CAIB 2 - Chapter 1 - Flashcards
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Questions and Answers

What does ACV stand for?

Actual Cash Value

What is the difference between ACV and replacement value?

ACV takes depreciation into account, while replacement value does not.

What is the purpose of co-insurance?

To ensure that the insured has enough insurance coverage to cover losses.

The cost to repair or replace damaged property, minus ______, is known as ACV.

<p>depreciation</p> Signup and view all the answers

What is the purpose of a Statement of Value?

<p>To replace the standard co-insurance clause and require a filed Statement of Value indicating the amount of insurance needed for specific property types or risks.</p> Signup and view all the answers

The Reinstatement Clause ensures that the insurance will be automatically restarted after a loss.

<p>True (A)</p> Signup and view all the answers

Subrogation is the insurer's right to recover losses from a third party.

<p>True (A)</p> Signup and view all the answers

What is the purpose of a Property Protection System?

<p>To protect property from loss or damage, typically incorporating fire extinguishers and alarms.</p> Signup and view all the answers

What is the purpose of the Pair & Set Clause?

<p>To ensure that settlements for lost or damaged items within a paired set are limited to the value of the damaged item, including the cost of installation.</p> Signup and view all the answers

What are some examples of property types that might have a specific Statement of Value?

<p>Specific risks or property types not covered by the policy, such as antique furniture or specialized equipment.</p> Signup and view all the answers

Flashcards

Actual Cash Value (ACV)

The cost to repair or replace damaged property, minus depreciation.

Replacement Value

The cost to repair, replace, or rebuild property, without depreciation.

Book Value

Original purchase price adjusted for depreciation.

Co-insurance

Requirement for insured to carry enough insurance to cover losses.

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Stated Amount Co-insurance

Clause replacing standard co-insurance, requiring a filed Statement of Value.

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Exclusions (Insurance)

Specific risks or property types not covered by the policy.

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Permission Clauses

Allow changes to property without prior approval, within limits.

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Breach of Conditions

Non-compliance with policy conditions, potentially leading to claim denial.

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Reinstatement Clause

Ensures automatic resetting/restarting of insurance after a loss.

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Subrogation

Insurer's right to recover losses from a third party.

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Property Protection Systems

Systems like fire extinguishers and alarms to protect property.

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Notification of System Issues

Requirement for reporting system defects or interruptions immediately.

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Cancellation of Monitoring or Maintenance

Duty to notify insurer about canceled or non-renewed monitoring/maintenance.

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Premium Adjustment Clause

Allows adjustments based on actual stock values.

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Verification of Values Clause

Insurer's right to inspect property after policy ends.

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Basis of Valuation: Stock (unsold)

Valued at ACV or repair/replacement costs.

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Basis of Valuation: Stock (sold)

Valued at selling price minus discounts.

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Tenant's Improvements Valuation

Valued by the repair/replacement cost of properly managed improvements.

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Business Records Valuation (manual)

Valued by reproduction costs of materials/labour.

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Business Records Valuation (automated)

Valued by reproduction costs of duplicates/originals.

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Property of Others

Insurer may pay insured or owner for losses to others' property.

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Locked Vehicle Warranty

Covers vehicle theft under specific conditions of security.

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Identify 3 ways to insure commercial property?

  1. Book Value
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Basic difference between ACV & replacement value

ACV takes depreciation into account, where Replacement cost does not

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Formula/Cost Approach

Most commonly used for real estate. The Replacement cost will often put down buildings

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Income Approach

Use the net annual rent & multiply it by the capitalization rate to arrive at the ACV amount

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True Value to the Owner

The amount of insurance is automatically reinstated immediately following a loss. In other words the insured will have coverage when the value is reinstated immediately following the loss. The amount of the settlement is based on the value of the property lost or damaged, which includes the cost of installation, with the premiums restricted to the value of the lost or damaged part including the cost of installation.

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Waiver or Forfeiture of the Stated Amount

A denial of coverage will not result in a denial of coverage by the insurer

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Salvage

Provided by the policy when there has been a loss

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Pair & Set Clause

A clause that deals with insuring items in a set, such as a pair of earrings.

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Parts Clause

A special clause that applies to insuring parts of a larger item.

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Study Notes

Actual Cash Value (ACV)

  • ACV is the cost to repair or replace damaged property, minus depreciation
  • Replacement value is the cost to repair, replace, or rebuild without depreciation
  • Original purchase price adjusted for depreciation is another way to look at replacement value
  • Co-insurance requirement: Insured must carry enough insurance to cover losses
  • Statement of Value clause is used to replace the standard co-insurance
  • Specific risks or property types excluded from the policy
  • Policy allows for changes in property without prior approval (within limits)
  • Non-compliance is a risk for claim denial
  • Automatic policy resetting/restarting after a loss is an important feature
  • Insurer's right to reclaim losses from third parties is stated
  • Property Protection Systems (e.g., alarms, monitoring) requirement detailed
  • Duty to notify insurer about system issues
  • Adjustments based on actual stock values
  • Inspection of property after policy ends
  • Valuation methods: ACV, repair/replacement, selling price minus discounts
  • Reproduction cost of materials/labour for valuation
  • Reproduction costs of duplicates/originals for valuation
  • Property/Vehicle covered under specific security conditions
  • Fire insurance contract rules are detailed
  • Property specifically insured is named
  • Property single limit of insurance (e.g., building A, building B, etc.)

Book Value

  • Depreciation is considered in ACV, not in replacement cost
  • Method to determine the replacement cost value (e.g., using buildings as examples)
  • Using net annual rent and the capitalization rate to arrive at the ACV amount
  • Insurer pays for all claims

Other Clauses

  • Coverage reinstated after a loss
  • Denial of coverage possible if certain rules aren't followed
  • Policy wording defining coverage when a loss occurs (Pair & Set Clause, Parts Clause)

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CAIB 2 - Chapter 1 Flashcards PDF

Description

This quiz covers the concept of Actual Cash Value (ACV) in insurance, focusing on its definition, components, and related policy requirements. Additional topics include replacement value, co-insurance, and risk management within property insurance. Test your knowledge on these essential concepts!

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