Understanding Property Insurance Concepts: Illinois Exam Basics, Exams of Insurance Economics

Download Understanding Property Insurance Concepts: Illinois Exam Basics and more Exams Insurance Economics in PDF only on Docsity! Illinois Property Insurance Exam - Basic Principles Illinois Property Insurance Exam - Basic Principles Containing 71 Questions and Answers (Verified Solutions) 2024-2025. An Insurance Policy - Answer: A social device (legal contact or policy) for the transfer of risk. Cover only pure risks Pure Risk - Answer: A risk when a person can only stand to lose should an event occur Speculative Risk - Answer: a risk where the person stands to profit. Insurance policies do not cover speculative risks Illinois Property Insurance Exam - Basic Principles Pooling of risks - Answer: When a large group of people contributes money to a fund out of which their losses can be paid. The Insured - Answer: The person or organization who is protected by the insurance policy and for whom the insurance company accepts financial risk The Premium - Answer: The money paid by the insured to the insurance company in exchange for the insurance policy. Must be enough to pay commissions, marketing cost, administrative costs, and provide a loss reserve A Lapse - Answer: When a policy is terminated due to nonpayment of premiums An Endorsement - Answer: A form added to an insurance policy. It is usually added for an additional premium charge to add additional coverage. A Peril - Answer: An actual cause of loss than can be insured against. Most Common = fire A Hazard - Answer: A condition or operation in property which either creates or increases the change of loss by a covered peril. Example = frayed wiring Risk - Answer: The likelihood, probability or degree of uncertainty that a covered peril will cause a loss Illinois Property Insurance Exam - Basic Principles Additional Coverage - Answer: Things specified in homeowner policies that the insurance company will pay for in addition to the homeowner policy limits of liability Supplemental Payments - Answer: Things specified in auto policies that the insurance company will pay for in addition to the auto policy limits of liability Specified Peril (Named Peril) Coverage - Answer: Protects the insured property only against loss caused by perils specifically named in the policy Types of Named Peril Coverage - Answer: -Basic Causes of Loss (aka 12 named perils or fire, extended coverage and vandalism coverage): represents the least amount of coverage -Broad Causes of Loss (aka 20 named perils): next step up. Pay higher premium but covered for more All Risk (Open Peril) Coverage - Answer: Top of the line coverage. Protects an insured property against Basic + Broad + more. -Special Causes of Loss: Protects builds against all perils except those excluded Direct Physical Loss - Answer: A loss where the covered peril is the direct cause of damage. Also referred to as immediate or proximate cause Illinois Property Insurance Exam - Basic Principles Indirect (consequential) Loss - Answer: -A loss where the covered peril is not the direct cause of damage or where the property is mostly indirect value. Paper (money) can never be a direct loss -Most policies exclude indirect loss, an endorsement is needed An Adjuster - Answer: An insurance company representative who administers claims Two Responsibilities of an Adjuster - Answer: 1. Determine there was insurance coverage in effect at the date of the loss for the property and the person submitting the claim 2. Investigate and settle the loss -verify the loss was a covered type of loss, verify the amount of loss, take necessary legal steps to settle the loss Loss Settlement or Adjustment - Answer: The amount paid on the loss Liability Coverage - Answer: -Loss caused by legal liability arising out of the insured property -Pays all sums for which an insured becomes legally liable for bodily injuries and/or property damage to third parties Illinois Property Insurance Exam - Basic Principles Claimant (Liability Coverage) - Answer: Person who sustains injury and/or damages and who is making the claim Insured (Liability Coverage) - Answer: Person against whom the claim is being made and who is submitting the claim to an insurance company How claims are resolved - Answer: -Settled on the basis of what each side anticipates a court would order if the claim would go to a court hearing -An insurance company will only pay if they determine that a court would find the insured legally liable if it were to go to a hearing (anticipate) -The burden of proof is on the claimant Necessary Elements - Answer: Legal requirement that a claimant must be able to prove to a court to be successful in making a liability claim Negligence - Answer: Most important necessary element. There are two types: 1. Omission - failing to do something that he should have done 2. Commission - doing something that he should not have done Damages - Answer: A claimant can make a liability claim claiming damages either in the form of bodily injuries or property damages Bodily injuries (damages) - Answer: -Mean physical injuries Illinois Property Insurance Exam - Basic Principles Personal Property - Answer: -Not permanently attached to land or building (ex. chairs in a room). -Often insured for its ACV or less commonly for its replacement cost (for an extra premium) Replacement Cost Coverage - Answer: Pays for the cost of rebuilding, repairing or replacing with new materials and new labor of like kind and like quality and at the same location -Replacement cost pays for betterment -If the insured doesn't rebuild, repair, or replace with the like kind and quality at the same location then the insurance company will indemnify only the ACV Actual Cash Value (ACV) - Answer: Indemnifies the insured for no more than his/her actual financial or economic loss ACV formula - Answer: Loss of Actual Cash Value = Replacement Cost (at time of loss) - Depreciation Depreciation = % of Useful Life used up x Replacement Cost Loss Settlement = Loss of ACV - Deductible Illinois Property Insurance Exam - Basic Principles Loss Settlement Provision (Coinsurance Clause) - Answer: - It requires the insured property to be insured for at least a specified percentage of its value at all times, continuously -Usually between 60%-100% -EXCEPTIONS: never pay more than the limits of liability Insurance to Value - Answer: the process of keeping aproperty insdurance policy up to date, insured for the correct required amount Loss Settlement Formula when not insured to value - Answer: Loss settlement (adjustment) = (Amount Carried (Limit) / Amount Required) x Loss Amount Required = Coinsurance Percentage x Replacement Cost at Time of Loss Inflation Guard Endorsement (for Insurance to Value) - Answer: Added for an extra premium charge and it increases the face amount of policy by a percentage rate that is stated in the endorsement at intervals specified in the endorsement Guaranteed Replacement Cost Endorsement (for Insurance to Value) - Answer: - Most Expensive option -Guarantees that the property will be insured to value. There can be no dispute at the time of loss over values Illinois Property Insurance Exam - Basic Principles The insured (parts of a policy) - Answer: -Named insured: the person or organization named on the declarations page -Insured: a person or organization described on the declarations page but not spcifically named (ie relative under 21) -Additional insured - additional specifically named people (lienholder or mortgagee) Insuring Agreements (insuring clause) - Answer: -The clause that states the insurance company's promise to indemnify -This is where the list of perils covered is found (also possibly on the dec. page) Conditions - Requirements (parts of a policy) - Answer: -At the time the policy is purchased 1. application 2. premium -At the time of loss 1. Notice of loss (notice of claim) 2. Proof of Loss Illinois Property Insurance Exam - Basic Principles -Riot Perils excluded: -Nuclear reaction -Earth movement -Flood/water below surface -Power interruption away from premises Vandalism and Malicious Mischief (VMM) Endorsement - Answer: Perils Covered: -Damage covered by vandalism and malicious mischief Perils excluded: VMM coverage is excluded after the building has been left vacant for 30 consecutive days (vacant, not unoccupied) Homeowner Policies - Additional Coverages - Answer: -Debris Removal -Cost of reasonale repairs to prevent additional loss -$500 for fire department charge -$500 for credit card, check forgery, and counterfeit money -$500 per tree, shrub or plant for damage. Damage to multiple then the policy will pay no more than 5% of Coverage A H.O. Policy - Coverage A,B,C, and D Exclusions - Answer: -4 perils under the standard fire, but will cover loss caused by theft -4 perils under the EC Illinois Property Insurance Exam - Basic Principles -VMM after 30 vacant days -agg and industrial smudging -wear, tear, rot (but will cover for hidden mold) -Repairing mechanical breakdown -damage caused by animals of the insured -Damage caused by birds, vermin, rodents H.O. Policy E (Personal Liability) and F (Med pay) Exclusions - Answer: -inteded acts -e&o -other premises -aircraft and auto -watercraft -recreation vehicles except golf carts are covered Business Owners Policy (BOP) - small business - Answer: Same as BPP for property Same as CGL for Liability Commercial Package Policy (CPP) - large business - Answer: Same as BPP for property Same as CGL for Liability