Lesson - 3 Property and Liability Insurance

Question 1

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

Answer 1

• Basic coverage
• broad coverage
• open coverage

Question 2

Basic coverage

Answer 2

Protects the homeowner from losses associated with twelve (12) 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

Question 3

Broad Coverage

Answer 3

Provides protection from losses associated with eighteen (18) named perils. This includes the twelve (12) perils covered in basic coverage, plus coverage for losses associated with these additional six (6) 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 cracking, burning, bulging of appliances
16. Freezing of plumbing, heating, air conditioning, fire sprinkler system, or appliance
17. Sudden and accidental damage from artificially generated electrical currents

Question 4

Open Perils Coverage

Answer 4

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.

Question 5

General Exclusions From Most Homeowners Policies

Answer 5

• Movement of the ground (earthquake, ground movement from volcanic eruption, mud/landslide, and sink hole) • Ordinance or law regulating the construction, repair or demolition of a building or structure • Damage from rising water (including floods; 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 • Nuclear hazards (including radiation or radioactive contamination) • Power failure caused by an uninsured peril (such as spoilage due to a freezer thawing out) • Intentional acts • Neglect

Question 6

Exam Tip

Answer 6

Basic and broad policies are “named perils” polices. 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 7

exam tip

Answer 7

A ‘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 8

Endorsements

Answer 8

Some of the perils that are excluded from the standard homeowners insurance policy can be covered by purchase of an endorsement. An endorsement is a supplement to an existing policy that provides additional coverage. Excluded
perils that may be covered by purchase of an endorsement include:
• Sink hole collapse
• Earthquake
• Sewage backup
• Refrigerated property coverage

Question 9

Flood

Answer 9

Protection from losses associated with floods may also be available by purchasing a separate insurance policy from the National Flood Insurance Program.

Question 10

Your home is covered by an open perils policy. Which of the following losses would be covered under your policy?
a) Termite damage b) Your angry neighbor throws a brick through your glass door c) Flood damage d) Earthquake damage

Answer 10

Answer: B Intentional acts of the insured are excluded from coverage. Intentional acts committed by some-one else are covered.

Question 11

SECTION I COVERAGES

Answer 11

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

Question 12

Coverage A: Dwelling

Answer 12

Pays for repair and replacement for damage to the house and any attached structures. It also coverages building mate-rials on the premises. Losses are paid on a replacement cost basis. Replacement cost is the amount necessary to repair or replace the dwelling with materials of the same or similar quality at current material prices (no deduction for depreciation is taken). • Some policies require the insured to carry homeowners insurance of at least 80% of the replacement cost of the home to be fully covered for partial losses (this is a coinsurance requirement). If less than 80 percent of the replacement cost is carried, the insured receives payment for partial losses calculated as follows:

Trick to remember the coinsurance formula: Insurance I have, divided by the insurance I should have (80% of the replacement cost), times the loss, minus the deductible, equals the insurance amount.