Property Insurance Basics Flashcards
Insurable interest
The financial interest in property to be insured. Must exist at time of loss
1) legitimate financial interest
2) no potential gain
3) potential loss
Underwriting
Process of reviewing applications for insurance and information on an application
Loss ratio
( incurred losses+ loss adjusting expenses) \earned premium
Hazards
Conditions or situations that increase the probability of an insured loss occurring
Physical hazards
Arising from the material structural or operational features of the risk apart from the person owning or managing it
Moral hazards
Refers to those applicants that may lie on an application for insurance
Morale hazard
Refers to an increase in the hazard presented by a risk arising from the insured indifference to loss because of the existence of insurance
Peril
A specific cause of loss. Example( fire wind hail explosions)
Named peril
A term used in property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils
Open peril
A term used in property insurance to describe the breath of coverage provided under an insurance policy form that insurers against any risk of loss that is not specifically excluded
Consequential losses
Losses considered a result of direct loss, an indirect loss
Blanket insurance
A single property insurance policy that provides coverage for multiple classes of property at one location or for one or more classes of property at multiple locations
Specific insurance
A property insurance policy that covers a specific kind or unit of property for a specific amount of insurance
Loss valuation
A factor in determining the premium charged and the amount of insurance required
Actual cash value (ACV)
Method of valuation reinforces the principle indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear and obsolescence.
Current replacement cost-depreciation =actual cash value
Replacement cost
Defined as the cost to replace damaged property with like kind and quality at todays price without any deduction for depreciation
Functional replacement cost
The cost to replace damaged property with less expensive and more modern construction or equipment
Agreed value
A property policy with a provision agreed upon by the insurer and the insured as to the amount of the insurance that represents a fair valuation for the property at the time the insurance is written and suspends any coinsurance or other contributions clauses in a policy
Stated amount
An amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss. Max amount insurer will pay in event of loss
Declarations
Section of the insurance policy containing the basic underwriting information such as the insureds name address amount of coverage and premiums and description of insured locations
Definitions
Component of an insurance policy clarifies terms used in the policy
Insuring agreement
The section of an insurance policy that establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy also list the parties to the contra effective dates and renewed dates description of coverage and perils
Additional (supplementary) coverage
A provision in an insurance policy that provides an additional amount of coverage for a specific loss expense at no additional premium
Conditions
The section of an insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy
Exclusions
Section of an insurance policy details the perils that are not insured against and what persons are not insured
Endorsements
Printed addendums to a contract that are used to change the policy’s original terms conditions and coverages
Cancellation
The termination of an in force insurance policy by either the insured or the insurer prior to the expiration date shown in the policy
Nonrenewal
The termination of an insurance policy at its expiration date by not offering a continuation of the existing policy or a replacement policy
Deductible
A dollar amount an insured must pay on a claim before the insurance policy provides coverage higher the deductible the lower the premiums
Coinsurance clause
States that in consideration of a reduced rate the insured agrees to maintain a certain minimum amount of insurance amount of insurance on the insureds property
( insurance carried /insurance required X loss amount = loss payment
Other insurance
A provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk
Noncurrency
Refers to other insurance written on the same risk but not on the same coverage basis
Primary policy
Policy that pays first in the event of a a covered loss
Excessive policy
Policy that only pays for the loss after the primary policy has paid up to its limit
Pro rata
A provision found in some property insurance policies that provides for sharing of loss with other insurance that may be written on the same risk in the same proportion as their limits of insurance bear to the total of coverage of all policies covering the risk weather collectible or not
Vacancy
An insureds structure in which no people have been living or working and no property has been stored for the period of time required as stated in the policy
Usually 60 days
Unoccupancy
Refers to an insureds structure in which no people have been living or working within the required period of time but some property is stored
Assignment
The relinquishing of the insured property into the hands of another or into the possession of no one in particular
Insured provisions
Used in the event of loss to repair or replace damaged property with property of like kind and quality
Liberalization
A property insurance clause that broader legislated or regulated coverage to current policies as long as it does not result in higher premium
Subrogation
The insurers legal right to seek damages from a third parties after it has reimbursed the insured for the loss
Salvage
The amount of money realized from the sale of damage merchandise
Third party provisions
Address the rights of a third party that may have a secured financial interest in the insured property
Standard mortgage clause
A basis provision of all property policies for real property
Loss payable clause
The clause used to cover the interest of a secured lender in personal property
No benefit to the bailer provision
Excludes any assignment or granting of any policy provision to any person or organization holding storing repairing or moving insured property for a fee
Binder
A temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued
