Lesson 3 of Insurance: Property and Liability Insurance

Question 1

Property Insurance

Answer 1

Provides financial protection for losses on

• houses,
• condominiums,
• automobiles,
• boats, and
• other property assets.

Question 2

Liability Insurance

Answer 2

Protects individuals against financial loss associated with legal action,

• generally due to property damage,
• personal injury, or
• loss of income.

Question 3

Homeowners and Automobile Insurance

Answer 3

• Are package policies that include coverage for both property and liability.
• Additional coverage for personal liability protection, in excess of the liability protection afforded on automobile and homeowners package policies, is available in a personal liability umbrella policy.

Question 4

Insurance

Answer 4

Is a risk management tool for financial protection against losses associated with one’s

• automobile,
• home, or
• personal liability due to the
  
  • loss frequency of losses and
  • due to the potential for a very high severity of loss.

Question 5

Homeowners (HO) Insurance!

Answer 5

Three basic forms of coverage are offered by homeowner’s policies:

• Basic coverage
• Broad coverage
• Open coverage

Question 6

Basic Coverage

Answer 6

Protects the homeowner from losses associated with twelve named perils.

1. Fire
2. Vehicles (damage caused by vehicles)
3. Lightning
4. Smoke
5. Windstorm
6. Vandalism or malicious mischief
7. Hail
8. Explosions
9. Riots or civil commotion
10. Theft
11. Aircraft
12. Volcanic Eruptions

S-L-W & F-V-V-V-H-E-A-R-T
(Pronounced: Slow FAVHEART)

One Word

Question 7

Broad Coverage

Answer 7

Provides protection from losses associated with 18 named perils.

These include the 12 perils covered in basic coverage, plus coverage for losses associated with 6 additional named perils.

13. Falling Objects
14. The weight of ice, snow, sleet
15. Accidental discharge or overflow of water or steam
16. Sudden and accidental crackling, burning, and bulging of appliances.
17. Freezing of plumbing, heating, air conditioning, fire sprinkler system, or appliance.
18. Sudden and accidental damage from artificially generated electrical currents.

Basic + FAS-FWD
(Pronounced Fast Forward)

Multiple words

Question 8

Open Perils Coverage (all risk)

Answer 8

• Provides protection from losses associated with all perils,
  • except those that are specifically excluded.
• An open perils policy provides more comprehensive coverage than the basic and broad policies.
• Exclusions include:
  • Neglect (termite damage),
  • flood and
  • earthquakes.
• On Exam You Should Not Only Have Named Perils. Should have open perils.

Question 9

EXAM TIP

Answer 9

• Basic and board policies are “named perils” policies.
• Losses resulting from perils not specifically “named” are not covered.
• An open perils (or “all risks:) policy covers “all perils” except those that are specifically excluded.

Question 10

General exclusions from most Homeowner’s Policies

Answer 10

Movement of the ground

• Earthquake,
• ground movement from volcanic eruptions,
• mud/landslide,
• sinkhole.

Ordinance of Law

• Loss from regulating the construction,
• repair, or
• demolition of a building or structure.

Damage from rising water

• Including flood; surface and tidal water,
• waves,
• water below the surface that exerts pressure on buildings,
• structures, and
• improvements; and water backing up through drains and sewers.

War or Nuclear Hazards

• Radiation or radioactive contamination

Power failure caused by an uninsured peril

• Spoilage due to freezer thawing out

Intentional Acts

• Losses associated with the insured.
• Burning down your own house.

Neglect

• Must take reasonable means to save property and mitigate loss.

Question 11

Exam Tip

Answer 11

• “Rule of Thumb” is that covered losses must result from something that is “sudden and accidental.”
• Losses associated with neglect and intentional acts of the insured are NOT covered.

Question 12

Endorsements

Answer 12

• Some of the perils are excluded from the standard homeowner’s insurance policy and can be covered by the purchase of an endorsement.
• Endorsements are a supplement to an existing policy that provides additional coverage.
• Endorsements covered by purchase:
  • Sink Hole Collapse
  • Earthquake
  • Sewage Backup
  • Refrigerated Property Coverage
• Protection from losses associated with floods may also be available by purchasing a separate insurance policy from the National Flood Insurance Program.

