RETAKE Chapter 1: Terms

Question 1

What are the formulas for AVC and Replacement cost?

Answer 1

Current Replacement cost- depreciation= AVC

Replacement cost- no depreacation

Question 2

ACV uses what as a basic principle? And why?

Answer 2

Uses INDEMNITY b/c reduction of property as it ages WEAR AND TEAR

Question 3

Which Forms and Policies will automatically apply to ACV unless added by endorsements? 4

Answer 3

Forms:
DP-1 (Dwelling Property-basic form) for COV B and COV C

HO-1 & HO-2 (Basic & Broad HO forms) for COV C

HO-3 (Speicial Form)
Dwelling is replacement cost
COV C is ACV

HO-5 (comprehensive form)
COV A & Cov are replacement cost

Question 4

What is the Split limit for ratio?
25/50/25

Answer 4

1. MAX for injury to ONE PERSON
2. TOTAL amount for ALL PEOPLE in accident
3. Damage to another PROPERTY

Question 4

What is the Principle of Indemnity?

Answer 4

Principle of Indemnity (Reinburse)
-Ensures the insured is RESTORED- not enriched

Question 5

Where is ACV commonly used? (5)

Answer 5

DP-1
Personal Property under HO-3
Auto Policies
Some commercial claims
Inland Marine claims

Question 6

What are the THREE types of liabilities?

Answer 6

Absolute liability- engages in HAZARDOUS or DANGEROUS business, can cause DAMAGE to PROP or PERSON

STRICT LIABILITY- a PRODUCT w/ implied WARRENTY that product is safe. LIable for INEFFECTIVENESS

Vicarious lIability- Transfer Liability from ONE person to ANOTHER

Question 6

What are the THREE types of damages? Def. of damages

Answer 6

Comprimised of bodily injury or property damage

Speical Damage- out of porcket exp. for med. misc, or loss of wages

General Damage- Compensation for pain & suffering, mental angush, or disfigurement

Punitive Damages- Punishment for extreme, gross negligence

Question 6

Per Occurrence vs Per Person

Answer 6

PLACES CEILING on the payment for ALL CLAIMS from an accident

MAXIMUM payment of BODILY INJURY to a SINGLE PERSON

Question 7

What type of property ins. is only covered?

Answer 7

DIRECT LOSS
DIRECT PHYSICAL DAMAGE: where the peril was the proximate cause of loss (PROPERTY INS)

INDIRECT LOSS (consequential loss)
Considered a result of a direct loss taken from REPAIR and REPLACE DAMAGE
i.e COV D or COMM. Risk is closed to repairs

Question 8

What is the def. of Hazard? What are the THREE types?

Answer 8

Condition or situation that increases the probability to an insured loss

Physical Hazard- material, structure or operational feature risk

Moral Hazard- Fruduant claim against insurer

Morale Hazard- Increase of hazard presented by risk

Question 9

Types of loss valuations: 6

Answer 9

1. ACV
2. Replacement Cost
3. Market Value
4. Stated Value
5. Agreed Value
6. Salvage Value

Question 9

Negligence (4)

Answer 9

Failure to use the care that is reasonable

1. Legal Duty
2. Standard of care
3. Unbroken Chain of Events
4. Actual Loss or Damage

Question 10

The Law of Large #’s

Answer 10

The larger # of people w/ similar exposure to loss, the more predicatble the actual loss will be

Question 11

What is limit of liability? FIVE types

Answer 11

Maximum of MONEY ins. comp. will pay for loss

1. Per Occurence
2. Per Person
3. Aggregation Limit
4. Split limits
5. Combined single

Question 12

What is Risk? And the TWO types

Answer 12

UNCERTAINTITY REGARDING FINANCIAL LOSS

1. PURE RISK- only resulting LOSS or NO CHANGE (acceptable)
2. SPECULATIVE RISK- Opportunity for GAIN or LOSS (non acceptable)

Question 13

FOUR STANDARD COVERED PERILS and TWO typically excluded

Answer 13

1. Fire
2. Hail
3. Wind
4. Explosions

EXD: Earth Movement and Water Damage

Question 14

Vancancy V Unoccupied

Answer 14

APPLIES to Dwelling and Contents
no people and no furniture
HIGHER RISK= reduced or denied Cov after 60 days
“Empty and Risky”

No people but furnished and ready to use
cov. remains intact
“Lived-in, just not at the moment”

Question 15

morale hazard includes

Answer 15

Dishonest tendencies that increase the likelihood of loss

Question 16

Which of the following best defines an insurable interest?

Answer 16

A financial stake in the insured property
You must have a financial interest in the property to insure it.

Question 17

When must insurable interest exist in property insurance?

Answer 17

At time of loss
For a property claim to be valid, the insured must have had insurable interest at the time of the loss.

Question 18

Which policy condition prevents an insured from collecting more than the actual loss?

Answer 18

Pro Rata Liability
This clause ensures the insured doesn’t collect more than the loss across multiple policies.

Question 19

operations liability

Answer 19

Operations liability covers damage caused while work is actively being performed.

Question 20

Aggregation Limit

Answer 20

The most paid during the policy period for all claims
It’s the total limit for all covered losses during the policy term.

Question 21

Agreed Value Policy

Answer 21

A pre-established amount agreed upon at policy inception Losses are paid based on the agreed value, not depreciation or RC.

Question 22

Market Value

Answer 22

Market value is what a buyer would reasonably pay on the open market.