Personal Lines Insurance Study Guide PDF

Personal Lines Insurance Study Guide Section 1: General Insurance Concepts Key Topics: - Risk & Insurance: Definition of risk, types of risk (pure vs. speculative), managing risk. - Insurance Principles: Law of large numbers, insurable interest, indemnity, subrogation. - Types of Insurers: Stock v...

Personal Lines Insurance Study Guide Section 1: General Insurance Concepts Key Topics: - Risk & Insurance: Definition of risk, types of risk (pure vs. speculative), managing risk. - Insurance Principles: Law of large numbers, insurable interest, indemnity, subrogation. - Types of Insurers: Stock vs. mutual companies, fraternal insurers, Lloyd's Associations. - Insurance Contracts: Elements (offer, acceptance, consideration, legal purpose, competent parties). Practice Questions & Answers: 1. What are the four essential elements of an insurance contract? - Offer, acceptance, consideration, and legal purpose. 2. Define the law of large numbers and its importance in insurance. - It states that as the number of exposure units increases, prediction accuracy improves, which helps insurers set fair premiums. Section 2: Property Insurance Basics Key Topics: - Types of Property Policies: Homeowners, dwelling policies, commercial property. - Policy Components: Declarations, insuring agreement, exclusions, conditions. - Covered Perils: Named-peril vs. open-peril policies, basic/broad/special coverage. - Valuation Methods: Actual cash value (ACV) vs. replacement cost (RCV). - Deductibles & Coinsurance: How they affect claims payments. Practice Questions & Answers: 1. What is the difference between actual cash value and replacement cost? - ACV considers depreciation, while RCV pays the full cost to replace an item. 2. If a homeowner has an 80% coinsurance clause but only insures their home for 50% of its value, how will a claim be paid? - The insurer will apply a penalty and pay a reduced amount. Section 3: Homeowners Insurance Key Topics: - HO Policy Forms: HO-1 through HO-8 (which coverages apply to each). - Coverage A (Dwelling) & B (Other Structures): What is included? - Coverage C (Personal Property): Named vs. open peril, special limits. - Coverage D (Loss of Use): Additional living expenses. - Coverage E & F (Liability & Medical Payments): Who is covered, common exclusions. Practice Questions & Answers: 1. What HO policy is best for an older home that would be expensive to replace? - HO-8 (Modified Coverage Form). 2. A visitor slips and falls on your icy driveway. Which part of your homeowners policy would cover their medical bills? - Coverage F (Medical Payments to Others). Section 4: Auto Insurance (PAP) Key Topics: - Part A - Liability Coverage: Bodily injury & property damage limits. - Part B - Medical Payments: Pays for injuries to the insured & passengers. - Part C - Uninsured/Underinsured Motorist Coverage: When does it apply? - Part D - Coverage for Damage to Your Auto: Collision vs. comprehensive. Practice Questions & Answers: 1. How does underinsured motorist coverage work? - It covers damages when the at-fault driver's insurance isn't enough. 2. What is the difference between collision and comprehensive coverage? - Collision covers crashes; comprehensive covers non-collision damage like theft or fire. Section 5: Miscellaneous Coverages & Endorsements Key Topics: - Flood Insurance: What does the National Flood Insurance Program (NFIP) cover? - Umbrella Insurance: Extra liability protection. - Earthquake Insurance: Deductibles, policy triggers. - Personal Articles Floater (PAF): Extra coverage for valuable items. Practice Questions & Answers: 1. Why is flood insurance typically excluded from a standard homeowners policy? - Because it's covered by NFIP, not private insurers. 2. A client owns several rental properties. What policy should they consider for extra liability? - Umbrella insurance. Section 6: Alabama-Specific Laws & Regulations Key Topics: - State Minimum Auto Liability Requirements. - Insurance Producer Licensing & Continuing Education. - Claims Settlement Regulations. - Unfair Trade Practices (Twisting, Rebating, Misrepresentation). Practice Questions & Answers: 1. What are the minimum auto liability limits required in Alabama? - 25/50/25 (Bodily Injury per person / Bodily Injury per accident / Property Damage). 2. If an agent misrepresents an insurance policy to a client, what violation has occurred? - Misrepresentation, which is an unfair trade practice.