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364 Cards in this Set

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Personal insurance
Insurance that covers the financial consequences of losses to individuals and families caused by death, illness, injury, disability, and unemployment.
Loss exposure
Any condition or situation that presents the possibiliity of a financial loss, whether or not loss occurs.
Cause of loss
Means by which property is damaged or destroyed (e.g., fire and theft); also called perils.
Property loss exposure
Any condition or situation that presents the possibility of a property loss.
Real property
Land, as well as buildings and other structures attached to the land or embedded in it.
Personal property
Tangible or intangible property that is not real property.
Liability loss exposure
Any condition or situation that presents the possibility of a liability loss.
Liability loss
A claim for moeny damages because of injury to another party or damage to another party's property.
Civil law
Body of law that deals with the rights and duties of citizens regarding one another.
Tort
A wrongful act, other than a crime or breach of contract, committed by one party against another.
Intentional tort
A deliberate act that causes harm to another person.
Absolute liability (strict liability)
Legal liability that arises from inherently dangerous activities or dangerously defective products that harm another, regardless of the degree of care used; does not require proof of negligence.
4 elements of negligence
1. A duty to act
2. A breach of that duty
3. An injury or damage occurs
4. The breach of duty is the direct cause of the injury or damage
1st element of negligence
A duty to act. (i.e., homeowners have a duty to maintain their premises so as not to cause injury to a guest.)
2nd element of negligence
A breach of that duty (i.e., if a parent allows a kid to leave an object, such as a ball, on the front entry steps, they may have breached their duty to keep the premises safe)
3rd element of negligence
An injury or damage occurs (i.e., a guest trips on the ball left on the steps and breaks his leg)
4th element of negligence
The breach of duty is the direct cause of the injury or damage (in an unbroken chain of events). The direct cause of the guest's broken leg is the ball the kid left on the steps.
Name 6 intentional torts
Libel, slander, assault, battery, trespass, nuisance
Libel
A written or printed untrue statement that damages a person's reputation. For example, Ted prints an article in a local community newsletter claiming that his neighbor, Paul, has been convicted of drunken driving, which is not true. Libel is an intentional tort.
Slander
An oral untrue statement that damages a person's reputation. If, at a parent-teacher meeting, Susan publicly and wrongly accuses a local pharmacist of selling illegal drugs to teenagers, she may be guilty of slander. Slander is an intentional tort.
Contractual liability
Liability assumed under any contract or agreement.
Statutory liability
Liability imposed by a specific statute or law.
Risk management
The process of making and carrying out decisions that will decrease the adverse effects of potential losses.
Personal risk management
The risk management process applied to the loss exposures of individuals or families.
Errors and omissions (E&O)
Negligent acts (errors) committed by a person while conducting insurance business that give rise to legal liability for damages; can also involve a failure to act (omission) that creates legal liability.
Assault
The intentional and unlawful threat of bodily harm. If Mary threatens to hit Betty, and Betty believes that Mary is ready and willing to carry out her threat, Mary has committed an assault on Betty.
Battery
Unlawful physical contact with another person. If Mary carries out her threat and hits Betty, she has committed a battery. Betty may sue Mary for damages because of assault and battery.
Trespass
the unauthorized possession or use of land. If Jacob parks his car in Chris's yard without Chris's permission, Jacob may be guilty of trespass.
Nuisance
the violation of a person's right to enjoy use of property without disruption from outside sources. For instance, if Juliette persistently gives noisy parties that last late into the night, her neighbors may seek an injunction against such activities under civil law.
Loss control
Risk management technique to reduce the frequency or severity of losses.
Avoidance
Risk management technique by which an individual or a family avoids a loss exposure by choosing not to own a particular item of property or not to engage in a particular activity.
Noninsurance transfer
A risk management technique that transfers loss exposures from one party to another party that is not an insurer.
Retention
A risk management technique that draws on the financial resources of an individual or a family to apy for party or all of the consequences of a particular loss exposure. If individuals or families do not transfer their loss exposures to an insurance company or to anyone else, they retain their losses (either intentionally or unintentionally) an dmust pay for such losses themselves.
Package policy
Policy that includes two or more lines of insurance. In personal insurance, such as property and liability, examples of package policies are the homeowners policy and the personal auto policy.
Name five problesm associated with automobile insurance.
1) High frequency of auto accidents
2) High costs of auto accidents
3) Underwriting losses
4) Irresponsible drivers
5) Availability and affordability of auto insurance
Underwriting loss
An insurer's loss incurred when losses and expenses for a given period are greater than its premium income for the same period.
Standard market
Insurers who voluntarily offer insurance coverages at rates designed for customers with average or beter-than-average loss exposures.
Tort
a wrongful act, other than a crime or breach of contract, committed by one party against another
Negligence
Acting differently from the way a reasonably prudent person would act under similar circumstances. An individual is negligent when he or she fails to exercise the appropriate degree of care under given circumstances.
Name the seven approaches to compensating auto accident victims:
1) the tort liability system
2) financial responsibility laws
3) compulsory insurance laws
4) unsatisfied judgment funds
5) uninsured motorists coverage
6) underinsured motorists coverage
7) low-cost auto insurance
Contributory negligence law
Law that prevents a person from recovering damages if that person contributes in any way to his or her own injury.
Comparative negligence law
Law that requires both parties to a loss to share the financial burden of the injury according to their respective degrees of fault.
Tort reform
Proposed or actual legislation intended to reduce legal costs or settlement awards resulting from negligence lawsuits.
Financial responsibility law
Law that requires motorists, under certain circumstances, to provide proof that they have the ability to pay, up to certain minimum amounts, for damage or injury that theymight cause as a result of operating a vehicle.
Compulsory auto insurance laws
Law that requires the owners or operators of automobiles to carry automobile liability insurance at least equal to certain minimum limits before the vehicle can be licensed or registered.
Unsatisfied judgment funds
Funds established by some states to compensate auto accident victims who have obtained a court judgment that is uncollectible because the negligent party cannot pay.
Uninsured motorists (UM) coverage
Coverage that reimburses an insured auto accident victim who sustains bodily injury (and, in some states, property damage) caused by an uninsured motorist, a hit-and-run driver, or a driver whose insurer is insolvent.
Underinsured motorists coverage
Coverage that applies when a negligent driver has liability insurance at the time of the accident but has limits lower than those of the injured person's coverage.
No-fault automobile insurance
Insurance that covers automobile accident victims on a first-party basis, allowing them to collect damages from their own insurers regardless of who was at fault.
Monetary threshold
The level of monetary damages in a no-fault system at which one injured party can seek compensation from the at-fault party.
Verbal threshold
The level of severity of injury in a no-fault system, including death and certain specified injuries, such as disfigurement or dismemberment, at which the injured party can seek compensation from the at-fault
Personal injury protection (PIP) endorsement
Endorsement to an auto insurance policy describing the no-fault benefits that are provided.
Pure no-fault system
System that would prevent an injured person from seeking compensation for damages from the at-fault party, regardless of the injury's severity; the injured person would collect no-fault benefits directly from his or her own insurer.
Add-on plan
Endorsement that provides certain benefits to injured automobile victims regardless of fault; the injured person retains the right to seek compensation from the negligent party who caused the accident.
Modified no-fault laws
Laws that prevent an injured person from seeking compensation for damages from a negligent driver unless damages exceed the monetary or verbal threshold; if the claim is below the threshold, the injured person collects benefits from his or her own insurer.
Choice no-fault plan
Plan that gives an insured the option, at the time an auto insurance policy is purchased or renewed, of choosing whether to be covered on a no-fault basis.
Residual market (shared market)
Term referring collectively to insurers and other organizations that make insurance available to those who cannot obtain coverage in the standard market.
Automobile insurance plan
Plan for insuring high-risk drivers in which all auto insureres doing business int he state are assigned their proportionate share of such drivers based ont he total volume of auto insurance written in the state. (i.e., if one insurer writes 10 percent of all the auto insurance int he state, it would be assigned 10 percent of the state's high-risk drivers.)
Joint underwriting association (JUA)
Organization created in a few states that designates servicing insurers to handle high-risk auto insurance business; all auto insureres in the state are assessed a proportionate share of the losses and expenses based ont heir percentage of the voluntary auto insurance premiums written in the state.
Reinsurance facility
A state-wide reinsurance pool to which insurers can assign premiums and losses for high-risk drivers; original insurers service the policies, but all insurers in the pool share the losses and expenses of the facility in proportion to the total auto insurance they write in that state.
Underwriting
the process by which insurers decide which potential customers to insure and the coverage that insureds will be offered. Underwriting activities include selecting insureds, pricing coverage, determining policy terms and conditions, and monitoring underwriting decisions.
Cancellation
a decision by the insurer or the insured to terminate coverage during hte policy period (before the expiration date of the policy).
