Insurance: Key Concepts

• A foreign insurer operates in a state where it is not headquartered.
• Agent authority includes:
  • Express: authority that is written or contractual.
  • Implied: authority that is assumed by the insurer.
  • Apparent: authority that a customer assumes based on the agent's actions (business cards, letterhead).
• Elements of an insurable risk include losses that are non-catastrophic, measurable, statistically predictable, and due to chance.
• Consideration requires both parties to bring something of value; for the insurer, this is the promise to pay, outlined in the Insurance Agreement (Parties, Promise, Peril, Period).
• Representation is a statement that may be true but is not confirmed, while a warranty is a statement guaranteed to be absolutely true.
• Risk management can be handled with STARR: Share, Transfer, Avoid, Reduce, and Retain.
• A legal contract requires LACC: Legal purpose, Agreement, Competent parties, and Consideration.
• Agreement requires offer and acceptance.
• A policy can be agreed value or stated value:
  • Agreed: The replacement price of an item is set based on a fair valuation, suitable for items with stable value.
  • Stated: Sets a maximum payout limit that requires verification, potentially leading to lower compensation.
• Insurable interest requires a tie or ownership demonstrated through blood, business, or money.
• Comparative negligence means each party pays for their own guilt/fault, not voiding the claim.
• Contributory negligence requires the suing party to be completely free of fault.
• A tort is a purposeful act that harms another person.
• Libel involves untrue written or printed statements that damage a person's reputation or career, while slander is the same but as a verbal statement.
• Neither Libel nor Slander covered under homeowner insurance policies, but can be added via endorsement. They are covered under umbrella policies though.
• Bodily injury is physical harm and personal injury impacts a person's career/reputation.
• Subrogation allows the insurer's legal right to recover damages from a responsible third party, preventing the insured from collecting twice.
• Types of Liability:
  • Absolute: Guilt is obvious.
  • Strict: Related to a product, regardless of fault.
  • Vicarious: Responsibility is transferred such as master accountable for servant, parent to child, or employer to employee.
• Damages:
  • Property Damage: Physical damage caused.
  • Bodily Injury:
    • Special: Medical.
    • General: Emotional/suffering, subjective.
  • Punitive: intended for Punishment.

Policy Structure

• Declaration Page: Summarizes the policy (NNAAPP: Name of insured, Named of the insurer, Address, Amount of money, Property description, and Premium). It is the first page.
• Definitions: Explains terms used in the policy. It is the secon page.
• Insuring Agreement/Clause: Lists insured perils and the promise to pay (Parties, Promise, Perils, Period). The essence of the policy and is on the third page.
• Additional/Supplementary Coverage: Built-in coverage at no extra cost, such as trees, legal defense (5% of A). Is on the 4th page or after the insuring agreement.
• Property Removal provides 30 days of open peril coverage post-claim, or 5 days in a DP1.
• Debris Removal covers hauling trash away after a covered loss.
• Lawns/Trees/Shrubs/Plants: $500 per tree up to 5% of A, $500 per tree removal up to $1k, HO4/HO6 is 10% of C.
• Glass: Coverage applies if the glass is part of the building; not covered if vacant for 61+ days.
• Collapse: Only covered if abrupt falling happens and is hidden from view; not covered if due to vermin or rot unless hidden.
• Ordinance or Law: This coverage helps with repairs needed to meet current building codes after a covered loss.
• Fire Department Service Charge: Offers $500 coverage if billed by the fire department.
• Coverage C: Worldwide coverage up to 10% or $1k.
• Reasonable Repairs: Protect from further damage.
• HO4 (Rental policy): Additions/Alterations coverage up to 10% of Coverage C (Personal property/Contents).
• Loss Assessment: Covers up to $1k per claim for pooled community damage responsibility.
• Cost to Defend: This pays for a lawyer in addition to Coverage E.

Conditions

• Conditions are rules, duties, and obligations for both the insured and insurer. is on 5th page or after additional coverage.
• Include liberalization, changes to the policy, inspections, and return of premium.
• Liberalization allows changes that the insurer can make.
• Policy changes must be written.
• Insurer has permission to inspect the property.
• Return of Premium details how premiums are returned if canceled.

