Ch2 Property Basic Q40
Stated Value
A valuation method that states the value of a particular property on the declarations page, but provides for the insurer to pay the lesser of the stated value or ACV of the property following a loss.
When filing a claim, the insured is required to do all of the following, except: A Hire an appraiser B Cooperate with the insurance company C Protect property from further damage D Give notice of loss as soon as possible
A. An appraisal is only necessary when the insured and insurer disagree in the amount of the loss.
Which of the following methods of writing insurance is used to provide insurance on properties at different locations, using a single policy, and a single limit of insurance? A Blanket B Listed C Unified D Scheduled
A. Blanket insurance covers more than one item of property on one policy for a single amount of insurance, which applies to each item as needed.
All of the following are included in the Declarations of a property policy, except: A The amount of premium B The perils insured against C The named insured's mailing address D The amount of coverage
B The perils insured against are listed in the Insuring Agreement.
Which statement is correct? A Most property policies include inherent vice as a covered peril B A spark that jumps from a fireplace and ignites a nearby rug would be deemed a hostile fire C Blanket coverage is commonly written when insuring property at a single location D Loss of profits resulting from a fire is a direct loss
B. A hostile fire is one that leaves the area in which it was intended to be kept.
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? A $200,000 B $140,000 C $100,000 D $70,000
B. Current replacement cost of $200,000 minus 30% depreciation = $140,000.
The standard policy structure for insurance policies includes all of the following sections, except: A Exclusions B Duties C Insuring Agreement D Conditions
B. The duties of the insured and the insurer are found in the policy Conditions.
Which type of construction material has a fire-resistance rating between one and two hours for walls, floors and roofs? A Joisted Masonry B Modified Fire Resistive C Noncombustible D Fire Resistive
B. To be classified Modified Fire Resistive, the materials used in the walls, floors, and roof of a structure must have a fire resistive rating of at least 1 hour, but less than 2 hours.
Liberalization Clause
If the insurer broadens coverage with no increase in premium, the coverage applies to existing policies automatically.
Burglary
The taking of property from inside the premises or a locked safe or vault by a person who commits forcible entry into, or exit from, the property of another while trespassing.
Robbery
The taking of property from the care and custody of a person who has been caused or threatened with bodily harm.
Named Peril
This type of property coverage only provides insurance for the causes of loss, or perils, listed. If a peril is not "named" in the policy, no coverage applies for loss or damage caused by that peril. Typical "named perils" are fire and theft. Named perils may contain coverage for up to 16 named perils; coverage for additional perils may be added by endorsement.
Open Peril (Special Form, All-Risk)
This type of property coverage provides insurance for all causes of loss that are not specifically excluded under the policy. Typical exclusions in an "open perils" policy are flood and earthquake.
Bailor
A person or organization that entrusts property to a bailee.
Endorsement
A policy form that alters or adds to the provisions of a property and casualty insurance contract.
Valued Policy
A policy that states the value of property as the amount shown on the Declarations page and will pay that full face value in the event of a total loss, regardless of the actual cash value.
Concurrent Causation
A principle holding that when two perils simultaneously cause a loss (i.e., they are both considered the proximate cause of loss), the insurer must pay the loss even if one of the perils is excluded by the policy.
Inherent Vice
A quality within property that causes it to damage or destroy itself. Examples include rust, rot and the fading of paint. Inherent vice is not covered by a property policy.
The loss of property when the cause of loss is not known is considered: A Robbery B Burglary C Mysterious disappearance D Theft
C. This is considered a mysterious disappearance.
Exclusions Perils that are NOT covered by the policy. Common property exclusions include
-Ordinance or Law E-arth movement -War -Water Perils that are NOT covered by the policy are listed in the exclusions section. Other perils may be excluded in provisions stated elsewhere in the policy (i.e., water damage, flood, sewer backup, etc.) -Utility failure that originates off-premises -Neglect of the insured to protect covered property from further loss -Intentional loss -Nuclear hazard, war, and military action -Governmental action -Fungus, wet rot, dry rot, and bacteria (e.g., mold)
Binder
A legal agreement issued by an insurance company or a producer that provides temporary proof of insurance until the insurer is able to issue an insurance policy. Binders are issued for specific time periods (maximum of 60 days) and automatically end when the policy is issued. Binders contain the name of the insurer, the amount and type of insurance, and the perils insured against.
Standardized Policy Structure
1. Declarations 2. Insuring Agreement 3. Conditions 4. Exclusions
Bailee
A person or any organization to which property has been entrusted, usually for repairs, servicing or storage. Because bailees are legally responsible for property in their care, property insurance policies specifically exclude coverage for property in the care of a bailee.
