Key Point Review Questions Study 4

Question 1

1) What are the THREE (3) main sections of a personal property policy, and what is outlined in each section?

Answer 1

i. The first section consists of the Declarations or Coverage Summary.
ii. The second section comprises the policy wordings.
iii. The third section is the wording applicable to any endorsements or floaters added to the policy.

Question 2

2) What are the features of a plain-language policy?

Answer 2

• Issued in a plain-language format, with less formal words, making it clear to the average layperson.
• Even the size of the fonts and length of lines of text were chosen for readability.

Question 3

3) What is a package policy, and how does it benefit the consumer and the insurer?

Answer 3

• A package policy that covers two or more lines or types of insurance in the same policy.
• Packaging perils from classes of insurance administered by separate departments help to not only enhance coverage but also to cut costs.

Question 4

4) What is the limit of a package policy?

Answer 4

In a package policy, the limit for personal property is generally a percentage of the dwelling limit. The percentage varies depending on insurer.

Question 5

5) What is adverse selection, and how do insurers protect themselves against it?

Answer 5

Occurs when those with higher risks may purchase insurance in greater amounts than those with lower risks.
Much of insurance law and practice is designed to control adverse selection.
Insurers protect themselves from adverse selection by attempting to measure risk and either charging more for the higher risks or refusing to coverage them at all.

Question 6

6) What is a non-package policy, and how does it benefit consumers?

Answer 6

Certain types of residential property do not fit a package policy. Some people prefer a more modest or simpler policy than the popular packages of property and liability. It also serves those that are ineligible for an insurer’s package policy or who have a location that is ineligible for broader coverage.

Question 7

7) What is a subscription policy?

Answer 7

A single policy covering a risk that is divided among a number of insurers; the policy is issued by the “lead” company and signed by all participating companies.

Question 8

8) What is a multi-limit policy?

Answer 8

A policy in which an amount of insurance is shown for the dwelling and a separate amount is show for the personal property.

Question 9

9) What is a single-limit policy, and how will it benefit a consumer?

Answer 9

Shows one amount of coverage encompassing both the building and personal property.
In the event of a partial loss, the insured has the full limit of insurance to apply to the loss, whether the loss is to personal property or to the building.

Question 10

10) How do the Homeowners forms differ, and how are they similar?

Answer 10

The homeowners forms differ mainly in the property perils.
They are the same in the general organization of their coverage ,the way minimum amounts of insurance are determined for each coverage, and how the premium for them is calculated.

Question 11

11) What is covered under each of the Homeowners forms?

Answer 11

Homeowners basic form: Named perils, including theft, glass breakage and transportation.

Homeowners broad form: All risks on the dwelling building and detached private structures, the same named perils as insured by the Basic Form on the personal property

Homeowners comprehensive form: All risks on all items.

Question 12

12) How are Homeowners forms named?

Answer 12

Forms differ from one insurer to the next. They typically reflect the types of perils that are being insured.
Example: limited, standard and comprehensive vs. basic, broad, comprehensive.

Question 13

13) What is the purpose of a deductible?

Answer 13

The deductible is the insured’s portion of a covered loss.
Small frequent claims are expensive for insurers. To avoid this expense and so reduce premiums for their insures, insurers introduce a deductible on most policies.

Question 14

14) What are THREE (2) common applications of a deductible?

Answer 14

Separate Items – If the total amount of insurance is subdivided into more than one item, the deductible may apply separately to the amount recoverable under each item.
Occurrence Basis – The deductible may apply to an occurrence. The deductible is subtracted from the total loss of a single event.
Loss Paid in Full if Over Deductible – The policy may provide that no loss be paid below a specified amount but that the loss greater than this amount is paid in full.

Question 15

15) What is coinsurance, and why would a consumer want to purchase it?

Answer 15

A coinsurance clause in a fire policy obliges the insured to maintain a specified minimum amount of insurance in relation to the value of the property insured or else share with the insurer any partial loss.

Question 16

16) What is the co-insurance formula?

Answer 16

Amount of insurance carried / Minimum amount of insurance required X Amount of Loss = Amount Recoverable by Insured

Question 17

17) What is a special limit, and how is it used in a property policy?

Answer 17

Special limits of insurance are technically a part of the personal property coverage. They are used to limit the insurer’s exposure to certain types of personal property that would otherwise be covered under the blanket limit for personal property.

Question 18

18) What are additional interests?

Answer 18

Parties not listed as named insureds but who would be financially prejudiced by the loss or destruction of insured property.

Question 19

19) Who is a loss payee?

