Webinar Flashcards
Uncertainty concerning a loss
Risk
A cause of a potential loss
Peril
Increases the chance of a loss
Hazard
A physical condition that increases the probability of a loss
Physical Hazard
Dishonest tendencies
Moral Hazard
Indifference to loss, or failure to protect one’s property from loss
Morale Hazard
The exchange of a small certain expense for a large uncertain loss
- Transfers the risk
- Protects against uncertainty
- Shares the loss
- Reduces anxiety
Insurance
The larger the number of exposures, the closer the losses will equal the underlying probability of loss
The Law of Large Numbers
- Must exist in every enforceable contract
- Potential for financial hardship in the event of a loss
- Must exist at the time of loss in Property & Casualty Insurance
Insurable Interest
Elements of a Legal Contract
- Competent Parties
- Legal Purpose
- Agreement
- Consideration
Parties must have legal capacity to enter into a contract
Competent parties
May not be issued for illegal/immoral purpose
Every insured must have an insurable interest at the time of loss
Legal Purpose
The ______ is a two-step process that involves an:
- offer
- acceptance
Agreement
- What two parties exchange in value to abide by the conditions of the contract
- The application and payment of premium is Insured’s consideration
- Insurer’s promise to indemnify in event of a loss
- Mutual agreement is reached when the insurer delivers the policy upon initial premium payment
Consideration
A sudden, unintended, and unplanned event from which damage results
Example: the explosion of a steam boiler
Accident
An event that results in a loss including continuous or repeated exposure to harmful conditions
Example: Mold, Fungus, or Wet Rot resulting from accidental discharge
Occurrence
Termination of a policy before expiration; insurer or insured may cancel
Cancellation
Insurer refunds premium proportionately
Pro-rata Cancellation
Insurer refunds after keeping funds to cover cost
Short-rate Cancellation
The cancellation of a policy on or before the effective date
Flat cancellation
Termination of policy at expiration
Nonrenewal
Proof of temporary insurance coverage until a policy can be issued
- issued for a maximum of 60 days
- ends when policy is issued
- must include name of insurer
Binder
A form added to a policy to change or add provisions
Endorsement
The portion of a loss not paid by the insurer and assumed by the insured
Deductible
As the deductible increases, the premium decreases
Benefit to Insured
Fewer small claims are submitted
Benefit to Insurer
Responds first to a loss, regardless of all other insurance in place on the same risk
Primary Insurance
Responds to a loss after primary insurance responds
Excess Insurance
Has no occupants, but does have contents
Unoccupancy
Building contains insufficient property or furnishings to support its intended occupant or use
Vacancy
Direct damage to covered property without an intervening cause
Direct Loss
Loss resulting from direct damage to covered property
Indirect loss
Covers losses by perils that are specifically stated in the policy
Named peril
Cover losses caused by all perils except for those specifically excluded
Open peril
The value of replacing property with material of like kind and quality, at current prices, without deduction for depreciation
Replacement Value
The current replacement cost of an item minus applicable depreciation and obsolescence
Actual Cash Value (ACV)
The amount agreed by the insurer and the insured that will be paid in the event of a total loss–regardless of the property’s actual value at the time of loss
Stated (Agreed) Value
A policy that states the value of property to be the amount shown on the Declarations page in the event of a total loss, rather than one of the types of values listed above
Valued Policy
One item of property, one policy, one limit of coverage
Specific limit
Multiple items of property, one policy, different limits of coverage
Scheduled limit
Multiple items of property, one policy, one limit of coverage
Blanket limit
- Contains the insurance company’s promise to make payment on behalf of the insured
- Offers broad scope of coverage that is narrowed through other policy sections, such as the Conditions and Exclusions
Insuring Agreement
States the rights, rules, duties and obligations of the Insurer and the Named Insured
Conditions
Coverage only applies to covered losses that occur during the policy period
Policy Period
If the insurer broadens coverage with no increase in premium, the broadened coverage automatically applies to existing policies
Liberalization Clause
No coverage is provided to an insured who has intentionally misrepresented any material fact, made false statements, or engaged in fraud
Concealment or Fraud
States the terms under which a policy may be cancelled
Cancellation
What the insurance company must do if electing not to renew coverage
Nonrenewal
Named Insured must obtain written consent of insurer if assigning policy benefits to another
Assignment
Insurer is entitled to the Named Insured’s rights of recovery against any party responsible for a loss if the insurer makes payment of the loss
Subrogation
When the amount of a loss is disputed by either insurer or insured, either party may request a binding appraisal of damaged property. Each selects an appraiser who then jointly select an umpire. Insurer and insured each pay for the cost of their own appraiser and split the cost of the umpire.
