3.1 Property Insurance Terminology
What is the difference between a hostile fire and a friendly fire?
A friendly fire is intentionally set and stays within its intended boundaries.
A hostile fire burns outside of its intended boundaries uncontrollably.
What is the difference between a direct loss and an indirect loss?
A direct loss is one that is the immediate result of a peril.
An indirect loss, also known as consequential loss, is a consequence of a direct physical loss.
Indirect losses refer to financial losses, such as loss of income or additional expenses incurred while property is being repaired.
What is actual cash value?
The replacement cost minus depreciation.
What is the difference between the loss settlement condition and the loss payment condition?
Loss Settlement: This condition specifies which loss valuation method will apply to the property insured under the policy.
Loss Payment: This condition specifies how the insurer will make payment for loss and what applicable time frames must be honored when submitting claim documents
.
How many lines are in the SFP?
165
Bob takes is clothes to a dry-cleaner. Who is the Bailor/Bailee?
Bob= Bailor O= Owner
Dry Cleaner= Bailee
What are named perils and open perils?
Named perils coverage is a type of coverage that only provides insurance for the causes of loss that are listed in the policy. If the peril is not named in the policy, no coverage applies for loss or damage caused by that peril.
Open perils coverage, also called all-risk coverage, provides insurance for all causes of loss that are not specifically excluded under the policy. Under open peril policies, the insurer has the burden of proof to demonstrate that a loss was caused by an excluded peril.
What is the main purpose insurers use deductibles?
Deductibles are an underwriting tool that the insurer uses to reduce the number of small claims.
If the insured or insurer recovers lost or stolen property after the insurer has made payment under the policy, that party must notify the other party of the recovery. What options does the insured have when this happens?
The insured may keep the claim payment (and give up their right to the recovered property) or retain their covered property (and return the claim payment). If the insured chooses to retain the recovered property, the insurer will pay for recovery and repair expenses.
SFP only covers 3 things. What are they?
Fire, lightning and removal of property from premises due to threat of fire or lightning.
What is the difference between Unoccupancy and Vacancy?
Unoccupancy refers to a property thatcontains personal property but has nooccupants.
Vacancy refers to property that contains nopersonal property and has no occupants.
What are the three common forms used in insurance and what coverage do the provide?
Basic and broad forms provide named perils coverage
Special forms provide coverage on an open perils basis.
What are the three property insurance limit types learned in this chapter?
Specific limit insures a single item of property for a single limit of insurance.
Blanket limit insures more than one property for a single amount of insurance that applies to all covered properties.
Scheduled limits insure multiple items on a single policy with a different limit applying to each item.
Explain the three things a mortgage company can do if an insured's claim is denied, and they wish to collect.
It must pay any premium due under the policy on demand if the insured fails to do so.
It must notify the insurer of any change in ownership or occupancy, or any substantial change in risk of which the mortgagee is aware.
It must submit a proof of loss to the insurer if the insured fails to do so, typically within 60 days after receiving notice that the insured failed to do so
If other insurance applies, the policies will pay on what kind of basis?
Pro Rata Liability
What is the different definitions of theft that are mentioned in this chapter?
Theft is the broadest definition, and it includes any act of stealing, including burglary and robbery.
Burglary is the taking of property from inside the premises, a locked safe, or a locked vault by a person who forcibly enters or exits the property.
Robbery is the taking of property from the care and custody of a person who has been threatened with bodily harm or has been harmed.
Mysterious Disappearance: Property goes missing and the cause of loss is not known
What is inherent vice? Please provide an example
Quality within a property that causes it to damage or destroy itself.
Example: Rust/Wear and tear
Name all 8 loss valuation methods discussed in this chapter.
Actual Cash Value (ACV)
Replacement Cost
Functional Replacement Cost
Guaranteed Replacement Cost
Agreed Value
Stated Value
Market Value
Salvage Value
Sofia has a set of silverware with 30 pieces. Individually, eachpiece is valued at $100. The sum of the individual values is$3,000, but the set is valued at $5,000. If ten pieces of silverware are stolen and theft is a covered peril, how much will the insurance pay for the loss?
Policy pays $3000
The payout equals the loss of value from the individual pieces and the loss of value from the pieces as a set.
Remaining silverware worth individually $100 X 20= $2000
Set worth amount subtract remaining worth
$5000- $2000= $3000
What items of property are considered uninsurable and will not be covered? Name 3
Accounts, bills, currency, deeds, evidences of debt, money, and securities. Bullion and manuscripts are also generally excluded from coverage, unless they are specifically named in the policy
Name the classifications of construction.
Frame
Joisted Masonry
Masonry Non-combustible
Modified fire-resistive
Fire-resistive
What is the difference between proximate cause and concurrent causation?
Proximate Cause: The primary cause of loss. If a policy or insurer uses proximate cause to determine coverage, the proximate cause must be a covered peril.
Concurrent Causation: When two perils simultaneously cause a loss (in other words, both perils are the proximate cause), the insurer must pay for the loss even if one of the perils is excluded by the policy
An insured’s couch is destroyed by a fire. Thecouch was purchased 5 years ago for $1,500. It has auseful life of 10 years. A comparable couch now costs$2,000. If the loss valuation method is ACV how much will the insurance company pay?
Insurance pays $1000
10 years useful life. Only used 5 years.
5/10= 50%
RCV $2000 minus 50% depreciation
50% of $2000 is $1000
A building valued at $200,000 is insured for $120,000 with an 80% coinsurance requirement. There is a loss for $80,000. What will the policy pay for the loss? What is the Mortgage Clause?
Insurance Pays $60,000
$200K X .80= $160K
$120K / $160K = .75
.75 X $80K= $60K
In the event of a loss, the insurer will pay the lesser of:
The ACV of the property at the time of loss
The amount actually necessary to repair or replace property with material of like kind and quality.
An amount equal to the interest of the insured.