AD BANKER AL P&C CH 2 PROPERTY BASICS

It will cost Gary $5,000 to put a new roof on his home to replace a roof destroyed in a windstorm. Assume that the original roof, which Gary paid $3,500 for 10 years ago, depreciated $300 per year. What was the actual cash value of the roof that was destroyed? A. $2,000 B. $5,000 C. $3,000 D. $3,500

A. ACV-Actual Cash Value is: Current Replacement Cost LESS Depreciation. (R/C is $5,000) minus the (depreciated value of the existing roof is $300 x 10 years = $3,000) = $2,000 ACV.

Carl's home sustains $50,000 damage in an electrical fire. The home is insured under a Homeowners policy for $75,000. At the time of the loss, the home's replacement cost is $125,000. How much will Carl's Homeowners policy pay for this loss? A. $37,500 B. $93,750 C. $60,000 D. $50,000

A. Carl did not maintain the required 80% of the value of the home in coverage to qualify for full replacement cost. The value of the home at the time of loss was $125,000. 80% of $125,000 is $100,000. Had he maintained the required $100,000 (80%), he would simply receive the full payment of the claim. But since he had $75,000 in coverage at the time the loss occurred, he will be penalized for not maintaining the 80% required. Therefore, The amount of actual coverage;$75,000 is 3/4 or 75% of the $100,000 in coverage that he should of had, therefore he will only receive 75% of the amount of loss: $50,000 x 75% = $37,500.

When grease pops out and catches a kitchen on fire, it is considered to be a: A. Out of control fire B. Hostile fire C. Specific Fire D. Friendly fire

B. A Hostile fire is an unintended fire.

What is another name for an Indirect Loss? A. Excess Loss B. Consequential Loss C. Excessive Loss D. Additional Loss

B. Indirect losses are referred to as consequential losses.

Which of the following describes actual cash value? A. Replacement cost - depreciation B. Stated value - depreciation C. Replacement cost + depreciation D. Current replacement cost

A. Actual Cash Value (ACV) is determined by taking the property's current replacement cost and subtracting the depreciated value of the destroyed property.

An additional loss that results from a direct loss to property is called a/an: A. Indirect/consequential loss B. General loss C. Vicarious loss D. Absolute loss

A. An indirect loss occurs as a result of a direct loss. EXAMPLE: A fire on the premises causes a power outage and as a result, meat in a freezer spoils. The fire on the premises is the direct loss and the meat spoilage in the freezer is an indirect loss that occurs as a result of the direct loss.

Insurance binders are: A. Temporary or interim insuring agreements B. Valid for 30 days C. Required to be written D. Limited to personal lines risks

A. An insurance binder is considered to be an interim insuring agreement, which is basically a temporary policy. It may be oral or written and is generally valid for up to 90 days. It does not guarantee the issue of the policy and may be cancelled at anytime by the insurer.

What type of insurance policy insures against all risks of loss that are not specifically excluded by the policy? A. Open peril policy B. Special peril C. Content peril D. Named peril policy

A. Open peril covers any cause of loss that is not specifically excluded in the policy. Therefore it is also referred to as all risk coverage. Named peril specifically names the perils that are covered. There is no such thing as content peril or special peril.

Michael has taken his shoes to a shoe repair center. Michael has taken his shoes to a: A. Bailee B. Retail Shoe Store C. Bailor D. All of the answers listed

A. The Property stays with the Bailee. The Customer is the Bailor.

An unforeseen and unintended event that happens at a known time in a known place is defined as which of the following? A. Accident B. Proximate cause C. Occurrence D. Inherent Vice

A. This is the definition of an accident. Remember: All accidents are considered to be occurrences but not all occurrences are to be considered to be accidents. Accidents are unintentional.

When the insurance company chooses to broaden coverage with no increase in premium, the broadened coverage automatically applies to all existing policies without the need for an endorsement. The company is exercising which of the following? A. Liberalization clause B. Generosity clause C. Appraisal clause D. Non Endorsement clause

A. This is the definition of the Liberalization clause. The insurer has liberalized and broadened coverage out of the kindness of their heart.

In determining coverage under an Open Perils policy, the burden of proof is on which of the following? A. Insurance Company B. Insured C. Contractor D. Appraiser

A. When determining coverage under an open perils policy, the burden of proof is on the insurance company to prove whether or not an exclusion under the policy caused the damage. Named perils, the burden of proof is on the insured.

A building owner purchases a property policy in the amount of $60,000 on his $100,000 building. The contract contains an 80% coinsurance clause. If he suffers a covered loss of $10,000, how much will he receive in a settlement disregarding any deductible? A. $5,000 B. $7,500 C. $8,000 D. $10,000

B. 80% of $100,000 = $80,000. This is what the owner should have had at the time of loss. But the owner had $60,000. $60,000 over $80,000 = 6/8 or 3/4 which means the owner only maintained 3/4 of the amount of insurance he should have had. This means he will only receive 3/4 of the amount of loss. Loss of $10,000 x 3/4 = $7,500.

A binder: A. Can only be issued by the writing agent B. None of the answers listed C. Has a different effective date than the actual policy, once the policy is issued D. Guarantees that the policy will be issued within 30 days

B. A binder can be an oral or a written document. If its oral, the written binder is usually provided within a short period of time. The binder provides temporary insurance protection, usually for 90 days or until the policy is issued. The issued policy always has the same effective date as the binder. It does not guarantee the issue of the policy. The agent or the insurance company can issue the binder.

The purpose of a binder is to: A. Provide permanent protection immediately with no need to actually issue a policy B. Provide temporary protection for the insured between the time the application is made and the policy is issued or the binder expires C. Allow the insurance company the right to complete a full credit check on the applicant D. Guarantee that the policy will be issued at the premium rate specified

B. A binder is not a guarantee that the policy will be issued. It acts as the policy temporarily while the policy is being underwritten. It prevents the insured from being without coverage while the insurance company decides whether it will issue the policy.

An insured purchased new furniture for $6,000. At the time of a fire loss, it has depreciated $2,000. The same furniture will cost $7,000 to replace. What is the actual cash value of the destroyed furniture? A. $7,000 B. $5,000 C. None of the answers listed D. $6,000

B. Actual Cash Value (ACV) is determined by taking the property's current replacement cost and subtracting the depreciated value of the destroyed furniture. In this case the current replacement cost of $7,000 - $2,000 depreciated value = $5,000.

Carl's home sustains $50,000 damage in an electrical fire. The home is insured under a Homeowners policy for $75,000. At the time of the loss, the home's replacement cost is $125,000. How much will Carl's Homeowners policy pay for this loss? A. $50,000 B. $37,500 C. $60,000 D. $93,750

B. Carl did not maintain the required 80% of the value of the home in coverage to qualify for full replacement cost. The value of the home at the time of loss was $125,000. 80% of $125,000 is $100,000. Had he maintained the required $100,000 (80%), he would simply receive the full payment of the claim. But since he had $75,000 in coverage at the time the loss occurred, he will be penalized for not maintaining the 80% required. Therefore, The amount of actual coverage;$75,000 is 3/4 or 75% of the $100,000 in coverage that he should of had, therefore he will only receive 75% of the amount of loss: $50,000 x 75% = $37,500.

Who has the authority to cancel a policy? A. Neither answer listed B. Both answers listed C. Insurer D. Insured

B. Either one may cancel a policy.

The insured's home is covered by a DP-3. Two years ago, the insured bought the home for $58,000. Today, its replacement value is $60,000. How much Coverage A does the insured need to qualify for replacement cost coverage? A. $58,000 B. $48,000 C. $60,000 D. $45,000

B. For replacement cost coverage to apply the insured must have at least 80% of the homes replacement value in coverage at the time of loss. $60,000 X 80% = $48,000.

All of the following are 'your duties in the event of a loss', except: A. The insured should notify the police if a law has been broken B. The insured should seek legal council and file a law suit against the party that caused the claim C. The insured should protect damaged property from further loss and separate damaged property from undamaged property D. The insured should give prompt notice of the loss to the insurer

B. Legal action against the insurer or the claimant is not one of your duties after a loss. Providing prompt notice, notifying the police, protecting property from further loss are all considered to be the insured's duties in the event of a loss.

Which of the following describes the 'Loss Payment' condition regarding how long an insurer has to pay for a loss after receiving the proof of loss and having reached an agreement with the insured. A. Personal lines 30 days and Commercial lines 60 days B. Personal lines 60 days and Commercial lines 30 days C. Personal lines 90 days and Commercial lines 60 days D. Personal lines 60 days and Commercial lines 90 days

B. Once the insured has provided the proof of loss required after a loss, the insurance company must pay for the loss within 60 days for personal lines and 30 days for commercial lines.

