1. Property Insurance Terms and Related Concepts

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? 1. market value 2. actual cost value 3. replacement cost 4. functional replacement cost

1. market value

property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called: 1. described coverage 2. specific coverage 3. schedule coverage 4. blanket coverage

1. specific coverage

What term includes damage where the insured peril was the proximate cause of loss? 1. consequential loss 2. negligent loss 3. direct loss 4. indirect loss

3. direct loss

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? 1. combined single limit of liability 2. per occurrence limit of liability 3. split limit of liability 4. aggregate limit of liability

4. aggregate limit of liability

A building is insured, but no one has lived or worked in it for 10 years. The building is completely empty of any furniture or personal belongings. From an insurance standpoint, the building is considered: 1. unoccupied 2. condemned 3. closed 4. vacant

4. vacant

blanket insurance

a single property insurance policy that provides coverage for multiple classes of property at one location, or for one or more classes of property at multiple locations.

per occurence (accident)

a sublimit in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurence

vacancy

an insured structure in which no people have been living or working and no property has been stored for the period of time required as stated in the policy (usually 60 days)

two types of property losses that an individual or business are exposed to are:

1. direct loss 2. indirect loss

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? 1. law of large numbers 2. law of masses 3. law of averages 4. law of group evaluation

1. law of large numbers

A beauty parlor burns to the ground. What type of loss is this to the owner? 1. consecutive 2. direct 3. consequential 4. specific

2. direct

replacement cost is defined as: 1. payment of the full policy limits in the event of a total loss 2. full replacement of property at its current cost, new and without reduction for depreciation 3. the market value of property of like kind and quality 4. full replacement of property with like kind and quality, less an allowance for physical deterioration and depreciation

2. full replacement of property at its current cost, new and without reduction for depreciation

Liability imposed on one party as a result of the actions of another person is known as 1. comparative negligence 2. strict liability 3. absolute liability 4. vicarious liability

4. vicarious liability

direct losses

Direct, physical damage to buildings and/or personal property. also includes other damage where the insured peril was the proximate cause of loss

Unoccupancy (nonoccupancy)

Refers to an insured structure in which no people have been living or working within the required period of time, but some property is stored

open peril

The breadth of coverage provided under an insurance policy form that insures against any risk of loss that is not specifically excluded.

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. losses paid under coverages subject to aggregate limits reduce the amount available for future losses

deductible

a dollar amount an insured must pay on a claim before the insurance policy provides coverage coverage. a higher deductible amount usually lowers the amount of the premium

specific insurance

a property insurance policy that covers a specific kind of unit of property for a specific amount of insurance

combine single

a single dollar limit of liability applying to the total of damages for bodily injury and property damage combines, resulting from one accident or occurrence. the limit may be used in any combination of amounts, not to exceed the single limit

proximate cause

an act of event considered a natural and reasonably foreseeable cause of the damage or event that occurs and damages property or injures a plaintiff.

what type of policy are often written with split limits?

auto liability

An insured building catches fire. the fire department applied water to put out the fire, and the wall and floor coverings now have water damage. although water damage is not an insured peril, the damage is paid under the peril of fire because fire was the proximate cause. this is an example of what sort of loss?

direct loss

property insurance covers which type of loss?

direct loss

difference between vacancy and unoccupancy

if the insured moved, the house in vacant if the insured went on vacation for two weeks, the house is unoccupied

coinsurance clause

in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property (insurance to value carried / insurance required) X loss amount = loss payment

insurance to value provision

provides a replacement cost settlement to the policy holder who carries adequate insurance which means that the property is insured to the exact dollar amount or percentage of value value. if the amount of insurance is less than the value assumed in the premium rate calculation, the insured would still be indemnified at least to the amount of the actual cash value of the loss.

indirect/consequential losses

result of direct loss often result from the time it takes to repair or replace the damaged property

split limits

separately stated limits of liability for different coverages. the limits may be stated on a per person, per occurrence, or per policy period basis, or can be split between bodily injury and property damage.

named peril

the breadth of coverage provided under an insurance policy form that lists specific covered perils. no coverage is provided for unlisted perils

common types of indirect loss

the extra living expense homeowners incur while their insured home is being repair the profits a business misses out on when they have to close down until the building is repaired

limits of liability

the insurers liability for payment as stated in an insurance policy the maximum amount of money the insurance company will pay for a particular loss, or for loss during a period of time

True or False: you can add insurance coverage to protect against indirect losses.

true

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 1. subrogation 2. adverse selection 3. right of rescission 4. principle of indemnity

1. subrogation

Which of the following best expresses the purpose of a stated value contract? 1. to pre-establish the amount of coverage available for property items that are difficult to value 2. to ensure the principle of indemnification applies 3. to establish the value of property subject to loss by theft or robbery 4. to provide a maximum limit for which the insurance company may become liable in casualty losses

1. to pre-establish the amount of coverage available for property items that are difficult to value

what type of liability would a person who owns a swimming pool have? 1. direct 2. absolute 3. vicarious 4. implied

2. absolute

With respect to the business of insurance, a hazard is: 1. the basic reason for an insured to purchase insurance 2. any condition or exposure that increases the possibility of loss 3. the risk taken when performing something dangerous 4. the tendency of poorer risks to seek insurance more often than better risks

2. any condition or exposure that increases the possibility of loss

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? 1. per occurrence 2. combined single 3. split 4. aggregate

2. combined single

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? 1. reasonable expectations 2. indemnity 3. stop-loss 4. consideration

2. indemnity

two types of peril

1. named peril 2. special (open) peril

If a liability policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person? 1. $30,000 2. $50,000 3. $100,000 4. $180,000

2. $50,000

example of split limits

25/50/25 would indicate that the policy would pay up to $25,000 for the injury of a single person; up to $50,000 for bodily injury to two or more people (but not more than $25,000 to any one person); and up to $25,000 for damage to property of others

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? 1. $1,000 2. $4,000 3. $5,000 4. $6,000

3. $5,000

an insurance policy specifies that it will pay $600 for a specific loss. the policyowner suffers a loss of $535. How much will the policy pay? 1. $300 2. $500 3. $535 4. $600

3. $535

which of the following definitions best defines the term "accident"? 1. physical damage to tangible property of others cause by the negligence of an insured. 2. the negligent or purposeful act or omission by an insured that results in physical trauma or death to a person 3. a sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended. 4. injury to the character of another person caused by libel, slander, false arrest, invasion of privacy and other acts.

3. a sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended.

which of the following policies does not contain an automatic reinstatement provision? 1. personal automobile liability with split limits 2. homeowners 3. general liability written with an aggregate limit 4. business automobile liability

3. general liability written with an aggregate limit

an insured has a liability policy that sets the amount for all claims that arise from a single incident a $50,000. which type of limit of liability does this insured's policy have? 1. aggregate 2. split 3. per occurrence 4. per person

3. per occurrence

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: 1. actual cash value 2. specific insurance 3. stated amount 4. replacement cost

3. stated amount

three years ago, an insured moved to an unfurnished apartment. she bought new furniture that cost $9,000. Last week there was a fire in the apartment that destroyed the furniture. Replacement cost is $10,500. The adjuster told the insured that her furniture depreciated $2,500. If insurance is written on an actual cash value basis, how much will it pay for the loss? 1. $9,000 2. $10,500 3. $6,500 4. $8,000

4. $8,000

Which method of loss valuation is contrary to the basic concept of indemnity? 1. functional replacement cost 2. market value 3. agreed value 4. replacement cost

4. replacement cost

The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called 1. consent to settle loss 2. right of salvage 3. appraisal 4. subrogation

4. subrogation

When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be: 1. the direct cause 2. strict liability 3. an intervening cause 4. the proximate cause

4. the proximate cause

for the purpose of insurance, risk is defined as: 1. the certainty of loss 2. the cause of loss 3. an event that increases the amount of loss 4. the uncertainty or chance of loss

4. the uncertainty or chance of loss