Property & Casualty Insurance
Factors Affecting the Cost of Homeowners Coverage
Construction Location Policy Type Deductible Insurer
Actual Cash Value
Replacement Cost - Depreciation
Which of the following statements concerning liability coverage under the personal auto policy is CORRECT? I. The insureds under Part A: Liability Coverage include the named insured, spouse, resident relatives, and any other person using a covered auto with permission. II. Coverage does not include legal expenses incurred in defending the insured against a claim of liability.
The answer is I only. Under Part A, legal defense costs are paid in addition to the limit of liability. LO 2.3.1
Packaged Coverage
Combine coverage from the seven broad categories into a single package
Inland Marine Insurance
Personal property insurance ie Jewelry furs silverware guns art
A personal liability umbrella policy (PLUP) I. is written only for persons with substantial underlying liability insurance. II. provides additional coverage to the underlying policies. III. has a drop down limitation that will apply in most cases.
The answer is I, II, and III. All of these statements correctly describe a characteristic of the PLUP. LO 2.2.2
Comprehensive personal liability coverage (CPL) can be acquired in which of the following ways? I. as an endorsement to a personal auto policy (PAP). II. as an individual CPL policy. III. as part of a homeowners policy.
The answer is II and III. CPL coverage is not available through PAPs. LO 2.2.2
HO 4
renters insurance
HO15 Endorsement
upgrades HO3 personal property coverage on broad form policies to open perils-level coverage.
The basic Business Owner's Policy includes these 4 parts
Business Owner's Common Policy Conditions Business Owner's Property Coverage Business Owner's Causes of Loss and Exclusions Business Owner's Liability Coverage
Which of the following is a common property coverage that can be included in a businessowners policy (BOP)? A) General liability B) Inland marine C) Workers' compensation D) Professional liability
The answer is inland marine. Inland marine coverage is a property coverage, while the other answer choices provide liability coverage. LO 2.4.1
Packaged coverage starts with two sections
The common policy declarations form and the common policy conditions form
Employment Practices Liability Insurance
Protection against lawsuits dealing with wrongful termination, sexual harassment, and discrimination in the workplace
All of the following are exclusions from Coverage C: Personal Property of a Homeowners Policy except A) credit cards. B) animals, birds, and fish. C) jewelry. D) property of roomers or boarders.
The answer is jewelry. Jewelry is covered under Coverage C; however, coverage is typically limited to a maximum dollar amount of $1,500. The addition of an endorsement can increase the coverage limit for jewelry and other personal property items. LO 2.1.1
Which peril is NOT a named peril in an HO2, HO4, or HO6 policy? A. Flood B. Volcanic eruption C. Falling object D. Theft
A The answer is flood. Flood is not a named peril in a homeowners insurance policy. Homeowners within flood hazard areas are generally required to purchase flood insurance as a condition of obtaining a mortgage.
The five primary owner/driver factors of car insurance are as follows:
Age and sex of the driver Use of the vehicle Type of vehicle The driver's record Credit
EXAMPLE: Coinsurance penalty formula The insured's home would cost $400,000 to rebuild. Insurance on the home is $300,000 with a $1,000 deductible. A kitchen fire causes $20,000 in damage.
Amount of insurance, $300,000 ÷ $320,000 (amount of insurance required; arrived at by $400,000 × 80%) = 0.9375 × $20,000 = $18,750; $18,750 - $1,000 deductible = $17,750 to be paid by the insurance company.
