Chapter 10

Question 1

what are the basic parts of an insurance contract?

Answer 1

• declarations
• definitions
• insuring agreement
• exclusions
• conditions
• miscellaneous provisions

Question 2

what are declarations?

Answer 2

statements that provide information about the particular property or activity to be insured

Question 3

what is on a declarations page?

Answer 3

• name of address of insurer
• name and address of insured
• insured property location
• policy period
• amounts of insurance
• premium
• deductible
• other relevant information

Question 4

what words refer to the insurer?

Answer 4

“we”, “us”, “our”

Question 5

what words refer to the insured?

Answer 5

“you” and “your”

Question 6

what is an insuring agreement?

Answer 6

summary of the major promises of the insurer (what the policy covers)

Question 7

what are named perils?

Answer 7

only those perils specifically named in the policy are covered

Question 8

what are open perils?

Answer 8

all perils are covered except for those that are specifically excluded

Question 9

what type of peril is better under an insuring agreement?

Answer 9

open perils

Question 10

what are exclusions?

Answer 10

perils or property that are not covered under the policy

Question 11

what are examples of exclusions?

Answer 11

flood/earthquake, war, intentional loss, certain types of property

Question 12

when are exclusions necessary?

Answer 12

• certain perils are considered uninsurable
• presence of extraordinary hazards
• coverage provided by other contracts
• moral hazard
• attitudinal hazard
• coverage not needed by typical insureds

Question 13

what are conditions?

Answer 13

provisions in the policy that qualify or place limitations on the insurer’s promise to perform

Question 14

what are examples of conditions?

Answer 14

• prompt notification of loss
• protect property from further loss

Question 15

what are some miscellaneous provisions?

Answer 15

• states have mandatory provisions
• notice of cancellation
• notice of nonrenewal
• notice of loss
• mortgage clause

Question 16

what are the types of insureds?

Answer 16

• named insured
• first named insured
• other insureds
• additional insureds

Question 17

what are named insureds?

Answer 17

the person or party named on the Declarations page on the policy

Question 18

what are first named insureds?

Answer 18

has certain additional rights and responsibilities that do not apply to other named insureds

Question 19

what are other insureds?

Answer 19

persons or parties who are insured under the policy even though they are not specifically named

Question 20

what are additional insureds?

Answer 20

person or party added to the policy by an endorsement

Question 21

what are endorsements and riders?

Answer 21

provisions that add to, delete from or modify the original policy terms

Question 22

what are examples of endorsements and riders?

Answer 22

-negotiate coverage enhancements, specific exclusions

Question 23

what is a deductible?

Answer 23

a provision by which a specified amount is subtracted from the total loss payment that would otherwise be payable

Question 24

what do deductibles do?

Answer 24

• eliminate small claims
• reduce premiums
• reduce moral and morale (attitudinal) hazard

Question 25

what is the formula for pure premium?

Answer 25

pure premium = frequency * severity

Question 26

what is a straight deductible?

Answer 26

the amount the insured is responsible for per loss before the insurer pays anything

Question 27

what is aggregate deductible?

Answer 27

the amount the insured is responsible for in total (over all losses during the policy period) before the insurer pays anything

Question 28

what is elimination (waiting) period?

Answer 28

stated period of time at the beginning of a loss during which no insurance benefits are paid

Question 29

what is common in disability insurance and typically cannot be collected until you have been out of work for 30, 60, or 90 days?

Answer 29

elimination (waiting) period

Question 30

what is coinsurance in property insurance ?

Answer 30

encourages the insured to insure property to a stated percentage of its insurable value

Question 31

what happens if coinsurance requirement is not met at the time of loss ?

Answer 31

the insured must share the loss (as a coinsurer)

Question 32

what is the amount of recovery formula?

Answer 32

amount of recovery = (amount of insurance carried/ amount of insurance required)* loss

Question 33

what is coinsurance in health insurance?

Answer 33

provision that requires the insured to pay a specified percentage of covered medical expenses AFTER the deductible is met

Question 34

what reduces premiums and precent over utilization of policy benefits?

Answer 34

coinsurance in health insurance

Question 35

what are other insurance provisions?

Answer 35

provisions for when multiple insurance policies apply

Question 36

what prevents the insured from profiting from a loss?

Answer 36

other insurance provisions

Question 37

what is pro rata liability?

Answer 37

Each insurer’s share of a loss is based on the proportion that its insurance bears to the total amount of insurance on the property

Question 38

what is contribution by equal shares?

Answer 38

Each insurer shares equally in the loss until the share paid by each insurer equals the lowest limit of liability under any policy, or until the full amount of the loss is paid

Question 39

what is primary and excess insurance?

Answer 39

primary insurer pays first and the excess insurer pays only after the policy limits under the primary policy are exhausted

Question 40

what is an example of coverage over primary liability policy limits?

Answer 40

"umbrella liability"