Property Basics Flashcards
A sudden, unforeseen, unintended, and unplanned event from which loss or damage results.
Accident
An accident includes continuous or repeated exposure to the same general harmful conditions.
Occurrence
A proportionate cancellation of insurance that refunds premium to the insured based on the precise number of days coverage was in effect. The earned premium is the premium charged and retained by the insurer for the number of days coverage was in place; the unearned premium is the premium refunded to the insured for the number of days coverage was not in place.
Pro Rata Cancellation
A cancellation of insurance that incurs a financial penalty/when the insured cancels the policy before its expiration date/ The insurer retains a portion of the unearned premium to cover costs.
Short Rate Cancellation
A cancellation of insurance that is retroactive to the effective date of the policy. No coverage is provided and the insurer must refund the policy premium paid by the insured
Flat Cancellation
The termination of a policy at the expiration of its term. The policy does not renew and no coverage is provided after the expiration date.
Nonrenewal
The primary cause of loss. If only one peril caused the loss, it is the first event in the unbroken chain of events that resulted in loss. If more than two perils caused or contributed to the loss it is the peril having the most significant impact in generating the loss or damage.
Proximate Cause
A fire that burns outside its intended boundaries, or becomes uncontrollable.
ex: a wildfire or a fire that damages a home when a spark from a fire in the fireplace ignites a piece of furniture.
Hostile Fire
A fire that was intentionally set and stays within its intended boundaries (e.g., a fireplace) and results in smoke damage to the inside of a fireplace. Property insurance does not cover damage from this.
Friendly Fire
A quality within property that causes it to damage or destroy itself. Examples include rust, rot and the fading of paint. This is not covered by a property policy.
Inherent Vice
A legal agreement issued by an insurance company or a producer that provides temporary proof of insurance until the insurer is able to issue an insurance policy
Binder
Process whereby a disputed claim is decided by a neutral third party
Arbitration
The right of the insurer to take possession of damaged property after paying for its loss.
Right of Salvage
The amount for which property can be sold at the end of its useful life. In property insurance, it is the scrap value of damaged property.
Salvage Value
A policy form that alters or adds to the provisions of a property and casualty insurance contract.
Endorsement
A principle holding that when two perils simultaneously cause a loss, the insurer must pay the loss even if one of the perils is excluded by the policy.
Concurrent Causation
The existence of two or more policies covering the same exposures, having the same policy periods, and the same coverage triggers. ex. an auto policy and an umbrella policy written with the same policy dates
Concurrency/Concurrent Policies
The existence of two or more policies covering the same exposures that don’t have the same policy periods
Non-Concurrency/Non-Concurrent Policies
The specified amount of each loss that the insured must bear
Deductible
Words, terms, and phrases that are clearly described and used in an insurance policy for the purpose of clarifying the intent of the insurer and to avoid coverage disputes with respect to the extent of coverage provided by the policy
Definitions
A person or any organization to which property has been entrusted, usually for repairs, servicing or storage. Property insurance policies exclude coverage for property in the care of this.
Bailee
A person or organization that entrusts property to a bailee
Bailor
Any type of coverage that responds to a loss before all other coverage responds
Primary Insurance
Any form of insurance coverage that provides protection against certain perils or causes of loss ONLY after loss or damage exceeds a stated amount or the limits stated in specific policies or self-insurance. ex. umbrella insurance
Excess Insurance
A property that contains personal property but has no occupants
Unoccupancy
A provision in a property policy that eliminates or limits coverage for buildings that don’t contain sufficient personal property to support intended occupancy or use
Vacancy
The taking of property from inside the premises or a locked safe or vault by a person who commits forcible entry into, or exit from, the property of another while trespassing.
Burglary
The taking of property from the care and custody of a person who has been caused or threatened with bodily harm.
Robbery
The broadest of the crime coverages, includes any act of stealing
Theft
The loss of property when the cause of loss is not known. This is NOT theft, burglary, or robbery.
Mysterious Disappearance
A loss that causes direct damage to property without an intervening cause
Direct Loss
A loss that is not the direct result of a peril.
Indirect Loss or Consequential Loss
What are the two types of perils that may be covered by property insurance policies?
Named Peril and Open(or Special Form/All-Risk) Peril
This type of property coverage only provides insurance for the causes of loss, or perils, listed. If a peril is not “named” in the policy, no coverage applies. (up to 16 perils)
Named Peril
This type of property coverage provides insurance for all causes of loss that are not specifically excluded under the policy. Ex. flood and earthquake.
