Property and Casualty: Terms and Concepts
If a liability policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person?
$50,000 The first limit shown ($50,000 in this case) is the most the policy will pay for bodily injury to any one person.
What type of damages may be awarded by the court to create disincentives that discourage behavior that is deemed highly undesirable by society?
C. Punitive Correct! Punitive damages are a form of punishment, intended to serve as an example to others to discourage undesirable behavior.
The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?
Market Value When insured for market value, it is insured for what a willing buyer would pay prior to a loss. This is different from actual cash value or replacement cost.
What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy?
Open peril policy Open peril (special) policies cover everything except what they say they don't. Named peril policies cover only perils named in them.
Which of the following is defined as the legal liability arising from physical damage to the belongings of others caused by the negligence of an insured?
Property Damage Liability Property damage liability is the legal liability arising from physical damage to tangible property of others caused by the negligence of an insured.
A situation in which a person can only lose or have no change represents
Pure risk Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept.
The risk of loss may be classified as
Pure risk and speculative risk. Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.
Which of the following is used in the formula for calculating the actual cash value of a property?
Replacement cost The actual cash value (ACV) method of valuation reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages. To calculate ACV, depreciation is subtracted from the current replacement cost.
Which method of loss valuation is contrary to the basic concept of indemnity?
Replacement cost The replacement cost method of loss valuation is contrary to the basic concept of indemnity because following a loss it may provide the insured with a settlement in excess of the property's actual cash value.
In case of a loss, the indemnity provision in insurance policies
Restores an insured person to the same financial state as before the loss. Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.
Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages?
Special The two classes of compensatory damages that may be awarded are special and general damages. Special damages are tangible damages that can be specifically measured in dollar amounts (such as out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages).
A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method?
Stated amount A stated amount is an amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.
When the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as
Stated amount. In stated amount coverage, the value of the insured property is determined at the time the policy is written. In the event of a loss, that amount is paid without regard to any coinsurance provision. However, if the loss is less than total, the insurer has salvage rights with the insured having first right of refusal of the salvage.
For the purpose of insurance, risk is defined as
The uncertainty or chance of loss. Risk, or the chance of loss occurring, is the basic reason for buying insurance.
An insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some furniture and clothes in the house. From an insurance standpoint, the insured's house is considered
Unoccupied Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but the structure contains contents.
An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?
$30,000 This insured only carried 75% of the amount of insurance he had agreed to carry ($120,000 of the agreed $160,000), so the insurer will pay only 75% of the loss, or $30,000. If the insured had carried the required amount of insurance, partial losses would be paid in full. In the event of a total loss, the face of the policy would be paid. If the full amount is not carried, divide the actual amount carried by the amount that should be carried (the coinsurance amount), and multiply it by the loss.d (the coinsurance amount), and multiply it by the loss.
A $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage; the owner has a policy with $60,000 coverage. How much can the owner collect for his loss?
$30,000 For the total amount of a partial loss to be paid, a house must be insured for at least 80% of its value on the date of loss. In this case, because the house is insured for only $60,000 (75% of the minimum requirement), the policy will pay only 75% of the loss, or $30,000.
An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?
80% of the property's replacement cost or more The coinsurance clause states that in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. In the event of a covered loss, insurance is designed to pay replacement cost minus depreciation.
Which of the following definitions best defines the term "accident"?
A sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended
In which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation?
Agreed value Agreed value is a property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written. When a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation.
A policy that insures all property at multiple locations for a single amount is referred to as
Blanket. Blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss. No single item is assigned a specific amount of insurance. However, different amounts of insurance may be shown for buildings in general and contents in general.
An insured is driving her car through a residential area when she loses control and crashes into a neighbor's front porch. The neighbor, who was sitting on the porch, is injured. The insured's liability policy has a limit of $500,000. This amount applies to the total of damages for any bodily injury and property damage resulting from one accident. Which type of limit of liability does the insured have?
Combined single Combined single is a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined resulting from one accident or occurrence.
An insured is applying for a casualty insurance policy. One of the conditions of the policy allows the insurance company to inspect the insured's books at the end of the policy term to make sure sufficient premium has been collected for the exposure she plans to insure. Which condition is part of the insured's policy?
Deposit premium audit Deposit premium audit is a condition that allows an insurer to inspect the insured's books at the end of the policy term to make sure sufficient payment has been collected for the exposure.
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
Indemnity The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits.
All of the following statements describe the concept of strict liability EXCEPT
It is imposed on defendants engaged in hazardous activities. Strict liability is commonly applied in product liability cases. The business is then liable for defective products, regardless of fault or negligence.
Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?
Law of Large Numbers The law of large numbers, which states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated.
Which of the following is the basis for a claim against an insurance policy?
Loss Claims result from losses by a peril insured against in an insurance policy.
The process of determining the premium charged and how much insurance is required for a particular loss is called
Loss Valuation Loss valuation is the process of determining appropriate monetary value to a particular loss and its resulting repair or replacement.
The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as Id: [E1148760]
Loss.
The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?
Market Value When insured for market value, it is insured for what a willing buyer would pay prior to a loss. This is different from actual cash value or replacement cost.
An insured's 9-year-old son threw a ball, accidentally breaking a neighbor's plate glass window. The insured was found legally liable for the cost of replacing the window. This is an example of
Vicarious liability. Under vicarious liability, an insured may be held responsible for the acts of other family members or independent contractors engaged by the insured to perform work.
When a parent is required to pay for damages caused by his or her children, this is an example of
Vicarious liability. When one party is held liable for the act of another party, it is called vicarious liability. Employers are responsible for employees acting within the scope of their employment. Parents sometimes are held responsible for the acts of their children.