Material misrepresentation
a false statement by an insured of an important (material) fact on which the insurer relies to make an underwriting decision.
Nonrenewal
an insurer's decision to terminate coverage on the expiration date of the policy; in other words, the insurer refuses to renew the policy when it expires
Restrictions on cancellation do not apply for the first 60 days (for example) on a policy period. True or False?
TRUE
Cancellation is usually permitted for what reasons?
- Nonpayment of premium
- Suspension or revocation of a driver's license
- Submission of a false or fraudulent claim
- Material misrepresentation of relevant underwriting information
- Conviction for certain offenses, such as driving under the influence of alcohol or drugs
- Violation of policy terms or conditions
What are some restrictions on nonrenewal?
- The insurer must give the insured written notice that the policy will not be renewed
- A certain number of days of advance notice is required
- Many states require the insurer to give the reason for the nonrenewal or to provide the reason on request.
Unfair discrimination
the application of different standards or methods of treatment to insureds that have the same basic characteristics and loss potential. Examples of unfair discrimination in auto insurance rating would include charging higher-than-normal rates for an applicant based solely on the applicant's race, religion, or ethnic background.
What are the primary factors used in determining the cost of personal auto insurance?
- Age
- Sex
- Marital status
- Territory
- Use of the auto
- Good student discount
- Driver education credit
What are the important but non-primary rating factors used in rating personal automobile insurance?
- Driving record
- Type of vehicle
- Number of vehicles
- Deductibles
- Liability limits
PAP Coverages
Part A: Liability Coverage
Part B: Medical Payments Coverage
Part C: Uninsured Motorists Coverage
Part D: Coverage for Damage to Your Auto
Part E: Duties After an Accident or Loss
Part F: General Provisions
PAP Part A general info
Liability coverage - provides coverage that protects the insured against a claim or suit for bodily injury or property damage arising out of the operation of an auto
PAP Part B general info
Medical Payments Coverage - provides coverage for reasonable and necessary medical expenses incurred by an insured because of bodily injury caused by an auto accident
PAP Part C general info
Uninsured Motorists Coverage - provides protection if an insured is injured by an uninsured motorist, a hit-and-run driver, or a driver whose insurer is insolvent
PAP Part D general info
Coverage for Damage to Your Auto - provides coverage for physical damage to a covered auto and to certain nonowned autos. Coverage for damage to your auto is also referred to as physical damage coverage
PAP Part E general info
Duties After an Accident or Loss - outlines the duties required of an insured after an accident or a loss
PAP Part F general info
General Provisions - contains certain general provisions, such as cancellation and termination of the policy and the policy period and territory
Named insured (as used in the PAP)
Policyholder whose name (or names) appears on the declarations page
Policy Period (i.e., times)
12:01am - 12:01 am
Lienholder
Organization that holds the title to the vehicle until the loan is paid off
Bodily injury (BI) as used in the PAP
Bodily harm, sickness, or disease, including death that results
Property damage (PD) (as used in the PAP)
Physical injury to or destruction of tangible property. It also includes loss of use of tangible property.
Trailer (as used in the PAP)
A vehicle designed to be pulled by a private passenger auto, a pickup, or a van; farm wagon or farm implement when towed by one of these vehicles
Your covered auto (as used in the PAP)
Any vehicle shown in the declarations; a trailer owned by the insured; a temporary substitute auto or trailer; a newly acquired auto (subject to certain restrictions)
Temporary substitute vehicle (as used in the PAP)
A nonowned auto or trailer that the insured is using because of the breakdown, repair, servicing, loss, or destruction of a covered vehicle
Newly acquired auto (as used in the PAP)
An eligible private passenger auto, pickup, or van of which the named insured becomes the owner or that the named insured leases during the policy period; it can be a replacement auto or an additional auto
Damages
Monetary award that one party is required to pay to another who has suffered loss or injury for which the first party is legally responsible
Compensatory damages
Damages, including both special damages and general damages, that are intended to compensate a victim for harm actually suffered.
Special damages
Compensatory damages allowed for specific out-of-pocket expenses, such as doctor and hospital bills.
General damages
Compensatory damages awarded for losses, such as pain and suffering, that do not have a specific economic loss
Punitive damages
Damages awarded by a court to punish wrongdoers who, through malicious or outrageous actions, cause injury or damage to others; some states do not permit insurers to award payment for punitive damages because such payment would not punish the insured
Split limits (as used in the PAP)
The maximum amounts a PAP insurer will pay for the insured's liability for bodily injury per person, bodily injury per person, bodily injury per accident, and property damage per accident
Single limit
Maximum amount an insurer will pay for the insured's liability for both bodily injury and property damage per accident
Prejudgment interest
Interest on damages that ccrues between the time the accident or suit occurs and when a judgment is rendered indicating that the insured is responsible for damages; subject to the policy limit of liability
Structured settlement
Periodic and guaranteed payments made for damages over a specified time period; an alternative to lump-sum payment
What are the 4 categories of persons and organizations insured for liability coverage under the PAP?
- The named insured and any family member (as defined)
- Any person using a covered auto
- Any person or organization, but only for legal liability arising out of an insured person's use of a covered auto on behalf of that person or organization
Definition of "family members" (PAP)
blood, marriage, or adoption, as well as a ward or a foster child, any of whom live int he insured's household. Children who are temporarily away from home, as when attending college, are still covered under their parents' policy
Supplementary payments (as used in the PAP)
Amounts paid in addition the liability limits for items such as premiums on bail bonds and appeal bonds, postjudgment interest, loss of earnings for attendance at trials, and other reasonable expenses incurred at the insurer's request
Postjudgment interest
Interest on damages that accrues after a judgment has been rendered and before the damages are paid; can be in addition to the liability limits and other legal defense costs.
Liability coverage exclusions
- Intentional injury
- Property owned or transported
- Property rented to , used by, or in the care of the insured
- bodily injury to an employee of an insured
- public or livery conveyance
- garage business
- other business use
- using a vehicle without reasonable belief of being entitled to do so
- nuclear energy liability losses
- vehicles that have fewer than four wheels or are designed primarily for off-road use
- other vehicles owned by the named insured or available for the named insured's regular use
- vehicles owned by or available for regular use of any family member
- racing
What do the different limits mean in a split limit auto situation?
Bodily injury per person/Bodily injury to all persons in each accident/Property damage in each accident
Out of state coverage (as used in part A of the PAP)
Provision that automatically provides any higher limits and types of coverage required by the state in which an auto accident occurs if such an accident occurs in a state other than the one in which the covered auto is principally garaged
Persons insured by Part B of PAP
- Named insured and resident family members while occupying a motor vehicle or if injured as a pedestrian by a motor vehicle designed for use mainly on public roads
- other persons while occupying a covered auto
Insuring agreement for Part B of PAP
Pays reasonable medical and funeral expenses incurred by an insured for services rendered within three years of the accident
Exclusions to Part B of the PAP
- Occupying a motorized vehicle with fewer than four wheels
- using a covered auto as a public or livery conveyance (exclusion does not apply to a share-the-expense car pool)
- using the vehicle as a residence or premises
- injury occurring during the course of employment if workers compensation benefits are required or available
- vehicle furnished or made available for the named insured's regular use
- vehicle furnished or made available for the regular use of any family member
- occupying a vehicle without a reasonable belief of being entitled to do so
- vehicle used in the businesss of an insured (exclusion does not apply to a private passenger auto, an owned pickup or van, or trailer used with any of the preceding vehicles), nuclear weapons, war, nuclear reaction or radiation
- occupying a vehicle located inside a racing facility for the purpose of competing in or preparing for a prearranged racing contest
Occupying (as used in the PAP)
in, upon, getting in, on, out or off
PAP Part C insuring agreement
Pays compensatory damages that na insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by an insured caused by an accident
PAP Part C persons insured
-named insured and resident family members
- any other person while occupying a covered auto
- any person legally entitled to recover damages because of bodily injury to a person described above
PAP Part C exlusions
- No uninsured motorists coverage on a motor vehicle owned by an insured
- no coverage for a family member who occupies, or is struck by, a motor vehicle owned by the named insured that is insured for uninsured motorists coverage on a primary basis by another policy
- Settling a claim without the insurer's consent
- using a covered auto as a public or livery conveyance (exclusion does not apply to a share-the-expense car pool)
- using a vehicle without a reasonable belief that the insured is entitled to do so
- no benefit to workers compensation insurer
- no punitive damages paid
Uninsured motor vehicle
Any type of land motor vehicle or trailer that is not insured for bodily injury liability, is insured for less than the financial responsibility limits, is a hit-and-run vehicle, or whose insurer denies coverage or becomes insolvent
Arbitration (as used in the PAP)
Process for settling disputes between the insured and the insurer concerning whether or for what amount uninsured motorists coverage applies
Part D - PAP - insuring agreement
Pays for direct and accidental loss to a covered auto or to a nonowned auto, including its equipment, minus any deductible, caused by a collision or other-than-collision. Declarations must indicate such coverage is provided for each vehicle.

