chapter 1
agreed value
A property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written.
combined single
A single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence.
per occurrence
A sublimit in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurrence
insurance policy
a contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
proximate cause
a direct chain of events resulting from a negligent act causes injury or damage
implied warranty
a legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary buyer's expectations
actual cash value
a loss valuation method used in many property forms is determined by today's replacement cost minus depreciation for age and obsolescence
a tornado that destroys property would be an example of
a peril
a tornado that destroys property would be an example of which of the following
a peril
Named Peril vs. Special (Open) Peril
a peril is a specific cause of loss named peril: property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils - specific event open peril: coverage provided under an insurance policy form that insures against any risk of loss that is not specifically excluded
strict liability
a person or business that manufactures or sell a product makes an implied warranty that the product is safe
what is the purpose of the coinsurance clause found in property insurance policies
encourage the insured to insure the property closer to its full value
what is the purpose of the coinsurance clause found in property insurance policies?
encourage the insured to insure the property closer to its full value
a situation in which a person can only lose or have no change represents
pure risk
depreciation
reduction in value, particularly due to wear and tear
moral hazards
refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer
morale hazard
refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of the existence of insurance (i'm not going to bother fixing this. if it breaks, my insurance will pay to replace it)
Which method of loss valuation is contrary to the basic concept of indemnity?
replacement cost
in property insurance, actual cash value is defined as which of the following
replacement cost at the time of loss, less depreciation
loss valuation
A factor in determining the premium charged and the amount of insurance required.
a $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage; the owner has a policy with $60,000 coverage. how much can the owner collect for his loss?
$30,000 For the total amount of a partial loss to be paid, a house must be insured for at least 80% of its value on the date of loss. In this case, because the house is insured for only $60,000 (75% of the minimum requirement), the policy will only pay 75% of the loss, or $30,000.
An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?
$30,000 The insured only carried 75% of the amount of insurance he had agreed to carry ($120,000 of the agreed $160,000), so the insurer will pay only 75% of the loss, or $30,000. If the insured had carried the required amount of insurance, partial losses would be paid in full. In the event of a total loss, the face of the policy would be paid. If the full amount is not carried, divide the actual amount carried by the amount that should be carried (the coinsurance amount), and multiply it by the loss.
An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices. If the roof has been depreciating at $200 per year and his policy is ACV, how much will it pay toward the insured's new roof?
$5,000 current replacement cost - depreciation = actual cash value 200x5=1,000 6,000-1,000=5,000
accident vs occurrence
* Accident - sudden, unplanned and unexpected event resulting in injury or damage * Occurrence - includes losses caused by continuous or repeated exposure to conditions resulting from injury or property damage
an insured owns a building that is valued at $400,000. to comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?
80% of the property's replacement cost or more
blanket vs specific coverage
Blanket insurance is a single property insurance policy that provides coverage for multiple classes of property at one or more locations. All insured properties are written for one total amount of insurance and no single item is assigned a specific amount of insurance Specific insurance is a property insurance policy that covers a specific kind or unit of property for a specific amount of insurance
hazard
Conditions or situations that increase the probability of an insured loss occurring.
replacement cost is defined as
Full replacement of property at its current cost, new and without reduction for depreciation.
vicarious liability
Legal responsibility placed on one person for the acts of another.
peril is most easily defined as
The cause of loss insured against
replacement cost
The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.
per person
The maximum amount available for payment of bodily injury to a single person in an accident, regardless of the policy limit stated in the policy for bodily injury claims.
aggregate limit
The maximum limit of coverage available under a liability policy during a policy year regardless of the number of claims that may be made or the number of accidents that may occur.
What type of liability would a person who owns wild animals have?
absolute liability
which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur?
aggregate limit
in which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation
agreed value
which of the following types of valuation works best for property whose value does not fluctuate much?
agreed value
stated value
amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss
physical hazards
are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it
insurable interest in a property policy must be proven
at the time of loss
a policy that insures all property at multiple locations for a single amount is referred to as
blanket
a policy that insures all property at multiple locations for a single amount is referred to as
blanket coverage
peril
cause of loss insured against an insurance policy
An insured is driving her car through a residential area when she loses control and crashes into a neighbor's front porch. The neighbor, who was sitting on the porch, is injured. The insured's liability policy has a limit of $500,000. This amount applies to the total of damages for any bodily injury and property damage resulting from one accident. Which type of limit of liability does the insured have?
combined single
An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this?
consequential also known as indirect loss, is a second financial loss caused by a covered direct loss
An insured's business is damaged by a fire, and he is forced to close the business temporarily for repairs. as a result, the insured lost income. what type of loss is this?
