Study these Flashcards
1
Q
Contribution of Equal Shares
A
- Each policy pays an equal share of the loss up to the lowest policy limit
- Process repeats until loss is paid in full or all policy limits have been reached
2
Q
DP-1 Basic Form
A
- Named-peril coverage
- Covers only fire, lightning, internal explosion
Popular endorsements:
- Vandalism and Malicious Mischief (VMM):
a. Intentional injury or destruction of covered property
b. Does not include: pilferage, theft, burglary, larceny - Extended Coverage:
1. Windstorm
2. Civil Commotion
3. Smoke
4. Hail
5. Aircraft
6. Vehicles
7. Volcanic eruption
8. External explosion
9. Riot
3
Q
Dwelling Coverage B
A
Coverage B-Other Structures:
- Appurtenant Physical Structures (APS): structures that are not attached to dwelling
a. Detached garage, guest house, shed, gazebo, fence, mailbox, lamp post
Limit: 10% of Coverage A limit (per claim)
- Under DP-1, the 10% is included as part of Coverage A limit
- In DP-2 and DP-3, the 10% is added to the Coverage A limit
4
Q
Types of Insurance Provided-FARM
A
- Property insurance for dwelling and contents
- Scheduled and unscheduled farm personal property insurance
- Mobile agricultural machinery and livestock coverage
- Farm liability insurance
5
Q
Coverage C - Items with Special Limits (FARM)
A
- $200 on cash, platinum, and gold (other than goldware)
- $1,500 on letters of credit, manuscripts, passports, and securities
- $1,500 on watercraft and associated engines and trailers
- $1,500 on trailers not used for watercraft or farming
- $2,500 on business personal property while on insured’s premises
- $500 on business personal property NOT located on insured’s premises
- $1,500 on electronics in or on a motor vehicle
- $1,500 on electronics used primarily in the operation of the farm or business
6
Q
Coverage F - Unscheduled Farm Personal Property
A
- Gives blanket coverage of all farm items
- Settles claims at Actual Cash Value
- Requires coinsurance for full coverage to apply
7
Q
Coinsurance Requirement Met
A
Insurer pays smallest of the following:
- The replacement cost of the damaged property
- The amount actually spent on necessary repairs or replacements
- The policy limit
8
Q
Coinsurance Requirement Met
A
Insurer pays smallest of the following:
- The replacement cost of the damaged property
- The amount actually spent on necessary repairs or replacements
- The policy limit
9
Q
FARM INSURANCE/ PROPERTY INSURANCE Coverage C - Items with Special Limits
A
- $200 on cash, platinum, and gold (other than goldware)
- $1,500 on letters of credit, manuscripts, passports, and securities
- $1,500 on watercraft and associated engines and trailers
- $1,500 on trailers not used for watercraft or farming
- $2,500 on business personal property while on insured’s premises
- $500 on business personal property NOT located on insured’s premises
- $1,500 on electronics in or on a motor vehicle
- $1,500 on electronics used primarily in the operation of the farm or business
10
Q
FARM INSURANCE/ PROPERTY INSURANCE C - Special Limits for Theft
A
- $2,500 for furs, jewelry, precious stones, and wristwatches
- $2,500 for pure goldware, silverware, and other items whose value is principally derived from gold or silver content
- $3,000 for firearms
11
Q
Common Exclusions to Medical Payments for Auto Insurance
A
- Accidents where an insured is occupying a vehicle with fewer than four wheels
- Autos rented or leased for hire
- Autos used without permission (or reasonable belief of permission)
- Commercial vehicles covered by a Business Auto Policy (BAP)
- Vehicles located for use as a residence
- Injuries sustained under scope of employment (if covered by Workers’ Comp)
Medical payments begin only after Personal Injury Protection (PIP) coverage is fully exhausted.
12
Q
Subrogation
A
The transfer of rights that allows the insurer to recover its losses after it has indemnified a policyholder.
How it works: When a policyholder is indemnified for a loss, she may no longer collect payment for that loss from anyone else. She has transferred this right to the insurer.
13
Q
The Claim Function
A
The part of the insurance contract that lets the insurer fulfill its promises to the insured.
