Chapter 2-Property Basics

Apply the coinsurance provision to the following covered loss: property value = $200,000; policy limit = $140,000; coinsurance = 80%; amount of loss = $100,000; deductible = $250. How much would the policy pay?

$87,250 -Insured should have had $160,000 (200,000 x .80), but only had $140,000. The policy will pay $87,500 minus the deductible. (140,000/160,000=.875; $100,000 x .875 = $87,500; $87,500 - $250 = $87,250)

The insured is required to do all of the following

-Pay the premium-Give notice of loss as soon as possible -Protect the property from additional damage in the event of a loss

insured's duties after a loss under a Property Policy,except:

Abandon the property to the insurer

methods of loss valuation

Actual cash value,Replacement cost,Stated amount

All of the following are methods of loss valuation, except:

Agreed profit

subrogation

Allows the insurer to attempt collection when paying an insured for a loss,Gives the insurance company whatever rights the insured possessed against responsible third parties,Prevents the insured from collecting twice for the same loss

All of the following are true of subrogation, except:

Allows the insurer to file suit against the insured - Subrogation is a legal process involving a third party, not the first-party insured.

Which of the following is used to resolve differences between the insured and the insurer?

Arbitration -The Arbitration Provision of the insurance policy provides a method of settling disputes between the insurer and the insured as an alternative to legal action.

The Condition that the insured's interest in a property insurance policy may not be transferred to another person without the consent of the insurance company, is called:

Assignment

When a loss occurs as a result of two causes of loss, where one cause of loss is excluded and the other cause of loss is included, the situation is known as:

Concurrent Causation -Concurrent Causation is the legal doctrine that states that when a property loss is due to two causes, one that is excluded and one that is covered, the loss is covered.

methods of writing property insurance limits, except:

Concurrent coverage

Regarding a property claim procedure

Cooperate with the insurance company,Give notice of loss as soon as possible,Separate and protect undamaged property from additional loss

The part of an insurance policy that states where the risk is located is the:

Declarations - The function of the Declarations is to apply the common policy to a specific insured and property. The risk location, therefore, is found in the Declarations.

if two separate property policies provide coverage for the same loss?

Each policy pays no more than its pro rata share of the loss

Which of the following statements BEST describes the Other Insurance condition on a standard property insurance policy if two separate property policies provide coverage for the same loss?

Each policy pays no more than its pro rata share of the loss -The Other Insurance condition specifies the process to be followed when more than one policy covers the same loss. Each policy pays no more than its pro rata share of the loss.

considered a direct loss

Fire damage to an insured residence is considered a direct loss-The fire, any resulting smoke damage, or water damage done by the fire department in extinguishing the fire would all be a direct loss. Direct loss must be caused by an insured peril that set the loss in motion.

When a property is written with a replacement cost policy this means that losses will be paid:

For full replacement cost, without any deduction for depreciation -For many years, damaged property was paid at its depreciated value (Principal of Indemnity). In recent years, insurance forms have been developed that pay replacement cost for many classes of property (new for old).

The property insurance condition that states that the insured may not file suit against the insurer unless all terms of the policy have been complied with, is:

Legal Action Against Us -An insured cannot ignore their responsibilities under the policy, then subsequently bring legal action against the insurer.

Which Property Condition provides that the insurer may broaden coverage during the policy period without an increase in premium?

Liberalization

Which Property Condition provides that the insurer may broaden coverage during the policy period without an increase in premium?

Liberalization -The Liberalization Condition states that if the insurance company makes a change that broadens coverage under this edition of the policy without an additional premium charge, the change will automatically apply to this policy.

Which part of a Property Policy is in the insuring agreement?

List of the named perils

Which part of a Property Policy is in the insuring agreement?

List of the named perils -The perils covered in a property policy are always stated or referred to in the Insuring Agreement.

Which statement is true?

Loss of rent due to a fire would be considered a consequential loss

applies only to loss by the perils stated in a policy?

Named peril

When an insurer elects not to renew the policy after expiration, it said to be a:

Nonrenewal -When an insurer determines that it does not wish to continue coverage for an insured, but is prohibited from cancellation by law or regulation, it may choose not to renew the policy.

Regarding a property claim procedure, the insured is required to do all of the following, except:

Notify police, whether or not a law has been broken -The police only need to be notified in the event that a law has been broken.

The insuring clause (agreement) section of a policy describes:

Perils that are covered

The insured is required to do all of the following, except:

Personally make repairs to the property

The immediate cause that sets other causes in operation is known as:

Proximate Cause -The proximate cause sets the sequence of causes in motion, and without which the result would not have occurred. It is not necessarily the final event that caused the injury or damage.

Which of the following describes actual cash value?

Replacement cost less depreciation - Actual Cash Value is defined as replacement cost minus depreciation.

property insurance limits,

Specific coverage,Scheduled coverage,Blanket coverage

Declarations of a Property Policy

The beginning and ending dates of coverage / The amount of coverage/ The amount of premium

right of salvage?

The insurer has the right to take possession of damaged property after payment of a loss

All of the following concerning exclusions are true, except:

They are found in the Insuring Agreement

exclusions, except:

They are found in the Insuring Agreement

exclusions

They restrict the Insuring Agreement,They describe situations that are not covered under the policy,They describe property not covered

acceptance of an offer?

When an insurer issues a binder -The issuance of a binder is the result of the acceptance of an offer. It does not obligate the insurer to continue coverage after underwriting rejects the risk.

All of the following are true statements, except:

When the insurer cancels a policy, the unearned premium is returned to the insured with a slight penalty (less than pro rata) -If the insurer cancels the policy, the return premium must be made on a pro rata basis.

Open peril policies

cover risks of direct physical loss, and the perils are not named.

The named perils

not covered are found in the Exclusions.