Question 13

Section 1 Coverages!

Answer 13

• Property Insurance is detailed in Section 1 of most policies.
• Section 1 includes:
  • Coverage A: Dwelling
  • Coverage B: Other Structures
  • Coverage C: Personal Property
  • Coverage D: Loss of Use

Question 14

Coverage A: Dwelling

Answer 14

• Covers
  
  • repair or replacement of the house,
  • attached structures, and
  • building materials on the premises.
• The insured must purchase an amount equal to the replacement cost (cost to rebuild) of the building.
• Insured must carry at least 80% of the replacement cost of the building (coinsurance).
  
  • No deduction for depreciation is taken.
• Replacement Cost:
  • Amount necessary to purchase, repair, or replace with similar quality at current prices.
  • Insured must carry 80% of the replacement cost at the time of the loss.
  • If less than 80% of the replacement cost is carried out, the insured receives payment for partial payment.
• The trick to remember the formula:
  • Insurance I have divided by the insurance I should have (80% of replacement cost), times the loss, minus the deductible, equals the insurance amount.

Question 15

Example of Replacement Cost

Bill owns a home with a replacement cost of $400,000. He purchases $200,000 of property insurance with a coinsurance requirement of 80%. If Bill experiences a $50,000 loss, the insurance company will pay:

Answer 15

$200,000 ÷ (80% x $400,000) x $50,000
=$31,250

The insurer will pay Bill $31,250 less his deductible.

• Note he will not receive his full loss of $50,000 even though his total coverage is $200,000. If he had at least $320,000 of coverage, he would have received the entire $50,000 from the insurance company less his deductible.

Question 16

Coverage B: Other Structures

Answer 16

• Detached structures on the property are covered by homeowners insurance.
• Examples include:
  • Detached garages
  • Greenhouses
  • Storage buildings
• The limit is 10% of Coverage A dwelling limit.
• Losses are insured on a replacement cost basis.
• Other structures will NOT be covered if used for BUSINESS purposes.
  • Separate coverage must be obtained.

Question 17

Coverage C: Personal Property

Answer 17

• Includes Movable tangible property owned by the insured
  
  • furniture,
  • entertainment equipment,
  • music collections,
  • videos,
  • paintings,
  • lamps,
  • books,
  • clothing,
  • etc.
• The limit is usually 50% of Coverage A amount.
• Coverage is still effective, regardless of where the property is located at the time of loss.
• Standard coverage for personal property is insured on an actual cash value and
• needs an endorsement for replacement cost to enhance personal property coverage.

Question 18

Example of Personal Property Value Coverage

Answer 18

• Lisa bought a new 52” television for $2,800. Three years later the television was stolen. Television depreciated by 60% in the three years. Today, the same television costs $1,500.
• Lisa will receive $600 ($1,500 - $900 depreciation; $1,500 x 60% = $900) in actual cash value.
• However, she will receive the full $1,500 if she has replacement cost coverage instead of actual cash value coverage.

Question 19

Limits on Personal Property Items

Answer 19

• $200 - money, coin collection, banks.
• $1,500 - securities, bills airplane tickets, manuscripts
• $1,500 - Jewelry, metals, furs
• $1,500 -watercraft, equipment
• $2,500 - Firearms
• $2,500 - Theft of silverware, old-ware, pewter rare, and similar property.

Question 20

Exclusions from Coverage of Homeowners Insurance

Answer 20

• Business cards, business property not at residence place.
• Credit cards, fund transfer cards
• Animals, birds
• Motorized land vehicles
• Property of roomers/renters or property in an apartment rented to others.
• Aircraft and parts

Question 21

Coverage D: Loss of Use

Answer 21

• Combination of insurance paying for additional living expenses and loss of rental income when the property is uninhabitable.
• Limit is usually 20-30% of Coverage A amount for insurance forms HO-2, HO-3, HO-4, and HO-5.
• 50% of Coverage C for HO-6
• 10% of Coverage A for HO-8.
• Loss resulting from living in a hotel because the residence is damaged or being repaired.
• Alternatively, if rental income is lost due to a property being damaged, the insured may collect.
• insurance is state-run and there may be differences between states.

Question 22

Section II Coverages!

