Chapter 3 - Property Insurance Basics

A property purchased 10 years ago for $100,000 has a replacement value today of $200,000. It has depreciated 3% each year. What is today's actual cash value?

$140,000

C's home has a replacement value of $125,000, and C insures the home for $75,000. A fire causes $40,000 in damages to C's home. If C's insurance policy requires C to insure the home for at least 80% of its replacement value, how much will the insurer pay for the loss? A $0 B $30,000 C $10,000 D $40,000

$30,000 C would need to insure the home for $100,000 to meet the policy's coinsurance requirement. Because C carries only 75% of the insurance required by the coinsurance clause, the policy will pay for 75% of the loss, meaning this insurer will pay $30,000 of the $40,000 loss.

A blanket limit of insurance could apply to any of the following risks, except:

A Building and contents coverage for one building at a single location B Building coverage for multiple buildings at multiple locations C Building and contents coverage for multiple buildings at multiple locations D (correct) Building coverage for one building at a single location

All of the following are insured's duties after a loss under a property policy, except:

A Furnishing an inventory of damaged property B Submitting to the insurer's examination C (correct) Abandoning the property to the insurer D Giving prompt notice of loss

After a covered partial property loss, the insured must retain an amount of the loss, and that amount is subtracted from the insurer's claim payment. This amount is known as: A Coinsurance B A deductible C Self-insurance D Salvage

A deductible

Which statement about property insurance terminology is correct?

A spark that jumps from a fireplace and ignites a nearby rug would be deemed a hostile fire

After a covered partial property loss, the insured must retain an amount of the loss, and that amount is subtracted from the insurer's claim payment. This amount is known as: A Coinsurance B A deductible C Self-insurance D Salvage

Actual cash value basis

As required by the standard fire policy, property policies must use a loss valuation basis that is not more restrictive than:

Actual cash value basis

D does not agree with the insurance company's value of property damaged as a result of D's recent property loss. Which of the following conditions establishes the procedure D and the insurance company must use to settle this issue?

Appraisal

When property is valued on a replacement cost basis, losses will be paid:

At today's costs, without any deduction for depreciation

All of the following are insured's duties after a loss under a property policy, except: A Furnishing an inventory of damaged property B Abandoning the property to the insurer C Submitting to the insurer's examination D Giving prompt notice of loss

B Abandoning the property to the insurer

All of the following are methods of writing property insurance limits, except: A Concurrent coverage B Specific coverage C Blanket coverage D Scheduled coverage

Concurrent coverage

What is the correct term for a secondary loss that occurs as a result of a direct loss from a covered peril?

Consequential loss

A basic form property insurance policy protecting a building and its contents provides which of the following?

Coverage against limited named perils

Coverage provided by a standard property policy contains all of the following policy terms, except: A Coverage is provided for indirect losses that follow a direct physical loss B Coverage is provided for losses resulting from a quality of the property that causes it to destroy itself C When other property insurance applies to the same covered loss, the policies assume pro rata liability for claim payments D If an earthquake starts a fire that causes a loss, the fire damage is covered

Coverage is provided for losses resulting from a quality of the property that causes it to destroy itself

When firefighters extinguish a house fire with water, the water damage is considered a(n):

Direct loss

Which of the following statements best describes the Other Insurance condition on a standard property insurance policy, when two separate property policies provide coverage for the same loss?

Each policy pays its pro rata share of the loss

Which construction classification uses materials that can withstand fire for at least 2 hours? A Frame B Noncombustible C Fire-Resistive D Masonry

Fire-Resistive

When a property insurance policy states that damaged property will be replaced with other property that performs the same function with similar efficiency but is not identical to the damaged property, the policy is written on which of the following bases? A Functional replacement cost B Stated value C Guaranteed replacement cost D Actual cash value

Functional replacement cost

A lender who finances an auto loan could receive claim payments under which policy condition?

Loss Payable Clause

Construction material having a fire-resistance rating between 1 and 2 hours for walls, floors, and roofs is classified as: A Joisted Masonry B Noncombustible C Fire-Resistive D Modified Fire-Resistive

Modified Fire-Resistive

The loss of property when the cause of loss is not known is considered: A Mysterious disappearance B Robbery C Theft D Burglary

Mysterious disappearance

Which of the following is the best definition of actual cash value in property insurance? A Market value plus depreciation B Appraised value C Property replacement cost plus depreciation D Replacement cost minus depreciation

Replacement cost minus depreciation

H has a Homeowners policy with one limit of insurance indicated for coverage for the building and another limit indicated for coverage for personal property. H's policy is written using what kind of property insurance limit? A Blanket limit B Specific limit C Assigned limit D Scheduled limits

Scheduled limits

Property policies with an 80% coinsurance requirement usually require:

The insured to maintain insurance equal to 80% of the building's replacement cost

An insured has a pair of pearl earrings insured by a property policy. One of the earrings is lost, and the loss is covered by the policy. The claim payment from the insured will equal:

The lost value of the single earring, plus the lost value of the earrings as a pair

An insured owns a home with a replacement cost of $300,000 and a market value of $250,000. What is the most a valued policy will pay in the event of a total loss without a deductible? A $300,000 B The policy limit C $250,000 D $240,000

The policy limit

During a tornado, a factory is destroyed when the roof is blown off, causing electrical wires to short and start a fire, burning down the building. The proximate cause of the loss is: A Tornado B Fire C Rain and hail D Electrical wiring

Tornado