Property/Casualty review

Question 1

What is the difference between Additional Coverages and Supplemental Payments?

Answer 1

1. Additional Coverages are things specified in a HOMEOWNERS policy that the insurance company will pay for in addition to the homeowner policy limits of liability
2. Supplemental Payments are things specified in AUTO policies that the insurance company will pay for in addition to the auto policy limits of liability

Question 2

What is proximate cause?

Answer 2

A loss where the covered peril in the direct cause of the damage (also known as immediate cause or Direct Physical loss)

Question 3

The amount paid on the loss is know as _____.

Answer 3

Adjustment or loss settlement

Question 4

What does liability coverage cover?

Answer 4

All sums for which an insured become legally liable for bodily injuries and/or property damage to THIRD PARTIES, not to exceed the policy limits of liability

Question 5

An insurance company will pay to an injured claimant in a liability claim only when?

Answer 5

Only if the insurance company determines that a court would find the insured legally liable and a court would order the insured to pay to the claimant in the claim were to go to a court hearing

Question 6

What is considered a bodily injury?

Answer 6

1. Reimbursement for medical bills
2. Reimbursement for lost wages
3. Compensation for pain and suffering
4. Compensation for permanent disability
5. Compensation for permanent scarring or disfigurement

Question 7

Under the Fair Credit Reporting Act, the applicant has a right to what?

Answer 7

See the inspection report, however, the insurance company is not required to provide the applicant a hard copy (i.e can just email instead of mailing)

Question 8

What is required under the Gramm-Leach-Bliley Act (GLB) - Privacy Act?

Answer 8

1. Provide the consumer a privacy notice when it enters into a transaction with the financial organization
2. The notice must explain what information is being collected, with whom it is to be shared, how it is to be used, and how it is to be protected
3. The consumer must be notified of his/her right to request that information not be shared with other organizations

Question 9

What is the Loss of Actual Cash Value formula?

Answer 9

1. Depreciation = Percentage of Useful Life Used Up x Replacement Cost
2. Loss of Actual Cash Value = Replacement cost - Depreciation

Question 10

What is Insurance to Value?

Answer 10

Keeping a property insurance policy up to date, keeping the property continually insured for the required amount or more and meeting the requirements of the Loss Settlement Provisions (Coinsurance Clause)

Question 11

What requirement must be met in order to get the full cost paid on a loss on a policy with a coinsurance clause?

Answer 11

The insured must keep the insured property insured for the required, stated percentage (usually 80%) of its value at all times INCLUDING the time of the loss

Question 12

How do you calculate the payout when a property with a coinsurance clause is not insured to value?

Answer 12

1. Amount of Insurance Required = Coinsurance Percentage x Replacement Cost at time of loss
2. Loss Settlement = Amount Carried/Amount of Insurance Required x Replacement Cost at time of loss

Question 13

When might a deductible be waived?

Answer 13

When the loss exceeds the limit of liability

Question 14

What are the two exceptions to the coinsurance clause?

Answer 14

1. The principles of indemnity and insurable interest prohibit insurance companies from paying more than the actual amount of loss
2. The insurance company will never pay more than the limits of liability of the policy

Question 15

What are the 5 parts of a standard policy?

Answer 15

1. Declarations Page
2. The insured
3. Insuring Agreements (Insuring Clause)
4. Conditions (Requirements)
5. Exclusions

Question 16

What is included in the Insuring Agreement?

Answer 16

1. The insurance company’s promise to indemnify

2. A list of covered perils (may also be found on declarations page)

Question 17

What are the three types of hazards that may be listed under exclusions?

Answer 17

1. Morale hazard - when risk of loss is caused by the insured acting in an indifferent, careless or irresponsible manner
2. Moral hazard - when there is risk of loss due to legal action
3. Physical hazard - when there is risk of loss due to condition or use of the property

Question 18

What is Inherent Vice excluded?

Answer 18

When a special type of property has a special characteristic to deteriorate under special circumstances (i.e. fur coat damaged from being stored in a damp place)

Question 19

What are the 5 elements of a contract?

Answer 19

1. Competent parties
2. Offer and acceptance
3. Mutual agreement
4. Consideration
5. Legal Subject (Legal Purpose)

Question 20

What is an oral binder?

Answer 20

when the insured orally gives the agent the information needed for the application and promises to pay the premium; the agent orally assures the insured they are covered

Question 21

What are the only perils covered under a basic fire policy?

Answer 21

1. Hostile fire
2. Lightning
3. Removal

Question 22

What is hostile fire?

Answer 22

Any fire not contained within its intended boundaries. Fire coverage also includes damage cause by the fire department or smoke from the hostile fire on the insured property.

Question 23

What is Removal coverage?

Answer 23

ALL RISK coverage that protects insured property while is has been removed from the insured premises to avoid damage by a covered peril on the insured premises. All risk removal coverage applies up to 5 days at each location to which the property is removed.

Question 24

What are the perils covered under the extended coverage endorsement?

