Unit 4 - Basics of Property Insurance

Real Property

permanent structures and buildings

Personal Property

moveable property like furniture, clothing, and tools

Peril

cause of loss

Basic Perils

fire, lightning, and internal explosion

WCSHAVVER + V & MM

Wind (exterior broken and causes internal damage)

Civil Commotion (by groups)

Smoke (not friendly/on purpose in home fire)

Hail

Aircraft

Vehicles

Volcanic Eruption

Explosion (away from covered location)

Riot (damage by smaller groups than C)

Vandalism and Malicious Mischief

Broad Perils

WCSHAVVER + V&MM as well as BIG AFFECT

Burglary Damage

Ice, sleet, and snow (weight of)

Glass breakage

Accidental Discharge of Water (plumbing, heating, AC, sprinklers, etc)

Freezing Objects (plumbing, heating, AC, sprinklers, etc)

Falling Objects

Electrical Current (sudden and artificial)

Collapse

Tearing Asunder

EXCLUSIONS

• Ice/sleet/snow weight or falling objects on awnings, fences, patios, swimming pools, docks, and retaining walls

• accidental discharge of water from continuous leaking

• flooding from river or lake

• burglary/accidental discharge if vacant for more than 60 days in a row

Special Perils (Open)

all risks of direct physical loss unless excluded

Common Exclusions: flooding, earthquake, intentional damage by insured, losses due to building code enforcement, damage caused by power interruption off premises, and government seizure

Types of Construction

Class 1 - Frame: possibly covered with stucco

Class 2 - Joisted Masonry: outside walls covered in noncombustible masonry materials, roof and floors still combustible

Class 3 - Noncombustible: all noncombustible

Class 4 - Masonry Noncombustible: everything made of any supported by noncombustible materials

Class 5 - Modified Fire Resistive: everything made of 2hrs or less fire resistance

Class 6 - Fire Resistive: everything made of fire resistive 2hrs+

from most to least flammable 1-6

Loss Valuation

Insured collects the least of insurable interest, policy limits, actual cash value (includes depreciation), cost to repair, or replacement costD

Functional Replacement Cost

cost to get property with the same function and efficiency even if it’s not identical (like replacing plaster on old house with drywall on new house)

Market Value

selling price, rarely used

Agreed Amount

agree on value before the policy is issued, common with valuable contracts like rare paintings

Stated Amount

insured states value, insurer pays lower of that or ACV

Pair or Set

loss valued at fair proportion of the set, they won’t pay the whole cost to replace the set

either replace the missing piece or the lost value to the set

example: pair of diamond earrings = $30,000

1 stolen, and the other is valued at $8,000

paid = $22,000

Appraisal Condition

either party can demand an appraisal of the loss if they disagree on the amount

each pick an appraiser and umpire decides who wins

Coinsurance

you have to insure property for a certain percentage of its value or they might make you pay more (unless it’s a total loss)

did carry / should carry * loss = payout

Unoccupancy

contents are there but people aren’t, like when snow birds are away, so coverage isn’t lost

Standard Mortgage Clause

mortgagee is protected and can recover its investment even if property owner’s claim is denied

allows lender to pay premium, file claim, receive notice if the policy will be cancelled, and the lender is protected from insured’s negligence or dishonesty

Loss Payable CLause

just like standard mortgage clause but for liens on personal property

No Benefit to Bailee

bailee isn’t covered under property owner’s policy while property is in posession of the property, instead covered by the bailee’s policy, and the bailee can’t benefit from the owner’s policy