Chapter 3: Property Insurance Basics

Open Perils

Coverage applies to all losses caused by all perils except for those specifically excluded

(aka: all risk)

Unoccupancy

A property that contains personal property or contents but has no occupants

Direct Loss

A loss that is the immediate result of a peril

Mysterious Disappearance

The disappearance of property without an identifiable cause of loss

Market Value

The price a willing buyer would pay for property purchased from a willing seller under fair market conditions

Loss Valuation

A property policy pays for losses to property based on the valuation method contained in the policy or chosen by the insured in an endorsement added to the policy

Limit of Liability/Limits of Insurance

The restriction a liability policy places on the dollar amount of coverage

Inherent Vice

A quality within property that causes it to damage or destroy itself, such as spoiled food, rusting, or wear and tear

Not covered by property policies

Indirect Loss or Consequential Loss

A loss that is a result of a direct physical loss

Refers to financial losses, such as loss of income or additional expenses incurred while property is being repaired

Hostile Fire

A fire that burns outside of its intended boundaries or becomes uncontrollable

Agreed Value

The insurer and insured agree, at the time of insuring, on an amount of insurance to be paid in the event of a loss

(Used when valuation is difficult to determine)

Bailee

A person or organization that has taken the property of another into their care, custody, or control for servicing, repair, or storage

Blanket Limit

Insures more than one property for a single amount of insurance that applies to all covered properties

Burglary

The taking of property from inside the premises, a locked safe, or a locked vault by a person who forcibly enters or exists the property

Coinsurance

Encourages the insured to purchase insurance to value (a certain % of property's total valuation)

Establishes the basis of payment if the insured fails to maintain a specified percentage of that value

Applies only in the event of a partial loss

Did/Should * Loss = Amount Insurer Pays

Friendly Fire

A fire that was intentionally set and stays within its intended boundaries (a fireplace)

Robbery

The taking of property from the care and custody of a person who has been threatened with bodily harm or has been harmed

Bailor

The person who retains the ownership of the property that has been taken into a bailee's care, custody, or control

Right of Salvage

The right of the insurer to take possession of damages property after paying for its loss

The salvage belongs to the insurer

Stated Value

The insurer bases the policy premium on the insured's statement of the property's value

The insurer will pay the lesser of the stated amount and the actual cash value at the time of the loss

Loss Payment

Specifies how the insurer will make payment for loss and what applicable time frames must be honored when submitting claim documents

Named Peril

A type of coverage that only provides insurance for the causes of loss that are listed in the policy

Stated Amount

An amendment to the valuation method of a property policy insuring an unusual or valuable piece of property that establishes, at the time of insuring, a maximum amount of insurance to be paid in the event of a loss

Specific Limit

Insured a single item of property for a single limit of insurance

Concurrent Causation

A principal holding that when two perils simultaneously cause a loss, the insurer must pay the loss even if one of the perils is excluded by the policy

Deductible

A specified amount of each loss that the insured must bear as a way to share the cost of a loss

Property insurers typically subtract this amount from the amount of loss when making a claim payment

Functional Replacement Cost

The insurer will pay the cost of replacing the property with its functional equivalent

Theft

The broadest of the crime coverages, includes any act of stealing, including burglary and robbery

Replacement Cost

The cost to replace property with property of like kind and quality, at current pricing, without a deduction for depreciation

Abandonment of Property

Specifies that the insured may not abandon or relinquish ownership of damaged property to the insurer for disposal or repair

Guaranteed Replacement Cost

These policies pay the full cost of replacing the dwelling, even if the amount exceeds the policy limits

Vacancy

A property that contains no personal property and has no occupants

Scheduled Limit

Insures multiple items on a single policy, with different limits applying to each item

Salvage Value

The amount for which property can be sold at the end of its useful life

In property insurance, this is the scrap value of damaged property

Proximate Cause

The first event in the unbroken chain of events that resulted in loss

The period that directly caused the loss