Study 1 - Introduction to Property Insurance: Key Terms

Question 1

Property insurance

Answer 1

First-party insurance that indemnifies the owner or user of property for its loss, or the loss of its income-producing ability, when the loss or damage is caused by a covered peril, such as fire or explosion

Question 2

Insurable interest

Answer 2

An interest that the insured must have in the subject matter of the insurance purchased so that if the event insured against occurs, the insured will suffer an economic loss

Question 3

Indemnity

Answer 3

A contract, expressed or implied, to repay in the event of a loss. The insured neither gains nor loses.

Question 4

Contract

Answer 4

An agreement or promise between two or more parties that is intended to be legally enforceable and is constituted by the acceptance by one party of an offer made by another party, to do or to abstain from doing a specific act. The offer and acceptance may either be expressed or be inferred through the conduct of the parties.

Question 5

Contract (Quebec)

Answer 5

An agreement of wills by which one or several persons obligate themselves to one or several other persons to perform a prestation (that is, a duty, a payment, or a service)

Question 6

Uberrimae fidei

Answer 6

Of the utmost good faith. The basis of all insurance and reinsurance contracts. Both parties to the contract are bound to exercise good faith and do so by a full disclosure of all information material to the proposed contract.

Question 7

Peril

Answer 7

The event that caused a loss covered by the policy; for example, fire, windstorm

Question 8

Deductible

Answer 8

An agreed specified amount that the insured must pay on a claim before the insurance company will cover the rest of the claim. This amount is agreed upon by both the insurer and the insured. An insured’s obligation to pay a deductible is not based on whether the insured is at fault.

Question 9

Fire insurance

Answer 9

Coverage for losses from fire, lightning, and limited explosion and also the resultant damage caused by smoke and water. Usually supplemented by extended coverage insurance.

Question 10

Exclusion

Answer 10

Risks, perils, or properties defined in the policy as not covered.

Question 11

Flashpoint

Answer 11

The lowest temperature at which a liquid gives off sufficient vapours to form an ignitable mixture with the air.

Question 12

Statutory conditions

Answer 12

Special prescribed and standardized conditions that the provincial and territorial insurance acts require to be included in insurance policies.

Question 13

Extended coverage insurance

Answer 13

An endorsement that enlarges the coverage afforded by the primary policy. Coverages such as windstorm, hail, smoke, and riot are extended coverages on a fire policy.

Question 14

Mortgage clause

Answer 14

A clause in an insurance policy that stipulates the rights and obligations of the insurer and the mortgagee.

Question 15

First-party insurance

Answer 15

Protects the named insured and others with an insurable interest in or mortgage on the property or who entrust their property to the insured - against loss or damage to the insured property.

Question 16

Third-party insurance

Answer 16

Liability insurance is purchased by the insured (the first party) from an insurer (the second party) to compensate or indemnify another (the third party) for damage or loss for which the insured is lawfully liable.

Question 17

Direct loss (or damage)

Answer 17

Damage to property by direct action of a peril insured against, as distinguished from contingent or indirect damage.

Question 18

Plain-language policy

Answer 18

Policies written in everyday language so that they are easily understood. Technical terms with their technical meanings are used only where required by law or when substitutions would be misleading.

Question 19

Warranty

Answer 19

Statement or stipulation or promise in an insurance contract, the breach of which may nullify the contract.

Question 20

Proximate cause

Answer 20

A cause that, in a natural and continuous sequence unbroken by any new and independent cause, produces an event and without which the event would not have happened.

Question 21

Concurrent causation

Answer 21

A doctrine that holds that if a loss to property is attributable to more than one cause, any one of which is covered by the insurance policy, the loss is payable under the policy.

Question 22

Actual cash value (ACV)

Answer 22

The fair market value of property, taking into account factors that might augment or reduce the value of the property in question. Actual cash value (ACV) is usually calculated in one of three ways: (1) cost to repair or replace less depreciation; (2) fair market value; or (3) consideration of all relevant evidence of the value of the damaged property

Question 23

Replacement insurance

Answer 23

Insurance coverage that indemnifies for loss or damage to insured property at the current market price rather than at a depreciated value. Thus, the rating and premium are based on the current cost to replace the insured property.