Study 1 - Introduction to Property Insurance

Question 1

Define Property Insurance

Answer 1

First-party insurance the 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 cause of loss, such as fire or explosion.

Question 2

What are the elements of the Property Insurance Policy?

Answer 2

Name of the insurer
Name of the insured
Name of the person or persons to whom the insurance money is payable
The amount, or method of determining the amount, of premium for the insurance
Subject matter of insurance
Indemnity for which the insurer may become liable
Event on the happening of which liability is to accrue
Effective date of the insurance
Expiry date or method by which it is to be fixed

Question 3

What are limitations of liability?

Answer 3

When property policies may include clauses that limit the insureds recovery for a loss to a specified part of the value of property insured at the time of a loss. For example, the deductible clause. Policies that include a limitation of liability must be marked to that effect.

Question 4

Define fortuitous loss.

Answer 4

A loss that is unforeseen and unexpected and occurs as a result of chance.

Question 5

Define indemnity.

Answer 5

A contract, expressed or implied, to repay in the event of a loss. The insured neither gains nor loses. To put the insured in the same financial position as previous to the loss.

Question 6

Define intangibility.

Answer 6

Intangible products include all goods sold to customers that can’t actually be seen, touched, sniffed or otherwise handled by the consumer

Question 7

Define insurance contract.

Answer 7

An agreement or promise between two or more persons that is intended to be legally enforceable.

Question 8

What are the roles of the insured and insurer in regards to the insurance policy?

Answer 8

Insured: pays deductible, pays premium.

Insurer: sells the policy, issues the policy,

Question 9

What are the roles of the insured and insurer in regards to the insurance policy?

Answer 9

Insured: pays deductible, pays premium.

Insurer: sells the policy, issues the policy, collects the premium, pays out claims under the policy.

Question 10

What are the classes of insurance?

Answer 10

1. Habitational
2. Commercial
3. Aviation
4. Boiler
5. Builders Risk
6. Crop
7. Earthquake
8. Flood
9. Marine

Question 11

What is covered under the Basic Fire policy?

Answer 11

Fire lightning, and explosion.

Question 12

What two groups of exclusions are a part of the Basic Fire Policy?

Answer 12

Exclusions for legislative considerations and exclusions for underwriting and rating considerations.

Question 13

Which exclusions of the Basic Fire policy are considered exclusions for legislative considerations?

Answer 13

Electrical devices exclusion
Application of heat exclusion
War risks exclusion
Nuclear incident exclusion

Question 14

Which exclusions of the Basic Fire policy are considered exclusions for underwriting and rating considerations?

Answer 14

Excluded property
Alterations and additions exclusion
Vacancy, unoccupancy, or disuse exclusion
Volatile substances exclusion
By-laws exclusion

Question 15

What are Statutory Conditions?

Answer 15

Special prescribed and standardized conditions, require by the provincial Insurance Acts, to be included in fire, automoble and accident and sickness policies. Must be identified and printing in every fire policy. Not applicable to Quebec.

Question 16

What is the purpose of the Extended Coverage Endorsement?

Answer 16

To include additional perils that were not in the basic fire policy.

Question 17

What perils does the Extended Coverage Endorsement include:

Answer 17

Explosion
Impact by aircraft, spacecraft, or land vehicle
Riot, vadalism or malicious acts
Smoke
Leakage from fire protective equipment
Windstorm or hail

Added over time:
Falling object
Glass breakage
Water damage

Question 18

What is a multi-peril policy?

Answer 18

Typically combines fire and casualty insurance (or fire, casualty, and inland marine coverages) in a single contract such as a Homeowners policy.

Question 19

All property insurance policies must state what?

Answer 19

Who is covered and what is covered.

Question 20

What information about the Named Insured must be captured?

Answer 20

Indentification

Mailing address

Question 21

Who qualifies as an insured under a habitation policy so long as they reside in the same household as the named insured?

