Property Fundamentals

PROPERTY INSURANCE FUNDAMENTALS
by
CPMI Professional Development, LLC
CPMI Professional Development, LLC 1

Copyright August 2022 First printed 1999
CPMI Professional Development, LLC, 691 W 1200 N, Suite 150, Springville, UT 84663
e-mail: support@cpmipro.com Phone: 815-271-8200 Website: www.cpmipro.com
This textbook and the material herein are intended for the exclusive use of participants in the training programs
of CPMI Professional Development, LLC and are to be used in preparation for state insurance producer exams
and continuing education courses. Reproduction of this material for or distribution to individuals in a way not in
keeping with the sales and rental agreements of CPMI Professional Development, LLC is strictly prohibited.
The proper use of the video and textbook program should be sufficient in aiding the student to pass the producer
exam. Final results on the exam, however, will depend on the background and effort that each individual brings
to it, and therefore no guarantees can be given based on the content of this course alone.
This material is designed for educational purposes only and is not intended as financial or legal advice. If legal
or other professional advice is required, the services of a competent professional should be sought.
Any reproduction of this textbook or any portion of it without the written permission of CPMI Professional
Development, LLC is strictly prohibited and will be prosecuted to the full extent of the law.

TABLE OF CONTENTS
STUDYING FOR THE STATE INSURANCE PRODUCER LICENSING EXAM ................................................................................................... 12
TIPS FOR TAKING THE INSURANCE LICENSING EXAM ........................................................................................................................ 12
Learning the Material Using the Text, Video, and Audio Resources ............................................................................................. 12
Answering the Review Questions and Taking the Practice Exams................................................................................................. 13
BEFORE TAKING THE INSURANCE LICENSING EXAM ......................................................................................................................... 14
SECTION I – GENERAL INSURANCE CONCEPTS .................................................................................................................. 15
Risk Management Key Terms ......................................................................................................................................... 15
Insurance ...................................................................................................................................................................................... 15
Indemnity...................................................................................................................................................................................... 15
Loss ............................................................................................................................................................................................... 15
Insurable Interest .......................................................................................................................................................................... 15
Risk................................................................................................................................................................................................ 15
Negligence .................................................................................................................................................................................... 16
Self-Insurance ............................................................................................................................................................................... 16
Applicant ....................................................................................................................................................................................... 16
Insurer........................................................................................................................................................................................... 16
Insured .......................................................................................................................................................................................... 16
Agent/Producer ............................................................................................................................................................................ 16
Policy Owner ................................................................................................................................................................................. 16
Binder ........................................................................................................................................................................................... 16
Certificate of Insurance ................................................................................................................................................................. 16
Endorsement ................................................................................................................................................................................ 16
Waiver and Estoppel ..................................................................................................................................................................... 17
Accident ........................................................................................................................................................................................ 17
Occurrence ................................................................................................................................................................................... 17
Exposure ....................................................................................................................................................................................... 17
Hazard ........................................................................................................................................................................................... 17
Peril ............................................................................................................................................................................................... 17
Maslow's Hierarchy of Needs........................................................................................................................................................ 17
National Association of Insurance Commissioners (NAIC) ............................................................................................................ 18
Tort................................................................................................................................................................................................ 18
Co-Insurance ................................................................................................................................................................................. 18
Deposit Premium .......................................................................................................................................................................... 18
Burglary......................................................................................................................................................................................... 18
Robbery ........................................................................................................................................................................................ 18
Larceny.......................................................................................................................................................................................... 18
Theft ............................................................................................................................................................................................. 18
Mysterious Disappearance ........................................................................................................................................................... 18
Liability.......................................................................................................................................................................................... 18
Actual Cash Value ......................................................................................................................................................................... 18
Personal Lines vs. Commercial Lines............................................................................................................................... 18
Methods of Handling Risk .............................................................................................................................................. 19
Avoidance ..................................................................................................................................................................................... 19
Retention ...................................................................................................................................................................................... 19
Sharing .......................................................................................................................................................................................... 19
Reduction ...................................................................................................................................................................................... 19
Transfer ......................................................................................................................................................................................... 19
Elements of Insurable Risks ............................................................................................................................................ 19
Adverse Selection ........................................................................................................................................................... 19
Reinsurance .................................................................................................................................................................... 19
Indemnity/Pay on Behalf Of ........................................................................................................................................... 20
Limits of Liability ............................................................................................................................................................ 20
Deductible ...................................................................................................................................................................... 20
INSURERS ............................................................................................................................................................................... 20
Types of Insurers ............................................................................................................................................................. 20

Multi-Line Insurance Companies .................................................................................................................................................. 20
Stock Companies........................................................................................................................................................................... 20
Mutual Companies........................................................................................................................................................................ 20
Reciprocal Companies ................................................................................................................................................................... 21
Risk Retention Groups .................................................................................................................................................................. 21
Purchasing Groups ........................................................................................................................................................................ 21
Risk Retention Groups (RRG) vs. Purchasing Groups (PG) ............................................................................................................. 21
Fraternal Benefit Societies ............................................................................................................................................................ 21
Syndicate Insurers (Lloyd's Associations) ...................................................................................................................................... 21
Surplus/Excess Lines Insurers ....................................................................................................................................................... 21
Private vs. Government Insurers ................................................................................................................................................... 22
Admitted vs. Non-Admitted Insurers .............................................................................................................................. 22
Admitted Insurer/Authorized Insurer ........................................................................................................................................... 22
Non-Admitted Insurer/Non-Authorized Insurer ........................................................................................................................... 22
Domestic, Foreign, and Alien Insurers ............................................................................................................................ 22
Domestic Insurer ........................................................................................................................................................................... 22
Foreign Insurer .............................................................................................................................................................................. 22
Alien Insurer.................................................................................................................................................................................. 22
Financial Solvency Status (Independent Rating Services) ............................................................................................... 22
Marketing (Distribution Systems) ................................................................................................................................... 23
Types of Agents/Marketing Systems ............................................................................................................................................. 23
PRODUCERS AND GENERAL RULES OF AGENCY ............................................................................................................................... 23
Insurer as Principal ......................................................................................................................................................... 23
Producer/Insurer Relationship ........................................................................................................................................ 23
Agency Agreement/Contract ........................................................................................................................................................ 23
Insurance Agent vs. Broker ........................................................................................................................................................... 23
Professionalism and Ethical Conduct ............................................................................................................................................ 24
Fiduciary ....................................................................................................................................................................................... 24
Captive Insurance Companies ....................................................................................................................................................... 24
Authority and Powers of Producers ................................................................................................................................ 24
Law of Agency ............................................................................................................................................................................... 24
Express Directive ........................................................................................................................................................................... 24
Implied Directive ........................................................................................................................................................................... 24
Apparent Directive ........................................................................................................................................................................ 24
Responsibilities to the Applicant and Insured ................................................................................................................. 25
Common Situations for Errors and Omissions .............................................................................................................................. 25
CONTRACTS ............................................................................................................................................................................ 25
Elements of a Legal Contract.......................................................................................................................................... 25
1. Offer and Acceptance ............................................................................................................................................................... 25
2. Consideration ............................................................................................................................................................................ 25
3. Competent Parties .................................................................................................................................................................... 25
4. Legal purpose ............................................................................................................................................................................ 26
Characteristics of an Insurance Contract ........................................................................................................................ 26
Two Party Contracts ...................................................................................................................................................................... 26
Third Party Contracts .................................................................................................................................................................... 26
Contract of Adhesion .................................................................................................................................................................... 26
Aleatory Contract .......................................................................................................................................................................... 26
Personal Contract.......................................................................................................................................................................... 26
Unilateral Contract........................................................................................................................................................................ 26
Conditional Contract ..................................................................................................................................................................... 26
Contract of Indemnity ................................................................................................................................................................... 26
Legal Interpretations Affecting Contracts ...................................................................................................................... 26
Ambiguities in a Contract of Adhesion.......................................................................................................................................... 26
Reasonable Expectations .............................................................................................................................................................. 27
Utmost Good Faith........................................................................................................................................................................ 27
Representations/Misrepresentations ........................................................................................................................................... 27
Warranties .................................................................................................................................................................................... 27
Concealment ................................................................................................................................................................................. 27
Fraud ............................................................................................................................................................................................. 27

Unfair Marketing Practices ............................................................................................................................................. 27
Misrepresentation ........................................................................................................................................................................ 27
Unfair Policy Replacement ............................................................................................................................................................ 27
Discrimination ............................................................................................................................................................................... 27
Rebating ........................................................................................................................................................................................ 28
Redlining ....................................................................................................................................................................................... 28
Boycotting ..................................................................................................................................................................................... 28
Intimidation .................................................................................................................................................................................. 28
Monopoly in the Insurance Business ............................................................................................................................................ 28
Misappropriation of Funds ........................................................................................................................................................... 28
Unfair Claims Settlement ................................................................................................................................................ 28
False Financial Statements ............................................................................................................................................................ 29
SECTION I – GENERAL INSURANCE CONCEPTS REVIEW QUESTIONS .................................................................................................... 30
SECTION II – PROPERTY INSURANCE CONCEPTS ............................................................................................................... 33
PRINCIPLES AND CONCEPTS ........................................................................................................................................................ 33
Insurable Interest ........................................................................................................................................................... 33
Underwriting .................................................................................................................................................................. 33
Function ........................................................................................................................................................................................ 33
Sources of Underwriting Information: .......................................................................................................................................... 33
Rating Types .................................................................................................................................................................................. 33
Loss Ratio ...................................................................................................................................................................................... 33
Rates............................................................................................................................................................................... 34
Types of Rates ............................................................................................................................................................................... 34
Loss Costs...................................................................................................................................................................................... 34
Components/Premium Determination ......................................................................................................................................... 34
Hazards........................................................................................................................................................................... 34
Physical ......................................................................................................................................................................................... 34
Moral ............................................................................................................................................................................................ 34
Morale .......................................................................................................................................................................................... 34
Legal .............................................................................................................................................................................................. 34
Causes of Loss (Perils) ..................................................................................................................................................... 34
Named Perils vs. Open-Perils .......................................................................................................................................... 34
Named Peril Policies ..................................................................................................................................................................... 34
Open-Peril Policies ........................................................................................................................................................................ 34
Direct and Indirect Losses ............................................................................................................................................... 35
Direct Loss..................................................................................................................................................................................... 35
Consequential or Indirect Losses .................................................................................................................................................. 35
Liability ........................................................................................................................................................................... 35
Absolute/Strict Liability................................................................................................................................................................. 35
Vicarious Liability .......................................................................................................................................................................... 35
Proximate Cause ............................................................................................................................................................. 35
Blanket vs. Specific Insurance ......................................................................................................................................... 35
Basic Types of Construction ............................................................................................................................................ 35
Basic Types of Construction .......................................................................................................................................................... 35
Classifications of Construction ...................................................................................................................................................... 36
Loss Valuation ................................................................................................................................................................ 36
Sentimental Value ......................................................................................................................................................................... 36
Resale Value .................................................................................................................................................................................. 36
Actual Cash Value (ACV)................................................................................................................................................................ 36
Replacement Cost ......................................................................................................................................................................... 36
Functional Replacement Cost ....................................................................................................................................................... 36
Guaranteed Replacement Cost ..................................................................................................................................................... 36
Market Value................................................................................................................................................................................. 36
Salvage Value ................................................................................................................................................................................ 37
Agreed Value/Stated Amount ....................................................................................................................................................... 37
Valued Policy ................................................................................................................................................................................. 37
Limit of Liability............................................................................................................................................................................. 37

Fire Legal Liability.......................................................................................................................................................................... 37
POLICY STRUCTURE .................................................................................................................................................................. 37
(D-I-C-E) .......................................................................................................................................................................... 37
Declarations and Definitions .......................................................................................................................................... 37
Insuring Agreement or Clause ........................................................................................................................................ 37
Conditions....................................................................................................................................................................... 37
Exclusions and Endorsements ......................................................................................................................................... 37
Additional/Supplementary Coverage ............................................................................................................................. 37
Policy Period ................................................................................................................................................................... 38
Policy Territory ................................................................................................................................................................ 38
Deductibles ..................................................................................................................................................................... 38
Other Insurance .............................................................................................................................................................. 38
Non-Concurrency .......................................................................................................................................................................... 38
Primary and Excess ....................................................................................................................................................................... 38
Handling of Claims: Pro Rata vs. Contribution by Equal Shares .................................................................................................... 38
Pro Rata ........................................................................................................................................................................................ 38
Contribution by Equal Shares........................................................................................................................................................ 38
Policy Limits .................................................................................................................................................................... 39
Restoration/Non-Reduction of Limits ............................................................................................................................. 39
Co-Insurance ................................................................................................................................................................... 39
Vacancy or Unoccupancy................................................................................................................................................ 39
Named Insured Provisions .............................................................................................................................................. 39
Insured's Duties After Loss (Claims Handling): .............................................................................................................................. 39
Appraisal and Arbitration .............................................................................................................................................................. 39
Assignment ................................................................................................................................................................................... 40
Abandonment ............................................................................................................................................................................... 40
Insurer Provisions ........................................................................................................................................................... 40
Duty to Defend.............................................................................................................................................................................. 40
Liberalization Clause ..................................................................................................................................................................... 40
Subrogation................................................................................................................................................................................... 40
Salvage .......................................................................................................................................................................................... 40
Claim Settlement Options ............................................................................................................................................................. 40
Third Party Provisions ..................................................................................................................................................... 40
Standard Mortgagee Clause .......................................................................................................................................................... 40
Loss Payable Clause ...................................................................................................................................................................... 40
No Benefit to the Bailee ................................................................................................................................................................ 40
PERSONAL PROPERTY LINES ....................................................................................................................................................... 41
STATE AND FEDERAL LAWS, REGULATIONS, AND REQUIRED PROVISIONS.............................................................................................. 41
State Property and Casualty Insurance Guaranty Association ....................................................................................... 41
Standard Fire Policy ........................................................................................................................................................ 41
Cancellation and Non-Renewal ...................................................................................................................................... 41
Private Residence .......................................................................................................................................................................... 41
Commercial ................................................................................................................................................................................... 42
Basic Property Insurance-Death of Named Insured ...................................................................................................................... 42
Negligence ...................................................................................................................................................................... 42
Elements of a Negligent Act .......................................................................................................................................................... 42
Four (4) Basic Categories of Individuals that Cannot Be Held Negligent ....................................................................................... 42
Defenses Against Negligence ........................................................................................................................................................ 42
Common Law Defenses................................................................................................................................................................. 43
Binders............................................................................................................................................................................ 43
Insurance Consultation Services Exemption ................................................................................................................... 43
FAIR CREDIT REPORTING ACT ..................................................................................................................................................... 43
Use of Credit Information ............................................................................................................................................... 44
How Long Can Negative Information Stay on a Credit Report? .................................................................................................... 44
FRAUD AND FALSE STATEMENTS .................................................................................................................................................. 44
Those with Felony Records ........................................................................................................................................................... 44
Those Permitting/Complicit in These Actions ............................................................................................................................... 44

Penalties ....................................................................................................................................................................................... 45
PRIVACY PROTECTION ............................................................................................................................................................... 45
TERRORISM RISK INSURANCE ACT (TRIA) ..................................................................................................................................... 45
Purpose ......................................................................................................................................................................................... 45
Definitions..................................................................................................................................................................................... 45
Requirement for Terrorism Risk Coverage to be Offered .............................................................................................................. 46
Effect on Workers Compensation.................................................................................................................................................. 46
Extension Act of 2005 ..................................................................................................................................................... 46
Re-Authorization Act of 2007 ......................................................................................................................................... 46
Minimum Threshold and Certification .......................................................................................................................................... 46
Program Trigger ............................................................................................................................................................................ 47
SECTION III – DWELLING POLICY (DP) ............................................................................................................................... 49
CHARACTERISTICS AND PURPOSE ................................................................................................................................................. 49
Eligibility ....................................................................................................................................................................................... 49
COVERAGE FORMS: PERILS INSURED AGAINST AND PROPERTY COVERED ............................................................................................. 49
Definitions..................................................................................................................................................................................... 49
Standard Fire Policy Perils .............................................................................................................................................. 49
Extended Coverage Perils ............................................................................................................................................... 49
Basic Form (DP-1) ........................................................................................................................................................... 50
Broad Form (DP-2) .......................................................................................................................................................... 50
Special Form (DP-3) ........................................................................................................................................................ 50
GENERAL EXCLUSIONS............................................................................................................................................................... 51
CONDITIONS ........................................................................................................................................................................... 51
SELECTED ENDORSEMENTS......................................................................................................................................................... 52
Special Provisions for States ........................................................................................................................................... 52
Automatic Increase in Insurance .................................................................................................................................... 52
Broad Theft Coverage ..................................................................................................................................................... 52
Dwelling Under Construction.......................................................................................................................................... 52
PERSONAL LIABILITY SUPPLEMENT ............................................................................................................................................... 52
ORDINANCE OR LAW................................................................................................................................................................. 52
SECTION III – DWELLING POLICY (DP) REVIEW QUESTIONS.............................................................................................................. 53
SECTION IV – HOMEOWNERS POLICY ............................................................................................................................... 54
PURPOSE, DEFINITION, AND ELIGIBILITY........................................................................................................................................ 54
COVERAGE FORMS ................................................................................................................................................................... 54
HO-1 ............................................................................................................................................................................... 54
HO-2 – HO-8 ................................................................................................................................................................... 54
Broad Form/HO-2 (Named Peril) .................................................................................................................................................. 54
Special Form/HO-3 (Special Peril)/Open-Peril) ............................................................................................................................. 55
Homeowners Contents/Tenant/Renters Coverage/HO-4.............................................................................................................. 55
Comprehensive Form/HO-5 (Special Peril/Open-Peril) ................................................................................................................. 55
Condominium Unit Owner Form/HO-6......................................................................................................................................... 55
Market Value/ Modified Coverage Form HO-8 ............................................................................................................... 56
PROPERTY AND LIABILITY COVERAGES .......................................................................................................................................... 56
Coverage A-Dwelling ...................................................................................................................................................... 56
Coverage B-Other Structures .......................................................................................................................................... 56
Coverage C-Personal Property ........................................................................................................................................ 56
Coverage D-Loss of Use .................................................................................................................................................. 57
Coverage E-Personal Liability ......................................................................................................................................... 57
Coverage F-Medical Payments to Others ....................................................................................................................... 57
Additional Coverages ..................................................................................................................................................... 57
PERILS INSURED AGAINST .......................................................................................................................................................... 58
Broad Form/HO-2, Named Perils .................................................................................................................................................. 58

Special Form/HO-3, Special Perils/Open-Peril .............................................................................................................................. 58
Homeowners Contents/Tenant/Renters Coverage/HO-4.............................................................................................................. 58
Comprehensive Form/HO-5 (Special Peril/Open-Peril) ................................................................................................................. 58
Condominium Unit Owner Form/HO-6......................................................................................................................................... 58
ADDITIONAL HOMEOWNERS NOTES............................................................................................................................................. 58
Pair and Sets Clause ...................................................................................................................................................................... 58
Additional/Supplemental Coverages ............................................................................................................................................ 58
EXCLUSIONS ............................................................................................................................................................................ 59
CONDITIONS ........................................................................................................................................................................... 60
Personal Property Replacement Cost ............................................................................................................................. 60
Homeowners -2, -3, -5, and -8 Policies ......................................................................................................................................... 60
SELECTED ENDORSEMENTS......................................................................................................................................................... 61
Special Provisions for States ........................................................................................................................................... 61
Limited Fungi, Wet or Dry Rot, or Bacteria Coverage ..................................................................................................... 61
Permitted Incidental Occupancies/Business Pursuits ..................................................................................................... 61
Earthquake ..................................................................................................................................................................... 61
Scheduled Personal Property/Personal Article Floater ................................................................................................... 62
Home Day Care............................................................................................................................................................... 62
Personal Injury Endorsement .......................................................................................................................................... 62
Windstorm or Hail .......................................................................................................................................................... 62
Special Additional Amount of Insurance for Coverage A ................................................................................................ 62
Identity Fraud Expense Coverage ................................................................................................................................... 62
Functional Replacement Cost ......................................................................................................................................... 62
Property Remediation for Escaped Fuel and Limited Lead and Escaped Liquid Fuel Liability ......................................... 63
MOBILE HOME POLICIES ........................................................................................................................................................... 63
Restrictions on Mobile Home Policy Coverage ............................................................................................................................. 63
SECTION IV – HOMEOWNERS POLICY REVIEW QUESTIONS ............................................................................................................... 64
SECTION V – COMMERCIAL PACKAGE POLICY .................................................................................................................. 66
INTRODUCTION ........................................................................................................................................................................ 66
Insurance Services Office (ISO) ..................................................................................................................................................... 66
COMPONENTS OF A COMMERCIAL POLICY..................................................................................................................................... 66
Common Policy Declarations .......................................................................................................................................... 67
Interline Endorsements ................................................................................................................................................... 67
One or More Coverage Parts .......................................................................................................................................... 67
COMMERCIAL PROPERTY ........................................................................................................................................................... 67
Commercial Property Conditions Form ........................................................................................................................... 67
Commercial Coverage Forms .......................................................................................................................................... 67
Building and Personal Property..................................................................................................................................................... 67
Condominium Association ............................................................................................................................................................ 68
Condominium Commercial Unit-Owners ...................................................................................................................................... 68
Builders Risk .................................................................................................................................................................................. 68
Business Income ........................................................................................................................................................................... 68
Legal Liability ................................................................................................................................................................................ 68
Extra Expense................................................................................................................................................................................ 68
Causes of Loss Forms: Basic, Broad, and Special ............................................................................................................ 69
Selected Commercial Property Endorsements ................................................................................................................ 69
Ordinance or Law .......................................................................................................................................................................... 69
Spoilage ........................................................................................................................................................................................ 69
Peak Season Limit of Insurance..................................................................................................................................................... 69
Value Reporting Form ................................................................................................................................................................... 69
Earthquake .................................................................................................................................................................................... 70
CYBER LIABILITY AND NETWORK PROTECTION ................................................................................................................................ 70
COMMERCIAL INLAND MARINE ................................................................................................................................................... 70
Nationwide Marine Definition ........................................................................................................................................ 70
Commercial Inland Marine Conditions Form .................................................................................................................. 70

Inland Marine Coverage Forms ...................................................................................................................................... 70
Accounts Receivable ..................................................................................................................................................................... 70
Bailee's Customer ......................................................................................................................................................................... 70
Commercial Articles ...................................................................................................................................................................... 71
Commercial Contractor's Equipment Floater ................................................................................................................................ 71
Electronic Data Processing (EDP) .................................................................................................................................................. 71
Equipment Dealers........................................................................................................................................................................ 71
Installation Floater ........................................................................................................................................................................ 71
Jeweler's Block .............................................................................................................................................................................. 71
Signs .............................................................................................................................................................................................. 71
Camera and Musical Instrument Dealers Form............................................................................................................................. 71
Valuable Papers and Records ........................................................................................................................................................ 72
Transportation Coverages .............................................................................................................................................. 72
Common Carrier Cargo Liability .................................................................................................................................................... 72
Motor Truck Cargo Forms ............................................................................................................................................................. 72
Transit Coverage Forms ................................................................................................................................................................. 72
Released Bills of Lading ................................................................................................................................................................. 72
EQUIPMENT BREAKDOWN COVERAGE .......................................................................................................................................... 72
Parts of an Equipment Breakdown Policy ..................................................................................................................................... 72
Coverages ..................................................................................................................................................................................... 73
Covered Property ............................................................................................................................................................ 73
Conditions....................................................................................................................................................................... 73
Periodic Inspection and the Suspension Provision........................................................................................................................ 73
Equipment Breakdown Protection Coverage Form ......................................................................................................... 73
Selected Endorsements................................................................................................................................................... 73
Business Income – Report of Values ............................................................................................................................................. 73
Actual Cash Value ......................................................................................................................................................................... 74
FARM COVERAGE ..................................................................................................................................................................... 74
Farm Property Coverage Forms ...................................................................................................................................... 74
Coverage A ..................................................................................................................................................................... 74
Coverage B ..................................................................................................................................................................... 74
Coverage C ..................................................................................................................................................................... 74
Coverage D ..................................................................................................................................................................... 74
Coverage E ...................................................................................................................................................................... 74
Coverage F ...................................................................................................................................................................... 74
Coverage G ..................................................................................................................................................................... 74
Coverage H ..................................................................................................................................................................... 74
Coverage I....................................................................................................................................................................... 74
Coverage J ...................................................................................................................................................................... 74
Mobile Agricultural Machinery and Equipment Coverage Form .................................................................................... 74
Livestock Coverage Form ................................................................................................................................................ 75
Definitions ...................................................................................................................................................................... 75
Causes of Loss (Basic, Broad and Special) ...................................................................................................................... 75
Conditions....................................................................................................................................................................... 75
Loss Conditions ............................................................................................................................................................................. 75
Exclusions ....................................................................................................................................................................... 77
Limits .............................................................................................................................................................................. 78
Additional Coverages ..................................................................................................................................................... 78
Farm Umbrella Coverage .............................................................................................................................................................. 79
SECTION V – COMMERCIAL PACKAGE POLICY REVIEW QUESTIONS..................................................................................................... 80
SECTION VI – BUSINESS OWNERS POLICY (BOP) ............................................................................................................... 82
CHARACTERISTICS AND PURPOSE ................................................................................................................................................. 82
Eligible Businesses .......................................................................................................................................................... 82
Ineligible Businesses ....................................................................................................................................................... 82
BUSINESS OWNERS POLICY (SECTION I) – PROPERTY....................................................................................................................... 83

Coverages ....................................................................................................................................................................... 83
Exclusions ....................................................................................................................................................................... 83
Deductibles ..................................................................................................................................................................... 83
Loss Conditions ............................................................................................................................................................... 83
General Conditions ......................................................................................................................................................... 84
Optional Coverages ........................................................................................................................................................ 84
BOP Additional Coverages ............................................................................................................................................................ 84
BOP Extended Coverages .............................................................................................................................................................. 84
BUSINESS OWNERS POLICY (SECTION II) - LIABILITY ........................................................................................................................ 85
Business Liability ............................................................................................................................................................ 85
Medical Expenses ........................................................................................................................................................... 85
Conditions....................................................................................................................................................................... 85
Exclusions ....................................................................................................................................................................... 85
BOP Standard Form Exclusions ..................................................................................................................................................... 85
BOP Special Form Exclusions ........................................................................................................................................................ 85
Definitions ...................................................................................................................................................................... 85
BUSINESS OWNERS POLICY (SECTION III) – COMMON POLICY CONDITIONS......................................................................................... 86
BOP Cause of Loss Form and Coverages ....................................................................................................................................... 86
Selected Endorsements................................................................................................................................................... 86
State Changes ............................................................................................................................................................................... 86
Protective Safeguards ................................................................................................................................................................... 86
Utility Services - Direct Damage Replacement Cost Coverage ...................................................................................................... 86
Utility Services - Time Element Coverage ..................................................................................................................................... 86
BOP Eligible Wholesale/Distributor Risks ....................................................................................................................... 86
BOP Eligible Processing or Service Businesses ................................................................................................................ 87
Restaurants .................................................................................................................................................................... 87
Small Contractors ........................................................................................................................................................... 87
SECTION VI – BUSINESS OWNERS POLICY (BOP) REVIEW QUESTIONS................................................................................................ 88
SECTION VII – OTHER COVERAGES AND OPTIONS ............................................................................................................ 89
AVIATION INSURANCE ............................................................................................................................................................... 89
Aircraft Hull .................................................................................................................................................................... 89
Aircraft Liability .............................................................................................................................................................. 89
OCEAN MARINE INSURANCE ...................................................................................................................................................... 90
Major Coverages ............................................................................................................................................................ 90
Hull Insurance ............................................................................................................................................................................... 90
Cargo Insurance ............................................................................................................................................................................ 90
Freight Insurance .......................................................................................................................................................................... 90
NATIONAL FLOOD INSURANCE PROGRAM...................................................................................................................................... 90
“Write Your Own” vs. Government Flood Insurance Policies .......................................................................................... 90
Eligibility ......................................................................................................................................................................... 90
Flood Plain Determination and NFIP Qualification ....................................................................................................................... 90
Eligible Properties ......................................................................................................................................................................... 90
Non-Eligible Properties ................................................................................................................................................................. 90
Coverages ....................................................................................................................................................................... 91
Limits .............................................................................................................................................................................. 91
OTHER POLICIES ...................................................................................................................................................................... 91
Boatowners .................................................................................................................................................................... 91
Difference in Conditions ................................................................................................................................................. 91
RESIDUAL MARKETS (INCLUDING FAIR PLANS) .............................................................................................................................. 92
Joint Underwriting/Joint Reinsurance Pool..................................................................................................................... 92
MINE SUBSIDENCE INSURANCE ................................................................................................................................................... 92
FEDERAL CROP INSURANCE AND THE RISK MANAGEMENT AGENCY (RMA) ......................................................................................... 93
Risk Management Agency (RMA) ................................................................................................................................... 93
SECTION VII – OTHER COVERAGES AND OPTIONS REVIEW QUESTIONS ............................................................................................... 94
PRACTICE EXAM....................................................................................................................................................................... 95

ANSWERS TO REVIEW QUESTIONS .............................................................................................................................................100
Section I – General Insurance Concepts ........................................................................................................................100
Section II – Property Insurance Concepts .....................................................................................................................101
Section III – Dwelling Policy (DP) ..................................................................................................................................101
Section IV – Homeowners Policy...................................................................................................................................102
Section V – Commercial Package Policy .......................................................................................................................102
Section VI – Business Owners Policy (BOP) ...................................................................................................................103
Section VII – Other Coverages and Options ..................................................................................................................103
ANSWERS TO PRACTICE EXAM ..................................................................................................................................................104
PROPERTY PUZZLE CLUES.........................................................................................................................................................108
ALPHABETICAL INDEX ..............................................................................................................................................................110

STUDYING FOR THE STATE INSURANCE PRODUCER LICENSING
EXAM
The material needed to study for the insurance 2. Take the section review quizzes, practice
producer exam is divided into two sections: (1) exam, and several tests in the Exam
Insurance Fundamentals and (2) State Law. The Advantage online questions. If you score
insurance fundamentals information is covered in poorly, review and study the material in the
this textbook. The video and audio seminars (if text again.
available) reinforce the insurance fundamentals 3. Take the certified Course Completion Exam
information. The state law information is in the in the online Exam Advantage section (if
separate state law textbook. Regardless of your state, required in your state).
the state licensing exam requires that you thoroughly
learn the material in these textbooks. There is no CPMI Professional Development, Inc. appreciates
substitute for study. that you chose our course to aid in your study of
It is recommended that you study at least 20 hours Property Insurance Fundamentals. We also offer
per line of insurance you plan to get licensed in. For fundamental courses for the following:
example, if you are studying for both Life and 1. Life Insurance
Health, you would likely want to study for at least 2. Accident and Health Insurance
40 hours. Your individual needs may be more or less 3. Casualty Insurance
than what is recommended. We have found that the
best way for you to learn this material is to follow the CPMI offers continuing education courses that you
steps listed below: will want to use as you progress in your career. Visit
1. Study the material in this text, as well as the our website for a complete list of other courses at:
material in your State Law text www.cpmipro.com
DILIGENTLY. You must know the material.
TIPS FOR TAKING THE INSURANCE LICENSING EXAM

Congratulations on choosing CPMI Professional
Development, Inc. to help you pass the state Learning the Material Using the Text,
licensing exam! The insurance fundamentals and
state-specific textbooks contain the information you
Video, and Audio Resources
1. Decide that you will pass the exam the first
will need to pass the licensing exam. Our video and
time you take it.
audio seminars are also available to enhance your
2. If you have the video, take notes while
learning experience, and the Exam Advantage online
watching the seminar. Watch the program
testing helps review the material and lets you know
straight through the first time so that you can
if you are ready to take the state exam.
follow the flow of the information.
3. If you have the audio CDs, listen to them
This study program is not designed to be a
multiple times to help the memorization
comprehensive course in insurance. It is designed to
process.
give you the basic information you need to pass the
4. Read and reread the text multiple times,
state licensing exam. The exam is not easy, but note
section by section, to make sure you
that you can, and should, pass the exam the first time
understand the material.
you take it if you study and have a good grasp on the
5. Repetition is important. Studies show that
material. The information in this course is condensed
adults generally learn best when they divide
and addresses the information you will need to know
their study time into manageable chunks.
for the exam without a lot of extra material, but you
Take a 10 minute break after reading each
must know it well. What follows are tips to help
section of the material. Study diligently over
prepare you for your state exam.
the course of several days.

Answering the Review Questions and J and R insure their building for $140,000 under a
Building and Personal Property Coverage Form. AB
Taking the Practice Exams Bank holds a $70,000 mortgage on the building.
1. Answer the review questions after the end of
When the building is destroyed by a propane gas
each section. If you get any of the review
explosion, the insurance company discovers that the
questions wrong, review that section of the
building was used to store hot air balloons and tanks,
text.
when J and R had told them at time of the application
2. When you take the practice exam at the end
that the building would be used to store office
of the text, try to answer questions without
furniture and files. How much will the insurer pay?
looking at the text. If you don't know the
A. $70,000 to J and R and $70,000 to the bank
answer, turn to the text. When you go
B. $70,000 to J and R, nothing to the bank
through the exam additional times, try not to
C. Nothing to J and R, $70,000 to the bank *
turn to the text.
D. Nothing. Premiums will be refunded to J and
3. Go with your first instinct. Often times, the
R.
first answer you choose for a question is the
correct one – if you are taking an educated
Other questions are asked in the negative. Watch for this type
guess. Statistically, you are more likely to
of question:
change a correct answer to an incorrect one
if you go back and change your initial
Which of the following statements about the
answers.
subrogation clause is NOT correct?
4. Try not to spend too much time on questions
A. It exists in many insurance contracts.
that you absolutely don't know the answer to.
B. It prevents double collection for a loss by an
Choose your best guess. Eliminate whatever
insured.
might be obviously wrong and move on to
C. It allows larger claim payments than are
those questions you do know. Remember,
possible without it. *
you are allowed about 45 wrong answers on
D. It places the ultimate burden of loss on an at-
the state exam.
fault third party.
5. Read the questions carefully. It can help to
reword the questions to make sure you
There is temptation to mark the first answer
understand what is being asked.
perceived as correct, which is A. What the question
is asking, though, is for the answer which is not
About half of the questions on the exam are
correct about the subrogation clause. Be sure to read
relatively straight forward facts. For example:
each question carefully and understand what the
question is really asking. Make sure you answer the
The concept of restoring someone to the same
question that is asked. For example:
financial position in which they were before a loss is
called:
Which of the following is not an unfair claims
A. Insurance
practice?
B. Indemnity *
A. Attempting to settle a claim on the basis of
C. Risk
an altered application
D. Hazard
B. Rebating *
C. Failure to affirm or deny coverage within a
About a quarter of the questions require some
reasonable period of time
deductive reasoning. For example:
D. Requiring the submission of a preliminary
claim report
(Rebating is an Unfair Trade Practice, not an Unfair

Claims Practice.)

