Study 7: Property Insurance - LO

Question 1

Outline the evolution of personal-lines policies and the coverage, conditions, and exclusions common to current policies.

Answer 1

• Original property insurance was very limited; coverage only for losses from
o Fire
o Lightning
o Limited explosion
o Resultant damage caused by smoke and water

• Later extended to include
o Windstorm
o Hail
o Explosion
o Civil commotion
o Riot and riot attending a strike
o Vandalism or malicious acts
o Aircraft and vehicle damage
o Falling object
o Smoke damage
o Leakage from fire-protective equipment

• Personal property is typically protected by comprehensive, broad, or basic package policies
• Exclusions include categories of generally not insurable, not accidental or extraneous, wholly or party under the control of the insured, and wear and tear

Question 2

Describe the coverage provided by homeowners, tenants, and condominium unit owners package policies.

Answer 2

• 3 types of homeowners package policies
o Comprehensive o Broad o Named perils

• Comprehensive home insurance policies cover all risks of direct physical loss or damage (subject to the
policy exclusions and conditions)

• Basic (named-perils) policies have named-perils coverage for buildings and contents
• Broad policies have all-perils coverage for buildings and named-perils coverage for contents

• Homeowners property coverages are divided into sections as follows:
o A—Dwelling Building
o B—Detached Private Structures o C—Personal Property
o D—Additional Living Expense

• Tenants packages are similar to homeowners but do not insure the building (tenants can have named-perils
or all-risks policies)

• Condominium package policies available (named perils and comprehensive); similar to tenants package but includes improvements and betterments, loss assessment, and unit additional protection
• Co-operative members have packages similar to tenants

Question 3

Describe the coverages available for mobile homes, secondary locations, and seasonal dwellings.

Answer 3

• Mobile home policies provide named-perils coverage for the building and contents (including built-in
equipment and furnishings)

• Seasonal dwellings are often insured under an insured’s home policy as a separate location, with
burglary coverage instead of theft and limited coverage for vacant or unoccupied buildings

• Some insurers provide broader coverage on a seasonal residence form (depending on building’s age,
location, construction, heating, and duration of occupation)

• Rented dwellings are usually insured on fire and additional perils wordings, excluding vandalism
coverage and subject to a deductible (rentals also have the additional concern of rental income
replacement)

Question 4

Describe optional additional coverages insureds may purchase under their personal-lines policies.

Answer 4

• Personal-lines policies can be extended to add coverages or remove the effects of certain exclusions

• Typically, the following coverages can be added:
o Personal articles floater
o Fine arts floater
o Sports equipment floater
o Marine and boat insurance

• An additional premium is usually charged; various coverages are subject to conditions

Question 5

Outline the coverage provided under farm property insurance wordings.

Answer 5

• Farm dwelling and contents insurance is similar to that of other private dwellings

• The farm business is insured on a separate section of the policy, which has wordings similar to other
commercial risks

• Farm buildings can be insured on ACV (actual cash value) or RCV (replacement cash value), or be
subject to a rebuilding clause

• Farm machinery and livestock insurance (subject to perils specific to live animals) are written on a
scheduled or blanket basis

• Business interruption and consequential loss covers are necessary additions to complete the
insurance package

Question 6

Outline the coverage provided under the most commonly used commercial property wordings.

Answer 6

• Commercial operations require specialized business insurance

• Coverages that should form part of the approach to insuring a commercial risk include
o Building
o Contents
o Equipment
o Stock
o Temporary locations
o Newly acquired locations
o Goods in transit
o Goods in possession of sales representatives
o Rental income
o Business interruption
o Cyber risk (including ransomware attacks)

• Cyber risks (any risk of financial loss, disruption of business, or damage to an organizations reputation
due to a failure of its information technology systems) are often overlooked by clients

Question 7

Describe the coverage provided by certain commonly used property insurance policy endorsements.

Answer 7

• Coverage for common supplemental perils includes
o Water damage (may have an anti-concurrent causation clause—insurance for a loss only if insured
has purchased coverage for all of the perils that caused the loss)

• Sewer backup (residential and commercial)
• Overland water (residential)
• Ground water (residential)

• Flood (commercial)
o Bylaws (extra cost to comply with upgrading a building to comply with current bylaws following a
loss)
o Earthquake
o Identity theft (helps deal with losses and costs of a cyber attack)