Unit 4: Basics of property insurance

Real Property

Permanent structures and buildings.

Personal Property

Moveable contents like furniture, appliances, clothing, and tools.

Specific (Scheduled) Coverage

A detailed list of covered items, like a diamond ring.

Blanket Coverage

Applies to all items in a category, such as all personal property in a home.

Policy Limit

The maximum amount the insurer will pay for a loss, as shown on the declarations page.

Named Perils

Covers only perils listed in the policy, like fire or lightning.

Open Perils

Covers all risks of physical loss unless specifically excluded.

Basic Perils (Basic Coverage)

Includes fundamental risks like fire, lightning, and internal explosion.

Extended Coverage (EC) Perils

Includes additional perils like wind, hail, explosion, and vandalism.

Broad Perils (Broad Coverage)

Adds more risks, such as burglary, ice damage, and falling objects.

Special Perils (Open Perils Coverage)

Covers all risks of direct physical loss except those specifically excluded, like floods or earthquakes.

Direct Loss

Immediate damage caused by a peril, such as fire-damaged furniture.

Indirect Loss

Consequential loss resulting from a direct loss, such as lost income due to fire damage.

Class 1 Construction

Frame construction, using combustible materials like wood.

Class 2 Construction

Joisted masonry construction with masonry support but combustible interiors.

Class 3 Construction

Noncombustible construction, often using metal.

Class 4 Construction

Masonry noncombustible construction, such as concrete walls and a metal roof.

Class 5 Construction

Modified fire-resistive construction with materials that resist fire.

Class 6 Construction

Fire-resistive construction that can resist fire for at least two hours.

Actual Cash Value (ACV)

Replacement cost minus depreciation.

Replacement Cost

The cost to replace an item with a new one.

Functional Replacement Cost

The cost to replace an item with modern materials that perform the same function.

Market Value

The current selling price of an item.

Agreed Amount

A pre-set value for unique items.

Stated Amount

The insurer pays up to a certain amount for an insured item.

Pair and Set Clause

Compensation for damaged sets by subtracting the value of remaining items from the set's total value.

Appraisal

A process for resolving disputes on the value of a loss between the insurer and insured.

Arbitration

A process for resolving disputes involving policy interpretation or other disagreements.

Coinsurance Clause

Requires maintaining at least 80% of the replacement cost to avoid penalties in a claim.

Coinsurance Formula

(Insurance Carried ÷ Insurance Required) × Loss - Deductible

Vacant Property

A property with no people or belongings inside.

Unoccupied Property

A property with no people inside, but with belongings present.

Standard Mortgage Clause

Allows lenders to pay premiums, file claims, and receive payments to protect their interest in the property.

No Benefit to Bailee Clause

Prevents third parties, such as a bailee, from benefiting from the insured’s policy.

W in WC SHAVVER VMM

Wind

C in WC SHAVVER VMM

Civil commotion

S in WC SHAVVER VMM

Smoke

H in WC SHAVVER VMM

Hail

A in WC SHAVVER VMM

Aircraft

V in WC SHAVVER VMM

Vehicles

V in WC SHAVVER VMM

Volcanic eruption

E in WC SHAVVER VMM

Explosion

R in WC SHAVVER VMM

Riot

VMM in WC SHAVVER VMM

Vandalism and Malicious Mischief

B in BIG AFFECT

Burglary damage

I in BIG AFFECT

Ice, sleet, snow (weight of)

G in BIG AFFECT

Glass breakage

A in BIG AFFECT

Accidental discharge of water

F in BIG AFFECT

Freezing objects (plumbing, systems)

F in BIG AFFECT

Falling objects

E in BIG AFFECT

Electrical current (excludes electrical components)

C in BIG AFFECT

Collapse

T in BIG AFFECT

Tearing asunder (sudden cracking or burning of water heaters, systems)

Basic Perils

Fire, lightning, internal explosion

Extended Coverage Perils (WC SHAVVER VMM)

Windstorm, Civil commotion, Smoke, Hail, Aircraft, Vehicles, Volcanic eruption, Explosion, Riot, Vandalism and Malicious Mischief

Broad Perils (BIG AFFECT)

Burglary damage, Ice/snow/sleet, Glass breakage, Accidental discharge of water, Freezing objects, Falling objects, Electrical current, Collapse, Tearing asunder