COVERAGE E
Coverage E: Personal Liability
A
SECTION II COVERAGES: COVERAGE E
Coverage E: Personal Liability
- For Claims arising out of both bodily injury and property damage.
- The insurer will cover both the damages and the costs of any defense of the claim or suit.
- Minimum coverage = $100,000 per occurrence.
- Insurer will only pay to the lesser of the damage or the coverage.
- This section excludes professional liability exposures.
- The Coverage E liability insurance is based on a legal liability to pay.
17
Q
SECTION II COVERAGES: COVERAGE E
EXAMPLE 1
- Latoya lives in a neighborhood where houses are fairly close together and have small yards. During a severe storm, a large healthy tree on Latoya’s property is hit by lightening and falls onto the roof of her neighbor’s house. Since the tree fell due to an act of nature, and not due to Latoya’s negligence, the neighbor’s homeowner’s policy will cover the damages to the neighbor’s house (under Coverage A).
A
SECTION II COVERAGES: COVERAGE E
EXAMPLE 1
- Latoya lives in a neighborhood where houses are fairly close together and have small yards. During a severe storm, a large healthy tree on Latoya’s property is hit by lightening and falls onto the roof of her neighbor’s house.
Since the tree fell due to an ACT OF NATURE, and not due to Latoya’s negligence, the neighbor’s homeowner’s policy will cover the damages to the neighbor’s house (under Coverage A).
18
Q
SECTION II COVERAGES: COVERAGE E
EXAMPLE 2
- Arty lives in a neighborhood where the houses are fairly close together and have small yards. Arty is aware that one of the large trees on his property is diseased and unstable but has not yet gotten around to having it removed. As a result, a mild storm blows the tree over onto the neighbor’s roof. The storm was not heavy enough to blow over other, healthy, trees.
A
SECTION II COVERAGES: COVERAGE E
EXAMPLE 2
- Arty lives in a neighborhood where the houses are fairly close together and have small yards. Arty is aware that one of the large trees on his property is diseased and unstable but has not yet gotten around to having it removed. As a result, a mild storm blows the tree over onto the neighbor’s roof. The storm was not heavy enough to blow over other, healthy, trees.
Since the damage was a result of Arty’s NEGLIGENCE , his
homeowner’s policy will cover the damage to the neighbor’s house
(under Coverage E).
19
Q
SECTION II COVERAGES: COVERAGE F (1 OF 2)
Coverage F: Medical Payments to Others
- Includes coverage for ?
A
SECTION II COVERAGES : COVERAGE F (1 OF 2)
Coverage F: Medical Payments to Others
- Coverage for the medical payments to others for injuries that arise even where the insured is not liable for the injury.
- limits $ 1,000 /PERSON PER OCCURRENCE
- Medical expenses include reasonable charges for medical
procedures, surgical procedures, hospital stays, ambulances, dental care, X-rays, professional nursing, prosthetic devices, and funeral services. - Not apply to the insured or members of the insured’s
household. - Not liability insurance coverage and is not based on fault.
20
Q
SECTION II COVERAGES: COVERAGE F (2 OF 2)
Coverage F: Medical Payments to Others
A
SECTION II COVERAGES: COVERAGE F (2 OF 2)
Coverage F: Medical Payments to Others
- One of the following conditions must be met for individual to
receive medical payments coverage from the insured:
– Injury occurs while the person has permission to be at the
insured location.
– Injury occurs while the person is away from the insured
location and is caused by a condition at the insured location or on
property immediately adjoining the insured location.
–Insured injures another person while away from the insured
location.
– Animal owned by or in the care of the insured injures an
individual off the insured premises.
21
Q
EXCLUSIONS TO COVERAGE (MEDICAL PAYMENTS) ONLY
- Coverage F will not provide coverage for bodily injuries:
A
EXCLUSIONS TO COVERAGE (MEDICAL PAYMENTS) ONLY
- Coverage F will not provide coverage for bodily injuries:
–Sustained by the insured or any family member
–Sustained by a regular resident of an insured location
–Sustained by a residence employee of the insured that occur outside of the scope of employment
–Sustained by anyone eligible to receive benefits for their injuries
under a workers’ compensation or similar disability law
– Resulting from nuclear reaction radiation, etc
22
Q
GENERAL PROVISIONS OF SECTIONS I & II
A
GENERAL PROVISIONS OF SECTIONS I & II
- Assignment of a Homeowners policy to another is not valid without the insurance company’s WRITTEN CONSENT.
- Insured may be required to assign his or her right of recovery against a third party if the insurance company pays for a loss caused by the third party (subrogation).
- Policy is void if the insured willfully misrepresented or concealed any material fact concerning the insurance.
23
Q
HOMEOWNERS INSURANCE FORMS AVAILABLE (1 OF 4)
HO-2 Broad Form-
HO-3 Special Form -
A
HOMEOWNERS INSURANCE FORMS AVAILABLE (1 OF 4)
HO-2 Broad Form_______________________
* Covers both basic and broad named perils (1-18).
HO-3 Special Form______________________
* Provides coverage on dwelling and other structures on an OPEN PERILS basis resulting in coverage against all perils except those specifically excluded.
* PERSONAL PROPERTY is covered on a NAMED PERIL basis and is 50% of the insurance on the dwelling (Coverage A).
—Can endorse to change to open perils.
* Allows loss of use on an open perils basis.
* Exclusions applicable to the open perils coverage of the dwelling and other structures.
24
Q
HOMEOWNERS INSURANCE FORMS AVAILABLE (2 OF 4)
HO-4 Contents Broad Form (designed for renters)
HO-5 Comprehensive Form
A
HOMEOWNERS INSURANCE FORMS AVAILABLE (2 OF 4)
HO-4 Contents Broad Form ( RENTERS )___________
* Designed for tenants, and provides protection for furniture, clothes, and other personal property against the same perils as HO2 Broad Form.
* Loss of use coverage = limited to 30% amount of Coverage C (personal property).
* Tenant’s improvements and betterments coverage protects the insured for use value for any additions, installations or improvements made by the insured to the rented dwelling.
– Limited to 10% of the amount of personal property coverage.
HO-5 Comprehensive Form_ _________________________________
* DWELLING and PERSONAL PROPERTY
* Covered on an OPEN PERILS basis
25
HOMEOWNERS INSURANCE FORMS AVAILABLE (3 OF 4)
HO-6 Unit Owners Form (designed for condo owners)
HOMEOWNERS INSURANCE FORMS AVAILABLE (3 OF 4)
HO-6 Unit Owners Form ( CONDO owners )
* Covers BASIC and BROAD NAMED PERILS , but not building coverage.