Appraisal
If a covered loss is also covered by other insurance, this condition explains how the policy will respond to claims. In most cases, the insurer only pays its proportional share of the loss.
Other Insurance
- Protects mortgagee’s financial interest in the insured property if insured fails to perform his or her duties
- Mortgagee must perform certain duties to protect its interest
Mortgage Clause
Specific perils are NOT covered by the policy. In addition to the policy's statement of various exclusions throughout the policy's statement of various exclusions throughout the policy, the Exclusions section states NO coverage is provided for: Ordinance or Law Earth movement Water Power failure Neglect War Intentional loss
Exclusions
The party named on the Declarations; receives the broadest coverage of all insureds
Named insured
Individual or entity whose name appears first on the Declarations with Special Rights
-has right and responsibilities not applying to other insured. very important on commercial policies
First Named Insured
Other individuals and entities designated in the policy (children)
Insured
A person or organization granted insured status by endorsement not normally an insured
Additional insured
- Contained in most commercial property policies
- Encourages insured to purchase insurance to value
- The higher the coinsurance percentage the lower the rate
- Applies only in the event of a partial loss
- Total losses paid per any applicable Policy Law
Coinsurance Provisions
Formula used when a penalty is applied to partial losses:
Coinsurance formula
- Building’s replacement value is $100,000
- Building is insured for $40,000
- Policy has an 80% Coinsurance clause
- Building sustains $10,000 fire loss
How much will the insurer pay?
$5,000
Also called third party insurance
1st party insured
2nd party insurer
3rd party claimant
Liability insurance
The responsibility, under law or contract, for an act or failure to act
Legal Liability
A wrongful act that violates a duty or the rights of another for which compensation may be sought from the responsible party
Tort
A deliberate act
Intentional tort
An act, or failure to act, committed without reasonable care
Unintentional tort
Liability assigned to one party for the actions of another
Vicarious liability
- Awarded to injured party for actual loss
- Awarded for tangible losses
- Awarded for losses that cannot be objectively calculated
- Compensatory damages
- Special damages
- General damages
Awarded to punish the wrongdoer and discourage similar behavior
Punitive damages
Bodily harm, sickness, or disease, including resulting death. Examples of bodily injury include
a broken arm, a concussion, and food poisoning
Bodily injury
Physical injury to property, including its destruction or loss of use. Examples include vehicle damage after an accident and the vehicle owner’s inability to use the vehicle because it is not drivable (loss of use)
Property damage
- Includes necessary medical expenses
- Payments made regardless of fault
- Does NOT require legal liability of the insured
Medical payments to others
Liability for certain injuries, other than bodily injury or property damage, that arise from offenses named in the policy - such as false arrest, libel, slander, invasion of privacy, and copyright infringement
Personal Injury Liability
An unforeseen, unexpected, and sudden event from which damage or loss results
Accident
An event, either an accident or continuous or repeated exposure to the same general conditions, that causes injury or damage to a third party
Occurrence
Insured must notify insurer, in writing, as soon as possible of any loss and include the:
Policy number
Named insured
Name and address of witnesses
Notice of loss
Verifies how and when a loss happened and includes other required information
Proof of loss
A document indicating insurance was in effect on a particular date
Certificate of Insurance
The failure to use the same level of care a reasonable person would have used given the same knowledge and set of circumstances
Negligence
In some circumstances, an insured will be legally liable even in the absence of negligence
Absolute liability
- Applies to products liability
- Manufacturers are held strictly liable for damages to others caused by defective products or their failure to warn
Strict liability
The one listed first of the named insureds with special rights
First Named Insured
Person specifically named in the policy
Named insured
Persons covered by the policy in addition to other insureds
Additional Insured(s)
Insured cannot transfer policy ownership without the written consent of the insurer
Assignment
Provision that spells out the obligations of the parties when they wish to cancel or nonrenew the policy
Cancellation and Nonrenwal
The amount of loss retained by the insured (most liability policies do not have a deductible)
Deductibles
Specifies when coverage applies
Policy period
Policy makes payment before all other policies in place
Primary insurance
Policy makes payment after the primary policy exhausts its limits or denies coverage
Excess insurance
- When more than one policy is on a risk
- Each policy will only pay its pro-rata share of a loss