Loss caused by the following is considered other-than-collision:
- Missiles or falling objects
- Fire
- Theft or larceny
- explosion or earthquake
- windstorm
- hail, water or flood
- malicious mischief or vandalism
- riot or civil commotion
- contact w/ a bird or animal
- breakage of glass

Transportation expenses (see other question)

Also pays expenses for which the insured is legally liable because of loss to a nonowned auto
Transportation expenses, PAP Part D
Pays up to $20 daily, to a max of $600, for transportation expenses because of loss to a covered auto caused by collision or other-than-collision.

Declarations must indicate that such coverage is provided for each vehicle.
Persons insured by Part D, PAP
Part D does not specifically mention the persons insured. However, coverage applies to the named insured and spouse, resident family members, and any person using a covered auto w/ permission
PAP Part D exclusions, part 1
- Loss to a covered auto or nonowned auto while being used as a public or livery conveyance (exclusion does not apply to a share-the-expense car pool)
- Damage from wear and tear , freezing, and mechanical or electrical breakdown
- radioactive contamination of war
- electronic equipment and accessories designed for the reproduction of sound - including radios, stereos, tape decks, or CD players - unless permanently installed in the auto. Certain other exceptions apply.
- Other electornic equipment, including citizen's band radios; telephones; two-way mobile radios; scanning monitor receivers; television monitor receivers; videocassette recorders; or personal computers (does not apply to electronic equipment for the normal operation of the auto, or to a permanently installed car telephone)
PAP Part D exclusions, part 2
-Tapes, records and discs used w/ the preceding equipment
- Government destruction or confiscation
- loss to a trailer, camper body, or motor home not shown in the declarations (except if newly acquired and reported w/in 14 days)
- loss to a nonowned auto used w/o reasonable belief of permission
- radar or laser detection equipment
-custom furnishings or equipment in a pickup or van
- nonowned auto maintained or used in the automobile business
- vehicle located inside a racing facility for the purpose of competing in or preparing for a prearranged racing contest
- loss to a rental car if a state law or rental agreement precludes the rental company from recovering the insured
Collision (as used in the PAP)
The upset of a covered auto or a nonowned auto or its impact w/ another vehicle or object
OTC is short for what? It used to be called what?
Other-than-collision coverage (PAP); Comprehensive coverage
T or F: Physical damage coverages also apply to a nonowned auto?
True
Actual cash value
Replacement cost of property minus an allowance for depreciation and obsolescence
Diminution in value
Actual or perceived loss in market or resale value resulting from a direct and accidental loss
Bailee
Person or business that has in its care, custody, or control, property belonging to another
Appraisal (as used in Part D of the PAP)
A provision that describes how the insured and insruer will settle disputes about the amount of loss. Each party selects a competent appraiser, and the two appraisers select an umpire. A decision by any two of the three is binding. Procedurally, the appraisal process resembles the arbitration process described under uninsured motorists coverage
General duties under Part E of PAP
- Prompt notice
- Cooperation w/ the insurer
- Submission of legal papers to the insurer
- Physical examination
- Examination under oath
- Authorization of medical records
- Proof of loss
Additional duties for uninsured motorists coverage, under Part E of PAP
- Notify police
- Submit legal papers
Additional duties for physical damage coverage, under Part E of PAP
- Prevent further loss
- Notify police
- Permit inspection and appraisal
Part F of PAP is what?
(General provisions)
Bankruptcy of insured - provision under Part F (PAP)
The insurer is not relieved of any obligation s under the policy if the insured declares bankruptcy or becomes insolvent
Assignment
The transfer of a policy from the named insured to another party; insurer's written consent is required
If 2 or more auto policies issued to the named insured by the same insurer apply to the same accident, the insurer's maximum limit of liability is what?
The highest applicable limit of liability under any one policy.
Miscellaneous type vehicle endorsement to PAP
Provides coverage for a motor home, a motorcycle or similar type of vehicle, an all-terrain vehicle, a dune buggy, or a golf cart.
Snowmobile exclusions
-snowmobile used in any business
- any person or organization other than the named insured, while renting or leasing a snowmobile
- racing, speed contest or in prep for race
- passengers liability excluded
Limit Mexico coverage endorsement extends how far past the border?
25 miles
Towing and labor costs coverage endorsement
The insurer pays for towing and labor costs when a covered auto or noonowned auto is disabled, up to some stated amount. i.e., an insured's car will not start and a repair truck is called to provide roadside assistance
Unendorsed PAP includes what limit on sound reproduction equipment and accessories installed in locations not used for that purpose by the auto manufacturer?
$1,000
You can add an endorsement to the auto policy, up to what maximum limit, for tapes, records, discs and other media?
$200
Stated amount, relative to autos, would be appropriate to insure what?
High-value antique cars or restored show cars, for example.
Section I of the HO policy covers what?
Property
Section II of the HO policy covers what?
Liability
T or F: the HO policy is NOT a self-contained policy
F. It IS self-contained, and is a single document that forms a complete contract
T or F: residence premises and insured location are the same thing
False
Residence premises
The one-family dwelling where the named insured resides; the two-, three-, or four-family dwelling where the named insured resides in at least one of the units; that part of any other building where the named insured resides; and other structures and grounds; all at the location shown in the declarations
Insured location
Includes the residence premises and also:
- An unlisted residence acquired by the named insured during the policy period
- A nonowned premises where any insured is temporarily residing (such as a hotel room)
- vacant land, other than farm land, owned by or rented to any insured
- an insured's land on which a one- to four-family residence is being constructed
- individual or family cemetery plots
- any part of a premises occasionally rented to an insured for nonbusiness use (i.e., a hall rented for a wedding reception)
Coverages in an HO policy:
A: Dwelling
B: Other structures
C: Personal property
D: Loss of use
Section I - Additional coverages
E: Personal Liability
F; Medical Payments to Others
Section II - Additional coverages
Special HO sublimit on money and precious metals
$200. Also applies to bank notes, bullion, coins, medals, scrip, stored value cards, and smart cards, as well as silver, gold and platinum (other than silverware, goldware and platinumware)
Special HO sublimit on securities, documents, records and stamps
$1,500 (includes evidences of debt, letters of credit, manuscripts, personal records, passports, tickets and stamps)
Special HO submlimit on watercraft
$1,500 (includes trailers, equipment and motors)
Special HO sublimit on trailers
$1,500 (i.e., trailers NOT used for watercraft)
Special HO sublimit on theft of jewelry and furs
$1,500 (does not apply to other covered perils)
Special HO sublimit on theft of firearms and related items
$2,500 (includes gun accessories)
Special HO sublimit on theft of silverware, goldware, platinumware and pewterware
$2,500 (includes tea sets, trophies, etc.)
Special HO sublimit on property on the residence premises used primarily for any business purpose
$2,500
Special HO sublimit for property away from residence premises used for business purposes
$500
Limit of HO-3 Coverage B
10% of Coverage A
Limit of HO-3 Coverage C
50% of Coverage A (only 10% of this is provided for property usually located at a residence other than the residence listed on the Decs page)
Exclusions to Part B (HO-3)
- rented to anyone who is not a resident of the dwelling (unless it is rented as a garage)
- from which any "business" is conducted
- used to store "business" property
Special HO sublimit for electronic apparatus and accessories equipped to be operated by power from a motor vehicle, while in or upon a motor vehicle
$1,500
Special HO sublimit for electronic apparatus equipped to be operated by power from a motor vehicle, used primarily for business while away from the residence premises but not in or upon a motor vehicle
$1,500
Property not covered under HO-3 Coverage C
- articles insured elsewhere
- animals, birds or fish
- motor vehicles
- aircraft
- hovercraft
- property of roomers or boarders unrelated to an insured
- property in an apartment rented to others
- property rented or held for rental to others off the residence premises
- business data
- credit card or electronic fund transfer card
- water or steam
Coverages grouped under coverage D of HO-3
-additional living expense
- fair rental value
- loss of use due to civil authority

