Unit 4: Basics of Property Insurance

Question 1

Types of Property

Answer 1

Real Property: buildings

Personal Property: moveable contents

Question 2

Covered Property

Answer 2

Specific/Scheduled: detailed list of covered items

Blanket: all of a certain type of property

• Single limit of coverage
• No detailed list

Question 3

Limits of insurance

Answer 3

Maximum coverage limits; listed on declarations page

Question 4

Insured Perils

Answer 4

Named peril: only perils on the list are covered

Open (special) perils: covers all perils except those specifically excluded

Question 5

Basic Perils

Answer 5

• Fire, lightning, and internal explosion
• Extended coverage (WCSHAVVER and Vandalism and malicious mischief V&MM)

Question 6

WCSHAVVER

Answer 6

• Wind
• Civil commotion
• Smoke
• Hail
• Aircraft
• Vehicles
• Volcanic eruption
• Explosion
• Riot

Question 7

Broad Perils

Answer 7

• All of basic (fire, lightning, internal explosion) plus extended (WCSHAVVER and V&MM)
• Plus BIG AFFECT
• Burglary damage
• Ice, sleet, and snow (weight of)
• Glass breakage
• Accidental discharge of water
• Freezing objects
• Falling objects
• Electrical current
• Collapse
• Tearing asunder

Question 8

Broad Peril Exclusions

Answer 8

• Weight of ice, snow, or falling objects on awnings, fences, patios, swimming pools, docks, and retaining walls
• Accidental discharge over water from continuous leaking
• Flooding from river or lake
• Burglary if property vacant more than 60 consecutive days

Question 9

Special/Open Peril Coverage

Answer 9

Special/Open Perils: all risks of direct physical loss, except those specifically excluded

Common exclusions:

• Flooding
• Earthquake
• Intentional damage caused by an insured
• Losses due to enforcement of building codes
• Damage caused by a power interruption occurring off premises
• Governmental seizure

Question 10

Types of Loss

Answer 10

Direct: the immediate damage caused by the peril

Indirect: loss over time as a result of the direct loss
- E.g. loss of income a business suffers when the building burns

Question 11

Classes of Construction

Answer 11

Class 1: Frame
Class 2: Joisted masonry
Class 3: Noncombustible
Class 4: Masonry Noncombustible
Class 5: Modified Fire Resistive
Class 6: Fire Resistive

Question 12

Loss Valuation

Answer 12

How the insurance company determines appropriate amount of loss to be paid; deductible reduces amount after loss is valued

Insured to collect lesser of:

• Insurable interest
• Policy limits
• Actual cash value (ACV)
• Cost to repair
• Replacement cost

Question 13

Actual Cash Value (ACV)

Answer 13

Replacement cost based on today’s cost, not what was originally paid for item; cost to replace now

ACV = replacement - depreciate

Question 14

Replacement cost

Answer 14

Current replacement cost; no depreciation

Similar kind and quality

Question 15

Functional replacement

Answer 15

Replace with modern construction

Question 16

Market value

Answer 16

Selling price; seldom used

Question 17

Agreed amount

Answer 17

Value of loss is determined before the policy is issued

Question 18

Stated amount

Answer 18

Insured up to this amount

Question 19

Pair and set

Answer 19

Value of the pair or set before the loss minus value of what remains

Question 20

Appraisal

Answer 20

Disagreement on the amount of the loss

• Company and insured pay their own appraisers
• Appraisers get an umpire if they can’t agree (cost shared)
• Agreement of any tow of the three determines the amount

Question 21

Arbitration

Answer 21

Disagreement about other areas of the loss

Question 22

Coinsurance

Answer 22

The coinsurance requirement requires the insured to carry a minimum amount of insurance, normally 80% of the replacement cost

(insurance carried/insurance required) x loss = claim payment - deductible

Question 23

Vacancy and Unoccupancy

Answer 23

Vacant: no property or people present at time of loss

Unoccupied: no people present at time of loss

Question 24

Standard Mortgage or Loss Payable Clause

Answer 24

• Allows lender to pay the premium
• Lender entitled to receive notice if policy is to be canceled
• Lender can file a claim
• Lender protected from negligent or dishonest acts of the insured
• Lender only entitled to receive payment up to the amount of the debt

Question 25

No Benefit to Bailee

Answer 25

Bailee: person or business that has temporary control of the insured’s property

Baille cannot benefit from the property owner’s policy