Answer 22

• Liability and medical payment is detailed in Section II of most policies.
• Coverage E: Personal Liability
• Coverage F: Medical Payments to Others

General Provisions:

• Can’t assign homeowners policy unless consent from insurance company.
• No Subrogation
• Policy will be void if the insured willfull misrepresented or concealed any material fact.

Question 23

Coverage E: Personal Liability

Answer 23

• Protects the insured against claims arising out of both bodily injury and
  
  • property damage to others,
  • when the insured or members of the insured’s resident family ARE RESPONSIBLE.
• The insurer will cover both the damages (settlements) and the costs of any defense of the claim or suit.
• The insurer will only pay the lesser of the damage or the coverage.
• The minimum amount of coverage is $100,000 per occurrence.
• The Coverage E liability insurance is based on a legal liability to pay

Question 24

Coverage F: Medical Payments to Others

Answer 24

• Includes coverage for the medical payments to others for injuries that arise even where the insured is not liable for the injury.
• Medical expenses include reasonable charges for
  
  • medical procedures,
  • surgical procedures,
  • hospital stays,
  • ambulances,
  • dental care,
  • X-rays,
  • professional nursing,
  • prosthetic devices, and
  • funeral services.
• Coverage F does not apply to the insured or members of the insured’s household (unless the member of the household is a residence employee).
• This coverage is not liability coverage and is not based on fault.
  
  • WITHOUT REGARD TO LIABILITY.
• Medical expenses must be incurred within 3 years of the accident.
• Insurance companies limit amount paid.
  
  • It varies but $1,000 - $5,000 is common for basic policies.
  • $10,000 is the upper limit.

Question 25

What conditions must be met for an individual to collect under Coverage F: Medical Payments to Others?

Answer 25

One of the following conditions must be met for an individual to receive medical payment coverage from the insured:

• The injury occurs while the person has permission to be at the insured location.
• The injury occurs while the person is away from the insured location and is caused by a condition at the insured location or on the property immediately adjoining the insured location.
• The insured injures another person while away from the insured location.
• An animal owned by or in the care of the insured injures an individual off the insured premises.

Question 26

Homeowners (HO) Insurance Policy Forms!

Answer 26

• HO-1 Basic Form
• HO-2 Broad Form
• HO-3 Special Form
• HO-4 Renters Policy
• HO-5 Comprehensive Form
• HO-6 Condominium Owners Form
• HO-8 Modified Coverage Form

Question 27

HO-1 Basic Form

Answer 27

Only covers basic named perils (1-12).

Question 28

HO-2 Broad Form

Answer 28

Provides coverage on a broad perils basis (18 named perils).

Question 29

HO-3 Special Form

Answer 29

• Provides coverage on an “open perils”, or “all-risks” basis.
• A special form of homeowners insurance.
• Provides coverage on swelling and other structures on an open perils basis resulting in coverage against all physical loss other than those specifically excluded.
• Personal property covered on a named perils basis.
  • Endorsement for open perils to improve.

EXAM TIP:

• Covers Boats up to 25HP.

Question 30

HO-4 Renters Policy

Answer 30

• Provides coverage for renters and tenants.
• Does not cover the dwellings or other structures.
• Provides over personal liability coverage.
• Provides coverage for PERSONAL PROPERTY (Coverage C) on a BROAD perils basis(maximum amount sold is $6,000).
• Provides for loss of use of the premises (equal to 30% of personal property coverage)
• Tenant improvements and betterment coverage protect the insured for improvements made by the insured to the rented dwelling.

4 - rent exam tip

Question 31

HO-5 Comprehensive Plan

Answer 31

• Provides coverage on an “open perils”, or “all risks” basis.
• Comprehensive homeowners insurance.
• Very similar to the HO-3 Special Form with one major change.
  • An HO-5 policy provides personal property protection on an OPEN perils, instead of a BROAD perils basis.

