Insurance Terms and Related Concepts

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.)

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 bv first is bodily injury to single person in an accident. (your insurance company will pay for $50,000 in bodily injury liability per person, $100,000 in bodily injury liability per accident, and $30,000 in property damage liability)

What is a deductible in an insurance policy?

A specified $ amount that the insured must pay before the insurer will pay the benefits

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?

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.

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

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

In property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit?

Deductible

A beauty parlor burns to the ground. What type of loss is this to the owner?

Direct

A beauty parlor burns to the ground. What type of loss is this to the owner?

Direct Loss because damage caused by a peril that is insured against is classified as direct loss.

It an insureds peril was the proximate cause of loss what type is it?

Direct loss

How are indirect and direct loss related?

Direct losses can cause indirect losses.

What is negligence?

Failure to act as a reasonable prudent person given the circumstances

Replacement cost is defined as

Full replacement of property at its current cost, new and without reduction for depreciation.

Conditions that increase the chance of a loss are known as what?

Hazards

What provision states that it a policy allows for greater benefits that finial loss incurred the insured may be compensated only for the amount lost?

Indemnity

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

An insured's business is damaged by a fire, and temporarily shut down for repairs. As a result, the insured suffers loss of income. What type of loss is the loss of income?

Indirect AKA consequential

What do individuals use to transfer their risk of loss to a larger group?

Insurance

All of the following are factors in the determination of actual cash value EXCEPT

Insurance premium paid.

All of the following statements describe the concept of strict liability EXCEPT

It is imposed on defendants engaged in hazardous activities.

What determines an insurers' responsibility for payment as stated in an insurance policy?

Limits of liability

Insurance is a contract that protects the insured from what?

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Loss

( insurance carried / insurance required ) x loss amount = ?

Loss payment

An insurer discovers that an applicant for a policy has submitted a fraudulent insurance claim in the past. What type of hazard does this represent?

Moral hazard

A person who does not lock the doors to their house is what type of hazard?

Morale hazard

Which of the following does the term proximate cause refer to?

Negligence that leads to an injury

Under absolute liability, does an injured party need to prove negligence?

No absolute liability exists when a condition or conduct is inherently dangerous so proof is NOT required

Losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected is the definition of which of the following terms?

Occurrence

What term describes a loss caused by continuous exposure to a condition?

Occurrence

A policy that covers all causes of loss except for those specifically excluded is known as what type of policy?

Open peril or special policy

What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy?

Open perils policy

The causes of loss insured against in an insurance policy are known as

PERILS

What sub-limit in a liability policy puts a ceiling on the payment for all claims that arise from a single accident?

Per occurrence

A tornado that destroys property would be an example of which of the following?

Peril

What is the term for the causes of a loss insured against in an insurance policy?

Peril

What term defines an exact direct and uninterrupted cause of loss?

Proximate cause

A situation in which a person can experience only a loss and no gain presents what type of risk?

Pure risk ( COVERED)

In property insurance, what is actual cash value?

Replacement cost at the time of loss, minus depreciation

In property insurance, actual cash value is defined as which of the following?

Replacement cost at the time of the loss, less depreciation

Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called

Specific coverage

Wagering on a sporting event is known as what type of risk?

Speculative risk ( NOT COVERED )

What type of limits of liability has the limits separately stated for different coverages?

Split limits

It a manufactured product is unsafe what of type of liability applies to the manufacturer?

Strict liability

The legal process that gives the insurer, after payment of a loss, the right to seek recovery from a third party that was responsible for the loss is known as

Subrogation

The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called

Subrogation

What provision found in policies prevents an insured from collecting 2x: once from insurer and again from 3rd party.

Subrogation

All of the following statements concerning coinsurance are true EXCEPT

The coinsurance formula will also be applied to total losses because In the event of a total loss, the coinsurance clause does not operate and the face amount of the policy is paid. The coinsurance clause supports that the insured agrees to maintain insurance equal to some specified percentage of the value of the property and if the insurance carried is less than required, the insurance may not cover the whole loss and It is used to help adequacy and equity in rates.

What law protects consumers from the circulation of inaccurate or obsolete information?

The fair credit reporting act

What is burglary?

The forced entry into another's premises with felonious intent.

In property insurance what is the purpose of a coinsurance clause?

To encourage insureds to insure property close to its actual value

Which of the following best expresses the purpose of a stated value contract?

To pre-establish the amount of coverage available for property items that are difficult to value, bc the value of the insured items is determined at the time the policy is written, not at the time of loss.

What does indemnify mean in insurance?

To restore an insured to the same financial status as before a loss

What is risk?

Uncertainty of loss

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

What is the difference between vacancy and unoccupancy?

Vacancy is when someone was been gone for more than 60 days and no property is stored. On occupancy has some property stored but one no live or works there.

Quiz Question

1-15 x2

What are the three types of hazards?

1. Physical 2. Moral 3. Morale

Which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur?

Aggregate limit of liability

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

Which of the following types of valuation works best for property whose value does not fluctuate much?

Agreed value

What is subrogation?

An insurer's legal right to seek damages from third parties after reimbursing insureds for a loss

Insurable interest in a property policy must be proven

At the time of loss.

In property insurance, when must insurable interest exist?

At the time of the loss

A policy that insures all property at multiple locations for a single amount is referred to as

Blanket coverage/policy

What type of policy insures all property at multiple locations for a single amount?

Blanket policy

Now is the ACV of a property calculated?

Current replacement cost minus depreciation

What are the two types of compensatory damages?

special damages and general damages

For the purpose of insurance, risk is defined as

the uncertainty or chance of loss

Both robbery and burglary can be considered what?

theft