NOTE: only pays for "necessary and increased" expenses caused by temporary loss of use
Additional HO-3 coverage:
Debris removal
Creates additonal limit? Yes (an additonal 5%)
Deductible applies? Yes
Coverage dependent on another covered loss? Yes, damage from a covered peril of volcanic ash must occur for this coverage to apply
Additonal HO-3 coverage:
Reasonable repairs
Creates additional limit? No
Deductible applies? Yes
Coverage dependent on another covered loss? Yes, a loss from a covered peril must occur for this coverage to apply
Additional HO-3 coverage:
Trees, shrubs, and other plants
Creates additional limit? Yes, up to $500 is provided for each item up to a total of 5% of the Coverage A limit
Deductible applies? Yes
Coverage dependent on another covered loss? No
Additional HO-3 coverage:
Fire Dept. service charge
Creates additional limit? Yes, payment up to $500 is an additional limit
Deductible applies? No
Coverage dependent on another covered loss? No, there must be a threat of a covered peril, but there is no requirement that the peril actually occur
Additional HO-3 coverage:
Property removed
Creates additional limit? No
Deductible applies? Yes (only one deductible is subtracted from the total loss of a covered event - this goes for ALL sec. 1 HO add. coverages)
Coverage dependent on anotehr covered loss? No, there must be a threat of a covered peril, but there is no requirement that the peril actually occur
Additional HO-3 coverage:
Credit card, electronic fund transfer card or access device, forgery, and counterfeit money
Coverage creates additional limit? Yes, an additional total of $500 is available for any series of acts committed by any one person. Defense coverage is also provided for the insured if needed.
Deductible applies? No
Coverage dependent on another covered loss? No
Additional HO-3 coverage:
Loss assessment
Coverage creates additional limit? Yes, for an additional $1,000
Deductible applies? No
Coverage dependent on another covered loss? No, not to property of the insured, but there must first be a loss from a covered peril to association property
Additional HO-3 coverage:
Collapse
Coverage creates an additional limit? No
Deductible applies? Yes
Coverage dependent on another covered loss? No, other property need not be damaged, but the collapse must result from a covered peril
Additional HO-3 coverage: Glass or safety glazing material
Creates additional limit? No
Deductible applies? Yes
Coverage dependent on another covered loss? No, other property need not be damaged, but the glass breakage must result from a covered peril
Additional HO-3 coverage: Landlord's furnishings
Coverage creates additional limit? No
Deductible applies? Yes
Coverage dependent on another covered loss? No
Additional HO-3 coverage:
ordinance or law
Coverage creates additional limit? Yes, an additional limit of 10% of Coverage A is available
Deductible applies? Yes
Coverage dependent on another covered loss? Yes, this coverage is dependent on a covered loss occurring
Additional HO-3 coverage:
Grave markers
Coverage creates additional limit? No
Deductible applies? Yes
Coverage dependent on another covered loss? No
Special-form coverage
Coverage for any direct physical loss to proerty unless the loss is caused by a peril specifically excluded by the policy; also called "all-risks" or open perils coverage
Perils excluded in Coverages A and B of HO-3
- Perils listed in the Section I exclusions
- Collapse
- Freezing of a plumbing, heating, air conditioning or sprinkler system, or a household appliance
- Freezing, thawing, pressure or weight of water or ice
- theft of construction materials
- vandalism and malicious mischief to vacant dwellings
- mold, fungus or wet rot
- natural deterioration
- smoke from agricultural smudging or industrial operations
- pollutants
- settling of the dwelling
- animals
Vacant dwelling
Unfurnished and has no occupants
Unoccupied dwelling
Furnished but has no occupants
Inherent vice
type of deterioration that is characteristic of a material; e.g., the tendency of metal to rust
Exception to excluded perils - water damage coverage
Unless otherwise excluded, the HO-3 covers water damage to buildings or other structures that results from an accidental discharge or overflow of water or steam
Ensuing losses covered
Loss caused by a peril that occurs after or as a result of an initial peril; e.g., fire damage following an earthquake
Named perils for Coverage C of HO-3
- fire or lightning
- windstorm or hail
- explosion
- riot or civil commotion
- aircraft
- vehicles
- smoke
- vandalism or malicious mischief
- theft (w/ some exclusions)
- falling objects
- weight of ice, snow or sleet
- accidental discharge or overflow of water or steam
- sudden and accidental tearing apart, cracking, burning or bulging
- freezing
- sudden and accidental damage from artificially generated electrical current
- volcanic eruption
Types of theft excluded for personal property
- theft committed by an insured
- theft from a building under construction; theft of construction materials not covered under Cov. C
- Theft from that part of the insured premises rented to someone other than another insured
- Theft from another residence the insured owns, rents, or occupies where the insured is not temporarily living
- Theft to an insured who is a student at a residence away from home if the student has not been there for more than 60 days
- Theft for watercraft away from the residence premises
- Theft of trailers, semi-trailers, campers
Concurrent causation
A loss involving 2 or more perils, occurring either simultaneously or sequentially
Perils excluded under HO-3 section I
- Ordinance or law
- earth movement
- water damage
- power failure
- neglect
- war
- nuclear hazard
- intentional loss
- governmental action
(the next 3 apply only to A & B)
- weather conditions
- acts or decisions of other people, organizations, or governmental bodies that cause property damage
- faulty workmanship
Insurable interest
Interest in property that exists if a person could suffer a financial loss if the property is damaged or destroyed or cannot be used
Duties after HO loss (Section I - Conditions)
- give prompt notice
- notify the police
- notify the credit card, electronic fund transfer card company, or access device company
- protect the property from further damage
- cooperate w/ the insurer
- prepare an inventory
- verify the loss
- sign a sworn proof of loss
Proof of loss
Document that describes the details of the loss, property values, and interst(s) in the property
Methods for determining the loss settlement for a building: the limit of insurance is 80% or more of the replacement cost
The insurer pays for the replacement cost of the damage up to the limit of coverage
Methods for determining the loss settlement for a building: if the limit of insurance is less than 80% of the replacement cost:
The insurer will pay the greater of the ACV of the damage or this formula: ((Limit of insurance/(Replacement cost x .8)) x Replacement cost of the loss)
T or F: If the insured abandons the property after it is damaged or destroyed, the insurer need not take over the responsibility for it.
True
Difference between HO-3 sections I and II
Section I includes first party insurance that provides coverage for loss to property owned or used by an insured. Section II provides third party coverages; the insurance company pays a claimant who is injured or whose property is damaged by an insured (damages for claims covered under Section II are not payable to an insured, but rather on behalf of insured)
Bodily injury (BI) (as used in HO policies)
Bodily harm, sickness, or disease, including required care, loss of services, and death that result
Property damage (PD) (as used in HO policies)
Physical injury to, destruction of, or loss of use of tangible property
T or F: The insurer does not pay defense costs if an insured is presented w/ a lawsuit that involves a claim that is covered under the policy.
False. Defense costs are paid, and are done so in addition to paying up to the limit of liability
Medical payments to others
Coverage F of HO policies. A homeowners coverage for necessary medical expenses incurred by others (not an insured) w/in 3 years of an injury. (Does not require determination of liability)
Coverage F applies to people who are injured in these situations:
- person is on an "insured location" w/ the permission of the insured
- person off the insured location is injured because of conditions on the insured location (i.e., smoke)
- person off the insured location is injured by an insured's activities (hit by golf ball)
- person off the insured location is injured by a residence employee of the insured during the course of employment
- person off the insured location is injured by an animal owned by or in the care of an insured
Residence employees
Domestic workers whose duties include maintaining or using the household premises or performing domestic or household services
Employee (as used in HO policies)
An employee of insured who is not a residence employee
No Section II liability coverages can arise out of:
(applying to motor vehicles, watercraft, aircraft, hovercraft)

