CHAPTER 7

1. Know the 6 basic parts of the insurance contract

1. Declaration – are statements that provide information about the particular property or activity. In formation contained in the decorations section is used for underwriting and rating purposes and for identification of the property or activity that is insured.

2. Definitions – the purpose is to define key words or phrases so that the coverage under the policy can be determined more easily.

3. Insurance Agreements – Promises of the insurer. There are two basic forms of insuring agreement in property insurance. A) Named-perils policy: only those perils named are covered B) Open-perils/ special coverage policy: If it is not excluded then it is covered.

4. Exclusions – A) Excluded Perils: ex) perils of flood, earth movement, war etc. B) Excluded Losses: ex) the failure of insured to protect the property from further damage after a loss. C) Excluded Property: ex) in a HO policy certain cars, animals are excluded. * Exclusions are necessary because commercial insurers may consider the peril uninsurable.

5. Conditions – are provisions that qualify or place limitations on the insurers promise to preform. Conditions impose certain duties on the insured if he or she wishes to collect for a loss.

6. Miscellaneous Provisions – Provisions in property and casualty insurance include cancellation, subrogation, requirements if a loss occurs assignment of the policy, and other insurance provisions.

2. What are endorsements/riders • endorsements/ riders are written provision that adds to, deletes or modifies the provision in the original contract. An endorsement or rider normally takes precedence over any conflicting terms in the contract to which the endorsement is attached. Ex.) Adding flood insurance to a HO-3 Policy • the purpose is to customize the needs based on what you need, don’t need, or want to insure. They take precedence over any conflicting terms in the policy.

CHAPTER 7 IMPORTANT VOCAB

* First named insured – first name that appears on the declaration page. * Other insured – person or parties who are insured under the named insured’s policy even if they aren’t specifically named. * Deductible – a specific amount is subtracted from the total loss payment that otherwise would be payable. Higher the deductible the lower the premium. * Straight Deductible – the insured must pay a certain number of dollars a loss before the insurer is required to make a payment. * Aggregate Deductible – All losses that occur during a specified time period, usually a policy year, are accumulated to satisfy the deductible. Once the deductible has been met the insurer will pay every loss after that. Ex.) Medical Insurance * Coinsurance Clause – in a property contract, encourages the insured to insure the property to a stated percent of its insurable value. THE PURPOSE IS TO ACHIEVE EQUAITY IN RATING. * Pro rata liability – each insurers share of the loss is based on the proportion that its insurance bears to the total amount of insurance on the property.

CHAPTERS 16 & 17

1. What is a HO-3 Policy • also known as a special form, covers the dwelling and other structures against direct physical loss to the described property. All losses to the dwellings and other structures are covered except those losses specifically excluded. Personal property is covered on a named perils basis. • Covers legal liability arising out of bodily injury or property damage to someone else… NOT YOU.

2. Who are the “Persons Insured” in an HO-3 policy • Named insured & residents of the household who are relatives • Persons under 21 under the care of the insured • Full time student away from home • Any person legally responsible for covered animals & watercrafts • Someone using a motor vehicle you own Ex) someone mowing your lawn on your mower.

3. What perils are covered? • Dwelling and other structures are covered against direct physical loss to property. All direct physical losses are covered except those losses specifically excluded. It also covers the same personal property in a HO-2. Ex) fire, lightening, explosions, windstorms, hail, smoke, vehicles etc.

4. What is covered under Coverage A. Have an understanding of the exclusions under Section I • Coverage A – Dwelling, covers the dwelling on the residence premises as well as any structure attached to the dwelling. Example being a garage. Materials and supplies to build them are covered. Excludes land, damages to land aren’t covered. • Exclusions: ordinance of law, earth movements, water damage, power failure, neglect, war, nuclear hazards, intentional loss, government action, weather conditions, acts or decisions, faulty planning.

5. What is scheduled property? • Protects valuable items that are out of the ordinary and need to carry separate coverage to ensure that their full value is covered incase of an event of a claim.

6. A deductible can be a percentage or flat rate.

7. Understand an insured’s’ duty after a loss. • The conditions section imposes certain duties on the insured after a loss to covered property occurs. A) The insured must give immediate notice of the loss B) The property must be protected from further damage C) The insured must prepare an inventory of the damaged personal property and maybe required to show the damaged property to the insurer as often is reasonably required D) Proof of loss must be filed within 60 days

8. Insured’s option if they don’t agree with the claims settlement amount. • If the insured doesn’t agree they can deny the amount and ask for more.

A) Appraisal Clause – when the insured and insurer agree that there is a loss but do not agree on the settle price. B) Arbitration - arbitration takes place out of court: the two sides select an impartial third party, known as an arbitrator; agree in advance to comply with the arbitrator's award; and then participate in a hearing at which both sides can present evidence and testimony. The arbitrator's decision is usually final, and courts rarely reexamine it.

