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CFP > Insurance: Chapter 3 > Flashcards

Insurance: Chapter 3 Flashcards

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1
Q

A homeowners insurance policy covers what items and with how many policies?

A

One policy, it covers dwelling, contents and personal liability

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2
Q

This is the part of a homeowners insurance policy containing representations of the applicant like name, address, etc.?

A

The declaration page

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3
Q

What are typically included in section I coverage A?

A

It insures the dwelling and any structure attached to the dwelling like a garage or deck. It covers materials or supplies being used for construction or repair to the dwelling.

Land is specifically excluded from coverage

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4
Q

What are typically included in section I coverage B?

A

It insures other structures set apart from the dwelling like a detached garage, outdoor pool or patio which is set apart by a clear space.

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5
Q

Do renters policies provide coverage A or B?

A

Generally they provide no coverage A or B

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6
Q

What are typically included in section I coverage C?

A

It insures personal property is covered anywhere in the world, just not when inside the insured home. It normally has special internal sublimits. It will typically not cover exposure to being a landlord.

  1. $1,000 for watercraft
  2. $1,000 for jewlery and fur
  3. $2,500 for silverware (theft only)
  4. $200 for money
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7
Q

What property is specifically excluded from Coverage C?

A

Animals, Motor Vehicles or Aircrafts (covered under auto policy), Property of Roomers/Boarders and Property of apartment rented to others

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8
Q

What are typically included in section I coverage D?

A

It is coverage that applies for additional living expenses arising from damage to the insured property (temporary housing, eating out etc). The carrier pays the difference between their normal living expense and the increased living expense.

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9
Q

What does coverage E provide?

A

Protection for damages for which the inured is legally liable arising out of bodily injury or property damage. Also referred to as personal liability coverage. Insurance company agrees to defend the insured and has the right to settle any suit.

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10
Q

What are the specific exclusions in personal liability coverage E?

A
  1. Liability arising from business activities or professional services
  2. Liability arising out of usage of motorized land vehicles (Not RV’s or golf carts used on premise)
  3. Liability arising out of usage of watercraft except if the watercraft has less than 50 HP or is a sailboat less than 26 ft
  4. Liability from using an aircraft
  5. Liability for bodily injury to any person who is eligible for workers comp
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11
Q

What are the typical amounts of coverage for Coverage F: Medical Payments?

A

Typically $1,000 and $5,000 for necessary medical expenses for anyone other than the insured who was injured while on the insured location.

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12
Q

Are coverage E and F included in renter’s policies?

A

Yes, typically they are included in renters insurance.

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13
Q

What is the acronym for the covered basic form perils?

A

WHARVES/FLT

Wind, Hail, Aircraft, Riot, Vandalism, Vehicles, Explosion, Smoke, Fire, Lightning and Theft

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14
Q

What are the covered broad form perils and their acronym?

A

Rupture of a system, Artificially generated electricity, Falling objects, Freezing of plumbing.

RAFF or Royal Air Force

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15
Q

When the insurer agrees to pay for damage by any peril except those specifically excluded this is known as what?

A

Open Perils.

On the CFP exam open perils is generally the appropriate choice because it covers unusual risks that are not named in the basic or broad forms.

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16
Q

What are the 6 coverage policies and their peril coverage form?

A

. Other Personal Loss of
Dwelling Structures Property Use
A B C D
HO-1 : (Dwelling) Basic Basic Basic Basic
HO-2 : (Home) Broad Broad Broad Broad
HO-3 : (Home) Open Open 10%ofA Broad 50%ofA Open 30%ofA
HO-4 : (Renters) Broad Broad 30%ofC
HO-5 : (Home HO 3-15) Open Open 10%ofA Open 50%ofA Open 30%ofA
HO-6 : (Condo Owner) * Open Broad 50%ofC
HO-8 : (Older Home) Basic Basic Basic Basic

*Has some coverage for carpeting and cabinetry

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17
Q

What is the difference between HO-2 and HO-3?

A

HO-2 has broad form for all coverages, HO-3 is open perils for A,B and D and is also more comprehensive.

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18
Q

What is the difference between HO-3 and HO-5?

A

Personal property contents in HO-5 are covered in open form, where they are broad form for HO-3.

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19
Q

What is covered in an HO-4 Policy and what is the name for this?

A

Renters policy. It covers personal property, comprehensive personal liability and loss of use in broad form.

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20
Q

What is covered in an HO-6 Policy and what is the name for this?

A

A Condo Policy. The condo association covers the structure and this policy provides coverage for the interior. Condo owners get $5,000 of loss assessment coverage which provides protection against assessments made by the condo association because of losses to collectively owned property.

Coverage A and C can both be changed by endorsement to apply on an open- perils basis.