(This is covered by Medical Expense Coverage, not
Which one of the following is not covered by Bodily by Bodily Injury and Property Damage.)
Injury and Property Damage in the Commercial
General Liability policy?
A. Premises and Operations
B. Contingent Liability
C. Manufactures and Contractors
D. A customer falls down some stairs on the
company's premises and breaks a leg. *
BEFORE TAKING THE INSURANCE LICENSING EXAM

The day before the exam, make sure you have your taking the test. You will need to turn any material on
prelicense course completion certificate (if required which you wrote notes into the exam proctor upon
by your state) in an easily accessible place to take finishing the test and leaving the facility. Do not take
with you to the exam. Also, be sure to bring two any notes with you from the testing center.
forms of ID with you to the test center, with at least
one being a picture ID. Familiarize yourself with how When you start the test program, you will have the
to get to the exam site so you will not be scrambling opportunity to take a review program that will show
before you need to leave for the exam. you how to operate the testing program. You can
mark questions for review at the end of your test,
Get a good night's rest the night before the exam. review all questions, or close the exam. Once you
Studies also show that a meal with protein helps close the exam, whether to finish or move on to
people stay more alert. Avoid candy or a meal high in another test, you will not be able to return to the
sugar or fat before the exam, as they tend to make closed test. If taking more than one exam, you will
your mind less alert. be given the opportunity to pause the program and
take a restroom break. You may not look at any
Eat a light meal before going to the test. Do not eat materials to review test information, and you may not
many carbohydrates, as they tend to make you tired. take any information into the restroom with you.
Arrive at the exam site 15-30 minutes before your There will be monitors who walk around the facility.
exam is scheduled to begin so you will be rested and Don’t let this make you nervous; the monitors are
at ease. Arriving late can make you nervous, or it may verifying everyone is taking the exam without
cause you to miss your exam completely. assistance. There may also be mirrors around the
facility, so the monitors can better view test takers’
You may not take certain items into the test. You will workspaces. Don’t let this make you nervous either.
need to put coats, purses, cell phones, books, any
calculators, and some types of watches into a locker As you leave the test center, you will be given your
before entering the test center. Anything that might test results. If you did not pass the test, or any part of
have answers in it or cover answers that might be it, ascertain what your score was and schedule a
written on your person should not be taken to the second attempt within a few days. This will allow
exam site. you to review the study material without forgetting
what you had already learned prior to your first
When you get to the cubicle to take your test, there attempt at the state exam.
will be a computer and material for notes. Take a few
minutes to clear your mind and write down some When you pass the test, CONGRATULATIONS!
information with which you have some difficulty. You will now be able to apply for your insurance
This will help to recall information while you are producer license per your state's requirements.

Section I – General Insurance Concepts
Risk Management Key Terms insured due to loss of property, a liability from
something the insured did to someone else, or the
loss due to the loss of a loved one, or losses due to
Insurance medical problems. Loss arises from the occurrence
Insurance is a contract that binds the insurer to of an event that is insured by a policy.
indemnify (compensate) the insured against
specified types of loss in return for money Direct Physical Loss
(premiums). Insurance is designed to protect the A direct physical loss is a loss in which damage
financial well-being of an individual, company, or occurs as the result of an occurrence without an
other entity against the financial risks associated with intervening cause, such as hail damage to the roof of
unexpected loss. In exchange for the premium a house.
payments from the insured, the insurer agrees to pay
the policyholder upon the occurrence of specific Intervening Cause
events. In most instances, the insured pays for a
An intervening cause is an event that interrupts the
portion of each loss in the form of a policy
chain of causation by providing an independent
deductible, and the insurer pays for the balance of the
cause of the final result. This means that the person
loss up to the policy limit of insurance.
who started the chain of events may no longer be
considered responsible for damages to the injured
Law of Large Numbers person since the original action is no longer the
The Law of Large Numbers is a theory that states proximate cause.
that it is more likely to predict a particular outcome
as the number of units in a group increases. The
Indirect or Consequential Loss
bigger the observed sample, the more accurate the
An indirect or consequential loss is a loss in which
predicted results will be. It is the scientifically
damage occurs as the result of a direct loss, such as
calculated pooling, growth, and distribution of
the insured's increase in expenses when required to
money to satisfy two (2) different objectives:
stay in a hotel because a hail-damaged home cannot
1. The paying of benefits to survivors of
be lived in.
someone who dies while covered
2. The providing of distribution of benefits by Insurable Interest
lump sum or with guaranteed lifetime Insurable interest is the concept that insurance can
payments only be purchased when the applicant has a potential
for financial loss – if the insured person died, or if the
Insurance ratings are based on the Law of Large insured items were destroyed or not in their
Numbers. For example, an insurer is more likely to possession. In Property and Casualty insurance,
predict the number and types of auto insurance insurable interest must be present at the time of loss,
claims as the number of auto insurance policyholders as well as at the time of application. In Life insurance,
increases. insurable interest is only required at the time of
application.
Indemnity
Indemnity is the underlying principle of insurance, Risk
which is restoring an insured to the same financial Risk has two (2) meanings: (1) The property or party
position that existed before a loss occurred. It does that is insured, and (2) The uncertainty of loss.
not take sentimental or practical use into Pure Risk
consideration.
A pure risk is a situation that only involves the
chance for loss, or no loss, such as property
Loss ownership. For example, a house can burn down; that
Loss is the source of a claim for damages under an is a pure risk.
insurance policy. Losses cause a financial loss to the

Speculative Risks is especially the case if there is a specific
Speculative risks are situations that involves the interest involved, such as a mortgage or a
chance for either a loss or a gain, such as gambling. business arrangement.
Note: The definition of Insured has been expanded under the
Relationship Between Risk and Premium Homeowners policy to include “other persons under the age
There is a direct correlation between risk and of 21 and in your care or the care of a resident of your
premium. The greater the risk, either in value or in household who is your relative.”
potential for a loss or claim, the greater will be the
premium. Agent/Producer
An individual who is state licensed to solicit and sell
Negligence insurance for one or more insurance companies is
Negligence is conduct that is culpable because it either an agent or a producer. He/she must be
misses the standard required by law of a reasonable authorized by an insurer (known as the principal) to
person in protecting others or the interests of others act on its behalf.
against risky or harmful acts of other people. It is:
1. The failure to do something that a reasonable Policy Owner
person would do OR The policy owner is the person who:
2. Doing something that a reasonable person 1. Applies for a policy.
would not do 2. Takes responsibility for premium payment.
3. Has the right to cash values, dividends, and
Self-Insurance policy proceeds.
Self-Insurance refers to making financial 4. Has the ability to change beneficiaries and
preparations to meet risks by setting aside sufficient other policy particulars.
funds in advance to meet estimated losses, rather than
purchasing an insurance policy. Binder
A binder is a written or oral contract made by an
Applicant agent that puts a policy immediately but temporarily
The individual who applies for insurance is the into effect for a specified period of time, from the
applicant. time initially bound until accepted or canceled by the
insurance company, that includes all the terms of and
Insurer endorsements to the policy. The minimum that an
Insurer is another name for an insurance company. agent needs in order to put a binder into effect is the
insured's promise to pay the premium within a certain
Insured time frame. All policy terms and conditions are in
An insured person is: force until a policy is issued or coverage is declined
1. Any member of the insured household who by the insurer on whom the binder was written.
is a relative or is under 21 years of age. Agents must be careful not to exceed their binding
2. A child or parent living with the insured, authority, as the company is liable for the entire risk
regardless of their age. until reviewed and accepted or canceled by the
3. Any other member of the insured household insurer.
who is under the age of 21.
There are three (3) types of insureds:
Certificate of Insurance
1. Named Insured: This is the person(s) listed A document issued by an insurance company/broker
as an insured in the Declarations page. that is used to verify the existence of insurance
2. First Named Insured: This is the first coverage under specific conditions granted to listed
insured listed and the person to whom the individuals is known as a certificate of insurance.
insurer sends correspondence such as
renewal notices or policy changes. Endorsement
3. Additional Insured: This is the individual An attachment to a document that amends or adds to
or entity who, other than the named insured, it is known as an endorsement. Typically, it is an
qualifies as an insured under the policy. This

added provision to an insurance policy. Also referred criminal activity. It is a situation in which
to as a "rider." one party gets involved in a risky event
knowing that it is protected against the risk
Waiver and Estoppel and the other party will incur the cost.
Waiver 3. Morale – Morale hazards are created by the
The voluntary abandonment of a known or legal right attitudes of the insured, such as indifference
or advantage is a waiver. because the insured knows he/she is insured.
An example would be not making sure doors
Waiver of Rights and windows are locked before leaving
home. If anything is stolen, the insured
A waiver of rights is the intentional relinquishment
doesn’t worry because it’s insured. While a
of a known right. The insured would need to sign a
Moral hazard describes a conscious change
form if they are relinquishing their rights in a policy
in behavior to try to benefit from an event
or claim settlement.
that occurs, a Morale hazard describes an
unconscious change in a person's behavior
Estoppel when he/she is insured.
The idea that once a fact has been admitted to be true
4. Legal – Legal hazards are created when
by a previous action it can no longer be denied to be
legal authority in a certain situation is
true is known as estoppel.
unclear or unsettled. These can arise from
changes in the law or from court rulings. An
Accident example would be a change in the building
An accident is an unforeseen and unintended event code requiring new construction to use
that is identifiable as to time and place. different materials.
Occurrence Peril
An event, including continuous and repeated Peril is the cause of a loss, or the event insured
exposure to conditions, which results in bodily injury against. Examples: fire, lightning, and theft, etc.
or property damage neither expected nor intended 1. A Named Peril Policy is a policy that only
from the standpoint of the insured is known as provides insurance for perils that are
occurrence. specifically listed or named in the policy.
2. An Open-Peril Policy is a policy that
Exposure provides insurance for all perils except those
Exposure refers to an individual, business, or specifically excluded in the policy.
entity’s susceptibility to various losses or risks they
might encounter in life or in the ordinary course of Maslow's Hierarchy of Needs
business. The five (5) primary needs that every individual
strives to satisfy (in ascending order) are:
Basically, it refers to their potential for accidents or 1. Physiological Needs
other types of losses like crime, fire, earthquake, etc. 2. Security
The greater your exposure to potential losses, the 3. Affiliation
higher you can expect your premiums to be. 4. Esteem
5. Self-Actualization
This hierarchy of needs is important for the insurance

Hazard producer to know because customers need to have
A hazard is a condition that increases the chance for one level of need met before worrying about the next.
loss or the severity of loss. There are four (4) types: For instance, customers usually need to have the
1. Physical – Physical hazards are created by physiological need for food and shelter met before
the use, condition, or occupancy of property, you would approach them about buying life
such as damaged steps or worn auto tires. insurance for charitable causes.
2. Moral – Moral hazards are created by the
insured's habits, such as dishonesty or

National Association of Insurance adjustment, the premium becomes the final premium.
This is most often used in Workers Compensation and
Commissioners (NAIC) Liability insurance.
All state insurance directors or commissioners are
members of the National Association of Insurance
Commissioners, also known as the NAIC. The Burglary
group has no official legislative powers. Burglary is breaking and entering (into a building,
safe, etc.) with felonious intent and with visible signs
The NAIC tries to standardize insurance laws of forced entry – for example: a broken window,
throughout the country by recommending model jimmied door, or blown safe. (Study tip: Burglary.
legislation in each commissioner’s home state. Building. Both start with B.)
Individually the commissioners or directors do not Robbery

make any laws, they enforce insurance laws in their Robbery is the taking of personal property of
own states. They do this by determining the types of another by force or fear of force. (Study tip: A man
policies that can be sold in their state, by determining named Rob pulls a gun on someone to rob them.)
the amounts of surplus that insurers must maintain,
by investigating complaints of agents and insurance Larceny
companies, and by examining agents and insurers. Larceny is the taking or removal of another's
personal property with the intent to permanently
Tort deprive them of it. This could be burglary or robbery,
In common law jurisdictions, a tort is a civil wrong but if property is taken without force, fear of force,
that unfairly causes someone else to suffer loss or or breaking and entering, it is still larceny. Walking
harm resulting in legal liability for the person who into someone's house through an unlocked door and
commits the tortious act. Although crimes may be picking up jewelry is an example of larceny.
torts, the cause of legal action is not necessarily a
crime, as the harm may be due to negligence which Theft
does not amount to criminal negligence. The victims Theft is the unlawful taking of the property of
of the harm can recover their loss as damages in a another, including burglary, robbery, and larceny.
lawsuit. To prevail, the plaintiff in the lawsuit must
show that the actions, or lack thereof, was the legally
recognizable cause of the harm. A person may be Mysterious Disappearance
found not guilty in a criminal case but can still be Mysterious disappearance means that personal
found guilty or legally liable in a lawsuit. property is missing, but there is no provable cause for
its disappearance; the property might have been lost
or stolen.
Co-Insurance
Co-insurance is another cost containment feature in
a Property (usually commercial) insurance policy. Liability
The co-insurance clause requires a specified amount Liability is a legally enforceable debt or obligation.
of insurance based on the value of the insured
property. If the insured insures the property for less Actual Cash Value
than this amount, he or she must share in a percentage The replacement cost at the time of loss, minus
of a loss to the same percent that the property is deprecation, is known as actual cash value.
underinsured at the time of the loss. It encourages
insuring of property to the proper amount.
Personal Lines vs. Commercial
Deposit Premium Lines
A deposit premium is an initial or provisional
premium required by an insurer that is based on Property insurance and Casualty insurance can be
estimated information and is subject to an audit to further divided into Personal and Commercial lines.
determine the actual risk amount and a premium Personal lines includes Homeowners, Personal Auto
adjustment after the end of the policy period. After insurance, and other related things owned by

individuals. Commercial lines includes Business 4. Be one unit in a large enough pool of units
Property and Liabilities (a loss caused by the business that the law of large numbers allows for the
to others), Commercial Auto (Trucking, Business accurate prediction of loss.
Auto) owned by businesses, and also includes 5. Not be catastrophic in nature.
Commercial Crime coverages. 6. Generate a rate that is reasonable and
affordable.
Methods of Handling Risk Pure risks are insurable; speculative risks are not
When managing risk, an insured may choose to insurable.
avoid, retain, transfer, share, or reduce risk.
Avoidance Adverse Selection

Avoidance is refraining from engaging in activity
that might give rise to risk, such as not owning or Adverse selection is the tendency of persons who
driving a car to avoid the risk of car accidents. present a greater-than-average degree of risk for loss
to apply for, or continue, insurance to a greater extent
Retention than persons with average or less-than-average
Retention is assuming responsibility for loss. In this degree of risk for loss. Normal risks may seek
case, the individual will be totally responsible for insurance elsewhere, possibly at a lower cost. If a
paying losses. Retention is the most common method person becomes sick, he/she may be unable to get
of handling risk, typically in the form of deductibles insurance elsewhere and are, therefore, more likely
or choosing not to purchase insurance. to maintain the current coverage.
Sharing Reinsurance
Sharing is spreading risk among several entities or a
large number of people, such as by insurance Reinsurance is insurance sold and purchased between
companies or physicians. two (2) insurance companies for the purpose of
transferring and sharing risk, usually catastrophic risk
Reduction or losses in excess of a specific amount (e.g., $500,000
Reduction decreases the chance for loss by removing or $10,000,000).
or reducing hazards that might cause an accident to
happen, such as wearing safety goggles or installing Reinsurer
safety railings around a dangerous area. A reinsurer is the insurer selling reinsurance to
ceding insurers.
Transfer
Transfer means shifting the risk for loss from one Ceding Insurer
party (the insured) to another (the insurer), either A ceding insurer is the insurer buying reinsurance
through the purchase of an insurance policy or issuance from a reinsurer. The ceding insurer issues primary
policies of insurance to individuals and/or businesses
of another contractual agreement (e.g., hold harmless
and then cedes the policies to a reinsurer.
agreement).
Reinsurance Contract or Treaty
Two (2) types of reinsurance contracts are sold:
Elements of Insurable Risks 1. Facultative Reinsurance: The ceding
insurer offers individual risks to the reinsurer,
To be considered insurable, a risk must: and the reinsurer may choose to accept or
1. Be accidental and due to chance. reject each individual risk.
2. Be measurable with respect to value. 2. Treaty Reinsurance: The reinsurer writes
3. Be predictable. coverage for one or more lines of insurance
issued by the ceding insurer based on terms
stated in the reinsurance contract. Treaty

reinsurance continues in force unless An example might be where your insurance company
canceled by one of the parties of the treaty, makes a payment to an entity that you were
and the reinsurer cannot reject individual financially responsible to. This indemnifies them on
risks. your behalf rather than you paying them directly for
it yourself.
The following types of reinsurance apply primarily to
Property and Casualty insurance, but are the subject
of all licensing exams: Limits of Liability
1. Excess of Loss Reinsurance: The reinsurer
only pays for losses that exceed a certain Limits of Liability means the maximum amount the
dollar amount (e.g., $500,000). insurer will pay for loss or damage covered by an
2. Proportional Reinsurance: the reinsurer insurance policy.
only pays a share of every reinsured loss
(e.g., 90%).
Deductible
Indemnity/Pay on Behalf Of
A deductible is the monetary amount an insured
Indemnity can be thought of as pure and simple must pay before the insurer will begin making loss
protection from a loss by being reimbursed or paid a payment. A deductible is a form of risk-sharing and
sum to make you whole after you incurred a cost or cost containment. Most forms of insurance contain
experienced a loss. standard deductible amounts (e.g., $500) and the
insured may choose higher or lower deductibles.
On Behalf Of refers to someone else beside the Deductibles and premiums are inversely related. As
person experiencing the loss paying for that loss or a deductible increases (e.g., the insured pays for more
cost in your stead. It is paid for you instead of you of the loss), the policy premium decreases.
paying for it directly.
INSURERS
Types of Insurers dividends and who can attend and vote at company
meetings. Mutual insurers are further divided into the
following:
Multi-Line Insurance Companies 1. Assessment Mutual Insurers share losses
Multi-line insurance companies are insurers that among group members. In a pure
write more than one (1) line of insurance. Common assessment group, no premium is paid in
lines of insurance include: advance, but losses are assessed to each
1. Property member as they occur. In an advance
2. Casualty premium assessment group, premiums are
3. Life paid at the beginning of each assessment
4. Accident/Health period and any claims are paid from these
premiums. If there are more claims than
Stock Companies premiums paid in, then additional
Insurers organized under the laws of the state in assessments are levied against each member.
which they are incorporated that are owned by If money is left at the end of the period, then
shareholders who elect officers and directors and the money is returned to the group members.
share in profits through stock growth and dividends 2. Non-Assessable Mutual Insurers charge a
are called stock companies. fixed premium, and the policyholders cannot
be assessed further. Reserves and surplus are
Mutual Companies maintained to provide payment of all claims.
Companies of this type have no capital stock and are
owned by policyholders who share profits through

Reciprocal Companies functions. Fraternal Benefit Societies, also called
Groups that exchange insurance on each other are Fraternals, are societies, orders, or supreme lodges,
reciprocal companies. with no capital stock that may or may not be
1. Members appoint and empower an incorporated. Fraternal Benefit Societies:
attorney-in-fact that legally binds members 1. Are conducted solely for the benefit of
to insure each other. members and their beneficiaries, and are not
2. Members share in any profits through lower for profit.
premiums, or in any losses by assessments. 2. Operate on a lodge system with ritualistic
3. Insured members are called subscribers. form of work.
3. Have a representative form of government.
4. Provide benefits in accordance with their
Risk Retention Groups charter.
A mutual insurance company that insures people in
5. Started offering Life insurance for the
the same profession or business is known as a risk
benefit of their poorer members on an
retention group.
assessment basis but have expanded to
operate the same as other insurers today,
Purchasing Groups though they still offer insurance only to
A purchasing group is not an insurance company. members or their families.
Rather, a purchasing group can be any group of
persons with similar or related liability risks who
form an organization whose purpose is to purchase
Syndicate Insurers (Lloyd's
commercial liability insurance on a group basis. No Associations)
specific requirements are imposed regarding the Syndicate insurers are not true insurance
legal structure of a purchasing group. In the case of a companies.
trade association, a simple resolution of the board 1. They provide a place for members to meet
authorizing the organization's officers to make and transact the business of insurance
arrangements to purchase commercial liability individually or as groups through a syndicate
insurance on a group basis would be sufficient to manager.
establish the purchasing group. Members of a 2. They provide assistance in gathering
purchasing group must be in similar or related underwriting information and handling
businesses which exposes them to similar or related claims and disputes among syndicate
liability risks. members.
3. Members are individually and wholly liable
Risk Retention Groups (RRG) vs. for all risks they accept, with no limitations
Purchasing Groups (PG) on liability. This lack of liability limits is
Both risk retention groups (RRGs) and purchasing Actual Cash Value
groups (PGs), require members to be homogeneous, 4. Replacement cost at time of loss minus
(i.e., engaged in similar businesses or activities that depreciation is the primary reason syndicates
expose them to similar liabilities). are not widespread today.
5. An example of this is Lloyd's of London.
The primary difference between RRGs and PGs is
that RRGs retain risk while PGs do not. PGs Surplus/Excess Lines Insurers
purchase insurance from an insurer, who issues the
These types of insurers provide insurance not offered
policies and serves as the risk bearer. RRGs, as
through admitted insurers.
insurers, issue policies to their members and bear
1. The full amount or type of insurance must
risk. Another key difference between the two (2)
not be available through admitted insurers.
entities is that RRGs typically require members to
2. Financial consideration cannot be a deciding
capitalize the company whereas PGs require no
factor.
capital.
3. While a surplus/excess lines insurer is
selling insurance in a state, if the coverage is
Fraternal Benefit Societies offered by an admitted insurer, the non-
Membership is based on religious, ethnic, or national admitted insurer must stop selling insurance
lines, and noted primarily for social and charitable

in the state or apply to become an admitted Admitted vs. Non-Admitted
insurer.
Insurers
Private vs. Government Insurers
While private insurers offer coverage for more Admitted Insurer/Authorized Insurer
common risks, there are some situations that are An insurer authorized by a state's insurance
unacceptable to them. If there is the potential for department to transact business in that state is known
special, great, or catastrophic risks, those as an admitted insurer or an authorized insurer.
possibilities are usually indemnified by State and
Federal Government insurers. Non-Admitted Insurer/Non-
Authorized Insurer
The State or Federal Government sometimes cover
Insurance companies not authorized to transact
certain types of insurance that private insurers cannot
business in a state because they either didn't seek
or will not insure. Insurers in each state are required
admission to the state or failed to comply with state
to participate in shared or involuntary markets. These
requirements are known as non-admitted insurers
markets provide coverage for high-risk insurance
or non-authorized insurers.
applicants that do not meet normal underwriting
standards.
Domestic, Foreign, and Alien
Some states require that these high-risk applicants be
assigned to individual insurers on a predetermined Insurers
basis while others require that losses from these
individuals be shared. Domestic Insurer
1. Property insurance FAIR plans provide Domestic insurers are insurers that transact business
insurance to property owners in inner-city in the state where they are chartered.
and high-risk areas who are unable to obtain
insurance through normal market channels Foreign Insurer
because of property location or other A foreign insurer is an insurer transacting business
situations over which they have no control. in a state but that is chartered under the laws of a
If turned down in the normal market, the different state or one of the U.S. territories.
property owner may apply for insurance
through the state's FAIR plan that follows its
own guidelines to insure the property. Alien Insurer
2. Examples of Federal Government insurance An alien insurer is an insurer organized under the
include Social Security, Medicare, Flood laws of a jurisdiction outside of the United States or
insurance, and Federal Crop and Crime its territories.
insurance. State governments sometimes
offer competitive funds that compete with
private insurers, or monopolistic funds that
Financial Solvency Status
will not allow insurers to compete in certain (Independent Rating Services)
areas. One such example of this is that some
states (North Dakota, Ohio, Washington, and Independent evaluation services provide information
Wyoming) provide Workers Compensation on companies such as financial strength,
insurance benefits. management caliber, and efficiency of operation.
1. They publish guides which analyze almost
all Property and Liability business insurers.
2. They review underwriting results,
management, adequacy of reserves for liabilities that
are not discharged, adequacy of policyholder
reserves to absorb shock losses, and soundness of
investments.

If properly used, these rating services help avoid Independent Agents or Brokers
delinquent insurance companies. Ratings should be Independent agents or brokers are agents that
checked over a period of years to verify trends for the represent several insurers and can, therefore, offer
companies. A.M. Best and Weiss Research are two various premiums to the customer.
(2) companies that have guides available through Nonresident Agent
most public libraries. An agent authorized to write business in a state other
than the one in which he or she lives is a nonresident
agent.
Marketing (Distribution Systems)
Direct Writer
Types of Agents/Marketing Systems A direct writer is an insurer that deals directly with
Exclusive/Captive Agents or Producers the insured through a salaried representative or
Agents appointed by an insurer to represent the captive/exclusive agent rather than through
company by selling and servicing policies on its independent brokers.
behalf, representing only one company, are known as
exclusive/captive agents or producers. Direct Mail/Direct Response
Direct mail and direct response policies are
marketed from the company's home office rather than
through agents. Marketing is done through direct
mail, internet, newspapers, magazines, radio, or TV.
PRODUCERS AND GENERAL RULES OF AGENCY

Insurer as Principal the company in conducting business on the
company's behalf.
Insurance companies are principals of the insurance 2. Acts as the representative go-between for the
agent, which means that the insurer empowers the company and the insured, with primary
agent to act as a representative of the principal (the responsibility to the company as the
company). Legally, the acts of the agent are principal, while treating the customer in a
considered to be the acts of the principal, so the fair and ethical manner.
agents' acts extend the insurance company's liability. 3. Provides correct information to the customer
about policy coverages.
4. Processes any requests for or cancellations
Producer/Insurer Relationship of coverage in a timely fashion.
5. Has no authority beyond that which the
Agency Agreement/Contract insurer gives him or her.
The relationship between the insurer and the
producer is defined in the agency agreement. This Insurance Agent vs. Broker
contract details the responsibilities of both parties. In Superficially, an insurance agent and a broker look
return for commission or salary paid by the company, identical as both are selling insurance policies. The
and the authority to represent the insurer in main difference between the two (2) entities lies in
conducting business on the company's behalf, the the relation these persons have with the insurer and
producer: the insured. An insurance agent is designated by the
1. Is first and foremost the representative of the insurance company to sell its products by convincing
insurance company and has an ethical people to buy the company's policies, whereas a
obligation to follow the rules of the insurer, broker works independently and matches the needs
to submit applications only for those risks of a client with the products available with any of the
that the insurer deems appropriate, and to insurance companies. Both need a license to carry out
service the policies of company customers. their business in a state and both get commission
He or she is paid commission or salary by the from the company.
company and is given authority to represent

Professionalism and Ethical Conduct 2. Group captive companies, which are insurers
When acting as representatives of their companies, owned by a number of otherwise unaffiliated
agents are expected to have and exhibit professional firms that are in the same type of business.
competence that can be shown through:
1. A broad education and background.
2. Strong insurance-specific knowledge and
Authority and Powers of
continued education in the insurance field. Producers
3. Membership in professional societies and
associations. Law of Agency
4. Ethical behavior, including honesty, According to the Law of Agency, an agent's actions
integrity, acting in good faith, and the are regarded the same as if the company itself
knowledge of and obedience to insurance performed the action. The agent is a representative of
industry regulations and codes. the insurer and acts for the insurer. As such, the
5. Concern for customers’ welfare over one’s insurer becomes partially liable for the actions of the
own. agent. It is the insurer's responsibility to monitor the
compliance of its agents in order to verify that they
Fiduciary follow all required laws. An agent represents the
An individual who holds a position of public trust company through several directives.
and confidence is a fiduciary. Insurance agents are
fiduciaries to both the companies they represent and Express Directive
their clients. As fiduciaries, agents are expected to be Express directive is when authority is expressly
professional and to act ethically. given to the producer, either orally or in writing in
his/her contract. Examples of this include: the
Financial Responsibilities countersigning and delivering of policies. Express
1. Money received in return for an insurance directive clauses are such things as scale of
policy or binding of insurance coverage is commissions, ownership of contracts sold, and
held in a fiduciary capacity and may not be contract cancellation procedures.
used by the agent for any other purpose.
2. Many states require producers to maintain a Implied Directive
Premium Fund Trust Account (PFTA) if The doctrine of “ostensible authority,” or implied
they hold premium money for any length of directive, gives agents unwritten authority to
time before giving it to the insurer. The perform incidental acts that the public assumes the
PFTA must be separate from personal or agent to have. Example: Exclusive Property and
other business accounts. Casualty agents can bind insurance coverage. If the
agent binds a particular risk, the company is bound
Captive Insurance Companies to that risk and must pay for any losses until it cancels
A captive insurer is a company whose business is the contract.
primarily supplied and controlled by the one interest
or group of related interests that set the company up Apparent Directive
to insure their assets and operations. In this type of Apparent directive is neither expressly given nor
situation, coverage can usually be provided at a lower implied but exists because the agent has used it in the
cost than that which is available in the general past without the insurer stopping him or her from
insurance market. doing so, or it is authority that a reasonable person
would assume an agent to have. If the agent has paid
A captive insurance company may be a non- minor claims in the past and been reimbursed by the
admitted, non-resident, or foreign insurer, and there insurer, it is apparent he or she has the authority to do
are mainly two (2) types: so.
1. Pure captive companies, which are wholly
controlled by one parent

Responsibilities to the Applicant 5. Process any coverage changes or
cancellations.
and Insured 6. Act only within the scope of authority that
has been given them by the insurer.
For risks covered by the policy, the insurer must pay
all sums up to the policy limits that the insured
becomes legally liable to pay; in other words, the Common Situations for Errors and
insurer pays the lower of the claim (loss) or the Omissions
policy limits. Deductibles will be applied to any 1. Failure to adequately explain policy
property claims, but there is no deductible for coverages or claim procedures
medical or liability claims. The producer has
responsibilities that are owed to applicants and/or 2. Unfairly/inadequately comparing policy
insureds. He or she will: coverages when replacing an existing policy
1. Act only in the best interests of his or her
clients. 3. Failure to get the policyholder's signature
2. Only provide accurate and up-to-date upon delivery
information and advice to customers about
policies and coverages. 4. Failure to explain changes made to the policy
3. Aid with the accurate completion of during underwriting
applications and any other accompanying
documentation. Note: Obtain all necessary signatures and copies of
4. Service policies as necessary and according documentation, summaries, and examples. All
to the desires of the insured. conversations should be documented.
CONTRACTS
Elements of a Legal Contract the insurer to make an offer, and the agent cannot
bind coverage.
Insurance Contract 2. Consideration
A contract is a binding agreement between two (2) The applicant's consideration is the premium, and
or more parties, legally enforceable to do certain the insurer's consideration is the promise to
things. In an insurance contract, the insured agrees indemnify the insured in the event of a loss.
to pay a monetary premium and abide by certain
agreements in exchange for the insurer agreeing to 3. Competent Parties
indemnify the insured in case of loss. A party to a contract is one who holds the
obligations and receives the benefits of a legally
There are four (4) principle elements that must be in binding agreement. When two (2) parties enter into
every legal contract. an agreement, there are two (2) distinct roles each
play: the promisor and the promisee.
1. Offer and Acceptance
An insurance policy is the written statement of the When a contract benefits others who are not party to
terms of the contract. There must be both an offer and the agreement, these third-party beneficiaries
an acceptance. receive benefits of a contract, while not owing any
obligation.
During the offer period the applicant submits an
application along with the correct premium. During All parties concerned must have legal capacity to
the acceptance period the insurer issues the policy. enter into a contract. This is best shown by defining
those who do not have legal capacity to enter into a
If the applicant does not submit money with the
contract. This includes:
application, it is not an offer, but it is an invitation to
1. Minors

2. Those legally declared incompetent Banks and other mortgage companies are common
3. People under the influence of drugs or third parties because many contracts involve
alcohol payment on property for which the mortgage
company has a financial interest because of a loan.
In the case of minors, the insurer may be required to
uphold the terms of the contract while minors may Contract of Adhesion
not be. Only one (1) party to the contract (the insurer)
prepares the contract and submits it to the other party
4. Legal purpose (the insured) for acceptance in a contract of
The insurance policy owner must have an insurable adhesion. The insured cannot make any changes to
interest in the property or person being insured. the contract.
Insurable interest is defined as having a financial
interest wherein the insured could lose financial Aleatory Contract
position if the property were damaged or destroyed, In an aleatory contract unequal amounts of money
or if the person was injured or died. are exchanged. The premium that the insured pays is
less than the potential benefit he or she will receive
Mutual Agreement in the event of a loss.
Any changes the insurer makes must be agreed to in
writing by the insured, or the policy will not be Personal Contract
issued. Insurance policies are personal contracts. They
cover the insurable interest of the individual insured
and cannot be transferred or assigned to another
Characteristics of an Insurance individual. The exception to this is Life insurance.
Contract Unilateral Contract
In a unilateral contract, only one party is legally
Two Party Contracts bound to perform any duties once premium is paid.
Insurance contracts are generally between two (2) In an insurance contract, only the insurer makes any
parties: (1) The insured, and (2) The insurer. The legally enforceable promise. The insured does not
insured suffers a loss of property, health, or life, or is make a promise but pays a premium, which
liable for someone else's losses. The insurer agrees to constitutes his or her part of the consideration.
indemnify the insured for such financial loss.
Insurers may pay money to a third party to whom the Conditional Contract
insured is liable (the insureds have liability because In a conditional contract, both parties must perform
they caused financial damage to another or owe certain duties to make the agreement enforceable.
compensation for services rendered for repair of The insured pays premiums and follows certain
property or health). policy conditions. The insurer pays claims according
to policy terms.
Third Party Contracts
Sometimes a third party contract is created to Contract of Indemnity
indicate that the performance of the contract will The insurer must restore the insured to the same
result in a benefit to a person that did not sign the financial position he/she was in before the loss
contact. Benefits to third parties are usually expected occurred in a contract of indemnity.
and left out of contracts, unless one of the signers
wants to designate a specific benefit to a specific
third party. To be able to enforce the contract, a third Legal Interpretations Affecting
party must be able to prove that the contract was Contracts
drawn for its benefit, otherwise the benefit is
considered incidental and the contract is only
enforceable by the original signers. Ambiguities in a Contract of Adhesion
Any doubt or ambiguity found in an insurance
policy will be found in favor of the party that did not
draw up the contract (the insured).

