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New Jersey Property & Casualty Insurance Exam: Comprehensive Flashcards
Questions & Answers
risk - ANSWER>>the possibility that a loss will occur
speculative risk - ANSWER>>possibility of loss or gain
pure risk - ANSWER>>only possibility of loss
exposure - ANSWER>>the potential for accidents and other losses
insurance - ANSWER>>contract that transfers the risk of financial loss
peril - ANSWER>>cause of a loss
direct loss - ANSWER>>physical loss to a property with no intervening cause
indirect loss - ANSWER>>consequential loss as a result of a direct loss
hazard - ANSWER>>anything that increases the chance of a loss occurring
3 types of hazards - ANSWER>>physical - identifiable factors moral - individual's character morale - careless attitude
methods of handling risk (STARR) - ANSWER>>Sharing, Transfer, Avoidance, Reduction, Retention
1st party - ANSWER>>insured (customer)
2nd party - ANSWER>>insurer (company)
elements of insurable risk (CANHAM) - ANSWER>>Calculable Affordable Non-catastrophic Homogeneous Accidental Measurable
adverse selection - ANSWER>>The tendency for higher-risk individuals to get and keep insurance as compared to individuals that represent an average level of risk
reinsurance - ANSWER>>transfers risk from one insurer to another company reducing risk = ceding company assuming risk = reinsurer
facultative reinsurance - ANSWER>>The reinsurer considers each risk before allowing the transfer from the ceding company
treaty reinsurance - ANSWER>>the reinsurer accepts all risks of a certain type from the ceding company
types of insurers - ANSWER>>Stock Mutual Reciprocal Fraternal Lloyd's
self insurers - ANSWER>>retaining risk; set aside funds for losses
federal and state government insurers - ANSWER>>Federal - war risk, nuclear, flood, crop insurance State - workers comp and unemployment
surplus lines insurers - ANSWER>>large or specialized risk for unauthorized carriers (gaming/casinos)
financial ratings - ANSWER>>loss experience, reserves, investment performance, management, operating expenses companies - AM Best, Standard and Poor's, Moody's, Duff & Phelps, Weiss
independent insurance agents - ANSWER>>sell the product of several companies and are indepedent contractors
captive/exclusive agents - ANSWER>>represent only one company
general agents - ANSWER>>Individuals that hire, train, and supervise other agents within a specific geographical area
direct writing companies - ANSWER>>Companies whose products are sold by employees, not independent contractors.
direct response marketing - ANSWER>>selling products directly to customers (mail/magazines/tv)
express authority - ANSWER>>The authority granted to an agent by means of the agent's written contract.
implied authority - ANSWER>>an agent's authority to do things not specifically authorized in order to carry out express authority (necessary for business)
apparent authority - ANSWER>>The authority an agent is believed by third parties to have
law of agency - ANSWER>>the legal relationship formed between two people when one person agrees to perform work for another person.
fiduciary - ANSWER>>a person in a position of financial trust; knows products, complies with laws, and sends premiums to insurer
commingling - ANSWER>>Illegally mixing deposits or monies, collected from a client, with one's personal or business account
suitability considerations - ANSWER>>An agent has a responsibility to make purchase recommendations that are appropriate, or suitable, in light of a client's particular needs, objectives, and circumstances
elements of a contract - ANSWER>>offer, acceptance, consideration, legal purpose, consent
adhesion - ANSWER>>policies are written by one party and the other is required to adhere to them (any doubt in wording, courts side with insured)
aleatory - ANSWER>>value received from the contract by each party is unequal
estoppel - ANSWER>>the loss of a legal defense because of previous actions that are now inconsistent with that defense; once a right has been waived, it cannot be reinserted
material - ANSWER>>large enough to influence a decision
first party losses - ANSWER>>Property insurance pays the insured for covered losses to the property
third party losses - ANSWER>>pays "the other guy" third party is the person who suffered injury or damages.