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21
Q

What is the difference between HO-4 and HO-6?

A
  1. HO-4 is for Renters and HO-6 is for condo owners
  2. HO-4 has broad coverage for personal property and HO-6 has open perils coverage
  3. HO-6 actually has some coverage for Dwelling and Other Structures (named perils) like carpeting and loss assessment coverage, while HO-4 has none.
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22
Q

What are the 8 general exclusions that apply to all of the homeowner forms? What is the acronym?

A

OPENN WIF

Ordinance of law
Power failure
Earth movement
Neglect
Nuclear hazard
War
Intentional loss
Flood

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23
Q

What can someone add to the HO policy to cover items that are easily stolen and not covered by personal property coverage?

A

Scheduled personal property endorsement (floater). Each item is appraised, listed separately and insured for a specific value. Coverage is open perils and written on an agreed-value basis.

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24
Q

What is the difference between replacement cost coverage vs actual cash value (ACV)?

A

When losses are settled under replacement cost basis, no deduction in benefits is made for depreciation. Under ACV, losses are settled under replacement cost less depreciation, original cost is immaterial.

Dwelling will typically be covered under replacement cost coverage, while personal property will be covered under ACV basis.

25
Q

For loss coverage under a typical homeowners policy, what is used for property loss calculations?

A

Amount of insurance is < than 80% of replacement cost:
They will use the ACV.

Amount of the dwelling insurance >= 80% of replacement cost: they will use the formula below.

Replacement Cost x Coinsurance % = Insurance required (need to find this first to use below)

[(Insurance carried / Insurance required) x Loss] - Deductible = amount paid by insurance

For commercial properties the required % is always 90% of replacement cost. Same formula is used. If no % is given on the exam, use 80% and assume its homeowners.

26
Q

What are the 4 coverages on a personal auto policy?

A
  1. Liability
  2. Medical payments (Med-Pay)
  3. Uninsured motorist liability
  4. Damage to your auto
27
Q

What vehicles can a personal auto policy be written on?

A

Eligible owned or leased vehicles by an individual or by spouses living in the same household.

Vehicles rented as a public or livery conveyance or vans/pickups used for the transportation or delivery of goods/materials must have a commercial policy

28
Q

What vehicles can a personal auto policy be written on?

A

Eligible owned or leased vehicles by an individual or by spouses living in the same household.

Vehicles rented as a public or livery conveyance or vans/pickups used for the transportation or delivery of goods/materials must have a commercial policy

29
Q

What is a covered auto?

A

Any vehicle listed in the policy declarations. This includes new acquired autos, temporary substitute vehicles and trailers.

30
Q

What is a temporary substitute vehicle?

A

Any auto or trailer the policy owner does not own while being used as a temporary substitute for any covered auto which is out of normal use (ie. breakdown, repair servicing, loss or destruction)

31
Q

Who are considered covered drivers?

A
  1. The named insured (person with the policy)
  2. A family member who is living in the same household
  3. Any person using your auto with your permission
  4. The spouse of the named insured living in the same household
32
Q

If the spouse of the insured ceases to live in the same household how long will they be covered under the PAP of the insured?

A

Until the earliest of the following.

  1. The end of 90 days following the spouse’s change of residency
  2. The effective date for the spouse’s own new policy
  3. The end of the policy period
33
Q

What does part A - liability coverage provide protection against?

A

Protection against judgements and covered exposures resulting from bodily injury and property damage liability deemed to have been caused by the insured, also known as BI/PD.

34
Q

What is single limit liability coverage?

A

One amount (often $300k) applies in aggregate to all bodily injury and liability claims arising from one accident

35
Q

What are the split limits of liability coverage?

A

maximum amount payable per injured person for bodily injury, maximum amount in aggregate per occurrence for all bodily injury claims and aggregate property damage claims

36
Q

What are some auto liability exclusions?

A
  1. Denies coverage for anyone who intentionally causes an accident
  2. Denies coverage to any person other than a family member who uses your auto without your permission
37
Q

What does Part B - Medical Payments (Med-Pay) provide for coverage?

A

Provides payment for the reasonable and necessary expenses of an insured as a result of an auto accident. Only medical expenses within 3 years of the accident are covered.

38
Q

Who is covered under Part B Med-Pay?

A
  1. The named insured
  2. Spouse or any family member living in residence of insured while occupying a motor vehicle or struck by a motor vehicle as a pedestrian
  3. Any other person who is injured while occupying a covered auto
39
Q

What is uninsured motorist coverage?

A

The insurer agrees to pay compensatory damages that the insured is entitled to recover from the owner/operator of an uninsured vehicle because of bodily injury. This includes medical expenses, lost wages and pain/suffering.