- the ownership, maintenance, occupancy, operation, use, loading, and unloading of a motor vehicle or craft by any person unless it appears in a specific exception the exclusion.
- negligent entrustment, by an insured, of an excluded motor vehicle or craft
- an insured's failure to supervise, or negligently supervising, a person
- an insured's "vicarious liability" for the actions of a child or minor
Examples of motor vehicle exposures covered by section II of the HO-3 policy:
- an unlicensed antique auto is stored in the insured's garage
- a riding lawn mower is used to maintain the insured's yard
- a motorized wheelchair, or a three- or four-wheeled power scooter, is used by a handicapped person
- an insured borrows an unlicensed dune buggy for a ride through the sand dunes
- an insured owns an unlicensed dirt bike used by the insured's grandchild ont he insured's property
- the insured lives in a gated retirement community and owns a golf cart used for visiting and running errands w/in the community and also for playing golf on the community's golf course
- an insured has parked the family's travel trailer at a campsite for use on a two-week vacation. Once the trailer is unhitched, the liability exposure is covered under the HO policy because it is no longer a "motor vehicle," as defined , and therefore is not subject to the motor vehicle exclusion
Other exclusions that apply to both Coverage E and Coverage F
- expected or intended injury or damage
- business
- professional services
- locations that are not insured locations
- war
- communicable disease
- sexual molestation and physical or mental abuse
- controlled substances
Watercraft exposures covered by Section II of the HO-3 policy
1. watercraft that are stored
2. sailboats shorter than 26 feet
3. sailboats longer than 26 feet not owned by or rented to an insured
4. inboard or inboard-outdrive watercraft w/ engines of 50 horsepower or less that are not owned by an insured
5. inboard or inboard-outdrive watercraft of more than 50 horsepower not owned by or rented to an insured
6. watercraft w/ one or more outboard engines or motors w/ 25 total horsepower or less
7. watercraft w/ one or more outboard engines or motors w/ more than 25 total horsepower that are not owned by an insured
8. watercraft w/ outboard engines or motors of more than 25 total horsepower owned by an insured if acquired during the policy period. (reporting must be w/in 45 days)
Exclusions that apply only to HO Coverage E
Coverage E(being Personal Liability)-only exclusions:

- loss assesment
- liability assumed under contract
- damage to the insured's property
- property in the insured's care
- bodily injury to persons eligible for workers compensation benefits
- nuclear liability
- bodily injury to an insured
Exclusions that apply only to HO Coverage F
- residence employee off premises
- bodily injury eligible for workers compensation benefits
- nuclear reaction
- injury to residents
T or F: the insurer will pay the premiums on bonds required in the defense of a suit
True. (but no more than the premium for a bond int he amount of the Coverage E limit)
Reasonable expenses (Section II - additional coverages)
Insurer pays reasonable expenses including actual loss of earnings up to $250/day (includes parking costs, meals and mileage)
T or F: if a guest is injured int he insured's home and the insured uses supplies from her first-aid kit to bandage the wound, the insured could collect reimbursement from her insurer for the supplies used.
True. She could collect.
Severability of insurance condition
Policy condition that applies insurance separately to each insured; does not increase the insurer's limit of liability for any one occurance
Duties after loss for HO Section II:
- give written notice
- cooperate w/ the insurer
- forward legal documents
- provide claims assistance
- submit evidence for damage to property of others
- not make voluntary payments
Duties of an injured person under HO Coverage F:
- give the insurer written proof of the claim as soon as possible; the proof must be given under oath if required
- authorize the insurer to obtain copies of medical reports and records
Liberalization cause
If the insurer, during the policy period (or w/in 60 days before policy period), adopts a revision that broadens the coverage w/o an additional premium charge, the increased coverage will automatically apply to all existing policies ont he date it is implemented w/in the state.
General differences b/w HO-3, HO-2 and HO-5
HO-3 provides "special form coverage" for the dwelling and other structures, and "named perils" coverage for the personal property

HO-2 provides "named perils" coverage for coverages A, B and C

HO-5 provides "special-form coverage" for A, B and C
HO-2 is used mainly for what purpose?
To minimize premiums
HO-2 is known as what type of form?
"Broad form." It has named perils coverage for A, B and C
HO-5 is known as what type of form?
"Comprehensive form." It has special-form coverage for A, B and C
HO-4 is similar to HO-3 but lacks what coverage(s)?
A and B.
Differences b/w HO-3 and HO-4
- HO-4 has no A & B
- additional coverage for "Building Additions and Alterations" is included in the HO-4
- The additional coverage "Landlord's furnishings" is NOT provided in the HO-4
- "ordinance or law" is an additional coverage under the HO-3 (up to 10% of Coverage A). The additional coverage is provided int he HO-4 for an amount up to 10% of the "building additions and alterations" limit
T or F: Section II is the same on all ISO HO forms
True.
Coverage D limit in HO-2 and HO-3
30% of Coverage A