Reasonable Expectations On her auto insurance application, the woman says
The reasonable expectations of policy owners or she is divorced or legally separated from her husband
beneficiaries will be honored even though the strict in order to get Auto insurance, or to get a lower
terms of the policy do not support these expectations. premium.
Utmost Good Faith Fraud

It is understood that both parties bargain in good faith Deceit, intentional misrepresentation, or the
in forming the contract. Applicants and insureds are concealment of material facts with the intention of
expected to make a full, fair, and honest disclosure of causing injury to another party is known as fraud. It
facts. Insurers are expected to promptly indemnify is a deception deliberately practiced in order to
the insured in the event of loss according to the secure unfair or unlawful gain (e.g., making false or
contract. misleading statements or concealing circumstances
in relation to a claim or on an application).
Representations/Misrepresentations
Representations are statements made by one party Unfair Marketing Practices
that are believed to be true. The insured's
misrepresentation will not affect the insurance
contract or policy unless it affects the conditions Misrepresentation
under which the policy would be issued or not. Insurers or producers may not misrepresent:
Therefore, it is material to the risk. An agent's 1. A policy’s terms, benefits, or dividends.
misrepresentation, whether intended or not, is more 2. Policy comparisons (e.g., through
likely to void a policy. For example, an agent may incomplete explanations).
falsely represent that certain coverage is contained in 3. The type of policy being sold.
the policy when, in fact, it is not. 4. The company’s financial status.
5. The assets or funds owned or controlled by
Warranties an insurance company.
These are statements made by the applicant that are 6. The company or its funds being guaranteed
guaranteed to be true. Warranties become part of the by a federal or state governmental agency.
contract and, if found to be untrue, can be grounds Disparaging remarks about another agent, company,
for revoking the contract. They are considered to be or policy can also be examples of misrepresentation
material because they affect the insurer's decision to and defamation.
accept or reject an applicant.
Unfair Policy Replacement
Property Insurance Example: Insurance laws of many states:
The insured states there is a sprinkler system in the 1. Regulate the replacement of insurance
building and that it will be kept in working condition. policies.
If there is no sprinkler system, or if it is 2. Protect policyholders and prospective buyers
malfunctioning, the insurer could choose to not cover from unfair or deceptive practices.
damage caused by fire. 3. Require full disclosure to the prospective
buyer, as well as notice to the existing
Concealment insuring company, that a policy is to be
Concealment is the willful failure to disclose facts replaced. This gives the existing company a
that are material to the risk. An applicant's chance to contact the insured and make sure
concealment of information from the insurance they have the correct information and
company could affect the insurer's decision whether understand what might be lost by making the
or not to insure the property and could void the change.
policy.
Discrimination
Casualty Insurance Example: Charging different rates for the same exposure based
A woman is married and living with her husband who on non-actuarial data, or not founded in actual
has lost his driver's license due to three DUIs and is statistics is a form of discrimination. It is also illegal
not insurable. to discriminate against handicapped or disabled

individuals, or against anyone regarding the manipulate individuals or companies to purchase
following: insurance coverage from them.
1. Race
2. Religion Intimidation
3. National origin To force into or deter from buying insurance by
4. Marital status inducing fear is known as intimidation.
5. Gender
6. Where he or she lives
7. Individuals of the same class and equal Monopoly in the Insurance Business
expectation in life A monopoly is a situation in which a single company
8. Individuals of essentially the same hazard owns all, or nearly all, of the market for a given
product or service. Neither insurers nor producers
may set up artificial barriers to entry that do not allow
Rebating competition to enter the marketplace.
Rebating is:
1. The reduction in premium charged or the
return of part of the required premium.
Misappropriation of Funds
This is the intentional, illegal use of the property or
2. A form of discrimination. Rebating allows
funds of another person for one's own use or other
one individual to purchase insurance at a
unauthorized purpose, particularly by a public
lower cost than another with no actuarial
official, a trustee of a trust, an executor, administrator
purpose.
of a deceased person's estate, or by any person with
3. Included in the area of paying commissions
the responsibility to care for and protect another
to an individual who does not have a license.
person's assets (a fiduciary duty, such as an insurance
4. A misdemeanor in many states. (If so, both
producer). Misappropriation of funds is a felony, a
the agent and the insured may be subject to fines, and
crime punishable by a prison sentence.
the agent’s license could be
suspended.)
Examples
Examples A producer diverts premium designated for an auto
1. Reducing premiums policy to a policy the agent writes for an umbrella
2. Accepting something of material value policy.
(barter)
3. Offering an incentive if the person buys a
policy
Unfair Claims Settlement
The purpose of the NAIC’s Unfair Claim Settlement
Redlining Practices Act is to set forth standards for the
Redlining is the refusal of an insurer to underwrite investigation and disposition of claims. The
insurance coverage in certain geographic areas, following are considered unfair claim settlement
especially inner-city neighborhoods, or the practices:
increasing of premium rates to an unreasonable
amount to discourage certain customers in order to 1. Knowingly misrepresenting to claimants and
avoid perceived risks. insureds relevant facts or policy provisions
relating to coverages at issue
Boycotting 2. Failing to acknowledge with reasonable
To boycott is to stop buying or using the goods or promptness pertinent communications with
services of a certain company or country as a protest. respect to claims
Boycotting in insurance is to stop buying from a 3. Failing to adopt and implement reasonable
particular business to force them to buy insurance standards for the prompt investigation and
from a particular source. Insurers may not boycott or settlement of claims
deny legitimate claims of insureds because of the 4. Not attempting in good faith to make
provider used for services covered by the insurer. prompt, fair, and equitable settlement of
Neither insurers nor producers may use boycotts to claims submitted in which liability has
become reasonably clear

5. Compelling insureds or beneficiaries to file of information and verification appearing in
suits to recover amounts due under its the formal proof of loss form
policies by offering substantially less than 12. Failing in the case of claims denials or offers
the amounts ultimately recovered in suits of compromise settlement to promptly
brought by them provide a reasonable and accurate
6. Refusing to pay claims without conducting a explanation of the basis for such actions
reasonable investigation 13. Failing to provide forms necessary to present
7. Failing to affirm or deny coverage of claims claims within fifteen (15) calendar days of a
within a reasonable time after having request with reasonable explanations
completed its investigation related to such regarding their use
claim or claims 14. Failing to adopt and implement reasonable
8. Attempting to settle or settling claims for standards to assure that the repairs of a
less than the amount that a reasonable person repairer owned by or required to be used by
would believe the insured or beneficiary was the insurer are performed in a workmanlike
entitled by reference to written or printed manner.
advertising material accompanying or made
part of an application False Financial Statements
9. Attempting to settle or settling claims on the It is prohibited to knowingly:
basis of an application that was materially 1. Make any false material statement of fact as
altered without notice to, or knowledge or to the financial condition of a person or
consent of, the insured company.
10. Making claims payments to an insured or 2. Make any false entry of a material fact in a
beneficiary without indicating the coverage book, report, or statement of a person or
under which each payment is being made company.
11. Unreasonably delaying the investigation or 3. Omit to make a true entry of a material fact
payment of claims by requiring both a formal pertaining to a person's or company's
proof of loss form and subsequent business in any book, report, or statement.
verification that would result in duplication

SECTION I – GENERAL INSURANCE CONCEPTS REVIEW
QUESTIONS
1. The concept of restoring individuals to the
same financial position they were in before a 6. Which of the following is an example of a
loss occurred is called: surplus lines insurer?
a) Insurance. a) An insurer organized under the laws of a
b) Reimbursement. state other than the one in which it is
c) Restoration. doing business
d) Indemnification. b) A company organized in a different state,
but which sells a Life insurance policy
2. Which of the following is NOT correct about sold by other companies as well
stock insurance companies? c) A company that offers insurance not
a) They are owned by policyholders. offered by admitted insurers
b) They are organized under the laws of the d) A non-admitted insurer that offers
state where they are selling insurance. insurance at half the price that admitted
c) Officers and directors are elected by insurers offer it
shareholders.
d) Shareholders share in profits through 7. The tendency of poorer risks to continue and
stock growth. for better risks to drop or seek coverage
elsewhere is called:
3. Groups that exchange insurance on each a) Guaranteed Insurability.
other are called: b) Substandard Rating.
a) Mutual insurers. c) A Pre-Existing Condition Clause.
b) Reciprocal insurers. d) Adverse Selection.
c) Syndicate insurers.
d) Reinsurers. 8. Why is it important to have a large group of
individuals insured?
4. Insurance companies that insure other a) The larger the group, the more accurate
insurers against catastrophic losses are statistical assumptions will become.
called: b) The larger the group, the more profit can
a) Mutual insurers. be made by the insurer.
b) Reciprocal insurers. c) Policies can only be written on large
c) Syndicate insurers. groups.
d) Reinsurers. d) Small groups tend to have more claims.
5. The intentional use of funds for a purpose 9. All the following risks are insurable
other than that for which they were intended EXCEPT those that are:
is: a) Measurable
a) Misappropriation of funds. b) Predictable
b) Redlining. c) Speculative
c) Rebating. d) Selected from a diverse, randomly
d) Concealment. selected pool of risks
10. Forcing someone to buy insurance by

inducing fear is:
a) Intimidation.
b) Boycotting.
c) Misappropriation.
d) Redlining.

11. An insurance company which is owned by 16. A primary purpose of Premium Fund Trust
policyholders is a: Accounts is to:
a) Stock insurance company. a) Allow agents to maintain only one
b) Mutual insurance company. account for both business operations and
c) Syndicate insurer. premium monies.
d) Fraternal Benefit Society. b) Allow quicker claim payment by
requiring agents to write claims out of
12. Insurers in which membership is based on their PFTA and then be reimbursed by
religious, ethnic, or national lines is a: the insurer.
a) Stock insurance company. c) Require the agent to maintain separate
b) Mutual insurance company. accounts for business expenses and
c) Syndicate insurer. premium monies.
d) Fraternal Benefit Society. d) None of the above
13. An insurer chartered under the laws of one 17. Susan is an agent in a rural area who believes
of the states other than the one in which it is in doing business with those who do
transacting business is a(n): business with her. She makes a practice of
a) Domestic insurer. buying a side of beef from farmers when
b) Alien insurer. they buy a policy from her. This is an
c) Non-resident insurer. example of:
d) Foreign insurer. a) Misrepresentation.
b) Rebating.
14. An agent's ability to solicit insurance c) Redlining.
applications and accept premiums is an d) Discrimination.
example of:
a) Express directive. 18. The principal role of the National
b) Implied directive. Association of Insurance Commissioners is
c) Apparent directive. to:
d) Sales directive. a) Encourage the standardization of
insurance laws around the country.
15. The role of the state insurance b) Regulate insurance commerce between
commissioners consists of all of the different states.
following EXCEPT: c) Create generic insurance policy forms.
a) Determining the types of insurance d) Determine the fiduciary capacity of
policies that can be sold in their state. insurance agents and companies.
b) Pass legislation regarding insurance
business in their state. 19. The refusal of an insurer to insure
c) Determining the amount of surplus that individuals in a certain part of town because
insurers must maintain. of a non-actuarial belief that that part of town
d) Investigating complaints against agents is a bad insurance risk is:
and insurance companies. a) Misrepresentation.
b) Rebating.
c) Redlining.
d) Discrimination.

20. Which of the following explains that any act 22. An insurance company which shares
by an insurance agent is the same as if the dividends with policyholders is called a:
insurance company did the act? a) Syndicate insurer.
a) Representative insurance b) Stock insurer.
b) Fraternal insurer c) Mutual insurer.
c) Domestic insurer d) Miracle.
d) Law of Agency
23. An insurer that can only sell insurance to its
21. Frank sold his car to Jill but did not cancel members or their families is a:
his Auto insurance policy. Jill had an a) Mutual insurer.
accident one month later, and Frank reported b) Fraternal Benefit Society.
the accident to his insurance company. Frank c) Domestic insurer.
was not able to collect money for damages to d) Reinsurer.
the car, even though his policy was still in
force because:
a) Frank no longer had insurable interest.
b) Frank was not the individual who had
the accident.
c) Frank misrepresented that he still owned
the vehicle by keeping the policy in
force.
d) The insurance company did not follow
proper claims procedures.

Section II – Property Insurance Concepts
PRINCIPLES AND CONCEPTS
Insurable Interest 4. Prior insurance
The insurance applicant must have a potential for Rating Types

financial loss if some person or entity suffers There are several categories under which an
damages as the result of using the insured's property, application can fall:
goods, or services. In Property and Casualty 1. Acceptable with Standard Rates: The
insurance, insurable interest must be present at the insurance policy will be issued as applied
time of both application and loss. In Life insurance, for, subject to full premium payments.
insurable interest is only required at the time of 2. Acceptable with Substandard Rates or
application. with Exclusions: The application will be
issued, but the insured must sign an
endorsement showing that he or she accepts
Casualty Example the changes and/or increased premium and
Bob owned a car and bought an insurance policy for must pay the increased premium to keep the
it. Bob later sold the car to Alice. As Alice went home policy in force.
with the car, she caused an accident. Bob could not 3. Unacceptable and Denied Coverage: If the
collect money from the insurance policy for the claim insurer denies coverage to an applicant, the
because Bob no longer owned the car, so Bob no insurer must give a detailed, written
longer had insurable interest in the car. explanation as to why the coverage was
denied. Any paid or unearned premium is
Life Example returned. The insured must seek insurance
Erin was married to Shawn. Erin bought a life elsewhere, either through a high risk insurer
insurance policy on Erin’s life making Shawn the or through state FAIR plans (Fair Access to
owner and beneficiary on the policy. 10 years later Insurance Regulations).
the two divorced and Shawn continued premium
payments. One year later Erin died. Shawn could Loss Ratio
collect the death benefit from the policy because the
An insurer's loss ratio is one way of measuring the
policy remained in force.
insurer's profitability. It takes claim expenses and
compares them to premiums.
Underwriting
Loss (incurred losses + loss adjustment expenses)
=
Function Ratio earned premiums
Producers are called field underwriters, and as such
are the first line to determine if an insurance The lower the ratio, the better the claims experience
applicant meets the requirements of the insurer.. of the insurer and the more profitable the company.
This ratio does not include profits the insurer makes
Once an insurance application is received by the from interest on collected premiums.
insurance company, underwriters review the
application to verify information and to decide if this Premium rates generally need to be submitted to or
risk is one acceptable by the company. approved by state insurance departments before they
may be used in sales.
Sources of Underwriting Information:
1. The application
2. The agent report
3. Credit reports

Rates Hazards
Types of Rates The following are types of hazards, or conditions that
Judgment Rating increase risk or the chance of a loss occurring:
Premiums are determined without manuals or tables.
Instead, the underwriter evaluates the individual risk Physical
to determine the probability of loss, the extent of Physical hazards are material or structural problems
possible loss, and the premium that would need to be such as damaged steps or worn auto tires.
charged to cover possible claims, other expenses, and
projected profits. Moral
Moral hazards are the insured's habits, such as
Manual Rating dishonesty or criminal activity. Moral hazard occurs
This method separates risks into category groupings when the party with more information about its
or classes. The agent or underwriter decides the class actions or intentions has a tendency or incentive to
into which the risk would fit and then consults a behave inappropriately from the perspective of the
rating manual. The printed manual rate is per unit of party with less information.
insurance, such as per $1,000 of coverage. The
underwriter can then multiply the rate by the required Morale
number of units for the specific risk to determine the Morale hazards are the insured's attitude or lack of
proper premium to charge. concern about safety and liability issues because of
the existence of insurance coverage, such as a
Merit Rating business not having or following safety policies, or
Merit ratings generally modify a manual rating by allowing people with bad driving records to drive
taking particular aspects of the individual risk into company owned vehicles because they know their
account. Experience Rating, for instance, takes the insurance will cover losses.
particular risk's past loss history (usually the past
three (3) years) and compares it to an average claim Legal
experience for similar risks. If the risk has a poorer
Hazards arising from changes in law while the policy
loss history, then the premium will be adjusted
is in force, requiring the insurer to add coverages that
upward. If there is a better-than-average loss history,
were not included before, are legal hazards.
then the premium will be adjusted downward.
Loss Costs Causes of Loss (Perils)

Loss costs represent the portions of insurance rates
used to cover claims and the costs of adjusting The cause of loss is the event insured against.
claims. Insurers determine rates by estimating their Examples include: fire, lightning, and theft. Perils
future loss costs and adding a provision for expenses, can be specifically named in the policy and are
profit, and other contingencies. typically included unless they are specifically
excluded from coverage.
Components/Premium Determination
Factors taken into consideration when determining
premium rates include claims costs and related Named Perils vs. Open-Perils
expenses, insurer administrative expenses,
investment income (from invested premiums and Named Peril Policies
other income), producer commissions, and insurer These policies protect only against perils specifically
profits. listed in the policy.
Open-Peril Policies
Also called Special Peril Policies (previously known
as All-Risk), these policies have much broader
coverages. They protect against all physical loss

risks, except perils specifically limited or excluded Proximate Cause
by the policy.
An event that, in natural and sequential order, is
Direct and Indirect Losses responsible for a loss is called proximate cause. It is
an event considered to be a primary cause of that loss.
Direct Loss In Property insurance, rain coming in an open
A loss in which the covered peril is the immediate or window would not be covered. However, if lightning
proximate (dominant or first) cause of damage to struck, breaking the window, the lightning would be
property, such as hail damage to the roof of a house, the proximate cause for rain coming in the window,
is known as a direct loss. Example: After hail has and the loss would be covered.
damaged the roof, water from the rain was able to
damage property inside. In Casualty (Liability) insurance, consider that
someone runs their truck into the wall, causing a
Consequential or Indirect Losses brick to shake loose and fall, and it knocks a
Consequential or indirect losses are losses in pedestrian in the head. The brick is the actual cause
which the covered peril is not the direct cause of of loss, but the driver who lost control of the truck
damage. Example: If a restaurant suffers a fire, the could be negligent as the proximate cause.
fire is the direct cause of the loss. The loss of income
from the business while the restaurant is closed for
repairs is an indirect loss. Blanket vs. Specific Insurance
An insurance contract covers a particular type of risk,
Liability but may be open or closed as to the people or objects
covered. A specific policy would cover only those
Absolute/Strict Liability objects or perils named in the policy. A blanket policy
A legal doctrine that states that an individual can be would be one that covers a class of objects or perils.
held liable even if negligence does not exist or cannot A property blanket policy, for instance, might be one
be proven is known as liability. The injured party that covers all apartment buildings owned by the
may collect damages even though there is nothing insured, while a casualty blanket policy would cover
legally wrong with what the other person did or the the liability associated with those apartments. A
manner in which they did it. Examples: blanket health policy might cover all students at a
1. Strict Liability: Workers Compensation- An particular school or all members of a sports team.
employee injured on the job is eligible for
the employer to pay all medical costs as well Scheduled personal property protects valuable items
as pay. that are out of the ordinary and need to carry separate
2. Absolute Liability: Especially dangerous coverage to ensure that their full value is covered in
activities (i.e., using dynamite, or owning a the event of a claim.
pet rattle snake)
Basic Types of Construction
Vicarious Liability
Vicarious liability arises out of imputed negligence There are two (2) types of property covered by
in which one individual becomes liable for the Property Insurance policies:
negligent behavior of another. Employers are 1. Real property (land and buildings)
generally held liable for the negligent acts of 2. Personal property (belongings such as
employees while those employees are acting within clothes and furniture)
the scope of their employment. Insurance companies,
as principals, are liable for the negligent acts of their
agents. Basic Types of Construction
Property insurance agents must know the six (6)
basic types of construction when determining the

value to which the property should be insured. In Loss Valuation
general, these methods include:
1. Wood Frame (most common construction for
Property may be valued differently by different
residences in the U.S.)
individuals.
2. Masonry (brick)
3. Reinforced Concrete (multi-family units) Sentimental Value
4. Structured Steel Someone might have strong emotional ties to
5. Steel Frame (garages and outbuildings, property, such as an heirloom or an old car. This is
especially around farms) known as sentimental value.
6. Prefabricated Structures (most commonly
used for residences) Resale Value
The price that the individual could get for the
Classifications of Construction property if it were sold is the resale value.
1. Framed Construction means buildings
with floors, walls, and roofs constructed of Actual Cash Value (ACV)
combustible material(s). The ACV of property is calculated as the
2. Joisted Masonry Construction consists of Replacement Cost at the time of loss, minus
buildings with exterior walls of masonry or depreciation.
fire-resistive construction rated for not less
than one hour and with combustible floors Replacement Cost
and roofs. The cost to rebuild or replace property with materials
3. Non-Combustible Construction is floors, of like kind and quality, and at the same location, is
walls, roofs, and building supports must be known as the Replacement Cost.
made of non-combustible or slow-burning
materials.
4. Masonry Non-Combustible Construction
Functional Replacement Cost
This is the cost to repair or replace damaged property
means buildings with fire-resistive masonry
with less expensive but functionally equivalent
walls and non-combustible or slow-burning
materials. An example would be custom woodwork
floors and roofs.
that is replaced with standard woodwork.
5. Modified Fire-Resistive Construction is
buildings with exterior bearing walls and
load-bearing portions of exterior walls made Guaranteed Replacement Cost
of masonry or non-combustible materials The actual cost to rebuild or replace the property after
(exterior non-bearing walls may be slow- a loss, even if that cost is more than the stated value
burning, combustible, or have no fire- insurance amount, is the Guaranteed Replacement
resistive rating). Cost.
6. Fire-Resistive Construction consists of:
a) Solid masonry, including reinforced Market Value
concrete not less than four inches thick. Market value is the price property would likely
b) Hollow masonry not less than 12 inches fetch if sold on the market. A home in a small, remote
thick. town would have a similar price to one in a larger city
c) Hollow masonry less than 12 inches to rebuild or replace (Replacement Cost). However,
thick, but not less than eight (8) inches if the house were sold (Market Value), the price
thick with a listed fire-resistance rating might be considerably less in the small town because
of not less than two (2) hours. of:
d) Assemblies with not less than a two- 1. Lower land and property values.
hour fire-resistance rating. 2. Fewer potential buyers for a property in a
small town.

Salvage Value depreciation. This is common with Ocean Marine
Salvage Value is the amount for which an asset can policies, and required coverage in many states.
be sold at the end of its useful life. In insurance, this
commonly refers to the scrap value of damaged Limit of Liability
property. The limit of liability is the maximum amount an
insurance company will pay to protect the insured
Agreed Value/Stated Amount under a given policy. The insurer will pay the amount
An amount the insured and the insurance company of the loss or the limit of coverage under the policy,
agree a specified item is worth. If an item is covered whichever is less. Liability coverage is NOT subject
at agreed value/stated amount, the insured is to deductibles.
guaranteed to receive the full amount stated in the
policy in the event of a total loss. Often an appraisal Fire Legal Liability
will be required to ascertain the amount that will be A form of liability insurance that covers damage to
agreed upon. leased or rented property caused by fire or other
specified perils is known as fire legal liability. It
may be used in Personal or Commercial Lines rental
Valued Policy policies.
With a valued policy, in the event of a total loss, the
entire face amount is payable without regard for
POLICY STRUCTURE
(D-I-C-E)
Declarations Who? Identifies both the insured's and the insurer's name and address
What? Identifies both the real and the personal property insured
and Where? Identifies the territory covered by the policy
Definitions When? Identifies the policy period (inception and expiration dates and times)
How much? The amount of insurance coverage and the premium
Insuring
Summarizes covered risks, additional or supplementary coverages, and the insurer's
Agreement or responsibility to indemnify against losses suffered as a result of the perils
Clause
Lists the insured's responsibilities both at the time of application (truthful
representations in the application and payment of premium) as well as at the time
Conditions of loss (notice of and proof of loss, which is a sworn statement made by an insured
verifying the amount, date, and cause of a loss)
Exclusions and
Lists the property, perils, and other hazards not covered by the policy or which have
Endorsements a reduction of coverage in the policy
Additional/Supplementary 1. Legal fees for defending the insured if a

lawsuit goes to trial
Coverage 2. Claims expenses
3. First aid expense for others
Supplementary payments that the insurer will pay 4. Damage to property, or person, of others'
over and beyond the policy's liability limits include when not legally liable
the following: 5. Loss assessment coverage

COMMON POLICY PROVISIONS
Policy Period Excess Insurance

Excess insurance is coverage that starts when the
Loss must occur between the policy inception and underlying policy's coverage ends, also known as an
cancellation dates. This is what is called the policy umbrella policy.
period.
Handling of Claims: Pro Rata vs.
Contribution by Equal Shares
Policy Territory When there are two (2) or more liability policies on
a given risk, depending on the type of policy, claims
In personal lines, the policy territory is the location are handled differently than on a property policy.
of the insured property and/or the area in which the Liability insurance can be primary or excess
policy will cover liability issues. insurance.
In commercial lines, the policy territory is a list of
states in which the insured does business. This
Pro Rata
If a loss occurs that is covered by more than one
includes a list of other states in which the insured
insurance policy that was purchased by the insured,
may potentially do business in the future, except for
each policy pays a portion of the loss that is
any of the four monopolistic fund states of (North
proportional to the amount of that policy over the
Dakota, Ohio, Washington, and Wyoming).
total amount of all policies for the loss. Each policy
pays its pro rata share.
Deductibles
Example: Pro Rata Liability
Deductibles are a type of cost containment tool The insured has a building worth $1 million, but, for
wherein the insured pays for the first portion of costs underwriting reasons, the maximum amount he can
and the insurer pays the balance, up to policy limits. purchase from three (3) insurance companies is
When the insured has to pay something upfront, $600,000, $300,000, and $100,000. He purchases the
he/she is less likely to submit a claim, or there will three (3) policies with the maximum limits. If he
be no claim to submit because the deductible covers suffers a $200,000 loss, then the first company will
the loss. This way, the insurer is only paying for pay 60 percent of the loss, the second 30 percent, and
bigger claims, which do not happen as often. the third 10 percent.
Contribution by Equal Shares

Other Insurance Some policies handle multiple coverages through
payments of equal shares rather than pro rata
Non-Concurrency payments. Each company pays an equal amount until
Non-concurrency happens when two (2) or more the loss is covered, or the policy limit of any policy
policies do not cover a risk in the same way at the is reached. If one or more of the policy limits is
same time. This can create coverage gaps for the reached, then the equal share principle applies to the
insured. remaining insurers. As each policy limit is reached,
the remaining insurers make equal payments with the
Primary and Excess remaining amount of uncovered loss until the loss is
covered or all policies are maxed out.
Primary Insurance
Primary insurance is the main, or underlying,
Example: Contribution by Equal Shares
coverage on a risk.
Consider the same facts as in the pro rata example
above.

1. If there is a $150,000 loss, each company Vacancy or Unoccupancy
pays $50,000 for a total of $150,000.
2. If the loss was $400,000, each company pays
Coverage is canceled if the building is vacant or
$100,000, and the two (2) with higher
unoccupied. Such buildings can have a greatly
coverage pay an additional $50,000 for a
increased risk of loss by becoming an “attractive
total of $400,000.
nuisance” in the neighborhood, meaning that it
3. If the loss was $800,000, then the low-limit
would “attract” vandals or other groups who may use
company pays its policy limit of $100,000,
the unwatched or abandoned property for illegal
the next company pays its policy limit of
purposes.
$300,000, and the remaining insurance
1. Unoccupancy: Buildings which have no
company pays the remaining $400,000 to
residents or active business for more than 60
cover the loss.
days are considered unoccupied.
2. Vacancy: Buildings that are both
Policy Limits unoccupied and have no personal/business
property in them for more than 60 days are
considered vacant.
Policy limits are the maximum lifetime benefit of an
insurance policy.
Named Insured Provisions
Restoration/Non-Reduction of Only the first named insured is responsible for
Limits interactions with the insurance company, including
the making of policy changes, receiving returned
Limits of liability will return to the insured amount premium, and giving or receiving notice of
showing on the Declarations Sheet after a property cancellation.
claim has been settled. There is no reduction in value
because a claim has been paid. Insured's Duties After Loss (Claims
Handling):
1. Fully cooperate with the insurer's
Co-Insurance investigation, settlement, or defense of a
claim
A clause which requires the insured to keep insurance 2. Provide proof of loss and take reasonable
equal to or greater than the stipulated percentage of steps to prevent further loss
full value, or they will not be able to collect the 3. A third party claimant must make a claim
partial losses in full is known as co-insurance. This against the insured. The insured must then
is to encourage insureds to insure their property to a submit the claim to his insurer. An insurer is
proper amount. If the insurance is not as high as not liable to a third party claimant and cannot
required, the amount payable is calculated as be sued directly by the claimant unless the
follows: insurer agrees its insured is liable and refuses
to pay, or if the insurer is not making
(Amount of insurance carried / Amount of insurance payments when ordered to do so by a court
required) x Amount of loss = Amount Payable. of law.
Examples:
1. A $10,000 loss for property valued at
$100,000 with an 80 percent co-insurance Appraisal and Arbitration
requirement and insured for $80,000: In the event of a disagreement over the insurer's
$80,000/$80,000 x $10,000 = $10,000 handling of a claim, the insured and the insurer may
2. A $10,000 loss for property valued at each select an appraiser, and if there is still
$100,000 with an 80 percent co-insurance disagreement, the two appraisers select what is called
requirement and insured for $60,000: an umpire appraiser.
$60,000/$80,000 x $10,000 = $7,500

Assignment Actual Cash Value. Any replaced personal property
An assignment is the transfer of a policy, or some of then belongs to the insurer.
the policy's, rights from the insured to another entity.
Example
The Assignment Clause states that the policy cannot If a valuable vase is declared a loss as the result of a
be assigned or transferred to another without written fire, the insurer has the right to take possession of the
authorization, signed by an officer (not the agent) of vase after paying its full value, minus any deductible,
the insurance company. to the insured. The insurer then has the right to sell
the vase for whatever they can and keep the proceeds
Abandonment of such sale.
Property cannot be abandoned to the insurer. The
insured cannot declare something a total loss and turn Claim Settlement Options
it over to the insurer and demand payment without The insurer may pay either:
the insurer's consent. 1. The cost to repair the damaged property,
2. The cost to replace the damaged property, o
3. The Actual Cash Value
Insurer Provisions
Duty to Defend Third Party Provisions
The insurer has the responsibility to defend the
insured against lawsuits or liability claims. Standard Mortgagee Clause
1. The insured will only be defended up to the A provision in a Property insurance policy that gives
limits of the policy. a mortgage holder (such as a bank) three (3) rights:
2. The only time the insurer cannot settle a 1. The right to be given 10 days notice if either
lawsuit without the permission of the insured the insured or the insurer cancels the policy
is when the insured is covered under an 2. Claims settlement will be made directly to
Errors and Omissions policy. the mortgagee in the event of a loss
3. The right to provide proof of loss so the
Liberalization Clause mortgagee can be compensated for damages
If the insurer changes the same type of policy the if the insured does not provide such proof in
insured owns in any way, providing for more the event of a loss
coverage without additional premium, the insured's
original policy will be extended for those coverages Loss Payable Clause
without need for additional forms or premium. A loss payee listed in the Declarations page is
considered an insured with respect to the property
Subrogation he/she is linked to. The Loss Payee will be notified
The insurer has the right to pursue legal action in its in writing if the insured cancels or does not renew the
own name, or the name of a policy owner, against a policy.
third party who is liable for a loss that has been paid
by the insurer. The insured must assign rights to No Benefit to the Bailee
make a claim against the other party to the insurer A bailee is a person with whom property is left for
upon the insurer's handling of the claim settlement. safekeeping, such as a computer or jeweler repair
This prevents the insured from collecting from both shop. This provision does not allow the bailee to
his/her insurer and a third party, so he/she does not receive payment for coverage to insured property
profit from his insurance. while it is being held, stored, repaired or moved for a
fee by the bailee. This prevents the bailee from
Salvage benefiting from the insured's coverage on the
The insurer may pay either the cost to repair or property.
replace the damaged vehicle or property, or the

PERSONAL PROPERTY LINES
There are two (2) major types of personal property Each of these is further broken down into Basic,
policy forms (also called Cause of Loss forms): Broad, and Special (Special Peril) policies. These
1. Dwelling Forms divisions each include a set of coverages and
2. Homeowners Forms exclusions that are intrinsic to that type, whether the
policy is a Dwelling or Homeowners Policy.
STATE AND FEDERAL LAWS, REGULATIONS, AND REQUIRED

PROVISIONS
State Property and Casualty 2. Notifying the insurer in writing as to when
the cancellation is to take effect.
Insurance Guaranty Association The insurance company may cancel the policy by
written notice delivered to the insured or to the
Insolvency insured's representative for the following reasons:
Insolvency refers to being unable to pay debts as 1. Non-payment of premium (notification must
they arise or a company in bankruptcy. be at least 10 days before cancellation)
After an insurer becomes insolvent, the state finds 2. Any reason, within 60 days of application; if
funds to guarantee that the insureds’ claims will be in effect for more than 30 days, the policy
covered. All of the insurance companies in the state may be canceled on its anniversary date,
will provide their share of the money to cover the with 31 days written notice
claims of the insolvent insurer. All states, except for
New York, collect the funds on a post-insolvency Or at any time with 31 days written notice for:
basis. More details are explained in the individual 1. Discovery of grossly negligent acts or
state law books for each state. omissions by the insured that increase the
risk of the hazard insured against
2. Operational changes in the insured's
Standard Fire Policy business or the covered risk
3. Physical changes in the insured's property
The Standard Fire Policy is the most basic of all which result in its becoming uninsurable
property insurance policies. Initially drafted in New 4. The insured being convicted of a crime that
York in 1918, it was amended in 1943 and has only increases the hazard insured against
165 lines describing the coverage. It was generally 5. Discovery of fraud in obtaining the policy or
replaced by simplified language policies in the pursuing a claim
1980s. When still used, other forms must accompany
it in order to make it a complete modern policy. Non-Renewal or Conditional Renewal
Covered perils include: The insurer may non-renew or conditionally renew
1. Fire with a reduction of limits or with elimination of some
2. Lightning coverages by giving a 30-day written notice.
3. Removal of property after a fire to protect it Example: An insurer decides it will no longer offer
from further damage sewer or sump pump back-up coverage, or that it will
change the way it will cover damage caused by an
earthquake. Any damage from these risks during that
Cancellation and Non-Renewal 30-day notice period will be covered
The insured may cancel the policy by:
1. Returning the policy to the insurer or to the
Private Residence
The notification for canceling Homeowners policies
insurer's representative.
requires more advance notice because it is a private

residence, and the insured's belongings need to be house) or committed acts (playing catch with your
covered. Depending on the state, the notice must be child in front of a sliding glass door).
sent 45 days before the effective date of cancellation
or nonrenewal. Four (4) Basic Categories of
Individuals that Cannot Be Held
Commercial Negligent
Because the notification is being sent to a corporation
1. Infants
instead of an individual, notice on a commercial
2. The mentally ill
policy must be sent 60 days before the effective date
3. Governmental bodies
of the cancellation or nonrenewal. The number of
4. Charitable institutions
days varies by state.
However, recent legislation and court decisions have
Basic Property Insurance-Death of held that the government can be liable to the same
Named Insured extent as private individuals, and charitable
In the event of the death of the named insured, institutions are to be treated in the same manner as
coverage still exists for: for-profit businesses.
1. The legal representative of the deceased.
2. The spouse. Defenses Against Negligence
3. Relatives residing in the property.
Negligent behavior doesn't necessarily mean legal
4. Any person having custody of the property
liability. Certain defenses can free the person from
until a legal representative is appointed.
legal liability in spite of negligent behavior, or
prevents recovery for possible injuries caused by
Negligence negligence:
1. Assumption of Risk: A person who
understands the danger involved in a
Elements of a Negligent Act particular activity and voluntarily chooses to
Negligence is a concept that has been developed do the activity anyway can be acknowledged
through common law. The basic premise of common to have assumed the risk him/herself.
law is that people have an obligation or legal duty to Example
behave in a reasonable and prudent fashion. This is An individual who goes to a hockey game assumes
called the Reasonable Person Rule. the risk of getting hit by a flying puck.
2. Contributory Negligence: Any negligence
Failure to act in this manner constitutes negligence. on the part of an injured party will normally
If this negligence leads to the injury of another or to defeat a claim. A few states use the doctrine
the damage of another's property, the negligent party of contributory negligence.
may be held liable for the damage. In order for legal 3. Comparative Negligence is more lenient and
liability to exist, it must be established that: used by more states than contributory
1. Negligence occurred. negligence. Contributory negligence on the
2. That there was actual damage or loss. part of the injured party will not necessarily
3. That the negligence was the proximate cause defeat the claim, but will be used in some
of the loss. way to lessen the damages payable by the
other party.
A person cannot be held legally liable unless he or 4. There are two (2) separate schools of
she had a duty to act and failed to do so, or failed to thought:
act correctly. Negligence is the failure to take a) The Mississippi Rule states that any
reasonable care, precaution, or action to lessen risk defendant who is partly at fault must pay
exposure. in proportion to their share of the fault.
b) The Wisconsin Rule is used by most
Examples states, and states that the defendant who
Negligence may be the result of either omitted acts is least at fault is not required to pay for
(such as failure to shut a window before leaving the any of the damages.

