Introduction to Property Insurance (5)

Named insured

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

When there is more than one named insured listed on a policy, the policy may assign a higher level of duties or rights to whom?

First named insured

The person listed first on the declarations page is who?

First named insured

Who can be listed on the declarations page?

Specifically designated people, businesses, or entities as insureds under the policy such as family members.

Give an example of an additional insured

The mortgage company

Blanket insurance

Example; personal property located at 123 street.
Can also mean a person's property is covered at many locations and not just one location.

Policy limit, limit of coverage, limit of liability, or limit of insurance

The maximum amount the insurance company will pay for a loss.

Valued or agreed amount contract

Written for specified amount, and they list the value of the insured property as agreed to by both the insured and the insurer at policy inception.
Avoids the difficulty of trying to determine the value of such property after it has already been damaged or destroyed.

The insuring agreement

Explains what property is covered and the perils the property is insured against.
Describes the key policy coverages in detail.
May also specify that certain additional coverages apply.

Named peril or specified peril

Policies that list the specific perils were causes of loss insured against under the contract.
Insure property only against the perils specifically listed in the policy.

Open peril

Insurers against all risks of physical loss except those specifically excluded in the policy.

Direct loss

Financial loss resulting directly from loss property.
Example, house being damaged in a windstorm or jewelry being stolen.

Indirect loss

Comes as a result, or consequence, the original loss.
Example; House burned down and you need a hotel room.

What is automatically excluded for my named peril policy?

Any pearl that is not specifically listed as covered

What are the five broad categories of exclusions that are commonly found in property policies?

1) nonessential loss
2) losses controllable by the insured
3) extra-hazardous perils
4) catastrophic losses
5) property covered in other polices

Nonaccidental losses

Non-accidental losses are excluded because they are certainties, not risks.

Concurrent causation

A situation where two or more perils act concretely at the same time or in sequence to cause a loss.
Example; and earthquake occurs and the home collapses. Can't be covered by collapsible coverage or earthquake coverage.

Loss is controllable by the insured

Excluded from coverage. Helps the insured to be more responsible.

Extra hazardous perils

Earthquake coverage

Catastrophic losses

Example; war or nuclear disaster.

Property covered in other policies

Example; your car. Your car is covered by your auto insurance.

The list of duties and rights of both the insured and insurer are listed under what section of the insurance policy?

The conditions section

Loss provisions

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

What are the duties of the insured following a loss?

-giving prompt notice of claim to the insurance company
-protecting the property from further damage
-completing a detailed proof of loss (inventory of loss).
-making a property available for inspection by the company
-submitting to examination under oath
-assisting the insurer as required during the claim investigation procedure.

Actual cash value (ACV)

The items replacement cost-depreciation
ACV= replacement cost-depreciation

Why isn't the insured reimbursed for full replacement cost when considering actual cash value?

Because the insured has already had use of the property.
If the full amount reimbursed so that the insured can replace it with a new item, the insured would be better off after a loss them before. This violates the principle of indemnity.

Repair cost

Used when the amount is less than actual cash value.

Replacement cost

The amount it takes to replace an item without depreciation

Functional replacement cost basis

When damage properties repaired or replaced with less expensive, functionally equivalent, materials.

Market value

What it could be sold for at the time of loss.

Coinsurance

Encourages policyholders to insure property to value. At least the minimum amount of insurance the insurance should carry on the property.

Coinsurance penalty

The amount not paid by the insurance company

Agreed value or stated amount

Specifies a certain value that will meet the coinsurance requirement. As long as the policy limit equals or exceeds this amount, the insured will not be assessed a coinsurance penalty.

Pair or set condition

A loss settlement condition that appears in many property contracts. It states that if part of a pair or set is a post or damaged, the loss will be valued as a fear proportion of the total value of the set.
Proportion.
The insurer is not obligated to pay for the loss of the whole set when only one part has been damaged.

Deductible

The insured pays the first part of every loss up to the amount of the deductible.
This reduces the cost of insurance by reducing the number of small claims.
Specified in the declarations.