* The insurance responsibility in a condo arrangement is divided between the condo unit owner and the condo association.
* Provides coverage for the personal property of the condo owner for the same named perils as HO2.
* Loss of use coverage equal to 50% of amount of Coverage C (personal property).
* Provides coverage for building alterations and additions.
* Endorsements can be added to HO6 to provide open peril coverage on the unit owner’s building items (carpet, inside walls), personal property, loss of unit rental and assessment coverage.
26
HOMEOWNERS INSURANCE FORMS AVAILABLE (4 OF 4)
HO-8 Modified Form
HOMEOWNERS INSURANCE FORMS AVAILABLE (4 OF 4)
HO-8 Modified Form
* Covers Repair ( Functionally equivalent) rather than replacement (like kind and quality) cost.
* Only BASIC PERILS are covered.
* Designed to cover losses to structures where the replacement cost for the home exceeds the market value for the home.
* Theft coverage applies to the premises only and is limited to $1,000 per occurrence.
* May cover dwelling using current materials and labor rather than attempting to replace older materials and craftsmanship
27
HOMEOWNERS INSURANCE CONTRACTUAL ROVISIONS (1 OF 2)
Duties After a Loss
* The insured must: ?
HOMEOWNERS INSURANCE CONTRACTUAL PROVISIONS (1 OF 2)
Duties After a Loss
* The insured must:
-- Give notice to the insurer immediately.
-- Protect the property from further damage.
-- Prepare an inventory of the loss, including:
* Building damage
* Personal property damage or loss
-- File a written proof of the loss
28
HOMEOWNERS INSURANCE CONTRACTUAL PROVISIONS (2 OF 2)
* Loss to a Pair or Set
The insurer may
* Repair or replace damaged item, OR
* Pay the difference between the value before and after the loss.
HOMEOWNERS INSURANCE CONTRACTUAL PROVISIONS (2 OF 2)
* Loss to a Pair or Set
The insurer may
* Repair or replace damaged item, OR
* Pay the difference between the value before and after the loss.
29
SUMMARY OF HOMEOWNER INSURANCE POLICIES
* See Exhibit 9.9 in text.
SUMMARY OF HOMEOWNER INSURANCE POLICIES
* See Exhibit 9.9 in text.
-- It is important to understand the strengths and weaknesses of each
homeowner policy form (HO 2, 3, 4, 5, 6, and 8), including:
* Whether each Section I coverage (A, B, C, D) is covered for
basic, broad, or open perils.
* Whether each Section I coverage (A, B, C, D) is for replacement
cost or actual cash value.
* Amount of each coverage, and any special limits that may apply.
* Exclusions under each coverage
30
SCHEDULED PERSONAL PROPERTY ENDORSEMENT
SCHEDULED PERSONAL PROPERTY ENDORSEMENTS
* Also called inland marine insurance (not watercraft)
* Coverage that can be added to the homeowners policy as a scheduled endorsement (scheduled floater) are:
* Personal furs
* Jewelry
* Silverware
* Golf equipment floater covers golf equipment kept in a locker in a clubhouse.
* Camera, fine art and antiques, stamp and coin collection, musical instrument, wedding presents, and personal property floaters.
31
INSURANCE ON WATERCRAFT
INSURANCE ON WATERCRAFT
* Boat owners’ policy covers liability, physical damage, medical payments and uninsured watercraft.
* Physical damage coverage is ACV coverage for the boat and
permanently attached equipment.
* Homeowners policy will only cover a small boat with a 25HP motor or less; anything larger requires a boat owners policy.
32
SUMMARY OF AUTOMOBILE COVERAGE
SUMMARY OF AUTOMOBILE COVERAGE
* The owner and operator of an automobile should be concerned about the following risks:
* Liability for injuries and damages to persons outside of the insured vehicle.
* Liability for injuries and damages to persons inside the insured
vehicle.
* The cost to repair or replace a damaged or stolen insured vehicle or other property.
33
PERSONAL AUTO INSURANCE POLICY
Part A:
* Part B:
* Part C:
* Part D:
* Part E:
* Part F:
PERSONAL AUTO INSURANCE POLICY " L M U C D G "
Part A: L iability Coverage
* Part B: M edical Payments
* Part C: U ninsured Motorists
* Part D: C overage for Damage to Your Auto
* Part E: D uties After an Accident or Loss
* Part F: G eneral Provisions
34
IMPORTANT PAP POLICY DEFINITIONS
*
IMPORTANT PAP POLICY DEFINITIONS
* “Your covered auto” is defined as any of the following:
* Any vehicle shown in the policy declarations.
* Any new vehicle in addition to those shown in the declarations must be reported to the insurer within 14 days.
* Any new vehicle that replaces a vehicle shown in the declarations. The new vehicle will have the same coverage as the vehicle it replaced. The insured must report the new vehicle within 30 days.
* Any auto or trailer that the insured does not own, but that is used as a temporary substitute while a covered vehicle is unavailable due to
loss, breakdown, repair, service, or destruction
35
PERSONAL AUTO POLICY (1 OF 6)
Part A: Liability Coverage
PERSONAL AUTO POLICY (1 OF 6)
Part A: Liability Coverage
* Covered persons include you, any family member, any person using your car with your permission, any organization responsible for the conduct of someone driving your covered auto, any organization responsible for your conduct while driving a non-owned auto.
* Coverage amounts are limited as follows:
-- Bodily Injury Per Person
-- Bodily Injury Per Occurrence
--Property Damage Per Occurrence
* State law minimum limits automatically increase to state mandated minimums when driving from state to state.
* Insurance on the auto is the primary insurance to recover any loss. The driver’s auto insurance is secondary.
36
PERSONAL AUTO POLICY (2 OF 6)
Part B: Medical Payments
PERSONAL AUTO POLICY (2 OF 6)
Part B: Medical Payments
* Covered persons include you or any family member while occupying the auto, you or any family member as a pedestrian struck by an auto, any other person while occupying your covered auto.