(for HO-4, it is 30% of Coverage C)
Condominium
A building or complex for which the unit owner has a separate title and exclusive ownership of a specific unit as well as the joint ownership of the common areas and facilities
Cooperative
Housing unit in a complex owned by a corporation, the stockholders of which are the building's residents; corporation owns the real estate title; each unit owner owns corporation stock and has the right to occupy a specific unit
HO-6 applies to what types of units?
Condominiums and cooperatives
Differences b/w HO-3 and HO-6
- Definition of "residence premises" is changed from the HO-3's "one- to four-family dwelling" to the HO-6's "unit where you reside"
- Coverage A is changed in the HO-6 to provide a limit of $5,000 to cover the alterations, fixtures, and improvements that the insured owns or is responsible for within the residence premises
- Coverage B is not provided by the HO-6
- "Landlord's Furnishings" are NOT included in the HO-6
-Coverages A and C under the HO-6 cover "named perils" similar to the Coverage C "named perils" provided by the HO-3
- All HO-6 Coverage A losses are settled for replacement cost if the repairs are made (ACV if the insured does not make repairs)
Market value
price at which a particular property item could be sold
HO-8 policies are designed for use where what is the case?
The replacement cost of an owner-occupied dwelling significantly exceeds its market value (i.e., a large, older house w/ obsolete construction or features, such as hand-carved wooden moldings, that would be expensive to replace)
Moral hazard
Condition that might lead a person to intentionally cause or exaggerate a loss
Differences b/w HO-3 and HO-8 in Section I - Property Coverages
- Coverage C under HO-8: only 10 percent of the C limit (or $1,000, whichever is greater) is provided worldwide (the HO-3 allows 100 percent); no special limits for the theft of jewelry, firearms, or silver in the HO-8, but any one theft loss is limited to $1,000. Theft is covered only at the residence premises.

Additional Coverages:
- Debris removal is included w/in the limit of liability applying to the damaged property (the HO-3 allows and additional 5% of the applicable limit)
- Collapse is not provided in the HO-8
- Ordinance or law, grav emarkers, and landlord's furnishings additional coverages are not provided in the HO-8
Differences b/w HO-3 and HO-8 in Section I - Perils Insured Against
A, B and C are covered under HO-8 for an abbreviated list of named perils: fire, lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism and malicious mischief, volcanic eruption, and theft (theft is only covered from the residence premises and up to a limit of $1,000)
Differences b/w HO-3 and HO-8 in Section I - Conditions
The Loss Settlement condition for Coverages A and B under the HO-8 differs significantly from that under the HO-3. Under the HO-8, if the insured makes repairs after a loss, the insurer will not pay more than the cost of "common construction materials and methods" that are functionally equivalent to and less costly than obsolete, antique, or customer construction. If the insured does not make repairs, the insurer will not pay more than "market value at the time of loss."
AAIS has higher limits than ISO concerning Coverage C property when it comes to:
- money, bank notes, bullion, gold other than goldware and gold-plated ware, silver other than... etc. ($250 instead of $200)
- theft loss to jewelry, watches, precious and semiprecious stones, gems and furs ($2,500 to ISO's $1,500)
- (AAIS is less than ISO when it comes to business property away from premises ($250 to ISO's $500))
Schedule
List of insured property items that are covered, with each item specifically described and having its own coverage limit
Items that can be scheduled by endorsement:
- jewelry
- furs
- cameras
- musical instruments
- silverware
- golfer's equipment
- fine arts
- postage stamps
- rare and current coins
Inflation guard endorsement
gradually increases limits throughout the policy period for Coverages A, B, C and D
Special computer coverage endorsement
Provides special-form coverage for computers and computer equipment (coverage against risks of direct physical loss subject to specified exclusions)

- computer hardware, software, operating systems or networks
- other electronic parts, equipment or systems solely designed for use with or connected to equipment in the above group
Minimum deductible for any earthquake loss, assuming the Earth Movement endorsement has been added
$250
water back-up and sump discharge or overflow endorsement

What is its limit?
$5,000 for property covered under Section I
Personal injury endorsement adds an additional liability insuring agreement expanding HO policy to cover not only bodily injury but also personal injury. This includes:
- false arrest, detention or imprisonment
- malicious prosecution
- publishing oral or written material involving libel, slander, or invasion of privacy
- wrongful eviction, wrongful entry, or invasion of privacy involving improper occupancy of a room, dwelling, or premises
Coverage provided by the personal injury endorsement does not apply to:
-acts intended to cause personal injury
- publishing material known to be false
- material published before the policy period began
- contractual liability that does not relate to the insured's premises
- a criminal act committed by or at the direction of an insured
- contractual liability, except realted to lease agreements
- business activities (except as landlord)
- civic activities
- personal injury to an insured
- pollution claims
Additional insured - residence premises endorsement
includes persons or organizations named on the endorsement as insureds with respect to coverages A, B , E and F
Residence held in trust endorsement
can be used to insure a home owned by a trust
Public protection class
A ranking of the fire protection (including available water and water pressure) provided in the area. Each protection class is assigned a number according to its protection ranking
2 broad classifications of construction used to determine the HO base premium:
frame and masonry
3 different dwelling policies:
DP-1: Basic Form
DP-2: Broad Form
DP-3: Special Form
coverages for a Dwelling form:
A: Dwelling
B: Other Structures
C: Personal Property
D: Fair rental value
E: Additional living expense
Which DP form does not include Coverage E?
DP-1
Comparison of DP-3 and HO-3: Coverage C
HO-3 limit: 50% of coverage A
DP-3 limit: included only if limit selected and shown on declarations page; whereas HO-3 pays for worldwide coverage up to C limit, DP-3 pays only up to 10% of C limit.
Comparison of DP-3 and HO-3:
Coverage D
HO-3: 30% of Coverage A limit
DP-3: 10% of Coverage A limit
Coverages found in HO-3 but not found in DP-3
loss assessment, credit card, landlord's furnishings, money;