- A clause designed to prevent the insured from collecting more than the actual extent of loss
Pro Rata Liability
- When two or more insurers’ policies cover at the same level
- Each insurer contributes an equal amount to the loss settlement until the loss is paid, or until each insurer has exhausted its limits of insurance
Contribution by Equal Shares
DP-1 (Basic Form)
Covered perils are: -fire or lightning -internal explosion Extended Coverage -windstorm or hail -explosion -riot or civil commotion -aircraft and vehicles -smoke -volcanic eruption Vandalism & Malicious Mischief
DP-2 (Broad Form)
Includes DP-1 perils plus:
- damage by burglars
- falling objects
- weight of ice, snow, or sleet
- accidental discharge or overflow of water/steam
- freezing
- sudden and accidental damage
DP-3 (Special Form)
Open perils: coverage for dwelling and other structures
Named perils: coverage for personal property
Coverage A
Dwelling
Coverage B
Other structures
Coverage C
Personal property
Coverage D
Fair Rental Value
Coverage E
Additional living expense
Coverage A insures:
- The dwelling and attached structures
- Materials & supplies to construct or repair
- Building and outdoor equipment
- NO coverage for land
Coverage B insures:
- Other structures NOT attached to the dwelling
- NO coverage for structures rented to others
- Insurance limit is up to 10% of Coverage A
Coverage C insures:
- Personal property usual to a dwelling occupancy AND owned or used by an insured or resident relative AND while on the premises
- At insured’s request, personal property owned by a guest or servant while on the premises
Coverage D insures:
- Loss in rental value sustained by insured if covered loss under Coverage A, B, or C makes dwelling not fit for normal use
- Insurance limit is up to 20% of Coverage A
Coverage E insures:
Additional living expenses sustained by insured if covered loss under Coverage A, B, or C makes dwelling not fit for normal use
Other coverages
- Debris removal
- Improvements, alterations, and additions
- Reasonable repairs
- Property removed
- Trees, shrubs, and other plants
- Fire department service charge
- Collapse
- Glass
- Ordinance or law
Up to $500 for contractual liability when fire department is called to protect covered property fro a covered peril
- does not apply if property is located within the city limits of responding department
- additional insurance
- no deductible applies
Fire Department Service Charge
If a building collapses what is covered
-DP-2 & DP-3 only provide coverage for abrupt falling down or caving in of a building
-Damage is covered if caused by the following:
hidden decay
hidden damage by insects, etc.
weight of contents, animals, people, etc.
defective material or workmanship
-No coverage is provided for cracking, bulging, settling, shrinking, or expanding soil
-Damage must be caused directly by collapse
General exclusions
Dwelling forms do not cover loss caused by:
Ordinance or law Earth movement Water damage Power failure Neglect War Nuclear hazard Intentional loss Government action
What are the 6 basic forms of homeowners insurance
HO-2 basic HO-3 special HO-4 tenant HO-5 comprehensive HO-6 condo HO-8 modified coverage
Which basic homeowners forms provide all 6 coverage’s?
HO-2
HO-3
HO-5
HO-8
Which basic homeowners forms only provide 4 coverage’s? (C, D, E, F)
HO-4
HO-6
Owner occupied dwelling with no more than 4 residential units; the named insured must live in one of the units
Which forms are eligible?
HO-2
HO-3
HO-5
HO-8
Residence or apartment is rented, not owned
Which forms are eligible?
HO-4
Condo or cooperative unit may be rented or owned
Which forms are eligible?
HO-6
HO-2 broad form includes coverage’s for?
Coverage A & B for named perils
Coverage C for named perils
HO-3 special form includes coverage’s for?
Coverage A & B for open perils
Coverage C for named perils
HO-4 contents broad form includes coverage’s for?
Coverage C for named perils
HO-5 comprehensive form includes coverage’s for?
Coverage A, B, and C for open perils
HO-6 unit owners form includes coverage’s for?
Coverage A and C for named perils
HO-8 modified coverage form insures what?
Older homes where the replacement and market values are:
-disproportionate, or
-insuring to RC creates a moral hazard
Written for market value of dwelling
Who is the insured’s?
You (the named insured & resident spouse)
Residents
-relatives
-under age 21 & in the care of you or a resident relative
-full time student under 24 who was a resident before going away to school and IS a relative OR under age 21 and in the care of you or a resident relative
Under section ll (Liability coverage’s)
- any person or organization legally responsible for covered animals or watercraft
- persons using covered motor vehicles on insured locations with your permission
What are insured locations?
- Residence premises
- Premises, structure, and grounds as a residence and wither shown on Dec page or acquired during policy period
- Non-owned premises where insured resides temporarily
- Vacant land (other than farm land)
- Land on which 1-4 family dwelling is being constructed
- Individual or family cemetery plots or burial vaults
- Premises rented occasionally for non-business use (time share)