Answer 19

The generic term for someone other than the named insured to whom the proceeds of insurance will be paid.

Question 20

20) How does the provincial government protect the interests of loss Payees?

Answer 20

Provincial legislation protects the interest of loss payees. The insurer may not cancel or alter a policy to the detriment of a payee without prior written notice to the payee.

Question 21

21) What is a leaseholder?

Answer 21

Leaseholder include not only private interests, which lease property to other private interests, but also the public interest as represented by the Crown in Right of Canada.

Question 22

22) What is Crown land, and can it be insured?

Answer 22

Crown land is public land owned by federal or provincial governments.
It can be insured, and requires “Her Majesty the Queen in Right of Canada” to be added. However, in some provinces it’s becoming harder to obtain insurance for leased Crown land.

Question 23

23) What are other leaseholders?

Answer 23

These are residences owned by other persons or commercial entities who lease property to individuals for use as residential property.

Question 24

24) What is a chattel mortgage?

Answer 24

A type of mortgage that conveys an interest in property other than land and buildings as security for a debt.

Question 25

25) How does the Mortgage clause amend Statutory Condition 8?

Answer 25

The Mortgage clause amends Statutory Condition 8 by permitting the mortgage to give notice of loss immediately on becoming aware of it and proof of loss as soon as practicable.

Question 26

26) Under the Mortgage clause, what are the benefits to for the mortgagee?

Answer 26

The Mortgage clause creates a separate contract between the insurer and the mortgagee and so protects the mortgagee even if the named insured is unable to recover because a condition of the policy has been breached.

Question 27

27) Under the Mortgage clause, what are the obligations of the mortgagee?

Answer 27

The mortgagee must notify the insurer immediately on learning of any vacancy or non-occupancy extending beyond 30 consecutive days, any transfer or interest, or any increase in hazard.

Question 28

28) What is a rateable contribution?

Answer 28

When more than one policy covers the same interest at the time of loss, each insurer is liable to the insured for its rateable proportion of the loss unless the insurers, in writing, agree otherwise.

Question 29

29) What do parties need to know within each of the three main sections of a property policy?

Answer 29

Coverage Summary:
The coverage summary provides all the detail of who and what is insured. This information is provided by the broker or agent in conjunction with the insured. The underwriter review this information to determine whether to insured the risk according to the insurer’s underwriting guidelines. The claims people review the same information as a starting place to determine whether a loss is covered under the policy.

Policy Wording:
It is a broker’s job to review the policy wordings with the insured so the insured understands what is and what is not covered by the policy. The agent needs to know the wording to help the insured determine the adequacy of the insurance coverage. The underwriter needs to know the wording to help when the broker is uncertain about coverage or exclusions. The claims people need to know the wording to determine whether a loss will be covered or denied.

Endorsements:
A broker needs to know what endorsements are available for the insured and what endorsements will provide the best coverage for the insured. And underwriter needs to understand endorsements to help the broker determined what best meets the insureds needs. Claims people need to know what endorsements are included in the policy and what coverage is provided by each endorsement.

Question 30

30) List the recommended steps brokers should follow to review and read a property policy.

Answer 30

Step 1 – Obtain all relevant information about the risk from the insured to determine whether the insurer is able to insure the risk.
Step 2 – Assess the risk and determine what coverage the insured will require.
Step 3 – Complete the application, eliciting all material information from the client and further confirming the risk fits the insurer’s guidelines. If the broker or agent has binding authority, the risk will be bound.
Step 4 – With the insured’s help, answer any questions the underwriter may have about the insured or the risk.
Step 5 – Help the insured if a loss is reported.

Question 31

31) List the recommended steps adjusters should follow to review and read a property policy.

Answer 31

Step 1 – Receive the application from the broker
Step 2 – Obtain any further information necessary to make a sound underwriting decision.
Step 3 – Determined whether an endorsement or further coverage is required.
Step 4 – Notify the broker of the acceptance or rejection of the policy or of any modifications necessary.
Step 5 – There is a loss under the policy.

Question 32

32) List the recommended steps consumers should follow to review and read a property policy.

Answer 32

Step 1 – Review the definitions clause
Step 2 – Review of the property that is covered
Step 3 – Review of the perils that are and are not insured against
Step 4 – A review of the basis of claim settlement, duties after a loss, and the Statutory Conditions.

Question 33

33) How are “and”, “or” interpreted in property policy wordings?

Answer 33

When a clause uses the word “and” in its statement, all conditions preceding and following the word and must apply.
In a clause statement that uses the word “or”, any of the conditions apply to the clause.