2044 Personal Lines Exam: Chapter 2. Policy Provisions and Contract Law

What is an Appraisal?

An appraisal is a professional assessment to determine extent of damage

what is an Earned premium?

An earned premium is the portion of premium paid in advance that now belongs to the insurer because it applies to the elapsed part of the policy

What is Liberalization?

Liberalization is the removal or loosening of restrictions

What is Negligence?

Negligence is the failure to use the care that a reasonable, prudent person would under the same or similar circumstances

What is a Policyowner?

A policyowner is the person entitled to exercise the rights and privileges in the policy

What is a/the Third party?

A/the Third party is an individual or an entity other than the two parties involved in an insurance contract (insured and insurer)

What is Underwriting?

Underwriting is risk selection; the process of reviewing applications for insurance to determine eligibility for coverage

What is the Insurer's consideration?

The promise to pay losses

What is the insured’s consideration?

The promise to pay the premium and the representations made in the application

What is offer and acceptance?

In insurance: the offer is made by the applicant (insured) when submitting the application

Acceptance takes place when the insurer’s underwriter approves the application AND issues the policy

What are the 4 essential elements that an insurance contract needs to be legally binding?

1. Agreement — offer and acceptance;

2. Consideration;

3. Competent parties; and

4. Legal purpose.

What are representations

Statements believed to be true to the best of one’s knowledge but are not guaranteed to be true.

• Insured’s statements on the applications are representations

What does an endorsement do to an insurance contract?

It modifies the policy’s original terms.

What is a binder?

A temporary insurance contract that goes in effect prior to the policy issue

What is the difference between cancellation and nonrenewal?

Cancellation is the termination of an insurance policy by either party prior to the policy’s expiration date.

• Nonrenewal is the termination of a policy at its expiration date by not offering a continuation of the existing policy.

Who is an insured in property and casualty insurance?

Anyone covered under the policy, even if they are not specifically named

What part of an insurance policy indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy?

Conditions

Which method of loss valuation is contrary to the principle of indemnity?

Replacement cost (RC)

In insurance contracts, when is the offer usually made?

When the insurance application is submitted

Where is the policy period stated in an insurance policy?

Declarations

What part of a policy shows the amount of insurance, premium, and policy terms?

Declarations

What provision defines how a policy will respond if there is more than one insurance policy written on the same risk?

Other Insurance Provision

What section personalizes an insurance policy?

Declarations

What is consideration on the part of the insurer?

The promise to pay in the event of a loss

What is consideration in an insurance contract?

Consideration is something of value that each party gives to the other.

• Consideration on the part of the insurer is binding.

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

What is proof of loss?

A sworn statement from an insured notifying the insurer about a loss

In commercial property policies, who has control of the policy, and who can cancel it?

First named insured

In property and casualty policies, what is required for an assignment to be valid?

A written consent of the INSURER

What part of an insurance policy contains the insurer’s promise to pay a claim?

Insuring Agreement

What is additional coverage in an insurance policy?

A provision that adds more/additional coverage for a specific loss at no additional premium

Persons who are not named on the declaration page of a policy but who are protected by the policy are known as what type of insured?

Additional insured

What insurance principle does pro rata liability protect? When does it apply?

Indemnity. It applies when an insured has more than one policy covering a loss

When is an appraisal needed and how can it be requested?

If an insured and an insurer disagree about the value of a property loss, either party can make a written demand for an appraisal.

In insurance contracts, when does acceptance usually occur?

When the insurER approves a prepaid application

Who is the named insured?

The named insured is the individual whose name appears on the policy's Declarations page

What are an insured’s duties after loss?

1. Protect the damaged property from further damage

2. Prepare an inventory of damaged property

3. Cooperate with the insurer in settling a loss

4. Notify police in case of theft; &

5. Submit proof of loss

What does the exclusions section of a policy specify?

What perils are not insured against, or what persons are not covered in a policy

What perils are not insured & what person(s) are not covered

According to the Gramm-Leach-Bliley Act, when must insurers give the 2 required disclosures to customers?

1. When the customer relationship is established (a policy is purchased), &

2. Before disclosing protected information

What are some of the sources of information that may be used by property/casualty insurers in the underwriting process?

1. Application form, motor vehicle records

2. Interviews with neighbors

3. Friends and employers of the applicant

4. Inspection of property, &

5. The applicant's insurance history

What types of information can be found in a policy’s insuring agreement?

1. Lists the parties to the contract

2. Effective & renewal dates

3. The description of coverage provided

4. Perils (among other things)

What types of information can be found on the Declarations page?

1. Location of premises

2. Policy limits

3. Supplemental representations

4. Insurer’s name and address