Chapter 22 Flashcards

Question

What are the considerations you should take into account when deciding to get renters insurance?

Answer 1

1. Your belongings are covered 2. Your policy covers your stuff even when you're not in your home 3. It covers other peoples stuff too 4. You could stay in a hotel in case of emergency 5. You're covered if someone gets hurt on your watch 6. Third-party property damage 7. Further consideration

Answer 2

- Fire - Winds - Hail - Explosions - Riots - Aircraft - Vehicles - Smoke - Vandalism - Theft - Falling objects - The weight of ice, snow or sleet - Volcanic eruption

Answer 3

- Earthquake - Floods - Mudslides - Landslides - Power failure - Neglect - War - Nuclear hazard - Government confiscation or seizure - Wind damage (if flooding and wind damage happen simultaneously

Answer 4

high-risk flood area

Answer 5

The U.S. government

Answer 6

The National Flood Insurance Program in 1968

Answer 7

When a hurricane does occur, the insurance company may charge a 1-10% deductible

Answer 8

- Insurance on the home should be increased to at least $200,000 to comply with the coinsurance requirement so that partial losses will be settled on a replacement cost basis. An extended replacement cost or guaranteed cost endorsement could be added, which requires the home to be insured to $250,000. - Jewelry is covered only for a maximum of $1,500 if the jewelry is stolen. The jewelry should be scheduled and specifically insured to its full value. There is only $200 of coverage provided for the coin collection. The coin collection should also be scheduled and insured for its value. - The homeowners policy provides only limited coverage on boats. The boat should be specifically insured under a separate “all-risks” boat insurance policy. - A personal property replacement cost endorsement could be added that provides replacement cost coverage on personal property.

Answer 9

Jack and Jane will receive the higher of (1) The actual cash value of $10,000 (2)an amount based on the following formula: Amount of insurance carried / (80% of replacement cost( x loss , $150,000 / (80% x $250,000) x $16,000 = $12,000. The insurer will pay $12,000

Answer 10

Unless a replacement cost provision is added to the policy, personal property is indemnified on the basis of actual cash value. Ignoring any deductible, the actual cash value of the stolen property ($4,000) would be paid.

Answer 11

The dispute is settled under the appraisal provision that appears in the Section I conditions. Jack and Jane would select their own appraiser. The insurer would select its appraiser. The two appraisers would then select an umpire. If the appraisers cannot agree on an umpire, a judge in a court of record will appoint one. If the appraisers disagree on the amount of the loss, their differences are submitted to the umpire. An agreement by any two of the three is then binding on all parties.

Answer 12

Business personal property used in a home business on the premises is covered up to $2,500.

Answer 13

- HO-3 is a special form that covers the dwelling and other structures against all direct physical losses except certain losses specifically excluded. Personal property is covered only for certain named perils. HO-3 is designed for homeowners who desire broader coverage than that provided by HO-2. - HO-4 covers the personal property of renters and also provides personal liability insurance; it is designed for renters. HO-5 covers the dwelling, other structures, and personal property on an open-perils (“all-risks”) basis. - HO-5 is designed for insureds who want broader coverage on both the dwelling and personal property. - HO-6 is designed for condominium owners. - HO-8 is designed for insureds who have older homes with a replacement cost exceeding market value.

Answer 14

Persons insured include (1) the named insured and household residents who are relatives, 2) other persons under age 21 in the care of the named insured or in the care of a household resident who is a relative, and (3) full-time resident students under age 24 who are relatives and attending school away from home, or under age 21 and in the care of the named insured, or the care of a household resident who is your relative.

Answer 15

- (A) Coverage A covers the dwelling, attached structures, and materials and supplies used to construct, repair, or alter the dwelling or other structure. An example of a covered loss is damage to the roof because of a windstorm or tornado. - (B) Coverage B covers other structures, such as a detached garage, tool shed, or horse stable. The amount of insurance is 10 percent of Coverage A. An example of a covered loss is damage to the detached garage because of a fire. -(C) Coverage C covers personal property anywhere in the world. The amount of insurance under Coverage C is 50 percent of Coverage A, which can be increased if desired. If personal property is usually located at another residence, such as a cabin or vacation home, the off-premises coverage is limited to 10 percent of Coverage C, or $1,000, whichever is greater. Special limits apply to items that are often subject to theft. An example of a covered loss is the theft of a camera from a motel room while the insured is on vacation. - (D) Coverage D covers the loss of use. The Coverage D amount is 30 percent of Coverage A. Three benefits are provided—additional living expenses, fair rental value, and prohibited use. For example, if the insured must rent a temporary apartment for three months while his or her home is being repaired because of a fire, the additional living expenses would be covered under this provision. (E) Additional coverages include the cost of debris removal; repairs to prevent further damage; limited coverage of trees, shrubs, plants, and lawns; unauthorized use of credit cards and fund transfer cards; broad coverage of property removed from the premises threatened by a covered peril for up to 30 days; loss assessment charge up to $1,000; certain collapse losses; coverage for glass or safety glazing material; coverage for landlord’s furnishings up to $2,500; limited coverage for increased construction costs because of some ordinance or law; and coverage of grave markers up to $5,000. An example of a covered loss is the cost of removing debris after a tornado occurs.