Answer 21

The named insured’s spouse
The relative of either the named insured or their spouse
Any person under the age of 21 in the named insured’s care.
The student, a dependent of the named insured, during his or her temporary absence.

Question 22

Define mortgage.

Answer 22

a mortgage conveys an interest in property as security for a debt. The borrower (mortgagor) retains possession and use of the property, but the lender (the mortgagee) acquires an interest in the property and the right to sell it if the borrower defaults on the debt.

Question 23

Define subject matter of insurance.

Answer 23

The property to be insured.

Question 24

What details must be clearly described in a property policy about the subject matter of insurance?

Answer 24

Type of property (dwelling, contents or commercial building)
Address/location
Construction
Occupancy

Question 25

Define insurable interest.

Answer 25

Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence, without impairment or damage, of the insured object. A person has an insurable interest in something when loss of or damage to that thing would cause the person to suffer a financial or other kind of loss.

Question 26

Define first-party insurance.

Answer 26

First-party insurance protects the insured (the first party) against the risk of financial harm resulting from loss or damage to the insured property.

Question 27

Define third-party insurance.

Answer 27

Liability insurance is third-party insurance. It protects
the insured against the risk that another person or organization not party to the insurance contract (a third
party) will suffer loss or injury for which the applicant is legally liable.

Question 28

What are the two line of property insurance?

Answer 28

Personal lines insurance and commercial lines insurance.

Question 29

What coverage is provided under personal lines insurance?

Answer 29

Provides coverage to private individuals such as homeowners, tenants, and condominium unit owners on the dwellings, detached structures, and personal property.

May also include various policy forms and endorsements or riders ro provide broader coverage for personal articles and other objects.

Question 30

What coverage is provided under commercial lines insurance?

Answer 30

Provides coverage to businesses large and small for both property and liability.

Question 31

What is uberrimae fidei?

Answer 31

The principle of utmost good faith, which requires the insured to act with a high standard of honesty and disclose those facts that a reasonable person ought to know are material.

Question 32

What is covered under habitational insurance?

Answer 32

Includes Homeowners policies that cover damage or destruction of the insured’s dwelling, detached private structures (outbuildings), and personal property (contents). Other habitational insurance policies cover tenants (renters) and condominium unit owners.

Question 33

What is covered under commercial insurance?

Answer 33

Cover such property as buildings, stock and equipment. Other categories of property may also be covered under a commercial policy.

Question 34

What is covered under aviation insurance?

Answer 34

Provide insurance coverage on the actual airplane itself,

Question 35

What is covered under boiler insurance?

Answer 35

Also known as boiler and machinery or equipment breakdown insurance, covers accidental physical damage to items such as boilers, pressure vessels, pressurized equipment, mechanical equipment, production and non-production machinery and electronic equipment that are excluded under a conventional property policy.

Question 36

What is covered under builders risk insurance?

Answer 36

It covers physical loss or damage to property while it is in the course of construction. The coverage applies to material, fixtures, and equipment used in the construction or renovation of a building or structure.

Question 37

What does crop insurance cover?

Answer 37

Crop insurance policies cover loss or damage to crops that are being grown. Coverage includes loss or damage due to crop loss or losses caused by weather events, insects, hail, disease, drought or frost damage.

Question 38

What does earthquake insurance cover?

Answer 38

Covers loss or damage arising from the peril of earthquake, which is typically excluded from conventional property policies. Depending on where an insured is located, earthquake coverage may be difficult or very expensive to purchase.

Question 39

What does flood insurance cover?

Answer 39

Flood insurance policies cover loss or damage arising from the peril of flood, which, like earthquake, is typically excluded from conventional property policies. An insureds location may make it difficult or expensive to purchase flood insurance.

Question 40

What does marine insurance cover?

Answer 40

Marine insurance, including marine cargo insurance and inland marine insurance, covers loss of or damage to property in transit at sea or on inland waterways and on land. Examples of such property might include property being shipped by or to an insured, tools and equipment, stock, and contractors equipment located away from the insureds premises.