also, Section II liabilities are not present in DP-3
T or F: you need a mobilehome endorsement to insure a mobilehome
True. You need a mobilehome endorsement(MH 04 01)
T or F: additional coverage does NOT provide up to $500 (with no deductible) for reasonable expenses incurred by the insured for removal and return of the entire mobilehome if it is endangered by an insured peril
False. This IS provided.
T or F: the AAIS mobilehomeowners program covers the mobilehome on an ACV basis
True.
AgOP is what?
Agricultural Output Program (AgOP), developed by AAIS in response to the growth of agribusiness
3 forms for AAIS farmowners program:
Dwelling Coverage - Basic Form (FO-1)
Dwelling Coverage - Broad Form (FO-2)
Dwelling Coverage - Special Form (FO-3)
Principal coverages of the AAIS farmowners program:
- the farm dwelling
- related private structures (other than barns and other structures used in the farming operation)
- household additional property
- additional living expenses and loss of rent
Coverage under AAIS Personal Liability Coverage (Farm) form (GL-2) is provided when receipts for custom farm work do not exceed __________ annually and when the custom farm work does not involve the application of pesticides and herbicides
$5,000
National Flood Insurance Program
(NFIP) Federal program that makes flood insurance available on buildings, both commercial and residential, and their contents in communities that have been approved by the Federal Emergency Management Agency (FEMA).
Emergency program
Initial phase of a community's participation in the National Flood Insurance Program n which property owners in flood areas can purchase limited amounts of insurance at subsidized rates
Regular program
Second phase of the National Flood Insurance Program in which the community agrees to adopt flood-control and land-use restrictions and in which property owners purchase higher amounts of flood insurance than under the emergency program
Adverse selection
The tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance
An exception to the 30-day NFIP waiting period is?
If the flood insurance is initially purchased in connection with the purchase of property, or the making or increasing of a mortgage on property
The "Write-your-own flood insurance program" is whose undertaking?
the insurance industry and the Federal Insurance Administration
WYO refers to what?
Write-you-own flood insurance; it allows private insurers participating in the program to sell and service flood insurance under their own names
FAIR stands for what?
Fair Access to Insurance Requirements plans; state-run programs that provide basic property insurance coverage on buildings, dwellings, and their contents for property owners who are unable to obtain coverage in the standard insurance market
What types of exposures are considered uninsurable under FAIR?
- vacant property
- property poorly maintained
- property subject to unacceptable physical hazards, such as storage of flammable materials
- property in violation of law or public policy, such as a 'condemned building' (one that is considered unfit for human habitation)
- (in some states) property not built in accordance w/ building and safety codes
Beachfront and windstorm plans
State-regulated insurance pools that provide property insurance, both personal and commercial, in coastal areas exposed to the risk of heavy windstorm losses
Inland marine insurance
Insurance that covers miscellaneous types of property, such as movable property, goods in domestic transit, and property used in transportation and communication
Floater
Inland marine policy that provides coverage for property that "floats" or moves (such as jewelry, furs, or cameras) rather than providing coverage at a fixed location
What are the special characteristics of inland marine floaters?
- coverage tailored to specific type of property (camera floater)
- insured can select property limits
- floaters provide extensive coverage w/ respect to the perils covered (special form)
- most floaters provide coverage anywhere in the world
- inland marine floaters are usually written w/o a deductible
Perils excluded in inland marine
- wear and tear, gradual deterioration, or inherent vice
- insects or vermin
- mechanical or electrical breakdown or failure
- war and warlike actions
- nuclear hazard
Types of personal inland marine floaters
PAF (Personal Articles Floater)
PPF (Personal Property Floater)
PEF (Personal Effects Floater)
Why choose PAF to HO scheduled property endorsement?
essentially, if no access to HO policy
PPF - 13 classes of coverage
silverware, goldware, pewterware; clothing; rugs and draperies; musical instruments and electronic equipment; paintings and other art objects; china and glassware; cameras and photographic equipment; guns and other sports equipment; major appliances; bedding and linens; furniture; all other personal property, and professional books and equipment while in the residence; building additions and alterations
PEF
Covers property only while the property is away from the residence premises
Common exclusions to small boat policies
General risks of direct loss (i.e., wear and tear, vermin and marine life, rust and corrosion, etc.)

Repair or service (loss or damage from refinishing, renovating, or repair is not covered)

Business pursuits (coverage does not exist if the boat is used to carry passengers for compensation)
Warranties
Promises made by an insured that guarantee compliance with the insurer's conditions
Yacht/boatowner warranties
- Yacht/boat has to be used only for pleasure use
- Boat has to be in seaworthy condition
- Boat has to NOT be in operation during winter months
- Boat has to stay w/in navigation area
Hull insurance
Physical damage insurance on a boat, including its sails, machinery, furniture, and other equipment
Hull
The boat. A vessel's structure, including machinery, spars, sails, tackles, fittings, and other equipment and furnishings that are normally required for the vessel's operation and seaworthy maintenance
T or F: Freezing & thawing of ice is usually excluded as a peril on a boatowners policy
True
Medium to large boats usually carry a deductible equal to what amount or higher of the insured value?
1%
Protection and indemnity (P&I) insurance
Insurance that covers the insured for bodily injury or property damage liability arising form the ownership, maintenance, or use of the insured boat
T or F: Liability arising out of water-skiing, parasailing, or other airborne devices is covered under P&I (boatowners liability) insurance
False
How many years are allotted for medical payments coverage?
3 years
Uninsured boaters coverage
Coverage for the insured's bodily injury incurred in a boating accident caused by another boat's owner or operator who is uninsured and who is legally responsible for the injury; similar to the PAP's uninsured motorists coverage
United States Longshore and Harbor Workers' Compensation Act
Act that specifies the required benefits to maritime employees (except crew members) who are injured or disabled or who die while working on U.S. navigable waters
Underlying insurance
The basic policies, such as homeowners, personal auto, and watercraft (if the insured owns a boat), that provide primary liability coverages and that the insured is required by a personal umbrella policy to have and maintain
Maintenance of underlying insurance condition
Condition in personal umbrella policies that requires the insured to keep all required underlying coverages in force during the policy period; also requires the insured to notify the insurer promptly if any underlying policy is changed or replaced by another policy
Drop down coverage
Coverage provided by an umbrella policy for a loss that is not excluded by the umbrella policy and that is not covered by underlying policies. The loss is paid by the umbrella insurer in excess of a self-insured retention that the insured must pay.
Self-Insured Retention (SIR)
Amount of loss the insured must pay if the loss covered by an umbrella policy is not covered by any underlying insurance
Coverages of Personal Umbrella
- Personal Injury Liability
- Property damage liability
- defense costs
- uninsured and underinsured motorists coverage
Defined contribution plan (money purchase pension plan)
Pension plan in which the contribution rate or amount is specified, but the retirement benefit is variable
Defined benefit plan
Pension plan in which the retirement benefit is specified and the employer's contributions vary depending on the amount needed to fund the benefit; typically requires no employee contributions
Vesting
Employee's right to part or all of the pension contributions made by the employer if employment terminates before retirement
Traditional individual retirement account (IRA)
Retirement plan that allows workers w/ taxable compensation below certain thresholds to make limited annual contributions and receive favorable income-tax treatment. Not employer sponsored.
Roth IRA
Individual retirement plan that allows (1) investment earnings to accumulate free of fedral income taxes and (2) tax-free withdrawals at age 59 1/2 or later; does not allow federal income-tax deduction of annual contributions
Thrift plan
i.e., you pay $2, your employer pays $1 (similar to my current plan at WN); a savings plan
Keogh plan
also known as an HR-10 plan: a qualified retirement plan that allows self-employed individuals to make tax-deductible contributions to a defined contribution plan or a defined benefit plan.
SEP
Simplified employee pension (SEP): a retirement plan in which the employer contributes to an IRA established for each eligible employee
SIMPLE plan
Savings Incentive Match Plan for Employees: established in 1996; limited to employers who employ 100 or fewer employees.

