UNIT 4 insurance

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Which perils are included in the Basic Cause of Loss Form?

Fire, lightning, and internal explosion.

Which peril is NOT included in the Basic Cause of Loss Form?

Explosion (both internal and external).

What is the coinsurance clause?

A property insurance provision requiring the insured to carry a minimum amount of insurance, usually 80% of the property's replacement cost.

What is the formula for calculating a coinsurance penalty?

DID ÷ SHOULD × LOSS.

A building has a replacement cost of $200,000 and an 80% coinsurance requirement. What is the required insurance amount?

$160,000.

A building has a replacement cost of $200,000, $100,000 in insurance, and an $80,000 covered loss. How much does insurance pay before the deductible?

$50,000.

What is Actual Cash Value (ACV)?

The current replacement cost minus accumulated depreciation.

An item has a replacement cost of $5,000 and depreciation of $2,000. What is its ACV?

$3,000.

When homeowners temporarily leave their primary residence to stay at another home, what is their primary residence considered?

Unoccupied.

What is the difference between vacant and unoccupied property?

Vacant means entirely empty; unoccupied means nobody is currently living there.

What is a blanket policy?

A policy providing one overall limit of coverage for all items within a particular property category.

What is the difference between blanket coverage and scheduled coverage?

Blanket coverage provides one overall limit for a group of items; scheduled coverage individually lists specific items.

What is personal property?

Movable belongings such as appliances, clothing, tools, furniture, jewelry, and electronics.

What is real property?

Land and permanent structures or buildings attached to the land.

If an insurer and insured agree beforehand on the value of a valuable item, what type of valuation is used?

Agreed value.

What are other names for an open peril policy?

Special form, all-risk policy, and comprehensive coverage.

Which type of policy covers all direct physical losses except those specifically excluded?

Special (open) peril coverage.

What is the difference between named peril and open peril coverage?

Named peril covers only specifically listed causes of loss; open peril covers direct physical losses unless specifically excluded.

What is NOT covered by broad peril coverage when damage results from a faucet leaking continuously for over two months?

Continuous or repeated leakage over an extended period.

What is an indirect loss?

A financial or consequential loss resulting from a direct physical loss.

What is a direct loss?

Physical damage to property itself.

Which statement about loss valuation and deductibles is NOT correct?

The deductible increases the amount paid after the loss has been valued.

What is the relationship between loss valuation and claims settlement?

Loss valuation determines the monetary value of the damage; claims settlement determines the amount ultimately paid.

What is the purpose of the appraisal condition in property insurance?

To resolve disagreements about the dollar value of a loss, not whether the loss is covered.

How many parties are involved in the appraisal process?

Three: the insured's appraiser, the insurer's appraiser, and the umpire.

Who selects the appraisers in the appraisal process?

The insured selects one appraiser, and the insurance company selects another.

When is an umpire needed in the appraisal process?

When the two appraisers cannot agree on the amount of the loss.

What is majority rule in the appraisal process?

At least two out of the three parties must agree on the value of the loss.

Does the appraisal process determine whether a loss is covered?

No. It determines only the value of the loss.

What is arbitration in insurance?

A dispute-resolution process that may resolve disagreements beyond the valuation of property damage.

Who are the two primary parties involved in an insurance claim dispute?

The insured (policyholder) and the insurer (insurance company).

What is the difference between appraisal and arbitration?

Appraisal determines how much a property loss is worth; arbitration resolves other disputes when permitted.

What is a bailee?

A person or business that temporarily possesses someone else's property.

What is a bailor?

The person who gives their property to another party for temporary possession or safekeeping.

What is a custodian?

A person responsible for taking care of or safeguarding property.

What is a fiduciary?

A person who has a duty to act in another person's best interests.

When can an insured be reimbursed based on the repair cost of a damaged item?

When the repair cost is less than the item's Actual Cash Value (ACV).

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