5. Intervening Cause/Last Clear Chance: The 2. Independent agents/brokers often do not
injured party would be able to collect have authority to bind coverage, but rather
damages even if he/she had contributory they submit the application to one of the
negligence if the other party had an companies they represent and the insurer
opportunity (last clear chance) to avert the may or may not bind the coverage.
accident but did not do so.
6. Statutes of Limitations are the time limits on All policy terms and conditions are in force until a
how long an injured person can sue for policy is issued or coverage is declined by the insurer
damages. The injured party must act to on whom the binder was written.
collect for damages during the given time
period or forfeits the right to do so.
7. Common Law Fellow Servant Rule: An Insurance Consultation Services
employer cannot be held liable for the Exemption
actions of a co-worker if an employee is
injured due to the negligence of that co- An Insurance Consultation Service is any of the
worker. following:
1. Survey
Common Law Defenses 2. Consultation
Some of the more common Common Law Defenses 3. Inspection
to negligence include:
1. Automatism performed by an insurer to reduce the likelihood of
2. Duress injury, death, or loss.
3. Insufficient mental capacity
4. SODDI – Some Other Dude Did It Whether or not a consultation is made does not
subject the insurer to liability for damages occurring
as a result of omission during insurance consultation
Binders services unless the damages (injury, death or loss):
1. Occurred during the performance of the
The binding of coverage is the giving of an oral or consultation and was caused by negligence.
written statement that provides immediate insurance 2. Are the result of any consultation service
protection for a specified time period, usually from required by a service contract.
the time an application for coverage and premium 3. Are the result of actions by the insurer which
payment is accepted by the agent, until a policy is are determined by a judge to be criminal, malicious,
issued or denied by the insurance company. or because of gross negligence.
1. Exclusive agents have authority to bind
coverage when they write an application.
FAIR CREDIT REPORTING ACT

The Fair Credit Reporting Act is a federal law that credit report may be obtained while underwriting the
regulates the collection, dissemination, and use of policy.
consumer information, including consumer credit
information. Insurance companies may not use credit information
to discriminate against people with low incomes,
A growing number of personal auto and particular genders, or races. They also may not gather
Homeowners insurance companies have begun information to track medical information and use that
looking at consumer credit information to decide in figuring credit worthiness and premium rates.
whether to issue or renew policies, or to decide what
premiums to charge for those policies. Insurers must
obtain a signed disclosure statement from an
insurance applicant informing the applicant that a

Use of Credit Information 1. Discover what creditors issued offending
information and write them asking to correct
Underwriting departments use this information in misinformation.
deciding whether to issue a new policy or to renew 2. Write the credit company with their side of a
existing policies. Some state laws prohibit insurance credit dispute.
companies from refusing to issue a new policy or
from not renewing an existing policy based solely on How Long Can Negative Information
information obtained from a credit report.
Stay on a Credit Report?
Rating: Deciding what premium to charge, either by A credit reporting company generally can report
placing the insured into a specific rating tier, or level, most negative information for seven (7) years.
or by placing them into a specific company within Information about a lawsuit or a judgment against
their group of companies is known as a rating. Some you can be reported for seven (7) years, or until the
insurance companies use credit information along statute of limitations runs out, whichever is longer.
with other more traditional rating factors, such as Bankruptcies can stay on a report for up to 10 years.
motor vehicle records and claims history. Some The credit company won't generally report this
states allow insurance companies to use credit alone information after these time limits, but these time
to determine the rate, and others will not. limits on reporting negative information do not apply
if the credit report will be used in connection with:
A consumer must be told if their premium has been
1. Your application for a job that pays more
adversely affected by a credit score. They may get a
than $75,000 a year.
free report from the reporting agency and challenge
2. Your application for more than $150,000
any adverse information. While they can't just
worth of credit or Life insurance.
change the information, they can:
FRAUD AND FALSE STATEMENTS

18 USC 1033 and 1034
The section involves those who are engaged in 3. If such person uses threats of force or
insurance whose activities affect interstate threatening communication to try to impede,
commerce. obstruct, or influence legal proceedings
1. Anyone so engaged who overvalues any land relating to insurance affairs they may be
or property in connection with any financial fined and imprisoned for up to 10 years.
reports or documents presented to any
insurance regulatory official or agency or an Those with Felony Records
agent or examiner appointed by that official Any individual who has been convicted (not
or agency to examine the affairs of such indicted) of a criminal felony involving dishonesty or
person, and who tries to influence the actions a breach of trust, or who has been convicted of an
of the official, agency, or appointed agent or offense under this section, and who willfully engages
examiner, shall be punished. in the business of insurance whose activities affect
2. If such a person knowingly makes any false interstate commerce or participates in such business,
entry of a material fact in any book, report, shall be fined or imprisoned not more than five (5)
or statement with the intent to deceive years, or both.
another, including an officer, employee, or
agent of the person making the false entry, an Those Permitting/Complicit in These
insurance regulatory official or agency, or Actions
any agent or examiner appointed to examine Any such person who willfully permits the
the affairs of such person, about the financial participation described shall be fined or imprisoned
condition or solvency of such business shall not more than five (5) years, or both.
also be punished.

Penalties insurer's stability, the maximum jail time is 15 years.
Persons found guilty of fraud under these sections If the amount or value so embezzled, abstracted,
may be punished by fines of up to $50,000 and jail purloined, or misappropriated does not exceed
time of up to 10 years. If the action endangers an $5,000, jail time will not exceed one (1) year, and
there may also be a fine.
PRIVACY PROTECTION
The Gramm Leach Bliley Act regulates the be informed that information will not be so shared,
disclosure of non-public information to non- and the insured must sign forms showing they have
affiliated third parties. When insurers gather had this information disclosed to them.
information from prospects and insureds, they must
TERRORISM RISK INSURANCE ACT (TRIA)

Purpose 2. For the case of property and casualty policies
Also known as TRIA, this federal law provides a where the losses resulting from the act
federal backstop for defined acts of terrorism and exceed $5 million in total losses
imposes certain obligations on insurers. As a result of
this act property and casualty insurers must Insured Loss
participate in the Terrorism Insurance Program (the Any loss resulting from an act of terrorism (including
Program) and must make coverage available for all an act of war, in the case of Workers Compensation)
insured losses in all of their covered commercial that is covered by primary or excess Property and
lines policies. Casualty insurance issued by an insurer if such a loss
occurs:
Definitions 1. Within the United States
2. In an air carrier to a United States flag vessel
Act of Terrorism (or a vessel based principally in the United
An act of terrorism is any act that is certified by the
States, on which U.S income tax is paid, and
Secretary of the Treasury, in concurrence with the
whose insurance coverage is subject to
Secretary of State and the Attorney General of the
regulation in the U.S.), regardless of where
United States to be an act of terrorism and:
the loss occurs
1. To be a violent act or an act that is dangerous
3. At the premises of a U.S. mission
to human life, property, infrastructure.
2. To have resulted in damage within the U.S.,
is considered an insured loss.
or outside the U.S. in the case of an air
carrier or vessel or on the premises of a U.S.
Insured loss excludes amounts awarded in a civil
mission.
action that are attributable to punitive damages.
3. To have been committed by an individual(s)
Insurers must make property and casualty insurance
on behalf of a foreign person or foreign
coverage available for these insured losses that do
interest as part of an effort to coerce the
not differ materially from the terms, amounts, and
civilian population of the U.S. or to influence
other coverage limitations applicable to losses
the policy or affect the conduct of the U.S.
arising from events other than acts of terrorism.
Government by coercion.
No act that is committed in the course of a declared

Certified Loss
A certified loss is a loss that fits the definition of an
war is considered an act of terrorism. Exceptions:
insured loss as described in the Act.
1. For purposes of Workers Compensation

Non-Certified Loss amount for all insurers and $27,500,000,000 for
A non-certified loss is a loss that is not covered as 2007–2014.
described in the Act.
Certified vs. Non-Certified Losses Re-Authorization Act of 2007

The main difference between a certified and a non-
certified act of terrorism is that a certified act always In December 2007, the Terrorism Risk Insurance Act
involves a foreign person or interest, while a non- was extended for seven (7) years until 2014. (Note:
certified act may not. The current test outline only covers the Extension
Act of 2005, but the information is included here for
your convenience.)
Requirement for Terrorism Risk
Coverage to be Offered An “act of terrorism” can be done by any
Insurers are allowed to charge extra premium for individual(s) as part of an effort to coerce the civilian
Terrorism Coverage, but must give the option to all population, no longer only in the interest of a foreign
commercial Property and Casualty insureds. person or interest.
To speed availability of terrorism risk insurance as The insurer deductible for 2008–2014 is the value of
called for in the Act, rates and forms for the coverage an insurer's direct earned premiums for the previous
covered by the Act do not need to be pre-filed with year multiplied by 20 percent.
any state or be subject to prior approval or a waiting
period under any state's law through December 31, The U.S. Secretary will notify Congress within 15
2003, but may be subject to regulatory review for days after an act of terrorism whether the aggregate
excessive charges or compliance with state laws once insured losses will exceed $100,000,000,000.
the rates and forms are in use.
Any policy that is issued or renewed after 2008 must
Effect on Workers Compensation clearly provide disclosure to the policy owner the
The federal program shares the risk of loss with existence of the $100,000,000,000 cap.
Workers Compensation for acts of war as well as for
acts of terrorism. The secretary is required to collect terrorism
premiums within two (2) years or by 2017.
Extension Act of 2005

Re-Authorization Act of 2015
The Extension Act of 2005 extended the program
through 2007. It updates Section 102(B) so that the
This act extends the federal backstop program for an
term “Property and Casualty insurance” does not
additional six (6) years through December 31, 2020.
include the following types of insurance:
1. Commercial automobile
2. Burglary and theft Minimum Threshold and Certification
3. Surety TRIPRA 2015 requires certain criteria to have been
4. Professional liability met before federal coverage under the program
5. Farm owners multiple peril begins.
1. Property and Casualty insurance losses
The insurer deductible for 2006 was the value of an resulting from a terrorism-linked attack must
insurer's direct earned premiums for 2005 multiplied meet the minimum damage certification
by 17.5 percent. The insurer deductible for 2007 was level of $5 million.
the value of an insurer's direct earned premiums for 2. If losses are expected to meet this minimum
2006 multiplied by 20 percent. threshold, then the event must also be
officially certified as an "act of terrorism."
The insurance marketplace aggregate retention This certification is determined by the U.S.
amount will now be the lesser of the aggregate Secretary of the Treasury in concurrence
with the Attorney General of the United

States and – new under TRIPRA 2015 – the $200 million by 2020. The increase to the program
U.S. Secretary of Homeland Security. trigger is considered to be one of the most substantial
changes to the program and aims to transfer more of
Program Trigger the risk to the private insurance market.
If an act of terrorism has been officially certified,
then compensation under the program will still not
begin until aggregate insured losses in a calendar
Re-Authorization Act of 2020
year reach the "program trigger." Under TRIPRA
2015, the program trigger will gradually be raised This act extends the federal backstop program
each year from USD $100 million in 2015 to USD through December 31, 2027.

SECTION II – PROPERTY INSURANCE CONCEPTS REVIEW
QUESTIONS
1. Chris moves to another city before selling his 6. Which section of the insurance policy
house in the first city, leaving some of his identifies the insured's responsibilities?
property in the house to aid in its sale. He a) Declarations
leaves the insurance policy in force to protect b) Insuring Agreement
the house and personal property. Three (3) c) Conditions
months later the insurer finds out that Chris d) Exclusions and Endorsements
is no longer living in the house and decides
to cancel the policy. Which definition 7. Where does a policy mention that once the
explains this situation and why the insurer insurer has paid a claim, the insurer has the
can cancel the policy? right to pursue action against a liable third
a) Unoccupancy party to recoup the loss?
b) Vacancy a) Arbitration clause
c) Abandonment b) Subrogation clause
d) Loss assessment c) Assignment clause
d) Other insurance provision
2. Which section of the insurance policy
identifies areas where there are reductions in 8. The Standard Fire Policy insures against all
coverage? of the following perils except:
a) Declarations a) Fire.
b) Insuring Agreement b) Lightning.
c) Conditions c) Hail.
d) Exclusions and Endorsements d) Removal of property to protect from
further damage.
3. Which section of the insurance policy
identifies the insured? 9. An act of terrorism must be certified as such
a) Declarations by:
b) Insuring Agreement a) The U.S. Secretary of the Treasury, the
c) Conditions Secretary of State and the U.S. Attorney
d) Exclusions and Endorsements General.
b) The President of the United States.
4. Which section of the insurance policy c) The Secretary of State and the U.S.
identifies the insurance company's Attorney General.
responsibilities? d) The U.S. Secretary of the Treasury, as
a) Declarations approved by the U.S. Congress.
b) Insuring Agreement
c) Conditions 10. For a loss due to terrorism to be considered
d) Exclusions and Endorsements an insured loss, the loss must occur in any of
the following locations except:
5. Calvin sells his home to Don and Peg. In a) Within the United States.
order to make the sale easier, he wants to b) On a U.S. flag vessel in foreign waters.
transfer his Homeowners insurance policy to c) On the premises of a U.S. embassy.
them at the time of the closing. Which part d) On a vessel on which U.S. income tax is
of the policy explains this type of situation? paid, regardless of where the vehicle's
a) Arbitration clause insurance coverage is regulated.
b) Subrogation clause
c) Assignment clause
d) Other insurance provision

Section III – Dwelling Policy (DP)
CHARACTERISTICS AND PURPOSE
Dwelling Policy (DP) forms are mono-line policies. 1. Maximum of four (4) families and five (5)
Mono-line policies only cover one (1) type of boarders in the building
insurance risk. The DP covers the dwelling/building 2. Owner occupancy not required
only, not liability or theft. Contents Coverage is 3. Mobile homes can be included on a Dwelling
included only by endorsement. Policy Form policy, but only if they are
permanently located
Eligibility 4. Incidental service business occupancy only,
Certain criteria must be met to be eligible for a such as beauty shops, music lessons, or
Dwelling Policy: professional offices, with a maximum of two
(2) workers
COVERAGE FORMS: PERILS INSURED AGAINST AND PROPERTY

COVERED
Definitions Extended Coverage Perils
Appurtenant Structures
Other buildings or structures on the premises which 1. Riot or civil commotion
are of lesser value than the main building being 2. Above ground damage from volcanic
insured are appurtenant structures, also known as eruption
separate structures.. This includes buildings such as 3. Vehicle damage
storage sheds or guest houses. 4. Windstorm
5. Smoke
Fair Rental Value 6. Hail
Similar to additional living expense, fair rental 7. Aircraft damage
value can cover the loss of rents due to damage to the 8. Explosion
rented property if the damage is due to a covered
peril. It applies only for the period required to repair General Policy Exclusions
or replace the damage. In a named peril policy, any peril that is not
specifically mentioned is automatically excluded.
Homes that are under construction are often covered
under a dwelling policy with the Building/Dwelling There are eight (8) perils that are explicitly excluded
Under Construction endorsement. from all property policies:
1. Earth movement
2. Ordinance or law changes
Standard Fire Policy Perils 3. Water damage by flood
4. Sewer back-up
Standard Fire Policy perils include: 5. Overflow from a sump pump
1. Fire 6. Power interruption/failure
2. Lightning 7. Neglect
3. Removal of property to prevent further 8. War or nuclear risk
damage
Other Generally Excluded Perils Include:
1. Artificially generated electrical current
2. Explosion of steam boilers

3. Predictable losses 10. Theft coverage is optional – it is Broad Form
if owner-occupied, limited if tenant occupied
Coverage A-Building
Basic Form (DP-1) Building is insured for Replacement Value, as
opposed to the Basic Form's ACV coverage
Covered Perils
1. The three (3) standard fire perils Coverage B-Other Structures
2. The eight (8) extended coverage perils (see Included
above)
3. Vandalism and malicious mischief Coverage C-Personal Property (Optional)
(V&MM), until the building is vacant for 30 If covered, it is settled on an ACV basis
consecutive days
4. Theft coverage is optional – Broad Form Coverage D-Fair Rental Value (Optional)
Coverage if owner-occupied, limited if 10% of the Coverage A amount if the rented building
tenant-occupied is damaged by a covered peril
Coverage A-Building Coverage E-Additional Living Expense

Covered for Actual Cash Value (ACV) The insurer covers living expenses so the household
may maintain its normal standard of living; also,
Coverage B-Structures (Other Than the payment will be for the shortest time to repair or
Building/Separate Structures/Appurtenant replace the dwelling, or the shortest time to settle
Structures) elsewhere.
Insured for 10% of the Coverage A amount, but can
be increased for additional premium
Special Form (DP-3)
Coverage C-Personal Property (Optional)
If covered, covered on an ACV basis for additional Special Form policies usually have more
premium underwriting requirements, such as greater square
footage or the building being less than a certain age.
Coverage D-Fair Rental Value The buildings are more likely to be owner-occupied,
10% of the Coverage A amount if the rented building so greater coverage is available.
is damaged by a covered peril
Special Form Covered Perils
Special Peril (Previously All-Risk)
Broad Form (DP-2) The Special Form policy is the first policy written on
a “Special Peril” basis. As previously described,
Covered Perils these policies cover all risks unless explicitly
1. The Basic Form perils (riot or civil excluded from coverage. While the Basic and Broad
commotion, above ground damage from Form policies only cover the perils listed in the
volcanic eruption, vehicle damage, policy, and some exclusions are listed for the sake of
windstorm, smoke, hail, aircraft damage, clarification and to be more explicit. Exclusions are
explosion) more important to the “Special Peril” Policy, because
2. Broader explosion coverage if a peril is not listed as excluded, it is covered.
3. Glass breakage
Coverages A, B, and D are each covered on an all-
4. Damage caused by burglars
risk basis (unless specifically excluded). Theft
5. Falling objects
coverage is optional.
6. Weight of ice, snow, and sleet
7. Collapse Coverage A-Building
8. Artificially generated electric currents Covered for replacement value
9. Freezing of or discharge from a plumbing,
heating, or cooling system

Coverage B-Other Structures (Optional) Coverage E-Additional Living Expenses
Insured for 10% of the Coverage A amount and can The insurer covers living expenses so the household
be increased for additional premium may maintain its normal standard of living; also,
Coverage C-Personal Property (Optional) payment will be for the shortest time to repair or
If included, covered against Broad Form perils only replace the dwelling, or the shortest time to settle
elsewhere.
Coverage D-Fair Rental Value (Optional)
10% of the Coverage A amount if the rented building
is damaged by a covered peril
GENERAL EXCLUSIONS
Excluded Perils for Basic Form: from a sump pump, power
1. The eight (8) general policy exclusions interruption/failure, neglect, war or nuclear
(earth movement, ordinance or law changes, risk, V&MM if the premises have been
water damage by flood, sewer back-up, vacant 30 consecutive days, explosion of
overflow from a sump pump, power steam boilers, damages from a vehicle
interruption/failure, neglect, war or nuclear owned or operated by an insured or a tenant)
risk) 2. Damage caused by agricultural or industrial
2. Vandalism and Malicious Mischief smudging (pollution)
(V&MM) if the premises have been vacant
30 consecutive days Excluded Perils for Special Form
3. Artificially generated electrical current If a particular peril is not specifically excluded, it is
4. Explosion of steam boilers covered. The Special Form Exclusions include:
5. Predictable losses (assumed) 1. The Basic Form policy exclusions
6. Damages from a vehicle owned or operated 2. Agricultural or industrial smudging
by an insured or a tenant (pollution)
3. Damage by wear and tear, rot and
Excluded Perils for Broad Form: deterioration
1. The Basic Form policy exclusions (earth 4. Settling and cracking, or mechanical
movement, ordinance or law changes, water breakdown
damage by flood, sewer back-up, overflow 5. Damage caused by birds, vermin, and insects
CONDITIONS
Duties After a Loss Homeowners Policy becomes secondary coverage,
The insured must cooperate with the insurer in the paying after the other plan's coverage ends.
event of a claim investigation.
Loss Payable Clause
Legal Action A loss payee listed in the Declarations page is
The time allowed to bring action against the insurer considered an insured with respect to the property
is two (2) years. they are linked to. The Loss Payee will be notified in
writing if the insured cancels or does not renew the
Other Insurance policy.
Losses covered by a home warranty or service plan
are covered first by the warranty or service plan. The

SELECTED ENDORSEMENTS
Special Provisions for States Dwelling Under Construction
If a state's requirements differ from the policy Also known as the Builder's Risk Form, this covers
wording or change during the policy period, the state buildings that are under construction for loss due to
regulations take precedence. The policy changes to liability or theft/destruction of materials or already
meet the state regulation, whether the written policy finished construction.
is changed or not.
Builder's Risk policies have been further broken
Automatic Increase in Insurance down to two (2) methods of determining premiums:
1. Completed Value Form
This adjusts the amount of property coverage (the Perhaps the most common method, the
policy's face amount) according to a stipulated Completed Value Form determines the
annual percentage based on an index of costs to amount of coverage based on the projected
rebuild or replace the property. Premiums will value of the building when it is completed.
increase along with the coverage. The insurer will pay the Actual Cash Value
of a loss, up to the proportion of the coverage
as compared to the actual value of the
Broad Theft Coverage property after construction is finished.
If, for instance, the insured valued the final
Coverage is on a Special Peril basis for loss due to construction at half-price when taking out
theft or mysterious disappearance of personal the insurance, the insurer will pay only half
property, damage to premises and property resulting of the ACV of the actual loss.
from theft, with sub-limits on property particularly 2. Reporting Form
susceptible to theft (e.g., money, securities, The insured is required to file a monthly
paintings, and jewelry). This also covers vandalism report with the insurer that shows the
and malicious mischief to the premises interior and construction's current completion value.
to other property of the insured away from the Along with this, the insured pays premium
insured premises. only on the amount completed, and the
insurer is only responsible for a claim up to
the percentage of the final completed value
that is shown as the amount on the current
monthly report.
PERSONAL LIABILITY SUPPLEMENT

This provides personal liability coverage as a insurance for either) or on a supplemental basis to the
separate policy (i.e., someone who owns neither mono-line dwelling policies.
personal property nor an auto and, hence, has no
ORDINANCE OR LAW
Coverage for loss caused by enforcement of city codes. Many communities have an ordinance(s)
ordinances or laws regulating construction and repair requiring that a building that has been damaged to a
of damaged buildings. Older structures that are specified extent (typically 50%) must be demolished
damaged may need upgraded electrical, heating, and rebuilt in accordance with current building codes
ventilating, air-conditioning, or plumbing based on rather than simply being repaired.

SECTION III – DWELLING POLICY (DP) REVIEW QUESTIONS
1. In which of the following situations could a smoke causes damage to the insured
Dwelling Policy Form not be used? building.
a) The owner does not live in the building. 4. Which of the following is NOT one of the 12 Basic
b) There are three (3) families, but two (2) of them Form exclusions for the Dwelling policy?
have a non-family member living with them a) Industrial smudging
c) There is only one (1) family living in the b) Explosion of steam boilers
building, but the wife does hair styling in the c) Predictable losses
basement. d) Artificially generated electrical current
d) Five (5) families live in the building, but there
are no boarders. 5. How will the loss payee be notified if the insured
cancels or does not renews the Dwelling Policy?
2. Jim and Barb buy a rental unit and insure it a) Face-to-face
under a DP-2 policy. Which of the following b) In writing
situations would NOT be covered? c) By phone
a) The kitchen ceiling caves in under the d) Vocally
pressure of snow after a severe
snowstorm. 6. Adam lives in Delaware. His state's requirements
b) Children playing baseball in the lot next have changed since his Dwelling policy started.
door hit a ball through the front window What will take precedence?
of the house. a) The municipality's regulations
c) A hailstorm damages the roof of the b) Adam's Dwelling policy
building. c) Delaware's regulations
d) A factory next door to the building spills d) A new policy will be immediately sent to Adam
chemicals that get into the drinking
water of the insured building. 7. The Dwelling Under Construction Form is also
known as:
a) Builder's Risk Form.
3. Which of the following situations would
b) Broad Theft.
NOT be excluded from coverage in a DP-1
c) Automatic Increase.
Form Policy?
d) Major Coverages.
a) The building has been vacant for 40
days. 8. Broad Theft does not cover which of the
b) The building falls into a sinkhole that following?
was located under it. a) Vandalism to the premises interior
c) A flood causes damage to the building's b) Malicious mischief
basement. c) 15 foot Sailboats
d) The home next door to the insured d) Paintings
building catches fire and the resulting

Section IV – Homeowners Policy
PURPOSE, DEFINITION, AND ELIGIBILITY
Homeowners insurance is designed to offer the Homeowners insurance typically provides liability
homeowner protection in case of loss or damage to coverage for the insured’s property as well. The
their home and property. A typical Homeowners policy will likely cover the costs associated with
insurance policy includes protection for both the accidents on the property, including medical
house and the property that it sits on, as well as other treatment if a visitor falls on the steps or is bitten by
buildings or structures on that property. Most a dog.
Homeowners insurance policies also provide
protection for any items within the house or other The many coverages offered by the Homeowners
structures. In the event of damage or theft, the Policy is why the policy is called a package policy.
insured is reimbursed for the cost of repairs or
replacement as well as the time spent away from To be eligible for a Homeowners policy, the property
home while repairs are being done. owner must live on the property.
COVERAGE FORMS
Note: The HO-1 is rarely used anymore, and there is The HO-1 policy can be Replacement Cost or Actual
no HO-7 policy. Cash Value.
HO-1 HO-2 – HO-8

The HO-1 Home Insurance Policy is the most basic, The definition of Insured has been expanded under
named perils insurance policy available to the Homeowners policies to include “other persons
homeowners. Most homeowners that purchase HO-1 under the age of 21 and in your care or the care of a
insurance are insuring for catastrophic losses only. resident of your household who is your relative.”
The HO-1 home insurance policy only protects the
home and contents for the most common perils that Broad Form/HO-2 (Named Peril)
occur. It is a very uncommon form today. As with the HO-1, if a peril is not listed as covered,
Perils Insured Against with the HO-1 Home IT IS NOT COVERED. This includes things such as
damage by wild animals to the structure(s).
Insurance Policy
The 10 perils the HO-1 Home Insurance Policy will
The Broad Form policy does not cover losses done
protect a home and belongings from are:
by a vehicle owned or operated by the insured to a
1. Fire or lightning
fence, driveway, or walkway.
2. Windstorm or hail
3. Explosion
An HO2 policy covers the 10 perils listed on an HO1
4. Riot or civil commotion
policy, along with some additional perils, including
5. Aircraft
falling objects, and weight of snow, sleet, or ice. In
6. Vehicles (unless caused by the insured)
total, it covers 16 perils.
7. Smoke
8. Vandalism or malicious mischief
Additional Living Expense is up to 30 percent of
9. Theft (limit of liability on HO-1 is usually
Coverage A (main building/house coverage).
$1,000)
10. Volcanic eruption

Special Form/HO-3 (Special Homeowners
Peril)/Open-Peril) Contents/Tenant/Renters
1. Buildings on an HO-3 policy are protected Coverage/HO-4
against all risks except those specifically There is no building coverage in a Renters Policy.
excluded. 1. In the Renters Policy, Coverage C-Personal
2. Concurrent Causation principles, however, Property is the stated, basic insured amount.
say that if two (2) causes combine to produce 2. Renters Coverage D-Additional Living
loss or damage, and one of the two (2) causes Expense is typically 20-30 percent of the
is excluded (e.g., flood) and the other cause Coverage C amount. It is used by the insured
is covered (e.g., windstorm), the loss will be for a motel or other living accommodations
covered. while waiting for their rental unit to be
3. Coverages A-Building and B-Separate repaired, or while the renter is looking for a
Structures are covered on a Replacement new unit to rent because the damage to their
Cost basis. Coverage C-Personal Property is covered unit is excessive.
covered on an ACV basis but may be
endorsed to a Replacement Cost basis.
4. This does not cover losses done by a vehicle
Comprehensive Form/HO-5 (Special
owned or operated by the insured to a fence, Peril/Open-Peril)
driveway, or walkway. As with the HO-3, the HO-5 policy protects both the
5. Personal Property of the insured, which is in building and outbuildings on a Special Peril basis,
a storage facility or even at a second home, except for those specifically excluded.
is covered for up to 10 percent of the 1. Coverage C-Personal Property is also
insured's Personal Property coverage limit. covered on a Special Peril basis and on a
This would also include property that a child Replacement Cost basis, as opposed to the
might have with them at an apartment or HO-3's ACV basis coverage.
dorm while at college. 2. While claim settlements are usually ACV,
market value, or stated value basis, on the
Personal property is covered against the 16 perils HO-1, 2, and 3, the HO-5 settlements are
named in your policy, including: usually based on a Replacement Cost basis.
1. Windstorm or hail Guaranteed Replacement Cost

2. Fire or lightning A modification of Replacement Cost, buildings are
3. Smoke replaced at the actual cost to replace, even if it is
4. Explosion more than the stated insurance amount, with
5. Power surges Guaranteed Replacement Cost.
6. Falling objects
7. Weight of ice, sleet, or snow Extended Replacement Cost
8. Freezing A cap, such as 25 percent, that is placed on the
9. Volcanic eruption amount over the actual stated insurance amount that
10. Theft the insurer will pay to replace property is known as
11. Vandalism and malicious mischief the Extended Replacement Cost.
12. Sudden and accidental damage to water
heater or HVAC Condominium Unit Owner Form/HO-
13. Accidental discharge or overflow of water 6
14. Aircraft
Special Form Coverage can be purchased for
15. Vehicles
additional premium.
16. Riot or civil commotion
Condo Unit Coverages:
Additional Living Expense is up to 30 percent of
Coverage A. Coverage A-Building
The HO-6 policy protects interior walls and
structures the unit owner owns individually, such as

cabinets, plumbing, electrical fixtures, and wall-to- the condominium owners. Different condo
wall carpet. associations include different parts of the structure as
association-owned. Some include the basic cabinets,
Coverage B-Outbuildings plumbing, and wall-to-wall carpets, but not any
Optional in case the insured is responsible for upgrades. Others include only to the drywall and
protecting such floor surrounding the unit. Still others include all
parts of or attachments to the building, needing only
Coverage C-Personal Property a Renters policy to cover the insured's personal
Covers a stated amount as in a Renters Package property and liability. Care must be given to ensure
the correct coverage is extended in each case, and
Coverage D-Additional Living Expense that often means checking with the rental complex
Up to 50 percent of Coverage C (Personal Property) that owns the complex’s insurance policy.
amount
Loss Assessment Coverage

Market Value/ Modified
Loss Assessment is coverage that protects the Coverage Form HO-8
individual condominium owner from their share of a
pro rata loss assessed by the association for losses This is used primarily for homes and structures that
over the amount of the association's policy, usually might have a Replacement Cost greater than the
$1,000, though optional increased amounts can be as market value. For example, older homes, usually
high as $25,000 or even $50,000. This could happen built before 1950, often have ornate details or may
from a loss sustained in a common area used by all involve reproducing obsolete techniques at high
the condo owners, such as a pool, or extending labor costs.
beyond the bounds of the association's policy over 1. Building coverage is Actual Cash Value or
the entire complex. repair cost using functionally equivalent
materials and methods rather than a
Condo Coverage can be tricky. The condo Replacement Cost basis.
association must purchase an association policy to 2. HO-8 personal property is covered on an
cover building exteriors, outbuildings, and common ACV basis, unless endorsed to a
properties and liabilities owned collectively by all Replacement Cost basis.
PROPERTY AND LIABILITY COVERAGES

While Coverages A-D cover the physical property Coverage C-Personal Property
itself, Coverages E and F are for liability, including
personal liability and medical payments to others.
Covers furniture, clothing, appliances, etc. Personal
property which is usually located at the insured's
Coverage A-Dwelling residence, but is temporarily away from those
premises or is stored at a self-storage facility, is
limited to 10 percent of the Coverage C amount or
Buildings' coverage includes only the dwelling itself.
$1,000, whichever is greater. This 10 percent limit
does not apply to personal property moved from the
Coverage B-Other Structures primary residence while the residence is being
repaired, or while in a newly acquired principal
Also called Appurtenant Structure or Separate residence for up to 30 days. Personal Property
Structure Coverage, this coverage includes such Coverage is usually on an ACV basis except for the
things as a separate garage, a shed, fencing, or an in- HO-5, but Replacement Cost coverage may be
ground swimming pool. An above-ground removable endorsed with extra premium.
pool would be considered personal property.

