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Questions and Answers
What determines the value of property for coinsurance purposes?
If a homeowner's insurance policy is less than 80% of the current replacement cost, how is the claim paid?
What is the formula for calculating Actual Cash Value (ACV) for personal property?
What impact does an annual update of policy values have on homeowners insurance?
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In the given example, what should Stephen insure his home for in 2010 to avoid coinsurance penalties?
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Which deductible type requires the insured to pay a percentage of the policy limit during a named storm?
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For which type of items is a Stated Value coverage most beneficial?
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What happens to high-value items that are not scheduled under the Personal Articles Floater?
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What is the on-premises limit for business property under a Homeowners policy with the Home Business Endorsement?
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What is the required action before scheduling valuable items under the Personal Articles Floater?
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Which type of motor vehicle is excluded from coverage under the Homeowners policy?
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What is the limit of coverage for unauthorized use of credit or debit cards under the policy?
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What is the initial cancellation period during which an insurance company can cancel for any reason?
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Which peril is excluded from coverage for homes according to the mentioned policy?
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What is the coverage limit for loss assessment by a Homeowners Association?
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How long must a dwelling be vacant for vandalism to be excluded from coverage?
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What is the usual limit for personal liability coverage per occurrence?
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Which of the following is NOT covered under Medical Payments?
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Liability for which type of vehicle is included under the homeowners policy?
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What is the maximum coverage limit for on-premises business property under the Home Business Endorsement?
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Which of the following represents an exception to the business activities exclusion?
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What percentage of homes in Special Flood Hazard Areas (SFHA) have a chance of being damaged by flood during a 30-year mortgage period?
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Which event indicates a significant increase in insured values in Atlantic and Gulf Coast counties since 2004?
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Under which circumstance is watercraft liability NOT excluded?
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What layer of the NFIP Reinsurance Tower covers $11 billion excess of $9 billion?
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Which voluntary activity is NOT covered under homeowners insurance?
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What is required for a community to participate in the National Flood Insurance Program (NFIP)?
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Which type of rental is allowed under homeowners insurance?
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What is the take-up rate for flood insurance in the Asheville area for 2024?
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Which of the following is true regarding medical payments coverage?
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What does the Fire Legal Liability coverage entail?
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Which of the following is NOT eligible for flood insurance under the NFIP?
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Which flood zones are considered high risk according to flood maps?
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What is the definition of a flood as outlined in the content?
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Who is required to purchase flood insurance in a Special Flood Hazard Area (SFHA)?
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What is the maximum insurance limit for personal property in single-family flood insurance policies?
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Which of the following is NOT covered by flood insurance?
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What factors influence flood premiums?
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What is the waiting period before a flood insurance policy becomes effective?
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What type of damage is explicitly covered under flood insurance?
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Which coverage option is available through private market flood insurance?
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What is a separate deductible applicable to in flood insurance policies?
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Study Notes
Coinsurance
- Coinsurance ensures that the insured is carrying adequate coverage for their property.
- If the insured carries less than 80% of the replacement cost of the dwelling, the insurer will only pay a portion of the loss.
- The insurer will also pay the higher of the actual cash value or the amount produced by the coinsurance formula.
Actual Cash Value
- Actual Cash Value (ACV) is the replacement cost minus depreciation.
- ACV is an important consideration for personal property that has depreciated over time.
- To determine ACV, factor in current age and life expectancy.
Stated Value
- Stated Value is used for valuable items like antiques, fine arts, jewelry and silver.
- Stated Value pays the stated value in the event of a total loss.
- Schedule valuable items using the Personal Articles Floater under the Homeowners Policy for Stated Value, Open perils (all-risk).
Deductibles in Property Insurance
- Deductibles are the amount the insured pays out of pocket before the insurer pays for a covered loss.
- Flat deductibles are a fixed amount, like 500or500 or 500or1,000.
- Percentage deductibles are a percentage of the policy limit, like 2% of the policy limit for named storms.
Business Property
- Homeowners policies have limited coverage for business property.
- The Home Business Endorsement provides more coverage for business property and extends liability coverage for incidental business exposures.
- Businesses with off-premises operations require separate commercial insurance.
Excluded Property
- Motor vehicles are excluded from coverage unless they are for servicing premises or for providing handicapped mobility.
- Watercraft is excluded if the value exceeds $1,500.
- Land and business records are excluded.
Additional Coverages
- Debris Removal after covered peril is covered within policy limits.
- Loss assessment by Homeowners Association $1,000–must result from covered peril.
- Ordinance or increased cost to meet building code, often applicable for older homes.
Exclusions
- Flood, including damage caused by hurricanes, storm surge, and broken dams.
- Earthquake, coverage can be added through an endorsement but may not be available in some high-risk areas.
- Vandalism is excluded if the dwelling is vacant for 60 days.
Mortgage Clause
- The mortgagee (financial institution) has an insurable interest in the dwelling.
- The mortgagee’s coverage is not voided by the insured’s actions.
- The mortgagee requires proof of Homeowners coverage from the property owner at closing.
Homeowners Section II - Personal Liability
- Covers bodily injury and property damage, and the costs of defense.
- Arising from the insured’s premises, activities, or animals.
- The usual limit is $300,000 per occurrence.
Medical Payments Coverage
- Provides coverage without regard to legal liability.
