Unit 4 Basics of Property Insurance

An insured owns a $200,000 home and insures it for $100,000. If the insured's home was completely destroyed by a fire, how much money would the insurance company pay if the insured has a policy that requires a minimum of 80% coverage?

$100,000

An insured owns an office building valued at $200,000. He carries a deductible of $1,000. The building sustains a loss of $40,000. If the insurance policy carries an 80% coinsurance clause, how much coverage must the insured carry to ensure that the loss is paid in full?

$160,000 If a property is valued at $200,000 and the coinsurance clause is 80%, the policyholder must carry at least $160,000 of coverage to satisfy the coinsurance clause requirement.

When a small restaurant is damaged by a tornado, the owners are forced to close for 1 month while the property is repaired. The building suffers damages of $20,000. The owners estimate they will lose $50,000 in business receipts. To keep their staff, the owners must continue to pay salaries totaling $5,000. Ignoring any deductible, how much of the direct loss will the business-owners policy (BOP) pay?

$20,000 The rest of the damage is not a direct loss, it would indirect loss.

The insured had a covered loss in which the replacement cost of the item is $5,000; current market value is $4,500; depreciation is $2,000; and the repair cost is $3,500. How much will be paid on this claim if it is settled on an actual cash value basis?

$3,000

The insured has a home with a replacement cost of $200,000 but has insured it for only $100,000. An 80% coinsurance provision is present in the policy. When an $80,000 loss occurs, the policy will pay

$50,000 $100,000/$160,000 x $80,000= $50,000

The insured has a building with a replacement cost of $200,000 but has insured it for only $100,000. An 80% coinsurance provision is present in the policy. When an $80,000 loss occurs, the policy will pay

$50,000 $100,000/$160,000 x $80,000 = $50,000

The furniture Harold purchased 10 years ago was destroyed in a fire. The furniture cost $9,000 when new and has depreciated by $5,000. It would cost $12,000 to replace this furniture today. What is the actual cash value of Harold's destroyed furniture?

$7,000 $12,000- $5,000 = $7,000

The insured can collect lesser of: -_______ _________ -______ ______ -______ _____ _____ -____ __ _____ or ________ _____

-Insurable interest -Policy limits -Actual cash value -Cost to repair or replacement cost

Covered property: - __________ (scheduled) - detailed list of covered items -________ - no detailed list; single limit of coverage

-Specific -Blanket

What are the 3 different levels of coverage for property insurance?

1. Basic 2. Broad 3. Special

Classes of Construction 1. Class 1-______ (stucco, brick veneer) 2. Class 2-_______ _______ (concrete, brick, stone, tile) 3. Class 3-___________ (metal, asbestos, or gypsum) 4. Class 4- _____ _________ (roof and floor made of metal or other noncombustible materials) 5. Class 5- _______ ____ ________ (fire resistant for 2 hrs or less) 6. Class 6 ____ _________ (fire resistant for 2 hrs or more)

1. Frame 2. Joisted Masonry 3. Noncombustible 4. Masonry Noncombustible 5. Modified Fire Resistive 6. Fire Resistive

Property can be divided into two classes: 1. ____ ______- permanent structures and buildings 2. _____ ______ - furniture, appliances, clothing, tools, and other moveable property

1. Real property 2. Personal property

When the insurer and the insured cannot agree on the value of a loss, the matter is submitted to disinterested parties for resolution. Under a standard appraisal clause, how many parties are involved in determining the value of the loss?

3 The insured chooses 1 appraiser, and the insurance company chooses another. The 2 appraisers choose a third party, the umpire. (This only determines the value of the loss)

In a broad peril policy, burglary and accidental discharges of water are not covered if the building has been vacant for more than

60 consecutive days

Which of the following is NOT another name for an open peril policy? A) Named peril policy B) Special policy C) All risk policy D) Comprehensive coverage

A) Named peril policy

Which of the following statements about the appraisal condition is NOT correct? A) The insurer chooses an appraiser for each party B) The parties choose their own appraiser C) If the appraisers do not agree on loss, they submit the differences to an umpire. D) The two appraisers select an umpire

A) The insurer chooses an appraiser for each party

Which one of the following statements about the standard mortgage clause is CORRECT? A) The mortgagee may have to pay the premium if the insured fails to do so. B) The mortgagee has no rights under the policy C) The mortgagee is the only party that can submit claims under the policy. D) The mortgagee can only collect from the policy with the prior written consent of the policyowner.