declarations - ANSWER>>The section of an insurance policy containing the basic underwriting information, such as the insured's name, address, amount of coverage and premiums, and a description of insured locations
insuring agreements - ANSWER>>promise to pay and perils covered
conditions - ANSWER>>policy provisions, rules of conduct, duties and obligations required for coverage
provisions - ANSWER>>lists all duties and rights
loss provisions - ANSWER>>policy conditions that specify what the insured and insurer must do after a loss
endorsements - ANSWER>>add, modify, or take away coverage
exclusions - ANSWER>>take away coverage
definitions - ANSWER>>meanings provided for words in the policy
supplementary coverages - ANSWER>>payment for certain additional expenses and may have separate limits of insurance
name insured/first name insured - ANSWER>>name insured - to who the policy is issued first name - person listed first with high level of duties
company cancellation - ANSWER>>requires advance notice, full refund of unearned premium, pro rata
insured cancellation - ANSWER>>no advance notice; partial refund of unearned premium, short rate
unearned premium - ANSWER>>the amount that has not been paid to date but if he pays more, than he gets it back
prorated basis - ANSWER>>insured will receive a portion of the premium back, depending on when the policy is canceled
short rated basis - ANSWER>>surcharge or penalty for early cancellation; partial refund
nonconcurrency - ANSWER>>A situation in which other insurance is written on the same risk, but not on the same coverage basis
other insurance provisions - ANSWER>>prevent profiting from insurance and violating the principle of indemnity; primary insurance attaches immediately upon loss and excess pays whatever is not paid by primary
incurred losses - ANSWER>>Amounts paid on claims for covered losses and various expenses related to handling claims
expense ratio - ANSWER>>underwriting expenses / amount of written premium = cost of doing business
underwriting expenses - ANSWER>>Costs incurred by an insurer for advertising, commissions, salaries, administrative costs, regulatory (taxes/licensing) costs
written premium - ANSWER>>gross amount of premium income received from insureds
combined ratio - ANSWER>>loss ratio + expense ratio less than 100% = profit greater than 100% = loss
types of insurance rating - ANSWER>>judgement - considering individual risk manual (class) - using company rates contained in a manual experience - actual loss experience compared to data for a particular rating class retrospective - premium based on losses during that period schedule - system of debits or credits to reflect characteristics
loss costs - ANSWER>>pure claims data with no expenses/profits included
rate components - ANSWER>>Loss costs, claims handling costs, operating expenses, profit
Fair Credit Reporting Act (FCRA) - ANSWER>>Act that protects privacy of background information and ensures that information supplied is accurate. Notice to Applicant about report must be issued no later than 3 day after report request
penalties - $5,000 fine or 1 year imprisonment
Terrorism Risk Insurance Program Reauthorization Act of 2019 - ANSWER>>limits exposure of insurers incase of a terrorist event
Gramm-Leach-Bliley Act (GLBA) - ANSWER>>A law that requires banks and financial institutions to alert customers of their policies and practices in disclosing customer information
real vs personal property - ANSWER>>real - buildings personal - moveable contents
specific/scheduled - ANSWER>>Detailed list of covered items
blanket - ANSWER>>applying to all conditions or instances
named peril - ANSWER>>The cause of loss specifically covered by the insurance policy
open/special peril - ANSWER>>covers all perils except those specifically excluded
basic form perils - ANSWER>>Fire, lightning, and internal explosion
extended coverage perils (WCSHAVVER) - ANSWER>>Wind, Civil Commotion, Smoke, Hail, Aircraft, Vehicles, Volcanos, Explosion, Riot
broad perils (BIGAFFECT) - ANSWER>>Burglary, ice/sleet/snow, glass, accidental release of water, freezing pipes, falling objects, electrical current, collapse, tearing asunder
types of construction - ANSWER>>class 1 - frame class 2 - jointed masonry
unoccupied - ANSWER>>lack of habitational presence
standard mortgage clause - ANSWER>>Specifies the rights and duties of the mortgagee under the policy
loss payable clause - ANSWER>>Specifies how the policy protects the interests of a loss payee. A loss payee has insurable interest in personal property.
no benefit to bailee - ANSWER>>Specifies that no coverage applies if loss payment benefits a bailee.
dwelling policy & general exclusions - ANSWER>>does not require owner-occupied DP-1 basic, DP-2 broad, DP-3 special
exclusions - ordinance or law, earthquake, flood, war, nuclear, intentional loss, failure to preserve property, government seizure
Dwelling Coverage A - ANSWER>>dwelling, structures attached to dwelling, and materials/supplies for construction or repair
Dwelling Coverage B - ANSWER>>Other structures detached from the swelling by a clear space 10% of A
Dwelling Coverage C - ANSWER>>personal property excluding tenant's property, animals, aircrafts, motor vehicles, boats, and currency/money off premises is additional and 10% of C
Dwelling Coverage D - ANSWER>>Fair Rental Value - in event of a loss that makes the rental portion unfit for normal use 20% of A
Dwelling Coverage E - ANSWER>>Additional Living Expense- Included in DP-2 & DP-3 and pays for additional living expenses the insured incurs after a loss. DP-1 by endorsement 10% of A
negligence - ANSWER>>failure to take proper care in doing something legal duty owed, breach of legal duty, proximate cause and damages
tort - ANSWER>>a wrongful act or an infringement of a right (other than under contract) leading to civil legal liability.