* Coverage amounts are limited as follows:
-- Per Person, Per Occurrence Basis
* $5,000 limit per person, four persons in a car, then $20,000
limit
--Exclusions:
* Public livery, racing, and auto used without permission
37
PERSONAL AUTO POLICY (3 OF 6)
Part C: Uninsured Motorists
PERSONAL AUTO POLICY (3 OF 6)
Part C: Uninsured Motorists
* Pays what an “under-insured” or uninsured driver should have paid for your bodily injury.
* Under-insured or uninsured must have been at fault.
* Covered persons include you or
--any family member while occupying the auto
-- any other person while occupying your covered auto
--any person who might have been entitled to damages
* Exclusions:
-- Public delivery, regular use of a non-owned vehicle, auto used
without permission, auto used in insured’s business
38
PERSONAL AUTO POLICY (4 OF 6)
Part D: Coverage for Damage to Your Auto
PERSONAL AUTO POLICY (4 OF 6)
Part D: Coverage for Damage to Your Auto
* Collision
-- Protects against an accident involving another car, vehicle upsets, running off the road, into a creek or lake, tree, wall
* Comprehensive (Other-Than-Collision)
--Usually open perils, including falling objects, fire, theft,
explosion, earthquake, windstorm, hail, water, flood, mischief,
vandalism, riot, contact with a bird or animal and breakage of
glass
* Exclusions:
--Public livery, radar detectors, most electronic equipment, nuclear damages, auto used without permission, auto used in insured’s business
39
PERSONAL AUTO POLICY (5 OF 6)
Part E: The duties of the insured after an accident or loss
PERSONAL AUTO POLICY (5 OF 6)
Part E: The duties of the insured after an accident or loss
* Notify the insurer.
* File a proof of loss (affidavit).
* Cooperate with the insurer in the investigation of the loss.
* The insured must file a police report if the cause of the loss was theft or uninsured motorist.
40
PERSONAL AUTO POLICY (6 OF 6)
Part F: General Provisions
PERSONAL AUTO POLICY (6 OF 6)
Part F: General Provisions
* Only provides coverage in the United States, Puerto Rico and Canada
* A personal auto policy is not effective in Mexico
41
NO-FAULT INSURANCE definition ?
NO-FAULT INSURANCE Definition :
-- There are 12 NO FAULT states.
--Under a pure no-fault, there would be no tort claims for auto
injuries. No state has a pure no-fault law.
-- Under modified no-fault, tort claims are limited to serious injuries
42
COST OF AUTOMOBILE INSURANCE
* Automobile insurers determine premiums based on:
COST OF AUTOMOBILE INSURANCE
* Automobile insurers determine premiums based on:
Age and gender of operators
Marital status
Driving record and claims history of the operators
Location where car is kept
Type of car
Use of the automobile and mileage
The credit score of the insured
Policy coverages and deductibles
43
LEGAL LIABILITY (1 OF 4)
LEGAL LIABILITY (1 OF 4)
* Torts cover intentional acts and accidents, such as:
--Civil wrongs
* Intentional Tort: ibel, slander, assault and battery
* Strict and Absolute Liability
-- Strict – allows for defense
-- Absolute – no defense
* Negligent (Unintentional Tort)
-- Prudent Man standard - Did the defendant act in the same
manner as a prudent man would act?
44
LEGAL LIABILITY (2 OF 4)
LEGAL LIABILITY (2 OF 4)
* Breach of Contract
* Crimes
--Public wrongs
* Negligence
-- Failure to acts as a Prudent Man
* Defense to negligence
--Assumption of risk-the injured party assumed the risk before doing something
* Not available in all states
45
LEGAL LIABILITY (3 OF 4)
LEGAL LIABILITY (3 OF 4)
* Negligence on the part of the injured party
--Contributory Negligence
* Insured person’s negligent actions contributed to loss, cannot
recover
-- Comparative Negligence
* Insured person’s negligent actions contributed to loss, can
recover portion of loss from other negligent party
--Last Clear Chance Rule
* The plaintiff can collect even if there was contributory negligence on the plaintiff’s part if the plaintiff can prove the defendant had a last clear chance to avoid the accident
46
LEGAL LIABILITY (4 OF 4)
LEGAL LIABILITY (4 OF 4)
* Res Ipsa Locquitur
-- The act speaks for itself
-- If an accident occurred, then there was negligence.
--If there is an airplane crash, the act speaks for itself and
negligence occurred.
* Vicarious Liability
--Responsible for the acts of others
47
PERSONAL LIABILITY UMBRELLA POLICY (PLUP) (1 OF 4)
PERSONAL LIABILITY UMBRELLA POLICY PLUP_ (1 OF 4)
* Protection against legal obligations that arise from negligent acts.
* A PLUP pays the costs, up to the face of the policy, that result in liability.
* Usually provides legal defense for the insured in the event of a lawsuit.
* A PLUP requires higher liability limits on underlying auto and
homeowner policies.
48
PERSONAL LIABILITY UMBRELLA POLICY (PLUP) EX. (2 OF 4)
* Geraldo purchased an umbrella policy providing $1 million of coverage.
The policy requires Geraldo to maintain homeowner liability coverage (Coverage E) of $250,000. Geraldo got tired of paying the higher HO premium and reduced the liability coverage to $100,000.
* The following month a neighbor was seriously injured when she was standing on Geraldo’s second story deck and floorboards gave way, causing her to fall on the concrete below. The liability claim was for $550,000.
PERSONAL LIABILITY UMBRELLA POLICY (PLUP) EX. (2 OF 4)
* Geraldo purchased an umbrella policy providing $1 million of coverage. The policy requires Geraldo to maintain homeowner liability coverage (Coverage E) of $250,000. Geraldo got tired of paying the higher HO premium and reduced the liability coverage to $100,000.
* The following month a neighbor was seriously injured when she was standing on Geraldo’s second story deck and floorboards gave way, causing her to fall on the concrete below. The liability claim was for $550,000.
--Geraldo’s HO policy will pay $100,000.
--Geraldo must pay the next $150,000 out-of-pocket
-- The umbrella policy will pay the remaining $300,000
49
PERSONAL LIABILITY UMBRELLA POLICY (PLUP) (3 OF 4)
PERSONAL LIABILITY UMBRELLA POLICY (PLUP) (3 OF 4)
* The coverage is for liability of the insured, the family members, or both.
* The coverage includes exposure at the premises of the residence or away from the residence.
* Provides coverage for the insured’s legal obligation because of bodily injury or property damage.
* Provides payment for reasonable medical expenses for the injured party.