Which of the following is a correct definition of coinsurance? A. A situation where there are 2 causes resulting in a loss and 1 cause is excluded while the other cause is not excluded B. A requirement that the insured carry insurance equal to a specified percentage of the property's value to qualify for replacement cost coverage under the policy C. The portion of the policy that both the insured and the insurer share in the loss, with the insurer bearing the greater potion of the loss D. A condition that permits the insurer to go after the party that caused the damage and seek recovery of some or all of the damages

B. The coinsurance condition encourages policyholders to insure property for a specified percentage of the full value of the property. If maintained and a loss occurs, the insured is usually allowed the replacement value of the destroyed property.

If a home has a mortgage, the lenders 'insurable interest' would be covered under which of the following policy conditions? A. Subrogation B. Mortgage Clause C. Appraisal D. Assignment

B. The condition that specifies and protects the mortgagee's (lender's) financial interests in the property is called the 'Mortgage Clause' condition.

Which of the following would NOT be found in the policy declarations page? A. A description of the property to be insured B. Insurers promise of protection C. A legal representative in the event of the insured's death D. Limits of insurance, deductibles, amount of premium

B. The insurers promise of protection would be found in the policy's Insuring Clause, not the Declarations. Remember, the Declarations describe the: Who, What, Where, When and How Much, parts of the policy. It is the policy cover page providing a quick overview of the policy.

An additional loss that results from a direct loss to property is called a/an: A. Punitive loss B. Proximate loss C. Indirect/consequential loss D. Liability loss

C. A consequential loss, Aka: Indirect Loss, is a secondary loss that occurs as a result of a direct loss. Example: A fire causes a power outage causing meat in a freezer to spoil. The meat would be a consequential (indirect) loss.

The action, which in a natural and continuous sequence, produces a loss is known as the: A. Direct cause B. Inherent cause C. Proximate cause D. Primary cause

C. A proximate cause is a cause that sets other causes in motion when multiple causes combine to produce loss or damage. EXAMPE: A fire that causes an explosion to occur. The fire was the proximate cause which caused the explosion to occur, causing the extensive damage.

Insurance binders are: A. Valid for 30 days B. Limited to personal lines risks C. Temporary or interim insuring agreements D. Required to be written

C. An insurance binder is considered to be an interim insuring agreement, which is basically a temporary policy. It may be oral or written and is generally valid for up to 90 days. It does not guarantee the issue of the policy and may be cancelled at anytime by the insurer.

If your barbeque pit begins to rust and fall apart or maybe a historic document turns yellow and fades away, these are both losses that would be excluded from coverage because they are considered to be predictable losses that are commonly called a(n): A. Proximate Cause B. Concurrent Causation C. Inherent Vice D. Concurrency

C. Inherent Vice is a condition or defect that exists within property itself that causes the property to spoil, break, destroy itself, decay, rust, yellow, etc. This is commonly excluded in property policies.

What type of policy would you purchase to provide coverage for everything that is not excluded? A. Broad Form B. Basic Form C. Special Form D. Named Form

C. Special Form is Always considered Open perils which covers anything that is not specifically excluded in the policy.

If an Insurer has paid for a loss and the item is recovered after the claim settlement. Which procedure is to be followed? A. Insurer must return the recovered item and allow the insured to retain the full claim settlement B. Insurer can choose to let the insured have the item back or keep the money C. Insured can choose to keep the item and return the money D. Insured must return the entire claim and retrieve the recovered item from the insurer

C. The Recovered Property Condition states: If the lost property is recovered by either the insured or the insurer. The insured ultimately is the one that chooses whether or not to keep the recovered item. If the insured chooses to keep the recovered item, the loss payment will be adjusted based upon the amount the insured received for the recovered property.

All of the following are parts of an insurance contract, except: A. Insuring Agreement B. Exclusions C. Indirect Loss D. Conditions

C. The policy structure acronym to remember is D.I.C.E. which consists of the following parts: Declarations, Insuring agreement, Conditions & Exclusions. Indirect loss is NOT part of the policy structure, it defines one of the types of property losses.