A) The mortgagee may have to pay the premium if the insured fails to do.

Which of the following is NOT automatically covered under the basic form? A) Water B) Fire C) Lightning D) Internal explosion

A) Water

All of the following are property coverage forms EXCEPT A) base B) special C) basic D) broad

A) base

All of the following statements regarding appraisal are true EXCEPT A) the claimant selects the umpire B) either party may demand an appraisal of a loss C) the appraisers select the umpire D) each party pays its own appraiser and splits the cost of the umpire

A) the claimant selects the umpire

_______ ____ _____ is the amount of money required to pay for damage to, or loss of, property. It is determined by subtracting depreciation from current replacement cost.

Actual cash value (ACV)

_______ ______- value of loss is determined before the policy is issued

Agreed value

Adam has a blanket policy on his house. Which of the following best describes the items that are covered under this policy?

All of the contents in his house are covered

Which policy insures against all risks of direct physical loss except those specifically excluded in the policy?

An open peril policy

___________- disagreement about other areas of the loss.

Arbitration

______ _____ - Fire, lightning, and internal explosion -Extended coverage (WCSHAVVER): -Wind -Civil commotion -Smoke -Hail -Aircraft -Vehicles -Volcanic eruption -Explosion -Riot -Vandalism and Malicious Mischief (V&MM)

Basic Perils

Under a _______ policy, the entire insured amount applies to all locations, assuming the 90% coinsurance requirement is met. (The insured may move property from location to location without notifying the insurance carrier).

Blanket

Which of the following terms describes a single limit of insurance that applies to all items of that property type?

Blanket

An insured owns 4 stores. As inventory is sold, the insured transfers new inventory from the other locations to the store making the sales. Which type of policy would best fit this insured's needs?

Blanket policy

_____ ______ - All of basic perils - Plus BIG AFFECT: - Burglary damage - Ice, sleet, and snow (weight of) - Glass breakage - Accidental discharge of water - Freezing objects - Falling objects - Electrical current - Collapse - Tearing asunder

Broad perils

The policy limit is known as all of the following terms EXCEPT A) limit of insurance B) limit of coverage C) limit of responsibility D) limit of liability

C) limit of responsibility

The insured has a named peril policy that covers hail, fire, wind, and lightening. Which one of the following events would be covered? A) A roof that collapses from heavy snow. B) A window that is broken in a riot C) A rainstorm that causes the insured's basement to flood D) A roof that is damaged in an electrical storm

D) A roof that is damaged in an electrical storm

All of the following are insured in the broad perils coverage form EXCEPT A) weight of ice and snow B) burglar damage C) freezing of plumbing D) flooding from a river or lake

D) flooding from a river or lake

_____ ____ to property is physical damage to property that requires repair or replacement.

Direct loss

__________ ____________ - replace with modern construction

Functional replacement

Timothy has antique boat, and it was recently damaged while on a fishing trip. The insurance company agreed to repair the boat with less expensive, working materials. This is an example of which type of claim settlement?

Functional replacement cost

_______ ____ is a financial loss incurred as a result of direct damage to property.

Indirect loss In the case of business, this includes loss of profits, rent, and extra expenses necessary to keep the business operating after a direct loss.

Which of the following amounts is the maximum that an insurer will pay in case of a loss?

Limit of liability

____ _________ - how the insurance company determines appropriate amount of loss to be paid.

Loss Valuation

________ _____ - selling price; seldom used

Market value

______ _______ or ________ ______ coverage lists the perils or causes of loss insured against under the contract, such as lightning, fire, windstorm, hail, vandalism and other similar natural or man made losses.

Named peril or specified peril

Which peril policy insures a property against all perils specifically listed in the policy?

Named peril policy

_____ &___- value of the pair or set before the loss minus value of what remains

Pair and set

______ _ - Coverage for Damage to Your Auto of the PAP contains a no benefit to bailee provision. This provision states that a carrier or other bailee for hire, such as a parking garage, service station, or moving company will not directly or indirectly benefit from the PAP's insurance.

Part D

_______ _______ also known as the limit of coverage, limit of liability, or limit of insurance represents the maximum amount the insurance company will pay for a loss, listed on the declarations page.

Policy limit

Which of the following is an example of property that might be insured on a valued basis?

Rare painting (hard -to-value items)

Which of the following phrases best describes actual cash value?

Replacement cost minus depreciation

Which of the following is NOT covered by broad peril coverage?