consequential loss
in property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit?
deductible
obsolescence
depreciation in the value of a property due to becoming outdated
A beauty parlor burns to the ground. What type of loss is this to the owner?
direct loss
What term includes damage where the insured peril was the proximate cause of loss?
direct loss
which term includes damage where the insured peril was the proximate cause of loss?
direct loss
direct and indirect
direct: mean physical damage to buildings and/or personal property indirect: losses considered as a result of the direct loss
absolute liability
imposed upon a person or company engaged in hazardous or potentially dangerous business who, by negligence or by an omission, causes harm or injury to another person or property type of liability that would have wild animals
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
indemnity
An additional loss that results from a direct loss of property is called a/an
indirect loss
pure
insurable because it involves a chance of loss only
to purchase insurance, the policy owner must have financial interest in the property being insured. this is known as
insurable interest
casualty insurance
insures against the loss and/or damage of property and resulting liabilities
property insurance
insures against the loss of physical property or the loss of its income-producing abilities
deductible
is a dollar amount an insured must pay on a claim before the insurance policy provides coverage
indemnity
is a provision in an insurance policy that states that in the event of the loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially b/c of the existence of an insurance contract
market value
is a seldom-used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss
stated amount
is the amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss
subrogation
is the insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss is based on the principle of indemnity by preventing the insured from collecting on the loss twice: once from the insurer and a second time from the party that caused the damage
all of the following statements describe strict liability EXCEPT
it is imposed on defendants engaged in hazardous activities
which of the following coverages in dwelling and homeowners policies is for indirect losses?
loss of use
the process of determining the premium charged and how much insurance is required for a particular loss is called
loss valuation
The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?
market value
insurable interest
must exist at the time of loss 3 elements financial, blood, business
which of the following does the term proximate cause refer to?
negligence that leads to an injury
speculative
not insurable because it involves a change of gain gambling
Losses caused by continuous or repeated exposure to conditions resulting in injury persons or damage to property that is neither intended nor expected is the definition of which of the following terms?
occurrence
what type of insurance policy insures against all risks of loss that are not specifically excluded by the policy?
open peril policy
an insured has liability policy that sets the amount for all claims that arise from a single incident at $50,000. which type oof limit of liability does this insured's policy have?
per occurence
direct loss
physical damage to buildings and/or personal property. also includes other damage where the insured peril was the proximate cause of loss
blanket coverage
provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss no single item is assigned to a specific amount of insurance. however, different amounts of insurance may be shown for buildings in general and contents in general
In case of a loss, the indemnity provision in insurance policies
restores an insured person to the same financial state as before the loss
split limits
separate limits for bodily injury and property damage liability coverage
per occurence
sets the amount for all claims that arise from a single incident at a claim number
property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called
specific coverage
an insured owns several buildings, each at a different location and insured on a separate policy. what type of coverage does the insured have?
specific insurance
a property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method?
stated amount
When the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as
stated amount determined at the time the policy is written. in the event of a loss, that amount is paid without regard to any coinsurance provision.
coinsurance and insurance to value
states that, in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property encourages the insured to insure the property closer to its full value. partial loss, the insurer will pay the partial loss in full if the insured has maintained the required percentage of insurance with relation to the value of the property
The legal process that gives the insurer, after payment of a loss, the right to seek recovery from a third party that was responsible for the loss is known as
subrogation
the policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called
subrogation
exposure
susceptibility to risk
all of the following statements concerning coinsurance are true EXCEPT
the coinsurance formula will also be applied to total losses
insurer
the company who issues an insurance policy
salvage value
the estimated value of a fixed asset at the end of its useful life car doesn't work anymore but the metal does
negligence
the failure to use the care that a reasonable, prudent person would under the same or similar circumstances
limits of liability
the insurers liability for payment as stated in an insurance policy
law of large numbers
the larger the number of people with a similar exposure to loss is more predictable of future loss
premium
the money paid to the insurance company for the insurance policy
When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be
the proximate cause
which of the following best expresses the purpose of a stated value contract?
to pre-establish the amount of coverage available for property items that are difficult to value
factors of the determination for actual cash value
type and quality of property age of the property replacement cost
An insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some of furniture and clothes in the house. From an insurance standpoint, the insured's house is considered
unoccupied
An insured's 9-year-old son threw a ball, accidentally breaking a neighbor's plate glass window. The insured was found legally liable for the cost of replacing the window. This is an example of
vicarious liability
agreed value
works best for items whose value does not fluctuate much. when a loss occurs, the policy pays the agreed value as specified on the policy schedule, regardless of the insured item's appreciation or depreciation.