The insured has two separate Dwelling policies that cover the same property. Policy A for $30,000 and Policy B for $60,000. The insured has a $12,000 loss. If both policies use the pro rata method to handle other insurance, how much will Policy B pay for this loss? A. $0.00 B. $10,000 C. $8,000 D. $12,000

C. The total amount of coverage combined is $90,000. Policy A provides $30,000 of coverage which represents 1/3 of that total and Policy B provides $60,000 of coverage which represents 2/3 of that total. Therefore Policy B's pro rata share of the total loss would be 2/3 of $12,000 = $8,000.

Furniture that is destroyed when a building burns down is an example of what kind of loss? A. Additional B. Unexpected C. Direct D. Indirect

C. There are only two types of losses, Direct and Indirect. A direct loss results from loss to property. An indirect loss occurs as a result of the original direct loss. There is no such thing as additional or unexpected loss.

An insured may not transfer rights of ownership or interests in an insurance policy to another party: A. Without the insured's written consent B. Without the written consent of the policyowner C. Without the insurer's written consent D. Without the written demand by a court of law

C. This is describing the Assignment Condition; whereby an insured may not transfer rights of ownership or interests in a policy to another party without the insurer's written consent.

All of the following would normally be included with the insured's 'proof of loss' when being submitted to the insurer, EXCEPT: A. Any other insurance that may cover the loss B. Any appropriate receipts, evidence, or affidavits to support the loss C. A signed and authorized estimate by an approved contractor D. The time and cause of loss

C. When submitting proof of loss, the insured would be required to provide the time and cause of loss, indicate any other insurance that covers the loss, and submit receipts, evidence, or affidavits supporting the loss.

A short term proof of insurance coverage provided to an insured until a policy can be delivered is known as a(n) _______. A. Endorsement B. Proposal C. Application D. Binder

D. A Binder is basically a Temporary Insurance policy also known as an Interim Insuring Agreement. It is good for up to 90 days and may be written or oral.

Which of the following describes the process where disputed claims between insured's and insurer's are decided by a neutral third party without a jury trial? A. Subrogation B. Assignment C. Liberalization D. Arbitration

D. A process where disputed claims are decided by a neutral third party between an insured and an insurer. Commonly decided in a Judges chambers without a trial.

The action, which in a natural and continuous sequence, produces a loss is known as the: A. Inherent cause B. Direct cause C. Primary cause D. Proximate cause

D. A proximate cause is a cause that sets other causes in motion when multiple causes combine to produce loss or damage. EXAMPE: A fire that causes an explosion to occur. The fire was the proximate cause which caused the explosion to occur, causing the extensive damage.

All of the following are 'your duties in the event of a loss', except: A. The insured should give prompt notice of the loss to the insurer B. The insured should protect damaged property from further loss and separate damaged property from undamaged property C. The insured should notify the police if a law has been broken D. The insured should seek legal council and file a law suit against the party that caused the claim

D. Legal action against the insurer or the claimant is not one of your duties after a loss. Providing prompt notice, notifying the police, protecting property from further loss are all considered to be the insured's duties in the event of a loss.

What is the term used to describe an insurance company terminating an insurance relationship at the end of the policy period? A. Cancellation B. Reinstatement C. Grace Period D. Nonrenewal

D. Nonrenewal is the term used to describe an insurance company terminating an insurance contract at the end of the policy period.

What is the term used to describe an insurance company terminating an insurance relationship at the end of the policy period? A. Grace Period B. Cancellation C. Reinstatement D. Nonrenewal

D. Nonrenewal is the term used to describe an insurance company terminating an insurance contract at the end of the policy period.

Which part of the policy would you find the insurance company's promise to pay? A. Declarations B. Exclusions C. Conditions D. Insuring Agreement

D. The Insuring Agreement (Clause) is the part of the policy that describes the Insurer's Promise to Pay and the description of covered perils.

The condition that provides a means to settle the amount of a loss when the insured and the insurance company cannot agree is the: A. Cancellation condition B. Claim settlement condition C. Liberalization clause condition D. Appraisal condition

D. The appraisal condition states that either party may demand an appraisal. Each party selects an appraiser and if necessary they jointly hire an umpire. An agreement by any 2 of the 3 parties is binding and is considered settled. Each party pays for their own appraiser and both share the cost of the umpire. This condition is used to settle claims disputes.

Once an insurance company has restored the insured following a covered loss, which of the following has the right of salvage of the destroyed property? A. Neither answer B. Both answers C. Insured D. Insurer

D. The insurance company always retains the right of salvage. They may sell you the right but ultimately the right belongs to the insurer.