Property & Casualty Insurance Basics

Question 1

Aggregate limit of liability

Answer 1

maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made of the number of accidents that may occur

Question 2

Coinsurance

Answer 2

Used to help adequacy and equity in rates. The insured agrees to maintain insurance equal to some specified percentage of the value of the property. If the insurance carried is less than required, the insurance may not cover the whole loss. The coinsurance formula is NOT applied to total losses

Question 3

Policy Declarations

Answer 3

Who, what where and how much insurance and premiums all are stated here.

Question 4

Comparative negligence

Answer 4

Appointment of damages when both the plaintiff and the defendant are at fault.

Question 5

The declarations page of the homeowners policy provides all of the following information except

Answer 5

a statement that earthquake damage is not covered. - this is found in the policy form

Question 6

Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called.

Answer 6

Specific coverage

Question 7

Conditions commonly found in the insurance policy

Answer 7

subrogation, appraisal, cancellation and nonrenewal. Insuring agreement is NOT found in the insurance policy, but in the conditions section .

Question 8

Strict Liability

Answer 8

Is applied in product liability cases, claimants may need to provide proof that a product defect caused injury and it is imposed regardless of fault.

Question 9

The part of the policy that sets forth rules of conduct, duties, and obligations of the parties is called the

Answer 9

conditions

Question 10

Declarations Section

Answer 10

Policy, premiums, name of insured, and limits of insurance are included here.

Question 11

Insurer’s claim settlement options at the time of loss include

Answer 11

1. pay the value of the lost of damaged property.
2. Pay the cost of repairing the lost or damaged property
3. Take all or part of the property at an agreed or appraised value
4. Repair, rebuild or replace the property with other property of like kind and quality.

Question 12

Proximate cause

Answer 12

The reasonably foreseeable act or even that results in injury or damage. Negligence may often be the proximate cause of damage, without it, the accident would not have happened.
-Also called direct liability.

Question 13

Contributory Negligence

Answer 13

Common law defense that denies recovery to an injured party who contributed to the loss by failing to meet standards required for self protection.

Question 14

Definition Section

Answer 14

Clarifies terms in the policy

Question 15

Short-rate cancelation

Answer 15

Cancellation procedure in which the premium returned to the insured is not in direct proportion to the number of days remaining in the policy period.

Question 16

A 2-year policy has a value of $2,000. The policy has been in effect for one year. What is the earned premium of this policy?

Answer 16

$1,000. ($2,000/2 years= 1,000/year)

Question 17

Endorsements

Answer 17

Change the policy’s original terms, conditions or coverages. Endorsements can add or delete coverage, or merely correct items such as the insured’s name, address, etc.

Question 18

Mandatory part of an insurance policy that varies with each individual policy

Answer 18

Declarations- because it tells who, what and where, this information is different for each individual contract

Question 19

An insured’s home is mortgaged by the local bank. The insured is required to carry insruance on the home, showing the bank as the mortgagee. If the home is damaged by a covered peril, what is true?

Answer 19

Losses will be paid to the mortgagee and mortgagor as their interest appears.

Question 20

How many days does before an insurer cancels heir policy do they have to notify their mortgagee?

Answer 20

10 days

Question 21

If a libaility policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person.

Answer 21

$50,000

Question 22

Formula for computing a loss ratio

Answer 22

(Incurred losses + loss adjusting expense)/ earned premium

Question 23

A property insurance policy that is not subject to any coinsurance requirements but has set amount of insurance scheduled for the property would use what loss valuation method?

Answer 23

Stated amount

Question 24

Policy conditions define:

Answer 24

How parties to the contract must act following a loss

Question 25

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?

Answer 25

Additional coverage

Question 26

Which of the following defenses attests that if a person recognizes and understands that there is danger involved in an activity and voluntarily chooses to encounter it, he or she may be barred from seeking recovery for injuries due to negligence?

Answer 26

Assumption of risk

Question 27

Personal property

Answer 27

property that is movable,

Question 28

Real property

Answer 28

non removable property

Question 29

An insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some furniture and clothes in the house. From an insurance standpoint, the insured’s house is considered

Answer 29

unoccupied

Question 30

The section of the policy that details what perils are not insured against and what person are not insured is know as the

Answer 30

exclusions

Question 31

A beauty parlor burns to the ground. What type of loss is this to the owner?

Answer 31

Direct

Question 32

Direct Loss

Answer 32

Damaged caused by a peril that is insured against

Question 33

An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?

Answer 33

80% of the property’s replacement cost or more

Question 34

Which method of loss valuation is contrary to the basic concept of indemnity?

Answer 34

Replacement cost- because following a loss it may provide the insured with a settlement in excess of the property’s actual cash value.

Question 35

In which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property’s appreciation or depreciation?

Answer 35

agreed value.

Question 36

Insured for Market Value

Answer 36

insured for what a willing buyer would pay prior to a loss.

Question 37

Subrogation

Answer 37

provision found in most insurance policies that gives the insurer, after payment of a loss caused by a third party, the insured’s right to recovery against that third party. The insurer’s rights are on to the extent of the loss payment.

Question 38

In the event of a loss covered by the policy, if the insurer requests a signed sworn proof of loss, the named insured is required to submit it within

Answer 38

a specified time (usually 60 days)

Question 39

A $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage; the owner has a policy with $60,000 coverage. How much can the owner collect for this loss?

Answer 39

$30,000. Since house is insured for only 75% of minimum requirement. The policy will pay only 75% of the loss.

Question 40

Redlining

Answer 40

when an insurer refuses to issue an insurance policy based solely on the geographic location of the risk within the state.

Question 41

Pro rata liability

Answer 41

limits the liability of the insurer to a portion of the loss no greater than the amount the insurer bears to all the insurance covering the property.

Question 42

Manual rates

Answer 42

rates that are established by similarity of risk

Question 43

Where is the policy period stated?

Answer 43

On the declarations page of the policy