Property & Casualty Insurance Exam (National Portion) flashcards

A per-occurrence limit is the maximum an insurer will pay for any single event, while an aggregate limit is the total maximum the insurer will pay for all covered losses during a policy period.

• Per-occurrence limit applies to each individual incident.
• Aggregate limit is the total cap for the policy period.
• Both limits must be considered when calculating payouts.

Memory trick: Each 'event' has a cap, but the 'year' has a bigger cap.

Split limits apply a maximum payout per person for bodily injury, and a separate maximum payout for all bodily injuries in a single accident.

• Per-person limit is applied first to each individual's injury.
• Per-accident limit is the maximum paid for all injuries in one incident.
• Property damage is typically a separate, single limit.

Memory trick: Person first, then total, then check for damage.

The authority an agent appears to have to third parties due to the actions, words, or inaction of the principal, leading the third party to reasonably believe the agent has such authority.

• Based on third party's reasonable belief.
• Principal's actions create the appearance.
• Can bind the principal even without actual authority.

Memory trick: Apparent: It appears to be so.

Producer due diligence is the obligation to exercise reasonable care and skill in serving clients, including understanding products, assessing client needs, and seeking expert advice when necessary.

• Requires competence and knowledge.
• Involves thorough client needs assessment.
• Mandates seeking expert advice when needed.
• Ensures appropriate coverage recommendations.

Memory trick: When in doubt, don't guess; consult an expert, that's the best!

The cost to replace damaged or destroyed property with new property of like kind and quality, without deduction for depreciation.

• No deduction for depreciation.
• Provides the highest payout for total losses on new property.
• Often requires the insured to actually replace the property to receive full RC.

Memory trick: Valuation methods are like 'price tags' – some are 'used,' some are 'new,' some are 'functional.'

Additional payments made by the insurer in a Personal Auto Policy (PAP) that are outside of and in addition to the policy's stated liability limits. These cover specific expenses related to a liability claim.

• Paid in addition to liability limits.
• Includes defense costs, bail bonds, and appeal bonds.
• Also covers loss of earnings for attending trials at insurer's request.

Memory trick: Supplementary Payments are the 'extra help' that goes 'beyond the limit' to manage your legal mess.

Under a standard Homeowners (HO) policy, the coverage limit for personal property (Coverage C) is typically a percentage of the dwelling's coverage limit (Coverage A).

• Standard HO-3 policies set Coverage C at 50% of Coverage A.
• Insureds can often purchase higher limits for Coverage C.
• Specific limits apply to certain types of personal property (e.g., jewelry, firearms).

Memory trick: Homeowners have 'A' dwelling, 'B' for structures, 'C' for contents, 'D' for displacement.

In most property insurance policies, especially homeowners, a single deductible applies once per occurrence, regardless of how many different coverage parts (e.g., dwelling, personal property) are affected by that single event.

• Applies once per covered loss event.
• Reduces the total amount paid by the insurer.
• Not typically applied separately to each coverage part.
• Ensures the insured bears the initial portion of the loss.

Memory trick: One event, one deductible, many coverages.

The cost to replace damaged or destroyed property with new property of like kind and quality, less depreciation.

• ACV = Replacement Cost - Depreciation.
• Depreciation considers age, condition, and obsolescence.
• Common valuation method for personal property and older structures.

Memory trick: ACV is like 'used car value' – what it's worth now, not new, not what you paid.

An independent adjuster's primary reporting obligation regarding claim investigation findings is to the insurance company that hired them, as they act on behalf of the insurer.

• Independent adjusters are contractors.
• Their principal is the hiring insurer.
• Reports are for the insurer's decision-making.
• Maintain clear communication with the insurer.

Memory trick: He who pays the piper calls the tune, and receives the report soon.

An add-on to a property insurance policy that provides coverage for damage caused by earthquakes, which are typically excluded from standard policies.

