Unit 4 Cram Sheet

2 Types of Property

Real property - buildings

Personal Property - moveable contents like furniture and clothing

2 ways to cover property

Specific/Scheduled - provide a detailed list of covered items

Blanket - all of a certain type of item are covered without providing any lists (ex: all the contents of a house)

Where are limits of insurance/liability listed

on the declarations page

2 types of insured perils

Names - only covers those that are listed

Open (special) perils - covers all perils that are not specifically excluded

3 Basic Perils

Fire, lightning, and internal explosion

Extended coverage under Basic Perils

WCSHAVVER and V&MM

Broad Perils

All of basis and extended perils plus BIG AFFECT

BIG AFFECT

Covers damages caused by:

B - Burglary

I - weight of ice, sleet, and snow

G - glass breakage

A - Accidental discharge of water/steam

F - Freezing objects (pipes)

F - Falling objects

E - Electrical Current

C - Collapse

T - Tearing Asunder (accidental bursting, tearing, cracking, etc of HVAC, water heating system, etc)

Levels of Covered Perils

Basic = least expensive

Broad = middle

Special - Most expensive because it is the only open policy

4 common exclusions of Broad Perils Plan

1. Weight of ice on awning, fences, patios, swimming pool, or docks

2. Accidental discharge of water from continuous leaking

3. flooding from river or lake

4. burglary if property is vacant more than 60 consecutive days

Special Peril Coverage

Covers all risks of direct physical loss except those specifically excluded

Common exclusions of special plans

1. Flooding

2. Earthquake

3. Intentional damage caused by insured

4. losses due to enforcement of building codes

5. damage caused by a power interruption occurring off premises

6. governmental seizure

2 types of Losses

Direct - immediate damage caused by the peril

Indirect - consequential loss over time as a result of direct loss (loss of income, hotel room fees, etc)

6 Classes of Construction

Class 1 - Frame

Class 2 - Joisted Masonry

Class 3 - Noncombustible

Class 4 - Masonry Noncombustible

Class 5 - Modified Fire Resistive (2 hrs or less)

Class 6 - Fire Resistive (2 hrs or more)

Loss Valuation

How the insurance company determines the appropriate amount of loss to be paid

5 loss valuation types

You are typically insured to receive the lesser of:

1. insurable interest

2. policy limits

3. actual cash value

4. cost to repair

5. replacement cost

Insurable Interest

what is owed to someone else

actual cash value

*Most common

current cost of comparable replacement minus depreciation

replacement cost

replacing similar kind and quality item

functional replacement

replace item with nonidentical item that performs the same function with equal efficiency

6 methods of calculating value

1/ replacement cost

2/ functinal replacement

3/ market value (seldom used)

4/ Agreed Amount (common for antiques)

5/ Stated Amount (chosen by insured, reverts to ACV if less)

6/ Pair and Set (value of pair/set minus other half)

Appraisal

used when there is a disagreement between insured and insurer on the amount of the loss

Both parties pay their own appraiser, and appraiser brings in neutral umpire if they can’t agree. Whoever the umpire agrees with determines final funding

Arbitration

Disagreement about other areas of the loss such as coverage levels. Used before legal action is brought up

Coinsurance

Requirements for how much of a property you must have insured.

Usually 80% of the replacement cost must be insured. If the minimum is not carried, claims will NOT be paid in full unless it is a total loss

Coinsurance formula for under minimum requirement

Insurance carried / insurance required * Loss amount = claim payment - deductible

Vacant

No property or people are present at the time of the loss

*If vacant greater than 60 days, may affect payment of claims

Unoccupied

No people present at time of loss

*Does not affect the covered perils and claim value

Standard mortgage / loss payable clause

Allows the lender to pay the premium, file proof of loss/claim, receive notice if policy will be cancelled, and be protected from negligence/dishonesty on part of insured.

*Basically ensures the lender still gets paid (up to the amount of the debt) regardless of actions of the insured

Bailee

A person or business that has temporary control of the insured’s property but cannot benefit from the property owner’s policy