Study 8 - Other Property Coverages

Question 1

What is the difference between a primary home and a secondary home?

Answer 1

The primary home is the home the insured lives in most of the time, the second home is the one they live in often. Both homes are for the personal use of the insureds and are not rented to others when the insureds are away.

Question 2

In what way is a second home different from a summer cottage?

Answer 2

It is more like a traditional home, in which the insured cares for and maintains the dwelling with the same care as for the main home.

Question 3

How will insurers provide coverage for a secondary home?

Answer 3

Insurers will use the same policy forms to cover a secondary home as they use to cover a primary home.

Question 4

What distinguishes high-valued homes from other homes?

Answer 4

A high-value home is a home distinguished by architectural design, custom features (marble counter tops, hardwood floors), and a high replacement cost. They may also contain items such as antiques, fine arts, wine collections etc that are not usual to a normal home.

Question 5

How high must the replacement value be for a home to be considered high-valued?

Answer 5

This may vary between insurers, and also may change over time. Recently, a common threshold of high value has be $1,000,000.

Question 6

What distinguishes high-valued home insurance from standard home insurance?

Answer 6

They require more specialized insurance coverage, which costs more. But they may included more innovative added coverages such as home appraisal expenses, cash-payout options, increased special limits, kidnap expense coverage and equipment breakdown coverage.

Question 7

Explain Kidnap Expense Coverage.

Answer 7

Insureds who own and live in high-valued homes are often high-profile families within their community, and their children can be targets for kidnappers seeking ransom. Coverage up to a specified limit for costs resulting from child abduction, including travel and phone costs, medical, dental and psychiatric fees.

Question 8

Explain Equipment Breakdown coverage.

Answer 8

Provides a specified amount of insurance for accidental breakdown of the equipment or system used in the dwelling, even if caused by human error, improper installation, or lack of maintenance. In addition, should the insured have to move out of the house temporarily due to equipment breakdown, the extra expenses would be covered.

Question 9

Explain Home Invasion coverage.

Answer 9

High-value homes are more attractive to thieves. Should the insured’s family be present during a home invasion, there may be coverage up to a specified amount to pay medical, psychiatric, home security and other expenses associated with trauma.

Question 10

Explain Home Appraisal coverage.

Answer 10

Due to high-value homes having custom features, standard cost calculators may not be able to calculate the correct replacement value. Insurers hire professional home appraisers to provide expert, detailed reports of the characteristics of high-valued homes. This ensures that an adequate amount of insurance is carried on the home.

Question 11

Explain Disappearing Deductible.

Answer 11

Insured’s with high-valued home insurance are usually concerned with major losses and tend not the report small losses. High-valued home policies usually waive the deductible for a loss of a specified amount, perhaps $10,000 or more, and pay such a loss in full.

Question 12

Explain Cash-Out Option.

Answer 12

Under a high-valued home insurance policy, the insured may receive a cash payment up to the policy limit without deduction for depreciation and without having to rebuild or replace the damaged or destroyed building.

Question 13

What makes the condominium form of ownership an attractive alternation for many people?

Answer 13

• Tend to cost less that detached houses
• Free insured’s from regular maintenance such as yardwork and building upkeep
• Offer the freedom to temporarily leave without having to arrange for someone to check the house or pick up the mail

Question 14

What is the role of the condominium corporation?

Answer 14

A condominium corporation is created under provincial legislation, without share capital and whose member are the condominium owners. The owners elect a board of directors from among them to administer the affairs of the condominium corporation. They are responsible for managing the condominium and any assets. The board of directors may pass by-laws, binding on all the members of the corporation, establishing their rights and duties as members.

Question 15

What coverage is provided under Coverage U or the Condominium Unit Owners forms?

Answer 15

Coverage U encompasses 3 different coverages:
U1 - Unit Improvements and Betterments
U2 - Loss Assessment
U3 - Unit Additional Protection

Question 16

What legislation do condominiums fall under?

Answer 16

They fall under provincial jurisdiction, each province has its own legislation governing condominiums.

Question 17

Define Standard Unit By-Law.

