Free Personal Lines Exam Flashcards

The insured must suffer a genuine financial loss if the property is damaged. For property insurance, insurable interest must exist at the time of loss — unlike life insurance, where it need only exist at policy inception.

Restores the insured to the same financial position as before the loss — no better, no worse. Caps recovery at actual loss, even when policy limits are higher. Replacement-cost and valued policies are limited exceptions.

Both parties must deal honestly and disclose all material facts. The insured's duty appears in the application (representations and warranties); the insurer's duty appears in the policy language and claims handling.

A peril is the cause of loss (fire, theft, windstorm). A hazard is a condition that increases the chance or severity of a peril. Hazards come in three flavors: physical (icy walkway), moral (arson for profit), and morale (carelessness because insurance exists).

As the number of similar exposure units grows, actual loss experience converges on expected loss experience. This statistical principle is what lets insurers predict losses accurately and price premiums.

An insurance policy is drafted entirely by the insurer; the insured accepts or rejects without negotiation. Courts therefore interpret ambiguous wording in favor of the insured (contra proferentem).

An exchange of unequal values that depends on chance. The insured pays a small premium; the insurer may pay a large claim — or nothing. All insurance policies are aleatory.

One insurer (the ceding company) transfers part of its risk to another insurer (the reinsurer). Treaty reinsurance covers a class of business automatically; facultative reinsurance covers a single risk negotiated case-by-case.

After paying a claim, the insurer steps into the insured's legal shoes to recover from the responsible third party. The insured must not impair this right (e.g., by signing a release before claim payment).

Replacement cost minus depreciation for age and wear. ACV is the default settlement basis for DP-1, older personal property in HO forms, and most auto physical damage claims.

Pays to repair or replace damaged property with new property of like kind and quality, no depreciation deduction. On HO-3 dwellings the insured usually must insure to 80% of RC to collect full RC on a partial loss.

Claim payment = (Amount carried ÷ Amount required) × Loss − Deductible. If a $200,000 RC home is insured for $120,000 (required $160,000), the insurer pays 120/160 = 75% of a partial loss.

Named-peril policies cover only the perils listed (e.g., HO-2, DP-2). Open-peril policies cover all causes of loss except those expressly excluded (e.g., HO-3 dwelling, HO-5, DP-3) — burden of proof shifts to the insurer to apply an exclusion.

Homeowners policy that covers both dwelling and personal property on a named-peril basis. Adds perils beyond HO-1 (falling objects, weight of snow, accidental discharge of water) but still narrower than HO-3.

The most common homeowners policy. Dwelling and other structures are covered on an open-peril basis; personal property is covered on a named-peril basis. Roughly 80% of U.S. owner-occupied homes are written on HO-3.

Covers a tenant's personal property and personal liability — no dwelling coverage, since the tenant doesn't own the building. Personal property is written on a named-peril basis (HO-2 perils).

Provides open-peril coverage on BOTH the dwelling and personal property — the broadest unendorsed homeowners form. Premium runs 10-15% higher than HO-3 but eliminates most named-peril gaps for contents.

Covers a condo owner's interior improvements (walls-in coverage), personal property, loss assessment, and personal liability. The association's master policy covers the building shell and common areas.

Designed for older homes where replacement cost would far exceed market value (historic urban homes, etc.). Settles losses at ACV or functional replacement, not full RC, and covers a limited list of named perils.

Section I property: A Dwelling, B Other Structures (10% of A), C Personal Property (50% of A, typical), D Loss of Use (20-30% of A). Section II liability: E Personal Liability ($100K+), F Medical Payments to Others ($1K-$5K).

Sub-limits inside personal property: $200 cash/coins, $1,500 watercraft, $1,500 trailers, $1,500 jewelry/watches/furs for theft, $2,500 silverware for theft, $2,500 business property on-premises. Schedule with a Personal Articles Floater to raise limits.

Bare-bones dwelling fire policy: fire, lightning, internal explosion as standard; extended coverage and V&MM are optional endorsements. Settles all losses at ACV. Used for landlords or hard-to-insure dwellings.

Covers the dwelling and personal property on a named-peril basis (an expanded list including weight of ice/snow, accidental discharge of water, freezing). Settles dwelling losses at replacement cost if coinsurance is met.

Highest-tier dwelling fire policy. Dwelling and other structures are open-peril; personal property remains named-peril. Replacement cost on the dwelling with 80% coinsurance. Standard policy for rented single-family homes.

Always excluded on HO-3: flood, earthquake, war, nuclear hazard, intentional acts, neglect, ordinance or law, power failure (off-premises), and earth movement. Flood and earthquake require separate policies or endorsements.

Pays bodily injury and property damage the insured is legally liable for in an auto accident, plus legal defense. Limits are typically shown as split limits (100/300/100) or combined single limit (CSL, e.g., $300,000).