Open Peril (Special Form, All–Risk)
What is loss valuation?
A property policy pays for losses to property based on the valuation method contained in the policy or chosen by the insured in an endorsement added to the policy.
The cost to replace property with property of like kind and quality, at current pricing, without a deduction for depreciation.
Replacement Value
The cost to repair or replace property at its replacement value, minus depreciation.
Actual Cash Value (ACV)
The insurance company and insured agree to a specific value of a particular property before the policy is issued
Agreed Value
states the value of a particular property on the declarations page, but provides for the insurer to pay the lesser of the stated value or ACV of the property following a loss.
Stated Value
states the value of property as the amount shown on the Declarations page and will pay that full face value in the event of a total loss, regardless of the actual cash value
Valued Policy
The cost to replace property with other property that performs the same function with similar efficiency, although the replacement property is not identical to the property being replaced
Functional Replacement Value
The price a willing buyer would pay for property purchased from a willing seller
Market
What calculation is used to determine the actual cash value (ACV) of a loss?
A: Market value – original purchase price = ACV
B: Replacement cost – market value = ACV
C: Market value – depreciation = ACV
D: Replacement cost – depreciation = ACV
Replacement cost – depreciation = ACV
A building that has a roof, floor, and supports of combustible material, usually wood, and combustible interior walls.
Frame
Buildings with exterior walls of masonry or fire-resistive construction rated for not less than one hour and with combustible floors and roofs.
Joisted Masonry
The buildings and its walls, floors, and structural framework are constructed of noncombustible materials.
Noncombustible
Buildings with exterior walls of masonry (not less than 4 inches thick) or made of fire-resistive construction with a rating of not less than one hour and noncombustible floors and roofs
Masonry Noncombustible
The entire building and roof are constructed of reinforced concrete and steel. Must have at least a 2-hour ____rating.
Fire Resistive
The materials used in the walls, floors, and roof of a structure must have a fire resistive rating of at least 1 hour, but less than 2 hours.
Modified Fire Resistive
Methods of Writing Property Insurance Limits Include:
specific limit, scheduled limit, and blanket limit
Insures a single item of property for a single limit of insurance. For example, a fire policy insures one dwelling for $100,000.
Specific Limit
Insures one or more items of property on a single policy and the amount of insurance applying to each item is shown on a schedule. For example, one farm policy insures a home for $100,000 and a barn for $200,000.
Scheduled Limit
Insures property located at more than one location OR more than one type of property at the same location OR both. For example, the $1 million ______ applies to two separate buildings at two separate locations, as well as the business personal property contained in each building.
Blanket Limit
What is the acronym used to remember the structure of a standard property insurance policy?
DICE (declarations, insuring agreement, conditions, exclusions)
Describes basic info about policy including: who, what, where, when, how much
Declarations
states the insurance company’s promise to pay the insured. This promise is usually broad and the other sections of the policy restrict or limit the scope of coverage provided by the policy. Property insurance policies state in the_______ what perils are covered.
Insuring Agreement
states the obligations of the parties to the contract, spells out the insureds duties and obligations
Conditions
Specifies that coverage only applies to losses occurring when the policy is in force
Policy Period
Specifies that coverage will not apply if an insured makes a material concealment, misrepresentation, or fraud in the application pertaining to the claim.
Concealment or Fraud
Specifies that if the insurer broadens coverage with no increase in premium, that broadening of coverage will apply to existing policies without the need for an endorsement.
Liberalization Clause
Specifies the terms under which the policy can be cancelled by the insurer and the named insured.
Cancellation
Addresses the requirements of the insurer if it elects not to renew a policy.
Nonrenewal
Specifies that the insured may not transfer rights of ownership without the insurer’s prior written consent.
Assignment
States the insured must transfer to the insurance company its right of recovery against any party causing a loss after it accepts payment from the insurer for a loss. It allows the insurer to recover from the party that caused a loss any amounts paid to an insured
Subrogation
- Prevents the insured from collecting twice for the same loss
- Helps the insurer control expenses and premiums
-Ultimately holds the
responsible third party accountable for the loss
Subrogation
Any changes to the policy must be made in writing by the insurer.
Changes
The insurer will not be responsible for payment of loss in an amount greater than the financial interest of an insured.