The assignment provision requires that: A The insured may not transfer ownership of the policy without the insurer's written permission B The naming of parties other than the insured on loss payment checks is prohibited C No requirements may be placed upon the insured without legal action D The insured must give prompt notice to the company upon loss
A If the insured wishes to assign the policy to another party, such as a new owner of the property, written permission of the company is necessary.
When property is valued on a replacement cost basis, losses will be paid: A At today's costs, without any deduction for depreciation B At an amount previously agreed upon by the insured and insurer C At the cost to replace with functionally equivalent property D At market value of the damaged property
A Replacement cost valuation pays the cost to replace property with property of like kind and quality, without a deduction for depreciation. Many property policies providing loss valuation at replacement value require covered property to be insured to a certain percentage of its replacement value, such as 80% or 90%.
Which of the following is not true about an insurance policy? A The Insuring Agreement includes the name of the insured B A deductible is a specified amount of loss that is retained by the insured C An application is a document that provides information for underwriting purposes D An insurance policy that pays before all other coverage is called primary coverage
A The Insuring Agreement contains the insurer's promises to the insured. The insured's name is found in the Declarations.
Unoccupancy
A building that contains personal property but has no people occupying it
Vacancy
A buildings that does not contain sufficient personal property to support intended occupancy or use
Hostile Fire
A fire that burns outside its intended boundaries, or becomes uncontrollable. Examples of a hostile fire include a wildfire or a fire that damages a home when a spark from a fire in the fireplace ignites a piece of furniture.
Friendly Fire
A fire that was intentionally set and stays within its intended boundaries (e.g., a fireplace) and results in smoke damage to the inside of a fireplace. Property insurance does not cover damage from a friendly fire.
In property and casualty insurance, when a form is attached to alter or add to policy provisions or conditions, it is known as: A An endorsement B A warranty C A consideration D An exclusion
A. Endorsements are used to modify a policy. They may be used to broaden or restrict coverage, or further define conditions.
Which of the following may broaden the coverage found in an insurance policy? A Endorsements B Conditions C Insuring Agreement D Declarations
A. Endorsements may be used to broaden, as well as restrict coverage set forth in the original policy.
The Insuring Agreement of a policy describes: A Perils that are covered B The duties of the insured in the event of a loss C Perils that are not covered D Transfer of the rights of recovery
A. The Insuring Agreement includes the perils insured against. The duties of the insured and the transfer of recovery rights (subrogation) would be included in the policy's Conditions. Excluded perils would be listed in the Exclusions section.
Which of the following is not a condition found in an insurance policy? A Insuring Agreement B Liberalization C Assignment D Subrogation
A. The Insuring Agreement is a Section of the policy, separate and distinct from the policy conditions.
Which provision specifies that no coverage applies if the loss benefits a person who has care, custody, or control of the insured's property? A No Benefit to Bailee B Appraisal C Assignment D Claim Settlement
A. The No Benefit To Bailee provision specifies that no coverage applies if loss payment benefits a bailee.
Which property insurance condition states that a suit may not be filed by the insured against the insurer under certain circumstances? A Legal Action Against Us B Ordinance or Law C Claim settlement D Loss Payment
A. Unless all terms of the policy have been complied with by the insured, the insured cannot file suit against the insurer. An insured cannot ignore his/her responsibilities under the policy, then subsequently bring legal action against the insurer.
Excess Insurance (in contrast to Primary Insurance)
Any form of insurance coverage that provides protection against certain perils or causes of loss ONLY after loss or damage exceeds a stated amount or the limits stated in specific policies or self-insurance. Excess insurance may be written over primary, excess, or umbrella insurance.
Which term describes the situation that occurs when two policies covering the same property contain different policy periods? A Blanket coverage B Nonconcurrency C Coinsurance D Concurrent causation
B A policy is nonconcurring with another policy when its policy period does not overlap exactly.
The part of an insurance policy that states where the risk is located is the: A The Conditions B Declarations C The Insuring Agreement D The Definitions
B The function of the Declarations is to apply the common policy to a specific insured and property. The risk location, therefore, is found in the Declarations.
All of the following are true regarding the structure of a property policy, except: A The bankruptcy condition does not relieve the insurer of its duties or obligations under the policy B The Exclusions itemize the perils not covered C The insured's duties in case of loss are found in the Insuring Agreement D The Declarations include the insured's name, policy period, policy limits and the amount of premium
C The Conditions list the general rules and duties in the event of a loss under the policy.
What is the term for a dwelling that is uninhabited, but has household furniture inside? A Vacant B Morale hazard C Unoccupied D Other Structure
C. A property that uninhabited, but contains personal property, is considered unoccupied. A property that is both unoccupied and has no personal property is considered vacant.
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 Actual Cash Value B Agreed Value C Functional Replacement Cost D Valued Policy
C. Functional Replacement Value represents the cost to replace property with other property that performs the same function with similar efficiency, although the replacement property is not identical to the property being replaced.