Question 32

HO-6 Condominium Owners Form

Answer 32

• Provides coverage for condominiums.
• Coverage for the inside structure of their unit and all of its contents. (Outside is owned, maintained, and insured by the association).
• Same Perils as H02 and H04, and is a broad perils basis.
• Provides coverage for building alterations and additions, which include
  
  • appliances,
  • fixtures,
  • real property that pertains exclusively to the insured’s premises,
  • property that is the insured’s responsibility under the condo association agreement, and
  • structures owned by the insured other than the condo unit.
  • DOES NOT COVER BUILDING COVERAGE THOUGH.
• Like HO4 minimum amount of Coverage C that can be purchased is $6,000.
• Provides for loss of use coverage equal to a max of 50% of the amount of Coverage C (personal property).
• Endorsements can be added to HO6 to provide open peril coverage on the unit owner’s building items, personal property, loss of unit rental, and assessment coverage.

Question 33

HO-8 Modified Coverage Form

Answer 33

• Modified Form Policy
• Provides repair cost coverage (instead of providing replacement cost coverage) for damage to property.
• Provides “functional replacement cost” coverage.
• Typically insures older homes that may be quite expensive to repair if the insurance is required to use original construction materials and workmanship.

Historical 8 letters.

Question 34

Coverage for Different Forms of Homeowners Insurance - Section 1

Answer 34

Question 35

Flood Insurance

Answer 35

• The National Flood Insurance Program provides subsidized flood insurance to property owners in qualified areas.
• The coverage uses two forms:
  
  • Coverage on dwellings and contents
  • Coverage on other types of AVC basis but RC is available.
• A Flood policy has a 30-day waiting period.
  • There is a 1-day waiting period if flood insurance is elected within 13 months following a map update to include your residence.
• Forced to Get Flood Insurance
  
  • Somehwere where there is floods, lender will require.

Question 36

Inland Marine

Answer 36

category of insurance that protects against property losses to goods in transit.

Coverage that is usually on the Homeowners policy as scheduled endorsement (scheduled FLOATER) are:

• Personal furs
• jewerly
• Silverware floater coverage golf equipment kept in a locker in a clubhouse.
• Golf equipment floater covers golf equipment kept in a locker in a clubhouse
• Camera, fine art and antiques, stamp and coin collection, musicla instrument, wedding presents, and personal property floaters.

The Same as endorsements.

Question 37

Insurance on Watercraft

Answer 37

• Exam Tip: H03 covers boat up to 25HP.
• Only covers is ACV coverage for the boat and permanently attacked equipment.
• Is subject to depreciation.
• Covers
  
  • Liability
  • Physical Damage
  • Medical Payments
  • Uninsured Watercraft

Question 38

Automobile Insurance!

Answer 38

• This insurance is usually sold in a package insurance policy.
• The Personal Auto Policy (PAP) is the policy that is sold in most states.
• The PAP covers
  
  • liability,
  • property damage,
  • the covered automobile, and
  • medical payments.
• Low-Speed Vehicles (LSV) are not covered by an existing policy.
• LSV such as gold carts may be covered as a rider under your HOMEOWNERS POLICY for incidents on your property.
• A standalone policy can be purchased to cover LSVs.

Question 39

Parts of a Personal Auto Policy (PAP)

Answer 39

Part A: Liability Coverage.
Part B: Medical Payments coverage.
Part C: Uninsured Motorists coverage.
Part D: Coverage for Damage to Your Insured Automobile.
Part E: Duties After an Accident or Loss.
Part F: General Provisions.

Question 40

Part A: Liability Coverage

(Bodily Injury and Property Damage)

Answer 40

• 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, and
  • any organization responsible for your conduct while driving a non-owned auto.
• It covers liability for bodily injury or property damage to others for which the insured driver is deemed to be responsible.
• Coverage amounts are limited as follows:
  
  • Bodily Damage Per Person.
  • Bodily Damage Per Occident.
  • Property Damage Per Occurrence.
• For example: 50/100/50 means… (Split Limits)
  • $50,000 Bodily Damage Per Person.
  • $100,000 Bodily Damage Per Occident.
  • $50,000 Property Damage Per Occurrence.
• Insurance on the auto is primary insurance to recover any loss.
  
  • Driver’s insurance is secondary.
  • Only for if I take someone else’s car my insurance is secondary.
• State Law minimum limits automatically increase when driving.
• Most states have split limit policies, but some states have combined single limits that covers both bodily injury and property damage.