* Typical coverage is between $1-3M
50
PERSONAL LIABILITY UMBRELLA POLICY (PLUP) (4 OF 4)
Exclusions
PERSONAL LIABILITY UMBRELLA POLICY (PLUP) (4 OF 4)
E
51
BUSINESS AND PROFESSIONAL INSURANCE
BUSINESS AND PROFESSIONAL INSURANCE
* Commercial Package Policy (CPP)
Property & liability coverage
* The Business Owners Policy (BOP)
* Business Liability Insurance
Bodily injury, property damage, legal defense
* Business Liability Umbrella Policy (BLUP)
Liability, legal defense
* Business Auto Policy (BAP)
* Commercial Liability Umbrella Policy (CLUP)
* Products liability insurance
52
PROFESSIONAL LIABILITY INSURANCE (1 OF 2)
PROFESSIONAL LIABILITY INSURANCE (1 OF 2)
* Malpractice Insurance
--Provides coverage where bodily injury may occur due to negligence
* Errors & Omissions
--Covers negligent acts, errors and omissions
--Many professionals carry E&O insurance, such as:
* Accountants
* Lawyers
* Engineers
* Financial Planners
53
PROFESSIONAL LIABILITY INSURANCE (2 OF 2)
PROFESSIONAL LIABILITY INSURANCE (2 OF 2)
May be written on an occurrence basis or claims made basis
* Occurrence basis :
-- Covers events that occur while the policy is in force
* Claims made basis :
-- Covers claims that are made within the term of the policy or a
specified extended reporting period thereafter, regardless of when the event occurred.
-- Extended Reporting Periods (ERPs, or tails) can be purchased to
extend the reporting period
54
Actual Cash Value -
Actual Cash Value -
The depreciated value of personal property
55
Assumption of Risk -
The injured party ,,,,,
Assumption of Risk -
The injured party fully understood and recognized the dangers that were involved in an activity and voluntarily chose to proceed.
56
Basic Perils Coverage -
Basic Perils Coverage -
Protects the homeowner from losses associated with specifically named perils.
57
Broad Perils Coverage -
Broad Perils Coverage
- Protection for the perils covered in basic coverage, plus additional protection for named perils not covered under basic coverage.
58
Coinsurance -
Coinsurance -
The percentage of financial responsibility the insured and the insurer must uphold in order to achieve equity in rating.
Coinsurance in property insurance encourages insureds to cover their property to at least a stated percentage of the property’s value, or else suffer a financial penalty
59
Collateral Source Rule -
Collateral Source Rule -
Damages assessed against a negligent party should not be reduced simply because the injured party has other sources of recovery available, such as insurance or employee benefits (health or disability insurance)
60
Combined Single Limit Policy -
Combined Single Limit Policy -
An auto insurance policy that has a fixed amount of coverage that the insurance company pays, whether the loss is attributable to bodily injury or property damage
61
Comparative Negligence - T
Comparative Negligence -
The amount of damage is adjusted to reflect the injured party’s proportion of contribution to the cause of the injury
62
Comprehensive (or Other than Collision) -
Comprehensive (or Other than Collision) -
Auto insurance coverage that protects the insured’s auto against perils out of the insured’s control, such as missiles or falling objects, fire, theft, earthquake, hail, flood, and vandalism.
63
Contributory Negligence -
Contributory Negligence -
Negligence on the part of the injured party that contributes to the harm and, therefore, requires the injured to bear some responsibility for the injury
64
Endorsement -
Endorsement -
Attachment or addition to an existing insurance policy that changes the original terms.
65
intentional Interference -
intentional Interference -
Intentional act committed against another that causes injury
66
Last Clear Chance Rule -
Last Clear Chance Rule -
This rule states that a claimant who is endangered by his own negligence may recover if the defendant has a “last clear chance” to avoid the accident and failed to do so.
67
Liability Coverage -
Liability Coverage -
Covers bodily injury or property damage to others
for which the insured driver is deemed to be responsible.
68
Libel
Libel -
written statement that causes harm to another
69
Open Perils Policy -
Open Perils Policy
- All-risk coverage for personal property that provides for a much broader and more comprehensive protection program than named-perils coverage.
70
Personal Liability Umbrella Policy (PLUP)
Personal Liability Umbrella Policy (PLUP)
- Coverage designed to provide a catastrophic layer of liability coverage on top of the individual’s homeowners and automobile insurance policies.
71
Replacement Cost
Replacement Cost -
The amount necessary to purchase, repair, or replace the dwelling with materials of the same or similar quality at current prices.
72
Res ispa loquitur -
A doctrine of the law ,,,,,,,
Res ispa loquitur
- A doctrine of the law of negligence
that is concerned with the circumstances and the types of accidents, which affords reasonable evidence
if a specific explanation of negligence is not available
73
Scheduled Personal Property Endorsement -
Scheduled Personal Property Endorsement -
Endorsement to homeowner policy - covers specified items of personal property
at an agreed-upon value
in excess of the standard coverage limits for the type of property
74
Split Limit Policy -
Split Limit Policy -
Auto insurance policy with three separate liability coverage limits covering bodily injury :
per person and per occurrence
and property damage
75
Strict and Absolute Liability -
Strict and Absolute Liability
- Liability resulting from law.
-Strict liability- allows for defense,
-Absolute liability - does NOT
76
Uninsured / Underinsured Motorist -
Uninsured / Underinsured Motorist -
Motorist without liability coverage or whose insurer can/will not pay claim, such as a hit-and-run driver, or motorist with insufficient liability coverage according to state law
77
Vicarious Liability -
Vicarious Liability -
One person may become legally liable for the torts of another
(e.g., parent/child, employer whose employee is acting in the scope of employment).
78
Otto rents an apartment for $500 per month and has $50,000 content coverage. If he is unable to occupy his apartment due to a negligent fire caused by a neighbor, for up to how many months could he rent another apartment if the cost of the new apartment is $750 per month?
a. 60 months.
b. 6 months.
c. None because negligent acts are not covered.
d. None because content coverage does not cover reimbursement for rent.
renters covers 30% of Content
$50,000 = Total benefit
$15,000 = 30% of content = $15,000 ( $50,000 x .15 = $15,000 )
$15,000 remaining could be used on the rent
excess rent is $250/mn x 60 mns = $15,000
A. 60 months
79
Which of the following offers identical coverage for all forms of a homeowners insurance policy?