contributory negligence - ANSWER>>if a person contributed to their own damages, the other party can not be held liable
comparative negligence - ANSWER>>liability made even when both parties have contributed to the loss; award based on the extent of involvement
absolute liability - ANSWER>>A type of liability that occurs due to extremely dangerous operations (even if they were "being careful" they can still be held liable for damages to another)
strict liability - ANSWER>>The legal responsibility for damage or injury even if you are not negligent- "product was hazardous"
vicarious liability - ANSWER>>Legal responsibility placed on one person for the acts of another (employer/employee, parent/child)
General Liability Exclusions - ANSWER>>damage to property owned by insured or in their care/custody/control bodily injury to insured losses covered under WC intentional damages
DP-1 Basic Form Coverages - ANSWER>>fire, lightning, internal explosion
also includes - debris removal, property removed (5 days), reasonable repairs, improvements and additions for tenants at own expense (10% C), fire department charge ($500 limit)
all losses paid on ACV basis
DP-2 Broad Form Coverages - ANSWER>>basic form perils, plus WCSHAVVER, V&MM, and BIG AFFECT
also includes- trees/shrubs (5% of A & no more than $500 per plant), collapse by specific perils, glass or safety glazing damage, ordinance or law (10% of A), property removed (30 days)
all losses paid on replacement cost basis & 80% coinsurance requirement
DP-3 Special Form Coverages - ANSWER>>open peril coverage
exclusions- collapse, overflow, outdoor freezing/damage, theft or vandalism if vacant for > 60 days, constant leakage, wear & tear, pollutants, foundation issues, losses caused by animals
all losses paid on replacement cost basis & 80% coinsurance requirement
our option - ANSWER>>the insurer may repair or replace with like kind and quality.
loss payment - ANSWER>>Losses will be paid within 60 days of receiving proof of loss and coming to an agreement
Dwelling Coverage L - ANSWER>>personal liability that must be endorsed with a max limit of $100,
exclusions- property owned/rented/occupied/used/in the care of insured, losses under WC, injury to insured or relative
Dwelling Coverage M - ANSWER>>medical payments to others endorsement to pay within 3 years of accident that causes BI with a minimum limit of $1,000 per person
- on insureds location with permission
- off insured's location by activities or animals of insured
Exclusions to Dwelling Coverages L and M - ANSWER>>war, intended loss, business pursuits/professional services, transmission of disease, sexual molestation, abuse, drugs, rental of ineligible premises, watercrafts or aircrafts
Residential Theft Coverage - ANSWER>>not automatically included in dwelling policy; on and off premise; have special limits broad- owner occupied limited- not owner occupied
exclusions- animals, credit cards, mail, aircrafts, property for sale, delivery, property of tenants, business property, property in care of others, motor vehicles
Dwelling AND Homeowners Mobile Home Coverage - ANSWER>>must be endorsed and only if on permanent foundation
HO-5 - ANSWER>>comprehensive form owner occupant
open peril all coverages
HO-6 - ANSWER>>condo owners does NOT insure dwelling - limits Cov A to inside walls and floors ($5,000 limit) within resident premises
broad named peril
HO-8 - ANSWER>>modified form for special risks - owners of older dwellings. dificult to value/ far exceeding market value
basic named perils
Homeowners Coverage A - ANSWER>>building and structures attached; also construction materials and supplies on or adjacent to the premises
Homeowners Coverage B - ANSWER>>Other Structures or Appurtenant Structures (10% of Coverage A) excludes - property used for business or rented to non-tenants
Homeowners Coverage C - ANSWER>>"Personal Property" covers property owned or used by the insured anywhere in the world (has special limits*)
On premises - 50% of total limit Off premises - greater of 10% of the 50% or $1,
excludes - animals, aircrafts, motor vehicles, boats, property rented to others off premises, credit cards, rental property
Homeowners Coverage C Special Limits - ANSWER>>$200 - money
$1,500 - paper property, watercraft, trailers, theft of jewelry/furs/stones, property away from premises for business, portable electronics and media used in a motor vehicle
$2,500 - theft of firearms, silverware, goldware, etc., property on the premises used for business
Homeowners Coverage D - ANSWER>>Loss of use: Coverage providing additional living expenses (normal standard of living) incurred while the dwelling structure is untenable - includes fair rental value up to 2 weeks
homeowners theft exclusions - ANSWER>>theft by insured, from dwelling under construction, from rental portion, watercraft
debris removal - ANSWER>>homeowners - by a covered peril max $1,000/$500 per tree
additional homeowners coverages - ANSWER>>reasonable repairs trees/shrubs 5% of Cov A fire dept. service charge up to $500 no deductible property removed up to 30 days credit card/forgery up to $500 no deductible loss assessment charges up to $1, glass or safety glazing material breakage
homeowners RC vs ACV - ANSWER>>Replacement Cost - dwelling and structures