Simplifies pension rules
Section 403(b) plans
aka Tax-sheltered annuities; tax-deferred retirement plans for qualified tax-exempt employers and public schools. Includes churches, charities, etc.
Annuity
Provides periodic payments for a fixed period or for the duration of a designated life or lives.
OASDHI stands for what?
Old-Age, Survivors, Disability and Health Insurance program
Fully insured (OASDHI)
40 credits or 10 full-time years
Currently insured (OASDHI)
at least 6 credits at the time that death, disability or entitlement to retirement benefits occurs
Monthly OASDI benefits can be paid to:
- retired workers age 62 or older
- a retired worker's spouse if he or she is at least age 62 (an unmarried divorced spouse is also eligible for benefits if he or she is at least age 62, the marriage has lasted at least 10 years, and the divorce has been in effect for at least 2 years)
- a retired worker's unmarried children under age 18
- a retired worker's unmarried disabled children age 18 or older (if severely disabled before age 22)
- retired worker's spouse at any age if caring for dependent children under age 16 or for disabled children
Needs approach
Method used to determine an adequate amount of life insurance based on the survivors' needs and the amount of existing life insurance, financial assets, and expected Social Security benefits
Term insurance
Insurance that provides temporary protection (for a certain period of time) with no cash value; usually renewable and convertible
Cash value
Fund that accumulates in a whole life insurance policy and that the policyholder can access in several ways, including borrowing, purchasing paid-up life insurance, and surrendering the policy in exchange for the cash value
Renewable
Characteristic of a term life insurance policy that permits the policyholder to renew it for additional periods w/o evidence of insurability
Convertible
Characteristic of a term insurance policy that allows the policy to be exchanged for some type of permanent life insurance policy with no evidence of insurability
Mortality rates
Probabilities of death at specific ages. Life insurers have been able to predict mortality rates with a high degree of accuracy for large groups of people
Whole life insurance
Level-premium insurance that provides lifetime protection and builds cash values
Ordinary life insurance
Whole life insurance that requires periodic premiums until the insured dies or reaches age 100 (also called 'straight life insurance')
Paid-up policy
Life insurance that does not require additional premium payments to remain in force
Limited-payment life insurance
Whole life insurance in which the premiums are level but are paid only for a certain number of years. After that time, the policy is paid-up
Universal life insurance
Flexible-premium life insurance that separates the protection, savings, and expense components
Basic characteristics of universal life insurance
- separation of protection, savings, and expense components
- stated rate of interest
- considerable flexibility
- partial cash withdrawals option
Endowment insurance
pays the face amount of insurance to the designated beneficiary if the insured dies w/in a certain period; if the insured survives to the end of the period, the face amount is paid to the policyholder
variable life insurance
a life insurance policy in which the face amount of insurance and cash value vary according to the investment experience of a separate account maintained by the insurer
incontestable clause
clause that states that the insurer cannot contest the policy after it has been in force for a specified period, such as two years, during the insured's lifetime
suicide clause
clause that states the insurer will not pay the death benefit if the insured commits suicide w/in a certain period (usually 2 years) after policy inception; instead, the premiums are refunded to the beneficiary
Grace period
provision that continues a life insurance policy in force for a certain number of days (usually thirty or thirty-one) after the premium due date, during which time the policyowner can pay the overdue premium w/o penalty
Reinstatement clause
Clause that gives the policyowner the right to reinstate a lapsed life insurance policy if certain requirements are met (i.e., is w/in 5 years, all unpaid premiums are paid up, policy is surrendered for its cash value, etc.)
Misstatement of age or sex provision
Clause stating that if the insured's age or sex is misstated in a life insurance policy application, the amount of death benefit the insurer will pay is the amount that the premium would have purchased at the insured's correct age and sex
Beneficiary
Person(s) designated in a life insurance policy to receive the death benefit
Absolute assignment
transfers all ownership rights in the policy to a new owner
Collateral assignment
assigns the life insurance policy to another party as collateral for a loan
Participating policies
Life insurance policies that pay dividends to policyowners
Nonparticipating (guaranteed cost) policies
Life insurance policies that do NOT pay dividends to policyowners
Nonforfeiture options
cash, reduced paid-up insurance and extended term insurance;

definition: provisions in a life insurance policy that give the policyowner a choice of ways to use the cash value if the policy is terminated and that protect the policyowner from forfeiting the cash value
Rider
similar to an endorsement; modifies a life insurance policy
waiver of premium
clause stating that the insurer will waive premiums due during the period of disability if the insured becomes totally disabled before a certain age
accidental death benefit
provision in a life insurance policy that doubles (or triples) the face amount of insurance payable if the insured dies as a result of an accident
guaranteed insurability rider
aka "guaranteed purchase option"

Rider that permits the policyowner to buy additional amounts of life insurance at standard rates without evidence of insurability
Cost-of-living rider
allows the policyowner to purchase, w/o evidence of insurability, one-year term insurance equal to the face amount of the policy times the percent change in the CPI.
accelerated death benefits: terminal illness rider
allows insureds w/ a life expectancy of 6 months or one year to collect part or all of the available proceeds
accelerated death benefits:
catastrophic illness rider
certain catastrophic diseases (life-threatening cancer, coronary artery disease, or AIDS) can warrant receipt of part of the face amount of insurance
accelerated death benefits:
long-term care rider
insureds who require long-term care can receive part of the face amount to help pay for the cost of care.
Life insurance UW factors:
age
sex
build
physical condition
personal healthy history
family health history
smoking
hazardous sports and hobbies
habits and morals
residence
occupation
Noncontributory plan
Group plan in which the employer pays the entire cost
Contributory plan
Group plan in which employees pay part or all of the cost
4 major problems of modern healthcare
-rising healthcare expenditures
-inadequate access to medical care
- uneven quality of medical care
- considerable waste, inefficiency and fraud
Blue Cross
hospital expenses and other related medical expenses (service rather than cash benefits)
Blue Shield
service expenses of physicians and surgeons, and related medical expenses
TPA
third-party administrator (commonly used by self-insurers)
Basic medical expense coverage
coverage for medical expenses, such as hospital and surgical expenses, physicians' visits, and miscellaneous medical services
URC charges
usual, reasonable and customary (URC) charges; charges for which physicians are reimbursed on the basis of their usual fee as long as the fee is reasonable and customary
corridor deductible
Medical insurance deductible amount an insured must pay under a supplemental major medical insurance plan after the insured's medical expenses exceed the limits of the underlying basic medical expense plan
stop-loss provision
insurance provision that limits the amount the insured must pay by reimbursing 100 percent of covered expenses in excess of this limit for the rest of the calendar year
preexisting conditions clause
a health insurance provision that excludes coverage for any preexisting medical condition (one that existed before the policy effective date) for a limited period after an insured enters the plan
portability
characteristic of a health plan that requires a new employer or health plan to give credit for prior, continuous health insurance coverage
coordination-of-benefits provision
Provision that indicates the order of payment when an insured is covered under two or more group health insurance plans; limits the insured's total recovery under all applicable policies to 100 percent of covered expenses
COBRA
allows a terminated employee/covered dependent to retain group health insurance for a limited period by electing to remain in the employer's plan under COBRA
Elimination period
Initial time period in a health insurance or disability income policy during which benefits are not paid
Managed care
Medical insurance plans that provide coverage for cost-effective medical services provided to plan members
Health maintenance organization (HMO)
managed care plan that provides a range of comprehensive health-care services to its members for a fixed, prepaid fee; members' choice of healthcare providesr is usually restricted to those in the HMO network
Preferred provider organization
PPO is a managed care plan that contracts with healthcare providers for medical services provided to plan members at discounted fees; members' choice of healthcare providers is not restricted, but members have a financial incentive to choose contracted providers
Exclusive provider organization (EPO)
Managed care plan that pays only for medical care received w/in a network of preferred providers
conditionally renewable policy
policy that guarantees renewal to a specified time, provided the insured meets certain qualifications
Medicare
Social insurance program that covers the medical expenses of most individuals age 65 and older
Medicare Part A includes what benefits:
- inpatient hospital care
- skilled nursing facility care
- home healthcare services
- hospice care
- blood transfusions (after the first 3 pints)
Medicare Part B is what?
Supplementary Medical Insurance (Part B)
Original medicare plan
beneficiaries can elect coverage under the original fee-for-service Medicare plan and can use any provider that accepts Medicare patients
Medicare medical savings amount (MSA)
Beneficiaries can elect to be covered by a medical savings account, which is a health insurance policy w/ a high annual deductible.
Medicaid
federal-state welfare program that coves the medical expenses of low-income persons, including those who are aged, blind, or disabled; members of families w/ dependent children; and pregnant women as well as certain children