Chapter 24: Property Insurance

Homeowners 2 (HO-2)

Falling objects Weight of ice, snow or sleet Accidental discharge or overflow of water from plumbing systems Freezing of plumbing systems Electrical damage to appliances Rupture of water heaters and heating systems Accidental discharge or overflow of water from an automatic sprinkler system

What type of coverage is always excluded from homeowners' and tenants' policies?

Flood

Medical and Personal Limits

Generally, personal liability limits of $100,000 per occurrence and medical payments limits of $1,000 per person are sold to the public. A property owner can also purchase higher limits of liability for these two types of coverage.

Which policy covers condominiums?

HO-6

Insurance brokers

Have a primary obligation to the client - not the insurance company. By the nature of their existence, independent brokers place the client's interest first when negotiating coverage terms, assisting with claims and providing risk management advice. Insurance brokers may have the power to issue a policy or bind an insurance company to issue a policy - or they may not have that power. But once a broker finds a company that will issue a policy, whatever premium the policyholder pays to the broker is the same as if the owner had paid the premium to the insurance company directly.

As a rule, how is coverage for home computers usually handled?

Home computers used for personal use are subject to the limit available for personal property. Some companies may have a separate limit for the home computer. However, if they are used for business, the company will only pay up to $2,500.

What is the New York Property Insurance Underwriting Association and what does it do?

New York Property Insurance Underwriting Association is a pool of all insurance companies writing fire insurance in New York State. It offers fire and extended coverage, as well as coverage for vandalism, malicious mischief, and sprinkler leakage to consumers who are unable to purchase this type of insurance from individual insurance companies.

Coastal Market Assistance Program (C-MAP)

purpose is to assist homeowners living in New York's coastal areas obtain insurance for their homes

Workers' Compensation Insurance

state or federal plan that covers medical care and other benefits for employees who suffer accidental injury or become ill as a result of employment

The cost of homeowners' and tenants' insurance premiums

vary widely from company to company depending on factors such as location and the age of the building.

An __________________ primary obligation is to the client, not the insurance company.

insurance broker's

Sue purchased a homeowner's policy to cover 75% of its replacement value and then experienced a $13,000 loss by vandals. How much can Sue expect to receive from her insurance company to cover the loss?

$12,187.50

If Joe insures his home for 60% of its replacement value and suffers a $20,000 loss, how much will the insurance pay?

$15,000

If a property owner has a computer that is used for business purposes, what is the typical coverage limit in New York if the computer is stolen?

$2,500.

The typical coverage limit on the theft of guns with no special endorsement is

$2,500.

Homes in Brooklyn that are eligible for coverage under C-MAP must be located within ________ of the shore.

1 mile

Replacement cost coverage on a home's contents usually costs an additional

10% - 15%.

What is a Homeowners-3 policy?

A Homeowners-3 is a Special Form Policy and is the most widely-used homeowner's policy. This policy covers the owner's property for all risks of physical loss, except those that are specifically excluded, such as flood or earthquake.

What is the difference between a monoline insurance policy and a package policy?

A monoline policy contains only one type of coverage, such as liability insurance. A package policy includes several different types of coverage, such as property insurance AND liability insurance.

What type of policy would pay a homeowner for the full cost of the repair or replacement without deduction for depreciation?

A replacement cost policy which insures the home for at least 80% of its replacement cost.

Also known as market value, insurance companies prefer this type of coverage when reimbursing policyholders for their losses. It represents the dollar amount an owner could expect to receive for an item if he or she sold it in the marketplace.

Actual cash value

deductible

Amount you must pay before you begin receiving any benefits from your insurance company

Insurance companies

Can sell through independent agents Companies can also write insurance for their company-owned products directly, by using their own staff of employees, sales representatives, or the Internet. A property owner could contact an insurance company directly by phone, by mail, through the company website, or by visiting a company office in person.

What does Commercial General Liability (CGL) coverage do for businesses?

Commercial General Liability (CGL) coverage protects business organizations against liability claims for bodily injury, property damage, personal injury and advertising injury.

Commercial General Liability (CGL)

Coverage provides protection for some of the major liability exposures of a business. - bodily injury and property damage - personal injury and advertising liability - medical payments

How does the Homeowners-5 policy differ from the Homeowners-3 policy?

Homeowners-5 protects a home against the same perils as the HO-3 policy. However, it adds coverage for the owner's personal possessions for all risks of physical loss, except those risks that are specifically excluded.

Property insurance

If the property purchaser is getting a mortgage, the bank or other lending institution will require a safety net for their investment in the form of insurance.

Amount of Insurance Needed

In order to determine how much insurance a property owner will need, he or she must evaluate both the home and the personal property owned.