Salvage condition

The insurance company can take possession of damaged property after payment of loss.
salvaged goods can reduce the cost of the claim to the insurance company.

Abandonment condition

The insured may not abandon property to the insurance company and ask to be reimbursed for its full value.

Subrogation

Suppose and insured suffers a loss for which he is not at fault, any party that caused the damage has no insurance or if you just pay for the damages. The insured's insurance company may step in and pay for the damages and then bring suit or file a claim against the other party or the other parties insurance company on the insurance behalf.
This transfer to the insurance company of the insureds right of recovery against others is called subrogation.

Appraisal condition

Either party may demand an appraisal of loss.

What happens when an appraisal condition occurs?

Each party choosing is an appraiser. The two appraisers then select an empire. If the appraiser spell to agree on an amount, they submit their differences to the empire. The umpire cheeses and appraised amount. Each party pays its own appraiser and shares the cost of the umpire.

Arbitration condition

Is similar to appraisal condition but it is not limited to disputes over the value of the loss.

Pro rata method

When dealing with two insurance companies, one insurance company agrees to pay only a PORTION of any loss that is also covered by other insurance. share cost of claim.

Pro rata method

Verify formula in textbook

Nonconcurrency

When someone has two or more policies on the same property that do not provide coverage to the same extent. This can result in coverage gaps or disputed payments and should be avoided.

Liberalization

If the insurer broadens coverage under the policy form or endorsement without requiring an additional premium, and all existing similar policies or endorsements will be constructed to contain be brought in coverage.

Assignment

Specifies that a policy may not be transferred to anyone else but I'll be written consent of the insurer unless he named insured dies.

Bailee

A person or organization that has temporary possession of someone else's personal property. Example, dry cleaners or storage unit.

No benefit to Bailee

Bailee is not covered under the insureds policy well the Bailee has possession of the insureds property.

Mortgage condition or loss payable condition

Your rights and duties of the mortgagee, or loss payee, under the policy. The mortgagee may be expected to pay the premium if the insured fails to do so.

Policy period and policy territory

And loss will not be covered unless it occurs within the policy territory on the policy is in effect. The territory may vary, but a typical policy includes the United States, Puerto Rico, and Canada.

Vacant

The absence of both people and property from the premises. Coverage is excluded for loss while the property is vacant

Unoccupied

The absence of people. Insurance may not cover any losses of property when unoccupied.

Non-reporting policies

Contracts for which a flat premium is charged every time the policy is renewed. Example, auto and home owners policy.

Reporting basis

When it is difficult to determine in advance what amount of coverage should be purchased. The insured pays a deposit premium and then periodically submits reports to the insurer showing the status of those factors on which the premium is based.
After the insurance company has calculated the premium, it is charged against the deposit.
When the deposit is used up, the insured begins to pay the premium calculated by the insurance company at the end of each reporting period.

Why do insurance policies usually define who is considered an insured under the policy?

To specify who is covered in addition to the named insured.

An insured owns 4 stores. As inventory is sold, the insured transfers new inventory from the other locations to the store making the sales. Which type of policy would best fit this insured's needs?

Blanket policy.

Which of the following amounts is the maximum that an insurer will pay in case of a loss?

Limit of liability

A policy under which the insured and insurer agree on the property value and list the value in the policy is known as:

an agreed value policy

Which of the following is an example of property that might be insured on a valued basis?

Rare painting

Which of the following policy provisions restricts certain risks from coverage?
A) Exclusions.
B) Declarations.
C) Insuring agreement.
D) Conditions.

Exclusions

The purpose of the conditions section of an insurance policy is to

list the obligations of the insured and the insurance company.

The conditions section of an insurance contract sets forth:

the duties of the insured and insurance company.

Ace Insurance Company and Acme Insurance Company each insure the same building for the same amount. Both policies contain a pro rata other insurance clause. In the event of a partial loss, how much of the loss will Acme pay?

0.5.
Under a pro rata other insurance provision, each insurer 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. In this example, both policies have the same limit of insurance, so each insurer will pay half of the amount of loss.