Insurable Interest and Limit of Liability
Specifies the sum and circumstances under which an insurer charges the insured, usually a business firm, to restore a policy to its initial face value or not reduce limits of coverage after the insurer has paid a claim either to the insured business or a third party on behalf of the business.
Restoration/Nonreduction of Limits
Specifies the obligations of the insured in the event of a loss
Duties in the Event of Loss
Obligations of the insured in the event of a loss include:
- Giving prompt written notice to the insurer
- Notifying the police if a theft
- Cooperating with the insurer in the investigation and settlement of the loss
- Protecting property from further damage
- Preparing an inventory of the damaged property
- Allowing the insurer to inspect
- Submitting proof of loss to the insurer
Specifies which loss valuation method will apply to the property insured under the policy.
Loss Settlement
Specifies which loss valuation method will apply to the property insured under the policy.
Loss Settlement
Addresses disputes about the amount of a loss. It is a dispute resolution method and is not used to determine whether the policy provides coverage for a loss
Appraisal
Specifies the process to be followed when more than one policy covers the same loss. Each policy pays no more than its share of the loss.
Other Insurance
Specifies that no one may bring suit against the insurer until all terms and conditions of the policy have been complied with.
Legal Action Against Us
Specifies how the insurer will make payment for loss and any applicable time frames that must be honored when submitting proof of loss and other claim documents.
Loss Payment
Specifies that the insurer is not obligated to accept any property abandoned by an insured.
Abandonment of Property
Specifies how the policy protects the mortgagee’s financial interest.
Mortgage Clause
Under the mortgage clause, the mortgagee must comply with what requirements?
- It must pay any premium due under the policy on demand if the insured fails to do so
- It must notify the insurer of any change in ownership, occupancy, or substantial change in risk of which the mortgagee is aware
- It must submit a proof of loss to the insurer if the insured fails to do so
Specifies that no coverage applies if loss payment benefits a bailee
No Benefit to Bailee
Specifies the procedure to be followed when lost or stolen property is recovered after the insurer has made payment under the policy.
Recovered Property
Specifies that bankruptcy or insolvency of the insured does not relieve the insurer of any of its duties or obligations under the policy.
Bankruptcy Clause
– Specifies that in the event of the named insured’s death, the insurer will extend coverage to the legal representative of the deceased with respect to the premises and property covered under the policy at the time of the named insured’s death.
Death
Specifies how the policy protects the interests of a loss payee. A loss payee has insurable interest in personal property.
Loss Payable Clause
In policy structure, what are exclusions?
Perils that are NOT covered by the policy
Name some common property exclusions:
- Ordinance or Law
- Earth movement
- War
- Water Perils that are NOT covered by the policy are listed in the exclusions section. Other perils may be excluded in provisions stated elsewhere in the policy (i.e., water damage, flood, sewer backup, etc.)
- Utility failure that originates off-premises
- Neglect of the insured to protect covered property from further loss
- Intentional loss
- Nuclear hazard, war, and military action
- Governmental action
- Fungus, wet rot, dry rot, and bacteria (e.g., mold)
Each of the following is a typical property insurance policy exclusion, except:
A
Neglect
B
Flood
C
Fire
D
Ordinance or Law
Fire. Fire is a basic peril covered under property policies. Ordinance or law, flood, and neglect are common exclusions.
automatically included in property policies without an additional premium. paid in addition to those stated in the insuring agreement and include debris removal, collapse, and fire department service charges.
Additional Coverages
What are some types of insureds in common policy provisions?
Named insured, insured, first named insured, and additional insured
person or organization designated on the Declarations page of the policy. should be owner of the property.
Named Insured
A person or organization protected by an insurance contract.
Insured
has rights and responsibilities not applying to other insureds. represents all insured, particularly on commercial lines policies. ______receives notifications from the insurer, can cancel the policy, and is responsible for paying the premium. Receives the broades coverage of all persons…
First Named Insured
A person or organization not ordinarily protected by a policy but which, through the addition of an endorsement to the policy, is granted status as an insured. Under a property policy, an _____ is often a co-owner of real property. Under a liability policy, an ______ is often a party to an indemnification or hold harmless agreement.
Additional Insured
A common policy provision contained in most policies insuring commercial property, and is used to encourage the insured to purchase and maintain insurance to value, and to establish the basis of payment in the event the insured fails to maintain a specified percentage of that value. applies only in the event of a partial loss, as total losses typically are paid in accordance with the Valued Policy Law.
Coinsurance