Liability and medical payments coverage are identical in all HO policies
80
rad has purchased an umbrella liability policy requiring that he carry $300,000 per person as the liability limit in his personal auto policy. Brad's auto policy has split-limits of $100,000/$300,000/$50,000. In an auto accident caused by Brad, a pedestrian is injured and is awarded $250,000 by the court. How much will Brad's umbrella liability insurer pay in this situation?
rad has purchased an umbrella liability policy requiring that he carry $300,000 per person as the liability limit in his personal auto policy. Brad's auto policy has split-limits of $100,000/$300,000/$50,000. In an auto accident caused by Brad, a pedestrian is injured and is awarded $250,000 by the court. How much will Brad's umbrella liability insurer pay in this situation?
The umbrella liability insurer will settle the claim as if Brad had $300,000 of coverage under the personal auto policy, not the $100,000 that he did have. Therefore, the umbrella liability insurer will pay nothing.
81
A CFP® professional has been consulted on the amount of payment the client can expect from an insurance claim. The client owns a commercial building that has a replacement value of $1,500,000. The building was insured for $1,000,000, and the policy contained an 80% coinsurance clause and a $4,000 deductible. The building had a fire that has been estimated to have resulted in a $350,000 loss. What should the client expect to receive in payment for this loss?
This question requires you to use the coinsurance formula for calculating payments on insured losses. The insured has not purchased adequate limits of so a coinsurance penalty applies. The coinsurance formula is as follows:
[(Amount of insurance carried ÷ Amount of insurance required) x Loss] - Deductible = Loss Payment
The amount of the insurance carried was $1 million, and the building was valued at a replacement cost of $1,500,000. The insurance required was 80% of $1.5 million or $1.2 million. The insurance payment for the partial loss will be reduced because the insured did not carry the required amount of insurance. The percentage of the loss that will be utilized is calculated by dividing the $1 million of insurance carried by the $1.2 million of required insurance. The result of this division is then multiplied times the loss of $350,000, and the deductible of $4,000 is then subtracted.
So using the formula we get the following result:
[($1,000,000 ÷ $1,200,000) x $350,000] - $4,000 = $287,667
82
All of the following statements are correct regarding a Personal Auto Policy Part C (Uninsured Motorists) coverage except:
Does NOT pay punitive damages
83
Bert and Ernie are brothers who frequently drive each other’s cars. Their automobiles are insured as follows:
Insured Insurance Company Amount
Ernie ABC Co. 40/50/10
Bert LMV Auto 100/300/25
Bert is negligently driving Ernie’s car and has an accident causing bodily injury to the other party involved in the accident in the amount of $50,000. Which insurer will pay, and how much?
ABC will pay $40,000, and LMV will pay $10,000.
Rationale
The auto’s insurance is primary, and the non-owner operator’s insurance is secondary so, Ernie’s policy will pay to its limits, then Bert’s policy will pay up to its limits
84
Which of the following statements correctly indicates a significant difference between HO-02 and HO-03?
The dwelling and other structures coverage of the HO-03 is open perils, while that of the HO-02 is named perils coverage.
Rationale
others
Option a is the reverse of the correct answer. Option c refers to HO-04. Option d refers to HO-06.
85
Sonny and Cher have their home insured under a HO-3 policy. The amount of the coverage on the dwelling, $100,000, has been left unchanged for several years. Yesterday, the home was struck by lightning, causing $10,000 of damage, as measured by actual cash value, and $18,000 of damage, as measured by replacement cost. The replacement cost of the home at the time of the lightning damage is estimated at $150,000. In this situation, which of the following amounts will Sonny and Cher recover from the insurer for this loss (ignoring any deductible)?
A. Nothing, because the insurance is less than 80% of replacement cost.
B. $10,000, the actual cash value of the damage.
C. $15,000, five-sixths of the replacement cost of the damage.
Rationale
If the amount of insurance carried is less than 80% of the dwelling's replacement cost at the time of the loss, the insurer will pay the greater of the ACV of the loss or the amount produced by this formula:
[(Amount of insurance carried ÷ Amount of insurance required) x Loss] - Deductible = Loss Payment
Here, [$100,000 ÷ (80% x $150,000)] x $18,000 = $15,000. Since this exceeds the $10,000 ACV of the loss, $15,000 will be paid.
D. $18,000, the replacement cost of the damage
C. $15,000, five-sixths of the replacement cost of the damage.
Rationale
If the amount of insurance carried is less than 80% of the dwelling's replacement cost at the time of the loss, the insurer will pay the greater of the ACV of the loss or the amount produced by this formula:
[(Amount of insurance carried ÷ Amount of insurance required) x Loss] - Deductible = Loss Payment
Here, [$100,000 ÷ (80% x $150,000)] x $18,000 = $15,000. Since this exceeds the $10,000 ACV of the loss, $15,000 will be paid
86
Which of the following statements concerning professional liability insurance coverage on an occurrence basis or a claims-made basis is correct?
a. An occurrence basis policy covers claims arising from events that occur during the policy period, and a claim is filed during the same policy period.
B Claims-made policies cover all claims regardless of when the claim is made.
C> An insured who changes from a claims made policy to an occurrence basis policy, or who retires, will need to purchase a “tail” (extended reporting period) on the claims made policy to ensure adequate protection.
D. An insured who changes from an occurrence basis policy to a claims made policy will need to purchase a “tail” (extended reporting period) on the occurrence basis policy to ensure adequate protection.
C> An insured who changes from a claims made policy to an occurrence basis policy, or who retires, will need to purchase a “tail” (extended reporting period) on the claims made policy to ensure adequate protection.
Rationale
For an occurrence basis policy, coverage applies if the event occurs during the policy period; the claim may be filed anytime.
Therefore, option a and d are incorrect.
Option b is not a correct statement. For a claims-made policy, the claim must be filed during the policy period, regardless of when the loss-causing event occurred.
87
A client contracted for a house to be built on a plot of land that cost him $100,000. The builder completed the house for $250,000. The client has contacted an insurance agent about obtaining an HO-03 homeowners insurance policy that will insure the house for its replacement cost. The policy will have an 80% coinsurance provision and a $2,000 deductible. How much insurance does the client need to buy to cover the full replacement cost of the house in the event of a total loss by fire?
$250,000.
Rationale
To provide full coverage for the replacement cost of the house, the client needs to buy a policy for the full replacement cost of $250,000. In the event of a total loss by fire, the land will not need to be replaced.