Edward recently built a house with a replacement cost of $200,000 and an actual cash value (ACV) of $150,000. He purchased insurance on the house providing Coverage A protection of $150,000. The roof of Edward's house has been damaged by fire. The determination has been made that the roof was 25% depreciated and that the cost for full replacement will be $20,000. What amount will the insurance company pay for the loss? A. $18,750 B. $18,750 less the deductible C. $20,000 D. $20,000 less the deductibl
B The answer is $18,750 less the deductible. He did not carry insurance equal to at least 80% of the replacement cost of the dwelling. Specifically, the applicable computation is:
The Seven categories of coverage for businesses
Commercial property insurance Boiler and machinery insurance Transportation insurance Crime insurance Commercial liability insurance Commercial automobile insurance Workers' compensation and employer's liability insurance
All packaged products contain the following
Common Declarations form Common Policy Conditions form Common Conditions form Exclusions
Inland Marine Insurance
Covers personal property that may be travelled between locations Covers articles excluded or limited in homeowner's policies Jewelry, furs, silverware, art
Personal property is covered under all forms of homeowners policies. Which item is considered to be personal property as defined by the standard homeowners policy? A. A motorcycle B. A pet C. A credit card D. Borrowed property from a friend
D The answer is borrowed property from a friend. It is considered to be personal property and is covered. The other items are excluded from coverage in the standard homeowners policy without special endorsements.
Commercial Property Coverage forms
Defines the property to be insured and describe the additional coverages and coverage extensions that are applicable
Commercial Liability Insurance
Generally protect against non-automobile liability that does not involve injuries to employees Most carriers include crime coverage with their standard package, some automatically include surety coverage
Physical damage other than collision
Hail, falling tree limb, rock kicked up into windshield, etc. Will also include hitting an animal
Consequential Loss
Indirect losses that occur as a "consequence" of a direct loss. Includes Time-Element coverages, such as coverage for rental value. Loss of revenue due to accident
2 Forms of Professional Liability Insurance
Malpractice Insurance Omissions Insurance
Employer's liability insurance
May be needed to protect an employer against suits filed by employees
General Exclusions Homeowners forms contain eight general exclusions to the property insuring agreement.
Ordinance of Law Earth Movement Water Damage - External Power Failure Neglect War Intentional Loss
Commercial Package Policy CPP
Package of monoline forms that can be modified as needed by the individual company
Each personal auto policy has the following six parts:
Part A: Liability Coverage Part B: Medical Payments Coverage Part C: Uninsured Motorist Coverage Part D: Coverage for Damage to Your Auto Part E: Duties After an Accident or Loss Part F: General Provisions
Minimum Required Insurance Formula Coinsurance Requirement
Replacement Cost * Coinsurance %
Actual Cash Value
Replacement cost - Depreciation
Which of the following homeowners policies is designed for the owners of condominium units and cooperative apartments? A)HO-2 B)HO-6 C)HO-8 D)HO-4
The answer is HO-6. HO-6: Unit Owner Form (for Condominium Owners) covers the personal property of the insured for the same named perils listed in a HO-2 policy, except HO-6 insurance is for people residing in a condominium or cooperative apartment. This type of policy also provides liability protection. LO 2.1.1
Which of the following homeowners policies is designed for the owners of condominium units and cooperative apartments? A)HO-8 B)HO-4 C)HO-2 D)HO-6
The answer is HO-6. HO-6: Unit Owner Form (for Condominium Owners) covers the personal property of the insured for the same named perils listed in a HO-2 policy, except HO-6 insurance is for people residing in a condominium or cooperative apartment. This type of policy also provides liability protection. LO 2.1.1
John has been working for a large medical practice as a family practice physician and recently left to start his own practice. Which of the following should he purchase to protect himself from business-related liability risks? I. Malpractice insurance II. Errors and omissions insurance III. A businessowners policy (BOP) IV. A personal liability umbrella policy (PLUP)
The answer is I and III. As a medical professional, John would need malpractice insurance rather than errors and omissions insurance. A businessowners policy is also necessary, as he will be a businessowner and will have business-related liability risks typical to any other business, such as people falling on the premises. A PLUP specifically excludes business-related liability, as it is a personal policy rather than a business policy. John could probably benefit from a PLUP's protection, but it is not for business-related risks as the question asks. LO 2.4.2
Which of the following statements regarding Coverage E and Coverage F within a standard homeowners insurance policy is CORRECT? I. Medical payments coverage (Coverage F: Medical Payments to Others) will automatically pay for bodily injuries, regardless of fault, typically up to $1,000 per occurrence on or off the premises. II. Personal liability coverage (Coverage E: Personal Liability) protects the insured homeowner and all resident family members against personal liability for bodily injury and property damage that may occur on or off the premises due to negligence, up to $300,000 per occurrence. III. Coverage E may cover the insured for injuries or property damage caused while playing golf.