Exclusions

• Common exclusions include earthquake/earth movement and water damage, but endorsements can be added for coverage.
  • Examples: Water damage/flood, Earthquake / movement, Power failure, War, Neglect, Intentional Loss, Government Action, Nuclear Hazard,
• Endorsements are extra coverages or written changes, often increasing the cost.
  • Types of endorsements: Additional Insureds, Water/sewer back up. Earthquake, Home day care, Permitted incidental occupancies.

Coverage A-D

• Coverages A-D is Section 1, (Me and my stuff.) Section 2 is Liability or E-F.
• Coverage A: Dwelling (walls and roof) plus materials/supplies for repairs and items servicing the property, Additional coverages are built in such as lawn, tree, and shrub ($500 per tree up to 5% of A).
• Coverage B: Other structures (shed, fence, detached garage), typically 10% of Coverage A. Inflation guard/protection protects against material and labor inflation.
• Coverage C: Contents/personal property (50% of Coverage A for Homeowner). Higher theft risk items have limits (jewelry, guns). Blanket coverage available. Coverage C is ACV but can be endorsed to go from 50% to 70% and provide replacement cost coverage.
• Coverage D:
  • D for Dwelling is fair rental value, covering landlords when tenants must leave due to a loss.
  • D for Homeowners is loss of use, including fair rental value and additional living expenses (hotel, food, clothes). Homeowners is 30% of Coverage A.

Liability Coverages

• Coverage E: On dwelling is additional living expenses (20% of A between D and E), but primarily liability in homeowner policies.
  • E For Homeowner is Liability (at fault): Protects the insured if sued for damages or injuries including a lawyer on top of coverage.
  • Up to: $250 a day for lost wage reimbursement if going to court.
• Coverage F: Medical Payments (not at fault).
  • Covers injuries to others. Intended for other ppl and is valid for 3 years.
  • Covers the nanny/resident employee.
  • Not for general/emotional damages.

Dwelling Policy

• Dwelling policy has 3 forms:
  • DP1: The basic form with limited coverage of Fire, Lightning, Internal Explosion and an optional ECP (Extended Coverage Perils).
  • ECP (Extended Coverage Perils) covers under WHARVES (Wind, Hail, Aircraft/vehicle, Riot/civil commotion, Volcano, Explosion, Smoke, ).
  • VMM (Vandalism, Malicious Mischief) can be also bought but only with ECP.
  • DP2: Broad form includes basic perils from DP1 plus BBBICEGOLF (Bursting, Burglary, Breaking, Ice/Snow/Sleet, Collapse, Electrical, Glass, Objects falling from tree, Leakage from water).
  • DP3: Special form that is an open peril policy (covers everything not excluded) on the outside, named peril on the inside (Coverage C).

Homeowners Policy

• HO2: Broad, combining DP1 and DP2 with automatic theft coverage. is just DP1 and DP2 but includes theft automatically.
• HO3: Special, open peril on the exterior, named perils for Coverage C (contents) for outside of home but coverage C is still named perils. (contents)
• HO5: Comprehensive, superior coverage with open peril for both dwelling and personal property, unlike DP3.
• HO4: Renters insurance for contents only (Coverage C-F). is 4 rent for rent. Renters policy just for contents only. Only coverages C-F.
• HO6: Condo policy addressing differences between building owner's replacement and condo's original value. Allows adding Coverage B for other structures.
• HO8: Modified policy for older homes where market value is less than rebuild, with limited perils (DP1 + WHARVES, limited theft at $1k on-premise only), and lower tree replacement cost at $250.

Tree Value Coverage

• Tree value coverage provides money for the replacement of trees damaged by covered perils.
• Coverage varies, DP1 offers zero, HO8 is $250 per tree, all others offer $500 per tree.
• HO4 Renters and HO6 Condo covers 10% of Coverage C.
• Limited to 5% of Coverage A. $500 to replace trees up to 5% of coverage A but $1k max for remove. (500 cap for removal per tree tho)

Boat Insurance

• Homeowners policies cover small boats ($1500 max for property damage) but not those used for business, rental, or racing.
• It covers property damage and liability. Also if you hit another boat liability will cover to fix their boat and medical bill from Cov E.
• Covers if it is:
  • Inboard: 50 horsepower
  • Outboard: 25 horsepower
  • Length: 26ft or less.

