FOI - Chapter 5

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Questions and Answers

What is one of the primary purposes of a deductible in property insurance?

To guarantee immediate payment for all claims

To lower the overall cost of premiums (correct)

To ensure complete coverage for all types of losses

To eliminate all moral hazards associated with claims

Which of the following is typically excluded from property insurance coverage?

Fire damage

Vandalism

Theft

Earthquake (correct)

How does the deductible affect the claims process for property insurance?

It determines the maximum amount that can be claimed.

It allows the insured to choose multiple coverage options.

It ensures that the insured receives full compensation for their loss.

It acts as a barrier to filing claims for minor damages. (correct)

In relation to claims payment, what is meant by 'Pair and Set' in property policies?

It deducts the value of the remaining undamaged item from the claim. Signup and view all the answers

What is the minimum deductible amount usually found in property insurance policies?

$500 Signup and view all the answers

If damage occurs only to part of a property, what is the basis of settlement according to property policies?

The value of the lost or damaged part, including installation costs Signup and view all the answers

What is the intent of claims payment in property insurance?

To give the actual amount of loss experienced Signup and view all the answers

Which of the following is NOT a common exclusion found in property insurance?

Fire damage Signup and view all the answers

Which type of insurance is specifically for property with personal or non-business use?

Tenant’s insurance Signup and view all the answers

What percentage of all premiums from Canadian consumers is allocated to personal and commercial property insurance?

35% Signup and view all the answers

What do perils policies insure against?

Only named perils specified in the policy Signup and view all the answers

Which organization represents over 125 insurance companies in Canada?

Insurance Bureau of Canada Signup and view all the answers

In property insurance, unless stated otherwise, coverage is restricted to what?

The location specified on the policy Signup and view all the answers

What is included in the definition of personal property according to homeowners forms?

Dwelling building, detached structures, and personal property Signup and view all the answers

Which of the following is NOT a type of personal property insurance?

Commercial property insurance Signup and view all the answers

What aspect of insurance policies does the Insurance Bureau of Canada NOT have a direct role in?

Setting policy prices Signup and view all the answers

What must the insured do to ensure the replacement cost claim is settled appropriately?

Replace property as soon as possible Signup and view all the answers

Which scenario represents a moral hazard in claims payment?

Delaying replacement to incur more costs Signup and view all the answers

What is required for an insured to receive settlement on a Replacement Cost basis?

Property was promptly repaired or replaced Signup and view all the answers

What does replacement cost basis imply regarding the condition of materials used?

No deductions are made for depreciation Signup and view all the answers

Which of the following is true regarding valued properties?

Agreed-upon value is determined by both parties Signup and view all the answers

What happens to the Replacement Cost settlement if a claim is made but property is not replaced?

Settlement is based on Actual Cash Value (ACV) Signup and view all the answers

Which of the following describes the basis of settlement for irreparable items like original art?

Valued Basis Signup and view all the answers

In case of a claim for property that was lost, which factor does NOT influence the settlement amount?

The original cost of the property Signup and view all the answers

What is the main purpose of the Standard Mortgage Clause?

To ensure mortgagees receive payment despite policy breaches by the insured. Signup and view all the answers

What must insured parties provide to their mortgagee as part of the insurance agreement?

A certified copy of the insurance policy. Signup and view all the answers

Which of the following scenarios allows a mortgagee to still receive payment despite a breach of policy conditions?

The insured neglects to report a minor maintenance issue. Signup and view all the answers

How does the Standard Mortgage Clause affect policy changes made by the insurer?

Mortgagees must consent to any changes in the policy. Signup and view all the answers

What happens if an insured person omits or misrepresents a material fact?

The insured may lose coverage, but the mortgagee remains entitled to payment. Signup and view all the answers

What is required before an insurer can terminate an insurance policy according to the Standard Mortgage Clause?

The same notice required by law for the insured must be given to the mortgagee. Signup and view all the answers

In the event of neglect by the insured, what does the Standard Mortgage Clause guarantee?

Coverage cannot be denied to the mortgagee. Signup and view all the answers

Which of the following statements is true about the obligations of a mortgagee?