Answer 24

W. C. Shaver

Windstorm
Civil Commotion

Smoke Damage (limited)
Hail
Aircraft
Vehicle/Volcano
Explosion
Riot

Question 25

What is Insurable Interest?

Answer 25

a financial risk interest that the insured must posses at the time of the loss

Question 26

Define Law of Torts

Answer 26

the type of legal proceeding through which claims for money for bodily injuries and/or property damage are made. Sometimes called civil liability

Question 27

What is the arbitration clause?

Answer 27

If the insured and the insurance company disagree as to the actual cash value of the loss and the damaged property cannot be repaired or replaced, they each can select an appraiser. If the appraisers disagree, they select an umpire appraiser who will make the final determination

Question 28

What is indemnity?

Answer 28

the legal concept of one party (the insurance company) standing in the place of or making good for another (the insured). In property insurance it means the same as “reimburse.” Prohibits the insurance company from reimbursing the insured fore more than the actual amount of loss

Question 29

What is the Subrogation clause?

Answer 29

clause that states that the insurance company can require the insured to assign to it any legal rights which the insured has against third parties to the insurance company at the time of loss

Question 30

What is required for an assignment of a policy from one person to another to be valid?

Answer 30

the policy must be signed by an officer of the insurance company (President, Secretary, VP, Treasurer)

Question 31

What is the Pro Rata liability clause and when does it apply?

Answer 31

States that no insurance company shall be responsible for any more than its pro rata share of the loss. Applies when 2 or more policies cover the same property

Question 32

What is the difference between vacant and unoccupied?

Answer 32

1. Vacant = completely empty or empty to the point that the insured can no longer engage in the purpose for which the property was insured
2. Unoccupied = furnished, but nobody living or working there

Question 33

What type of property is excluded from a Standard Fire Policy?

Answer 33

Mostly indirect property:

1. Money
2. Accounts/bookkeeping records
3. Valuable Papers

Question 34

What does VMM cover?

Answer 34

Vandalism and Malicious Mischief is an endorsement that covers damage caused by vandalism and malicious mischief UNLESS the building has been left vacant over 30 consecutive days

Question 35

Dwelling and Building Contents Basic Form (DP-1)

Answer 35

• Must be occupied by 4 or less families
• Does not have to be owner occupied
• Often used to insure rental properties that insured own

Perils covered:

• Standard Fire Policy perils
• Extended Coverage perils
• VMM

Coverages:
A - Dwelling - Actual Cash
B - Other Structures - 10% of A automatically extended
C - Personal Property - optional, additional (Actual Cash)
D - Rental Value - 10% of A automatically extended

Question 36

Dwelling and Building Contents Broad Form (DP-2)

Answer 36

• Must be occupied by 4 or less families
• Does not have to be owner occupied
• Often used to insure rental properties that insured own

Perils covered:

• Everything in DP-1
• Plus: hostile fire, lightning, removal, VMM, broader explosion, smoke coverage (minus agriculture/smudging), glass breakage, damage cause by burglars, falling objects, weight of ice/snow/sleet, collapse, artificially generated currents, freezing or discharge from a plumbing/heating/cooling system

Coverages:
A - Dwelling - Replacement value
B - Other Structures - Optional, Additional
C - Personal Property - Optional, Additional (Actual Cash)
D - Rental Value - Optional, Additional

Question 37

Dwelling and Building Contents Special Form (DP-3)

Answer 37

• Must be occupied by 4 or less families
• Does not have to be owner occupied
• Often used to insure rental properties that insured own

Perils covered:

• Building - All Risks
• Personal Property - Broad form

Coverages:
A - Dwelling - Replacement Value (coinsured)
B - Other Structures - Optional, Additional
C - Personal Property - Optional, Additional (Actual Cash)
D - Rental Value - Optional, Additional

Question 38

Building and Personal Property Form

Answer 38

• Covers COMMERCIAL buildings
• Can also cover rental properties with MORE THAN 4 families

Perils Covered:

• One out of: Basic/Broad/Special Form
• All Forms cover sinkhole, sprinkler damage and debris removal
• VVM unless the building is vacant/unoccupied over 60 consecutive days (or permit is added)

Coverages (all Actual Cash):
A - Building (+ sign/objects attached) - Optional, Additional
B - Personal Property (on premises or within 100 ft) - Optional, Additional
C - Personal Property of Others (Bailee Coverage) - Optional, Additional

Automatic Extensions:
Personal property of others, off-premise, newly acquired property, valuable papers/records, plants/signs within 100 ft of bldg.

Question 39

What does Business Income coverage entail?

Answer 39

1. Loss of income due to shutdown for remodeling and restocking due to a COVERED PERIL
2. Net income before taxes + normal operating expenses to continue business
3. Payroll
4. Coinsured, insured chooses percentage

Question 40

What is Extra Expense Coverage?

Answer 40

Protects the insured against the extra expense of doing business during the period of restoration in excess of normal business costs