- Minimum limit of $1,000.
- No coverage for the insured, regular residents of the household, or tenants.
Motor Vehicles Exclusion
- Liability excluded except for:
- Vehicles in dead storage
- Vehicles used in service of the premises, like riding mowers.
- Vehicles providing handicapped mobility.
- Recreational vehicles operated on-premises, like ATVs.
- Non-owned recreational vehicles.
- Golf carts used on golf courses or in private, residential communities.
Recreational Vehicles
- ATVs and snowmobiles are typically covered under a separate policy.
Watercraft Exclusion
- Liability excluded except for:
- Sailboats under 26 feet.
- Watercraft with a 25 HP or less outboard motor.
- 50 HP or less inboard motor that is not owned by the insured.
- Watercraft coverage can be added to the HO policy by attaching a watercraft endorsement.
Other Exclusions
- Aircraft.
- Expected or intended injury.
- Assault & Battery excluded.
Rental Exclusions
- Rental of the premises is excluded except for:
- Occasional personal rental of the residence for 7 days maximum.
- One room of the home for residential use, like a bedroom for a Foreign Exchange student.
Business Activities
- Any activity engaged in for money or compensation is considered a business.
Exceptions to Business Exclusion
- Less than $2,000 annual compensation.
- Insured person under 21 with a part-time, self-employed business.
- Volunteer activities with expense reimbursement.
- Home daycare services with no compensation or day care of a relative.
Home Business Endorsement
- Provides coverage for business property located on the residence premises.
- Includes premises and operations liability coverage.
Additional Liability Coverages
- $1,000 damage to property of others without regard to legal liability.
- $1,000 loss assessment by Homeowners Association.
- Fire Legal Liability.
Homeowners Liability Endorsements
- Personal Injury coverage for incidents like false arrest, wrongful eviction, libel, and slander.
- Watercraft coverage for physical damage and liability.
Volunteer Activities
- Liability for volunteer activities is covered under the HO.
- Directors and Officers (D&O) Liability is not covered under the HO.
Shoppers Guide for Homeowners
- Seek advice from an insurance agent with CPCU, CIC, or CRM designations.
- Purchase HE 7 or HO 3 (property not eligible for HE 7).
- Insure 90-100% of the current replacement cost.
NFIP Reinsurance Tower & FloodSmart Re Cat Bonds
- Provides reinsurance coverage for flood risk.
- Includes NFIP Reinsurance and FloodSmart Re Cat Bonds.
Key Flood Events
- Insured values in Atlantic and Gulf Coast counties have increased by 80% since 2004.
- Climate change is a significant factor driving flood risk.
- The take-up rate in Special Flood Hazard Areas (SFHA) is currently 34%.
What is a Flood?
- When normally dry land is inundated by water or mudflow affecting two or more acres.
- Caused by hurricanes, storm surge, broken dams, rapid rainfall, and rapid snow melt.
Probability of Flood Loss
- Homes in a Special Flood Hazard Area (SFHA) have a 26% chance of being damaged by flood.
- Flood zones are based on probability of flooding.
- High Risk (A and V)
- Moderate to Low Risk (B, C or X)
Communities Must Apply for NFIP Participation
- To participate in the NFIP, a community must adopt and enforce floodplain management ordinances.
- Flood zones are mapped by FEMA and the Army Corp of Engineers.
Flood Insurance Eligibility
- Property in a participating community.
- Homeowner or tenant.
- Townhouse
- Condo
- Residential and non-residential properties.
- Building over water and underground buildings are not eligible.
Flood Insurance Requirements
- Homes and businesses in SFHA with mortgages from federally regulated lenders are required to purchase Flood Insurance.
- Persons residing in an SFHA area must purchase flood insurance to be eligible for federal disaster grants from FEMA.
How to Apply for Flood Insurance
- Property owners can apply for flood insurance through Insurance agency that places coverage with NFIP or places coverage with a Write Your Own Insurance Company reinsured 100% by NFIP.
Flood Insurance Coverage
- Buildings are insured on a Replacement Cost (RC) basis if single family, principal residence.
- Personal Property is insured on an Actual Cash Value (ACV) basis.
- Building and contents are insured separately.
- Separate deductible for building and contents.
- Damage caused by flood or mudslide.
Flood Insurance Limits
- The maximum limit for single-family homes is $250,000.
- The maximum limit for commercial buildings is $500,000.
Flood Insurance Exclusions
- Property outside of insured buildings.
- Additional living expenses and Business Income.
- Personal property, wallpaper, paint, and carpeting in basements.
Flood Premiums
- Based on the:
- Location of property (flood zone).
- Elevation of the building (slab, crawl space, pilings).
- Elevation of utilities.
- Existence of a basement.
- Number of floors.
- Year of construction.
- Deductible amount.
- Coverage amount.
- Loss history.
30-Day Waiting Period
- Policy is effective after 30 days from the date of application and payment of annual premium.
Proposed Flood Insurance Changes
- Private market flood insurance to supplement federal flood.
- Higher limits and broader coverage available from private companies.
- Lender acceptability of private market flood policy.
- Additional flood capacity is available through Lloyd's, Cat Bonds, and Reinsurance.
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Description
Test your knowledge on key concepts in property insurance, including coinsurance, actual cash value, and stated value. This quiz covers how these terms affect coverage and claims in your property insurance policy.