Two insurance policies apply to Monica's home. The limit for Policy A is $100,000, and the limit for Policy B is $50,000. Both policies have a pro rata other insurance clause. If she suffers a $9,000 covered loss to her home, how much will Policy A pay?

$6,000.00

What does the liberalization clause do to a property policy?

Broadens coverage

The liberalization provision will do which of the following?

Automatically broaden coverage without additional premium if there is a revision to the policy.

A bailee is:

someone who has taken temporary custody of another person's property for a special purpose.

A parking valet at a hotel uses a guest's car to do a personal errand and damages the car in a collision. The guest has a personal auto policy (PAP). The insurance company will pay the claim and:

Subrogate against the parking valet.

Which one of the following statements about the standard mortgage clause is CORRECT?
A) The mortgagee has no rights under the policy.
B) Nothing the insured does can prevent the mortgagee from collecting under the policy.
C) The mortgagee can only collect

B) Nothing the insured does can prevent the mortgagee from collecting under the policy.

An insured fails to pay their homeowners insurance premium. The mortgagee becomes aware of this fact and remits the premium to the insurance company. Shortly thereafter the insured sets fire to their home in an attempt to receive payment for the loss. Any

the mortgagee.

Which of the following terms is used to describe an empty building that is not being used?

Vacant

Which of the following terms describes a building in which no one is present but to which the occupants intend to return?

Unoccupied

When a policy is written on a reporting basis, a premium is paid at the beginning of the policy period that is based on an estimate of what the final premium will be. This is called a (an):

deposit premium

Which of the following phrases best describes actual cash value?

Replacement cost less depreciation

The definition of actual cash value is:

replacement cost minus depreciation

The furniture Harold purchased 10 years ago was destroyed in a fire. The furniture cost $9,000 when new and has depreciated by $5,000. It would cost $12,000 to replace this furniture today. What is the actual cash value of Harold's destroyed furniture?

$7,000.00
The actual cash value of the property is defined as replacement cost minus depreciation. To calculate the actual cash value of Harold's furniture, subtract $5,000 (the depreciation cost) from $12,000 (the replacement cost). The actual cash value of the furniture is $7,000.

An insured owns an office building valued at $200,000. He carries a deductible of $1,000. The building sustains a loss of $40,000. If the insurance policy carries an 80% coinsurance clause, how much coverage must the insured carry to ensure that the loss

$160,000.00
A coinsurance clause requires a policyholder to carry insurance equal to a specified percentage of the total value of the property insured. Therefore, if a property is valued at $200,000 and the coinsurance clause is 80%, the policyholder must carry at least $160,000 of coverage to satisfy the coinsurance clause requirement.

The amount of payment that comes into play when an insured fails to carry the sufficient amount of insurance is sometimes referred to as the:

coinsurance penalty

The insured has a building with a replacement cost of $200,000 but has insured it for only $100,000. An 80% coinsurance provision is present in the policy. When a $80,000 loss occurs, the policy will pay:

$50,000.00
Coinsurance is an insurance policy provision under which the insurer and the insured share costs incurred after the deductible is met, according to a specific formula. In a property insurance contract, the insured must insure the property for a stated percentage of its replacement cost at the time of the loss. If the insured fails to do so, she must share in the loss as a co-insurer. The coinsurance formula calculates the amount paid. It is the amount carried divided by the amount of insurance required times the loss amount. In this case it is $100,000 / $160,000 x $80,000 = $50,000.

An insurance company takes possession of a damaged auto it has covered. When the company becomes the legal owner of the auto, it is exercising the right of:

salvage

An auto is sold for salvage value following payment of a loss. Who receives the proceeds?

Insurance company.

Which one of the following describes the concept of subrogation?

The insurer claims the right to collect from a negligent third party.

Which of the following legal principles allows insurance companies to collect from a negligent third party damages it paid to an insured?

Subrogation

When the insurer and the insured cannot agree on the value of a loss, the matter is submitted to disinterested parties for resolution. Under a standard appraisal clause, how many parties are involved in determining the value of the loss?

Three