Coverage D-Loss of Use and land use codes is included as part of the
homeowners policies without endorsement.
Additional amounts of coverage may be purchased
This includes temporary rental or motel expenses,
for additional premium. This is not covered under the
meals out, and other costs over and above normal
HO-8 policy.
living expenses while an insured home is being
repaired due to loss suffered by an insured peril, but
not normal expenses, such as a mortgage. Credit Card, Fund Transfer Card, Forgery,
and Counterfeit Money
This includes coverage for electronic fund transfer
Coverage E-Personal Liability cards and devices used to deposit, withdraw, or
transfer funds.
Covers amounts for which an insured is legally liable
because of bodily injuries or property damage caused Collapse
to third parties, whether on or away from the insured Building collapse, or the abrupt falling down or
premises. This includes $100,000 liability coverage. caving in of all or part of a building, or the risk of
1. On-Site Liability Example: A visitor falls loss involving a collapse making the collapsed
down the stairs of the insured home portion so that it cannot be occupied, is covered.
2. Off-Site Liability Example: The insured Collapse resulting from hidden decay or hidden
breaks someone's leg while playing insect, or vermin damage is excluded if the insured
basketball at a local gym knew about the damage before the building
collapsed. Collapse is not covered under the HO-8
policy.
Coverage F-Medical Payments to
Others Breakage of Glass or Safety Glazing
Material by Earth Movement
Medical payments cover emergency medical The HO forms allow for coverage of glass that is part
treatment to those other than the insured for injuries of a covered building, storm door, or storm window
suffered on the insured premises or caused by an when caused directly by earth movement. Direct
insured. Medical payments coverage is considered physical loss to covered property caused solely by
goodwill coverage and is included in addition to the pieces, fragments, or splinters of such broken
liability coverage. It is often viewed and used as a glass is also covered.
method to avoid the need for entering the liability
coverage area by taking care of minor injuries. Grave Markers
Up to $5,000 for grave markers, including
mausoleums, on or away from the insured premises,
Additional Coverages is covered for loss caused by a peril insured against.
Debris Removal Smoke Coverage

Fallen tree removal is $1,000, with a $500 limit for In the Homeowners policy, Smoke Coverage
any one tree. Coverage is available if the fallen tree: includes the release of soot, vapor, and fumes from a
1. Damages a covered structure. boiler, furnace, or similar equipment.
2. Blocks a driveway, preventing a motor
vehicle from entering or leaving the Policy coverage limit percentages are different depending on
residence premises. the type of policy and the number of families in the dwelling.
3. Blocks a ramp or other fixture designed to Other Additions:
help a handicapped person to enter or leave 1. Legal fees for defending the insured if a
the dwelling. lawsuit goes to trial
2. Claims expense
Ordinance or Law 3. First aid expense for others
Coverage of up to 10 percent of the Coverage-A limit 4. Damage to property of others when not
for the increased cost to repair or rebuild a dwelling legally liable
or other structure to conform to applicable building 5. Loss assessment coverage

PERILS INSURED AGAINST
Broad Form/HO-2, Named Perils 4. Falling objects
1. The three (3) standard fire perils (fire, 5. Weight of ice, snow, and sleet
lightning, and removal of property to prevent 6. Collapse
further damage) 7. Artificially generated currents
2. The eight extended (8) coverage perils(Riot 8. Freezing of or discharge from a plumbing,
or civil commotion, above ground damage heating, or cooling system
from volcanic eruption, vehicle damage, 9. Theft coverage is optional – Broad Form if
windstorm, smoke, hail, aircraft damage, owner-occupied, limited if tenant-occupied
explosion)
3. Vandalism and malicious mischief Homeowners
(V&MM), until the building is vacant for 30 Contents/Tenant/Renters
consecutive days
4. Broad Form theft is included in owner-
Coverage/HO-4
1. Coverage is against the Broad Form named
occupied homes.
perils listed previously.
Special Form/HO-3, Special
Perils/Open-Peril Comprehensive Form/HO-5 (Special
Buildings on an HO-3 policy are protected against all Peril/Open-Peril)
risks except those specifically excluded. Personal 1. These policies cover all risks, unless
property is insured against the Broad Form named explicitly excluded from coverage for both
perils, which include: building and personal property.
1. The Basic Form perils (fire, lightning, and
removal of property to prevent further Condominium Unit Owner Form/HO-
damage) and the eight (8) extended coverage 6
perils (riot or civil commotion, above ground 1. Includes the Broad Form named perils listed
damage from volcanic eruption, vehicle above
damage, windstorm, smoke, hail, aircraft
damage, explosion)
2. Broader explosion coverage
3. Glass breakage
ADDITIONAL HOMEOWNERS NOTES

Pair and Sets Clause is lost or destroyed, the remaining spoons are worth
If a single item in a pair or set is lost or destroyed, only $1,100. The loss of one (1) spoon, therefore, is
the insurer will repair, replace, or pay the value of the not $100, but the loss to the set as a whole, for a total
lost part, or will pay the difference between the loss of $700.
Actual Cash Value of the property before and after
the loss. This provision prevents the insured from Additional/Supplemental Coverages
collecting for a total loss when only a part of a pair Payments over the stated insured amount include:
or set is lost. 1. Debris removal and cost of reasonable repair
to prevent additional loss.
Example: (Note that the numbers used here are 2. Loss of trees, shrubs, and plants, but for
strictly arbitrary. There is no formula to determine limited perils only, and coverage is limited to
the value of a set vs. individual pieces.) A set of 12 only five (5) percent of the Coverage A
silver spoons may be worth $1,800 as a set, but each amount with a $500 limit/plant.
individual spoon is worth only $100. If one (1) spoon

3. Fire department charges are covered up to 4. Credit card, check forgery, or counterfeit
$500. money with a $500 limit.
EXCLUSIONS
Hovercraft and Parts 10. Hidden mold or wet rot
Self-propelled motorized ground effect vehicles, 11. Wear and tear
such as flarecraft and other air cushion vehicles, are 12. Pollution
covered. 13. Concurrent Causation- Two or more events
that cause a loss may happen one after the
Water or Steam other or be simultaneous events. An example
Water is not considered personal property of the might be when a heavy storm hits a building
insured, even after it has passed through the insured's and the wind causes structural damage. The
water meter. rain from the storm causes flooding which
flooding would not be covered by itself, but
Excluded Perils because damage from the wing is covered,
The general fire policy exclusions: the resulting flood damage is covered.
1. Homeowners policies do include theft and 14. The insured's animals and/or pets
will cover vehicular damage to the building,
even if done by the owner or tenant. Additional Liability Exclusions
2. Vandalism and Malicious Mischief The following types of liability were added as
(V&MM) if vacant for more than 60 days specific exclusions under the HO policies:
3. Agricultural and industrial smudging 1. Communicable disease (bodily injury or
(pollution) property damage arising out of the
4. Damage by wear and tear, rot and transmission of a communicable disease by
deterioration, settling and cracking, or an insured)
mechanical breakdown (i.e., a furnace) 2. Sexual molestation, corporal punishment, or
5. Damage caused by birds and insects physical or mental abuse
6. Damage to animals (such as pets) of the 3. Controlled substance (bodily injury or
insured or caused by animals of the insured property damage arising out of the sale,
manufacture, delivery, transfer or possession
As previously mentioned, the following perils are by any person of a controlled substance,
generally excluded under property insurance including cocaine, LSD, marijuana, and all
policies, but may be added for additional premium: narcotic drugs, except by the legitimate use
1. Ordinance or law of prescription drugs under the care of a
2. Earth movements – mine subsidence and licensed physician
earthquake 4. Liability caused by intentional acts by or at
3. Flood (covered by the National Flood the direction of the insured, or failure to
Insurance Program – NFIP) prevent another person's intentional act
4. Sewer back-up and sump pumps 5. Liability to an insured's employee (which
5. Off premises power failure – loss caused by should be covered by Workers
power company outages Compensation policies)
6. War 6. Professional liability
7. Nuclear hazard 7. Business pursuits
8. Theft in or to a dwelling under construction 8. Vehicle, watercraft, or aircraft
9. Vandalism

CONDITIONS
The Conditions section of the Homeowners policy is Personal Property Replacement
the same as in the Dwelling policy and includes the
following: Cost
1. Duties after a loss Homeowners -2, -3, -5, and -8 Policies
2. Legal action Replacement Cost on contents protects possessions
3. Other insurance like televisions, furniture, and more. It covers the
4. Loss payable clause cost to fully replace personal property if it is
damaged or destroyed by a covered loss. If personal
property Replacement Cost coverage is not included
in a Homeowners policy, the property would be
covered on an Actual Cash Value basis. Replacement
Cost can often be added by endorsement for
additional premium.
Coverage Limit of Liability

A ACV, Market Replacement Cost Price, or Replacement Cost
Dwelling (Main
building)
B One (1) and Two (2) Family Dwellings: 10% of Coverage A
Other Structures Three (3) and Four (4) Family Dwellings: 5% of Coverage A
C One (1) and Two (2) Family Dwellings: 50% of Coverage A
Personal Property Three (3) Family Dwellings: 30% of Coverage A
Four (4) Family Dwellings: 25% of Coverage A
D Any necessary increase in living expenses so the household can maintain its
Loss of Use normal standard of living, subject to policy limits – payment will be for the
shortest time required to repair or replace the damage or, if the insured
permanently relocates, the shortest time required for the household to settle
elsewhere
Homeowners -4 (Renters) and -6 (Condo Owners)

Coverage Limit of Liability
A Homeowners -4: Not applicable
Dwelling Homeowners -6: $1,000
B Not applicable
Other Structures
C Personal Property is the policy's primary limit – the coverage amount depends on
Personal Property the amount of the insured's personal property
D Any necessary increase in living expenses so the household can maintain its
Loss of Use normal standard of living, subject to policy limits – payment will be for the
shortest time required to repair or replace the damage or, if the insured
permanently relocates, the shortest time required for the household to settle
elsewhere

Special Limits of Liability
Money, bank notes, bullion, gold, or silver, other than goldware or silverware $200
Securities, manuscripts, passports, tickets and stamps $1,500
Watercraft, including trailers and equipment $1,500
Trailers and semi-trailers not used with watercraft $1,500
Theft of jewelry, watches, furs, and precious/semi-precious stones $1,500
Theft of silverware, goldware, pewterware, platinumware, or things plated with these $2,500
metals
Grave markers and mausoleums (not covered under the HO-8) $5,000
Personal property used for business purposes $2,500
Property away from residence used for business purposes $1,500
Electronic devices and accessories used primarily for business while away from $1,500
residence premises
Electronic devices while in, upon, or away from a motorized vehicle $1,500
Theft/loss of firearms and related equipment $2,500
SELECTED ENDORSEMENTS
Special Provisions for States b) Tear out and replace any part of the
building as needed to gain access to the
fungi.
If a state's requirements differ from the policy
c) Test air or property to confirm the
wording or change during the policy period, the state
absence, presence, or level of fungi, but
regulations take precedence. The policy changes to
only if there is a reason to believe there
meet the state regulation, whether the written policy
is the presence of fungi, wet or dry rot,
is changed or not.
or bacteria.
Limited Fungi, Wet or Dry Rot, Permitted Incidental

or Bacteria Coverage Occupancies/Business Pursuits
Coverage is included on the HO-3 and HO-5 and
Homeowners policies cover personal property and
endorsable on the other forms.
liability and extend coverage on a limited basis to
property that is used in a business. The Permitted
Loss is covered when such damage is caused by the
Incidental Occupancies endorsement extends
accidental discharge or overflow of water or steam,
coverage to premises' business property and
or by constant seepage or leakage of water or the
premises' liable for named particular businesses. Off-
presence of condensation or humidity, moisture or
premises coverage is not included.
vapor. The resulting damage must be unknown to all
insureds and be hidden in the walls, ceilings or
beneath the floors or above the ceilings of a covered Earthquake
structure. This endorsement covers the cost of
damages caused by this peril in the building if the
This covers loss caused by earthquake or volcanic
loss is caused by a peril insured against during the
eruption. Earthquake Coverage can be for the
policy period. Subject to the limits the insured
buildings only, or for both the buildings and personal
chooses and for additional premium, this
property of the insured. When added to the property
endorsement covers the cost to:
policy, Earthquake Coverage may have the same
a) Remove the fungi.
deductible as the rest of the policy but usually has a

separate deductible that is often expressed as a or their property because of the insured's property, as
percentage of the total loss rather than a set amount. well as when the insured must defend against libel or
slander. A personal injury endorsement may also
Note that if there is an earthquake, it is often followed offer defense cost coverage in other situations, such
by aftershocks. As long as the aftershocks are within as a false arrest, wrongful invasion of privacy, or
168 hours of the initial earthquake, they are illegal search and seizure.
considered a single occurrence. If 168 hours have
passed before another shock occurs, insurers
consider them separate occurrences. Windstorm or Hail
(All Forms Except HO-4 and HO-6)
A percentage deductible is applied to the total loss
Scheduled Personal caused by windstorm or hail, separate from the policy
deductible. Windstorm or hail damage may be totally
Property/Personal Article Floater excluded from coverage for a premium credit or may
be endorsed to be covered by Actual Cash Value for
This is an endorsement which provides Open-Peril
such losses.
coverage on specific property. The insured schedules
both the coverage and the value. Often, a current
appraisal of the object's value is needed. Special Additional Amount of
There are nine (9) different types of property that can Insurance for Coverage A
be endorsed: Dwelling (Forms HO-2, HO-3 and HO-5)
1. Personal furs Coverage is extended to cover an additional
2. Personal jewelry percentage over the coverage amount of the dwelling
3. Silverware in Coverage A if the insured has allowed the insurer
4. Golfer's equipment to increase the coverage on the home, along with
5. Cameras inflation. There is an additional premium for the
6. Guns added coverage.
7. Fine arts and antiques
8. Stamp and coin collections
9. Musical instruments
Identity Fraud Expense Coverage
This covers expenses up to $15,000 incurred by the
While this is a floater that is usually attached to insured if a “means of identification” of the insured
homeowners policies, it is considered a commercial (such as a driver's license or passport) is unlawfully
policy form. taken with the intent to commit any unlawful activity.
Expenses include notarized affidavits, certified mail
to law enforcement officials, lost income up to $200
Home Day Care per day, loan application fees for reapplication for
loans rejected as the result of incorrect information,
Property and liability coverage for a home day care and reasonable attorney fees to defend lawsuits
business may both be endorsed or added to the brought against the insured because of the identity
policy. The typical endorsement is for insureds theft. This endorsement has a special $250
caring for up to three (3) children, in addition to the deductible.
insured's own children. Special permission from the
insurer's underwriting department is required for
more children.
Functional Replacement Cost
(Forms HO-2, HO-3 and HO-5)
The amount to repair or replace a damaged covered
Personal Injury Endorsement building with less costly common construction
A personal injury endorsement is an additional materials and methods that are the equivalent to
coverage option for most homeowners insurance obsolete, antique, or custom materials and methods
policies. This type of coverage protects the policy used in the building's original construction is known
holder when damage is caused to another individual as Functional Replacement Cost. (Note: receives a
premium discount)

Property Remediation for liquid fuel from a fuel system, boiler, heater or
pumping apparatus located on an insured location. It
Escaped Fuel and Limited Lead also covers the cost to temporarily stop such leakage
and Escaped Liquid Fuel and clean up or remove the damage as required by
law or in response to a governmental authority
Liability request. The endorsement does not pay for any
This covers real property (land and buildings) and reduction in market value, fuel replacement, or repair
personal property from damage caused by escape of or restoration of the fuel system.
MOBILE HOME POLICIES

Mobile homes are legally classified as personal Restrictions on Mobile Home Policy
property and are not covered by homeowners
policies. Mobile homes have their own policies that
Coverage
g) Actual Cash Value coverage on both the
have been developed for them. Mobile home
structure and personal property is
coverage includes:
standard.
a) The structure itself.
h) Replacement Cost can be endorsed on
b) Original equipment as well as additions.
the structure, but not usually on
c) Appurtenant (added) structures.
contents.
d) Personal property.
i) Age and value requirements are
e) Liability coverage.
common, where the insurer will only
f) Medical payments to others.
insure mobile homes less than a certain
age and greater than a certain monetary
value.

SECTION IV – HOMEOWNERS POLICY REVIEW QUESTIONS
1. Debra's Victorian home has ornate wood 6. Which statement is true regarding Mobile
banisters along a winding staircase, as well Home policies?
as intricate moldings around the windows. If a) Mobile homes are covered as dwellings.
a fire destroys the house and the insurance b) Medical Coverage is not included.
company replaces the woodwork with c) Personal property is covered with
standard material and work, which of the Replacement Cost.
following types of coverage does Debra d) A mobile home is personal property.
have?
a) Replacement Cost 7. The RWE Safe Condominium Association is
b) Guaranteed Replacement Cost sued for liability damages when a visitor
c) Functional Replacement Cost drowns in the association's pool. The amount
d) Stated value of damages awarded is above the liability
limits of the association's policy. Which of
2. Ted just bought a home in a small town for the following would give the individual
$60,000. He knows the home would cost association owners coverage for their share
$150,000 if he were to build it today but of the amount in excess of the association's
wants to insure the home for the actual cost policy?
he paid for it. Which of the following a) Replacement Cost
coverage types will he insure the home? b) Loss assessment
a) Actual Cash Value c) Liability coverage
b) Replacement Cost d) Additional living expense
c) Market value
d) Stated value 8. Ray has an HO-5 Special Peril Policy. He
came home one day to find his house
3. The amount of personal property coverage in burglarized with $800 stolen. If Ray had a
an HO-6 Policy Form is: $200 deductible, how much would the
a) A stated amount. insurer pay to indemnify him?
b) 10% of the Coverage A amount. a) $0
c) 50% of the Coverage A amount. b) $250
d) Personal Property is not covered on an c) $300
HO-6 policy. d) $550
4. Which of the Homeowners Forms would 9. Gene and Dee have an HO-3 policy with the
offer the least coverage, but still cover building insured for $100,000. How much
damage caused by a deer breaking the front coverage of personal property do Dee and
window of the insured building? Gene have for property they keep stored at a
a) HO-1 second residence they own?
b) HO-2 a) $0
c) HO-3 b) $1,000
d) HO-4 c) $5,000
d) $10,000
5. What is the standard amount of coverage for
Separate Structures on a Homeowners
Policy?
a) 10% of Coverage A
b) 10% of Coverage B
c) 20% of Coverage A
d) 20% of Coverage B

10. Which of the following would not be 13. Which of the following is NOT covered by
allowed a Homeowners policy under the HO the Limited Fungi, Wet or Dry Rot, or
eligibility rules? Bacteria Coverage endorsement in the HO
a) A building with four (4) families living policies?
in it a) Periodic testing of the building to test for
b) A home with one (1) family that has two the possible existence of fungi
(2) boarders b) Removal of the fungi
c) A building with three (3) families living c) The cost to tear out and replace any part
in it of the building as needed to gain access
d) A one (1) family home with an incidental to the fungi
bakery business d) The cost of a house guest's medical bills
after he or she becomes ill because of the
11. What is the special limit of liability for theft presence of mold
of jewelry on the HO policies?
a) $500 14. The amount to repair or replace a damaged
b) $1,000 covered building with less costly common
c) $1,500 construction materials and methods which
d) $2,500 are the equivalent to obsolete, antique or
custom materials and methods used in the
12. Pritika and Allan bought a home built in the building's original construction is called:
1880s in a small town for $85,000 that would a) Functional Replacement Cost.
cost $235,000 to rebuild if destroyed b) Replacement Cost.
because of the ornate molding and windows. c) Modified Replacement Cost.
What type of Homeowners policy would d) ACV.
BEST cover their needs if Pritika and Allan
would be willing to rebuild the home with
functionally equivalent materials and
modern techniques?
a) HO-2
b) HO-3
c) HO-5
d) HO-8

Section V – Commercial Package Policy
INTRODUCTION
Our thriving economy does so well because of the Insurance Services Office (ISO)
many different types of businesses that have sprung The ISO is an independent organization that services
up to meet the needs of people. The fact that these the insurance industry. The ISO developed
businesses are so different means that they have quite standardized forms to offer a spread of coverages to
different needs in terms of insurance protection. A larger segments of the business marketplace in 1986.
restaurant, for instance, has different needs than a Coverage modules allow for policy flexibility,
bookstore, a trucking company, or a manufacturing because some coverages might be needed by one
plant. type of business but not by another. Two (2) broad
For this reason, the first commercial policies were categories are:
customized to the needs of the particular business. 1. Commercial Package Policy (CPP)
Fire insurers wrote commercial fire policies that 1. (For large businesses): Allows insured to
covered losses from fire and extended coverage pick and choose coverages on a mono-line
endorsement perils but did not cover property away policy basis, grouping the mono-line policies
from the insured premises, theft, or crime. Casualty together into one place for the insured's
insurers developed commercial auto policies and convenience
boiler and machinery policies to cover the particular 2. Business Owners Package Policy (BOP)
nuances of that market. There were no general 1. (For smaller businesses): A package of
guidelines for policies, and coverages could differ coverages that will serve the needs of most
greatly from one company to another. There may be small businesses.
gaps in coverage developed between different
companies, policies, and policy types.
COMPONENTS OF A COMMERCIAL POLICY

The Insuring Agreement is the portion of the 1. Policy Period (loss must occur between
insurance policy in which the insurer promises to policy inception and cancellation dates)
make payment to or on behalf of the insured. The 2. Policy Territory (coverage only in the U.S.,
Insuring Agreement is usually contained in a its territories, Puerto Rico, or Canada)
coverage form from which a policy is constructed. 3. Policy cancellation or changes
4. Concealment
As stated above, the Commercial Package Policy 5. Misrepresentation or fraud
allows the insured to pick and choose coverages on a 6. Insurer's right to examine company records
mono-line policy basis, grouping the mono-line and to hold inspections and surveys
policies together into one place for the insured's 7. Other insurance provisions
convenience. 8. Policy liberalization procedures
9. Premium amounts
There are two (2) required sections: 10. Subrogation
1. Common Policy Declarations
2. Common Policy Conditions contains the The Commercial Policy must also contain at least
agreed upon legal obligations and duties of two (2) of the following commercial coverages:
the insurer and the insured. 1. Commercial Property
2. Commercial General Liability
This will include: 3. Commercial Crime
4. Commercial Auto
5. Commercial Inland Marine

6. Equipment Breakdown (formerly Boiler and a) Coverage is on an ACV basis, but
Machinery) Replacement Cost settlement can be
7. Farm Property and Liability added as an endorsement.
b) Covered Peril Forms include those
discussed earlier in the Dwelling and
Common Policy Declarations Homeowners Policies (Basic, Broad,
Special Causes of Loss Forms, and the
Contains information about the insured, the policy
Earthquake Form).
inception and ending dates, and premium charges.
c) Sinkhole and sprinkler leakage damage
Each coverage part in the policy has its own
is an added peril.
declarations page because each is a mono-line policy
d) V&MM is also a Commercial peril but
in and of itself.
is not covered if the property has been
vacant for 60 days or more.
Interline Endorsements The most common Commercial Property Coverages
include:
Endorsements can modify one (1) or more of the
1. Building and Personal Property
Commercial Package Policy Coverages. An
2. Coverage Extensions
Interline Endorsement modifies two (2) or more
3. Commercial Property Form Endorsements
coverages.
4. Glass
5. Condominium Association
One or More Coverage Parts 6. Builders Risk Form
7. Legal Liability Form
Coverage on Commercial Building and Property 8. Leasehold Interest Form
forms or parts is on a mono-line basis for the 9. Mortgage Holders Error and Omissions
buildings only. Form
10. Tobacco Sales and Warehouse Form
COMMERCIAL PROPERTY
Commercial Property Conditions has become a permanent part of the

buildings (additions, fixtures,
Form extensions, machinery, and equipment)
is covered as well.
A Commercial Property Policy (CPP) consists of the b) Business Personal Property is property
basic parts of a policy: that is owned by the insured and used in
1. Declarations the course of the insured's business.
2. Insuring Agreement c) Personal Property of Others include
3. Conditions improvements and alterations made by
4. Exclusions and Endorsements the insured to a building that is leased
and that cannot be removed upon the
termination of the lease, as well as
Commercial Coverage Forms personal property of someone other than
the insured that is under the care,
Building and Personal Property custody, or control of the insured.
The structure of the Building and Personal Property 2. Other Provisions include:
Coverage Form includes: a) Additional Coverages (extra perils
1. Covered Property covered)
a) Buildings are listed and described in the b) Extensions of Coverage (additional
Declarations section; anything that is or amounts)

Newly Acquired Buildings/Personal Property b) Some policies cover only up to the
Any newly acquired/constructed building coverage drywall, making the individual condo
is temporary as it exists for a finite period no greater owners responsible for covering from
than policy expiration or 30 days. Coverage during the paint in, such as cabinets and built-in
this temporary period is limited to $250,000 per bookshelves.
newly acquired or constructed building and $100,000
for personal property at each of these same covered Condominium Commercial Unit-
buildings. Owners
This protects the owner of a business or commercial
Business Personal Property Exclusions condominium unit against loss or damage of
Covered property does not include: furniture, fixtures, stock, and improvements or
1. Accounts, bills, and currency alterations owned by the insured.
2. Animals, unless held for sale or boarded by
the insured, or owned and held as stock
inside of buildings Builders Risk
3. Automobiles held for sale This covers commercial, residential, or farm
4. Aircraft and watercraft, unless held for sale buildings that are under construction.
5. Crops outside of buildings
6. Signs not attached to the insured building Business Income
7. Contraband or property from illegal trade This covers earnings losses while the business is shut
8. Bridges, roadways, walks, patios, or other down to remodel and restock after a loss due to a
paved surfaces covered peril. Incomes included in this coverage are:
9. The cost of excavations, grading, filling, or 1. Net income before taxes
backfilling 2. Earnings necessary for continued operating
10. Foundations of buildings, structures, expenses
machinery, or boilers if their foundations are 3. Extra expense coverage
below the lowest basement floor or the
surface of the ground, if there is no basement Operating expenses are those like utilities,
11. Land (including land on which the property advertising, rent or mortgage payments, and payroll.
is located), water, growing crops, or lawns Payroll is automatically included unless excluded by
12. Personal property while airborne or endorsement. This coverage allows a business to
waterborne maintain employees who might otherwise be lost if
13. Bulkheads, pilings, piers, wharves, or docks they had to look for a different job. Coverage is on a
14. Property that is covered under another co-insured basis, with the insured choosing the level
coverage form of any other policy in which of coverage: 50 percent, 75 percent, 80 percent, or
it is more specifically described, except for 100 percent. The insured chooses the percentage of
the excess of the amount due (whether the lost income coverage he/she wants. The insurer pays
insured can collect on it or not) from that only that percentage and not the full amount of lost
other insurance income.
15. Retaining walls that are not part of a building
16. Underground pipes, flues, or drains Legal Liability
17. Electronic data, except as provided under This covers damage to property of others in the
Additional Coverages insured's care, custody, and control.
18. The cost to replace or restore information on
valuable papers and records, including those
which exist as electronic data
Extra Expense
This covers business continuation at another location
while repairs from a covered loss are occurring at the
Condominium Association insured premises (rent, phone installation, mailings
This covers buildings and fixtures and is primary to to customers about temporary relocation, etc.).
individual unit owner policies. There are two (2) basic ways that Extra Expense
a) Some association policies cover the Insurance can be provided. Extra Expense can be
entire building. written as a separate coverage form, or it can be

provided in combination with Business Income The CPP uses the same three (3) covered peril forms
Insurance. The most common way to provide Extra as the HO and Dwelling policies: The Basic Form,
Expense is in combination. One of the advantages of the Broad Form, and the Special Form.
the combination form is that it does not have “Limits 1. The Basic Form includes fire, lightning,
on Loss Payment,” which has often been referred to windstorm, hail, explosion, vandalism,
as the 40/80/100 clause. smoke, sprinkler leakage, riot or civil
commotion, sinkhole collapse, and volcano.
Percentage availability (40/80/100) 2. The Broad Form includes perils found
The ISO Form states: “We will not pay more for under the Basic Form, plus falling objects
Extra Expense than the percentages shown in the causing exterior damage that results in
Declarations times the Limit of Insurance.” interior damage (weight of ice, sleet, and
snow); accidental discharge of water or
When the “period of restoration” is: steam from a system or appliance containing
1. 30 days or less, the first percentage applies. steam or water, not including an automatic
2. 60 days or less, but more than 30 days, the sprinkler system; and breakage of glass;
second percentage applies. subject to a $500 maximum limit.
3. More than 60 days, the third percentage 3. The Special Cause-of-Loss Form includes
applies. all direct accidental losses except those
specifically excluded in the policy (such as
Using the 40/80/100 as applicable percentages, on flood, war, wear and tear, and earth
first read the policy appears to be saying that the most movement).
an insured can collect the first month of their loss is
40 percent of the limit. Reading more closely, that is
not what the form says at all. It says when the period Selected Commercial Property
of restoration is less than 30, days then the insured Endorsements
can only collect 40 percent of the loss. In other
words, if the insured's loss lasts more than 60 days to
repair or replace so that the insured is operational,
Ordinance or Law
This endorsement covers loss of value or damage to
then the insured is entitled to 100 percent of the
an undamaged portion of a building, demolition and
amount of Extra Expense loss that they are able to
removal of undamaged parts of the building, and any
prove. The intent of the limits of loss payment is to
increased costs of repairs due to civil building,
limit the amount of Extra Expense if the loss is minor
zoning, or land use law changes.
in nature.
Spoilage
Causes of Loss Forms: Basic, If endorsed to the policy, the Spoilage Endorsement
covers perishable stock for damage resulting from a
Broad, and Special mechanical breakdown, a power outage, or a
refrigerant contamination.
For a loss to be covered, it must exceed the
deductible stated in the Declarations section but be
less than the Limit of Insurance – the amount Peak Season Limit of Insurance
between the two is the covered amount. There may This seasonal endorsement allows additional
also be deductions for any co-insurance or Agreed amounts of Personal Property Coverage during
Value Coverage provision. designated periods, such as Christmas or other
When the loss or damage from any one (1) holidays, when inventory levels are increased.
occurrence involves two (2) or more items of covered
property and more than one Limit of Insurance, the Value Reporting Form
deductible is applied to the total amount of loss, as The Value Reporting Form allows an insured that
long as loss to at least one (1) item is less than the has property that fluctuates in value to pay premium
total or sum of the Limit of Insurance on that item on an average value for the entire policy year.
plus the Deductible. Periodic updated value reports are filed with the

insurer to keep the property completely insured with Earthquake
no penalties in the event of a loss. As with Homeowners and Dwelling policies,
Earthquake Coverage is excluded from coverage
unless specifically endorsed to the Commercial
Property Policy.
CYBER LIABILITY AND NETWORK PROTECTION

Cyber liability insurance covers financial losses that company's actions or failure to act. For instance, a
result from data breaches and other cyber events. client sues his therapist for negligence after a hacker
Policies vary widely because most insurers that offer breaches the therapist's computer system, steals the
cyber coverage use forms they've developed client's treatment records, and releases them online.
themselves. Many policies include both first-party
and third-party coverages. Coverages often include:
1 Data Restoration
First-party coverages pay out-of-pocket expenses 2 Loss of Income and extra expenses
that a firm directly incurs as a result of a breach. 3 Cyber extortion
Third-party coverages apply to damages or 4 Notification costs
settlements a business is obligated to pay as a result 5 Crisis Management
of claims or suits for injuries that result from the
COMMERCIAL INLAND MARINE

Historically, Inland Marine Coverage started after the j) Imports
development of the railroad, trucks, and airplanes in k) Exports
order to cover inland transportation, as opposed to
Ocean Marine Coverage for ocean-bound ships. It
covers property on land that is mobile and away from Commercial Inland Marine
the owner's premises. Major forms include: Conditions Form
a) Common Carrier
b) Trucker's This contains the agreed upon legal obligations and
c) Shipper's duties of the insurer and the insured. It is the same as
d) Owner's the CPP Conditions Form.
e) Transit Forms
Inland Marine Coverage Forms

Nationwide Marine Definition
The standard for Inland Marine Coverages, the Accounts Receivable
Nationwide Marine Definition, includes six (6) Accounts Receivable covers amounts due to the
coverage types: insured that are not collectible from customers
f) Personal property floaters and pleasure because of direct physical loss to accounts receivable
craft records because of fire or other insured perils.
g) Commercial property Coverages,
including the contractor's equipment Bailee's Customer
floater This covers damage to or loss of a customer's goods
h) Domestic shipments (trucking) regardless of the Bailee's (insured's) liability.
i) Instrumentalities of transportation or Businesses such as laundries or dry cleaners would
communication have need of Bailee's Customer Coverage.