Which of the following would be covered under the liability portion of a homeowner's policy?

Injury of a person on the owner's property due to the negligence of the property owner or a member of the owner's family.

National Flood Insurance Program (NFIP)

Insurance coverage for losses resulting from floods is usually not provided in any of the previously-mentioned homeowners or tenants policies. Insurers are required to provide a one-time notice for newly-issued homeowner's policies advising that the policy does not cover flood and that flood insurance is available under separate policies.

package policy

Insurance policy that combines coverage from two or more types of insurance (such as property and liability) into one policy.

Monoline Policy

Insurance policy that provides one type of insurance coverage

Property insurance is protection for whom?

Insurance protects both the lender and the property owner in the event of an unforeseen occurrence.

List three factors that can influence the cost of insurance

LocationAge and type of buildingChoice of deductibles

Which of the following would NOT result in an insurance premium discount?

Lower deductible

Under what conditions can property owners purchase flood insurance through the NFIP?

Property owners can purchase flood insurance through the NFIP if they reside in a community which has been designated as a special flood hazard area which implements and enforces measures to reduce future flood risks.

What is meant by replacement cost?

Replacement cost means the cost to replace the property on the same premises with other property of comparable material and quality used for the same purpose.

Real Estate Agent's Role

The agent should explain the purpose and costs of property insurance to the buyer. The agent should explain the lender's interest in property insurance. The agent should explain the escrow of property insurance along with property taxes. The agent should explain when to obtain property insurance if the purchase is a cash sale.

If an HO-6 policy covers the contents of a condominium, how are the condo building and common areas covered?

The condo association must carry policies to cover those areas.

Replacement Cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.

How would a homeowner be reimbursed if he or she had an actual cash value policy?

The homeowner would receive an amount equal to the replacement cost minus any depreciation. It represents the dollar amount an owner could expect to receive for an item if he or she sold it in the marketplace.

If a homeowner installs hurricane or storm shutters, the law mandates

The insurer must offer coverage discounts.

Actual cash value (ACV)

The required amount to pay damages or for property loss, which is calculated based on the property's current replacement value minus depreciation.

Homeowners-5 (HO-5)

This Comprehensive Form Policy protects a home against the same perils as the HO-3 policy. In addition, the owner's personal possessions would also be covered for all risks of physical loss, except those risks that are specifically excluded. This extra protection may also be provided by purchasing a HO-3 policy with the "Special Personal Property" endorsement.

Homeowners-8 (HO-8)

This Market Value Policy is a modified version of the HO-1 policy, providing actual cash value coverage in place of replacement cost coverage for a building. Under no circumstances will the company's settlement figure exceed the amount necessary to repair or replace the dwelling. This policy form is generally used when the replacement value of the property exceeds its market value, as in the case of older homes.

Homeowners-3 (HO-3)

This Special Form Policy is the most widely-used homeowner's policy. It is becoming the standard homeowner's policy and many lenders recommend it. This policy covers the owner's property for all risks of physical loss, except those that are specifically excluded, such as flood, earthquake, war, nuclear accident, etc. The policy will give a complete listing of the excluded perils. Coverage for loss of the home's contents is also covered for many of the same perils for which the home is covered.

Homeowners-1 (HO-1)

This is a basic policy which insures the policyholder's home and contents against the perils (fire, storm, explosion, vandalism, etc) Very few insurers sell this type of policy. Most companies offer more comprehensive policies, such as the Homeowners-3, that include these and other perils.

How can a homeowner with a NYPIUA policy obtain liability coverage?

Through wrap-around coverage with another carrier

Independent agents

can represent a number of different insurance companies, thereby offering a wider choice of available products.

Home Day Care Coverage

endorsement to extend homeowners coverage to this type of business. The premium for this coverage is based on the number of children the insured cares for.

Due to _____________ the replacement cost of a home generally increases each year.

inflation

New York Property Insurance Underwriting Association (NYPIUA)

is a pool of all insurance companies writing fire insurance in New York State. It offers fire and extended coverage, as well as coverage for vandalism, malicious mischief, and sprinkler leakage to consumers who are unable to purchase this type of insurance from individual insurance companies. NYPIUA does not offer liability, flood, or theft coverage.

umbrella policy

is a type of liability insurance available to individuals and companies to protect them against claims above and beyond the amount covered by their primary policies or for claims not currently covered.

Liability insurance

is coverage to protect against claims alleging that one's negligence or inappropriate action resulted in bodily injury or property damage.

There is ______________ coverage under a homeowner's policy for day care activities which result from a mutual exchange of services (e.g. watching your neighbor's children while she runs errands).

limited liability