Coinsurance Clause

• It requires the insured to maintain a specified coverage percentage (usually 80%) to receive full claim payouts.
• Step1: find 80% of replacement value. If replacement is less than 80% go to step 2.
• Step2: coinsurance equation: Carried coverage divided by should carry (80% of Replacement) multiplied by the loss.

Auto Coverages

• A: Liability, covers bodily injury and property damage when at fault.
• B: Medical Payments, covers the insured and their passengers up to 3 years.
• C: Uninsured/underinsured motorist bodily injury, covers when the other driver has insufficient or no coverage. UIM also covers your trailer as well as for Coverage A and B but not for damage to your vehicle or the trailer it self.
• D: Damage to the auto, cover the vehicle at ACV.
  • Collision covers hitting something or another car. . - Other than collision covers incidents like animal contact or mother nature.
• E: Duties after a loss: Call insurer, get person's insurance info, inspection, etc. Also 911 hit and run and theft. (Police report)
• F: (Formalities or rules) General Provisions: bankruptcy doesn't matter, no benefit to bailee, subrogation.

Other

• Aggregate is the maximum total available for all policy claims.
• Per occurrence is a sublimit on each individual claim/accident.
• Split limits state separate limits for each person, BI, and PD.
• Per person represents the maximum amount for bodily injury to a single person.
• Combined single limit provides full coverage without dividing limits.
• Most insurers will cover a newly acquired car for up to 30 days.
• Replacing a vehicle requires no notification within 30 days, but adding a vehicle gives 14 days of liability and full coverage (only 4 days if currently only liability).
• Out-of-state coverage increases liability limits to the state minimum.

Umbrella Policy

• The umbrella policy is a standalone policy for coverages not included the insured person's home and auto.
• It is a casualty policy that covers damages to another person’s person or property.
• Umbrella vs. Excess Line: Both underlying/secondary policies requiring a deductible for standalone claims.
• Umbrella covers personal injury (SIR Self-Insured Retention), libel, and slander which is not on homeowners unless added under an endorsement,
• Excess is a follow form and you follow the home and auto and cover exactly or less than the Home and Auto policy.

Insurance Concepts

• Pro-Rata shares loss with other insurance on the same risk.
• Assignment transfers legal rights and policy ownership.
• Salvage is money from the sale of damaged merchandise.
• Mortgage Rights protect the mortgage company's interest.
• Loss Ratio is incurred losses + loss adjusting expense divided by earned premium.
• Hazard is a condition increasing the likelihood of a loss.
• Loss Valuation affects the premium (Replacement (brand new) or ACV (used value).
• Valued Policy is used when it is difficult to ascertain insured property value post-loss.
• Proximate Cause is unbroken chain of events starting with negligence and ending in injury/damage.
• Assumption of Risk acknowledges danger and voluntarily chooses the activity.
• Intervening Cause reduces recovery $ if interrupting the chain of events.

Regulations

• A commissioner can only revoke your license after a hearing.
• FINRA is where variable contracts sellers are registered with.
• A nonresident lives in one state but sells insurance in another.
• You cannot act as an agent until appointed by the commissioner.
• Handling premiums requires acting in a fiduciary capacity.
• Unfair trade practices are misdemeanors.
• Material Misrepresentation alters underwriter decisions.
• Short-rate cancellation results in the insurer keeping more unearned premium.

Liability Coverages

• Products-completed operations liability covers losses caused by the insured's completed product/operations, occurring off the insured's premises.
• Pro rata cancellation is when the insurer cancels the policy.
• Errors and omissions cover financial losses.
• Personal and advertising injury cover libel, copyright infringement, and slander.
• The exclusive remedy doctrine prevents employees from suing an employer for tort liability.