Commercial Articles towers. Some floaters also provide coverage for
Commercial Articles covers cameras, musical testing, debris removal, pollution cleanup, and soft
instruments, projection machines, film and related costs, such as:
equipment and accessories of others while in the 1. Delay in completion of work
insured's care, custody and control being used for a 2. Loss of use
commercial or professional purpose. 3. Extra expenses
At what point coverage ends under an installation

Commercial Contractor's Equipment floater is also an important consideration. It is not
Floater unusual for coverage to end when construction by
Insurance that covers contractor's equipment, either others continues for long periods.
on or off premises is known as Commercial
Contractor's Equipment insurance. Jeweler's Block
Jeweler's Block covers a jeweler's stock consisting
Electronic Data Processing (EDP) mainly of jewelry, precious and semi-precious
This provides Special Peril coverage for loss of stones, precious metals and alloys, and similar
computer programs, data or media. “Special Peril” property of others in the insured's care, custody, and
refers to all risks except those expressly excluded. control. This includes that which is held for sale, on
exhibit, in transit by common carrier, or that which is
EDP policies provide special peril coverage similar in the custody of an outside salesperson.
to that provided by special property forms, PLUS Claims are settled for the lesser of:
coverage for all electrical and magnetic damage, 1. Actual Cash Value.
mechanical breakdown, and often temperature and 2. The cost to restore to prior condition
humidity changes as well. Some insurers include the immediately before the loss.
perils of electrical and magnetic damage, mechanical 3. The cost to replace the property.
breakdown, and temperature and humidity changes 4. The lowest figure in the insured's books and
in the Basic Form, while others make them available records showing the property's value.
by endorsement for an additional premium.
Sentimental, antique, or historic value is not
Equipment Dealers considered in claim payment.
This insures the stock in trade of the insured that 1. Coverage is suspended if protective
consists mainly of mobile agriculture and safeguards, such as security alarms that are
construction equipment, as well as similar property required in the policy, are not in active
of others in the insured's care, custody, and control working order. Coverage resumes when the
(not including autos, trucks, motorcycles, aircraft, or devices are repaired, replaced, or otherwise
watercraft). working again.
Exclusions Include: 2. The insured must take inventory every 12
1. Mysterious disappearance months, detailing purchases, and sales
2. Shortages found at inventory records, and keep the records for 36 months
3. Water damage after the policy ends.
4. Loss caused by artificially generated current
Signs
Installation Floater This covers the insured's signs and similar property
This covers machinery and equipment that are to be of others in the insured's care, custody, and control.
installed in a building while in-transit and while
being installed. Further coverage on this floater may Camera and Musical Instrument
vary with individual companies. Dealers Form
This covers the insured's merchandise of cameras
Some floaters, for example, include coverage for and musical instruments and related or similar
collapse of a building or structure, which is a definite equipment of others in the insured's care, custody,
plus, particularly for contractors involved in the and control.
repair or refurbishing of television or communication

Valuable Papers and Records Inherent Vice
Valuable Papers and Records covers such items as A characteristic of the merchandise to destroy itself,
deeds, abstracts, mortgages, books, manuscripts, such as the spoilage of fresh fruits and vegetables is
files, maps, drawings, and other records that are known as inherent vice.
important to the continuation of the insured's Motor Truck Cargo Forms
business, whether owned by the business or the Forms exist for truckers, shippers, and owners. The
property of others in the insured's care, custody, and Standard Form to insure a carrier's liability is the
control. Motor Truck Cargo Policy-Trucker's Form, and it
is usually written on a named-peril basis. It pays
damages only when the trucker is legally obligated to
Transportation Coverages pay.
Inland marine policies also contain Transportation Transit Coverage Forms

Coverages for those firms that carry cargo or
Inland Marine Coverage on the insured's property
merchandise from one location to another.
while in transit over land from one location to
another is covered under the Transit Coverage
Common Carrier Cargo Liability Form. These forms can cover property on either an
Also known as Transit Coverage policies, Common Annual or a Specific Trip Transit policy.
Carrier Cargo Liability policies cover legal
liability for damage to goods the carrier carries with Released Bills of Lading
only a few exceptions, those being acts of God and
A means by which carriers attempt to limit their
acts of a public enemy (war). Order of public
liability by specifying a maximum amount for which
authority could also exclude liability if the authority
the carrier will be held liable is known as Released
were to cause problems with roads or dams that cause
Bills of Lading. The carrier often charges a lower
damage to the cargo.
rate to those shippers who accept the limitation and a
higher rate to those who do not accept it. Coverage
Neglect of the Shipper for the owner of goods being shipped by common
This excludes the carrier from liability in the event carrier is provided under a Motor Truck Cargo Policy
the shipper did not pack the cargo well. Shipper's Form or under a Transit Coverage Form.
The Shipper's version of the form is a property
coverage policy.
EQUIPMENT BREAKDOWN COVERAGE

(Formerly known as Boiler and Machinery)
Historically, Boiler and Machinery (B&M) coverage Equipment Breakdown Coverage policies cover
began with the inspection and insuring of steam most machines and equipment used to contain
boilers and eventually expanded to include other pressure or generate/transmit power and which are
pressure machinery. This form of insurance provides subject to accidental breakdown that could destroy or
important mechanical breakdown coverage generally damage a large part of the machine.
not available under any other insurance policy. An
Equipment Breakdown Coverage policy can Parts of an Equipment Breakdown
protect an insured against the effects of catastrophic
property loss, such as steam boiler explosion or an
Policy
The Equipment Breakdown policy consists of four
expensive breakdown of machinery and equipment.
(4) parts:
It can also protect against the loss of earnings or
1. Declarations Page
income while machinery is being repaired. Today,
2. Coverage Form
Equipment Breakdown Coverage includes machines
3. Object Definition Form(s)
as diverse as refrigeration and air conditioning units,
4. Any applicable endorsements
deep well pumps, transformers, and turbines.

Coverages Equipment Breakdown
There are (3) three types of Equipment Breakdown
policies:
Protection Coverage Form
1. Standard Equipment Breakdown Policy
2. Small Business Coverage Form One or more of the Object Definition Forms must be
3. Small Business Broad Coverage Form included with the policy.
Equipment Breakdown policies cover losses caused Pressure and Refrigeration Objects Form
by sudden and accidental breakdown or explosion on This covers boilers, refrigeration units, piping, and
a Replacement Cost basis. air conditioning units.
Covered Property The Mechanical Objects Form covers engines,

compressors, fans and blowers, wheels and shafting,
Covered property includes: and deep-well pumps.
1. Any building or business personal property
the insured owns Turbine Objects Form
2. Any property of others in the insured's care, This form includes both steam and water turbines.
custody, or control or for which the insured
is legally liable Electrical Objects Form
The Electrical Objects Form covers such things as
Coverage does NOT include the following: transformers and rotating electrical machines.
1. Valve leakage
2. Breakdown of structures that support the Comprehensive Coverage Form (Excluding
equipment Production Machinery)
3. Something outside the boiler exploding and This defines all Equipment Breakdown objects that
causing damage can be covered, except for production machinery.
4. Losses caused while the equipment is being Comprehensive Coverage Form (Including
tested Production Machinery)
5. Loss to adjoining property
This form defines all Equipment Breakdown objects
that can be covered, including production machinery.
Conditions Object definition forms are endorsed onto the
standard Equipment Breakdown (Boiler and
Periodic Inspection and the Machinery) form but are included in both Small
Suspension Provision Business Equipment Breakdown Coverage Forms.
A major part of the Equipment Breakdown policy
still includes the insurer's periodic inspection of the
insured devices. The purpose of this inspection is to Selected Endorsements
discover dangerous conditions before they cause an
accident; the inspection does not create a warranty Business Income – Report of Values
for the equipment. The insurer may suspend Business income is income received for products
coverage or cancel the policy at any time if the sold or for services rendered.
equipment is found to be in bad or dangerous
condition. This is known as the Suspension Business Interruption – Insureds must report net
Provision. annual sales and other earnings, and profits each year
in order to qualify for this coverage. Form BM 15 31
Business Income-Report of Values may be provided
to the insured as a means of reporting this
information.
• The Business Interruption, Actual Loss
Sustained Endorsement covers the actual

loss of business income as the result of an Actual Cash Value
accident to a covered object, including extra For damaged property not repaired within 18 months
expense to reduce or prevent the of the accident (unless previously agreed to in
interruption. writing by the insurer) claim payment will be for the
• The Business Interruption, Valued lesser of the:
Coverage Endorsement pays a specified 1. Cost it would have taken to repair OR
amount for each day the business 2. The property's Actual Cash Value at the
interruption continues. time of the accident.
FARM COVERAGE
Farmers usually need coverage for their home and Scheduled Farm
personal property, as well as for their farm business
Coverage E
Personal Property*
operations. Aside from a farm dwelling, most farms
also have a large investment in land, other buildings, Coverage F Unscheduled Farm
and farm equipment that need insurance protection. Personal Property*
Coverage G Other Farm
Farm Property Coverage Forms Structures
Coverage H Bodily Injury and
The Farm Property Coverage Form is similar to Property Damage
that of a Homeowners policy and covers buildings
Coverage I Personal and
and personal property. The difference between the
Advertising Injury
two policy types is that business coverage is
generally excluded from a Homeowners policy but is Coverage J Medical Payments
included in the Commercial Farm Property policy as
Coverages E, F, and G. Each coverage is available *Coverages E and F cover farm machinery,
only if there is a limit shown for it in the Declarations whether on or away from the described
Page of the policy. premises. They also include coverage for
mules, swine, and sheep, but not poultry.
Farm Policy Coverages

Mobile Agricultural Machinery
Coverage A Dwellings
and Equipment Coverage Form
Coverage B Other Private
Structures This is used when machinery and equipment is the
only exposure, provides Special Peril coverage for
Coverage C Household Personal
mobile equipment.
Property
• There is an 80 percent co-insurance clause.
Loss of Use • Coverage is written on either a blanket or
(additional living scheduled form.
Coverage D expenses or fair rental • Coverage is excluded for irrigation equipment
value) and for dishonesty of the insured or the
insured's employees or agents.

Livestock Coverage Form Farming
This means the operation of an agricultural or
This form mainly used when livestock is the only aquacultural enterprise and includes the operation of
farm exposure but is also used if it is desirable to roadside stands on farm premises maintained solely
write Livestock Coverage separately. for the sale of products produced principally on those
premises. Unless specifically indicated in the
Written on a named-peril basis, this covers death or Declarations, farming does not include:
destruction from 11 perils: • Retail activity other than that described
1. Fire above.
2. Lightning • Mechanized processing operations.
3. Windstorm
4. Hail
5. Explosions
Causes of Loss (Basic, Broad and
6. Riot Special)
7. Collision with vehicles on public roads
except for vehicles owned or operated by the The Farm policy uses the same three (3) covered peril
insured forms as other policies (Basic Form, Broad Form,
8. Sinkhole collapse and Special Form) with their specific covered perils.
9. Volcanic action
10. Vandalism
11. Theft Conditions
Livestock excluded from coverage under this form The following conditions apply in addition to
include race or show animals, livestock on ranges, Common Policy conditions:
and livestock being transported to, from, or while at
stockyards or commercial feedlots. Loss Conditions
Bankruptcy
The bankruptcy, or insolvency, of the insured or of
Definitions the insured's estate will not relieve the insurer of its
obligations.
Custom Farming
Custom Farming is the performance of specific Insured Duties in the Event of Occurrence,
planting, cultivating, harvesting, or similar specific
Offense, Claim, or Suit
farming operations by an insured, at a farm that is not
Notice of a claim must be provided to the insurer as soon as
an insured location when the performance is for, and
is possible and must include:
under the direction or supervision of, the owner or
• How, when, and where the occurrence took
operator of the farm or the authorized representative
place.
of the owner or operator. However, custom farming
• The names and addresses of any injured
does NOT mean:
persons and witnesses.
• Operations conducted at a premises rented
• The nature and location of any injury or
to, leased to, or controlled by an insured.
damage arising out of the occurrence or offense.
• Operations for which no compensation in
money or goods is received.
If a claim is made or suit is brought against any
• A neighborly exchange of services.
insured, he or she must:
• Immediately record the specifics of the claim
Farm Employee or suit and the date received
This means any insured's employee whose duties are
• Notify the insurer in writing as soon as
principally in connection with the maintenance or
possible.
use of the insured location as a farm. These duties
include the maintenance or use of the insured's farm
The insured must give the insurer written notice of
equipment. “Farm employee” does not mean any
the claim or suit as soon as practicable.
employee while engaged in an insured's business.

In addition, the insured must: No Admission of Liability with Medical
1. Notify the police if a law may have been Payments
broken. No payment made under the Medical Payments
2. Immediately send the insurer copies of any provisions of Coverage J constitutes an admission of
demands, notices, summonses, or legal liability by any insured or the insurer.
papers received in connection with the claim
or suit. Other Insurance
3. Authorize the insurer to obtain records and This condition applies only if, in addition to the
other information. insurance provided under a coverage form, the
4. Cooperate with the insurer in the insured has other insurance under any other policy
investigation or settlement of the claim or covering the same obligations to pay damages and
defense against the suit. provide defense against suits for damages.
5. At the insurer's request, assist in the
enforcement of any right against any person The insurer will pay only the proportion of covered
or organization that may be liable to the damages and related defense costs that the applicable
insured because of injury or damage to Limit of Insurance under this coverage form bears to
which this insurance may also apply. the total amount of all your insurance providing the
same coverage, in covered occurrences arising from
No insured will, except at that insured's own cost, any cause except the ownership, maintenance, use,
voluntarily make any payment, assume any operation or loading or unloading of a:
obligation, or incur any expense, other than for first • Motor vehicle.
aid, without the insurer's consent. • Vehicle which qualifies as mobile equipment
Any injured person who makes a claim for payment only while used on premises the insured
of medical expenses under the provisions of owns or rents.
Coverage J must: • Watercraft.
• Give the insured written proof of claim,
under oath if required, as soon as practicable.
Transfer of Rights of Recovery Against Others
• Execute authorization to allow the insured to
obtain copies of medical reports and records. to the Insurer (Subrogation)
• Submit to physical examination by a If the insured has rights to recover all or part of any
physician selected by the insurer when and payment the insurer has made under this coverage
as often as reasonably required. form, those rights are transferred to the insurer. The
insured must do nothing after loss to impair them. At
the insurer's request, the insured will bring suit or
Insurance Under Two (2) Or More Coverages
transfer those rights to the insurer and help enforce
If two (2) or more of a policy's coverages apply to the
them.
same loss or damage, the insurer will not pay more
than the actual amount of the loss or damage.
Liberalization
If the insurer adopts any revision that would broaden
Legal Action Against the Insurer
the coverage under a coverage form without
A person or organization may sue the insurer to
additional premium within 45 days prior to or during
recover on an agreed settlement or on a final
the policy period, the broadened coverage will
judgment against an insured, but the insurer will not
immediately apply to the coverage form.
be liable for damages that are not payable under the
terms of this coverage form or that are in excess of
the applicable Limit of Insurance. An agreed Representations
settlement means a settlement and release of liability By accepting a policy, the insured agrees:
signed by the insurer, the insured, and the claimant 1. The statements in the Declarations are
or the claimant's legal representative. accurate and complete.
2. The statements are based upon
representations made to the insurer.
3. The insurer has issued the policy in reliance
upon the insured's representations.

Separation of Insureds a) The transportation of mobile equipment
Except with respect to the limits of insurance, and by a motor vehicle owned or operated
any rights or duties specifically assigned in a by, or rented or loaned to, any insured.
coverage form to the first named insured, this b) The use of any self-propelled land
insurance applies: vehicle or mobile equipment in, or while
1. As if each named insured were the only in practice or preparation for, a
named insured. prearranged racing, speed, strength, or
2. Separately to each insured against whom demolition contest or any stunting
claim is made or suit is brought. activity.
9. Use of Livestock or Other Animals
Bodily injury or property damage arising out of the
Exclusions use of any livestock or other animal:
a) In, or while in practice or preparation
This insurance does not apply to: for, a prearranged racing, speed, or
1. Expected or Intended Injury strength contest or prearranged stunting
2. Contractual Liability activity.
3. Pollution b) With or without an accessory vehicle, for
4. Release or Discharge From Aircraft providing rides to any person for a fee or
5. Aircraft, Motor Vehicle, Motorized for providing rides in connection with or
Bicycle, or Tricycle during a fair, charitable function, or
6. Bodily injury or property damage: similar type of event.
a) Arising out of ownership, maintenance, 10. Business Pursuits
use, or entrusting to others of any Bodily injury or property damage arising out of or in
aircraft, motor vehicle, motorized connection with a business engaged in by an
bicycle or tricycle owned or operated by insured. This exclusion applies but is not limited
or rented or loaned to any insured (use to an act or omission, regardless of its nature or
includes operation and loading or circumstance, involving a service or duty rendered,
unloading). promised, owed, or implied to be provided because
b) Giving rise to vicarious liability, of the nature of the business.
whether or not imposed by law, for the 11. Custom Farming
actions of a child or minor involving any Bodily injury or property damage arising out of the
aircraft, motor vehicle, motorized insured's performance of, or failure to perform,
bicycle or tricycle. custom farming operations. (This exclusion applies
7. Watercraft only when receipts from “custom farming”
Bodily injury or property damage: operations exceed $5,000 for the 12 months
a) Arising out of ownership, maintenance, immediately preceding the date of the occurrence.)
use, or entrusting to others of an 12. Professional Services
excluded watercraft (use includes Bodily injury or property damage arising out of the
operation and loading or unloading). rendering of, or failure to render, professional
b) Giving rise to vicarious liability, services.
whether or not imposed by law, for the 13. Rental of Premises and Ownership or
actions of a child or minor involving an Control of Premises
excluded watercraft. (Excluded Bodily injury or property damage arising out of:
watercraft are those that are principally a) An act or omission in connection with
designed to be propelled by engine any location (other than an insured
power or electric motor or are sailing location) that is rented to, or owned or
vessels, whether owned by or rented to controlled by, the insured.
an insured.) b) The rental or holding for rental of an
8. Mobile Equipment insured location.
Bodily injury or property damage arising out of: 14. Communicable Disease
15. Workers Compensation or Similar Law
16. Employers Liability

Bodily injury sustained by: I. If such product, work, or property is
a) Any employee (other than a residence withdrawn or recalled from the
employee) as a result of his or her market or from use by any
employment by the insured. person or organization because of
b) Any residence employee, unless the a known or suspected defect,
employee makes a written claim or deficiency, inadequacy or
brings suit no later than 36 months after dangerous condition in it.
the end of the policy period. 24. Sexual Molestation, Corporal
c) The spouse, child, parent, brother or Punishment, or Physical or Mental Abuse
sister of any employee as a consequence 25. Controlled Substances
of bodily injury to that employee. 26. Personal Injury
(This exclusion applies whether the
insured may be held liable as an
employer or in any other capacity and to Limits
any obligation to share damages with or 1. The Limits of Insurance shown in the
repay someone else who must pay Declarations and the provisions below fix
damages because of the injury.) the most the insurer will pay regardless of
17. Building/Structure Under Construction the number of:
Bodily injury arising out of any premises on which a a) Insureds.
building or structure is being constructed. The only b) Claims made or suits brought.
exception to this exclusion is in an occurrence of c) Persons or organizations making claims
bodily injury sustained by: or bringing suits.
a) Persons who are not insureds. 2. The General Aggregate Limit is the most the
b) Residence employees of an insured insurer will pay for the sum of:
arising out of or in the course of their a) Damages under Coverage H and
employment. Coverage I.
18. Bodily Injury to An Insured b) Medical expenses under Coverage J.
19. Damage to Property 3. The Each Occurrence Limit is the most the
20. Damage to Your Product insurer will pay for the sum of:
21. Damage to Your Work a) Damages under Coverage H
22. Damage to Impaired Property or b) Medical expenses under Coverage J
Property not Physically Injured because of all bodily injury and
Property damage to impaired property or property property damage arising out of any one
that has not been physically injured, arising out of: occurrence.
a) A defect, deficiency, inadequacy or
All bodily injury and property damage resulting from
dangerous condition in your product or
any one accident or from continuous or repeated
the insured's work.
exposure to substantially the same general harmful
b) A delay or failure by the insured or
conditions will be considered to be the result of one
anyone acting on his or her behalf to
occurrence.
perform a contract or agreement in
accordance with its terms. Included within the Occurrence Limit is a special
23. Recall of Products, Work, or Impaired Limit of Insurance of $10,000, which is the most the
Property insured will pay for all covered damages that the
Damages claimed for any loss, cost or expense insured becomes legally obligated to pay because of
incurred by you or others for the loss of use, statutorily imposed vicarious liability for the actions
withdrawal, recall, inspection, repair, of a child or minor.
replacement, adjustment, removal or disposal of the
insured's:
a) Product Additional Coverages
b) Work
c) Impaired property As with other real property policies, farm policies
also include coverages for such things as:

• Debris removal. • Liability coverage.
• Fire department charges.
• Cost to restore farm records. Farm Umbrella Coverage
• Limited coverage for Fungi and Bacteria for An umbrella policy adds additional liability or excess
Property, Farm, Dwellings, Appurtenant coverage for $1 million or more over and above the
Structures, and Household Personal basic liability limits of an underlying policy.
Property.

SECTION V – COMMERCIAL PACKAGE POLICY REVIEW
QUESTIONS
1. If the insured desires coverage for business c) Commercial Articles
continuation at another location while d) Contractor's Equipment
repairs from a covered loss are being
completed, they should purchase which of 6. Which of the following would exclude a
the following coverages? carrier from liability in the event the Shipper
a) Business Income did not pack the cargo well?
b) Commercial Property a) Motor Truck Cargo-Shipper's Form
c) Extra Expense b) Neglect of the Shipper
d) No coverage is offered for indirect c) Inherent vice
losses. d) Released Bills of Lading
2. Which of the following is NOT an optional 7. An insured's air conditioning unit would be
part of a Commercial Insurance Policy? covered under which of the following Object
a) Commercial Policy Conditions Definition Forms?
b) Commercial Property a) Mechanical Objects
c) Commercial General Liability b) Turbine Objects
d) Equipment Breakdown (Boiler and c) Pressure and Refrigeration Objects
Machinery) d) Electrical Objects
3. Equipment Breakdown coverage covers all 8. WE R Growing, Inc. recently bought an

of the following except: additional building. How much coverage is
a) Deep well pumps. automatically extended to the new building
b) Periodic inspections of the insured on their Commercial Property Coverage
devices. Form?
c) Transformers. a) Up to 10 percent of the Commercial
d) Loss caused while the unit is being Buildings amount
tested. b) Up to 50 percent of the Commercial
Buildings amount
4. Showplace Windows has large plate glass c) Up to $100,000
windows to show off its merchandise and has d) Up to $250,000
only the Commercial Property Coverage
Form. How much will the insurer pay if the 9. Farmers can insure their crops through all of
glass is damaged by fire? the following EXCEPT:
a) $100/pane with a maximum of $500 a) Crop hail insurance.
b) $100/pane with no limit to the aggregate b) Unscheduled farm property insurance.
amount c) The FCIC.
c) The full amount of the loss d) Multi-peril crop insurance.
d) $0 (no glass coverage unless the insured
purchased a Glass Coverage Form 10. Krismis Goodies has increased their
Policy) merchandise in stock in November and
December of each year. What coverage
5. If the insured works on the property of would give them the BEST coverage for
customers that it holds in its premises, which their stock during this period of time?
of the following would BEST protect the a) Commercial Property
insured against damage to the customer's b) Peak Season
property? c) Value Reporting
a) Personal Article Floater d) Personal Effects
b) Bailee's Customer

11. Which coverage covers earnings losses
while the business is shut down to remodel
and restock after a loss due to a covered
peril?
a) Business Income
b) Builders Risk
c) Emergency shutdown
d) Remodeling coverage

Section VI – Business Owners Policy (BOP)
CHARACTERISTICS AND PURPOSE
Why Needed? • Are principally for office purposes.
Commercial package policies are designed for large • Are no more than six stories and have
businesses. They cover a wide variety of risks and less than 100,000 square feet of floor
options that may occur with business changes and space.
growth. Smaller businesses do not meet the • May contain apartments and certain
eligibility requirements of the Commercial Package wholesale, service, or processing
Policy, nor do they have a need for many of the incidental occupancies that do not
coverages, yet these small businesses have special exceed 25,000 square feet.
needs that must be met. • Restaurants (such as delis, cafes, pizza
parlors, etc.) limited to fast food types up to
What is a BOP? 7,500 square feet – beer and wine sales
The Business Owners Package Policy, or BOP, is (only) are permitted but are limited to 25
for smaller businesses and is primarily designed for percent of gross sales.
small, one-location risks. They are commercial • Convenience stores with gasoline pumps.
package policies that provide both property and • Gas sales are limited to 75 percent of
liability coverage to certain types of small gross sales.
businesses. It is a package of coverages that will • No auto services, restaurant, or propane
serve the needs of most small businesses. Employing or kerosene dispensing is permitted.
the Homeowners approach, the BOP provides • Laundries and dry cleaners.
extensive building and business personal property • Motels not exceeding three (3) stories and
coverages and broad liability insurance. It is unique not including a bar or a lounge.
in that it basically includes coverage for loss of • Contractors (carpenters, electricians,
earnings, due to insured hazard, on an “actual loss painters, plumbers, etc.).
sustained” basis. • Self-storage facilities (excluding industrial
storage) not exceeding two (2) stories.
Eligible Businesses
Insurers consider a number of factors when deciding Ineligible Businesses
to write BOPs, including: Certain categories of risks are ineligible for Business
1. The type of business Owners policies. They include the following:
2. The size of the premises • Large premises operations
3. The required limits of liability • Businesses whose majority of operations
4. The extent of offsite activity are conducted off-premises
Premiums for BOP policies are based on business • Automobile-type businesses-dealers,
location, financial stability, building construction, Garages, repair shops, parking lots, etc.
security features, and fire hazards in addition to the • Places of amusement
above factors. • Bars, grills, and restaurants (unless within
eligibility guidelines)
Risks covered by the BOP include the following: • Financial institutions
• Businesses with fewer than 100 employees • Manufacturing or processing risks (unless
and less than $1 million in revenue within eligibility guidelines)
• Apartment buildings that may also contain • One (1) or two (2) family dwellings
offices and certain service and mercantile • Household personal property
occupancies • High risk or highly specialized operations
• Eligible office buildings for the BOP 2002 • Businesses that require higher liability
are those that: limits than those offered in a BOP

BUSINESS OWNERS POLICY (SECTION I) – PROPERTY
Coverages Exclusions include the standard form exclusions and
15 others:
1. Wear and tear
BOP Policy/Cause of Loss Forms and 2. Rust, corrosion, fungus, decay, deterioration,
Coverages and hidden or latent defects
1. Standard Form (named peril) 3. Smog and other pollution
Covered losses include: 4. Settling, cracking, or expansion
• Fire 5. Damage from birds, insects, rodents, or
• Lightning animals
• Explosion 6. Dishonest or criminal acts of the insured or
• Windstorm or hail his employees
• Aircraft and vehicles 7. Voluntary parting with property through
• Riot or civil commotion fraud
• Vandalism and malicious mischief 8. Rain, snow, sleet, or ice damage to personal
• Sprinkler leakage property that is not in a building
• Sinkhole collapse 9. Collapse
• Volcanic action 10. Faulty planning, workmanship, or repair
• Transportation damage to property 11. Smoke, vapor, or gas
in transit 12. Frozen plumbing
2. Special Form (Open-Peril/Special Peril) 13. Weather conditions that contribute to
causing a loss
14. Loss resulting from acts or decisions or the
Exclusions failure to act or decide
15. Consequential losses caused by delay, loss of
BOP Standard Form Exclusions use, or loss of market
1. Ordinance or law
2. Earth movement
3. Government action Deductibles
4. Nuclear hazard
5. Utility failure occurring away from the The standard deductible on the BOP is $500, but
insured's premises other deductibles may be chosen.
6. War
7. Water, such as flood and sewer backup
8. Artificially generated electrical current Loss Conditions
9. Water pipe rupture or bursting
10. Leakage or discharge of water or steam Unless a dollar limit has been specified in the
caused by breakdown of water or steam declarations, business income or loss of income
system or appliance or mechanical coverage provided by a business owners policy
breakdown typically covers the actual loss sustained by
11. Consequential loss that causes extra interruption of operations during the period of
expenses or increases in loss of income restoration that occurs within 12 consecutive months
12. Failure of computers to recognize a following the date of direct physical loss or damage.
particular date or time (i.e., the year 2000) Co-insurance does not apply.
13. Loss to valuable papers, records and
accounts receivables due to the insured's BOP policies cover extra expenses the insured incurs
dishonest or criminal acts following a loss, and this helps the business resume
BOP Special Form Exclusions normal business activities. It also means that less
The BOP Special Form is a Special Peril policy and pure income is needed for the use of employees.
covers any risks that are not listed as exclusions.

Major insurers use “all-purpose” time element forms has not indemnified the insured for direct physical
(a product that addresses business interruption loss.
underwriting problems and loss experience) to
provide the earnings protection needed by most Policy Period/Coverage Territory Condition
businesses, eliminating a number of forms A loss must occur during the policy period and in the
previously used for the purpose. As an automatic policy's coverage territory of the U.S., its territories,
feature, this business income insurance includes Puerto Rico, or Canada in order to be covered.
rental value coverage by virtue of generalization of
terms and extra expense coverage, without monthly
limits. These forms are designed for the vast majority
Optional Coverages
of businesses for which earnings loss is the primary
The following are included in the BOP, but only
time element risk.
apply if particulars are noted in the Declarations page
and extra premium is paid:
General Conditions • Outdoor signs
• Exterior glass
BOP conditions consist of: • Interior glass
• Policy cancellation or changes • Employee dishonesty
• Concealment • Mechanical breakdown
• Misrepresentation or fraud • Burglary and robbery
• Insurer's right to examine company records • Money and securities
and to hold inspections and surveys
• Policy liberalization procedures BOP Additional Coverages
• Premium amounts
Subject to policy limits, but includes:
• Subrogation
• Debris removal
• Other insurance provisions
• Property preservation
• Fire department service charge
Inflation Guard Provision • Loss of business income and extra expense
This increases building coverage by eight (8) percent • Pollutant cleanup and removal
each year. • Order of civil authority
• Money order and counterfeit currency
Peak Season Provision • Forgery and alteration
Business Personal Property can be increased by up to
25 percent to provide for seasonal stock variations. BOP Extended Coverages
• Personal property at a newly acquired
The Control of Property Condition premises
This states that a negligent act of someone beyond • Personal property off-premises (i.e., at a
the insured's direction or control will not affect storage facility)
coverage. If the insured violates contract conditions • Outdoor property: up to $1,000 coverage
at one location, coverage to other locations will not with a $250 limit for any one (1) tree, shrub,
be affected. or plant
• Valuable papers and records
Legal Action Against the Insurer Provision
This limits the insured's right to bring action against
the insurer for damages to two (2) years if the insured
has complied with policy conditions and the insurer

BUSINESS OWNERS POLICY (SECTION II) - LIABILITY
Business Liability system or appliance, or mechanical

breakdown
• Consequential loss that causes extra
• Business Liability: $300,000 limit
expenses or increases in loss of income
• Medical Expense: $5,000 limit (per person)
• Failure of computers to recognize a
• Fire Legal Liability: $50,000 limit
particular date or time (i.e., the year 2000)
• Policy Aggregate Limit: Two (2) times the
• Loss to valuable papers, records and
business liability and medical expense
accounts receivables due to the insured's
liability limit for all damages or injuries that
dishonest or criminal acts
happen during the policy period.
Products and Completed Operations liability is BOP Special Form Exclusions

separate from other liability limits. The BOP Special Form is a Special Peril policy and
covers any risks that are not listed as exclusions.
Exclusions include the standard form exclusions and
Medical Expenses 15 others:
1. Wear and tear
Medical Expenses have a $5,000 limit per person. 2. Rust, corrosion, fungus, decay, deterioration,
and hidden or latent defects
3. Smog and other pollution
Conditions 4. Settling, cracking, or expansion
5. Damage from birds, insects, rodents, or
Like those of the CPP, BOP conditions consist of: animals
• Policy cancellation or changes 6. Dishonest or criminal acts of the insured or
• Concealment his employees
• Misrepresentation or fraud 7. Voluntary parting with property through
• Insurer's right to examine company records fraud
and to hold inspections and surveys 8. Rain, snow, sleet, or ice damage to personal
• Policy liberalization procedures property that is not in a building
• Premium amounts 9. Collapse
• Subrogation 10. Faulty planning, workmanship, or repair
• Other insurance provisions 11. Smoke, vapor, or gas
12. Frozen plumbing
13. Weather conditions that contribute to
Exclusions causing a loss
14. Loss resulting from acts or decisions or the
BOP Standard Form Exclusions failure to act or decide
• Ordinance or law 15. Consequential losses caused by delay, loss of
• Earth movement use, or loss of market
• Government action
• Nuclear hazard
• Utility failure occurring away from the Definitions
insured's premises
• War Insured
• Water, such as flood and sewer backup The business, its owner(s) and employees acting in
• Artificially generated electrical current the course of employment and under the direction of
• Water pipe rupture or bursting the company are considered insureds under a BOP.
• Leakage or discharge of water or steam
caused by breakdown of water or steam

BUSINESS OWNERS POLICY (SECTION III) – COMMON POLICY
CONDITIONS
BOP Cause of Loss Form and If, for example, a business does not keep the
automatic sprinkler system in working condition and
Coverages there is a fire that destroys the building, the insurer
1. Standard Form (Named Peril)
will not pay for the damage.
Covered losses include:
• Fire
• Lightning Utility Services - Direct Damage
• Explosion Replacement Cost Coverage
• Windstorm or hail This covers loss or damage to scheduled property
• Aircraft and vehicles caused by an interruption in water, communication or
• Riot or civil commotion power service. The cause of the loss must be one of
• V&MM the policy's covered perils.
• Sprinkler leakage
• Sinkhole collapse Utility Services - Time Element
• Volcanic action
• Transportation damage to property in
Coverage
This covers loss of business income and extra
transit
expenses that occurs as a result of utility service
2. Special Form (Open-Peril/Special Perils)
interruption. Again, the cause of loss must be one of
the covered perils.
Selected Endorsements
The following endorsements are optional coverages
BOP Eligible
an insured may purchase for additional premium. Wholesale/Distributor Risks
State Changes The following are eligible wholesale and distributor
If a state's requirements differ from the policy risks:
wording or change during the policy period, the state • Auto parts and supplies
regulations take precedence. The policy changes to • Baked goods (no baking on premises)
meet the state regulation, whether the written policy • Barber and beauty shop supplies
is changed or not. This is automatically included on • Bookbinding and printers' supplies
policies. • Clothing/wearing apparel
• Coins, stamps, and rare books
Protective Safeguards • Drugs
Rather than a coverage in itself, the Protective • Fabrics
Safeguards Endorsement lists the protective devices • Floor coverings
or services the insured must maintain as a condition • Fruits and vegetables
for coverage. The insurer will not pay for loss if the • Gardening and light farming supplies
insured failed to keep the protective safeguard in • Groceries
working order or if he/she didn't notify the insurer the • Hardware and tools
device was not working properly. • Hearing aids
• Heating and air conditioning equipment
The following device classifications apply: • Hobby, model maker, and artist supplies
1. P-1 Automatic Sprinkler System • Household appliances
2. P-2 Automatic Fire Alarm System • Janitorial supplies
3. P-3 Security Service • Jewelry
4. P-4 Service Contract (for a privately owned • Meat, fish, poultry, and seafood
fire department) • Office machines and appliances

• Optical goods • Drugstores
• Plumbing supplies and fixtures • Hot dog and hamburger stands
• Refrigeration equipment • Ice cream and yogurt shops
• Stationery and paper products • Oriental and ethnic restaurants
• Tobacco • Pizza shops
• Toys • Salad bars
• Wholesale florists • Take-out-only restaurants
BOP Eligible Processing or Small Contractors

Service Businesses Small contractors with annual sales less than $3
million and annual payroll under $300,000 do not
The following are eligible processing or service
meet the eligibility requirements. Only the following
businesses:
types of small contractors who have annual sales of
• Commercial or household appliances and
less than $3 million and an annual payroll under
accessories installation, service, or repair
$300,000 are eligible for a BOP:
• Bakeries with baking on premises
• Appliances and accessories
• Barber shops
• Carpentry
• Beauty shops and hairstyling
• Carpet and furniture cleaning
• Dental labs
• Concrete construction
• Engraving
• Decorative or artistic metal erection
• Laundries and dry cleaning stores using
• Driveway, parking area, or sidewalk paving
petroleum or synthetic solvents (three (3) or
• Electrical work (inside)
fewer receiving stations)
• Fencing
• Laundries and dry cleaning or dyeing
• Floor covering installation
receiving stations
• Furniture or fixture installation
• Funeral homes and chapels
• Glass and glazing
• Lithographing
• Heating and/or air conditioning
• Mailing or addressing companies
• Interior decorating
• Photocopy services
• Landscape gardening
• Printing
• Lawn sprinkler installation
• Tailoring/dressmaking establishments
• Masonry
• Shoe repair
• Metal ceiling/wall installation
• Taxidermists
• Metal door, window, or assembled millwork
• TV or radio receiving set installation or repair
installation
• Painting
Restaurants • Paper hanging
• Plastering or stucco work
Certain fast food and limited-cooking restaurants • Plumbing (non-industrial)
(with no appliances that emit smoke or grease-laden • Refrigeration systems
vapors) are also eligible. The eligible restaurant risks • Roofing
are as follows: • Septic tank cleaning
• Cafes • Siding installation
• Cafe-style buffets • Sign painting
• Coffee shops • Tile or stonework (interior)
• Concession stands • Window cleaning (up to three (3) stories
• Delis/sandwich shops high)
• Donut shops
• Drive-ins

SECTION VI – BUSINESS OWNERS POLICY (BOP) REVIEW
QUESTIONS
1. A Standard Form Coverage offered on a BOP 6. The Protective Safeguard does NOT require
policy that is not covered on an HO-2 policy that the insured keep which of the following
is: in working order?
a) Lightning. a) Automatic sprinkler system
b) Fire. b) Security system
c) Sprinkler leakage. c) Automatic Fire Alarm system
d) Riot or civil commotion. d) Security Cameras at all entrances
2. The Common Policy Conditions of the BOP 7. Chloe's Rent-A-Storage-Unit facility was
contains all of the following EXCEPT: broken into and had some furniture stolen
a) Co-insurance. from their office valued at $3,900. If they
b) concealment. have the BOP standard deductible, how
c) Fraud. much will the insurer cover?
d) Subrogation. a) $250
b) $3,590
3. All the following are covered under the c) $3,400
BOP's extended coverages area EXCEPT: d) $3,900
a) $9,000 of personal property at a newly
acquired location. 8. Gas sales are limited to what percent of gross
b) $3,000 of personal property being stored sales at a convenience store?
at an off-location unit. a) 75%
c) $750 for the replacement of a Maple b) 100 percent in New Jersey
tree. c) 33%
d) $1,000 for the replacement of valuable d) 80 percent in Alaska
papers destroyed by a covered peril.
9. Which of the following is protected under
4. Which of the following is NOT covered by a the Inflation Guard provision of the
BOP Form? Commercial policy?
a) Apartment buildings a) Seasonal stock variations of up to 25
b) A nine-story office building percent
c) A 90,000 square foot office building b) Increases in building valuation of up to
d) Apartment buildings with a few small 10 percent per year
retail stores located therein c) Increases in the insured's stock value due
to the purchase of an additional facility
5. How long of a period does an insured have d) Guaranteed Replacement Cost of the
to bring a lawsuit against an insurer for insured merchandise.
failure to provide payment for a covered
loss?
a) One (1) year
b) Two (2) years
c) Three (3) years
d) There is no time limit.

