Study four

Question 1

Define material facts

Answer 1

• is something affecting the contract of insurance important enough to change the agreement between the company and the policyholder.
  ex) determine premium amount, amount and type of coverage, whether or not coverage is provided.

Question 2

Define misrepresentation.

Answer 2

• misleading the insurer as to material facts affecting the policy or the settlement of a loss either by directly lying or by not disclosing certain info.

Question 3

What are the 5 components of a policy?

Answer 3

1) intro to preamble aka declaration
2) the insuring agreement
3) statutory conditions
4) policy conditions
- referred to seperately
5) signature clause
- signed by CEO of ins. company

Question 4

What is a subscription policy?

Answer 4

• used usually to insure large risks
• one insurer known as the lead company prepares the policy but one or more other insurers subscribe to it or participate in covering the risk.
• must be signed by all members

Question 5

What is a manuscript policy?

Answer 5

• specfically designed/written for a particular risk

- an individual manuscript

Question 6

What is an endorsement?

Answer 6

• usually an attachment to the policy
• will overrule any wording in the policy which is inconsistent with the endorsement
• restricts or offers more coverage
• either party can request

examples: removal of property, speeding tickets, change of ownership, increase in hazards

Question 7

What are the rights of mortgagee?

Answer 7

1) losses under the policy are made payable to the mortgagees
2) mortgagee receives loss payment regardless of:
i) insured’s negligence
- grow op.
ii) property becomes more hazardous
- originally producing candles, now producing fireworks

Question 8

What are the obligations to the mortgagee?

Answer 8

1) must notify insured at once if:
a) vacancy for over 30 days
b) change of ownership
c) increased

2) required to pay insurer on reasonable demand any extra premium required because of increase in hazard from date such hazard existed

Question 9

What is a certificate of insurance?

Answer 9

• confirms existence of insurance

ex) pink slip for auto

Question 10

Define coverage.

Answer 10

• is the term used for insurance protection

Question 11

Define deductible.

Answer 11

• the amount of a loss which the insured must pay.
• same on every claim amount, is a stated amount
• franchise deductible - not payable once the claim exceeds a certain amount
• disappearing deductible - reduces as amount of loss increases

Question 12

Define statutory conditions.

Answer 12

• conditions required by law as promulgated by provincial legislatures.
• required by law to appear on contracts
• house and auto
• legal conditions imposed by gov

Question 13

What information does the declaration contain?

Answer 13

1) identifies parties to the contract
2) states commencement date, term, expiry date
3) states premium and rate
4) shows the amount insured

Question 14

What information does the insuring agreements contain?

Answer 14

1) subject matter of insurance - description of property
2) perils insured against
3) exclusions
4) circumstances under which the insured may receive the proceeds of insurance

Question 15

What is required according to the Insurance Act if a policy is issued and differs from the written application?

Answer 15

1) insurer must notify the insured of differences
2) the notification must be in writing
3) if the insured does not object to this change within a stated period of time, the policy is deemed to cover as it is written.

Question 16

What factors influence standardization of coverage?

Answer 16

1) legislation
2) general usage
3) court decisions

Question 17

What are the rights of the insurer?

Answer 17

1) can deny claim if hazard or negligence is involved, but still have to pay mortgagee.
- they would have to go after insured or assign mortgage to themselves and sell property

Question 18

Define utmost good faith.

Answer 18

• implies a standard of honesty greater than that usually required in most ordinary contracts.
• is essential when dealing with an insurance contract
• both parties

Question 19

What is a loss payable clause?

Answer 19

• if you owe mortgagees money, they will have an interest in your property until the debt it paid off.

Question 20

What is a mortgage clause?

Answer 20

• recognizes the existence of a mortgage on the insured property
• offers more protection to the mortgagee
• mortgagee is named on policy
• lays out certain rights and obligations of the insurer and mortgagee
• seperate clase on policy

INCLUDES:

1) rights of mortgagee
2) obligations of mortgagee
3) rights of insurer

Question 21

Why are written applications preferrable over oral?

Answer 21

1) avoid misunderstandings
2) becomes a part of the policy

(life and auto require written app.)

Question 22

What is coinsurance?

Answer 22

• a penalty clause used to encourage insured’s to carry adequate amount of insurance

Question 23

Explain assignment.

Answer 23

• a contract of insurance is said to be a personal contract
• made by the insurer with the person or firm named in it and may not be substituted unless the insurer consents
• exceptions include: bankruptcy and death

Question 24

What is transfer and consent?

Answer 24

• when selling a house and transfering insurance at the same time
• insurer must consent by issuing an endorsement (aka transfer and consent)
• premium adjustments are made when property is sold

Question 25

Define pro rata.

Answer 25

• cancellation of a policy when the return premium paid is the full proportionate part due for the unexpired term.

Question 26

What are the conditions for termination of a contract?

Answer 26

1) insurer cancels
- premium refund is pro rata
- high crime related
2) void
- policy never existed
- material misreprestation occurred/ non-disclosure
3) insured cancels
- premium refund is short rate
- pays a fee