Which term describes coverage that applies only to loss by the perils stated in a policy? A Open peril B All risk C Named peril D Special Form
C. Named peril policies provide coverage for only the perils listed in the policy.
What is the correct term for a secondary loss that occurs as a result of a direct loss from a covered peril? A Provisional Loss B Delayed Loss C Consequential Loss D Secondary Loss
C. The direct loss to the property is the damage to the property caused by an insured peril. The indirect, or consequential loss is further financial loss that results from the loss of use of the damaged property.
Short Rate Cancellation
Cancellation of insurance in which the insurer retains a portion of unearned premium to cover costs
Flat Cancellation
Cancellation of insurance that is retroactive to the effective date of the policy and the insurer refunds the entire premium paid by the insured
Pro Rata Cancellation
Cancellation of insurance that refunds the unearned premium proportionately based on the number of days coverage was in effect
Which of the following is stated in the Insuring Agreement? A The Other Insurance provision B The perils excluded by the policy C The location of insured property and the named insured's mailing address D The perils insured against
D The Insuring Agreement states the insurance company's promise to pay the insured, including the exact perils insured against by the policy.
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 $250,000 B $240,000 C $300,000 D The policy limit
D. A total loss under a valued policy is payable based on the policy limit listed on the declarations page.
Which term describes the situation when two policies covering the same property contain different policy periods? A Concurrent causation B Blanket coverage C Coinsurance D Nonconcurrency
D. Nonconcurrency indicates the existence of two or more policies covering the same exposures that don't have the same policy periods.
All of the following statements regarding property insurance terminology are true, except: A Words, terms, or phrases that are described in an insurance policy are definitions B An insurance policy that pays only after primary coverage has been exhausted is said to be excess C A deductible is a specified amount of loss that is retained by the insured D Proximate cause is a secondary cause of loss
D. Proximate cause is the primary cause of loss, or the first event in the unbroken chain of events.
Which of the following is not found on the Declarations Page? A Insured property address B Expiration date of the policy C Limit of liability D Exclusions
D. The Declarations Page contains the information necessary to tailor the policy to the individual and property insured. The exclusions are found in the Exclusions section of the policy and coverage forms.
Which property condition requires the insurer broaden coverage during the policy period without an increase in premium? A Other Insurance B Appraisal C Assignment D Liberalization
D. The Liberalization Clause states that if the insurance company makes a change that broadens coverage under this edition of the policy without an additional premium charge, the change will automatically apply to this policy.
Concealment or Fraud
Specifies that coverage will not apply if an insured makes a material concealment, misrepresentation, or fraud in the application pertaining to the claim.
Arbitration
Process whereby a disputed claim is decided by a neutral third party. The disputing parties choose the impartial third party and agree in advance to accept the final decision of the arbitrator, who makes a decision after a hearing where both parties offer evidence.
What calculation is used to determine the actual cash value (ACV) of a loss?
Replacement cost - depreciation = ACV
Non Renewal
Termination of a policy at the expiration of its term.
Cancellation
Termination of an insurance policy before its expiration date
Salvage Value
The amount for which property can be sold at the end of its useful life. In property insurance, the salvage value is the scrap value of damaged property.
Theft
The broadest of the crime coverages, theft includes any act of stealing.
Actual Cash Value (ACV)
The cost to repair or replace property at its replacement value, minus depreciation.
Functional Replacement Value
The cost to replace property with other property that performs the same function with similar efficiency, although the replacement property is not identical to the property being replaced. This valuation method is typically used with older property (such as a Victorian home) for which the replacement value exceeds the insured's ability or willingness to purchase coverage.
Non-Concurrency/Non-Concurrent Policies
The existence of two or more policies covering the same exposures that don't have the same policy periods. Non-concurrency may create a coverage gap when underlying liability policies and an umbrella policy are non-concurrent because if an underlying liability policy exhausts its aggregate, it may violate the umbrella's underlying limits requirement.
Concurrency/Concurrent Policies
The existence of two or more policies covering the same exposures, having the same policy periods, and the same coverage triggers. For example, if an auto policy and an umbrella policy are written with the same policy dates, they are considered to be concurrent.
Agreed Value
The insurance company and insured agree to a specific value of a particular property before the policy is issued. If a total loss occurs, the insurer will pay the Agreed Value.
Assignment
The insured may not transfer rights of ownership without the insurer's prior written consent
Conditions
The insured's terms for cancellation, or the duties, such as the insured's duties in the event of a claim, are found in the Conditions section of the insurance policy.
Mysterious Disappearance
The loss of property when the cause of loss is not known. This is NOT theft, burglary, or robbery.
Right of Salvage
The right of the insurer to take possession of damaged property after paying for its loss. The salvage belongs to the insurer.