CHAPTER 16 IMPORTANT VOCAB

* Additional living expenses – the increase in living expenses actually incurred by the insured to maintain the families’ normal standards of living. * Guaranteed replacement – if a total loss occurs the insurer agrees to replace the home exactly as it was before. * Loss to a pair or set – insurer can either elect to repair or replace or pay the difference in actual cash for the value of property before and after a loss. * Proximate Clause – an unbroken chain of events between the occurrence of a covered peril and damage or destruction of property. * Mortgage Clause – protection for the mortgagee (bank). If you set your house on fire it is not covered but the property is still protected by the bank and you pay the bank back.

CHAPTER 17 IMPORTANT VOCAB

* Personal liability – insurance that protects an insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured negligence. * Contractual liability – an insured agrees to assume the legal liability of another party by a written or oral contract. * First aid expenses – the insurer pays any first aid expenses incurred by the insured for bodily injury covered under the policy. * Inflation guard endorsement – for when rates insurance rates increase because of inflation * Scheduled Personal property endorsement – additional for 9 coverage’s of property; jewelry, fur, camera, musical instruments, silverware, golfing equipment, fine arts, postage stamps, and rare coins. * Personal Injury – Not to be confused with bodily injury. Meaning legal liability. Ex.) False arrest, imprisonment * Insurance score – credit based score that is highly predictive of future costs. * Personal Umbrella Policy – provides an additional $ 1 million dollars to 10 million dollars of liability insurance after the underlying coverage is exhausted.

CHAPTERS 18 & 19

1. What is covered under a Personal Auto Policy and how do the six parts of the auto policy work

Part A: Liability Coverage – protects the insured from bodily injury and property damage liability arising out of the negligent operation of an auto or trailer. Insurer also pays legal defense cost.

Part B: Medical Payments Coverage – Pays all reasonable medical, dental, and funeral expenses incurred by an insured person for services rendered within 3 years from the date of the accident.

Part C: Uninsured Motorists Coverage – Pays for the bodily injury of a covered person caused by an uninsured motorist, a hit and run, or a negligent driver whose insurer is insolvent.

Part D: Coverage for damage to your auto – Pays direct physical loss to a covered auto or non-owned auto less any deductible. A collision loss or other-than-collision is covered if the declaration page indicates.

Part E: Duties after an accident or loss – A person seeking coverage must cooperate with the insurer in the investigation and settlement of a claim and send to the insurer copies of any legal papers or notices received in connection with the accident.

Part F: General Provisions – After 60 days, or renewal or continuation policy, the insurer can cancel the premium if it has not been paid. Must be given at least 20 days notice.

2. Who is covered under a Personal Auto Policy (PAP)? • The insured and family members • Anyone using the car with the insured’s permission • Any person or organization with the insured’s permission

3. Collision and Other-Than-Collision • Collision – Damages to an automobile caused by the upset of the automobile or its impact with another vehicle or object. Collision losses are paid by the insurer regardless of fault. • Other-Than-Collision - Part D of coverage, all physical damage losses to an insured vehicle are covered except collision losses and those losses specifically excluded. 4. Coverage to consider for a new car? • GAP Insurance - is an optional insurance coverage for newer cars that can be added to your collision insurance policy. It may pay the difference between the balance of a lease or loan due on a vehicle and what your insurance company pays if the car is considered a covered total loss.

5. How does liability work if another insured driver uses your car and crashes? • Your insurance pays even thought the person who is using your car, assuming they have your permission, crashed it. Because car insurance follows the car.

6. Arguments for and against No-Fault laws

A) Arguments for No-Fault Laws (reasons why to have it) • Difficulty in determining fault – under a no fault law it is not necessary to determine fault. It is difficult to determine fault. • Inequity in claim payments – small claims are often overpaid, whereas serious claims may be underpaid. • High transaction costs and attorney fees • Fraudulent and inflated claims • Delay in payments – not paid on time because of investigations and etc., but with no-fault laws you are paid fast.

B) Arguments Against No-Fault Laws (reasons why not to have it) • Defects of the negligence system are exaggerated – a lot of crashes involve alcohol, and those can be determined who is at fault. • Claims of the efficiency and premiums savings are exaggerated – causes high premiums. In many states with no-fault laws premiums are higher. • Court delays are not universal – only in large metropolitan areas • Safe drivers may be penalized – penalize safe drivers and give bonuses to irresponsible drivers • There are no payments for pain and suffering • Tort liability system needs to be reformed – increase the number of judges in courtroom, limit fees to attorneys, and arbitration rather than courts to settle small cases.