Answer 16

A) The special limits of liability on certain types of property are as follows: (1) $200 on money, bank notes, bullion, gold, silver, platinum, coins, medals, stored value cards, and smart cards (2) $1,500 on securities, valuable papers, manuscripts, passports, tickets, and stamp collections (3) $1,500 on watercraft of all types (4) $1,500 on trailers not used with watercraft (5) $1,500 for theft of jewelry, watches, furs, and precious and semiprecious stones (6) $2,500 for theft of firearms and related equipment (7) $2,500 for theft of silverware, goldware, platinumware, and pewterware (8) $2,500 on property on the residence premises used primarily for business (9) $1,500 on property away from the premises used primarily for business (10) $1,500 on portable electronic equipment in or upon a motor vehicle (11) $250 on antennas, tapes, wires, records, disks, and other media used with electronic equipment in or upon a motor vehicle B) Because of moral hazard and loss-adjustment problems and a desire by the insurer to limit its liability, certain types of property have maximum dollar limits on the amount paid for any loss.

Answer 17

A) This means that all direct physical losses are covered except certain losses specifically excluded. B) Under Coverage C, personal property is covered for fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief, theft, falling objects, weight of ice, snow, or sleet, accidental discharge or overflow of water or steam, sudden and accidental tearing apart, cracking, burning, or bulging of a steam, hot water, air conditioning, or automatic fire protective sprinkler system, or household appliance, sudden and accidental damage from an artificially generated electrical current, and volcanic eruption.

Answer 18

The major exclusions that apply to the dwelling and other structures are collapse, except certain collapse losses; freezing of plumbing, heating, air conditioning, or automatic fire protection sprinkler system unless heat is maintained; damage to pavements, patios, swimming pools, and similar structures from ice, water pressure, freezing, and thawing; theft of materials and supplies from a dwelling under construction; vandalism, malicious mischief, and glass breakage if the dwelling is vacant for more than 60 consecutive days immediately before the loss; wear and tear; inherent vice; smog; smoke from agricultural smudging; release or escape of pollutants unless caused by a Coverage C peril; settling, cracking, shrinking or bulging of pavements, foundations, walls, floors and roofs; animals owned or kept by an insured; and certain additional exclusions. Certain types of personal property are also excluded, including articles separately described and specifically insured; animals, birds, and fish; motor vehicles and motorized land conveyances, aircraft and parts; hovercraft and parts; property of roomers, boarders, and other tenants; property rented or held for rental to others off the residence premises; and business records. Certain other exclusions apply to the dwelling, other structures, and personal property. They include losses from an ordinance or law; earth movement; certain types of water damage; power failure away from the premises; neglect of the insured to protect the property; war; nuclear hazard; intentional loss; governmental action; weather conditions that are otherwise excluded; failure to act by any person, group, or government body; and faulty, inadequate, or defective planning and design.

Answer 19

The conditions section imposes certain duties on the insured after a loss occurs. The insured must give immediate notice of the loss; the property must be protected from further damage; the insured must prepare an inventory of the damaged personal property, and may be required to show the damaged property to the insurer as often as is reasonably required, and the insured may be required to file a proof of loss at the insurer’s request within 60 days.

