Property Insurance Concepts Quiz

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Questions and Answers

What determines the value of property for coinsurance purposes?

The purchase price of the property

The initial estimate provided at policy inception

The replacement cost as of the date of loss (correct)

The market value at the time of policy renewal

If a homeowner's insurance policy is less than 80% of the current replacement cost, how is the claim paid?

Only the amount of loss is covered

The greater of Actual Cash Value or the amount produced by the coinsurance formula (correct)

The full replacement cost minus any deductible

None of the above

What is the formula for calculating Actual Cash Value (ACV) for personal property?

Current replacement cost minus depreciation (correct)

Purchase price adjusted for inflation

Current replacement cost plus depreciation

Current market value minus repair costs

What impact does an annual update of policy values have on homeowners insurance?

It prevents coinsurance penalties during a claim Signup and view all the answers

In the given example, what should Stephen insure his home for in 2010 to avoid coinsurance penalties?

$299,200 Signup and view all the answers

Which deductible type requires the insured to pay a percentage of the policy limit during a named storm?

Percentage named storm deductible Signup and view all the answers

For which type of items is a Stated Value coverage most beneficial?

Valuable antiques and fine arts Signup and view all the answers

What happens to high-value items that are not scheduled under the Personal Articles Floater?

They have no coverage in the event of a total loss Signup and view all the answers

What is the on-premises limit for business property under a Homeowners policy with the Home Business Endorsement?

$10,000 Signup and view all the answers

What is the required action before scheduling valuable items under the Personal Articles Floater?

Conduct an appraisal Signup and view all the answers

Which type of motor vehicle is excluded from coverage under the Homeowners policy?

Personal automobiles Signup and view all the answers

What is the limit of coverage for unauthorized use of credit or debit cards under the policy?

$500 Signup and view all the answers

What is the initial cancellation period during which an insurance company can cancel for any reason?

60 days Signup and view all the answers

Which peril is excluded from coverage for homes according to the mentioned policy?

Earthquake Signup and view all the answers

What is the coverage limit for loss assessment by a Homeowners Association?

$1,000 Signup and view all the answers

How long must a dwelling be vacant for vandalism to be excluded from coverage?

60 days Signup and view all the answers

What is the usual limit for personal liability coverage per occurrence?

$300,000 Signup and view all the answers

Which of the following is NOT covered under Medical Payments?

A tenant living in the household Signup and view all the answers

Liability for which type of vehicle is included under the homeowners policy?

Service vehicles like riding mowers Signup and view all the answers

What is the maximum coverage limit for on-premises business property under the Home Business Endorsement?

$10,000 Signup and view all the answers

Which of the following represents an exception to the business activities exclusion?

Self-employed insured under 21 years with minimal earnings Signup and view all the answers

What percentage of homes in Special Flood Hazard Areas (SFHA) have a chance of being damaged by flood during a 30-year mortgage period?

26% Signup and view all the answers

Which event indicates a significant increase in insured values in Atlantic and Gulf Coast counties since 2004?

Increase of 80% Signup and view all the answers

Under which circumstance is watercraft liability NOT excluded?

A watercraft with 25 HP or less not owned by the insured Signup and view all the answers

What layer of the NFIP Reinsurance Tower covers $11 billion excess of $9 billion?

Layer 4 Signup and view all the answers

Which voluntary activity is NOT covered under homeowners insurance?

Director and Officer (D&O) activities Signup and view all the answers

What is required for a community to participate in the National Flood Insurance Program (NFIP)?

Adopt a floodplain management ordinance Signup and view all the answers

Which type of rental is allowed under homeowners insurance?

Occasional personal rental of a room for up to 7 days Signup and view all the answers

What is the take-up rate for flood insurance in the Asheville area for 2024?

2% Signup and view all the answers

Which of the following is true regarding medical payments coverage?

It provides coverage without regard to legal liability Signup and view all the answers

What does the Fire Legal Liability coverage entail?

Provides liability for fire damage to property rented to the insured Signup and view all the answers

Which of the following is NOT eligible for flood insurance under the NFIP?

Building over water Signup and view all the answers

Which flood zones are considered high risk according to flood maps?

Zones A and V Signup and view all the answers

What is the definition of a flood as outlined in the content?

Inundation of normally dry land by water or mudflow affecting two or more acres Signup and view all the answers

Who is required to purchase flood insurance in a Special Flood Hazard Area (SFHA)?

Homes and businesses with mortgages from federally regulated lenders Signup and view all the answers

What is the maximum insurance limit for personal property in single-family flood insurance policies?

$100,000 Signup and view all the answers

Which of the following is NOT covered by flood insurance?

Personal property in the basement Signup and view all the answers

What factors influence flood premiums?

Location, elevation, number of floors, and loss history Signup and view all the answers

What is the waiting period before a flood insurance policy becomes effective?

30 days Signup and view all the answers

What type of damage is explicitly covered under flood insurance?

Mudslide damage Signup and view all the answers

Which coverage option is available through private market flood insurance?

Higher limits and broader coverage Signup and view all the answers

What is a separate deductible applicable to in flood insurance policies?

Both building and contents Signup and view all the answers

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.