Insurance policy
social device for the transfer of risks
Transfer of risks
transfer to insurance companies financial risks they cannot individually afford
Lapse
insurance terminated due to nonpayment of premiums
Insurable interest
financial risk which insured must possess at the time of loss (property owner, mortgagee, lienholder)
Additional coverages
Specified in HOMEOWNERS policies that insurance company will pay for in addition to limits of liability
Supplemental payments
Specified in AUTO policies
Specified Peril (named peril) coverage
Protects the insured property only against loss caused by perils specifically named in the policy
1. Basic causes of loss
2. Broad causes of loss
Basic causes of loss
12 named perils
- sometimes called Fire, Extended coverage, Vandalism coverage
Broad causes of loss
20 named perils (8 more than basic)
All Risk (open peril) coverage
Protects an insured property against all of the insurance perils that would have been covered under a Basic form policy, and all of the perils covered under a Broad form policy.
Protects all loss caused by perils except those those specifically excluded
Direct physical loss
Covered peril is direct cause of damage (fire)
Direct physical loss is also called
Proximate cause or immediate cause
Indirect (consequential) loss
Covered peril is not direct cause of damages. most policies either exclude indirect loss or provide very limited coverage. An endorsement is needed under most policies
ex. loss of revenue, rent
Liability coverage
insurance to protect against claims for bodily injury to another person or damage to another person's property
**Third party
Necessary elements
Are legal requirements that a claimant must be able to prove to a court to be successful in making a liability claim
--Negligence, damages
Negligence
failure to take proper care in doing something
Negligence- Omission
Failing to do something that they should've
- Not stopping at stop sign
Negligence- Commission
Doing something they should not have
- shouldn't be speeding through parking lot
Damages
Bodily injury, property damages, or both
Bodily injuries
Physical injuries
- Reimbursement for:
Medical bills
lost wages
-Comp for
pain suffering
personal disabilities
permanent scarring/disfigurement
Representation
Basic, regular statements on an application which insured believes to be correct
Parts of representation
1. False or concealed (failed to disclose)
2. Material (Significant, would've changed decision of underwriter)
3. Intentional
Warranties
Special statements insured GUARANTEES to be correct.
Usually made to obtain rate reduction (alarm, theft system)
Fair credit reporting act
Consumer inspection done on application, applicant has the right to see why they are rejected, inspection company name and address, etc
Gramm-Leach-Bliley Act
requires financial institutions to ensure the security and confidentiality of customer data
notice must explain info that is to be collected about consumer, with whom info shared, how it will be used, how it will be protected
they have a right to request
Buildings
Structures permanently attached to land
-Usually insured for replacement Cost
-excludes mobile home
- can be insured for actual cash value
Personal Property
Property not permanently attached to land or building
- Insured for ACV usually
Replacement cost coverage
Pays for cost of rebuilding, repairing, replacing insured property with NEW materials and labor, of like kind and like quality at same location
*Pays Betterment
If the insured person does not rebuild, repair, replace insured property with new materials of like kind and like quality at the same location
The insurance company will indemnify only actual cash value of the loss
Actual Cash Value
Purpose is to restore insured to the same economic position that they were in prior to the loss
- WILL pay cost of rebuilding, repairing, replacing damaged property but not to exceed actual cash value
Loss of actual cash value
Replacement cost-depreciation
Depreciation
Percentage of useful life used up X Replacement cost
Coinsurance clause
insured property to be insured for at least a specific % of its value at all times
Insured to value
keeping property insurance policy up to date, keeping property continuously insured for required amt or more and meeting requirements of loss settlement provision (coinsurance clause)
Loss settlement formula
(Amount Carried/Amount required) X Loss
Amount required formula
0
Coinsurance Exceptions
Insurance company will NEVER pay more than limits of liability
If loss exceeds limits of liability, will the insurance company subtract the deductible from loss settlement?