Two main goals:
- Comply with the terms of the contract
- Support the insurer’s financial stability
An adjuster must get claimants the indemnity they deserve while protecting the insurer from fraud and making sure not to pay more than the contract allows.
14
Q
Vacancy
A
- Defines “vacancy” for the purpose of coverage
- Specifies a time period (typically 60 days) and a condition, such as a dwelling that is unoccupied or a company that is not open for business
- Commercial buildings may be deemed vacant if less than 31% of the available square footage is occupied for the set time period
15
Q
Coverage B
A
Coverage B-Other Structures:
- Appurtenant Physical Structures (APS): structures that are not attached to dwelling
a. Detached garage, guest house, shed, gazebo, fence, mailbox, lamp post
Limit: 10% of Coverage A limit (per claim)
- Under DP-1, the 10% is included as part of Coverage A limit
- In DP-2 and DP-3, the 10% is added to the Coverage A limit
16
Q
Dweliing policy: Liberalization and Claim Settlement
A
Liberalization
Applies to changes made during or up to 60 days before the policy period.
Valuation
- DP-1 policies settle Coverages A and B at ACV.
- DP-2 and DP-3: settle coverages A and B at replacement cost if property is insured to at least 80% of value (Loss Settlement provision is just like HO policy)
17
Q
Mobile Agricultural Machinery and Equipment Form
A
- Covers agricultural machines and their tools and equipment
- Allows higher limits of insurance than other forms
- Provides scheduled or unscheduled (blanket) coverage
- Requires coinsurance for full coverage to apply
- Gives open-peril coverage, with Actual Cash Valuation
Property not covered:
- Equipment for sale or on consignment
- Machinery used in logging or forestry
18
Q
Farm Insurance: Basic Form - Covered Perils
A
- Fire
- Lightning
- Smoke
- Wind
- Hail
- Explosions
- Riot
- Vandalism
- Civil Commotion
- Theft
- Aircraft
- Vehicles
- Sinkhole Collapse
- Volcanic Activity
- Loss of Livestock by Flood
- Loss of Livestock by Earthquake
19
Q
Farm Insurance: Broad Form
A
Covers all Basic Form perils, plus:
- Falling objects
- Weight of ice, sleet or snow
- Glass Breakage
- Sudden and accidental tearing apart
- Accidental discharge or leakage of water or steam
- Sudden and accidental discharges of electricity
- Collapse
- Electrocution of covered livestock
- Attack of covered livestock by wild animals (excluding sheep)
- Drowning of covered livestock
- Accidental shooting of covered livestock
- Loading and unloading accidents
20
Q
Farm Insurance: Special Form EXCLUSIONS
A
- Normal wear and tear, or purposeful neglect
- Rust, corrosion or decay
- Settling, cracking or shrinking of structures
- Infestation by rodents, vermin or birds
- Mechanical breakdown
- Disappearance of farm property, unless proof provided the property was stolen
- Voluntary, fraudulent parting of farm property
- Unauthorized instructions to transport property
- Vandalism or breakage of glass if vacant 30 days
- Dishonest or criminal acts by the insured
- Acts of war or nuclear hazards
21
Q
FARM INSURANCE: RC Claim Process
A
Process for Paying Replacement Cost Claims
- Insurer pays actual cash value at first.
- Claimant has 180 days to say they will repair or replace damaged property.
- After completing replacement, claimant must submit another claim.
- Then insurer will pay for full repair or replacement cost.
22
Q
Crop-Hail Exclusions
A
Typical Exclusions
- Failure to harvest a mature crop
- “Unit normal visible stand” (i.e. crop must be up to be covered)
- “Before effective hour” (i.e. damage prior to start of policy)
- Crops that can be recovered by harvesting
- Crop not owned by the insured (e.g. share crops)
- Damage to trees, bushes, fruit, or nut crops
- Damage to leaves or plants, unless affecting the actual crop
23
Q
Crop-Hail vs. MPCI
A
Differences Between Crop-Hail and MPCI:
Crop-Hail Insurance:
- Private
- Uses agreed-upon purchase times
- Insurers can choose whom to insure
Multi-Peril Crop Insurance:
- Government subsidized
- Has restricted purchase times
- Government forces insurers to cover any farmer
More Differences Between Crop-Hail and MPCI:
- With Crop-Hail insurance, coverage levels based on acreage
a. this helps when hail destroys part of a field without touching the rest of the crop - Under Multi-Peril (MPCI), coverage is based on “units” (one unit = all of a farmer’s acreage in one county)
24
Q
Actual Production History
A
Actual Production History (APH): history of a farm’s crop yield over several years (requires at least 4 years of records)
APH Policy:
- Protects against low yield
- Guarantees the crop will produce a set percentage of its APH
- Crops typically insured at 50% to 85% of the APH
Yield Guarantee:
- The minimum amount of yield that the policy guarantees for the insured crop
- Coverage kicks in if the crop produces less than this amount
25
Yield Guarantee
```
Yield Guarantee
(APH yield per acre) x (percentage of coverage)
```
Example: With 50% coverage, you multiply the "per acre APH" by 0.5 to get the yield guarantee.