Auto liability shorthand: $100,000 bodily injury per person / $300,000 bodily injury per accident / $50,000 property damage per accident. The middle figure caps total BI payments regardless of how many people are injured.

Pays reasonable medical and funeral expenses for the insured and passengers injured in an auto accident, regardless of fault. Typical limits $1,000-$10,000 per person. Acts as primary coverage in no-fault states.

Pays the insured's bodily injury damages when the at-fault driver has no liability insurance, is a hit-and-run driver, or carries less than required (UIM). UM is mandatory in roughly 22 states and offered with right of rejection elsewhere.

First-party physical damage coverage on the insured's vehicle. Collision (upset/collision) and Other Than Collision (theft, fire, falling objects, animal strikes, glass) are written separately, each with its own deductible. Includes $20/day, $600 max transportation expense.

Private passenger autos, pickups, and vans of 10,000 lbs GVWR or less owned or leased by the named insured under a written lease for 6+ months. Vehicles used for delivery, livery, or business other than farming/ranching are excluded.

An auto acquired during the policy period gets automatic coverage. If replacing a vehicle, the broadest coverage on the prior auto carries over (14 days to notify). If additional to the household fleet, coverage applies for 14 days only if all autos are covered with the insurer.

A vehicle the insured does not own but uses (e.g., a borrowed friend's car or a rental). Liability and physical damage follow the driver for non-owned autos that are not furnished or available for regular use. Daily-rental cars qualify.

Liability excludes: intentional injury, property owned/transported by the insured, vehicles used as a public/livery conveyance (excluding share-the-expense carpools), employee injury already covered by workers comp, and racing on a track.

About 12 states require Personal Injury Protection: each driver's own insurer pays medical/wage-loss claims regardless of fault, and the right to sue is limited to serious-injury thresholds. Examples: FL, NY, NJ, MI, MN, PA (choice), MA, KS.

Schedules high-value items (jewelry, fine art, furs, silverware, cameras, musical instruments, stamps, coins, golf gear) on an open-peril, agreed-value basis with no deductible. Used to escape the HO-3 Coverage C special limits.

Excess liability above underlying home, auto, and watercraft limits (typically $1M-$5M). Drops down to pay claims excluded by underlying policies after a self-insured retention (SIR), commonly $250-$500.

Carriers commonly require $250,000/$500,000/$100,000 auto liability (or $300,000 CSL), $300,000 homeowners liability, and $300,000 watercraft liability before the umbrella attaches. If underlying limits lapse, the insured retains those primary amounts.

HO liability covers watercraft only if it is: sailboats under 26 ft, inboard/inboard-outdrive engines of any HP owned/borrowed, or outboards of 25 HP or less owned (any HP if newly acquired). Larger boats need a boatowners or yacht policy.

Class A/B/C motorhomes require an RV policy that adds vacation liability, full-timer's coverage, total-loss replacement, and personal effects up to $3,000+. Travel trailers can ride on a PAP for liability but need separate physical damage.

FEMA-administered program offering flood coverage in participating communities. Standard 30-day waiting period before coverage attaches. Dwelling limit caps at $250,000 building / $100,000 contents on residential structures.

HO-3 covers sudden, accidental water discharge from indoor plumbing or appliances. It excludes flood (rising surface water, mudflow, storm surge) and sewer/drain backup unless the latter is added by endorsement (HO 04 95).

Adds earthquake as a covered peril to a homeowners policy. Deductibles run 10-25% of the dwelling limit and apply separately to dwelling, other structures, and contents. All quakes within a 72-hour window count as one event.

Sets uniform standards adopted by states for licensing producers: minimum age (18), background checks, pre-license education, examination, fingerprinting, and continuing education. Created to streamline non-resident reciprocity.

NAIC model law prohibiting insurer practices such as misrepresenting policy provisions, failing to acknowledge claims promptly (usually 15 days), failing to investigate, low-balling settlements, and forcing litigation through inadequate offers.

Federal law requiring insurers to give consumers an annual privacy notice describing what nonpublic personal information is collected, with whom it is shared, and how to opt out of sharing with non-affiliates. Adopted into state insurance code via NAIC Privacy Model.

Permits insurers to use credit-based insurance scores to underwrite and rate personal lines, but requires adverse-action notice when the score causes higher premium or declination. The insured may request the report free within 60 days.

A producer who collects premium holds it in trust for the insurer and must remit it promptly — commingling with personal funds is grounds for license revocation. The producer also owes the insured a duty to procure requested coverage and explain material terms.

Cancellation ends the policy mid-term; most states limit reasons after 60 days to nonpayment, material misrepresentation, or substantial change in risk. Non-renewal lets the policy expire at the end of its term and typically requires 30-45 days' advance written notice.

Temporary evidence of coverage issued by a producer or insurer before the formal policy is delivered. Oral binders are valid in most states but must be confirmed in writing, usually within 24-72 hours. A binder expires automatically (typically 30-90 days) or when the policy is issued or declined.