Answer 20

(A) Covered losses to personal property are settled on the basis of actual cash value at the time of loss but not to exceed the amount necessary to repair or replace the property. Actual cash value is replacement cost less depreciation. However, personal property can be insured for replacement cost by adding a replacement cost endorsement to the policy. Under this endorsement, there is no deduction for depreciation in determining the amount paid for a loss to personal property. (B) Covered losses to the dwelling and other structures are paid on the basis of replacement cost with no deduction for deprecation if certain conditions are fulfilled. If the insured carries insurance at least equal to 80 percent of the replacement cost at the time of loss, full replacement cost is paid with no deduction for depreciation for partial losses. If the insurance carried is less than 80 percent of the replacement cost, the insured receives the larger of the following amounts:

Answer 21

A) Pays up to an extra 20% or more above the policy limits. The insured agrees to insure the dwelling for full replacement cost and must also notify the insurer if alterations or remodeling increase the value of the dwelling. B) Under a guaranteed replacement cost policy, the insured agrees to insure the home to 100 percent of its estimated replacement cost rather than 80 percent. If a total loss occurs, the insurer agrees to replace the home exactly as it was before the loss even if the replacement cost exceeds the amount of insurance stated in the policy

Answer 22

Under the mortgage clause, the mortgagee (lending institution) is entitled to receive a loss payment from the insurer to the extent of its interest regardless of any policy violation by the insured. Even if the insured violates a policy provision, the insurer must make a loss payment to the mortgagee. Thus, the mortgagee’s insurable interest is protected.

Answer 23

Carolyn does not carry insurance at least equal to 80 percent of the replacement cost of the dwelling. As a result, she will receive the greater of either the actual cash value of the loss or an amount based on the replacement cost formula when the amount of insurance carried is less than 80 percent of the replacement cost. The actual cash value of the loss is $10,000. $280,000 / (80% of $400,000) x $20,000 = $17,500 Thus, Carolyn will receive $17,500 for the loss.

Answer 24

Michelle will be paid the actual cash value. Replacement cost is $3,800. Depreciation is $950 because the destroyed television is 25 percent depreciated. Michelle will receive $2850. 𝐴𝐶𝑉= Replacement cost less depreciation = $3,800 ―$950 = $2,850

Answer 25

(A) The amount paid will be $80,000. The amount of insurance carried ($240,000) is 80 percent of replacement cost ($300,000). Because the 80 percent rule is met, the full amount of the partial loss is paid. (B) Nothing is paid. The mortgage payment is a normal living expense that would have to be paid even if the fire had not occurred. (C) The amount paid will be $6,000. This is an additional living expense above normal living expenses. The cost of the motel room is covered for 60 days. (D) The amount paid will be $2,400. The additional cost of meals is covered. The average cost of meals in the motel restaurant is $60, while normal food costs at home average $20 daily. Thus, the additional living expense of $40 is covered for 60 days. (E) The amount paid will be $400. The storage fee is an additional living expense, which is paid for two months while the home is being rebuilt

Answer 26

A) Covered. Wall-to-wall carpeting is part of the dwelling. Since the loss is not excluded, it is covered. (B) Not covered. Damage from water that backs up through sewers or drains is excluded. (C) The dwelling is covered for the damage from the tornado. Animals are excluded under personal property, so the loss of the dog is not covered. (D) Not covered. Smoke damage from agricultural smudging or industrial operations is excluded. (E) Covered. However, there is a $1,500 limit on the theft of jewelry, a $200 limit on cash, and a $1,500 limit on tickets. (F) Covered. Since the loss is not excluded, it is covered. Glass breakage is covered. (G) Covered. Vehicle damage to the dwelling is covered. (H) Covered. The additional living expense is covered under Coverage D. The fire loss to the dwelling is covered under Coverage A. (I) Covered. As long as the son had been in the room any time during the 90-day period before the loss, the theft is covered. (J) Not covered. Earthquake damage is specifically excluded. (K) Covered. Water seepage from an appliance is covered.

Answer 27

No. The homeowners policy does not provide complete coverage for valuable jewelry since there is a $1,500 limit on the theft peril. She should have the ring insured for a specific amount of insurance. A personal articles floater can be purchased, or this coverage can be added as an endorsement to the homeowners policy.

Answer 28

(A) Covered. However, the loss is covered only for $1,500 because of the $1,500 limit on stamps. The stamp collection should be scheduled and specifically insured. (B) Covered. Personal property is covered against loss by vandalism. The $1,000 loss is covered. (C) Not covered. Damage to boats from windstorm or hail is covered only while inside a fully enclosed building. The boat should be insured under an “all-risks” boat insurance policy that provides broader coverage.

Answer 29

Technically, under the standard mortgage clause, payment would be made to the mortgagee (First Federal). As a practical matter, the check for the loss payment would be made payable to both parties. Both the insured and First Federal would endorse the check, which would then be used to restore the property.

Chapter 22 Flashcards

(54 cards)