Rhonda had ceiling damage in her basement after her upstairs faucet had been leaking for over 2 months

Renee has a policy that covers all risks of direct physical loss except for flooding because it is specifically excluded. Which coverage form does Renee most likely have?

Special (open) peril coverage

Which of the following coverages insures against all risks of direct physical loss that are not specifically excluded in the policy?

Special perils

_______ _____: - coverage insures all risks of direct physical loss unless they are specifically excluded. Examples of perils excluded: - Flooding - Earthquake - Intentional damage caused by an insured - Losses due to enforcement of building codes - damage caused by a power interruption occurring off premises - Government seizure

Special/Open Peril

________ or _________ policies are used for businesses whose values do not move from place to place. Each location is insured for a specific amount and, when property is moved to another location, an endorsement must be added to the policy to reflect those changing values.

Specific or scheduled

__________ ________ or ____ ________ ______ -Allows lender to pay premium -Lender entitled to receive notice if policy is to be canceled -Lender can file claim -Lender protected from negligent or dishonest acts of the insured -Lender only entitled to receive payment up to the amount of debt

Standard Mortgage or Loss Payable Clause

______ ________- insured up to this amount

Stated amount

Bernie and his insurer came up with a price value of his grandfather's baseball card collection that he now owns. If a loss occurs to this collection, what will be the amount that the insurer will pay?

The agreed value

Which of the following conditions is used to resolve other areas of disagreement besides value of loss between the insured and insurance company and is typically used before an insured seeks legal advice?

The arbitration condition

When a semi truck hit Greg's house, he and his family has to stay in a nearby hotel for two weeks while repairs were being made, The hotel bill came to $1,000, and the cost of food came to $415. What was the indirect loss

The hotel bill and cost of food

A building is ________ if no one is currently in it, but furnishings are present and the occupants intend to return.

Unoccupied

Which of the following terms describes a building in which no one is present but to which the occupants intend to return?

Unoccupied

Which of the following terms is used to describe an empty building that is not being used?

Vacant A building that is not currently in use and does not have enough furnishings to function in its normal capacity is considered vacant.

Which of the following perils is extended coverage insured by basic?

Wind

A financial loss resulting directly from a loss to property, such as a house fire or a diamond ring being stolen is called

a direct loss

An open peril policy is a type of contract that is sometimes called ___ ____, ________, or _________ _________

all risk, special, or comprehensive coverage

A policy under which the insured and insurer agree on the property value and list the value in the policy is known as

an agreed value policy

A business loses money because it was forced to close after a fire on the premises. This loss is describe as

an indirect loss

An all-risk or open perils policy protects against

any peril except those that are specifically excluded

A ___________ ______ requires a policyholder to carry insurance equal to a specified percentage of the total value of the property insured.

coinsurance clause

The amount of payment that comes into play when an insured fails to carry the sufficient amount of insurance is sometimes referred to as the

coinsurance penalty

Most losses are reimbursed on an actual cash value (ACV) basis. This is calculated by figuring the item's replacement value cost and subtracting the

depreciation

All of the following are examples of an indirect loss EXCEPT

living room furniture and artwork destroyed by a fire

An _____ ______ policy insures against all risks of direct physical loss except those specifically excluded in the policy.

open peril

____ _____- all risks of direct physical loss unless specifically excluded

open perils

A property that is vacant is described as having an absence of

people and property

A person's property can be divided into 2 classes: real property (buildings) and

personal property

The standard coinsurance clause provides that property must be insured for a specific percentage- usually 80% of its

replacement cost

A bailee is

someone who has taken temporary custody of another person's property (laundries, dry cleaners, warehouses, etc.) for a special purpose.

A ________ ________ clause is a policy provision specifying the rights and duties of the mortgagee under the policy.

standard mortgage

A parking valet at a hotel uses a guest's car to do a personal errand and damages the car in a collision. The guest has a personal auto policy (PAP). The insurance company will pay the claim and

subrogate against the parking valet

Actual cash value is the replacement cost of the property minus

the depreciation

An insured fails to pay his homeowners insurance premium. The mortgagee becomes aware of this fact and remits the premium to the insurance company. Shortly thereafter, the insured sets fire to his home in an attempt to receive payment for the loss. Any loss payment settlement would be made to

the mortgagee

There are 6 classes of construction that are recognized by underwriters. The class of the building is determined by the types of materials used in the building and

the roof of the insured structure

Which of the following terms specifies the rights and duties of the mortgagee under the policy?

the standard mortgage clause

The term that describes the absences of both people and property from the premises is

vacant