The land should not be insured so coverage of $350,000 is not required.
The house needs to be insured at the full replacement cost to pay for a total loss. If the client insures the house to only 80%, then the most the insurer will pay is 80% of the replacement cost.
To get 100% replacement cost on the house, it must be insured for 100% of its replacement value which is $250,000.
88
Which of the following would be covered under the physical damage section of the PAP?
A. Loss of any equipment designed for the reproduction of sound not permanently installed in the covered auto.
B> Vandalism or malicious mischief damage to tires.
C> Damage due to wear and tear.
D. Loss to any custom furnishing or equipment in or upon any
Vandalism or malicious mischief damage to tires.
Rationale
The physical damage coverage is “all-risks” or open-perils coverage. Therefore, since option b is not one of the exclusions, it is covered. Options a, c, and d are excluded under the physical damage coverage of the PAP.
89
Which of the following personal property losses would not be fully covered (less any deductible) by an unendorsed HO-3 policy?
A> The insured's golf clubs, worth $1,300, were stolen from the trunk of his locked car by someone who forced open the trunk.
B. The insured's hunting rifles, worth $1,250, were stolen from his tent during a hunting trip.
C. The insured's laptop computer, worth $2,400, was taken from her while she was using it during lunch at a restaurant.
D. Electronic property has a limit of $1,500.
A> The insured's golf clubs, worth $1,300, were stolen from the trunk of his locked car by someone who forced open the trunk.
B. The insured's hunting rifles, worth $1,250, were stolen from his tent during a hunting trip.
C. The insured's laptop computer, worth $2,400, was taken from her while she was using it during lunch at a restaurant.
Rationale correct
D. Electronic property has a limit of $1,500.
The insured's canoe, worth $900, was taken from his garage.
90
Mike has the following split limits of coverage on his Personal Auto Policy of 100/300/50. Which of the following best describes Mike’s coverage?
100,000 per person for bodily injury, $300,000 per occurrence for bodily injury and $50,000 for property damage.
Rationale
Splits limits read:
bodily injury / per occurrence for bodily injury / property damage
91
The personal umbrella policy provides excess coverage over which of the following insurance?
1. The personal auto policy liability coverage
2. The homeowners personal property coverage
3. The homeowners liability coverage
4. The uninsured motorists coverage in the PAP
1 and 3.
Rationale coverage for excess AUTO and HOME liability "
The personal umbrella policy is primarily excess coverage for liability but does provide primary coverage for some exposures.
The personal umbrella provides excess coverage for the liability coverage of the personal auto policy and for the homeowners liability coverage.
It does not provide excess coverage for personal property insurance or uninsured motorists coverage
92
Shemar bought a building two years ago for $700,000. The building is insured under a commercial package policy with limits of $700,000 on the building. The policy is written on a replacement cost basis with an 80% coinsurance requirement and a $2,500 deductible. The current replacement cost of the building is $1 million. If a fire in the building causes damage that will cost $80,000 to repair, what amount will the insurance company pay?
$ 67,500.
Rationale
The formula for the recovery is:
[(Amount of insurance carried ÷ Amount of insurance required) x Loss] - Deductible = Loss Payment
The amount of insurance required is 80% x $1,000,000 = $800,000
[($700,000 ÷ $800,000) x $80,000] - $2,500 = $67,500
93
Resident family members are covered for the purposes of Part A (Liability Coverage) for a Personal Auto Policy when operating all of the following except:
A replacement auto after 31 days.Rationale
You have a duty to notify the insurance company within first 30 days of purchasing a replacement car. A replacement car means you are exchanging the insurance on the old car for the new car, not adding an additional car.
94
Under the HO-3 policy, all open-perils are covered, with some exceptions. All of the following are perils that are excluded from a HO-3 policy, except:
D Tornado is covered !!!
A. Termite damage.
B, Flood.
C. Earthquake.
D. Tornado.Rationale
Termite damage is slow, so it’s excluded. Flood and earthquake are definitely excluded. Wind, as in tornado, is covered.
95
Which of the following losses would be covered by a HO-3 policy?
A> As a result of the overflow of a nearby lake, water enters the insured's basement and does $900 damage to floor coverings and the foundation.
B> During a severe rainstorm, water enters through the wall of the basement and damages stored items worth $450.
C> The insured, while having a party with many people present, discovers that excessive use of the sanitary facilities has resulted in the backup of water through the sewer, causing more than $2,250 in damage.
D. While filling the bathtub, the insured's daughter answers the telephone, chats for some 20 minutes, and then discovers that the tub overflowed. The excess water seeps through the bathroom floor, and its weight causes the kitchen ceiling to collapse. Damages exceed $3,500.
D> While filling the bathtub, the insured's daughter answers the telephone, chats for some 20 minutes, and then discovers that the tub overflowed. The excess water seeps through the bathroom floor, and its weight causes the kitchen ceiling to collapse. Damages exceed $3,500.
Rationale
The WATER DAMAGE WAS ACCIDENTAL and was not among the excluded causes of water damage.
Option a is flood damage, which is not covered.
Option b is excluded because the water seeped through the basement wall.
Option c is not covered because the backup of water through the sewer is not covered.
96
The other-than-collision coverage in a PAP will cover losses from which of the following causes?
1. Vandalism
2. Impact with a bear
3. Impact with a telephone pole
4. Falling objects
1, 2, and 4.
Rationale
Other-than-collision coverage will pay for losses from vandalism, contact with an animal, and falling objects.
Impact with a telephone pole is a collision.
97
The HO-03 provides medical payments coverage for which of the following persons?
1. The insured and family members residing with him or her
2. Any person on the insured premises with the permission of any insured
3. Any person injured away from the insured premises if the injury is caused by the activities of the insured
4. Any person injured away from the insured premises if the injury is caused by an animal owned by or in the care of any insured
2, 3, and 4.Rationale
Options 2, 3, and 4 are all covered under the medical payments coverage of the HO-03.
Option 1 is not covered. The medical payments coverage provided by the HO-03 is NOT designed to provide HEALTH INSURANCE coverage for the insured and his or her family.
98
Which of the following statements concerning professional liability insurance is correct?
A. Errors and omissions coverage protects the insured for liability for having negligently caused mental anguish, as well as bodily injury.
b.Lawyers and accountants are more likely to purchase malpractice coverage rather than errors and omissions coverage.
c.A surgeon is more likely to purchase malpractice insurance rather than errors and omissions coverage.Rationale
d. A pharmacist is more likely to purchase errors and omissions insurance rather than malpractice coverage.
malpractice coverage is typically purchased by those whose negligence is likely to cause bodily injury.