Question 41

Explain the electrical devices exclusion.

Answer 41

There is no coverage for loss to electrical devices or appliances if the damage is caused by lightning or other electrical currents.

Question 42

Explain the application of heat exclusion.

Answer 42

There is no coverage for loss or damage to items of property that occurs as a result of heat being applied to the item. However, the resultant fire damage to other property is covered. The intent of this exclusion is to exclude coverage for loss arising from an insureds failure to properly protect the items of property being worked on.

Question 43

Explain the war risk exclusion.

Answer 43

There is no coverage for loss of damage arising from foreign or civil war, riot, or other civil disturbance,

Question 44

Explain the nuclear incident exclusion.

Answer 44

Loss or damage cause by a nuclear incident is excluded under the Basic Fire Policy. Coverage is, however, provided for resultant loss caused directly by fire, lightning, or explosion of natural, cola, or manufactured gas. The exclusion also rules out coverage for loss by contamination by radioactive material.

Question 45

What property is excluded from the Basic Fire Policy?

Answer 45

There is no coverage for loss or damage to:

• money, books of account, securities for money, evidences of debt or title,
• automobiles, tractors, and other motor vehicles
• aircraft
• watercraft

Question 46

Explain the alterations and additions exclusion.

Answer 46

Loss or damage to a building or its contents that occurs during and as a result of alterations or additions to the building is excluded unless the insured has secured written permission from the insurer to undertake the alterations and additions. For example, if an insured is adding an addition to her building and a fire breaks out as a result of the work on the addition, the insured will not have coverage unless the insurer has granted written permission to carry out the addition.

Question 47

Explain the vacancy, occupancy or disuse exclusion.

Answer 47

Loss or damage that occurs where the insured knows the building has be vacant, unoccupied, or shut down for more than 30 consecutive days is excluded under the Basic Fire Policy.

Question 48

Explain the volatile substances exclusion.

Answer 48

The basic fire policy excluded loss or damage that occurs when the insured knows there is more than a gallon of gasoline, benzene, naphtha, or other substance of an equal or lower flashpoint in the insured building or in the building where the property is kept.

Question 49

Define flashpoint.

Answer 49

The lowest temperature at which a liquid gives off sufficient vapours to form an ignitable mixture with the air; such mixture will ignite on contact with a flame or spark.

Question 50

Explain the by-laws exclusion.

Answer 50

There is no coverage for increased costs of repair or replacement arising from the enforcement or application of a by-law, regulation, ordinance, or law that regulates the zoning of the demolition, repair, or construction of buildings.

Question 51

What is the consequence if an insurer fails to identify and print the statutory conditions in every fire insurance policy.

Answer 51

They may incur a penalty, and the Statutory Conditions would still apply.

Question 52

Explain the Removal of Insured Property Extension.

Answer 52

This extension extends any remaining insurance coverage to insured property removed from insured locations to prevent further damage. The extension applies for seven days from the date that removal of the property begins or until the policy expires, whichever occurs first. Coverage for property at temporary locations ends after seven days unless the insured and insurer have agreed otherwise.

Question 53

Explain the Debris Removal extension.

Answer 53

In cases of loss insured under the Basic Fire Policy, debris may be left behind, and this debris must be removes, especially in cases where the property is to be rebuilt or repaired. The Basic Fire Policy extends coverage to include the expense of this removal in the amount of insurance chosen by the insured.

Question 54

What is the purpose of the Mortgage Clause?

Answer 54

It is the clause that stipulates the rights an obligations of the insurer and the mortgagee. The main characteristics of this clause are that the mortgagee is granted protection in the even a loss is denied due to the actions of the insured (provided that the mortgagee was not aware of the insured’s wrongful action.) and, in return, the mortgagee accepts responsibility to advise the insurer of any misrepresentation or change in risk which the mortgagee is aware.