Question 41

Combined Split Policy

Answer 41

A combined single-limit policy

• has a fixed amount of coverage that the insurance company pays, whether the loss is attributable to bodily injury or property damage.

For example,

• a policy might be issued with a $300,000 limit, which is the max coverage for a single accident, regardless of whether the liability was due to bodily injury or property damage.

Question 42

Part B: Medical Payments Coverage

Answer 42

• Provides coverages for medical expenses sustained in an accident.
  
  • Extends to the injured insured or occupants of the insured’s car, regardless of who caused the accident.
• Covered persons include
  
  • you or any family member while occupying the auto,
  • you,
  • any family member as a pedestrian struck by an auto, or
  • as a passenger in a covered car.
• Per Person, Per Occurrence Basis.
  
  • For example: $5,000 limit per person, four persons in a car, then $20,000 limit.
• Covered for any other person while occupying your covered auto. - Medical payments if hurt as a passenger in the insured’s covered automobile.
• Exclusions include:
  
  • Public livery,
  • racing, and
  • an auto used without permission.
• Uber, taxi, and transportation is examples of public livery.

Question 43

Part C: Uninsured Motorist Coverage

Answer 43

• Pays what an “under-insured” or uninsured driver should have paid.
• 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, and
  • you or your family member as a pedestrian.

No after my Own Policy for Pain and Suffering.

Exclusions:

• Public livery,
• regular use of a non-owned vehicle,
  
  • No end in sight. Like totaled car.
• auto used without permission, and auto used in the insured’s business.
• Referred to as UM or UIM coverage.

Question 44

Part D: Coverage for Damage to the Insured’s Automobile

Answer 44

• Provides collision and comprehensive direct damage coverage on your covered auto and any non-owned auto (rental or borrowed car).
• Collision:
  • Protects against an accident
  • involving another car,
  • running off the road (ice or rain),
  • into a lake,
  • tree,
  • fence, or
  • wall.
• Comprehensive or Other Than Collision:
  • Covers the following perils:
  • falling objects,
  • fire,
  • theft,
  • explosion,
  • earthquake,
  • windstorm,
  • hail,
  • water,
  • flood,
  • mischief,
  • vandalism,
  • riot,
  • contact with a bird or animal, and
  • breakage of glass.
• The insurance company has the option of paying for repairs or the actual cash value of auto.
• Exclusions:
  • Public livery,
  • radar detectors,
  • most electronic equipment,
  • nuclear damages,
  • auto-used without permission, and
  • auto used in insured’s business.
• Vehicles that are financed are forced to have both coverages to protect the financial institution.
• Failure to maintain required coverage may result in a lien holder purchasing insurance and will add to the monthly payment of vehicle.

Question 45

Part E: Duties After an Accident or Loss

Answer 45

Upon the occurrence of a loss, the insured is contractually required to fulfill a number of obligations before the loss can be settled. Immediately after the loss, the insured must:

1. Notify the insurer of the time, place, and circumstance of the occurrence. And give names and addresses of any claimants and witnesses.
2. Protect the auto equipment from further loss.
3. File written proof with the insurance company, consistent with time constraints set forth in the policy. Cooperate with the insurer during the investigation.

• The insured must file a police report if there is a theft or accident with an uninsured MOTORIST.

Question 46

Examples of Part E: Duties After an Accident or Loss

Answer 46

• During a violent storm, winds from a tornado caused large tree limbs to fall onto the automobile.
• The windshield and two windows were shattered. The owners need to take steps to prevent further damage to the automobile.
• They should, cover the automobile with a tarp to prevent further damage that might result from rain, snow, etc.

Question 47

Part F: General Provisions

Answer 47

• An automobile insurance policy covers the insured in the U.S., Canada, and Puerto Rico.
• However, the same policy does not cover the insured in Mexico.
  
  • Mexico does not recognize U.S. automobile liability policies.

Question 48

Part F: General Provisions (Exclusions)

Answer 48

• As with all insurance contracts, there are limitations or exclusions for automobile insurance policies.
• Exclusions reduce the scope of coverage provided by the insurer.
• Insurers utilize exclusions to eliminate coverage for risks they are unwilling to insure.
• Exclusions include
  
  • intentional acts,
  • normal wear and tear,
  • losses resulting from violations the law, losses that are catastrophic to the insurer (nuclear war), and
  • some exposures that require an additional premium.