A surgeon is in this category. Option a is not a correct statement. Errors and omissions coverage protects the insured for those liabilities that do not include bodily injury.
Option b is not a correct statement. Lawyers and accountants are more likely to purchase errors and omissions coverage. The negligence of lawyers and accountants is not likely to give rise to bodily injuries. Option d is not a correct statement.
A pharmacist is more likely to purchase malpractice coverage. Clearly, negligence on the part of a pharmacist could result in bodily injury to a person whose drug prescription was incorrectly filled.
99
Mary lives in Idaho where she carries the state-mandated minimum liability insurance on her car (15/30/10) through her personal automobile policy (PAP).
She is driving through Oklahoma and has a wreck with Gerri.
Oklahoma requires minimum liability insurance of 30/50/20.
Gerri suffers bodily injury in an amount of $40,000 and Gerri’s vehicle is damaged in an amount of $22,000.
How much will Gerri collect from Mary’s PAP policy?
Bodily injury $30,000 &property $ 20,000.
Rationale
Mary’s policy limits will increase to the amount required in Oklahoma. Gerri will have to sue Mary for her excess non-insured losses.
100
Dermott’s personal auto policy has split liability limits of 100/300/25. In an auto accident where Dermott was at fault, four people in the other car were injured.
The court awarded $125,000 to each of them for bodily injury, plus $30,000 for property damage to the other car. A
lso, the cost of Dermott's legal defense totaled $18,000 in lawyers' fees
. In this case, how much of the $548,000 will be borne by Dermott's insurance company?
$343,000.
Rationale
The $300,000 limit is the maximum the insurer will pay for all bodily injuries in an accident, regardless of how many are injured. The $25,000 limit is the maximum the insurer will pay for property damage. The defense costs are covered in addition to the policy's limits.
$300,000 + $25,000 + $18,000 = $343,000
101
Bert and Ernie are brothers who frequently drive each other’s cars. Their automobiles are insured as follows:
Insured Insurance Company Amount
Ernie ABC Co. 40/50/10
Bert LMV Auto 100/300/25
Bert is negligently driving Ernie’s car and has an accident causing bodily injury to the other party involved in the accident in the amount of $50,000. Which insurer will pay, and how much?
ERNIE"S ABC Company will pay $40,000, and LMV will pay $10,000.
Rationale
The CARS insurance is PRIMARY,
and the non-owner operator’s insurance is secondary so,
Ernie’s policy will pay to its limits, then Bert’s policy will pay up to its limits.
102
Resident family members are covered for the purposes of Part A (Liability Coverage) for a Personal Auto Policy when operating all of the following except:
Their auto.
A rented auto.
A borrowed auto.
A replacement auto after 31 days.
A replacement auto after 31 days.
Rationale
You have a duty to notify the insurance company within first 30 days of purchasing a replacement car.
A replacement car means you are exchanging the insurance on the old car for the new car, not adding an additional car
103
For which of the following persons will medical expenses be paid under the
" Medical Payments Coverage "
of the personal auto policy?
The Medical Payments Coverage
of the personal auto policy will pay for the medical expenses of ANY INSURED or FAMILY MEMBER injured in an accident while occupying ANY AUTO.
The coverage does not pay for the medical expenses of persons other than the insured or family because the liability coverage will pay for those expenses. Note that the Medical Payments to Others coverage of the homeowners policy is different in that it pays only medical expenses for persons other than the insured
104
An insured with an HO-02 or an HO-03 might prefer specific insurance on certain types of personal property by means of a Scheduled Personal Property Endorsement for which of the following reasons?
The HO-02 and HO-03 have sublimits applicable to certain types of personal property.
Rationale
A Scheduled Personal Property Endorsement will not be subject to the sublimits that apply under the HO-02 and HO-03, so a loss will be covered for a higher value. The endorsement offers higher limits, elimination of the deductible, and open-perils coverage. Losses can be paid on a valued basis. Options b, c, and d are not correct statements
105
A client contracted for a house to be built on a plot of land that cost him $100,000. The builder completed the house for $250,000. The client has contacted an insurance agent about obtaining an HO-03 homeowners insurance policy that will insure the house for its replacement cost. The policy will have an 80% coinsurance provision and a $2,000 deductible. How much insurance does the client need to buy to cover the full replacement cost of the house in the event of a total loss by fire?
$250,000.
Rationale
To provide full coverage for the replacement cost of the house, the client needs to buy a policy for the full replacement cost of $250,000. In the event of a total loss by fire, the land will not need to be replaced. The land should not be insured so coverage of $350,000 is not required. The house needs to be insured at the full replacement cost to pay for a total loss. If the client insures the house to only 80%, then the most the insurer will pay is 80% of the replacement cost. To get 100% replacement cost on the house, it must be insured for 100% of its replacement value which is $250,000.
106
All of the following statements are correct regarding a Personal Auto Policy Part C (Uninsured Motorists) coverage except:
A, Payment for property damage.
b Payment for lost wages.
c Payment for punitive damages.
d All of the above
D. Payment for punitive damages.
Rationale
The PAP uninsured motorist does not pay for punitive damages.
107
PROPERTY & LIABILITY INSURANCE
NAMED Perils vs OPEN Peril - Policies
TYPES of property covered
HO-2 - BROAD FORM - basic perils, "2 points"
HO-3 - SPECIAL FORM - Open Perils or all risk " 3 points"
HO-4 - Renters/Tenants , personal contents, personal liability "4rent"
HO-5 Comprehensive,OpenPerils+personal prop.on OpenPerils"high5
HO-6-COndo,own inside and contents, outside by COndo Assoc.
HO-8* Modified Form "Old buildings" instead of replacement cost provides repairs cost with materials that are functionally equal.
108
NAM
HO COVERAGES :
SECTION 1
* A.- Dwelling - Home "Attached"
* B - Other Structures- Garage,greehouse,storage," space Between"
* C - Personal Prop- furnture, equipment, music, books, "crap"
* D - Loss of Use- add'l living exp,rental value lost "damage so cannot stay in it"
SECTION 2
* E - Personal Liability- "EEK"
* F - Medical Payments to Others-Medical cost for others - "Fallen and can't get up"
109
COINSURANCE CALC
* Assume Bob has a policy that provides $200,000
of insurance on his dwelling with an 80/20
coinsurance clause and a $1,000 deductible.
