Property Insurance Basics

Question 1

Insurable interest

Answer 1

The financial interest in property to be insured. Must exist at time of loss
1) legitimate financial interest
2) no potential gain
3) potential loss

Question 2

Underwriting

Answer 2

Process of reviewing applications for insurance and information on an application

Question 3

Loss ratio

Answer 3

( incurred losses+ loss adjusting expenses) \earned premium

Question 4

Hazards

Answer 4

Conditions or situations that increase the probability of an insured loss occurring

Question 5

Physical hazards

Answer 5

Arising from the material structural or operational features of the risk apart from the person owning or managing it

Question 6

Moral hazards

Answer 6

Refers to those applicants that may lie on an application for insurance

Question 7

Morale hazard

Answer 7

Refers to an increase in the hazard presented by a risk arising from the insured indifference to loss because of the existence of insurance

Question 8

Peril

Answer 8

A specific cause of loss. Example( fire wind hail explosions)

Question 9

Named peril

Answer 9

A term used in property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils

Question 10

Open peril

Answer 10

A term used in property insurance to describe the breath of coverage provided under an insurance policy form that insurers against any risk of loss that is not specifically excluded

Question 11

Consequential losses

Answer 11

Losses considered a result of direct loss, an indirect loss

Question 12

Blanket insurance

Answer 12

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

Question 13

Specific insurance

Answer 13

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

Question 14

Loss valuation

Answer 14

A factor in determining the premium charged and the amount of insurance required

Question 15

Actual cash value (ACV)

Answer 15

Method of valuation reinforces the principle indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear and obsolescence.

Current replacement cost-depreciation =actual cash value

Question 16

Replacement cost

Answer 16

Defined as the cost to replace damaged property with like kind and quality at todays price without any deduction for depreciation

Question 17

Functional replacement cost

Answer 17

The cost to replace damaged property with less expensive and more modern construction or equipment

Question 18

Agreed value

Answer 18

A property policy with a provision agreed upon by the insurer and the insured as to the amount of the insurance that represents a fair valuation for the property at the time the insurance is written and suspends any coinsurance or other contributions clauses in a policy

Question 19

Stated amount

Answer 19

An amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss. Max amount insurer will pay in event of loss

Question 20

Declarations

Answer 20

Section of the insurance policy containing the basic underwriting information such as the insureds name address amount of coverage and premiums and description of insured locations

Question 21

Definitions

Answer 21

Component of an insurance policy clarifies terms used in the policy

Question 22

Insuring agreement

Answer 22

The section of an insurance policy that establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy also list the parties to the contra effective dates and renewed dates description of coverage and perils

Question 23

Additional (supplementary) coverage

Answer 23

A provision in an insurance policy that provides an additional amount of coverage for a specific loss expense at no additional premium

Question 24

Conditions

Answer 24

The section of an insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy

Question 25

Exclusions

Answer 25

Section of an insurance policy details the perils that are not insured against and what persons are not insured

Question 26

Endorsements

Answer 26

Printed addendums to a contract that are used to change the policy’s original terms conditions and coverages

Question 27

Cancellation

Answer 27

The termination of an in force insurance policy by either the insured or the insurer prior to the expiration date shown in the policy

Question 28

Nonrenewal

Answer 28

The termination of an insurance policy at its expiration date by not offering a continuation of the existing policy or a replacement policy

Question 29

Deductible

Answer 29

A dollar amount an insured must pay on a claim before the insurance policy provides coverage higher the deductible the lower the premiums

Question 30

Coinsurance clause

Answer 30

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

Question 31

Other insurance

Answer 31

A provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk

Question 32

Noncurrency

Answer 32

Refers to other insurance written on the same risk but not on the same coverage basis

Question 33

Primary policy

Answer 33

Policy that pays first in the event of a a covered loss

Question 34

Excessive policy

Answer 34

Policy that only pays for the loss after the primary policy has paid up to its limit

Question 35

Pro rata

Answer 35

A provision found in some property insurance policies that provides for sharing of loss with other insurance that may be written on the same risk in the same proportion as their limits of insurance bear to the total of coverage of all policies covering the risk weather collectible or not

Question 36

Vacancy

Answer 36

An insureds 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

Question 37

Unoccupancy

Answer 37

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

Question 38

Assignment

Answer 38

The relinquishing of the insured property into the hands of another or into the possession of no one in particular

Question 39

Insured provisions

Answer 39

Used in the event of loss to repair or replace damaged property with property of like kind and quality

Question 40

Liberalization

Answer 40

A property insurance clause that broader legislated or regulated coverage to current policies as long as it does not result in higher premium

Question 41

Subrogation

Answer 41

The insurers legal right to seek damages from a third parties after it has reimbursed the insured for the loss

Question 42

Salvage

Answer 42

The amount of money realized from the sale of damage merchandise

Question 43

Third party provisions

Answer 43

Address the rights of a third party that may have a secured financial interest in the insured property

Question 44

Standard mortgage clause

Answer 44

A basis provision of all property policies for real property

Question 45

Loss payable clause

Answer 45

The clause used to cover the interest of a secured lender in personal property

Question 46

No benefit to the bailer provision

Answer 46

Excludes any assignment or granting of any policy provision to any person or organization holding storing repairing or moving insured property for a fee

Question 47

Binder

Answer 47

A temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued