Personal Auto and Homeowners Insurance Study Flashcards

Vocabulary flashcards covering the Personal Auto Policy (PAP), auto compensation systems, high-risk insurance markets, and Homeowners Insurance Sections I (Property) and II (Liability).

Personal Auto Policy (PAP)

A package auto insurance contract containing multiple coverages within a single policy, organized into Parts A through D for coverage and Parts E and F for policy rules and conditions.

Part A: Liability Coverage

The section of a Personal Auto Policy that pays bodily injury and property damage for which an insured is legally responsible due to an auto accident, and provides legal defense costs in addition to the policy limit.

Part B: Medical Payments Coverage

The section of a Personal Auto Policy that pays reasonable and necessary medical and funeral expenses for the named insured, family members, and qualifying passengers regardless of fault.

Part C: Uninsured Motorists (UM) Coverage

Coverage that pays for bodily injuries an insured is legally entitled to recover from an at-fault driver who has no insurance, is an unidentified hit-and-run driver, or is insured by an insolvent carrier.

Part D: Coverage for Damage to Your Auto

First-party physical damage protection for a covered or qualifying nonowned vehicle, consisting of separate collision and other-than-collision (comprehensive) coverages, each subject to its own deductible.

Temporary Substitute

A borrowed or loaner automobile used temporarily while a covered vehicle is out of normal service due to breakdown, repair, servicing, loss, or destruction.

Split Limits

A liability limit structure stated as three separate maximum payouts: bodily injury per person, total bodily injury per accident, and property damage per accident (e.g., $50/100/50$).

Combined Single Limit (CSL)

A single maximum dollar ceiling under a liability policy that can be applied to all combined bodily injury and property damage claims arising out of one accident.

Collision Coverage

Part D coverage for direct and accidental physical loss caused by the upset/overturn of a covered auto or its impact with another vehicle or object (such as a pole or tree).

Other-Than-Collision (OTC) Coverage

Comprehensive physical damage coverage under Part D covering losses from causes such as theft, fire, hail, water, falling objects, vandalism, glass breakage, or contact with a bird or animal.

GAP Protection

Coverage that pays the difference between the actual cash value (ACV) of a totaled vehicle and an outstanding loan or lease balance.

Financial Responsibility Law

A state law that requires motorists to demonstrate proof of financial ability to pay for liability losses after a specified triggering event, such as a major violation or serious crash.

Compulsory Insurance Law

A state law requiring motorists to purchase and maintain at least a specified minimum amount of liability insurance before registering or operating a motor vehicle.

Unsatisfied Judgment Fund

A state-established fund designed to compensate eligible innocent crash victims who obtain a legal judgment against an at-fault negligent motorist but are unable to collect the payment.

"No Pay, No Play" Law

A state law that restricts uninsured drivers from recovering certain damages (such as non-economic damages like pain and suffering) from an at-fault motorist following an accident.

No-Fault Auto Insurance

An auto insurance compensation system in which an injured person recovers specified personal injury benefits from their own insurer without first proving who caused the collision.

Monetary Threshold

A dollar amount of medical expenses or economic loss specified in a no-fault statute that an injured claimant must exceed before being permitted to file a tort lawsuit against the negligent driver.

Verbal Threshold

A statutory description defining the severity or nature of physical harm (such as death, permanent injury, or disfigurement) required before an injured person may sue for damages in a no-fault state.

Automobile Insurance Plan (Assigned-Risk Plan)

A residual market mechanism in which motorists who cannot obtain coverage in the voluntary market are assigned to participating auto insurers in proportion to each carrier's market share.

Joint Underwriting Association (JUA)

A residual market pool in which all licensed auto insurers share the underwriting losses and expenses of high-risk drivers, while designated servicing insurers handle policy issuance and claims.

Insurance Score

A predictive credit-based rating metric used by insurers in underwriting and pricing to forecast the likelihood and expected cost of future insurance claims.

Named Perils

A property insurance coverage method that insures against direct physical loss only if the cause of damage is explicitly listed in the policy contract.

Open Perils

A property insurance coverage approach that protects against all direct physical losses to property except those specifically excluded or limited by the policy.

HO-3 (Special Form)

A standard homeowners policy providing open-perils protection for the dwelling and other structures (Coverages A and B) and 16 named perils for personal property (Coverage C).

HO-4 (Contents Broad Form)

A tenant or renter insurance form that covers personal belongings and loss of use on a named-perils basis without insuring the landlord's physical building.

HO-6 (Unit-Owners Form)

A homeowners policy designed for condominium owners that covers interior unit improvements, personal belongings, loss of use, and personal liability.

Coverage A: Dwelling

Homeowners coverage that protects the residence building, attached structures (such as an attached garage or deck), and construction materials on premises, based on the cost to rebuild.

Coverage B: Other Structures

Homeowners coverage protecting detached structures on the residence premises (such as a detached garage, shed, or fence), typically set at $10\%$ of Coverage A.

Coverage C: Personal Property

Homeowners coverage that protects personal belongings owned or used by an insured anywhere worldwide, commonly set at a baseline of $50\%$ of Coverage A and subject to special sublimits.

Coverage D: Loss of Use

Homeowners coverage that pays additional living expenses, fair rental value, and limited prohibited-use costs when a covered loss renders the insured residence uninhabitable.

80% Replacement-Cost Rule

A homeowners policy coinsurance condition requiring the dwelling to be insured for at least $80\%$ of its full replacement cost at the time of loss to receive full repair cost settlement on partial losses without depreciation.

Mortgage Clause

A property contract provision ensuring that a named lender's financial interest in the insured dwelling is protected and that claim payments may include the mortgage holder.

Coverage E: Personal Liability

Section II homeowners coverage that defends the insured against covered lawsuits and pays damages for bodily injury or property damage for which the insured is legally responsible.

Coverage F: Medical Payments to Others

Section II homeowners coverage that pays necessary medical expenses for third parties injured accidentally at an insured location or through insured activities, without requiring proof of legal fault.

Occurrence

An accident, including continuous or repeated exposure to substantially the same general harmful conditions, resulting in bodily injury or property damage during the policy period.

Damage to Property of Others

An additional Section II coverage (typically providing up to $\$1,000$ per occurrence) that pays for accidental property damage caused by an insured to another person's property regardless of legal liability.

Inflation Guard Endorsement

A policy endorsement that automatically increases property coverage limits over the term of the policy to keep pace with rising construction and replacement costs.

Scheduled Personal Property Endorsement

An endorsement providing specific, higher open-perils coverage for declared high-value personal property (such as jewelry, fine arts, rare coins, or furs) that exceed standard Coverage C sublimits.