P and C 3 Insurance Basics

Question 1

Actual Cash Value (ACV)

Answer 1

The cost to replace damaged property at today’s value minus a deduction for depreciation due to wear and tear or obsolescence (ACV = RV - D)

Question 2

Aggregate Limit

Answer 2

A type of policy limit found in liability policies that limits coverage to a specified total amount for all losses occurring within the policy period.

Question 3

Burglary

Answer 3

As it is defined in Crime insurance policies, the unlawful taking of property by forced entry into the premises, or exit from the premises. There must be visible entrance of forced entry or exit.

Question 4

Co-insurance

Answer 4

If an insured does not carry a specified percentage of coverage in relation to the value of the property, the insured will not collect the entire amount of a partial loss. This clause applies to most business properties. Its purpose is to encourage the insured to carry insurance coverage, as close to the fall value of the property as possible.

Question 5

Direct Loss

Answer 5

Actual physical damage to, or destruction of, tangible property. For example, if a house burns, the cost to repair the house is a direct loss of the fire.

Question 6

Indirect Loss

Answer 6

Loss that is a result or consequence of a direct loss. Also known as a consequential loss.

Question 7

Loss

Answer 7

An unpredictable reduction in the quantity, or value of an asset. For example: Bodily injury, disease, property damage, physical disappearance of property, incurred expenses, death, etc.

Question 8

Negligence

Answer 8

Failure to use a degree of care that an ordinary person or reasonable prudence would use under the same given circumstances. Negligence may be constituted by acts of either omission, commission, or both.

Question 9

Mysterious Disappearance

Answer 9

Vanishing of property with no known explanation

Question 10

Peril

Answer 10

The happenings or events which cause a loss

Question 11

Premium

Answer 11

1. Consideration for the insurance

2. Periodic payment made to keep a policy in force

Question 12

Pro-Rata Liability

Answer 12

Clause in a Fire policy that provides a method of sharing loss when more than one policy is applicable. Each company covers no more than its share. Also known as the Other Insurance clause.

Question 13

Rate

Answer 13

The per-unit cost of insurance

Question 14

Replacement Cost (R/C)

Answer 14

The cost of replacing property without deduction for depreciation.

Question 15

Robbery

Answer 15

In Crime Insurance, the forceable and felonious taking of property by violence, or threat of violence, from a messenger or custodian.

Question 16

Salvage

Answer 16

Property taken over by an insurance company to reduce its loss. The company may disclose of, or salvage, property as it wishes, but on request and proper reimbursement, may return it to the insured.

Question 17

Short-Rate

Answer 17

A percentage penalty charged on insurance canceled by the insured, before the end of the policy period. Return premium is calculated on a short-rate basis, meaning the insurance company keeps a portion of the unearned premium to cover expenses.

Question 18

Theft

Answer 18

Any act of stealing. Theft includes larceny, burglary, and robbery.

Question 19

Tort

Answer 19

A legal wrong one person does to another. Tort law is the basis of all civil law. Negligence is an unintentional tort and is covered by liability policies.

Question 20

Vacancy

Answer 20

The absence of people and personal property from a building, not expected to return. Property coverage is often restricted when there are long periods of vacancy, especially for the perils of vandalism and glass breakage.

Question 21

Vicarious Liability

Answer 21

Imposed in some states upon a person even though he is not a party to the particular occurrence (e.g., the owner of a motor vehicle might be vicariously responsible for injuries even though he is not driving the car at the time of the occurrence).

Question 22

Underwriting

Answer 22

The process of evaluating a risk for the purpose of issuing coverage on it.