Answer 17

A by-law passed by a condominium corporation to assign responsibility between the unit owner and the condominium corporation for loss or damage to a unit and to designate whose insurance policy should cover repairs to damaged improvements. The condominium corporations building policy will cover the item listed in the by-law (what is standard to the condo) and the items not found on this list would be considered improvements and covered under the unit owner’s policy (insured changed the countertops)

Question 18

What must be covered under the condominium corporations policy it’s in own name?

Answer 18

The entire building, including individual units, and common property (available for use to all owners such as lobby’s, elevators, hallways) for loss or damage cause by major perils such as fire, lightning, smoke, windstorm, hail, explosion, water escape, riot or civil commotion, impact by aircraft or vehicles, and vandalism or malicious acts. This is written under a commercial form.

Question 19

What are the two IBC Condominium Unit Owners Forms?

Answer 19

Basic and Comprehensive.

Question 20

Why do Condominium forms omit Coverages A and B?

Answer 20

The condominium building and common property are covered under the policy of the condominium corporation.

Question 21

What is covered under Coverage C for the Condominium Unit Owners Forms?

Answer 21

Coverage C in the Condominium Unit Basic Form is the same as Coverage C in the Homeowners Basic Form. And Coverage C in the Homeowners Comprehensive Form is the same as Coverage C in the Homeowners Comprehensive Form. The Homeowners forms refer to the insured’s dwelling, which is referred to as unit in the Condominium forms.

Question 22

What is covered under Coverage D for the Condominium Unit Owners Forms?

Answer 22

Coverage D in the Condominium Unit Owners forms is the same as Coverage D in the Homeowners forms. The Homeowners forms refer to the insured’s dwelling, which is referred to as unit in the Condominium forms.

Question 23

What is covered under Coverage D for the Condominium Unit Owners Forms?

Answer 23

Coverage D in the Condominium Unit Owners forms is the same as Coverage D in the Homeowners forms. The Homeowners forms refer to the insured’s dwelling, which is referred to as unit in the Condominium forms.

Question 24

Explain Coverage U1 - Unit Improvements and Betterments.

Answer 24

Condominium unit owners are free to make improvements to their units. These become part of the building but are not covered under the building policy. It is therefore important that the insured know of all additions or changes that have been made to the unit to ensure an adequate amount of insurance is carried. These improvements may be made or aquired by the insured. The Condominium corporation policy would pay for the amount of loss to any standard items, with the difference in value of the upgrade being paid by the Unit Owners policy.

Question 25

Explain Coverage U2 - Loss Assessment

Answer 25

Under certain circumstances, the condominium corporation may charge a special assessment to each unit owner if the insurance it bought for the building on behalf of all unit owners is insufficient. Under U2, the Condominium forms will pay up to a specified amount for the insured’s share of any special assessment imposed by the condominium corporation for loss or damage to the common property. If the cause of loss originated from the insured’s unit, the unit owner may be charged with the deductible on the condominium corporation’s building policy - this is not covered.

Question 26

Explain Coverage U3 - Unit Additional Protection

Answer 26

• Covers any difference between the amount available from the building insurance and the damage to the individual unit, if the building insurance is insufficient up to a specified amount.
• Covers any difference between the unit owner’s share of the deductible on the corporations building and the deductible on the Condominium Unit Owners form.

Question 27

Explain the Basis of Claim settlement in the Condominium Unit Owners forms.

Answer 27

Like the Homeowners forms, the Condominium forms pay up to the insured’s financial interest in the property or the amount of insurance for any one occurrence, whichever is less. The Condominium policy assumes this liability for insured loss or damage:

• to the insured unit, less any amount recoverable from any insurance covering the collective interest of the unit owners, and
• to personal property and unit improvements and betterments.

Question 28

What underwriting concerns do insurers tend to have with tenants insurance?

Answer 28

Short Term Occupancy: Tenants can freely move from one residence to another. They can pack up their personal property and move without notifying their insurers. The frequency in tenants move can generate additional work for the insurer which is time consuming and costly.
Too Many Roommates: May represent a greater exposure to vandalism, theft, and liability. Generally, insurers limit the number of roommates to two per unit of the dwelling.

Question 29

In what notable way do the Tenants Basic and Comprehensive forms differ from the Homeowners Basic and Comprehensive forms?

Answer 29

The tenants forms omit Coverage A and B, which is the responsibility of the landlord to provide coverage.