It does not include punitive or exemplary damages.

40
Q

Who is does uninsured motorist coverage apply to?

A
  1. Named insured
  2. Spouse/Family Members of named insured
  3. Any person who occupies named insured covered auto
  4. Any other person entitled to recover damages because of bodily injury to any of the previously mentioned persons is an insured
41
Q

What does Part D Coverage for damage to your vehicle cover?

A

Collision and other than collision that is an open perils type of property coverage, but the policy specifically designates several of these perils included below.

  1. Breakage of glass
  2. Loss caused by missiles
  3. Falling objects
  4. Fire, theft or larceny
  5. Flood
  6. Earthquake
  7. Windstorm or hail
  8. Vandalism, riot
  9. Contact with bird or animal
  10. Explosion
42
Q

What are the sequence of events for a claims adjustment procedure as the insured pursues a claim for property insurance?

A
  1. Furnish a notice to the insurer (promptly)
  2. Investigate the claim (suicide, intentional, carelessness etc.)
  3. File a proof of loss to the insurer (death certificate, police/fire report)
  4. Pay or Deny Claim
43
Q

What are the three options an insurer has for settling claims regarding property loss within an insurance contract?

A
  1. Replacement: The insurer must repair or replace damaged property with like kind/quality rather than pay cash value
  2. Abandonment or Salvage: The insured must surrender ownership of lost or damaged property to the insurance company so that total loss can be claimed
  3. Pair or Set: The insurer may repair or replace any part to restore a pair or set to its value before the loss. Or they may pay the difference between the actual cash value of the property before and after the loss
44
Q

During the exam if an umbrella liability insurance is given as an answer, what should you do?

A

Pick it because it is always correct.

45
Q

What does the personal umbrella policy provide?

A

Liability coverage for catastrophic legal claims and judgements, and virtually every client needs umbrella coverage

46
Q

What exclusions are often found in personal umbrella policies?

A
  1. Any act committed with the intent to cause personal injury or property damage
  2. Damage to property owned by the insured (you can’t sue yourself)
  3. Business pursuits (owning a business)
  4. Rendering or failure to render professional services (malpractice)
  5. Directors’ and officers’ activities
  6. Workers’ compensation obligations
47
Q

What is the structure of claims between an underlying policy and an umbrella policy?

A

The umbrella policy will pay its benefits only after the limits of the underlying policy have been exhausted.

48
Q

What is the business owners policy for commercial property insurance?

A

It is for small to medium sized businesses and a normal policy provides real property, contents and liability protection. The premium is deductible to the business.

Professional liability is excluded.

49
Q

What is the personal property floater?

A

Much like the scheduled personal endorsement, the personal property floater provides open perils coverage to excess personal property object that are not covered under the basic policy and that move around like cameras, jewlery, sports equipment etc.

50
Q

What items are usually excluded from a commercial umbrella policy?

A

Any of the items below of a professional. The premium is deductible to the business.
1. Error
2. Omission
3. Malpractice
4. Mistake

51
Q

What does professional liability insurance cover?

A

Liability arising from the failure to use due care and the degree of skill expected from a person in the profession in which the insured is engaged.

52
Q

When would you use malpractice insurance vs errors and omissions insurance?

A

Malpractice: appropriate when the substandard conduct may result in bodily injury (dentists or physicians)

Errors & omissions: appropriate when the substandard conduct may result in property damage such as loss of money (lawyers, insurance agents, financial planners/stockbrokers)

53
Q

Directors/officers E&O insurance protects against what?

A

Protects corporate officers and directors from suits alleging mismanagement

54
Q

What does workers compensation reflect?

A

Absolute liability

55
Q

Why do business have workers comp insurance?

A

Most workers compensation laws are compulsory for employers. The full cost must be borne by the employer, but they can deduct the premium cost for tax purposes.

56
Q

Why do business have workers comp insurance?

A

Most workers compensation laws are compulsory for employers. The full cost must be borne by the employer, but they can deduct the premium cost for tax purposes.

57
Q

What benefits are covered under workers comp?

A
  1. Medical expenses: these are without limit on time or money, they are not subject to deductibles or coinsurance
  2. Disability income with very short waiting periods: Benefits are for both total and partial disabilities
  3. Death benefits: these are payable to family members
  4. Rehabilitation: both medical and vocational rehab
58
Q

Are workers comp benefits taxed?

A

No, they are received income tax free. The employer may deduct the premium cost.

59
Q

How long can someone receive unemployment benefits from unemployment insurance?

A

Benefits are paid up to 26 weeks, plus a 13 week extension in high unemployment periods. They are included in recipients gross taxable income and are determined by previous earnings.

CFP (20 decks)

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