CAIB 2 - Chapter 1
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What does Actual Cash Value (ACV) represent?

  • The cost to repair or replace property minus depreciation (correct)
  • The market value based on recent sales
  • The original purchase price of an item
  • Replacement cost without depreciation
  • Replacement value accounts for depreciation when determining the value of property.

    False

    What is the primary method that brokers use to advise insureds on property value determination?

    Valuation approaches

    Book value is defined as the original purchase price of an item reduced by __________.

    <p>depreciation</p> Signup and view all the answers

    What was the coverage amount for Pete Moss's fire loss?

    <p>$72,000</p> Signup and view all the answers

    The co-insurance clause was applied to Pete Moss's loss.

    <p>False</p> Signup and view all the answers

    What is required for the Stated Amount Co-Insurance Clause to be valid?

    <p>A Statement of Values indicating 100% of the value of insured property.</p> Signup and view all the answers

    Losses related to illegal substances are classified as ______ in insurance policies.

    <p>exclusions</p> Signup and view all the answers

    Which of the following is NOT a reason for exclusions in insurance policies?

    <p>Minimized Risk</p> Signup and view all the answers

    What happens if an insured does not maintain the stated amount under the Stated Amount Co-Insurance Clause?

    <p>The policy reverts to a 100% co-insurance basis.</p> Signup and view all the answers

    The Reinstatement Clause ensures that insurance amounts are automatically reduced after a loss.

    <p>False</p> Signup and view all the answers

    What is the main purpose of property protection systems?

    <p>To prevent and mitigate losses</p> Signup and view all the answers

    The Insurer has the right to pursue recovery from third parties after compensating the Insured.

    <p>True</p> Signup and view all the answers

    What should be immediately notified to the insurer if there are issues with fire detection systems?

    <p>Any malfunctions or defects</p> Signup and view all the answers

    The __________ clause allows for adjustment of premiums based on actual stock values reported.

    <p>Premium Adjustment</p> Signup and view all the answers

    What is the maximum refund percentage of excess premiums if the actual premium is less than paid premiums?

    <p>50%</p> Signup and view all the answers

    Insured parties can ignore issues with intrusion detection systems until the next scheduled inspection.

    <p>False</p> Signup and view all the answers

    What time frame is allowed for the insurer to inspect the insured property after policy termination?

    <p>Up to one year</p> Signup and view all the answers

    What happens if misrepresentation is proven in a contract?

    <p>The contract can be deemed void and unenforceable</p> Signup and view all the answers

    The obligation to disclose material facts only exists at the start of the contract.

    <p>False</p> Signup and view all the answers

    What is the purpose of providing Additional Notice to Authorities?

    <p>To ensure credibility and compliance with legal requirements.</p> Signup and view all the answers

    The obligation to make reasonable efforts to recover lost property is known as _____ and Labour.

    <p>Sue</p> Signup and view all the answers

    What is one potential option for the insurer if a material change is not reported?

    <p>Cancel the policy and return unearned premium</p> Signup and view all the answers

    Coverage for damage to an entire set of items is compensated as a total loss, regardless of the individual damage.

    <p>False</p> Signup and view all the answers

    What happens to coverage if significant changes are not reported to the insurer?

    <p>Coverage is voided.</p> Signup and view all the answers

    What is the primary purpose of the insurer’s option regarding property of others?

    <p>To simplify claims processing and ensure fair settlement</p> Signup and view all the answers

    Locked vehicle warranty coverage applies to property stolen from an unattended vehicle.

    <p>True</p> Signup and view all the answers

    What is required for the theft to be covered under the locked vehicle warranty?

    <p>Forcible entry with visible evidence</p> Signup and view all the answers

    The standard rules mandated by provincial insurance acts for fire insurance contracts are known as ______.

    <p>statutory conditions</p> Signup and view all the answers

    Which option describes a requirement for a vehicle under the locked vehicle warranty?

    <p>The vehicle must have a fully enclosed compartment</p> Signup and view all the answers

    The cost of reproducing manually maintained records is based on the cost of materials and labor.

    <p>True</p> Signup and view all the answers

    The warranty stipulates that all doors must be securely locked and windows must be ______ to qualify for coverage.

    <p>closed</p> Signup and view all the answers

    Study Notes

    Introduction to Determining Insurance Values

    • Accurate insurance values are crucial for proper coverage.
    • Brokers play a key role in advising insureds on property value determination.
    • Various methods exist for establishing property value in insurance, such as market-based and income approaches.

    Actual Cash Value (ACV)

    • ACV is defined as the cost to repair or replace damaged property minus depreciation.
    • Determining ACV involves several methods:
      • Formula/Cost Approach: Evaluates the cost to replace items.
      • Market Value/Direct Sales Approach: Based on prices from similar sales.
      • Income Approach: Considers the income-generating potential of the property.
      • True Value to the Owner: Personal value to the property owner.
      • Broad Evidence Rule: Uses all relevant information for valuation.

    Replacement Value

    • Replacement value refers to the cost of repairing, replacing, or rebuilding property without depreciation deductions.
    • Emphasizes the necessity of appraisals to establish accurate insurance values.