• Adds coverage for earth movement perils (earthquake, landslide, volcanic eruption).
• Often carries a separate, percentage-based deductible.
• Can be purchased as an endorsement or a separate policy.

Memory trick: If the earth moves, your policy needs an 'Earthquake' handshake!

A section of a homeowners policy that covers structures on the insured's property that are separated from the dwelling by a clear space, such as detached garages, sheds, or fences.

• Standard amount is typically 10% of Coverage A (Dwelling).
• Can be increased by endorsement for an additional premium.
• Excludes structures used for business purposes or rented to non-tenants.

Memory trick: Your main home 'A' is big, but 'B' for buildings is just a 'bit' of it!

The legal right of an insurance company to seek recovery from a third party that caused a loss to the insured, after the insurer has paid the insured for that loss.

• Prevents the insured from collecting twice for the same loss.
• Transfers the insured's right to sue the at-fault party to the insurer.
• Common in property and casualty insurance.
• Helps keep insurance costs down by recovering losses.

Memory trick: Subrogation: Step In, Sue, Recover.

The maximum amount an insurance policy will pay for bodily injury to any one person injured in a single accident, regardless of the total damages incurred by that individual.

• Applies to bodily injury to one individual.
• Does not include property damage.
• Is a component of split liability limits.

Memory trick: One person, one ceiling.

The ethical and legal obligation of an insurance producer to protect sensitive client information, especially medical data, requiring explicit written consent for disclosure to third parties.

• Strict privacy duty
• Requires explicit written consent for disclosure
• Applies to medical and financial data

Memory trick: Client's secrets are safe, unless they write 'share'.

A provision in property insurance policies that specifies how losses will be divided when more than one policy covers the same property.

• Prevents overinsurance and double recovery.
• Pro-rata: Each policy pays its proportionate share based on its limit relative to the total limits.
• Other types include excess and primary/excess clauses.

Memory trick: Pro-Rata is like 'sharing the pie' – each policy gets a slice proportional to its size.

Medical Payments (Med Pay) coverage in an auto policy often acts as excess coverage, paying for medical expenses after other primary health insurance has paid, up to its stated limit.

• Covers reasonable and necessary medical expenses.
• Pays regardless of fault.
• Often secondary to health insurance.
• Subject to policy limits.

Memory trick: Health first, then Med Pay finishes the bill.

Specific coverages included in a standard homeowners policy, often with separate limits or conditions, that extend or enhance protection beyond the main dwelling and personal property coverages.

• Automatically included in the policy form.
• Examples: Debris removal, reasonable repairs, fire department service charge, limited ordinance or law, loss assessment, grave markers.
• Do not include typically excluded perils like flood or earthquake.

Memory trick: Additional coverages are the 'extra perks' that come standard with your home's protection plan.

A property insurance form that covers all direct physical losses to covered property, except those specifically excluded.

• Also known as 'all-risk' or 'all perils' coverage.
• Insured must prove loss, insurer must prove exclusion.
• Common exclusions: flood, earthquake, war, nuclear hazard, government action, wear and tear, inherent vice, faulty design, rain through open windows.

Memory trick: Special form is 'all-in' unless it's on the 'no-go' list, especially things you could've prevented.

Uninsured Motorist Property Damage (UMPD) coverage pays for damage to the insured's vehicle caused by an identified at-fault uninsured motorist. It is typically subject to a separate limit and a deductible.

• Covers property damage to the insured's vehicle.
• Triggered by an at-fault uninsured driver.
• Subject to a specific limit for property damage.
• A deductible usually applies.

Memory trick: UMPD is for YOUR car damage from a GHOST driver, with a limit and a bite.

The specific powers and duties explicitly given to an insurance producer by an insurer, typically in a written agency agreement or contract.

• Explicitly granted by insurer
• Usually in written contract
• Defines scope of agent's power

Memory trick: Express is written, implied is assumed, apparent is perceived.