* The current replacement cost is $300,000.
* How much will Bob collect if he suffers a covered
loss with a replacement value of $50,000, but an
actual cash value of $30,000?
COINSURANCE CALC
* Assume Bob has a policy that provides $200,000
of insurance on his dwelling with an 80/20
coinsurance clause and a $1,000 deductible.
* The current replacement cost is $300,000.
* How much will Bob collect if he suffers a covered
loss with a replacement value of $50,000, but an
actual cash value of $30,000?
"Insurance I have"
---------------------------------- x damage - deducible = $ Insurance Co pays
"Insurance I should have"
$200,000 coverage
-----------------------------------------------x $50,000 - $1000 = $40,666
80% x $300,000 replacement cost
110
PERSONAL AUTO INSURANCE " PAP coverage "
Part A – LIABILITY
* 100/300/100
--Bodily Injury per person / Total Bodily Injury / Property Damage
--Liability Prop Damage covers OTHER DRIVERS car or Prop Damage
--This Liability goes with me as a Driver of another car.
--The Liability will switch to the the state where you have the accident
( based on amounts req'd by the State)
* Part B – MEDICAL PAYMENTS
--For Insured
--Anyone in your car, or you or family member hurt
injuries sustained as a pedestrian,Funeral Cost, Dental Cost,
* Part C – UNINSURED MOTORIST
- If the uninsured is a Fault, this coverage pas the Property damage, Bodily Injury of the INSURED
* Part D – COVERAGE or DAMAGE TO YOUR CAR
-- COMPREHENSIVE - "Not a collision" Repair /Replace Car , theft, fire,
running tinto animal, weather related, riots, falling objectes
-- COLLISION- Repair or replace insured car, damaged from another car, hit fence ,tree, garage door, Single Car Damage(rolling car) , sliding on ice,
* Part E – DUTIES AFTER LOSS
-Notify Insur Co
-Report w/in 24 to Police
-Cooperate w/ Insur. Co.
-Protect all Insured Property from further damage
* Part F – GENERAL PROVISIONS
111
The HO-03 provides medical payments coverage for which of the following persons? home
1. The insured and family members residing with him or her
2. Any person on the insured premises with the permission of any insured
3. Any person injured away from the insured premises if the injury is caused by the activities of the insured
4. Any person injured away from the insured premises if the injury is caused by an animal owned by or in the care of any insured
Options 2, 3, and 4 are all covered under the medical payments coverage of the HO-03.
Option 1 is not covered.
The medical payments coverage provided by the HO-03 is not designed to provide health insurance coverage for the insured and his or her family.
112
Which of the following statements concerning professional liability insurance coverage on an occurrence basis or a claims-made basis is correct?
An occurrence basis policy covers claims arising from events that occur during the policy period, and a claim is filed during the same policy period
Claims-made policies cover all claims regardless of when the claim is made.
An insured who changes from a claims made policy to an occurrence basis policy, or who retires, will need to purchase a “tail” (extended reporting period) on the claims made policy to ensure adequate protection.
An insured who changes from an occurrence basis policy to a claims made policy will need to purchase a “tail” (extended reporting period) on the occurrence basis policy to ensure adequate protection
An insured who changes from a claims made policy to an occurrence basis policy, or who retires, will need to purchase a “tail” (extended reporting period) on the claims made policy to ensure adequate protection.
Rationale
For an occurrence basis policy, coverage applies if the event occurs during the policy period; the claim may be filed anytime. Therefore, option a and d are incorrect. Option b is not a correct statement.
For a claims-made policy, the claim must be filed during the policy period, regardless of when the loss-causing event occurred
if Claims made --- --- > to Occ, then get extended reporting period
113
Bert and Ernie are brothers who frequently drive each other’s cars. Their automobiles are insured as follows:
Insured Insurance Company Amount
Ernie ABC Co. 40/50/10 damaged car
Bert LMV Auto 100/300/25 driver
Bert is negligently driving Ernie’s car and has an accident causing bodily injury to the other party involved in the accident in the amount of $50,000. Which insurer will pay, and how much?
ABC will pay $40,000, and LMV will pay $10,000.
Rationale
The auto’s insurance is primary, and the non-owner operator’s insurance is secondary so,
Ernie’s policy will pay to its limits, then Bert’s policy will pay up to its limits.
114
n insured with an HO-02 or an HO-03 might prefer specific insurance on certain types of personal property by means of a Scheduled Personal Property Endorsement for which of the following reasons?
he HO-02 and HO-03 have sublimits applicable to certain types of personal property.
Rationale
A Scheduled Personal Property Endorsement will not be subject to the sublimits that apply under the HO-02 and HO-03, so a loss will be covered for a higher value. The endorsement offers higher limits, elimination of the deductible, and open-perils coverage. Losses can be paid on a valued basis. Options b, c, and d are not correct statements.
115
For which of the following persons will medical expenses be paid under the Medical Payments Coverage of the personal auto policy?
Any insured or family member injured in an accident while occupying any auto.
Rationale
The Medical Payments Coverage of the personal auto policy will pay for the medical expenses of any insured or family member injured in an accident while occupying any auto. T
he coverage does not pay for the medical expenses of persons other than the insured or family because the liability coverage will pay for those expenses.
Note that the Medical Payments to Others coverage of the homeowners policy is different in that it pays only medical expenses for persons other than the insured
116
All of the following statements are correct regarding a Personal Auto Policy Part D (Coverage for Damage to Your Auto) coverage except:
aCollision applies when your car hits another vehicle.
bComprehensive covers fire, theft, or vandalism.
cCollision covers damages to a borrowed or rented vehicle.
dCollision coverage includes contact with an animal or bird.
Collision coverage includes contact with an animal or bird.
Rationale
Option d is coverage under comprehensive
117
For which of the following persons will medical expenses be paid under the Medical Payments Coverage of the personal auto policy?
Medical Payments Coverage of the personal auto policy will pay for the medical expenses of any insured or family member injured in an accident while occupying ANY AUTO
The coverage does not pay for the medical expenses of persons other than the insured or family because the liability coverage will pay for those expenses.
Note that the Medical Payments to Others coverage of the homeowners policy is different in that it pays only medical expenses for persons other than the insured.
118
119