    Book Value in Insurance

    • Book value indicates the original purchase price of an asset, adjusted for depreciation.
    • Represents the value of assets as recorded in the company’s financial statements.

    Claims Example: Pete Moss

    • Pete Moss experienced a 1,200firelosswithinsurancecoverageof1,200 fire loss with insurance coverage of 1,200firelosswithinsurancecoverageof72,000 and an 80% co-insurance requirement.
    • Co-insurance requirement calculated as 80% of 120,000amountsto120,000 amounts to 120,000amountsto96,000.
    • Since the loss was less than 2% of the coverage and below 5,000,co−insuranceclausewaswaived,allowingfullrecoveryof5,000, co-insurance clause was waived, allowing full recovery of 5,000,co−insuranceclausewaswaived,allowingfullrecoveryof1,200.

    Stated Amount Co-Insurance Clause

    • This clause can replace standard co-insurance clauses specified on the Declarations Page.
    • Requires the insured to file a Statement of Values for 100% of the property's value.
    • Policy reverts to a 100% co-insurance basis if the stated amount is not maintained.

    Exclusions in Insurance Policies

    • Exclusions can relate to specific types of property or certain perils, such as:
      • Uninsurable risks (e.g., deliberate acts of violence).
      • Catastrophic risks (e.g., earthquakes, floods).
      • Coverage for controlled risks (e.g., wear and tear).
      • Losses related to illegal activities.

    Permission Clauses

    • Allow for concurrent insurance policies as long as coverage is similar.
    • Insureds can make changes to property without prior approval from the insurer.
    • Permits usual business practices using typical materials and processes.

    Breach of Conditions

    • Non-compliance with policy conditions may result in claim denial.
    • Exceptions exist if the breach did not impact the loss or if beyond the insured's control.

    Reinstatement Clause

    • Ensures automatic reinstatement of insurance amounts after a loss.
    • Simplifies coverage management and avoids administrative costs compared to previous practices.

    Subrogation

    • Insurer’s right to recover losses from third parties after compensating the insured.
    • Insurer can take legal action in the insured's name, and recovery is shared if not full.

    Property Protection Systems

    • Include fire extinguishing, fire detection, and intrusion detection systems.
    • Designed to proactively prevent and mitigate losses.

    Notification of System Issues

    • Insureds must notify the insurer of any defects or interruptions in protection systems immediately.

    Cancellation of Monitoring or Maintenance Contracts

    • Requirement to inform the insurer about canceled or non-renewed monitoring or maintenance contracts.

    Suspension of Police Service

    • Insureds must notify the insurer about any suspension of police service due to system issues.

    Premium Adjustment Clause

    • Allows for premium adjustments based on actual reported stock values within six months after policy expiry.

    Refunds and Exclusions

    • Up to 50% excess premium refunds are available if the actual premium is less than paid.
    • Excess values above the insured amount are excluded from refund calculations.

    Verification of Values Clause

    • Insurers have the right to inspect insured properties and records within a year after the policy ends.

    Basis of Valuation: Stock

    • Unsold stock is valued at actual cash value or repair/replacement costs.
    • Sold stock is valued at selling price minus discounts.

    Tenant's Improvements Valuation

    • Costs associated with repair or replacement are applicable when improvements are managed properly.
    • Pro-rata value considered for improvements not repaired or replaced.

    Business Records Valuation

    • Manually maintained records are valued by the cost of materials and labor to reproduce.
    • Automated records based on reproduction costs from duplicates or originals.

    Property of Others

    • Insurer may pay either the insured or the actual property owner for losses to property of others.

    Locked Vehicle Warranty Overview

    • Covers theft from vehicles under specific conditions: unattended vehicle, secure compartments, locked doors/windows, and forcible entry required.

    Locked Vehicle Warranty - Terms of the Warranty

    • Fully enclosed areas must be used to qualify for theft coverage.
    • Covers only when there are visible signs of forced entry.

    Statutory Conditions and Commercial Property Policy Conditions

    • Statutory conditions are mandated rules for fire insurance contracts.
    • Updated commercial property conditions may vary slightly but generally align with statutory terms.

    Duration of the Duty

    • Ongoing duty of disclosure requires informing the insurer of significant changes that increase risk.
    • Options for the insurer include canceling the policy, adjusting the premium, or voiding coverage.

    Additional Conditions

    • Theft, malicious acts, or suspected crimes must be reported immediately to authorities.
    • Obligation to retrieve lost property and share recovery costs, alongside ensuring bailees are responsible for property.

    Additional Conditions in Commercial Property Policies

    • Loss or damage to items in a set is compensated proportionally.
    • Coverage for individual parts is limited to their value, including installation costs.

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    Related Documents

    CAIB 2 Ch 1 - Sept 2024.pptx

    Description

    This quiz delves into the key aspects of determining insurance values, emphasizing the broker's role and various valuation methods. It also covers the concept of Actual Cash Value (ACV) and its significance in property insurance. Enhance your understanding of valuation approaches and their application in the insurance industry.

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