The mortgagee must be named as a payee on the insurance policy. Signup and view all the answers

What is the formula used to calculate Actual Cash Value (ACV)?

Replacement Cost - Depreciation Signup and view all the answers

Which of the following factors does NOT influence depreciation?

Replacement cost Signup and view all the answers

What is checked during the insurance adjuster’s evaluation in Step 3 of the claims process?

Insurance limit purchased for property items claimed Signup and view all the answers

Which statement is true regarding the Indemnity Agreement in property insurance?

Insurers indemnify insureds for losses not exceeding specific amounts. Signup and view all the answers

What is the role of the insurance adjuster when assessing a claim?

To evaluate the extent of loss and offer a settlement Signup and view all the answers

What must be provided by the insured to assist the adjuster in determining the loss amount?

Price quotes or estimates from suppliers/contractors Signup and view all the answers

What is the first step an adjuster takes to determine the amount of loss?

Determine the replacement cost of lost or damaged items Signup and view all the answers

Replacement Cost Basis for settlement is provided under what condition?

Only when insureds comply with policy provisions Signup and view all the answers

Study Notes

Property Insurance Overview

Almost 35% of insurance premiums from Canadian consumers are for personal and commercial property.

Types of Property Insurance

Personal Property Insurance: Covers non-business property, such as tenant’s, homeowner’s, mobile home, condo unit owner, secondary dwelling, and seasonal dwelling insurance.
Commercial Property Insurance: Specifically for property used for business purposes.

Characteristics of Property Policies

There is no standard property insurance policy; terminology varies among brokers and insurers.
Perils Policies: Specify the explicit perils covered.
Broad Coverage Policies: Insure against all risks of direct physical loss or damage, subject to exclusions.

Role of Insurance Bureau of Canada (IBC)

Represents over 125 insurance companies, allowing modifications to policy forms.

Property Definition and Coverage

Policies clearly define insured property and covered locations, unless otherwise noted.
Personal Property: Coverage includes the dwelling, detached structures, and personal items.
Commercial Property: Insures business property such as buildings, stock, and equipment, with specified locations.

Exclusions in Policies

Policies do not cover all losses; common exclusions include earthquakes, floods, wear and tear, and war.

Deductible Clause

Nearly all property policies have a deductible, which is the amount the insured must pay before insurance coverage kicks in.
The deductible typically lowers monthly premiums; higher deductibles generally mean lower premiums.

Claims Payment Process

Claims are settled based on the principle of indemnity, ensuring the insured receives an amount equal to their loss.
Basis of Claim Payment: Personal property claims have specific provisions, while commercial policies often contain indemnity agreements.

Key Rules for Claims Payment

Pair and Set Rule: Damage to one item of a pair affects the overall claim value based on the remaining item.
Parts Rule: Loss of a portion of a property will factor in installation costs for the damaged aspect.

Factors Influencing Claims Amount

Actual Cash Value (ACV) is determined by subtracting depreciation from the replacement cost.
Depreciation considers factors like condition, obsolescence, resale value, and life expectancy of the property.

Replacement Cost Basis

Insureds can request settlement on a replacement cost basis, provided they comply with policy provisions.
Replacement must occur on the same or adjacent site and as promptly as feasible.

Valued Properties

Certain unique items (like original art) may have a pre-agreed value established between the insured and insurer.

Standard Mortgage Clause

Protects mortgagees’ interests by ensuring they receive policy documentation and are compensated even if the insured breaches policy conditions.
Guarantees payment to the mortgagee for policy breaches, covering neglect or misrepresentation by the insured.

Mortgagee Protection

Insurer cannot alter or cancel coverage detrimental to the mortgagee without appropriate notice.

Additional Notes

Replacement cost settlements require the property to have been usable for its original purpose at the time of loss and must be promptly repaired or replaced.

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Description

Explore the key concepts from Chapter 5 on property insurance policies, focusing on their common characteristics. This quiz will help clarify the most confusing aspects of personal and commercial property insurance. Reflect on the importance of understanding these concepts in the context of insurance premiums.