Section VII – Other Coverages and Options
AVIATION INSURANCE
Aircraft liability coverage is essentially the same as Passenger Legal Liability coverage. To receive
the coverages in an Auto Policy. The two (2) main payment under admitted liability coverage, the
aviation coverages are the Aircraft Hull and Aircraft injured party must sign a release of liability against
Liability policy forms. the insured. If the injured party will not sign the
release, the offer of payment is withdrawn, and the
Aircraft Hull party must bring suit against the insured. In this case,
the insured is protected under the Passenger BI
section.
Hull Insurance can be either Special Peril for both
on the ground and in-flight, or it can be written as
Special Peril on the ground and limited to only the Implied Warranty
perils of fire, lightning, and explosion in flight, and The understanding that an aircraft is safe and suitable
exclude crash or collision. for a particular use, when the vendor knows at the
time of sale the use for which the product is intended.
Aircraft Liability Drone Coverage
Drone insurance can cover:
Coverage for the insured in the event of the insured's 1. The drone itself, for physical damage.
negligent acts and/or omissions result in losses in 2. Liability in case the drone crashes into a
connection with the use, ownership, or maintenance person, causing injuries, or into somebody's
of aircraft. house or car, causing damage.
3. Invasion of privacy if someone suspects the
Air Cargo Insurance insured of spying (even if the person is not)
Because international treaties and state laws offer and sues you for
limited protection to cargo in case of loss or damage,
air cargo insurance can provide additional security. Particular Average
Similar to this terminology in ocean marine
Premium Factors insurance, particular average is a partial loss
Premium Factors include: sustained by a specified cargo or vessel. These
1. The value of the items to be shipped. policies do not necessarily cover partial loss (referred
2. The risks involved to as "average" loss); those that are covered must be
3. The route to be taken, and the result of a covered peril. Such cargo losses are
4. The nature of the items to be transported. usually subject to separate particular average
coverage provisions.
Aside from insurance companies, some trade service
providers and freight forwarders also offer this type
of protection.
Admitted Liability Coverage/Voluntary

Settlement Coverage
Provides a specified sum for loss of life, limb or sight
by passengers. Can only be written along with

OCEAN MARINE INSURANCE
Ocean Marine policies are valued policies. In the Special Peril basis. It includes a running-down clause
event of a total loss, the entire face amount is payable that also protects against liability caused by damage
without regard for depreciation. to other ships.
This provides property and liability coverage for all Cargo Insurance
types of vessels and their cargoes. Cargo insurance protects the owner of the cargo from
loss due to loss or destruction.
Major Coverages Freight Insurance
Freight insurance indemnifies the ship owner from
Hull Insurance loss of income that would have been earned had the
Hull insurance protects the ship owner against ship completed its voyage.
damage to the ship itself and is written on a modified
NATIONAL FLOOD INSURANCE PROGRAM

(NFIP)
Losses caused by storms, earthquakes, and other Eligibility

natural disasters can cover large areas and impact
large portions of the population. Aside from the
devastation to the population, insurance company Flood Plain Determination and NFIP
resources and capabilities can be stretched too thin to Qualification
handle the claims resulting from such losses. In such Local municipal or county governments must apply
cases, the government may step in to help mitigate to the Federal Government for inclusion in the
damages. Flooding is one such loss that the Federal National Flood Insurance Program (NFIP), and there
Government has deemed too large for private must be proper zoning, land use laws, and building
insurance companies to handle. use laws in place. A FIRM (Flood Insurance Rate
Map) will be designed to show eligible property
Loss caused by flooding is excluded from coverage zoning.
in all fire and property policies.
Once an area is determined to be part of a flood plain,
lenders must require flood insurance on any loan they
“Write Your Own” vs. process for buildings located in that area. This
Government Flood Insurance provision helps the government to maximize the
amount of premiums received to help fund the plan.
Policies Property owners who do not buy flood insurance are
not eligible for full disaster relief funding in the event
Flood insurance protection is offered exclusively by of a loss.
the National Flood Insurance Program and is both
administered and underwritten by the Federal Eligible Properties
Government (FEMA – the Federal Emergency
Most walled and roofed buildings that are fixed to a
Management Association). Some insurers sell the
permanent site and are mainly above ground are
policy on their own paper or letterhead as they do any
eligible properties.
of their other policies. This is called "Write Your
Own" flood insurance, but it is actually covered Non-Eligible Properties
through the Federal Government's program. Flood 1. Underground structures and equipment, such
insurance can be purchased directly from the NFIP or as wells and septic tanks
from any licensed broker.

2. Newly constructed buildings that are in, on, or Limits
above the water
3. Structures that are mainly containers or
When a community first applies for NFIP coverage,
storage units, such as gas or liquid storage
a basic coverage maximum limit is set under the
tanks (silos, grain storage buildings, and their
Emergency Program. The Flood Insurance Agency,
contents can be covered)
or FIA, then conducts a detailed study of the area and
the plans set forth by the community. The FIA issues
Coverages a detailed Flood Insurance Rate Map (FIRM) that
establishes flood zones and rates for the area. Only
• Damage from high waters after this process does the community enter the
• Damage caused by subsidence or erosion from NFIP's regular program with increased coverages.
high waters
• Damage from unusual accumulations and Note: There is a standard deductible of $1,000 for
surface runoff property insured under the NFIP, post-FIRM, or after
the rating map is developed. It is $2,000 pre-FIRM.
Only one (1) building can be insured per policy.
Multiple buildings require multiple policies.
Flood Coverages
Buildings Emergency Program Regular Program
Single Family $35,000 $250,000
2-4 Family Dwelling $35,000 $250,000
Other Residential $100,000 $250,000
Non-residential $100,000 $500,000
Contents
Residential $10,000 $100,000
Non-residential $100,000 $500,000
OTHER POLICIES
• Liability arising from use of the boat.
Boatowners These policies are covered in more depth in the
Casualty section.
Boats and yachts can be insured either as an
extension on a homeowners policy or on a separate
policy. Coverage included is for: Difference in Conditions
• Damage to the boat, including hull and
propeller damage caused by collision either Difference in Conditions covers, to a specified
while in the water or while the boat is being limit, any cause of loss that leaves the property in a
transported. different condition than it was before, excluding fire
• Theft. and extended coverage perils.

RESIDUAL MARKETS (INCLUDING FAIR PLANS)
Some areas, usually urban, are at high risk for • Surveys
insurance claims due to increased probability of riot • Inspections and investigations
or other criminal activity, so many insurers reduce or • The furnishing of loss and expense statistics
stop writing insurance in these areas. To make or other information
insurance available to these areas, the Federal • Conducting research
Government made riot reinsurance available through
the National Insurance Development Fund in the Eligibility
Urban Property Protection and Reinsurance Act of • Properties must be located in specific areas.
1968. This is operated through the Federal • They must be an insurable risk (i.e., they
Government's Department of Housing and Urban need to be structurally sound).
Development but is administered by the states. These • The owner must have made an attempt to
plans are called Fair Access to Insurance obtain insurance through normal markets and
Requirements, or FAIR plans. been refused coverage.
Also called joint underwriting pools, joint How it Works

reinsurance pools, the assigned risk pool or the 1. First, a proposed insured applies for coverage
insurance pool, most states administer the program in through standard carriers and is turned down.
a similar manner and require that all insurers which 2. Next, the applicant applies for insurance
offer property insurance in their state be required to through the pool by applying to any property
participate in the pool, to the proportion of their insurance agent or broker.
market share of gross premiums written in the state. 3. Then, the agent submits the application to the
Check specifics in your state-specific books. state program and representatives of the state
program inspect the property and determine the
Joint Underwriting/Joint structural soundness and occupancy of the
building.
Reinsurance Pool 4. If the risk meets certain state determined
standards, the policy will be assigned to one of
Insurers in these pools cooperate with each other in
the making of: the standard insurers who must accept the risk as
• Rates a condition to continue to do business in the
• Rating systems state. The state also determines the rules under
• Policy forms which a company may refuse a risk assigned
• Underwriting rules under the plan.
MINE SUBSIDENCE INSURANCE

Mine Subsidence Insurance is coverage for loss Subsidence may be added by endorsement. In certain
caused by the movement of land underneath a areas where mines have been prevalent, Mine
property. Mine Subsidence is particularly common in Subsidence is automatically added to the policy
areas where mining is active, or once was active and unless specifically rejected by the policy owner.
has subsequently closed operations. Mine

FEDERAL CROP INSURANCE AND THE RISK MANAGEMENT
AGENCY (RMA)
Crop Insurance is coverage for crops in the case of 3. Multi-Peril Crop Insurance (MPCI) is
loss or insured perils, including hail, lighting, similar to FCIC insurance, but it is written
freezing, fire, and wind. and serviced by private insurers and
reinsured by those companies through the
There are three (3) main types of Crop Coverages: FCIC.
1. Crop Hail Insurance is issued for only one
season at a time and covers the marketable
portion of the crop against damage from hail, Risk Management Agency
fire, lightening, and wind. Some states (RMA)
require that the perils of freezing and frost be
covered as well. A program under the USDA, the RMA provides
2. The Federal Crop Insurance Corporation insurance for over 100 types of crops.
(FCIC) has existed in many forms since
1938. The Federal Crop Insurance Act of Federal crop insurance policies usually consist of the
1980 established a federal Special Peril following:
program. It is an agency of the U.S. • The Common Crop Insurance Policy
Department of Agriculture and provides • Specific crop provisions
coverage against natural disasters. Farmers • Policy endorsements
can apply for coverage directly through the • Special provisions
FCIC or purchase multi-peril crop insurance.

SECTION VII – OTHER COVERAGES AND OPTIONS REVIEW
QUESTIONS
1. The captain of a ship directed his crew to 5. The maximum amount a single-family
throw stowed merchandise overboard in bad residence can be assured under the NFIP is:
seas to save the ship. Which Ocean Marine a) $ 35,000.
policy would indemnify the merchandise b) $100,000.
owner for his loss? c) $185,000.
a) Hull insurance d) $250,000.
b) Freight insurance
c) Cargo insurance 6. Hull Insurance can be:
d) Protection and Indemnity a) Special Peril on the ground.
b) Special Peril in-flight.
2. Which of the following is NOT excluded c) Both A and B
from coverage by flood insurance? d) 50 percent coverage
a) Septic tanks
b) Corn silos 7. Freight Insurance indemnifies the ship
c) A new rental unit built on top of a dam owner from loss of income that would have
d) A gasoline storage tank on a farmer's been earned:
field a) If the ship owner could have made a 15
percent profit.
3. FAIR plans are: b) If the ship had completed its voyage.
a) Mandated and administered by the c) If the ship only sails in the Pacific.
Federal Government. d) If the ship owner only owns the one ship.
b) Mandated and administered by
individual state governments. 8. Multi-Peril Crop Insurance is similar to what
c) Mandated by the NAIC and other type of insurance?
administered by the state governments. a) Crop Hail Insurance
d) Mandated by the Federal Government b) FAIR Plan
and administered by the state c) Federal Crop Insurance Corporation
governments. d) Homeowners Insurance
4. Juan and Katy's home is built in an area 9. Which is not covered in a definition of
where mines were dug years ago. The mines flood?
have long since been closed, but there is the a) River overflow
possibility that homes built in the area may b) Shoreline erosion
be built over one of these abandoned mines. c) Wind blown rain
What coverage should Juan and Katy d) Mudslide
purchase to protect their home from the risk
of sinking into one of these abandoned
mines?
a) Mine Subsidence Coverage
b) HO-5 Comprehensive Coverage
c) Earthquake Coverage
d) Sinkhole Coverage

PRACTICE EXAM
1. The uncertainty of future outcome defines d) The mortgagee is entitled to receive

which of the following? prior notice of a policy's cancellation.
a) Hazard
b) Accident 6. Which section of a Commercial Property
c) Occurrence Policy shows the insurer's promise to pay for
d) Risk damage resulting from any covered peril?
a) Declarations
2. Craig had to move his staff to a temporary b) Insuring Agreement
office while his regular office is being c) Conditions
repaired due to fire damage. Which of the d) Exclusions
following would give Craig the BEST claim
coverage to pay for the temporary move and 7. Information regarding the insurability of an
office site? insurance applicant can be obtained from
a) Extra Expense which of the following sources?
b) Business Income a) Physical inspections of the property
c) Umbrella policy b) Police records
d) Commercial Inland Marine c) Checking account audits
d) Lie detector tests
3. Which of the following best describes a
hazard? 8. Continuous and repeated exposure to
a) A condition that increases the chance of conditions neither intended nor expected by
loss an insured is best described by which of the
b) The cause of a loss following terms?
c) The uncertainty of a future outcome a) Liability
d) An unexpected loss b) Accident
c) Occurrence
4. Frank's Computer Repair Shop is insured d) Risk
under a Building and Personal Property
Coverage form with limits of $100,000 on 9. What is the minimum that an agent must
the building and $50,000 for personal obtain from an insurance policy applicant
property. In a fire there is $15,000 in before issuing a written binder of coverage
building damages, $25,000 in personal for a commercial property?
property losses and Frank has to pay $1,000 a) The insured's signature on a premium
for debris removal. What is the maximum finance agreement
amount Frank's insurance company will pay b) The insured's promise to pay the
if Frank has a deductible of $500? premium
a) $150,000 c) Payment of the first premium
b) $41,000 installment
c) $40,500 d) An inventory of property to be covered
d) $39,500 on the policy
5. A mortgagee has all of the following rights 10. Which of the following businesses would be
under a DP-1 Dwelling Basic Form except: eligible for a Business Owners Policy?
a) Their rights will not be jeopardized by a) An auto body shop
any acts of the insured. b) A theater
b) The mortgagee may abandon the insured c) A tanning salon
property to the insurance company. d) A two story storage facility
c) The mortgagee may file a proof of loss
if the insured fails to do so.

11. What is the maximum amount an insurer will 16. The Personal Liability section of a
pay for $3,000 in flood damage to a home Homeowners policy covers which of the
insured for $80,000 under a Homeowners following?
Special Form (HO-3) with a $250 a) Bodily injury to another caused by the
deductible? insured's personal activities
a) $0 b) Bodily injury to the insured's resident
b) $2,750 child caused by a neighbor's dog
c) $3,000 c) Property damage caused by riot
d) $79,750 d) Property damage caused by a visitor to
the insured's residence
12. All of the following occurrences are covered
through the National Flood Insurance 17. A sudden, unexpected event that is
Program except: identifiable as to time and place is best
a) Runoff from heavy rain. described as a(n):
b) Mud slides. a) Hazard.
c) Water damage to a home built below the b) Accident.
ground. c) Occurrence.
d) Water damage due to the rising waters of d) Risk.
a river. 18. Information that an insured provides in a
proof of loss is called a:
13. Which of the following statements regarding a) Warranty.
the Fair Credit Reporting Act is correct? b) Collateral assignment.
a) The applicant is entitled to receive a c) Representation.
copy of the report from the insurer. d) Definitive proof.
b) The applicant's permission is not
required before an insurer obtains a 19. Which of the following Homeowners Forms
credit report. is the least comprehensive in providing
c) The applicant has the opportunity to coverage for loss caused by a deer jumping
seek to correct information on a credit through the window of an insured home?
report. a) HO-2
d) The insurance company must obtain a b) HO-3
credit report on any insurance applicant. c) HO-4
d) HO-1
14. A fire in an insured's business burns the walls
and causes smoke damage to the rest of the 20. Property protected by a Personal Article
building and business personal property. Floater is covered by a loss that occurs:
Water used to put out the fire damages a) Anywhere in the world.
several computers and the carpeting. The b) Only in the U.S., Canada, or Mexico.
water damage is best described as: c) Only in the U.S.
a) A direct loss. d) Only on the insured premises.
b) An indirect loss.
c) An accidental loss. 21. A proof of loss:
d) A wet loss. a) Is a sworn statement by the insured.
15. Which of the following policy forms would b) Must be prepared by an attorney.
BEST protect a business that must keep c) Is only necessary in cases thought to
operating after a loss? involve fraud.
a) Business Continuation d) Must be signed by the agent, the adjustor
b) Extra Expense and also by the insured.
c) Business Overhead Expense
d) Business Interruption

22. An Equipment Breakdown Coverage policy b) An individual's interest in property being
can contain which of the following bought through a loan
coverages by way of an endorsement? c) A cleaner's interest in a customer's
a) Property Damage Liability clothing that is still at the cleaner's
b) Extra Expense facility
c) Business Income d) An individual's interest in property their
d) Business Overhead Expense parents told him they have left to him in
a will
23. An insured has a detached garage destroyed
by fire. Her homeowners policy is written for 28. An applicant's statement that the insured
$100,000. How much will the policy pay? property has an operating sprinkler system
a) $1,000 and burglar alarm is considered:
b) $10,000 a) A warranty.
c) $50,000 b) A representation.
d) $100,000 c) An affidavit.
d) A policy stipulation.
24. If an insured suffers a loss under his
Homeowners policy, which of the following 29. “Abandonment,” as used in a property
is NOT one of the actions, which would be insurance policy, is best described as:
required of them? a) The insured's decision to leave his or her
a) Protect the property from further loss property because of the inability to sell
b) Notify the police if the loss is the result it.
of theft b) A policyholder's demand for full
c) Give proof of loss to the insurer or its payment from an insurer in exchange for
agent within 60 days of the date of loss a partially damaged item.
d) Hire an appraiser to determine the c) An insurance company's refusal to pay a
amount of the loss claim.
d) The insured's declaration of a property's
25. Under which of the following circumstances total loss and his or her demanding of
would pro rata cancellation take place? payment from the insurer.
a) An insured cancels a policy in the
middle of the contract 30. Which of the parts to an insurance policy
b) A policy is not renewed upon expiration states the procedure for resolving disputes
c) At any time an insurance company about a loss settlement between an insurer
cancels the policy and an insured?
d) Any time professional underwriters a) Declarations
must look at a policy b) Insuring Agreement
c) Appraisal Clause
26. The primary responsibility of an insurance d) Exclusions
company is to:
a) Inspect the insured property on a regular 31. An insured owns a set of six (6) pens
basis. designed and used by Benjamin Franklin.
b) Provide inventory sheets to the insured Each pen is worth $1,000 alone, but the set
along with the policy. is worth $12,000. If one of the pens is
c) Provide the insured with a safety destroyed by a covered peril, what is the
program to help modify losses. maximum amount the insurer will pay under
d) Pay the claims covered under the policy. the Pairs and Sets Clause?
a) $ 1,000
27. Which of the following is NOT an example b) $ 2,000
of insurable interest? c) $ 7,000
a) A tenant's interest in improvements they d) $12,000
have made to a rented building

32. The Commercial Property Basic Form 38. Coverage for Vandalism and Malicious
covers all of the following perils except: Mischief under a Commercial Property
a) Fire. Form expires after the property is left vacant
b) Explosion. for how long?
c) Sinkhole collapse. a) 30 days
d) Loss caused by acts of war. b) 60 days
c) 90 days
33. A Commercial Basic Form Building and d) None of the above
Personal Property Coverage policy will NOT
protect against which of the following perils: 39. Which of the following is the definition of
a) Smoke. Actual Cash Value (ACV)?
b) Sinkhole collapse. a) Replacement Cost minus depreciation
c) Earth movement. b) The amount actually paid for the
d) Sprinkler leakage. property
c) Appraised value
34. Which section of a Property Insurance policy d) Replacement Cost plus appreciation
defines items that are omitted from
coverage? 40. The purpose of indemnity is designed to
a) Declarations avoid:
b) Insuring Agreement a) Pro rata liability payments.
c) Conditions b) The return of earned premiums.
d) Exclusions c) Overpayment on a claim.
d) The non-payment of a claim by an
35. Farmer John's barn was destroyed when a insurer.
tornado blew down one of its walls; the wall
knocked over a lantern, causing a fire that 41. If the insured and insurer do not agree on the
burned down the entire barn. The proximate amount of a loss under an HO-3 Form, which
cause of the loss was the: of the following actions can the policyholder
a) Fire. take?
b) Tornado. a) Demand an appraisal of the loss
c) Collapse of the wall. b) Sue the insurer in small claims court
d) Water damage from the storm. c) Demand an inquiry by the state
Department of Insurance
36. After a late night party, Frank dumped hot d) Refer the claim to an independent public
coals from a grill into his neighbor, Barb's, adjuster to determine the claim value
garbage can. Overnight the coals started a
fire that burned down Barb's home. Barb's 42. An insured has an HO-3 Special Form
insurer paid for the loss to Barb's home and Special Peril policy with Personal Property
then sued Frank to recover damages. This is Coverage of $60,000, a deductible of $250,
an example of: and $100,000 personal liability coverage. If
a) Assignment. the insured borrows his neighbor's riding
b) Co-insurance. mower and causes $1,000 damages when he
c) Pro rata share. runs over a rock, what is the maximum the
d) Subrogation. insurer will pay on the insured's behalf under
the additional coverages/personal liability
37. The Homeowners Coverage that does not section of the policy?
generally include a deductible is: a) $0
a) Coverage A-Dwelling. b) $500
b) Coverage B-Separate structures. c) $750
c) Coverage C-Personal property. d) $1,000
d) Coverage E-Liability.

43. All of the following are commonly covered 48. The owner of a computer store takes no care
under an Inland Marine policy EXCEPT: in the placement of expensive computers on
a) Stamps. shelves, often leaving them dangerously
b) Boats. balanced near the edge, believing that if
c) Automobiles. there is any damage to the computers the
d) Camera equipment. insurer will pay the damages. This is an
example of a:
44. Which of the following is a responsibility of a) Moral hazard.
the insured in a Commercial Property b) Morale hazard.
Policy? c) Legal hazard.
a) To insure the building for 100 percent of d) Psychological hazard.
Replacement Cost
b) To pay premiums within 30 days of the 49. Under which of the following types of
invoice mailing date policies would a pleasure boat with a 50
c) To provide a notarized proof of loss horsepower engine be BEST covered for
statement if requested to do so by the physical damage while being towed behind a
company family's personal auto?
d) To give the insurer 30 days written a) Auto owners policy
notice of intent to cancel the policy b) Boatowners policy
c) Homeowners policy
45. The maximum amount an insurer will pay in d) Yacht owners policy
the event of a loss is called the:
a) Full loss amount.
b) Policy liability limits. 50. Which of the following perils is covered by
c) Co-Insurance amount. the Broad Form policy but NOT by the Basic
d) Subrogation amount. Form?
a) Riot
46. An insured's Broad Form HO-2 policy has a b) Vandalism
dwelling coverage limit of $100,000, a c) Weight of ice and snow
Personal Property Coverage limit of d) Sinkhole collapse
$50,000, and includes a deductible of $250.
What is the maximum amount the insurer
will pay if a sailboat valued at $1,500 is
stolen from the insured's premises?
a) $0
b) $1,000
c) $1,250
d) $1,500
47. At least how many coverage parts must be

included in a Commercial Package Policy?
a) One (1)
b) Two (2)
c) Three (3)
d) Five (5)

ANSWERS TO REVIEW QUESTIONS
Section I – General Insurance Concepts

1) D. Indemnification is the concept of restoring 13) D. A foreign insurer is an insurer transacting
individuals to the same financial position they were business in a state but chartered under the laws of a
at before a loss occurred. different state or one of the U.S. territories.
2) A. Stock Insurers are organized under the laws of 14) A. The express directive given to an agent by the
the state in which they are incorporated. The insurer is authority expressly given the agent in his
company is owned by the shareholders who elect the or her contract.
officers and directors and share in profits through
stock growth and dividends. 15) B. State commissioners can enforce legislation
and enact procedures that allow the administration of
3) B. Groups that exchange insurance on each other insurance business, but only the legislative body of a
are called reciprocal companies. state may pass laws to regulate the insurance
industry.
4) D. Reinsurers insure other insurance companies
against catastrophic losses. 16) C. Many states require a producer to maintain a
Premium Fund Trust Account (PFTA) if they hold
5) A. Misappropriation of funds is the improper premium money for any length of time before giving
application or use of them. it to the insurer, and the PFTA must be separate from
personal or other business accounts.
6) C. Surplus/Excess Lines Insurers offer insurance
not offered through admitted insurers. 17) B. Rebating is the reduction in premium charged,
or the return of part of the required premium. In
7) D. Adverse selection is defined as the tendency of Susan's case, she is essentially returning part of the
poorer risks to seek or continue insurance to a greater premium when she pays her client for the side of
extent than normal risks. beef.
8) A. Under the Law of Large Numbers, the bigger 18) A. The NAIC’s principal role is to encourage
the observed sample, the more accurate the predicted standardization of insurance laws around the country.
results.
19) C. Redlining is the refusal of an insurer to
9) C. A speculative risk (such as gambling) does not underwrite in certain geographic areas or increasing
offer any certainty as to whether the final outcome rates to an unreasonable amount to discourage
will be a gain or a loss. Speculative risks are customers, in order to avoid perceived risks.
generally not insurable.
20) D. Because of the Law of Agency, the acts of the
10) A. Intimidation is causing someone to buy out of agent are legally considered to be the acts of the
fear. insurance company.
11) B. Mutual insurance companies have no capital 21) A. Frank no longer owned the car, so he did not
stock and are owned by policyholders who share have a financial interest in the car.
profits through dividends and can attend and vote at
company meetings. 22) C. Mutual insurers are owned by policyholders
who share profits through dividends.
12) D. Membership in Fraternal Benefit Societies is 23) B. Membership in Fraternal Benefit Societies is
based on religious, ethnic, or national lines, and the based on religious, ethnic, or national lines, and
societies are noted primarily for social and charitable insurance is only sold to members or their families.
functions.

Section II – Property Insurance Concepts
1) A. Buildings which have no residents or active 6) C. The Conditions section lists the insured's
business for more than 60 days are considered responsibilities both at the time of application
unoccupied. Because Chris left property at the house, (truthful representations in the application and
it is not considered vacant. payment of premium), as well as at the time of loss
(notice of and proof of loss).
2) D. Exclusions list the property, perils, and other
hazards not covered by the policy or which have a 7) B. The subrogation clause gives the insurer the
reduction of coverage in the policy. right to pursue any course of action in its own name
or the name of a policy owner against a third party
3) A. The Declarations section contains the who who is liable for a loss that has been paid by the
(identifies the insureds and the insurer's name and insurer. This clause prevents the insured from
address), the what (identifies the real and personal collecting from both his insurer and a third party.
property insured), the where (identifies the territory
covered by the policy), the when (identifies the 8) C. The standard fire policy perils are fire,
policy period – inception/expiration dates and times), lightning, and the removal of property to protect it
and the how much (the amount of insurance from further damage.
coverage and the premium).
9) A. Terrorism is any act that is certified by the
4) B. The Insuring Agreement summarizes covered Secretary of the Treasury, in concurrence with the
risks, additional or supplementary coverages, and the Secretary of State and the Attorney General of the
insurer's responsibility to indemnify against losses United States, to be an act of terrorism.
suffered as a result of the perils. 10) D. A vessel based principally in the United
States, on which U.S income tax is paid and whose
5) C. The assignment clause states that the insurance insurance coverage is subject to regulation in the
policy cannot be assigned/transferred to another U.S., could be considered the victim of terrorism and
without the insurance company's written would be an insured loss.
authorization, and an officer of the insurance
company, not the insurance agent, must sign it.
Section III – Dwelling Policy (DP)

1) D. To be eligible for a Dwelling Policy, there can
be a maximum of four (4) families and five (5) 5) B. The loss payee will be notified in writing
boarders in the building. according to the loss payable clause.
2) D. The factory would bear responsibility for the 6) C. The state's regulations always take precedence,
chemical spill. whether you live in Delaware or any other state.
3) D. Smoke damage is a covered peril. The others 7) A. The Dwelling Under Construction Form is also
are specific exclusions. known as the Builder's Risk Form.
4). A. Industrial smudging is one of the excluded 8) C. Sailboats would be covered under a
perils for Broad Form. Boatowners policy.

Section IV – Homeowners Policy
1) C. Functional Replacement Cost is the cost to 8) A. There is a cap of $200 for cash, so there would
repair or replace damaged property with less be NO claim payment. The lost cash satisfies the
expensive but functionally equivalent materials. An deductible.
example would be custom woodwork that is replaced
with standard woodwork. 9) D. There is up to ten percent of personal property
coverage for personal property that is at a storage
2) C. Market Value is the price property would likely facility or even at a second home the insured owns.
fetch if sold on the market. A home in a small, remote
town would have a similar price to one in a larger city 10) D. Incidental service businesses, such as beauty
to rebuild or replace (Replacement Cost). However, shops, accountants, or music lessons, are allowed
if the house were sold (Market Value), the price under the HO policies, but bakeries are not.
might be considerably less in the small town because
of: 11) C. The special limit of liability for the theft of
3. Lower land and property values. jewelry, watches, furs and precious/semi-precious
4. Fewer home buyers in a small town. stones is $1,500.
3) A. Personal Property is covered for a stated 12) D. HO-8 is used primarily for homes and
amount in a Condo Package. structures that might have a Replacement Cost
greater than the market value.
4) C. Animal Coverage is not included in the HO-1
or HO-2, and the HO-4 is a Renters policy. Wild 13) D. This endorsement covers the cost to:
Animal Coverage is not excluded in the HO-3, which • Remove the fungi.
is, therefore, covered. • Tear out and replace any part of the building
as needed to gain access to the fungi.
5) A. Separate Structures (Coverage B) provides an • Test air or property to confirm the absence,
additional 10 percent of the Coverage A amount. presence, or level of fungi, but only if there
is a reason to believe there is the presence of
6) D. Mobile homes are treated as personal property fungi, wet or dry rot or bacteria (but not
and cannot be covered by a Homeowners Policy. medical liability issues).
14) A. Functional Replacement Cost covers the
7) B. Loss assessment is an optional coverage that amount to repair or replace a damaged covered
protects the individual condominium owner from building with less costly, common construction
their share of a pro rata loss assessed by the materials and methods that are the equivalent to
association for losses over the amount of the obsolete, antique, or custom materials and methods
association's policy, usually in amounts between used in the building's original construction.
$1,000 and $5,000.
Section V – Commercial Package Policy

1) C. Extra Expense Coverage covers business 3) D. Equipment Breakdown (previously Boiler and
continuation at another location while repairs from a Machinery) Coverage does not include losses caused
covered loss are occurring at the insured premises while the equipment is being tested.
(rent, phone installation, mailings to customers about
a temporary relocation, etc.). 4) C. Commercial Property Coverages include glass.
2) A. “Commercial Policy Conditions” is a required 5) B. The Bailee's Customer Form covers damage to
section of a commercial insurance policy. or loss of a customer's goods regardless of the
Bailee's (insured's) liability. Businesses such as

laundries or dry cleaners would need Bailee's 9) B. Unscheduled Farm Property Insurance is not an
Customer Coverage. option; the others are legitimate possibilities for Crop
Insurance.
6) B. The Neglect of the Shipper Form excludes the
carrier from liability in the event the shipper did not 10) B. The Peak Season Endorsement allows
pack the cargo well. additional amounts of Personal Property Coverage
during designated periods, such as Christmas or other
7) C. The Pressure and Refrigeration Objects Form holidays, when inventory levels are increased.
covers boilers, refrigeration units, piping, and air
conditioning units. 11) A. Business Income Coverage covers earnings
losses while the business is shut down to remodel and
8) D. Extension of coverage to newly acquired restock after a loss due to a covered peril.
property is limited to $250,000 for 30 days.
Section VI – Business Owners Policy (BOP)

1) C. Sprinkler leakage is a Standard Form Coverage 5) B. The Legal Action Against the Insurer Provision
under a Business Owners Policy. limits the insured's right to bring action against the
insurer for damages (if the insured has complied with
2) A. BOP conditions consist of: policy conditions and the insurer has not indemnified
• Policy cancellation or changes the insured for direct physical loss) to two (2) years.
• Concealment
• Misrepresentation or fraud 6) D. Security cameras are not one of the required
• Insurer's right to examine company records protective safeguards that the insurer requires to pay
and to hold inspections and surveys for loss.
• Policy liberalization procedures
• Premium amounts 7) C. Chloe will receive $3,400. The standard
• Subrogation deductible for the BOP is $500.
• Other insurance provisions
3) C. There is a $250 limit for any one (1) tree, shrub, 8) A. Gas sales are limited to 75 percent at
or plant. convenience stores with gasoline pumps.
4) B. Under a BOP, buildings may have no more than 9) A. With the Inflation Guard Provision, business
six (6) stories. personal property can be increased by up to 25
percent to provide for seasonal stock variations.
Section VII – Other Coverages and Options

1) C. Cargo Insurance protects the owner of the cargo 4) A. Mine Subsidence is coverage for loss caused by
from loss due to destruction. the movement of land underneath a property and,
therefore, is the best choice for Juan and Katy.
2) B. Septic tanks, storage silos, and gasoline storage
tanks are not eligible properties under flood 5) D. The limit for a single-family residence under
insurance. NFIP is $250,000.
3) D. FAIR plans are mandated by the Federal 6) C. Aviation Hull Insurance can be Special Peril for
Government's Department of Housing and Urban both on the ground and in-flight.
Development, but is administered by the states.
7) B. This indemnifies the ship owner from loss of
income that would have been earned had the ship
completed its voyage.

