Insurance Licensing Unit 4: Basics of Property Insurance (Gemini Ver.)

Direct Loss

A financial loss that results directly from a covered peril, such as a house being damaged by fire.

Indirect Loss

Also known as a consequential loss; a financial loss that is a result of a direct loss, such as the loss of rental income or extra expenses while a home is repaired.

Peril

The specific cause of a loss, such as fire, wind, or lightning.

Basic Perils

A standard list of covered perils, including fire, lightning, and internal explosion.

Extended Coverage (EC)

Additional perils added to the basic policy, such as wind, hail, aircraft, riot, vehicles, smoke, and volcanic eruption (WCSHAVE).

Broad Perils

Includes all basic perils plus several more, such as falling objects, weight of ice/snow, and accidental discharge of water (BIG AFFECT).

Special/Open Perils

Coverage for all causes of loss unless specifically excluded by the policy.

Specified/Named Perils

A policy that covers only the perils specifically listed in the contract.

Actual Cash Value (ACV)

A valuation method calculated as Replacement Cost minus Depreciation ($ACV = \text{Replacement Cost} - \text{Depreciation}$).

Replacement Cost

The cost to replace damaged property with a similar kind and quality at today's prices, without deducting for depreciation.

Functional Replacement Cost

The cost of replacing damaged property with less expensive but functionally equivalent materials.

Market Value

The price a willing buyer would pay for the property in the current market.

Agreed Value

A value determined by the insurer and insured at the time the policy is issued; usually reset annually.

Stated Amount

A valuation where the insured declares the value of the property; the insurer pays the lesser of the stated amount or the ACV at the time of loss.

Pair and Set Clause

A provision stating that if one part of a pair or set is lost or damaged, the insurer will pay the difference between the value of the set before and after the loss.

Appraisal

A process used when the insured and insurer disagree on the amount of a loss; each chooses an appraiser, and they select an umpire to resolve differences.

Arbitration

A process used to resolve disagreements, often regarding whether a loss is covered at all.

Coinsurance

A requirement that the insured carry insurance equal to a certain percentage (usually 80%) of the property's value to receive full payment for partial losses.

Vacant

A property that is entirely empty of both people and personal property; coverage is often restricted after 60 days of vacancy.

Unoccupied

A property that contains personal property but has no people living or working there.

Standard Mortgage Clause

Protects the insurable interest of the mortgagee (lender) by allowing them to receive loss payments and requiring notice of cancellation.

Loss Payable Clause

Protects the interest of a third party (other than a mortgagee) who has a financial interest in personal property, such as a lender for a car loan.

No Benefit to Bailee

A provision stating that a person or business having temporary custody of the insured's property (like a dry cleaner) cannot benefit from the insured's policy.