RMI 3011 Exam 2 Study Guide Chapters 7 16 17 18 19 Chapter 7 Analysis of Insurance Contracts Basic Parts of an Insurance Contract Declarations are statements that provide info on the property or activity being insured o First page of the policy o Property insurance includes name of insured location of property period of protection amt of insurance premium and deductible info Contracts contain a page of definitions the insured is you Insuring Agreement the major promises of the insurer o Two forms o 1 Named Perils Coverage only perils named in the policy are o 2 Open perils or Special Coverage all losses covered except ones covered excluded Contracts contain three exclusions o 1 Excluded Perils floods intentional acts o 2 Excluded Losses professional liability in HO policy o 3 Excluded Property pets aren t personal prop In HO policy Why do we need exclusions o Some perils aren t insurable ex war o Extreme hazards ex uber o Coverage can be provided by a different contract o Moral Hazard o Attitudinal Hazard ex some people are more careless o Certain coverage isn t needed ex personal aircraft Conditions policy provisions that place limitations on the insurer s promise to perform o Insurer can refuse to pay the claim if conditions aren t met o They do this through cancellation subrogation grace period The insured party must be identified in the contract within the policy o Named Insured persons named in the declaration section o First Name Insured this person has addt l rights that don t apply to the other named insured s Endorsement adds to deletes from or modifies the provisions on the original contract Ex an earthquake endorsement to a homeowner policy Rider a provision that amends or changes the original policy o Ex A waiver of premium rider on a life insurance policy Deductible a specific amount is subtracted from the total loss payment that otherwise would be paid by the insurer You must pay this amount before your insurance company will cover the rest o Eliminates small claims o Reduces the premiums that we pay for a policy o Reduces moral and attitudinal hazard Types of Deductibles o Straight Deductible the insured must pay a certain amount before the insurer will make a payment Ex auto insurance deductible o Aggregate Deductible all losses during a time period are added together to satisfy the deductible amount Health Insurance Deductibles o Calendar year deductible aggregate deductible found in medical contracts o Elimination waiting Period period of time at the beginning of a loss when no insurance benefits are paid Coinsurance An amount that the insured is encouraged to insure their property This amount is a stated percentage of the property s insurable value o If the coinsurance requirement isn t met during the loss the insured has to share the loss with the coinsurer The purpose of coinsurance is to create equity in rating o If someone wants to insure their whole property the premium would be very large making their decision inequitable since surrounding homeowners would be only insuring themselves for partial losses Health insurance includes a coinsurance clause o Requires the insured to pay a percent of their covered medical expenses in excess of the deductible o Reduces premiums and prevents overuse of policy benefits Other insurance provisions prevents profiting from insurance and violation of the principle on indemnity you can only get paid for what is lost o Pro rata liability The insured s share of the loss will be proportional to the coverage amount that is provided by their insurance company to the total amount of insurance on the property o Condition by equal shares Each insurer shares equally in the loss until the amount paid by each insurer equals the lower limit of liability under any policy or until the full loss is paid o Just remember these as proportional versus equal payment Other Insurance Provisions o Primary and Excess Insurance the primary insurer pays first and the excess insurer pays once the policy limits are exhausted o Coordination of benefits provision prevents overinsurance and the duplication of benefits when a person is covered by more than one group health insurance plan Chapter 16 Homeowner s Insurance Homeowner s Insurance Basics Standard Homeowner Forms o 1 HO 2 Named Perils Policy broad form o 2 HO 3 Most common and comprehensive special form o 3 HO 4 Renters broad form o 4 HO 5 Not used often comprehensive form o 5 HO 6 Condo Owners unit owners form o 6 HO 8 Older homes modified coverage form o We looked at the forms highlighted in red during class Before homeowners insurance a homeowner had to buy separate policies for everything theft fire personal property etc Standardization came with the Insurance Services Office ISO in 1971 and American Association of Insurance Services AAIS A common misconception is that insurer s force people to buy their policies when in REALITY it is the mortgage lenders that require it For someone to receive a mortgage loan the purchaser is required to get homeowner s insurance as a condition of the loan Mortgage Clause protects the mortgage lender In the case that the mortgage isn t paid they will have collateral to pay for an outstanding balance on the loan o If someone burns down their house on purpose the loss isn t covered because it was intentional The person won t receive any money from insurance but the bank will still be paid off via the mortgage clause HO 3 Policy o Contains two sections Section 1 Coverages Section 1 Property Damages personal property loss of use Section 2 Liability Coverages to others o Insured under the policy include dwelling other structures personal and medical payments Name insured and their spouse Resident relatives Persons under age 21 Full time student away from home under age of 24 o Coverage A covers the dwelling on the residence and any structure attached to it Includes materials intended for construction and excludes land o Coverage B insures other structures on the property Detached garage tool shed fence Rented out structures excluded Amount of coverage based off of insurance in coverage A o Coverage C insures personal property owned or used by an insured Property is covered on and off the property Coverage is 50 of A You can drop this coverage in FL Certain property has a maximum on the amt that will be paid o An insured can use a schedule to insure certain personal property for a specific amount ex jewelry and guns Scheduling means to list and insure individual
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