8) C. Multi-Peril Crop Insurance is basically the 9) C. Flood coverages include: damage from high
same insurance as Federal Crop Insurance waters, damage caused by subsidence or erosion
Corporation (FCIC), but is written and serviced by from high waters, damage from unusual
private insurers and reinsured by those companies accumulations and surface runoff. Windblown rain
through the FCIC. does not fall in any of these categories, but mudslide,
shoreline erosion, and river overflow do.
ANSWERS TO PRACTICE EXAM

1) D. Risk is the probability or uncertainty that a loss
will occur. 10) D. A storage facility would be eligible for a BOP.
2) A. Extra Expense covers business continuation at 11) A. Flood damage is insured by the National Flood
another location while repairs from a covered loss are Insurance Program and is an exclusion under an HO-
occurring at the insured premises (rent, phone 3 policy.
installation, mailings to customers about temporary
relocation, etc.). 12) C. Structures built below ground are excluded
under the National Flood Insurance Program.
3) A. Hazards are conditions that increase risk or the
chance of a loss occurring. 13) C. According to the Fair Credit Reporting Act,
an applicant has the right to seek to correct
4) C. $15,000 misinformation on the report or register additional
$25,000 information with the investigating company.
+ $ 1,000
$ 41,000 (total losses) 14) B. A loss in which the covered peril is not the
direct cause of damage is an indirect loss – the fire,
not the water, would be considered the primary cause
$41,000 of damage.
- $500 (Frank's deductible)
$40,500 15) B. Extra Expense protection would allow a
business to continue by paying the expenses for
5) B. Property cannot be abandoned to the insurer. another location (phones, etc.) above normal
operating costs.
6) B. The insuring agreement details the insurer's
responsibility to indemnify against losses suffered as 16) A. Personal liability covers activities the insured
a result of the perils. engages in outside the home, as well as injury to
another on the property.
7) A. Insurability information can come from a
number of sources, including property inspections, 17) B. An accident is an undesirable, unforeseen, and
the application, consumer reports, etc. unintended event that is identifiable as to time and
place.
8) C. An occurrence is an event, including
continuous and repeated exposure to conditions 18) D. The insured must send the insurer a signed,
which result in bodily injury or property damage, sworn proof of loss containing the definitive
neither expected nor intended, from the standpoint of information requested by the insurer to investigate
the insured. the claim.
9) B. The minimum that an agent needs in order to 19) B. If a peril is not listed as covered on the HO-1
put a binder into effect is the insured's promise to pay and HO-2, it is not covered. The HO-3 is an all risk
with a time frame within which the premium will be policy which means it is covered unless expressly
paid.

denied. The HO-4 is renters so the building would be paid would be $7,000 – the $5,000 remaining
not be covered. value plus $7,000 to indemnify the insured.
20) A. Coverage under a Personal Article Floater is 32) D. Loss caused by acts of war is NOT a covered
worldwide and Special Peril. peril.
21) A. See #18. 33) C. Earth movement is not covered. The other
three (3) forms are covered under the Commercial
22) C. The Equipment Breakdown (previously Building and Personal Property Basic Form.
Boiler and Machinery) endorsement includes
business income. 34) D. The Exclusions section lists the property,
perils, and other hazards not covered by the policy or
23) B. The Homeowners Policy would pay 10 which have a reduction of coverage in the policy.
percent for outbuildings and other structures.
35) B. The tornado is the proximate cause of loss.
24) D. If there is a loss, and insured must do all of the
choices except hire an appraiser to determine the 36) D. Subrogation allows an insurer to initially pay
amount of the loss according to the policy provisions. for an insured's loss and then sue another party to
recoup that payment.
25) C. In this case, if a company cancels a policy, the
proportionate amount of premium would be due for 37) D. Liability coverage is NOT subject to
the coverage the company offered before deductibles.
cancellation.
38) B. Vandalism and Malicious Mischief (V&MM)
26) D. In exchange for the premium payments from is excluded if the property is vacant for 60 days.
the insured, the insurer agrees to pay the policyholder
in case of the occurrence of a specific event. 39) A. The ACV of property is calculated as the
Replacement Cost minus depreciation.
27) D. A financial interest must exist; in this case, the
individual's parents have only told him of an interest. 40) C. Indemnity is the concept of restoring someone
to the same financial position they were in before a
28) A. A warranty is the insured's guarantee that facts loss occurred, not an improvement. Overpayment of
as stated are correct in reference to the risk or that claims is improving their financial situation.
specified conditions will be fulfilled to maintain the 41) A. Should a disagreement as to the value of
contract. property or the amount of a loss result between the
insured and the insurer, either party (insured or
29) D. The insured cannot declare something a total insurer) may make a written demand for an appraisal
loss and turn it over to the insurer and demand of the loss.
payment without the insurer's consent.
42) D. Additional coverages pay for damages to
30) C. The Appraisal Clause describes the procedure others' property, and the HO Form Limit is $1,000
for dispute resolution involving an appraiser. with no deductible because it is a liability to others.
43) C. Autos are not normally included under an
31) C. If a single item in a pair or set is lost or
Inland Marine policy.
destroyed, the insurer will repair, replace, or pay the
value of the lost part, or will pay the difference
44) B. Premium payment within 30 days of notice is
between the Actual Cash Value of the property before
a requirement. Proof of loss must be sworn, not
and after the loss. In this case, the value of the set is
notarized.
$12,000. Although the worth of one (1) pen is
$1,000, the pen's value as part of the set is greater.
45) B. Policy liability limits represent the maximum
Five (5) pens remain (value: $5,000), but the loss to
amount the insurer will pay for damages or losses
under an insurance policy.

46) C. $1,500 - $250 deductible = $1,250 11. Farm Property and Liability
47) B. The Commercial Policy must also contain at 48) B. The store owner's careless attitude is typical
least two (2) of the following commercial coverages: of a morale hazard.
5. Commercial Property
6. Commercial General Liability 49) B. The Boatowners policy would offer the best
7. Commercial Crime coverage for that particular watercraft.
8. Commercial Auto
9. Commercial Inland Marine 50) C. Weight of ice and snow is covered by the
10. Equipment Breakdown Coverage (Boiler Broad Form, but not by the Basic Form
and Machinery)

PROPERTY PUZZLE CLUES
Across 4 a loss fitting the definition of terrorism described
3 boats and yachts by the federal act
7 ...and sets clause 5 insurer's promises in an insurance contract
8 clause that broadens coverage if new policies 6 HO endorsement to cover children of others
include the coverage 9 business continuation at another location during
13 minimum number of commercial policy sections repairs
14 once admitted can no longer be denied 10 paid by insured
16 All state commissioners belong 11 gives insurer right to pursue recovery from paid
18 probability that a loss will occur claim
20 loss where a covered peril is not the immediate 12 insured's statements in an insurance application
cause of damage 13 insurers that operate on a lodge system with
22 one party to a contract makes the entire contract representative government
25 No benefit to... 15 fund used to keep premium and agency funds
27 commercial policy coverage separate
28 homeowner policy exclusion 17 covered peril on broad form
29 HO coverage E 19 an accident characteristic
30 Insurer operated in a different state than where 21 social device used to transfer risk
chartered 23 insureds are expected to make a full and honest
31 farm property not covered under neither scheduled disclosure of facts
nor unscheduled sections 24 number of extended coverage perils
33 Replacement Cost minus depreciation 26 endorsement to protect against fruit damage
35 dwelling policy with least coverage 32 type of valuable paper or record
37 unequal amounts of money are exchanged in an 34 flood policy written on a private insurer's forms
insurance contract but insured by NFIP
42 insurable risks must be... 36 taking property by force
43 endorsement to increase coverage during holidays 38 condo owner coverage above the association's
47 policy part that identifies the insured and what is coverage
insured 39 type of ship automatically covered as an insured
49 any event or incident loss if damaged by terrorism
50 standard BOP exclusion 40 covers damage to others' property
51 number of days before building considered vacant 41 main coverage on the HO 04 tenant policy
53 identifies insurer's responsibilities 44 another name for premium
57 insurance applicant does not submit money with 45 give lower premiums to an insured in exchange for
the application other services or products
58 policy that pays after other policy limits have been 46 group members appoint an atty-in-fact to bind
reached members together
59 policy for small business 48 automatically increases coverage amount
60 plan used to provide property insurance to 52 never covered by a property policy unless endorsed
properties in high risk areas 54 objects covered under Equipment Breakdown
64 restoring another to the same financial position as policies
before a loss 55 only one party must perform after the contract is in
66 lists property not covered force
68 commercial inland marine policy 56 nationwide __________
69 general policy exclusion 61 policy covering fire, lightning and removal of
70 liability insurance covering damage to rented property
property destroyed by fire 62 written or oral contract
71 structure covered by mobile home policy 63 increasing rates in an area to stop customers from
72 transfer of a policy to another seeking coverage
65 protective safeguard service requirement
67 insurance protecting shipowner from damage to the
Down ship
1 method to reach agreement
2 a type of hazard

ALPHABETICAL INDEX
Abandonment ......................................................................................................................................................... 35
Absolute liability .................................................................................................................................................... 31
Acceptance Period .................................................................................................................................................. 21
Accident.................................................................................................................................................................. 13
Accounts Receivable .............................................................................................................................................. 65
Act of Terrorism ..................................................................................................................................................... 40
Actual Cash Value ...................................................................................................................................... 14, 32, 69
Additional Coverages ....................................................................................................................................... 52, 74
Additional Living Expense ..................................................................................................................................... 45
Admitted Insurer ..................................................................................................................................................... 18
Adverse Selection ................................................................................................................................................... 15
Agency Agreement ................................................................................................................................................. 19
Agent ...................................................................................................................................................................... 12
Agreed Value/Stated Amount ................................................................................................................................. 32
Aircraft Hull ........................................................................................................................................................... 84
Aircraft Liability..................................................................................................................................................... 84
Aleatory Contract ................................................................................................................................................... 22
Alien Insurer ........................................................................................................................................................... 18
Apparent Directive ................................................................................................................................................. 20
Applicant ................................................................................................................................................................ 12
Appraisal and Arbitration ....................................................................................................................................... 35
Appurtenant Structures ........................................................................................................................................... 44
Assessment Mutual Insurers ................................................................................................................................... 16
Assignment ............................................................................................................................................................. 35
Assumption of Risk ................................................................................................................................................ 38
Attorney-in-Fact ..................................................................................................................................................... 16
Authority and Powers of Producers ........................................................................................................................ 20
Automatic Increase in Insurance ............................................................................................................................ 47
Aviation Insurance .................................................................................................................................................. 84
Avoidance ............................................................................................................................................................... 14
Bailee's Customer ................................................................................................................................................... 65
Bankruptcy ............................................................................................................................................................. 70
Basic Form.............................................................................................................................................................. 45
Binder ..................................................................................................................................................................... 12
Binders.................................................................................................................................................................... 38
Binding of Coverage............................................................................................................................................... 38
Boatowners ............................................................................................................................................................. 86
Boiler and Machinery ............................................................................................................................................. 67
BOP ........................................................................................................................................................................ 77
BOP Additional Coverages ..................................................................................................................................... 79
BOP Cause of Loss Form and Coverages............................................................................................................... 81
BOP Eligible Wholesale/Distributor Risks............................................................................................................. 81
BOP Extended Coverages....................................................................................................................................... 79
BOP Special Form Exclusions................................................................................................................................ 80
Boycotting .............................................................................................................................................................. 24
Broad Form................................................................................................................................................. 45, 49, 53
Broad Theft Coverage ............................................................................................................................................ 47
Brokers ................................................................................................................................................................... 18
Builders Risk .......................................................................................................................................................... 63
Building and Personal Property .............................................................................................................................. 62
Burglary .................................................................................................................................................................. 14

Business Income ..................................................................................................................................................... 63
Business Income – Report of Values ...................................................................................................................... 68
Business Interruption .............................................................................................................................................. 68
Business Liability ................................................................................................................................................... 80
Business Owners Policy ......................................................................................................................................... 77
Business Personal Property Exclusions .................................................................................................................. 63
Camera and Musical Instrument Dealers Form ...................................................................................................... 66
Cancellation ............................................................................................................................................................ 37
Captive Agents........................................................................................................................................................ 18
Captive Insurers ...................................................................................................................................................... 20
Cargo Insurance ...................................................................................................................................................... 84
Causes of Loss .................................................................................................................................................. 30, 70
Causes of Loss Forms ............................................................................................................................................. 64
Ceding Insurer ........................................................................................................................................................ 15
Certificate of Insurance .......................................................................................................................................... 12
Certified Loss ......................................................................................................................................................... 41
Characteristics of an Insurance Contract ................................................................................................................ 22
Claim Settlement Options....................................................................................................................................... 36
Claims Handling ..................................................................................................................................................... 35
Classifications of Construction ............................................................................................................................... 31
Co-Insurance..................................................................................................................................................... 14, 34
Collapse .................................................................................................................................................................. 52
Commercial ............................................................................................................................................................ 37
Commercial Articles ............................................................................................................................................... 66
Commercial Building and Property forms.............................................................................................................. 62
Commercial Contractor's Equipment Floater ......................................................................................................... 66
Commercial Coverage Forms ................................................................................................................................. 62
Commercial Inland Marine..................................................................................................................................... 65
Commercial Inland Marine Conditions .................................................................................................................. 65
Commercial Package Policy ................................................................................................................................... 61
Commercial Property.............................................................................................................................................. 62
Commercial Property Conditions ........................................................................................................................... 62
Common Carrier Cargo Liability ........................................................................................................................... 67
Common Law Defenses ......................................................................................................................................... 38
Common Law Fellow Servant Rule ....................................................................................................................... 38
Common Policy Conditions ................................................................................................................................... 81
Common Policy Declarations ................................................................................................................................. 62
Common Policy Provisions .................................................................................................................................... 33
Comparative Negligence ........................................................................................................................................ 38
Competent Parties ................................................................................................................................................... 21
Completed Value Form ........................................................................................................................................... 47
Comprehensive Coverage Form ............................................................................................................................. 68
Comprehensive Form ....................................................................................................................................... 50, 53
Concealment ........................................................................................................................................................... 23
Concurrent Causation ............................................................................................................................................. 50
Conditional Contract .............................................................................................................................................. 22
Conditional Renewal .............................................................................................................................................. 37
Conditions............................................................................................................................................. 33, 46, 54, 70
Condominium Association ..................................................................................................................................... 63
Condominium Commercial Unit-Owners .............................................................................................................. 63
Condominium Unit Owner Form ..................................................................................................................... 50, 53
Consequential Loss................................................................................................................................................. 11

Consideration.......................................................................................................................................................... 21
Contract Legal Interpretations ................................................................................................................................ 22
Contract of Adhesion .............................................................................................................................................. 22
Contracts ................................................................................................................................................................. 21
Contribution by Equal Shares ................................................................................................................................. 34
Contributory Negligence ........................................................................................................................................ 38
Coverage A ....................................................................................................................................................... 51, 69
Coverage B ....................................................................................................................................................... 51, 69
Coverage C ....................................................................................................................................................... 51, 69
Coverage D ....................................................................................................................................................... 52, 69
Coverage E ....................................................................................................................................................... 52, 69
Coverage F........................................................................................................................................................ 52, 69
Coverage G ............................................................................................................................................................. 69
Coverage H ............................................................................................................................................................. 69
Coverage I .............................................................................................................................................................. 69
Coverage J .............................................................................................................................................................. 69
Coverages ...................................................................................................................................................................
Breakage of Glass by Earth Movement ............................................................................................................. 52
Judgment Rating ................................................................................................................................................ 29
Loss Ratio .......................................................................................................................................................... 29
Manual Rating ................................................................................................................................................... 29
Covered Perils ........................................................................................................................................................ 37
Credit Card, Fund Transfer Card, Forgery, and Counterfeit Money....................................................................... 52
Credit Reporting ..................................................................................................................................................... 39
Crop Hail Insurance ................................................................................................................................................ 87
Debris Removal ...................................................................................................................................................... 52
Declarations ............................................................................................................................................................ 33
Deductibles ................................................................................................................................................. 16, 33, 78
Defenses Against Negligence ................................................................................................................................. 38
Definitions .............................................................................................................................................................. 44
Deposit Premium .................................................................................................................................................... 14
Determination ......................................................................................................................................................... 30
Direct Losses .......................................................................................................................................................... 30
Direct Mail.............................................................................................................................................................. 19
Direct Physical Loss ............................................................................................................................................... 11
Direct Response ...................................................................................................................................................... 19
Direct Writer ........................................................................................................................................................... 19
Discrimination ........................................................................................................................................................ 23
Distribution Systems .............................................................................................................................................. 18
Domestic Insurer .................................................................................................................................................... 18
Duties After a Loss ................................................................................................................................................. 46
Duty to Defend ....................................................................................................................................................... 35
Dwelling ................................................................................................................................................................. 51
Dwelling Policy ...................................................................................................................................................... 44
Dwelling Under Construction................................................................................................................................. 47
Earthquake .............................................................................................................................................................. 56
Electrical Objects Form .......................................................................................................................................... 68
Electronic Data Processing ..................................................................................................................................... 66
Elements of a Legal Contract ................................................................................................................................. 21
Elements of a Negligent Act ................................................................................................................................... 37
Elements of Insurable Risks ................................................................................................................................... 15
Endorsements .............................................................................................................................................................

Functional Replacement Cost ............................................................................................................................ 57
Identity Fraud Expense ...................................................................................................................................... 57
Property Remediation for Escaped Fuel ............................................................................................................ 58
Special Additional Amount of Insurance ........................................................................................................... 57
Windstorm or Hail ............................................................................................................................................. 57
Equipment Breakdown Coverage ........................................................................................................................... 67
Equipment Breakdown Protection .......................................................................................................................... 68
Equipment Dealers ................................................................................................................................................. 66
Estoppel .................................................................................................................................................................. 12
Excess Insurance .................................................................................................................................................... 34
Excess Lines Insurer ............................................................................................................................................... 17
Excluded Perils ....................................................................................................................................................... 54
Exclusions......................................................................................................................................................... 44, 54
Exclusive agents ..................................................................................................................................................... 18
Exposure ................................................................................................................................................................. 13
Express Directive.................................................................................................................................................... 20
Extended Coverage Perils....................................................................................................................................... 44
Extended Replacement Cost ................................................................................................................................... 50
Extra Expense ......................................................................................................................................................... 63
Fair Credit Reporting Act ....................................................................................................................................... 39
FAIR Plans.............................................................................................................................................................. 86
Fair Rental Value .............................................................................................................................................. 44, 45
False Financial Statements ..................................................................................................................................... 25
False Statements ..................................................................................................................................................... 40
Farm Coverage ....................................................................................................................................................... 69
Farm Coverage Definitions .................................................................................................................................... 70
Farm Employee ...................................................................................................................................................... 70
Farm Policy Coverages........................................................................................................................................... 69
Farm Property Coverage Forms ............................................................................................................................. 69
Farm Umbrella Coverage ....................................................................................................................................... 74
Farming .................................................................................................................................................................. 70
FCIC ....................................................................................................................................................................... 87
Federal Crop Insurance........................................................................................................................................... 87
Fiduciary ................................................................................................................................................................. 19
Financial Responsibilities ....................................................................................................................................... 20
Fire Legal Liability ................................................................................................................................................. 80
Foreign Insurer ....................................................................................................................................................... 18
Fraternal Benefit Societies ..................................................................................................................................... 17
Fraud ................................................................................................................................................................. 23, 40
Freight Insurance .................................................................................................................................................... 84
Functional Replacement Cost ................................................................................................................................. 32
Fungi, Wet or Dry Rot, or Bacteria Coverage ........................................................................................................ 56
General Exclusions ................................................................................................................................................. 46
General Rules of Agency ........................................................................................................................................ 19
Government Insurers .............................................................................................................................................. 17
Gramm Leach Bliley Act ........................................................................................................................................ 40
Grave Markers ........................................................................................................................................................ 52
Guaranteed Replacement Cost.......................................................................................................................... 32, 50
Hazard .................................................................................................................................................................... 13
Hazards ................................................................................................................................................................... 30
HO-1 ....................................................................................................................................................................... 49
HO-2 ................................................................................................................................................................. 49, 53

HO-3 ................................................................................................................................................................. 50, 53
HO-4 ................................................................................................................................................................. 50, 53
HO-5 ................................................................................................................................................................. 50, 53
HO-6 ................................................................................................................................................................. 50, 53
Home Day Care ...................................................................................................................................................... 57
Homeowners Contents...................................................................................................................................... 50, 53
Hovercraft and Parts ............................................................................................................................................... 54
Hull Insurance ........................................................................................................................................................ 84
Implied Directive .................................................................................................................................................... 20
Indemnity................................................................................................................................................................ 11
Independent Agents ................................................................................................................................................ 18
Independent Rating Services .................................................................................................................................. 18
Indirect Loss ........................................................................................................................................................... 11
Indirect Losses ........................................................................................................................................................ 30
Inherent Vice........................................................................................................................................................... 67
Inland Marine ......................................................................................................................................................... 65
Insolvency............................................................................................................................................................... 36
Installation Floater .................................................................................................................................................. 66
Insurable Interest .............................................................................................................................................. 11, 29
Insurance................................................................................................................................................................. 11
Insurance Guaranty Association ............................................................................................................................. 36
Insurance Services Office ....................................................................................................................................... 61
Insurance Under Two (2) Or More Coverages ....................................................................................................... 71
Insured .................................................................................................................................................................... 12
Insured Loss............................................................................................................................................................ 41
Insured's Duties After Loss ..................................................................................................................................... 35
Insurer ..................................................................................................................................................................... 12
Insurer Provisions ................................................................................................................................................... 35
Insurer Relationship................................................................................................................................................ 19
Insurers ................................................................................................................................................................... 16
Insuring Agreement ................................................................................................................................................ 33
Interline Endorsements ........................................................................................................................................... 62
Intervening Cause ............................................................................................................................................. 11, 38
Intimidation ............................................................................................................................................................ 24
Jeweler's Block ....................................................................................................................................................... 66
Joint Underwriting/Joint Reinsurance Pool ............................................................................................................ 86
Larceny ................................................................................................................................................................... 14
Last Clear Chance................................................................................................................................................... 38
Legal Action ........................................................................................................................................................... 46
Legal Action Against the Insurer ............................................................................................................................ 71
Legal Liability ........................................................................................................................................................ 63
Legal Purpose ......................................................................................................................................................... 21
Liability .................................................................................................................................................................. 14
Fire Legal .......................................................................................................................................................... 33
Liability Coverages ................................................................................................................................................ 51
Liberalization.......................................................................................................................................................... 71
Liberalization Clause .............................................................................................................................................. 35
Limit of Liability .................................................................................................................................................... 32
Limits of Liability................................................................................................................................................... 16
Livestock Coverage ................................................................................................................................................ 69
Lloyd's Associations ............................................................................................................................................... 17
Loss ........................................................................................................................................................................ 11

Loss Assessment Coverage..................................................................................................................................... 51
Loss Conditions ................................................................................................................................................ 70, 78
Loss Costs............................................................................................................................................................... 30
Loss of Use ............................................................................................................................................................. 52
Loss Payable Clause ......................................................................................................................................... 36, 46
Loss Valuation ........................................................................................................................................................ 32
Market Value .......................................................................................................................................................... 32
Market Value/ Modified Coverage Form................................................................................................................ 51
Marketing Systems ................................................................................................................................................. 18
Maslow's Hierarchy of Needs ................................................................................................................................. 13
Mechanical Objects ................................................................................................................................................ 68
Mechanical Objects Form....................................................................................................................................... 68
Med Payments- No Admission Of Liability ........................................................................................................... 71
Medical Expenses ................................................................................................................................................... 80
Medical Payments to Others ................................................................................................................................... 52
Merit Rating............................................................................................................................................................ 30
Methods of Handling Risk...................................................................................................................................... 14
Mine Subsidence .................................................................................................................................................... 87
Misappropriation of Funds ..................................................................................................................................... 24
Misrepresentation ............................................................................................................................................. 22, 23
Mobile Home Policies ............................................................................................................................................ 58
Monopoly ............................................................................................................................................................... 24
Motor Truck Cargo Forms ...................................................................................................................................... 67
Multi-Line Insurance .............................................................................................................................................. 16
Multi-Peril Crop Insurance ..................................................................................................................................... 87
Mutual Companies.................................................................................................................................................. 16
Mysterious Disappearance...................................................................................................................................... 14
Named Insured.................................................................................................................................................. 12, 35
Named Peril ...................................................................................................................................................... 30, 49
National Association of Insurance Commissioners (NAIC) ................................................................................... 13
National Flood Insurance Program (NFIP) ............................................................................................................ 84
Nationwide Marine Definition................................................................................................................................ 65
Neglect of the Shipper ............................................................................................................................................ 67
Negligence ........................................................................................................................................................ 12, 37
No Benefit to the Bailee ......................................................................................................................................... 36
Non-Admitted Insurer ............................................................................................................................................ 18
Non-Assessable Mutual Insurers ............................................................................................................................ 16
Non-Certified Loss ................................................................................................................................................. 41
Non-Concurrency ................................................................................................................................................... 34
Non-Reduction of Limits ........................................................................................................................................ 34
Nonrenewal............................................................................................................................................................. 37
Nonresident Agent .................................................................................................................................................. 19
Notice of a Claim.................................................................................................................................................... 70
Occurrence.............................................................................................................................................................. 13
Ocean Marine Insurance ......................................................................................................................................... 84
Offer and Acceptance ............................................................................................................................................. 21
Offer Period ............................................................................................................................................................ 21
One or More Coverage Parts .................................................................................................................................. 62
Open-Peril................................................................................................................................................... 30, 50, 53
Optional Coverages ................................................................................................................................................ 79
Ordinance or Law ....................................................................................................................................... 47, 52, 64
Other Farm Structures ............................................................................................................................................ 69

Other Insurance .......................................................................................................................................... 34, 46, 71
Other insurance provisions ..................................................................................................................................... 61
Other Structures ...................................................................................................................................................... 51
Pair and Sets Clause ............................................................................................................................................... 53
Peak Season ............................................................................................................................................................ 64
Peril ........................................................................................................................................................................ 13
Perils ................................................................................................................................................................. 30, 53
Perils Insured Against ............................................................................................................................................. 44
Periodic Inspection ................................................................................................................................................. 68
Permitted Incidental Occupancies .......................................................................................................................... 56
Personal Article Floater .......................................................................................................................................... 57
Personal Contract.................................................................................................................................................... 22
Personal Liability.................................................................................................................................................... 52
Personal Liability Supplement................................................................................................................................ 47
Personal Lines vs. Commercial Lines .................................................................................................................... 14
Personal Property.................................................................................................................................................... 51
Policy Aggregate Limit........................................................................................................................................... 80
Policy Limits .......................................................................................................................................................... 34
Policy Owner .......................................................................................................................................................... 12
Policy Period .......................................................................................................................................................... 33
Policy Territory ....................................................................................................................................................... 33
Policy Types ...............................................................................................................................................................
Business Owners Package Policy ...................................................................................................................... 61
Commercial Package Policy .............................................................................................................................. 61
Premium ................................................................................................................................................................. 11
Premium Fund Trust Account ................................................................................................................................. 20
Pressure and Refrigeration Objects ........................................................................................................................ 68
Primary Insurance................................................................................................................................................... 34
Principal.................................................................................................................................................................. 19
Privacy Protection .................................................................................................................................................. 40
Private Insurers ....................................................................................................................................................... 17
Private Residence ................................................................................................................................................... 37
Pro Rata .................................................................................................................................................................. 34
Producer.................................................................................................................................................................. 12
Producer Relationships ........................................................................................................................................... 19
Producers .......................................................................................................................................................... 18, 19
Proof of Loss .......................................................................................................................................................... 35
Property Coverages ................................................................................................................................................ 51
Protective Safeguards ............................................................................................................................................. 81
Proximate Cause ..................................................................................................................................................... 31
Purchasing Groups.................................................................................................................................................. 16
Pure Risk ................................................................................................................................................................ 11
Rates ....................................................................................................................................................................... 29
Re-Authorization Act of 2007 ................................................................................................................................ 42
Reasonable Expectations ........................................................................................................................................ 22
Rebating.................................................................................................................................................................. 23
Reciprocal Companies ............................................................................................................................................ 16
Redlining ................................................................................................................................................................ 24
Reduction................................................................................................................................................................ 15
Regulations ............................................................................................................................................................. 36
Reinsurance ............................................................................................................................................................ 15
Released Bills of Lading ........................................................................................................................................ 67

Renters Coverage.............................................................................................................................................. 50, 53
Replacement Cost ............................................................................................................................................. 32, 55
Reporting Form ...................................................................................................................................................... 47
Representations................................................................................................................................................. 22, 71
Required Provisions................................................................................................................................................ 36
Resale Value ........................................................................................................................................................... 32
Residual Markets .................................................................................................................................................... 86
Responsibilities to the Applicant ............................................................................................................................ 20
Retention................................................................................................................................................................. 15
Risk ......................................................................................................................................................................... 11
Risk Management Agency ...................................................................................................................................... 87
Risk Management Key Terms ................................................................................................................................ 11
Risk Retention Groups ..................................................................................................................................... 16, 17
RMA ....................................................................................................................................................................... 87
Robbery .................................................................................................................................................................. 14
Salvage ................................................................................................................................................................... 36
Salvage Value ......................................................................................................................................................... 32
Scheduled Personal Property .................................................................................................................................. 57
Selected BOP Endorsements .................................................................................................................................. 81
Selected Commercial Property Endorsements........................................................................................................ 64
Selected Endorsements ............................................................................................................................... 47, 56, 68
Self-Insurance ......................................................................................................................................................... 12
Sentimental Value ................................................................................................................................................... 32
Separation of Insureds ............................................................................................................................................ 72
Sharing.................................................................................................................................................................... 15
Signs ....................................................................................................................................................................... 66
Smoke Coverage..................................................................................................................................................... 52
Special Form ............................................................................................................................................... 45, 50, 53
Special Peril ...................................................................................................................................................... 50, 53
Special Peril (Previously All-Risk)......................................................................................................................... 45
Special Provisions .................................................................................................................................................. 56
Special Provisions for States .................................................................................................................................. 47
Speculative Risks.................................................................................................................................................... 11
Spoilage .................................................................................................................................................................. 64
Standard Fire Policy ............................................................................................................................................... 37
Standard Fire Policy Perils ..................................................................................................................................... 44
Standard Mortgagee Clause .................................................................................................................................... 36
State and Federal Laws ........................................................................................................................................... 36
State Changes ......................................................................................................................................................... 81
Statutes of Limitations ............................................................................................................................................ 38
Stock Companies .................................................................................................................................................... 16
Strict Liability......................................................................................................................................................... 31
Subrogation............................................................................................................................................................. 36
Supplementary Coverage........................................................................................................................................ 33
Surplus Lines Insurer .............................................................................................................................................. 17
Syndicate Insurers .................................................................................................................................................. 17
Tenant ............................................................................................................................................................... 50, 53
Terrorism Risk Insurance Act (TRIA) .................................................................................................................... 40
The Federal Crop Insurance Corporation ............................................................................................................... 87
Theft ....................................................................................................................................................................... 14
Third Party Provisions ............................................................................................................................................ 36
Tort ......................................................................................................................................................................... 14

Transfer................................................................................................................................................................... 15
Transfer of Rights of Recovery .............................................................................................................................. 71
Transit Coverage..................................................................................................................................................... 67
Transit Coverage Forms ......................................................................................................................................... 67
Transportation Coverages ....................................................................................................................................... 67
Turbine Objects Form ............................................................................................................................................. 68
Types of Construction............................................................................................................................................. 31
Types of Insurers .................................................................................................................................................... 16
Underwriting........................................................................................................................................................... 29
Unfair Policy Replacement..................................................................................................................................... 23
Unilateral Contract ................................................................................................................................................. 22
Unoccupancy .......................................................................................................................................................... 35
Unscheduled Farm Personal Property .................................................................................................................... 69
Utility Services ....................................................................................................................................................... 81
Utmost Good Faith ................................................................................................................................................. 22
Vacancy................................................................................................................................................................... 35
Valuable Papers and Records .................................................................................................................................. 67
Value Reporting Form ............................................................................................................................................ 64
Valued policy .......................................................................................................................................................... 32
Vicarious Liability .................................................................................................................................................. 31
Waiver..................................................................................................................................................................... 12
Warranties ............................................................................................................................................................... 23
Water or Steam ....................................................................................................................................................... 54

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PROPERTY INSURANCE FUNDAMENTALS

CPMI Professional Development, LLC

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TIPS FOR TAKING THE INSURANCE LICENSING EXAM

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(Rebating is an Unfair Trade Practice, not an Unfair

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BEFORE TAKING THE INSURANCE LICENSING EXAM

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This hierarchy of needs is important for the insurance

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Individually the commissioners or directors do not Robbery

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Avoidance Adverse Selection

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PRODUCERS AND GENERAL RULES OF AGENCY

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Utmost Good Faith Fraud

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10. Forcing someone to buy insurance by

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The insurance applicant must have a potential for Rating Types

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Loss Costs Causes of Loss (Perils)

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Additional/Supplementary 1. Legal fees for defending the insured if a

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Policy Period Excess Insurance

Contribution by Equal Shares

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STATE AND FEDERAL LAWS, REGULATIONS, AND REQUIRED