Questions and Answers
What does Actual Cash Value (ACV) represent?
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 __________.
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Match the following property valuation methods with their descriptions:
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What was the coverage amount for Pete Moss's fire loss?
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The co-insurance clause was applied to Pete Moss's loss.
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What is required for the Stated Amount Co-Insurance Clause to be valid?
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Losses related to illegal substances are classified as ______ in insurance policies.
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Which of the following is NOT a reason for exclusions in insurance policies?
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Match the following types of exclusions with their definitions:
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What happens if an insured does not maintain the stated amount under the Stated Amount Co-Insurance Clause?
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The Reinstatement Clause ensures that insurance amounts are automatically reduced after a loss.
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What is the main purpose of property protection systems?
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The Insurer has the right to pursue recovery from third parties after compensating the Insured.
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What should be immediately notified to the insurer if there are issues with fire detection systems?
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The __________ clause allows for adjustment of premiums based on actual stock values reported.
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Match the following issues with their notification requirements:
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What is the maximum refund percentage of excess premiums if the actual premium is less than paid premiums?
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Insured parties can ignore issues with intrusion detection systems until the next scheduled inspection.
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What time frame is allowed for the insurer to inspect the insured property after policy termination?
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What happens if misrepresentation is proven in a contract?
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The obligation to disclose material facts only exists at the start of the contract.
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What is the purpose of providing Additional Notice to Authorities?
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The obligation to make reasonable efforts to recover lost property is known as _____ and Labour.
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Match the following terms with their definitions:
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What is one potential option for the insurer if a material change is not reported?
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Coverage for damage to an entire set of items is compensated as a total loss, regardless of the individual damage.
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What happens to coverage if significant changes are not reported to the insurer?
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What is the primary purpose of the insurer’s option regarding property of others?
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Locked vehicle warranty coverage applies to property stolen from an unattended vehicle.
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What is required for the theft to be covered under the locked vehicle warranty?
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The standard rules mandated by provincial insurance acts for fire insurance contracts are known as ______.
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Which option describes a requirement for a vehicle under the locked vehicle warranty?
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Match the following terms with their definitions:
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The cost of reproducing manually maintained records is based on the cost of materials and labor.
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The warranty stipulates that all doors must be securely locked and windows must be ______ to qualify for coverage.
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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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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.