Percentage of Projected Price:
- Insured chooses a percentage of the expected price of insured crop
- Expected price is determined by the RMA
That is what the insurer pays, regardless of how much the crop is actually worth at harvest time.
26
CROP INSURANCE: Indemnity Equation
```
(Yield guarantee-Actual production)
x Percentage of crop price
x Crop price (set by RMA)
x Insured's share in the crop
__________________________
Total Indemnity
```
27
CROP INS: T-Yields
Transitional Yield (T-Yield)
- Actual Production History (APH) requires at least 4 years of records
- If a farmer does not have 4 years of records, the data is taken from other farms in the county
Calculating APH using Transitional Yields
- No records: use 65% of the Transitional Yield as farmer's APH
- 1 year of records: use 80% of the Transitional Yield for the missing 3 years
- 2 years of records: use 90% of the Transitional Yield for the missing 2 years
- 3 years of records: use 100% of the Transitional Yield for the missing year
28
Crop Insurance Thresholds
Deductibles vs. Thresholds
Crop insurance uses thresholds instead of deductibles
- "Threshold" is a percentage of insured crops
- Losses BELOW threshold are NOT paid
- Losses ABOVE threshold have full policy coverage
29
Overview of Commercial Property Insurance
- Covers direct and indirect losses related to business property
- Does not include farms and 1-4 family dwellings
- Insures on an ACV basis
- Replacement cost is available as an Endorsement if you follow coinsurance guidelines
30
Conditions Specific to Commercial Policies
Cancellation/Non-Renewal:
- Insurer should inform the policyholder at least 45 days before cancellation
- Penalty for not giving 45 days notice: insurer must offer 30 more days of coverage at same rates
Vacancy definition
- building is closed for 60 days
- less than 31% of the building's available floor space is occupied for 60 days
Legal Action Against Insurer
- insured must comply with all policy obligations
- insured has 2 years from the date of loss to file a lawsuit
Liberalization
- all current insureds will benefit from increases in coverage that do not raise the premium
- applies to changes that go into effect during policy period or up to 45 days before policy start date
31
Profit & Loss
Profit and Loss Statement - determines indemnification for Net Income
Terms:
- Total Revenue: sales & services provided
- Cost of Goods Sold: materials and labor associated directly with sales and services
- Operating Expenses: general and administrative
32
Profit & Loss Statement
Equations:
1. Total Revenues - Cost of Goods Sold = Gross Income
2. Gross Income - Operating Expenses = Net Income from Operations
33
Legal Liability Coverage Form
Provides coverage for:
- Property damage to the personal property of others caused by negligence
- Expenses for legal defense when claims are brought against the business
- Theft of another's personal property
Bailee: businesses that hold the property of others for the purpose of storage, repair, or servicing, such as:
- Dry cleaners
- Computer repair shops
- Businesses that refurbish furniture
No deductible
No coinsurance
34
What is a BOP?
A Business Owner Package bundles property, liability, and income protection in a single package.
Insurance to value requirement
Not technically called "coinsurance," but works in the same way:
- Policy pays RC if coverage is at least 80% of property's value
- If coverage is less than 80% of property's value, policy pays the higher of:
a. ACV
b. Replacement cost X (Amount of insurance/80% of property value)
Notice that this is the same as the coinsurance penalty equation:
(Insurance carried/Insurance needed to meet coinsurance requirement) X Amount of loss
