Unit 4: Basics of Property Insurance

Flashcards

Loss Valuation Methods

Actual Cash Value (ACV), Replacement Cost, Functional Replacement Cost, and Market Value.

Actual Cash Value (ACV)

Replacement cost minus depreciation.

Replacement Cost

The cost to replace the damaged property with new property of like kind and quality.

Functional Replacement Cost

Cost to replace damaged property with less expensive, functionally equivalent material.

Market Value

The amount a willing buyer would pay to a willing seller.

Parts of a Standard Property Insurance Policy

Declarations, Insuring Agreement, Conditions, Exclusions.

Declarations Page

It contains who, what, when, where, and how much coverage is provided.

Insuring Agreement

The part of the policy where the insurer promises to pay for covered perils.

Policy Conditions

Rules and obligations for both insurer and insured.

Policy Exclusions

Perils or situations not covered by the policy.

Endorsement

A form attached to a policy that modifies the original terms.

Additional Coverages

Coverages provided in addition to the limits in the insuring agreement.

Insured's Duties After a Loss

Provide notice, protect property, submit proof of loss, cooperate with the insurer.

Mortgagee Clause

Protects the interests of a mortgage lender named in the policy.

Loss Payable Clause

Protects a lenders interest in personal property such as equipment or vehicles.

Standard Deductible for Property Policies

$250 unless otherwise stated.

Pair and Set Clause

Allows insurer to adjust a loss for part of a pair or set by paying the difference in value.

Appraisal Clause

Resolves disputes over the amount of loss when insurer and insured disagree.

Abandonment Clause

Prevents the insured from abandoning damaged property to the insurer.

Salvage Condition

Allows the insurer to recover the value of damaged property after payment.

Subrogation Clause

Transfers the insureds right of recovery against others to the insurer.

Liberalization Clause

Broadens coverage without additional premium if laws or insurer practices change.

No Benefit to Bailee Clause

Bailee cannot benefit from the insured's policy.

Named Insured

The person or business listed on the declarations page.

First Named Insured

The first person listed, with special duties like paying premiums and receiving notices.

Policy Period

The time from the effective date to the expiration date of coverage.

Policy Territory

The geographic area in which losses must occur for coverage to apply.

Concurrent Causation

When two or more perils cause a loss if one is excluded, the entire loss may be excluded.

Proximate Cause

The primary cause of loss in an unbroken chain of events.

Blanket Limit

A single amount of insurance that covers multiple locations or types of property.

Specific Coverage

Insurance that covers a specific item of property for a specific amount.

Coinsurance

Requires the insured to carry a minimum amount of insurance to avoid penalties.

Coinsurance Penalty Calculation

(Amount carried / Amount required) * Loss - Deductible.

Vacancy

When a building is empty of both people and contents.

Unoccupancy

When a building has contents but no occupants.

Coverage Implications of Vacancy (60+ days)

Certain perils are excluded or limited (e.g., vandalism).