The answer is I and III. Coverage F is protection that will automatically pay for bodily injuries regardless of fault. In contrast, Coverage E only pays for bodily injury and property damage for which the insured is legally liable. If the insured causes damage to property or others while golfing, Coverage E will cover the insured up to the policy limit of $100,000. Also, Coverage E may cover the insured for injuries or property damage resulting from negligence while on the golf course. LO 2.2.2
Which of the following is covered under Coverage B: Other Structures of the HO-2, HO-3, and HO-8 homeowners forms? I. Structures attached to the dwelling II. Garages and other structures that are detached from the dwelling III. Land IV. Structures used for business purposes or those that are rented to anyone other than a tenant of the residence
The answer is II only. Structures attached to the dwelling are covered under Coverage A: Dwelling of the HO-2, HO-3, and HO-8 homeowners forms. Structures used for business purposes or those that are rented to anyone other than a tenant of the residence are not covered. An exception is made for the rental of a garage, which may be rented to anyone if used exclusively for garage purposes. LO 2.1.1
A client is shopping for homeowners insurance. He wants a policy that will provide open-perils coverage on both the dwelling and his personal property. Which of the following policies without an endorsement will meet his needs? I. HO-2 II. HO-3 III. HO-5
The answer is III only. The only policy that provides open-perils coverage on both the dwelling and personal property without an endorsement is an HO-5 policy. Coverage under an HO-2 policy provides named-perils coverage on both the dwelling and personal property. An HO-3 policy provides open-perils coverage on the dwelling but named-perils coverage on personal property. LO 2.1.1
Which of the following about a businessowners policy (BOP) is true? I. A BOP includes liability coverage only. II. There are six parts to a BOP. III. BOPs are a specific, standard package of coverage. IV. BOPs can be customized to a specific business.
The answer is IV only. A BOP includes both property and liability coverage and consists of four parts: common policy conditions, property coverage, causes of loss and exclusions, and liability coverage. BOPs are quite customizable so that the coverage a business needs can be added to the basic framework of the policy. LO 2.4.1
Which of the following is true for property coverage in a commercial package policy (CPP)? I. A CPP provides broader coverage but is a bit more expensive than a collection of monoline forms. II. No customization is allowed, as all potential risks are covered in the standard CPP. III. The standard CPP includes building, contents, and commercial automobile coverage. IV. The CPP is designed for larger businesses.
The answer is IV only. A CPP is a standard package of what used to be monoline forms offered at a discount. The standard CPP includes coverage for buildings, contents, and liability coverage. Additional coverage is available for things like commercial autos, glass, and specific, unique-to-the-business causes of loss. Thus, a CPP is customizable so it can accommodate many different businesses. The CPP is designed for larger businesses, while the business owner policy is designed for smaller businesses. LO 2.4.1
Which of the following statements regarding personal auto policy (PAP) Part B Medical Payments coverage is CORRECT? I. Part B of the PAP provides payment for the reasonable and necessary medical expenses of an insured as a result of an automobile accident. II. The insureds under Part B include the named insured, spouse, and any family members while they are occupying a motor vehicle, or when, as a pedestrian, they are struck by a vehicle.
The answer is both I and II. Part B: Medical Payments coverage provides payment for the reasonable and necessary medical expenses of the insured as a result of an automobile accident. Expenses must be incurred within three years of the incident, and limits are provided on a per-person, per-occurrence basis. Individuals covered by Part B include the named insured, spouse, and any family member while they are occupying a motor vehicle, or when, as a pedestrian, they are struck by a vehicle. LO 2.3.1
Which of the following statements regarding professional liability insurance is CORRECT? I. Professional liability insurance covers a wide variety of insurance policies for many occupations and protects against liability for failing to use the degree of skill expected of a person in a particular occupation. II. Professional liability insurance includes both medical malpractice insurance and errors and omissions insurance.
