Chapter 3 Insurance Exam

Property Insurance (fire insurance)

insurance coverage that applies to tangible items, including real property (fixed property, like buildings and structures) and personal property (the building contents)

Two-Party Contract

insured is the first party, second party is the insurance company

First-Party Insurance

property insurance is referred to as this because it provides coverage for loss to the insured’s own property

Hostile fire

a fire that burns outside of its intended boundaries or becomes uncontrollable

Friendly Fire

fire that was intentionally set and stays within its intended boundaries

Theft

includes any act of stealing, including burglary and robbery

Burglary

the taking of property from inside the premises, a locked safe, or a locked vault by a person who forcibly enters or exits the property

Robbery

the taking of property from the care and custody of a person who has been threatened with bodily harm or has been harmed

Mysterious Disappearance

when property goes missing and the cause of loss is not known

Unoccupancy

refers to a property that contains personal property, but has no occupants

Vacancy

refers to property that contains no personal property and has no occupants

Bailee

a person or organization that has taken the property of another into their care, custody, or control for servicing, repair, or storage

Bailor

the person who retains the ownership of the property that has been taken into a bailee’s care, custody, or control

Primary Cause of Loss (proximate cause)

if only one peril causes the loss, the proximate cause is that the peril directly causes the loss

Concurrent Causation

when two perils simultaneously cause a loss (both perils are the proximate cause), the insurer must pay for the loss even if one of the perils is excluded by the policy

Inherent Vice

refers to a quality within a property that causes it to damage or destroy itself, such as spoiled food, rusting, or wear and tear; not covered by property policies

Named Peril Policies

only provide insurance against the causes of loss that are specifically listed in the policy

Open Peril Policies

all-risk policies; provide insurance against all causes of loss, except those that are specifically excluded from the policy

Basic Forms

provide insurance on a named perils basis to provide coverage against a small number of essential perils; fire, lightning, explosion, hail, wind, vandalism, volcanic action smoke

Broad Forms

provide insurance on a named perils basis, but they insure against more perils than basic forms; freezing of plumbing systems, accidental discharge/overflow of water, falling objects, weight of ice/snow/sleet

The Collapse Additional Coverage

provides coverage when losses caused by building collapse

Special Forms

offer the broadest coverage, as they provide open perils coverage

Actual Cash Value (ACV) calculation

replacement cost - depreciation

Replacement Cost

the full cost to repair damaged property or replace damaged property with property of like kind and quality, at current pricing, without a deduction for depreciation

Functional Replacement Cost

the insurer will pay the cost of replacing the property with its functional equivalent - repair cost

Agreed Value

some policies insure covered property for an agreed-upon policy limit that is paid in the event of a total loss, regardless of the actual cash value of the property at the time of loss

Valued Policies

policies that are written on an agreed value basis

Stated Value

the insurer bases the policy premium on the insured’s statement of the property’s value

Fair Market Value

the price a willing buyer would pay for property purchased from a willing seller under fair market conditions

Specific Limit

insures a single item of property for a single limit of insurance

Blanket Limit

insures multiple items of property for a single amount of insurance that applies to all covered property; properties could be in different locations, different types of property, or both

Scheduled Limits

insure multiple items of property on a single policy with a different limit applying to each item, as scheduled in the Declarations

Deductible

a specified amount of each loss that the insured must retain as a way to share the cost of a loss, often applicable to each occurrence

Coinsurance

requires an insured to carry a certain percentage of the property’s total valuation (usually 80%) in order for losses to be paid in full; only applies to partial losses

Loss Settlement

this condition specifies which loss valuation method will apply to the property insured under the policy

Loss Payment

specifies how the insurer will make payment for loss and what applicable time frames must be honored when submitting claim documents

Right of Salvage

the salvage value of property is the amount for which it can be sold at the end of its useful life, also known as its scrap value; the right of the insurer to take possession of damaged property after paying for its loss

Abandonment of Property

abandonment is when the insured surrenders damaged property to the insurer for repair or disposal, such as when an insured abandons damaged property to the insurer and demands payment of its full insured value

Control of Property

states that the negligent actions of someone not subject to the named insured’s control does not affect the named insured’s coverage

Mortgage Clause

specifies how the policy protects a mortgagee’s financial interest

Loss Payable Clause

designates a loss payee as a beneficiary of the policy; a loss payee is a party that is paid first in the event of a loss to property in which it has insurable interest, such as a creditor, lender, or lienholder

No Benefit to Bailee

coverage does not apply if loss payment benefits a bailee; because bailees are legally responsible for property in their care, property insurance policies exclude coverage for the insured’s property that the bailee must protect and insure

Appraisal

addresses disputes about the amount of a property loss, and it may be requested by either the insurer or the insured

Recovered Property

if the insured or insurer recovers lost or stolen property after the insurer has made payment under the policy, that party must notify the other party of the recovery

Pair or Set Clause

describes how the insurer will cover a partial loss to property that comes as a pair or set, such as a pair of earrings or a fine china dinnerware set

Standard Fire Policy (SFP)

provided a uniform baseline for writing property insurance, rather than relying on carriers writing completely unique policies for property risks; provides coverage for direct loss resulting from fire, lightning, and the removal of property