Kaplan Chapter 5 - Introduction to Property Insurance

Named Insured

The person, business, or other entity named in the declarations to whom the policy is issued.

First Named Insured

When policy has more than one named insured listed, the higher level of duties and rights go to the first named insured (or the first person listed on the Declarations page).

Additional Insured

An individual or business who has insurable interest in the property (i.e. a mortgage company has interest in a home due to the outstanding loan on the property).

Specific Insurance

Designating a particular item to be insured. For example, the gold ring with the diamond valued at $2000.

Blanket Insurance

Designating a blanket description of items to be insured. For example, all of the personal property located at 123 Main St.

Policy Limit

AKA Limit of Coverage or Limit of Liability or Limit of Insurance
This represents the maximum amount the insurance company will pay for a loss.

Valued or Agreed Amount Contract

Valued contracts are written for a specified amount, and they list the value of the insured property as agreed to by both parties at the time of policy inception; if item is damaged, this is the amount that will be used to value the loss. (i.e. art or pai

Policy Coverages

Coverages listed on a policy. For example, collision or comprehensive coverage on an auto policy.

Additional Coverages

Extended coverages; Coverage extentions; Other coverages; may have reduced or separate limits of liability or require the insured meet certain policy requirements before they apply.

Named Peril

AKA Specified peril; insure property only against the perils specifically listed in the policy.

Open Peril

insures against all risks of physical loss except those specifically excluded in the policy; sometimes called all-risk or special coverage

Direct Loss

Financial loss resulting directly from a loss to property. For example, a house being damaged in a windstorm.

Indirect Loss

Financial loss resulting as a consequence of the original loss. For example, if a hotel burns down and takes 1 year to rebuild, a indirect or consequential loss could be the lost revenue from rentals of $2 million.

Nonaccidental Losses

Excluded on the policy because they are certainties, not risks. For example, wear and tear, deterioration, rust, corrosion, and mechanical/electrical breakdown on a vehicle are certain to happen sooner or later and insurance does not covers these losses.

Concurrent Causation

When two or more perils act concurrently - or at the same time or in sequence - to cause a loss. For example, an earthquake causes the collapse of a building. The earthquake is a peril and the collapse is a peril.

Losses controllable by the insured

Losses that can be controlled or prevented with extra care or effort on the insured's part; excluded on the policy. For example, breaking or chipping of fragile objects could be controlled with extra care by the insured.

Extra-Hazardous Perils

Excluded perils which are extra-hazardous; such as an earthquake

Catastrophic Losses

Losses so broad that they could bankrupt any company that insured against them; excluded on the policy. For example, war or nuclear disasters.

Property Covered in Other Policies

If another policy could provide insurance coverage, then the property policy will exclude this coverage. For example, a homeowners policy does not provide for a loss to an automobile as this could have been covered under an auto insurance policy.

Limitations

Less than an exclusion; may eliminate or reduce coverage, but only under certain circumstances or when specified conditions apply. For example, if a building has been vacant for 60 days, some types of commercial property losses will not be covered at all,

Loss Provisions

Conditions that specify what the insured and insurer must do when a loss occurs.

Duties following loss

1. Give prompt notice of the claim to insurance company or agent
2. Protect property from further damage
3. Complete detailed proof of loss
4. Make property available to inspection by company
5. Submit to examination under oath if required
6. Assist the i

Proof of Loss

Official inventory of the damages

Valuation

How losses will be paid condition

Actual Cash Value (ACV)

Calculated by determining the item's replacement cost (what it would cost to buy a replacement) and subtracting an amount for depreciation. For example, if a TV cost $500 to replace, but the depreciation was $300, then the claim pay out would be $500-$300

Repair Cost

The cost to repair a damaged or destroyed item of property. May be the basis of reimbursement for a loss.

Replacement Cost

The cost to repair a damaged or destroyed item of property without deduction for depreciation; may be the basis of reimbursement for some losses.

Functional Replacement Cost

Method to determine reimbursement for some losses, particularly those to antique, ornate, or custom construction; the damaged property is repaired or replaced with less expensive, but functionally equivalent, materials.

Market Value

The amount property could be sold for at the time of loss. May be used to determine the amount of reimbursement for a loss.

Coinsurance

Typically 80%; Policy condition that requires an insured to pay part of a loss if the amount of insurance carried on property is less than specified percentage of the value of the property at the time of loss

Coinsurance Penalty

The amount not paid by the insurance company because the insured failed to comply with the coinsurance condition.

Agreed Value or Stated Amount

Condition found in some property insurance policies that stipulates a certain value that will meet the coinsurance requirement; if the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty

Pair or Set Clause

Loss settlement condition found in property insurance contracts that states when part of a set is damaged or destroyed, the insured will not be reimbursed for the value of the entire set, but instead a portion of the full value.

Deductible

The dollar amount the insured must pay on each loss to which the deductible applies; the insurance company pays the remainder of each covered loss, up to the policy limits

Salvage

Damaged property that can be retrieved, reconditioned, and sold to reduce an insured loss.

Abandonment

A condition often contained in property insurance policies that states that the insured cannot abandon damaged property to the insurer and demand to be reimbursed for its full value.

Subrogation

AKA Transfer of right of recovery against others to us; the transfer to the insurance company of the insured's right to collect damages from another party.

Appraisal

Policy condition that outlines the procedure for when the insured and insurer disagree on the amount of the loss; the insurer and insured each select an appraiser; the two appraisers select an umpire; if the appraisers cannot agree on the amount of loss,

Arbitration

Policy condition that is similar to the appraisal condition; may be used to resolve other areas of disagreement besides those regarding the value of a loss

Other Insurance

AKA Other sources of recovery or Insurance under 2+ coverages

Pro Rata Method Other Insurance

Method of handling insurance when more than one coverage applies to a loss; each coverage pays a portion of the loss in proportion to the relationship its limit of liability bears to the total limit of liability under all applicable insurance

Liberalization

Condition found in property insurance contracts that provides that if the insurer broadens coverage under a policy form or endorsement without requiring an additional premium, then all existing similar policies or endorsements will be construed to contain

Assignment

Condition in insurance policies that specifies that the policy cannot be transferred to another unless the company consents to the transfer in writng

Bailee

A person or organization that has temporary possession of someone else's personal property.

No Benefit to Bailee Condition

Condition which states that the bailee is not covered under the insured's policy while the bailee has possession of the insured's property (i.e. dry cleaners has your shirt)

Mortgage Condition or Loss Payable

Specifies the rights and duties of the mortgagee, or loss payee, under the policy. For example, if the insured fails to file a proof of loss, the mortgagee must do so after being notified by the insurer to protect its rights under the policy.

Policy Territory

The provision which states where a loss will be covered if it occurs. For example, losses may be excluded if they are outside of the US, Canada, or Puerto Rico. Customer may not have coverage in Mexico.

Vacant

Absence of both people and property from the premises

Unoccupied

Absence of people from the premises

Nonreporting Basis

Contracts for which a flat premium is charged every time the policy is renewed. For example; auto and home policy premiums are determined at the time of renewal.

Reporting Basis

Contracts for when is it difficult to determine in advance what amount of coverage should be purchased. Insured pays a deposit (estimated) premium and then periodically submits reports to the insurer showing the status of those factors on which the premiu

Premium Audit

Audits conducted by the insurance company of the insured's records before calculating a final premium and making a final adjustment.