Property Insurance: General Concepts Flashcards
Policy coverages
These identify the different coverage types provided by the policy, as well as the property being insured.
Additional coverages
These are items that may be covered under major limits, may have less liability coverage, or may be added if the applicant fulfills certain requirements. Additional coverages are also known as other coverages, extended coverages, or coverage extensions.
Named peril contracts
These only protect against perils (such as fire, wind, flood, theft, etc.) that are specifically described within the insuring agreements section.
Open peril contracts
These are also known as all risk contracts or special coverage contracts. They protect against all perils except those that are excluded by the insuring agreements section.
Specific Insurance
Establishes limits on the items being insured. Despite being designated as “specific,” the policy does not have to list each item. However, every insured item must be part of the overall property. For instance, a homeowner’s insurance policy may not list any furniture or appliances, but they are still covered because the times are part of the overall property.
Blanket Insurance
Can cover multiple properties at different locations. For example, a person who owns several buildings might purchase a blanket policy, thereby covering every building under the same policy.
Endorsements
Endorsements are also part of the declaration section, and include any property covered by the policy. They are organized according to a form number. When agents and underwriters review endorsements, they should identify any restrictive endorsements (unexpected items) and any items that may have been accidentally omitted.
Which section of the policy describes the property being insured, and identifies whether the insurance is specific or blanket.
The declaration section
True or False
Endorsements are not part of the declaration section
False
What are 2 types of loss specified in insuring agreements section covered by a property insurance policy?
Direct and indirect loss
Direct Loss
is the result of physical damage, loss, or destruction to property, and can be caused by theft, fire, weather, and other similar perils
Indirect Loss
also known as consequential loss, includes any financial hardships incurred as a byproduct of the direct loss. For instance, when a car is stolen, a person not only loses the value of his car, but may also incur additional expenses if he is forced to rent a car. The cost of automobile rental is an example of indirect loss. Another example would be the cost of renting a hotel room when a home is destroyed. Policies can extend their coverage to include indirect costs. In some instances, indirect coverage is a basic component of the policy.
What are the common exclusions in property insurance
- Nonaccidental losses
- Catastrophic losses
- Property already covered by other insurance policies
- Losses controllable by the insured
- Extra-hazardous perils
Nonaccidental losses
These include damages resulting from mechanical breakdown, electrical breakdown, and wear caused by natural use. These losses are excluded from coverage due to their certain and unavoidable nature. Insurance can only cover uncertain events or risks.
Catastrophic losses
These are devastating to the point that a company would go bankrupt trying to insure them. Examples include war, energy crises, and other similar catastrophes.
Property already covered by other insurance policies
This type of property is excluded from coverage. If a person already has a homeowner’s insurance policy, he cannot get additional property insurance to cover his home.
Losses controllable by the insured
These include scratches, breaks, chips, and any other damages that the insured can avoid simply by exercising caution. The policy excludes these losses in order to encourage the insured to act responsibly.
Extra-hazardous perils
These include earthquakes and various unusual or unique causes of loss. In most cases, insureds do not want coverage on extra-hazardous perils because their likelihood of occurring is too small to justify the expense of the coverage. However, if an insured does require the coverage, he can acquire it by asking for an additional endorsement and paying additional premiums.
Concurrent Causation
describes a situation in which two perils occur either simultaneously or sequentially and create loss against the same policy. In the past, concurrent causation was a source of great confusion and ambiguity. If a named peril and an excluded peril occurred simultaneously and caused damage, the insured could demand indemnity under the named peril, while the insurance provider could deny indemnity under the excluded peril. Consider, for instance, a homeowner’s policy that indemnifies against collapse but not earthquakes. Confusion arises if the collapse is the result of an earthquake. The homeowner is likely to seek damages under the collapse provision, and the insurance provider is likely to deny indemnity because the collapse was caused by an earthquake. As courts began ruling in favor of insureds, insurance companies were forced to use more precise wording, and newer policies began placing specific restrictions on named perils. For example, according to a newer policy, a collapse would only be covered if it were caused by a specific set of circumstances, such as fire or faulty building materials. In a newer policy, earthquakes would be explicitly excluded.
True or False
Every insurance policy contains a conditions secton
True
Conditions Section
explains the responsibilities and rights of every party involved in an insurance contract
