Unit 4 P&C Basics of Property Insurance

Real Property

Land and permanently attached structures.

Personal Property

Movable property.

Specific (Scheduled) Coverage

Individually listed property with specific coverage amounts.

Blanket Coverage

One limit covering multiple items of property.

Limit of Liability

The maximum amount an insurer will pay for a covered loss.

Named Peril Coverage

Covers only perils specifically listed in the policy.

Open Peril Coverage

Covers all direct physical loss unless specifically excluded.

Basic Coverage

The most restrictive property coverage form.

Broad Coverage

Mid-level property coverage form.

Special Coverage

The broadest property coverage form.

Fire, Lightning, and Internal Explosion.

Basic Form Covers What Three Perils?

Fire (Property Insurance)

Must be a hostile fire to be covered.

Lightning

Natural electricity.

Internal Explosion

Explosion occurring within a covered structure.

Wind, Civil Commotion, Smoke, Hail, Aircraft, Vehicles, Volcanic Eruption, Explosion, Riot.

What does WCSHAVVER stand for?

Windstorm Coverage

Interior damage is covered only if wind first damages the exterior.

Smoke Exclusion

Smoke from a friendly fire is not covered.

Aircraft Peril

Damage caused by aircraft or parts of aircraft.

Vehicle Peril

Damage caused by vehicles striking covered property.

Volcanic Eruption

Covers damage from lava, ash, debris, and air shockwaves.

Vandalism and Malicious Mischief (V&MM)

Available with Extended Coverage.

Burglary, Ice/Snow, Glass, Accidental Water Discharge, Freezing, Falling Objects, Electrical Current, Collapse, Tearing Asunder.

What does BIG AFFECT stand for?

Burglary Damage

Damage caused by burglars during a break-in.

Weight of Ice, Snow, or Sleet

Covers damage caused by weight of accumulated ice, snow, or sleet.

Glass Breakage

Covers accidental breakage of glass.

Accidental Water Discharge

Covers sudden and accidental discharge from plumbing, heating, AC, sprinkler systems, or appliances.

Freezing Coverage

Requires reasonable care to maintain heat or drain systems.

Falling Objects

Interior damage covered only if roof or wall is first damaged.

Electrical Current

Sudden and artificially generated electrical current.

Collapse

Collapse caused by a covered peril.

Tearing Asunder

Sudden cracking, burning, or tearing apart of specified systems.

Broad Form Exclusion

No coverage for flooding from rivers or lakes.

Broad Form Exclusion

Burglary is not covered if property is vacant more than 60 consecutive days.

Special Form (Open Peril) Coverage

Covers all direct physical loss unless excluded.

Major Special Form Exclusions

Flood, Earthquake, Intentional Loss, Government Action, Building Ordinance Enforcement, Off-Premises Power Failure.

Direct Loss

Immediate damage caused by a peril.

Indirect Loss

Financial consequence of a direct loss.

Example of Indirect Loss

Loss of rental income after a fire.

Loss Valuation

Process of determining claim payment amount.

insurer generally obligated to pay

The lesser of insurable interest, policy limits, ACV, repair cost, or replacement cost.

Actual Cash Value (ACV)

Replacement cost minus depreciation.

Replacement Cost

Current cost to replace property without depreciation.

Functional Replacement Cost

Cost to replace property with one performing the same function.

Market Value

Current selling price of property.

Agreed Value (Valued Policy)

Value agreed upon before a loss occurs.

Stated Amount Insurer Pays

Lesser of stated amount or actual cash value.

Pair and Set Condition

Value before loss minus value of remaining property.

Appraisal Clause

Method used when insurer and insured disagree on amount of loss.

Two appraisers and one umpire.

How many appraisers are involved in appraisal?

Coinsurance

Requires insurance equal to a specified percentage of property value.

80%.

Most Common Coinsurance Requirement

Purpose of Coinsurance

Encourage property owners to insure property close to full value.

Loss × (Amount Carried ÷ Amount Required).

Coinsurance Formula

Coinsurance Penalty

Reduction in claim payment due to inadequate insurance.

Vacancy

Building has no people and no contents.

Vacancy Rule

Penalties apply after 60 consecutive days.

Unoccupied Building

Contents remain but people are absent.

No.

Does unoccupancy create a vacancy penalty?

Standard Mortgage Clause

Protects mortgagee's interest even if insured violates the policy.

Mortgagee Rights

File proof of loss and pay premiums if insured fails to do so.

Loss Payable Clause

Protects a lender's interest in personal property.

Bailee

Person temporarily possessing another person's property.

No Benefit to Bailee

A bailee receives no protection under the owner's insurance policy.

Insurable Interest Requirement

Must exist at the time of loss.

Replacement Cost vs ACV

Replacement cost pays without depreciation; ACV subtracts depreciation.

Special Form.

Most Expensive Property Coverage Form

Basic Form.

Most Restrictive Property Coverage Form

Special Form.

Which Coverage Form Uses Open Perils?