Study 1 - Introduction to Property Insurance: Summary Flashcards
Property insurance
- Protects the owner or user of property for its loss or loss of income-producing ability
- Offers financial protection to an insured and to lending institutions
- Covers occurrences or events that are sudden and accidental in nature
- Property can include dwellings and detached buildings; personal property; and commercial buildings, stock and equipment
Insurable interest
Person or company stands to benefit from the continued existence of the property or be prejudiced by its loss
Indemnity
Compensation offered by the insurance policy
Insurance contract
Agreement or promise between the insured and the insurer that is legally enforceable
Policy
Formalizes the agreement between the insured and the insurer. Contains terms, clauses, stipulations, and requirements
Deductible
The insured’s portion of a covered loss
Types and classes of insurance
- Personal lines vs commercial lines
- Special types: marine, aviation, builder’s risk, crop insurance
- Specialized coverage: flood, earthquake, and equipment breakdown
Elements of policy
- The name of the insurer, insured, and to whom money is payable
- The premium, the subject matter of insurance, the indemnity
- The effective date and expiry date
- Types of property covered, types of perils covered, exclusions of coverage
The evolution of property insurance
- First type of property insurance was fire insurance
- As the needs and wants expanded, additional perils were added to fire policies
- Fire policies have become property policies
- The basic fire policy is rarely sold today
- Exclusions remove certain losses from the policy’s coverage
- Statutory conditions apply to all fire insurance contracts
- Multi-peril policies combine the policy forms, covering various classes of business in package policies
Who and what are covered in property insurance
- The named insured may be one or more people or a business
- Parties with no insurable interest are not eligible for coverage under the policy
- Mortgage clause of the property policy protects mortgagee’s interest
- Lenders usually insist that there be insurance on the property
- The subject matter of insurance must be described so there is no uncertainty
- Property insurance is concerned with direct loss - the value of the physical property that is damaged or destroyed
Development of insurance contracts in terms of certain key concepts that are reflected in property policies (8 concepts)
- Personal property policies are generally in a plain language
- A policy that limits the indemnity must be clearly marked
- Insurance on a particular item or object responds as first-loss insurance
- Property policies contain the location of the property but may respond if location is not identified in the policy declarations
- Contract may be renewed via written notification
- Contract terms must be waived in writing and signed by a person authorized for that purpose by the insurer
- The loss must be fortuitous - accidental and not bound to happen in the ordinary course of events
- Insureds must show that an insured peril was the proximate cause of the loss
Warranties
- Restrict coverage specifically regarding the use, condition, or maintenance of the insured property, such as alarm, jewellery in a vault, backwater valve, woodstove warranties
- Violation of the warranty can nullify the policy
- Courts do not usually allow warranties to delete fundamental coverages such as fire, even when violated
Automatic reinstatement
- After claim is paid, policy limits are restored to the full amount on the declarations page
- Payment of claim does not affect refund of premium if the policy is cancelled
Concurrent causation
When a covered peril and excluded peril occur simultaneously and cannot be separated, the claim is decided in favour of the insured
Basis of payment clause
Entitles the insured to receive only the least of the following:
- Actual cash value
- Interest of the insured
- Limits specified in the policy
