Chapter 1. Property Insurance Terms and Related Concepts

What is a deductible in an insurance policy?

A specified dollar amount that the insured must pay before the insurer will pay the policy benefits

What is negligence?

Failure to act as a reasonable, prudent person under given circumstances

How are direct and indirect losses related?

Direct losses can cause indirect losses.

What are the three types of hazards?

Physical, moral, and morale

An insurer discovers that an applicant for a policy has submitted a fraudulent insurance claim in the past. What type of hazard does this represent?

Moral

If a manufactured product is unsafe, what type of liability applies to the manufacturer?

Strict liability

Insurance is a contract that protects the insured from what?

Loss

What do individuals use to transfer their risk of loss to a larger group?

Insurance

(Insurance Carried ÷ Insurance Required) x Loss Amount =

Loss payment

What type of limits of liability has the limits separately stated for different coverages?

Split limits

If an insured peril was the proximate cause of loss, what type of loss is it?

Direct

Conditions that increase the chance of a loss are known as what?

Hazards

What is subrogation?

An insurer’s legal right to seek damages from third parties after reimbursing insureds for a loss

Under absolute liability, does an injured party need to prove negligence?

No. Absolute liability exists when a condition or conduct is inherently dangerous, so proof of negligence is not required.

A situation in which a person can experience only a loss and no gain presents what type of risk?

Pure risk

What term defines an exact, direct, and uninterrupted cause of loss?

Proximate cause

What is the difference between vacancy and unoccupancy?

Vacancy refers to an insured structure in which no people have been living or working and no property has been stored for the specified period of time. Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but some property is stored.

What law protects consumers from the circulation of inaccurate or obsolete information?

The Fair Credit Reporting Act

A tornado that destroys a property would be an example of what?

Peril

How is the actual cash value of a property calculated?

Current replacement cost minus depreciation

What type of policy insures all property at multiple locations for a single amount?

Blanket policy

What determines an insurer’s responsibility for payment, as stated in an insurance policy?

Limits of liability

Wagering on a sporting event is known as what type of risk?

Speculative

What sublimit in a liability policy puts a ceiling on the payment for all claims that arise from a single accident?

Per occurrence

Both robbery and burglary can be considered what?

Theft

In property insurance, what is the purpose of a coinsurance clause?

To encourage insureds to insure property close to its value

What provision found in property policies prevents an insured from collecting twice for the same loss: once from the insurer and again from a third party?

Subrogation

What is burglary?

A forced entry into another’s premises with felonious intent

What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?

Indemnity

What is the term for the causes of loss insured against in an insurance policy?

Peril

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Loss

What does indemnify mean in insurance?

To restore an insured to the same financial status as before a loss

An insured’s business is damaged by a fire, and temporarily shut down for repairs. As a result, the insured suffers loss of income. What type of loss is the loss of income?

Indirect loss or consequential

In property insurance, when must insurable interest exist?

At the time of the loss.

What term describes a loss caused by continuous exposure to a condition?

Occurrence

What is a risk?

Uncertainty of a loss.

What type of hazard does a person represent if they show an indifferent attitude to loss?

Morale

In property insurance, what is actual cash value?

Replacement cost at the time of loss, minus depreciation

What are the two types of compensatory damages?

Special and general

A policy that covers all causes of loss except for those specifically excluded is known as what type of policy?

Open peril (or special) form