P & L - Basics of property insurance Unit 4

Types of Property

Real Property

Personal Property

Real Property

Buildings

Personal Property

Moveable contents

Covered Property

Specific/scheduled

Blanket

Specific / Scheduled ( covered property)

Detailed list of covered items

Blanket (covered property )

All of certain type of property

Single limit of coverage

no detailed list

Limits of insurance

Maximum coverage limits

Listed on declarations page

Insured Perils

Named peril-only perils on the list are covered

Open ( special ) perils - covers all perils except those specifically excluded

Broad Perils

All of basic ( fire, lightning, and internal explosion)

Plus extended perils ( WCSHAVVER and V&MM)

B.I.G - A.F.F.E.C.T

(B)Burglary Damage , (I)Ice,sleet,and snow(weight of) (G)Glass breakage, (A)Accidental discharge of water, (F) Freezing objects (FO) Falling Objects (E)Electrical current (C)Collapse, (T)Tearing asunder

Broad Peril Exclusions

Weight of ice, snow, or falling objects on awnings , fences , patios, swimming pools, docks and retaining walls

Accidental discharge over water from continuous leaking

Flood from river or lake

Burglary if property vacant more than 60 consecutive days

Special / Open Peril Coverage

All risk of direct physical loss , except those specifically excluded

Common exclusions from (special/open peril coverage)

Flooding , Earthquake,

Intentional damage caused by an insured

Losses due to enforcement of building codes

Damage caused by a power interruption occurring off premises

Governmental seizure

Types of Loss

Direct and Indirect

Direct loss

the immediate damage caused by the peril

Indirect loss

over time as a result of the direct loss

Loss of income a business suffers ( house fires)

Cost of a rental car ( car accident )

Additional living expenses while the home is being repaired

6 classes of Construction

Class 1 Frame

Class 2 Joisted Masonry

Class 3 Noncombustible

Class 4 Masonry Noncombustible

Class 5 Modified Fire Resistive

Class 6 Fire Resistive

Loss Valuation

How the insurance company determines appropriate amount of loss to be paid.

What do deductible do?

They reduce any amount after loss has been valued

Insure to collect lesser of

Insurable interest

policy limits

ACV= Actual cash value

Cost to repair

Replacement cost

ACV= Actual Cash Value

Replace cost based in todays cost - not what was originally paid for item

Cost to replace it now!

ACV= replacement - depreciation

6 Methods of Calculating Value

Replacement cost

Functional replacement

Market Value

Agreed Amount

Stated amount

Pair and set

Replacement cost

current replacement cost - no depreciation - similar kind and quality

Functional replacement

replace with modern construction

Market Value

selling price; seldom used

Agreed amount

value of loss is determined before the policy is issused

Stated amount

insured up to this amount

Pair and set

value of the pair or set before the loss minus value of what remains

Alternative Dispute Methods

Appraisal

Arbitration

Appraisal ( Part of Alternative Dispute Methods)

Disagreement on the amount of the loss

Company and insured pay their own appraisers

Appraisers get an umpire if they cant agree ( cost shared )

Agreement of any two of the three determines the amount

Arbitration ( Alternative Dispute Methods)

disagreement about other areas of the loss

Coinsurance

the coinsurance requirement is normally 80% of the replacement cost. If the minimum required amount is carried, then claims are paid in full up to policy limits. If the minimum is not carried , partial losses are not paid in full.

Coinsurance 3 steps and formula

Step 1 : Determine insurance required

Step 2: Do they carry at least this amount?

Step 3: If no , apply the following formula.

Coinsurance formula

INSURANCE CARRIED /(DIVIDED BY) INSURANCE REQUIED

MULTIPED(X) BY THE LOSS = EQUALS

CLAIM PAYMENT - MINUS DEDUCTIBLE

Vacancy

Vacant- no property or people present at time of loss

may affect covered perils and claim value.

Unoccupied

no people present at time of loss

Does not affect covered perils and claim value

The Five Standard Mortgage or Loss Payable Clause

1)Allows lender to pay the premium

2)Lender entitled to receive notice if policy is to be canceled

3)Lender can file a claim

4)Lender protected from negligent or dishonest acts of the insured

5)Lender only entitled to receive payment up to the amount of the debt

No benefit to Bailee ( mechanic, drycleaner, etc)

Bailee is a person or business that has temporary control of the insured’s property

Bailee cannot benefit from the property owners policy.