Chapter 14 - Quiz

The number of homeowners who do not have flood insurance is approximately:

85% (Percent)

Carolyn found a home that she can afford. It is not in a known flood plain, and she doesn't want to buy flood insurance since her mortgage lender doesn't require it. Her agent recommends she purchase flood insurance, because...?

All of these statements are true

When issuing homeowners insurance, companies look at many factors, and they evaluate what?

Both the person and the property to make sure they are a reasonable risk.

Which list below covers the three most common homeowner policy coverage areas?

Buildings, building contents, and medical coverage for people who are hurt on your property

Mortgage lenders generally require a policy that covers specific perils for structures and dwellings at full replacement value, without depreciation. However, they do not require coverage for...?

Content

Which federal agency oversees and manages the National Flood Insurance Program (NFIP)?

FEMA. FEMA is responsible for overseeing the NFIP.

Even if someone has flood insurance, not all flooding is covered, and exceptions include which of the following?

Flooding that happened as a result of another problem, such as a sewer backup that was not itself caused by flooding.

Why do some people have a record of multiple claims and not realize it?

If they make an inquiry to their insurance company, even if they don't file a claim, the insurance company can record it as a claim. Claims can add up due to the way insurance companies track them, often opening a claim even if the homeowner was only inquiring, then closing that claim so that it appears on the record. It's possible for someone who never filed a claim, but did call with many inquires that they didn't pursue, to end up with what appears to be several claims on their record.

Which of the following is true about a person's credit history?

It can affect whether they can get insurance or how much it might cost.

Why might a buyer make improvements on a property before the closing?

It can shift their qualification status if they use their credit cards and become ineligible for the loan they were approved for. Lenders qualify buyers based on their financial situation when they close on the property, and if they do something, such as running up more debt, they might not qualify for their loan.

Why might an attorney suggest a separate lease agreement for the buyers to move in early?

It could be easier to evict the buyers if their circumstances change.

What is the purpose of the Flood Insurance Rate Map, or FIRM?

It shows the flood hazard areas in a community as determined by FEMA.

Define "risk of loss."

It's when and under which conditions the responsibility for any loss on the property passes from the seller to the buyer. Risk of loss will explain if it is the responsibility of the buyer or the seller if anything happens.

What are the types of coverage offered by NFIP?

One that is specifically for the building and the other that is for items inside the building. NFIP offers two types of coverage, one for the building and the other for the items inside the building.

The number of insurance claims that are paid out to properties considered to be moderate or low risk is:

One-third of insurance claims.

What should consumers do in regard to flood insurance?

Only purchase flood insurance through an insurer who participates in the National Flood Insurance Program (NFIP). A consumer cannot purchase flood insurance directly from the National Flood Insurance Program (NFIP), but they should only purchase flood insurance through an insurer who participates in the National Flood Insurance Program (NFIP).

Most homeowners insurance policies cover specific events that fall into two different categories:

Perils and non-perils. Events may be classified as perils or non-perils. A perils event may include a fire or theft.

What are insurance companies in the business of?

Providing coverage for unlikely events. Insurance companies are in existence to provide coverage for unlikely events that might result in catastrophic loss, so that the individual will not have to bear the entire cost. In return, the insured pays regular premiums to have this coverage.

While explaining the differences in insurance options, Kelly tells a potential buyer that she has a homeowners policy that covers the total loss up to a maximum value. So, if her home is covered, the insurance company will...?

Reimburse her (or the mortgage company) the maximum amount listed in her policy, regardless of repair costs. The buyer will be covered up to the dollar amount specified in the policy.

A homeowner can potentially lower their flood insurance costs if they do which of the following?

Talk to their insurance agent about costs and options that might lessen the chances of flooding. The insurance agent would have information on what changes could be made to lessen the flooding potential and those changes could possibly lower insurance costs.

Lisa is a real estate agent who also helps clients lease single-family homes. She advises every potential tenant to purchase HO-4, also known as ............, because it is a perils content policy.

Tenant Coverage

Gene is showing homes to a first-time buyer in an area that is prone to floods. The client tells him he likes the houses, but he has already lost two homes to floods and doesn't think he will be able to afford insurance. Gene tells his client there is an option called the ............ specifically designed for his situation.

The Fair Access to Insurance Requirement (FAIR) program

Who works out the terms for possession when a property is sold?

The buyer and seller do it with advice from experts, which may include their real estate professional, their attorney, insurance agent, or more. Many things can go wrong when the buyer is in possession before closing, and a legally-binding agreement will clarify who is responsible for what.

How is the term risk, as it is used in the insurance industry, defined?

The odds that a specific thing will happen. Insurance companies evaluate the odds that a specific thing will happen to determine risk so they can calculate how much money they need to reserve to pay claims.

Christine is looking at an older home in a quiet neighborhood. She knows that it might be hard to repair or replace the dwelling if it was directly hit by a tornado or there was a fire. The best homeowner policy for her is probably an HO-8 policy specifically designed for older homes. Which statement most accurately gives an overview of the Older Home Coverage?

The plan doesn't cover water damage without an additional rider, but pays the actual cash value minus depreciation. The HO8 home insurance policy is normally used to insure older homes that would be extremely difficult to replace if destroyed. As a result, the HO8 policy normally insures your home at market value, or replacement cost. Market value can also be referred to as actual cash value.

If the buyer moves in early, what happens with the homeowners insurance?

The seller's homeowners policy would not cover these circumstances. Homeowners insurance is designed to cover the homeowners while they are living in the property.

If a property owner finds out their property is in a location with a high likelihood of flooding, what can they do?

There might be actions they can take to help reduce the likelihood of flooding, and possibly lower their insurance costs.

If the seller agrees to let the buyer move in early, it's best to do what?

They have a separate agreement drawn up by a legal advisor to spell out the terms.

What could happen if the seller has to take legal action to remove the buyer?

They might be unable to show or sell the property while the process goes on.

The seller allowed Charlie and Skylar to move in early; then their financing fell through, so now what happens?

They will need to move out, because the seller is still the owner of the property and will want to get it back on the market. Regardless of the lease agreement, if the buyer cannot complete the purchase, the seller still owns the property and will want to get it back on the market and sold as soon as possible.