RMI 3011 Exam 2 Study Guide STUDY FOR EXAM Insurance Policies Parts of a Policy o Declarations Page o Insuring Agreement o Exclusions o Conditions o Other Parts of the Policy The Declaration Page o Purpose Definitions Additions to the Policy Endorsements To provide information about the particular property or activity to be insured o What information is provided In Homeowners Insurance Declarations typically includes the identification of the insurer the name of the insured the location of the property period of protection amount of insurance amount of the premium amount of the deductible if any etc In Life Insurance declarations include the insured s name age premium amount issue date and policy number The Insuring Agreement o Purpose To tell the insured what the insurance company is promising o What information is provided Named Perils Coverage Under a Named Perils Policy only the perils specifically named in the policy are covered Open Perils Coverage All Risks Coverage Under an Open Perils Special Coverage Policy all losses are covered except those losses that are specifically excluded o Open perils policies are generally preferable to named perils coverage because the protection is broader with fewer gaps in coverage The Exclusions o Purpose To tell you what s not covered Perils losses o What types of things are typically excluded Excluded Perils The contract may exclude certain perils or causes of loss Examples for Homeowners Policy Perils of flood earth movement nuclear radiation and radioactive contamination Examples for Auto Policy Loss to a covered auto is specifically excluded if the car is used as a public tax Page 1 of 19 Excluded Losses Certain types of losses may be excluded Examples for Homeowners Policy o Failure of an insured to protect the property from further damage after a loss occurs is excluded o A liability lawsuit arising out of the operation of an automobile o Professional liability losses are also excluded a specific professional liability policy is needed to cover this exposure Excluded Property The contract may exclude of place limitations on the coverage of certain property Examples for Homeowners Policy Cars planes animals birds and fish are excluded o Why are there exclusions limitations Coverage may be provided by other contracts To prevent people from having cars insured on their Homeowners Policy Certain perils are considered uninsurable Presence of extraordinary hazards Moral and Morale Hazard Problems Coverage not needed by typical insureds Conditions perform o Conditions are provisions in the policy that qualify or place limitations on the insurers promise to o Purpose To tell the insured what their responsibilities are as an insured party o What types of things are typically required Notifying the insurer if a loss occurs Promptly Protecting the property after a loss Preparing an inventory of damaged personal property Cooperating with the insurer in the event of a liability suit Cooperating with investigations by the insurer Other Parts of the Policy o Definitions To reduce the ambiguity of the insured Many common words in an insurance contract have a very specific meaning and must be defined within context Insured refers to the name of the person insured first name other insureds and Additional insureds o Additions to the Policy Endorsements In Property and Casualty insurance A written provision that adds to deletes from or modifies the provisions in the original contract Example Adding an earthquake endorsement to your homeowners insurance In Life and Health insurance A provision that amends or changes the original policy Example A waiver of premium if the insured becomes totally disabled Page 2 of 19 Determination of Payment Actual Cash Value vs Replacement Cost Deductibles Actual Cash Value Cost of replacing the damaged item with one that is of like kind and quality taking depreciation into effect Replacement Cost Looks at the cost to replace an item with a new one of like kind and quality Only apply to 1st party payments The loss must exceed the deductible amount for the insurance company to be held liable Purposes of Deductibles To eliminate small claims To reduce premiums To reduce moral hazard and morale hazard Straight Deductible Property Insurance The insured must pay a certain number of dollars of loss before the insurer is required to make a payment This applies to each loss Aggregate Deductible Property Insurance Sometimes found in Commercial Insurance Contracts All losses that occur during a specified time period usually a policy year are accumulated to satisfy the deductible amount Once the deductible amount is satisfied the insurer pays all future losses in full You are generally required to insure your property to its value If you intentionally under insure your property and have a loss even if it s below your limit you will not get the full amount of your claim Designed so that the insurance company process claims quickly and efficiently to protect the insured Also requires the insured to report a loss in a timely manner Underinsured Clause Time Limitations Other Insurance Provisions Primary vs Excess The primary policy pays first policy were not sufficient The second excess policy only pays if the limits of the primary Equal Shares Pro Rata Both the Primary and Secondary policies pay an equal share of a loss up to their respective limit amounts Both policies pay their Fair Share of the loss based on their proportion of the total of the limits available Page 3 of 19 ISO Homeowners Program Forms Used o HO 2 BEST Used for traditional family dwellings Covers the dwelling other structures and all personal property on a named peril basis Also covers additional living expenses or fair rental value in the event a covered loss makes the dwelling uninhabitable o HO 3 Most Common for traditional family dwellings Coverages A B Primary and Secondary Structures are covered on an all risk basis at full replacement cost Coverage C Personal Property covered on a named peril basis at ACV as in HO 2 o HO 4 Renters Form Covers personal property against loss or damage on a named perils basis and also provides personal liability insurance minimum of 100 000 for most personal activities o HO 5 Used for Traditional Family Dwellings Covers the dwelling other structures and all personal property on an all risk basis Offers the Broadest Coverage o HO 6 Condo Form Covers personal property of the unit owner on a named perils basis Also covers at a
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