NO
5 ways to assure property is insured to value
1. Review all property policies sold annually
2. Inflation Guard Endorsement- increases face amt by % that is stated in endorsement at intervals specified
3. Increase face amount at renewal
4. Providing 20% cushion
5. Guaranteed Replacement Cost endorseme
Parts of a policy
1. Declaration page
2. The insured
3. insuring agreements (promise to indemnify)
4. Conditions
5. Exclusions
Inherent vice
A quality of or condition within a particular type of property that tends to make the property destroy itself.
ex. fur coat being stored in damp place
Elements of a contract
1. Competent parties
2. Offer and Acceptance
3. Mutual agreement
4. Consideration
5. Legal purpose
Standard fire policy
Least property insurance coverage available
Covers:
Fire, Lightening, Removal
Standard fire policy: Duties of insured
1. pay premium
2. take all means to save and protect
3. give ins. co. immediate notice of loss
4. proof of loss within 60 days
5. separate damaged/undamaged
6. sue within 12 months of loss
Standard fire policy: duties of insurance co
1. indemnify insured within 60 days of proof of loss
2. Arbitration or appraisal if disagree
Assignment clause
No assignment (transfer) of a policy is valid unless signed by office of insurance co- vp, secretary, etc.
Pro Rata Liability clause
no insurance co shall be responsible for more than its pro rata share of the loss if concurrent policies
Salvage
insurance company pay claim, insurance company has right to assume ownership of damaged property to repair and sell it to recover part of the loss
Vacant
either completely empty or empty to the point where the insured can no longer engage in the purpose for which the property is insured
Unoccupied
Furnishings in the building, but nobody living in it or working in it
Vacancy and Unoccupancy Clause
Coverage is terminated after the insured prop is vacant or unoccupied for 60 Consecutive DAYS.
-can get a vacancy and unoccupied permit
Standard fire policy: PROPERTY EXCLUSIONS
1. Money
2. Accounts (including bookkeeping records)
3. Valuable papers
-securities certificates
- legal docs
- manuscripts
*Excludes indirect value
Standard Fire Policy: PERILS excluded
1. War
2. Theft
3. Neglect to save and protect from loss
4.
Extended Coverage (EC) endorsement
WC Shaver:
Windstorm
Civil commotion
Smoke damage
Hail
Aircraft
Vehicle and volcanic action
Explosion
Riot
Perils excluded in EC endorsement
1. nuclear reaction
2. earth movement
3. flood, sewer backup and water below surface
4. power interruption away from premises
Vandalism and malicious mischief endorsement
Damage caused by vandelism and malicious mischief
Exclusions: vandalism and malicious mischief
Building left vacant for 30 consecutive days
Dwelling policy eligibility
- 1 to 4 unit dwellings with boarders
- Vacation dwellings
- rental dwellings
- dwellings under construction (endorsement)
- mobile homes (endorsement)
DP-1 basic form perils covered
1. the Standard Fire policy perils
2. The 8 Extended coverage perils (WC shaver)
3. damage caused by vandalism and malicious mischief
DP-1: coverage A
Dwelling, structures attached to dwelling (garage) materials and supplies used in construction or repair of dwelling.
Actual cash value
DP-1: Coverage B
Other structures- Other structures detached from main dwelling or appurtenant structures
ex. gazebo, detached garage
**10% of coverage A automatically extended
DP-1: Coverage C
Personal Property- optional, additional. if property rented, tenant property is not covered`
Dwelling: Coverage D
Rental value- 10% of coverage A automatically extended
Liberalization clause
A policy condition providing that if a policy form is broadened at no additional premium, the broadened coverage automatically applies to all existing policies of the same type.
DP-2 form (broad)
All of what DP-1 cover plus:
Burglary damage
Ice, snow sleet weight
Glass breakage
Accidental discharge of water
Freezing
Falling object
Electrical current
Collapse
Tearing
DP-2 and 3 : coverage A
Dwelling- replacement value (coinsured)
DP-2 and 3: Coverage B
Other structures- optional, additional
- if added, covered up to replacement value
DP-2 and 3: Coverage C
Personal property- optional, additional
- if added, covered up to ACV
DP-2 and 3: Coverage D
Rental Value- optional additional- replacement
DP-3 Special Form
Buildings are protected against damage caused by all risks. Personal property is protected against damage caused by broad form perils
Building and Personal Property Coverage Form
A commercial property form that covers Commercial buildings, and/or their contents.