The common limitations or exclusions to an automobile insurance policy are:

• Named driver.
  
  • Some policies only cover household residents specifically named in the policy.
• Excluded driver.
  
  • Excludes persons specifically named in an endorsement attached to the policy.
• Intentional acts and racing.
• Vehicles with fewer than four wheels are not covered.
• Company cars or other vehicles furnished for regular use.

Question 49

Part F: General Provisions (Premiums)

Answer 49

Auto insurance companies must assess the risk of each insured. The following factors affect auto insurance premiums:

• Age for younger drivers
• Marital status
• Credit score
• Driving record and claims history
• The location where the car is kept
• Type of car
• Use of the car and mileage
• Possibly the credit score of the insured
• Policy coverages and deductibles

Question 50

No-Fault Insurance: Personal Auto Policy

Answer 50

• Each party involved in an accident files a claim and
• collects from their own insurance company for any injuries sustained.

Question 51

Legal Liability!

Answer 51

• The categories of legal liability to which individuals are exposed are:
  • Torts (civil wrongs)
  • Breach of contract
  • Criminal Offenses
• Liability insurance covers certain classes of torts but
  
  • it does not cover breaches of contract or criminal offenses.
• If an individual is liable for a civil wrong that caused an injury to another, the individual is required to make restitution.

Question 52

Restitution

Answer 52

May take more then one form,

• but it generally involves paying money to the injured party.

Question 53

Torts related to liability

Answer 53

• Intentional Interference
• Strict and Absolute Liability
• Negligence

Question 54

Intentional Interference

Answer 54

• Intentional Act committed against another that causes injury.
• Intentional Criminal acts are generally
  
  • not covered under a liability insurance policy.
• Slander and Libel however which are intentional acts
  
  • are covered under personal liability insurance policies.

Question 55

Slander and Libel

Answer 55

Slander: Defamation or harm caused by a verbal statement.

Libel: Defamation caused by written statement.

Question 56

Strict and absolute liability

Answer 56

• Occurs as a result of legislation in which one party is held legally liable regardless of who is responsible for the injury.
• Worker’s compensation laws are examples of strict liability.
• Under the STRICT liability definition, responsible parties have few defenses.
• UNDER ABSOLUTE liability, the responsible party has no defenses.

Question 57

Negligence

Answer 57

• An act or failure to act with appropriate care, and bodily injury or property damage results from such action or inaction.
• The court uses the “Prudent Man” standard to determine whether an individual used appropriate care.
• The standard is met if a reasonable person confronted with the same circumstances would have performed the same acts.
• Subsections:
  
  • Direct Negligence
  • Vicarious Liability

Question 58

Direct Negligence

Answer 58

• Refers to acts or omissions directly attributable to an individual.
• An individual may also be liable for indirect or vicarious acts.

Question 59

Vicarious Liability

Answer 59

• An individual is held at least partially responsible for negligent acts performed by someone else.

EXAMPLES

• Parents may be held liable for the acts of their children.
• Employers may be held liable for the acts of the employees.

Question 60

Res ispa loquitur

Answer 60

• The act speaks for itself.
• If an accident occurred, then there was negligence.

For example,

• if there is an airplane crash, the act speaks for itself and negligence occurs. Airplanes just don’t fall out of the sky. It does not have to be proven.

Question 61

Negligence per se

Answer 61

• The act itself constitutes negligence,
• thereby, relieving the burden of proving negligence (e.g. drunk driving)

Question 62

Burden of Proof

Answer 62

Initially borne by the injured party.

• The standard of proof in most civil cases is the preponderance of the evidence (more than 50%).

Question 63

Damages

Answer 63

• Damage from a tort can take two forms:
  
  • bodily injury and
  • property damage.
• Property damage is usually measured by the actual monetary loss caused by the act.
• Bodily injury may lead to medical expenses, loss of income, pain and suffering, mental anguish, and/or loss of consortium.
• The damages for bodily injury can be:
  • Special damages compensate for measurable losses (loss of limbs).
  • General damages compensate for intangible losses (pain and suffering).
  • Punitive damages are amounts assessed against the negligent party as punishment for the act.

Question 64

Collateral Source Rule

Answer 64

• Holds that damages assessed against a negligent party should not be reduced
• not be reduced simply because the injured party has other sources of recovery such as insurance or employee benefits (health or disability insurance).

Question 65

Defense to Negligence

Answer 65

• There are various defenses available to alleged negligent parties that can relieve them of legal liability in spite of their negligent behavior.
• These defenses include
  
  • assumption of the risk,
  • contributory negligence,
  • comparative negligence, and
  • the last clear chance rule
• Not available in all states.

Question 66

Assumption of the Risk

Answer 66

Assumption of the risk

• The injured party fully understood and recognized the dangers that were involved in an activity and voluntarily chose to proceed.
• This defense is not available in all states.

Question 67

Negligence on the part of the injured party

Answer 67

• Negligence on the part of the injured party
• Contributory negligence,
  • in which there is evidence that the injured party did not look out for his own safety.
  • Contributory negligence theories often result in the entire action failing.
  • Cannot recover if I am at all liable. Even 1%.
• Comparative negligence,
  • in which the amount of damage is adjusted to reflect the injured party’s proportion of contribution to the cause of the injury.
  • I am 5% and you are 95% means I can collect it.

Question 68

“Last clear chance” rule

Answer 68

• 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.

Not Tested.

Question 69

Personal Liability Umbrella Policy (PLUP)!

Answer 69

• A PLUP provides protection against legal obligations that arise from negligent acts.
  
  • Assets and earning power are at risk.
• A PLUP pays the costs, up to the face of the policy, that result in liability.
• A PLUP usually provides defense for the insured in the event of a lawsuit.
• A PLUP requires higher liability limits on underlying auto and homeowner policies.
• The PLUP does not pay until the liability limits on the underlying policies are exhausted.
• The coverage is for the 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.
• A PLUP will not be issued until carrier insists on underlying coverages for both auto and home.
• Home and Auto are usually packaged. (PAP)
• For the exam, look for coverage of $1,000,000 minimum, otherwise it should be considered a deficiency in the financial plan. A client without one or now with too low will be DEFICIENCY.
• Criminal acts and intentional acts are not covered. ONLY slander and libel.

EXAM TIP:

• If a client doesn’t have a PLUP - They need it! A PLUP is always the right answer! Look for 1 million on coverage.

As with Liability Coverage they can write a check or defend you.

Question 70

Business and Professional Property and Liability Insurance!

Answer 70

• Business owners and professionals face similar risks to those of individuals, mainly losses from property damage and losses from liability.
• Commercial package policy (CPP): covers loss of assets from various perils and some liability. The coverages, similar to homeowners policies, include basic, broad, or open perils.
  • A CPP does not cover losses from flood or other exclusions (earth movement).
  • A business owner can add an endorsement for business interruption (lost profits).
  • Businesses also have automobile package policies (BAP) covering physical damage to autos and liability.
• Like individuals, businesses often find the need to buy excess liability coverage. Commercial liability umbrella policies (CLUP) are available. Manufacturers of products may need product liability insurance.
• Professionals: Professionals are also businesses and therefore need both asset and general liability protection.
• In addition, they need to consider adding malpractice and error and omission insurance.

Question 71

Products Liability Insurance

Answer 71

Businesses that manufacture products are subject to liability with respect to those products. Acts that can expose a company to product liability include:

• Manufacturing a harmful product
• Selling a defective product
• Packaging the product inappropriately
• Providing insufficient directions or warnings for use

Question 72

Errors & Omission’s

Answer 72

Covers negligent acts, errors, and omissions.

Professionals carry E&O policy.

• Accountants
• Lawyers
• Engineers
• Financial Planners

Question 73

Malpractice Insurance

Answer 73

Where bodily injury may occur.

• Doctors

Question 74

BAP

Answer 74

• Business Auto Policy used in the course of business.

Question 75

Chart of Business and Professionals

Answer 75

Question 76

Notes

Answer 76

• SECTION II offers identical coverage for all forms of homeowners insurance policy.
• You have 30 days to notify insurance after purchasing a car.
• A PLUP is not only appropriate for high net worth.