Question 30

What is the one difference in Coverage C between the Tenants Comprehensive and Homeowners Comprehensive forms?

Answer 30

The Tenants Comprehensive form includes coverage for improvements and betterments made by the insured or acquired at insured’s expense (including those purchased from the previous tenant) but only in the portion of the dwelling that the insured occupies.

Question 31

Explain Tenants insurance.

Answer 31

Tenants form are designed to cover insureds who do not own the building or units they occupy. They provide coverage for the tenant\s personal belongings not covered by the landlord’s policy. The insurance for the dwelling or the apartment unit is the responsibility of the landlord.

Question 32

Explain Coverage D for the Tenants Comprehensive form.

Answer 32

Coverage D is identical between the Tenants Comprehensive Form and the Homeowners Comprehensive Form, except that the amount of insurance for Coverage D in the Tenants form is set as a percentage of Coverage C.

Question 33

Which two extensions differ between the Homeowners Comprehensive Form and the Tenants Comprehensive Form?

Answer 33

Tear Out: The Tenants Comprehensive form applies to any insured tenants improvements or betterments that must be removed or torn apart before insured water damage can be repaired, where the Homeowners Comprehensive form applies to any walls, ceiling, or other parts of the insured building.

Damage to Dwelling: The Tenants Comprehensive form extends coverage to allow the insured to apply up to a specified amount ($500 in the IBC form) of the Coverage C limit to damage to the part of the dwelling the insured occupies as a private residence if that damage was directly caused by theft or attempted theft, vandalism or malicious acts (inside only) or impact of a vehicle being operator by the insured. Fire damage to the dwelling is not covered. The Tenants form includes this extension because it does not cover the building, yet the insured may be responsible for repairing damage in these circumstances.

Question 34

What are the difference in exclusions between the Tenants Comprehensive Form and the Homeowners Comprehensive Form?

Answer 34

• Buildings or Structures Used For Farming or Business Purposes is not excluded because there is no coverage for the building.
• The Tenants form excludes lawns and outdoor trees, shrubs, and plants; only lawns are excluded in Homeowners form.
• No exclusion of outdoor radio and TV antennae and their attachements
• The exclusion in the Tenant form of loss due to settling, expansion, contraction, moving, bulging, buckling, or cracking omits the qualifier about resulting damage to building glass.
• The exclusion in the the Tenants form of loss caused by birds, vermin, raccoons, rodents, or insects omits the reference to building glass.
• In the Tenants form, the exclusion of theft or attempted theft in or from a dwelling under construction does not extend to materials or supplies for use in the construction.

Question 35

What extension of coverage differs between the Tenants Basic and Comprehensive forms?

Answer 35

In the Tenants Basic form, the extension of coverage for damage to the dwelling does not apply to damage cause by vehicle impact as in the tenant comprehensive form.

Question 36

What are the difference between the insured perils in the Tenant Basic and Homeowners Basic forms?

Answer 36

They are almost the same, the only differences arise because there is no Coverage A in the Tenants form, so all mention of coverage for the building is omitted.

Question 37

What is the difference between a mobile home and a modular home?

Answer 37

They differ in their construction standards, materials and foundations. Mobile homes are considered movable and placed on a full continuous foundation of concrete or concrete blocks or on heavy timber supports. Modular homes are manufactured and moved to the building site in large individual sections. They are place on a slab or basement foundation and are considered not movable.

Question 38

What optional extension of coverage A is unique to the Mobile Homeowners Form?

Answer 38

The Emergency Removal Expense extension. This permits the insured to use up to 5 percent of the amount of insurance under coverage A for any reasonable expense incurred to remove the building to protect it from an insured peril. No deductible applies to this coverage.

Question 39

What two exclusions are unique to the Mobile Homeowners Form?

Answer 39

• Loss or damage occurring which the building is being moved, except in an emergency to protect it when endangered by an insured peril.
• Loss due to conversion, embezzlement, or secretion by any person in possession of the building.

Question 40

What perils apply to the Mobile Homeowners Form?

Answer 40

There is a single IBC Mobile Homeowners form which insures against named perils, which makes it most comparable to the IBC Homeowners Basic form.

