Unit 4: Basics of Property Insurance

real property

buildings

personal property

moveable contents

covered property

specific (scheduled)- detailed list of covered items

blanket- no detailed list

single limit of coverage

limits of insurance

maximum coverage limits

listed on declarations page

named peril

covers only perils listed

open (special) perils

all risks of direct physical loss unless specifically excluded

basic perils

fire, lightning, and internal explosion

there are optional extended coverage perils included here

extended coverage perils

wind, civil commotion, smoke, hail, aircraft, vehicles, volcanic eruption, explosion, riot, vandalism and malicious mischief

broad perils

all of basic plus extended perils plus…

burglary damage, the weight of ice sleet and snow, glass breakage, accidental discharge of water, freezing water, falling objects, electrical current, collapse, and tearing asunder

broad perils exclusions

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

accidental discharge of water from continuous leaking

flooding from river or lake

burglary if property vacant more than 60 consecutive days

special/open peril coverage

all risks of direct physical loss, except those specifically excluded

common exclusions: flooding, earthquake, intentional damage caused by an insured, losses due to enforcement of building codes, damage caused by a power interruption occurring off premises, government seizure

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

deductible reduces any amount after loss has been valued

insured to collect lesser of:

• insurable interest

• policy limits

• actual cash value

• cost to repair or

• replacement cost

actual cash value

replacement cost based on today’s cost- not what was originally paid for item

• cost to replace it now

• = replacement cost - depreciation

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 issued

stated amount

insured up to this amount

pair and set

value of the ___ before the loss minus the value of what remains

appraisal

disagreement on the amount of the loss

• company and insured pay their own appraiser

• appraisers get an umpire if they can’t agree (cost shared)

• agreement of any two of the three determines the amount

arbitration

disagreement about other areas of the loss

coinsurance clause

how much insurance did you carry?

how much insurance should you have carried? (total value x 80%)

(DID/SHOULD) x Loss

vacant

empty building- no people or contents

insured penalized after 60 days of vacancy

unoccupied

contents remain but no people

no loss of coverage

standard mortgage or loss payable clause

allows lender to pay premium

lender entitled to receive notice if policy is to be cancelled

lender can file claim

lender protected from negligent or dishonest acts of the isured

lender only entitled to receive payment up to the amount of the debt

no benefit to bailee

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

bailee cannot benefit from the property owner’s policy