Indirect Loss - Time Element Coverages
2 coverages to cover indirect loss
Business Income Coverage
covers the loss of earnings of a business while it is shut down to remodel and restock because of covered peril. It is coinsured
Net income before tax, payroll, operating expenses,
Extra expense coverage
used when a business must continue operations while insured premise being remodeled:
-protects insured against extra expenses of doing business during period of restoration in excess of normal business costs
Inland Marine Coverage
policy or endorsement protects only personal property which is not attached to land or building. Six types
Personal Article Floater
Inland marine coverage that is a scheduled endorsement used to cover things excluded in homeowners- (jewelry, fur, camera)
*provides specific coverage for each covered item
Pleasure craft coverate
boats and yachts
DP-2 Broad exclusions
-Weight of ice, snow , or falling objects on awnings , fences, patios, swimming pools, docks, and retaining walls
-Accidental discharge over water from continuous leaking
-Flood
-Burglary if property vacant (60 consecutive days)
DP-3 Special exclusions
- Intentional damage
- Theft
- freezing or plumbing if unoccupied and care not taken
- wear and tear
- Foundations
General exclusions of all dwelling policies
Ordinance of law
Earthquake
War
Flood
nuclear
Intentional losses
Government seizure
Coverage M- Medical payments to others
Endorsement- Medical bills of others
3 years (injuries incurred within)
Don't have to be at fault
on and off premesis
Coverage L - Personal Liability
At fault
Bodily injury to others
property damage to others
on and off premises
Can a detached garage used for commercial, manufacturing, or farming purposes be covered under dwelling policy?
NO
Homeowner policy
a combined property and liability policy designed for residential use
Homeowners Eligibility
- Owner occupied
- No more than 4 family
- primary purpose as a residence
- Dwellings under construction are eligible
- Mobile homes- require endorsement
HO-2
broad form, owner occupant
Coverage A&B- Broad
Coverage C-Broad
HO-3
Special form, owner occupant
Dwelling- all risk (special)
Personal prop- Broad
HO-4
Tenants or renters
- does not insur dwelling
Dwelling- n/a
Personal- Broad
HO-5
Comprehensive Form; owner occupant
Protects dwelling and personal property against all risks
Dwelling- special
Personal prop- special
HO-6
Condominium owners
- doesn't insure dwelling, but does include limited coverage A for inside walls and floors (1,000)
Dwelling and other- Broad
Property- Broad
HO-8
Modified form for special risks
policy is for OLDER HOMES that have a replacement cost that is much higher than its market value
Basic, basic
General exclusions applicable to all homeowner policies:
War
Neglect
Water
Earth movements
Power failure (off residence)
ordinance of law
intentional loss
nuclear hazard
gov action (seizure of property by gov)
Loss of property
debris removal
Expenses paid if caused by covered peril\
Removal of fallen trees covered if damaged a covered structure of blocking roadway
max 1,000 for tree debris removal per occurrence and $500 per tree
Reasonable repairs
Pays the reasonable costs incurred by the insured for repairs necessary to protect covered property from further loss after being damaged by a covered peril.
Trees shrubs and other plants- coverage
- max 500 per tree and 1,000 for all fallen shrubs and plans for debris removal
- max 5% coverage in addition to limit
Additional coverage for homeowners policies
1. Debris removal- 500 per tree, 1,000 per occur
2. reasonable repairs- repairs necessary to protect from additional loss
3. trees shrubs and other plants
4. Fire dept safety charge- 500 (no deduc)
5. Property removed (30 days, covered perils)
6. Credit c
Additional coverages for limit of liability (sections e and f)
Bonds
Aid
Interest
Loss earning (250/day)
Expenses (travel expenses for court)
Damage to property of others (1,000 per occurrence)