Question 41

How does the Mobile Homeowners form describe the “mobile home building”.

Answer 41

The dwelling including appliances, furniture and equipment forming a permanent part if the building, permanently attached carports or garages, awnings, skirting, porches, and tie down equipment.

Question 42

Why are insurers cautious when asked to insure a rented dwelling?

Answer 42

They can generate a higher than acceptable loss frequency if not underwritten properly. They pose hazards that are not present in owner-occupied dwellings. Owners of a rented dwelling may not show as much pride of ownership as they would if they lived in the dwelling. May not keep up with maintenance.

Question 43

How might a tenant damage a dwelling to accommodate the activities of a grow operation?

Answer 43

• Holes are cut into the walls to install illegal wiring
• Windows may be covered of sealed to maintain humidity, which can result in mould
• Water damage from watering plants and the harmful air quality produced by such activities can make the dwelling inhabitable.

Question 44

What feature of the Residential Basic Form makes it especially suitable for a rented dwelling?

Answer 44

It is more modest that the popular property and liability package policies. The insured may choose to cover only the building or both the building and contents. This form may be thought of as the habitational version of the Basic Fire Policy.

Question 45

What are some other risks involved with rented dwellings?

Answer 45

Vacant Dwelling - if an insured landlord has no prospective tenant ready to move in, the house will considered vacant when the current tenant moves out. Unless the insured checks the dwelling regularly, her may not even know that the tenant has left the house vacant.
Occupancy - Too many renters. Sometimes tenants will take in roommates without authorization.
Vandalism and Malicious Acts - Damages may include graffiti on the walls, broken windows, damaged appliances, shattered mirrors, and holes in the drywall. Depending on the coverage purchased, there may not be coverage for vandalism and malicious acts by a tenant.

Question 46

What are the two main alternatives for insuring a seasonal residence?

Answer 46

A seasonal dwelling may be added as a separate location on the same policy as the principal residence or the insured may choose to cover the seasonal dwelling separately on a Seasonal Residence Form.

Question 47

What three optional extensions of coverage under coverage C of the Residential Basic Form are omitted from Coverage C or the Seasonal Residence Form?

Answer 47

• Personal property away from premises
• Additional living expenses as a result of damage to the dwelling by an insured peril
• Additional living expense because access has been prohibited by civil authority

Question 48

Under the Seasonal Residence Form, coverage for what three perils may be added to the insured perils by showing them on the Coverage Summary page and paying an additional premium.

Answer 48

• Burglary or robbery (special limits to Coverage C apply)
• Vandalism or malicious acts
• Glass breakage

Question 49

Define seasonal dwelling.

Answer 49

A dwelling occupied or intended to be used as a recreational residence, not as a permanent residence. It is usually occupied for only part of the year.

Question 50

What two extensions are not found in the Seasonal Residence Form as it compares to the Residential Basic Form?

Answer 50

• Fair rental value as a result of damage to the dwelling by an insured peril
• Fail rental value because access has been prohibited by civil authority.

Question 51

What feature of the Homeowners forms make it necessary to provide separate coverage for hobby farms?

Answer 51

The buildings or structures used in whole or in part for business or farming purposes exclusion. The words “used in whole or in part: exclude coverage even if only a small portion of the building is used for storing farm equipment or for farming purposes.

Question 52

In what different ways might separate coverage for hobby farms be provided?

Answer 52

They may offer a special policy form or rider. This form may be a Hobby Farm Policy, or a Hobby Farm Rider attached to a Homeowners form.

Question 53

How do insurers determine whether a risk qualifies as a hobby farm?

Answer 53

Each insurer has specific guidelines, for example:

• Primary dwelling owner-occupied
• Less than 25 acres
• Maximum of 5 farm animals
• Maximum of 10 poultry
• Maximum income from farming operations of $10,000
• No employees involved in farm operations
• No custom farming, horse boarding, training or riding facilities
• Maximum $25,000 of farm equipment
• Maximum $25,000 of farm-related outbuildings

Question 54

How are Hobby Farms covered?

Answer 54

A Hobby Farm Policy or Rider provides coverage for the dwelling and personal property under a Homeowners form, the exclusion of buildings used in whole or in part for farming operations is removed and other specialized coverages are added.