The answer is both I and II. Professional liability insurance covers a wide variety of insurance policies for many occupations and protects against liability for failing to use the degree of skill expected of a person in a particular occupation. Professional liability insurance includes both medical malpractice insurance and errors and omissions insurance. LO 2.4.2
Which of the following statements regarding malpractice insurance is CORRECT? A) Malpractice insurance policies exclude intentional acts of the professional from coverage. B) There is generally one standard form that is used for most professionals who need errors and omissions insurance. C) Professional liability insurance is a good alternative to an umbrella liability policy. D) Only a limited number of companies issue professional liability insurance policies.
The answer is only a limited number of companies issue professional liability insurance policies. Relatively few companies sell this product due to its highly specialized nature. The act for which a physician or dentist might be sued might well be the exact act the provider intended. The result may not be what the patient wanted, leading to a lawsuit. Thus, intentional acts are not excluded from malpractice insurance. There are generally different forms used for each type of professional under all forms of professional liability insurance. An umbrella policy may extend the limits of an underlying professional liability policy, but professional liability insurance does not replace an umbrella policy. LO 2.4.2
The following generally are considered to be insureds under a PAP:
The named insured, spouse, and resident relative(s) (e.g., children) Anyone allowed to drive the insured's covered auto Any person or organization legally responsible for any insured's use of a covered auto on behalf of that person or organization Any person or organization legally responsible for the named insured's or family members' use of any auto or trailer (other than a covered auto or one owned by that person or organization)
Inflation Guard Endorsement
This endorsement automatically increases the dwelling coverage each year by an amount that is usually tied to an index.
HO 15 Rider
When added to HO 3 form, provides opne peril coverage for personal property
2 Forms of Social Insurance
Worker's Compensation Insurance - Employers are liable for any injuries an employee receives on the job, regardless of the cause - Many states permit/require employers to obtain worker's compensation insurance - Not taxed Unemployment Compensation - Benefits are generally payable for 26 weeks from the time the individual loses a job - Fully taxable - Employer pays a tax under the Federal Unemployment Tax Act to fund the unemployment benefit to the employee
Exclusions From Liability Coverage
You cannot be liable to yourself. Property of the insured is not covered by the liability part of an auto policy. Nonpermissive users.
Maximum amount of recovery formula
[(Insurance carried / Insurance required) * Loss] - Deductible Not used if the insured carries atleast 80% of replacement cost
Broad Form coverage
adds additional perils to those covered under the HO1 form. this includes the 10 perils in basic coverage plus 7 additional perils: Falling objects Weight of ice, snow, or sleet Collapse of buildings Accidental discharge or overflow of water or steam Damage from artificially generated electrical currents Explosion of steam or hot water system Freezing of plumbing, heating and air conditioning systems, and domestic appliances
HO5 form
essentially combines the HO3 form with the HO15 endorsement to create one comprehensive form that provides open perils coverage on personal property as well as the dwelling, other structures, and loss of use. also added a number of changes and optional endorsements to homeowners insurance policy forms, including increased coverage amounts in many cases.
Basic Form coverage
includes 10 perils: Fire and lightning Windstorm and hail Explosion Riot and civil commotion Vehicles Aircraft Smoke Vandalism and malicious mischief Theft Volcanic eruption
Open Peril Coverage
includes coverage for all perils not specifically excluded in the homeowners contract. Most new homes are insured under open perils coverage.
Coverage C
insures general personal property (i.e., property not specifically named within the contract for provision of specific coverage)
Coverage B
insures other structures (referred to as "detached structures" in some policies) on the premises of the dwelling, such as unattached garages, fences, and sheds.
Coverage A
insures the dwelling, including additions or other structures attached to the building. also includes limited coverage on landscaping (trees, grass, shrubs) around the dwelling.
The HO8 policy form
often used for certain older homes. This form is typically used when the cost to actually replace the home exactly as it is far exceeds the home's current market value.
Coverage D
provides loss-of-use coverage, which includes expenses incurred while the dwelling is uninhabitable due to damage caused by a covered peril.