An insurance producer holding a resident license in one state must obtain a non-resident license to legally transact insurance business in another state.

• Required for out-of-state business.
• Requires an active resident license.
• Ensures compliance with local regulations.

Memory trick: Don't cross borders without your non-resident papers!

The maximum amount an insurance policy will pay for all covered losses arising from a single accident or occurrence, regardless of the number of injured persons.

• Applies after per-person limits are applied.
• Caps the total payout for a single event.
• Common in auto and general liability policies.

Memory trick: Per-Person first, then Per-Accident second, like a two-stage rocket for payouts.

A specific authorization granted by a state insurance department allowing a producer to sell particular types of insurance, such as Property & Casualty, Life, Health, or Variable Annuities.

• Required for each insurance type
• Separate exams often needed
• Ensures product-specific competence

Memory trick: Each insurance type needs its own license piece.

The maximum amount an insurer will pay for all bodily injuries to all persons injured in a single accident, regardless of the number of individuals involved.

• Applies to all bodily injury claims from one occurrence.
• Cannot exceed this limit, even if individual claims are below the per-person limit.
• Part of split liability limits.

Memory trick: An accident's total pain has an 'Accident Cap' for the insurer's gain.

A cease and desist order is an administrative injunction issued by a regulatory body, such as a state insurance department, requiring an individual or entity to immediately stop a specific illegal or prohibited activity.

• Issued by regulatory authorities.
• Requires immediate halt of activity.
• Notifies of potential further action.
• A serious regulatory enforcement tool.

Memory trick: Cease and Desist: Stop now, or face the legal fallout!

Coverage that applies when there is actual, tangible damage to the insured property itself, directly caused by a covered peril.

• Contrast with 'indirect loss' (e.g., loss of income).
• Requires physical alteration or destruction of property.
• Often a prerequisite for other coverages like Business Income.

Memory trick: Direct is the 'smash', indirect is the 'cash' you lose because of it!

A clause in an insurance policy that stipulates that when multiple policies cover the same loss, each policy will pay a proportion of the loss equal to the ratio of its limit of liability to the total limits of all applicable policies.

• Prevents over-indemnification.
• Each policy contributes proportionally.
• Applies up to each policy's individual limit for the specific loss.

Memory trick: Pro-Rata means 'proportionally shared' – like dividing a pie based on how big each slice was intended to be.

The legal and ethical obligation of insurance producers to maintain accurate and complete records of all business transactions for a specified duration, typically set by state regulations.

• Required by state laws.
• Includes applications, policies, claims.
• Aids regulatory oversight and consumer protection.

Memory trick: Records are for rules and regulators.

An additional coverage in homeowners policies that pays for the reasonable costs incurred by the insured to protect covered property from further damage after a covered loss occurs. This includes temporary repairs like boarding up windows or tarping a roof.

• Covers temporary measures to prevent further damage.
• Applies after a covered loss.
• Includes costs for materials and labor.
• Aims to mitigate the overall loss.

Memory trick: After a loss, make REASONABLE repairs to SAVE.

Underinsured Motorist (UIM) coverage pays for the insured's bodily injury damages when the at-fault driver has liability insurance, but their limits are insufficient to cover the full extent of the insured's damages.

• Activated when at-fault driver's limits are less than the insured's damages.
• Pays the difference between the insured's UIM limit and the at-fault driver's liability payout (or the shortfall in damages, depending on state law).
• Subject to per-person and per-accident limits.
• Does not cover property damage unless specifically added.

Memory trick: UIM fills the GAP when the other driver's insurance is TOO LOW.

A provision in property insurance that requires the insured to carry insurance equal to a specified percentage (e.g., 80%, 90%) of the property's value. If less than this amount is carried, the insured becomes a coinsurer and must bear a portion of any partial loss.

• Encourages insuring property to its full value.
• Applies to partial losses.
• Formula: (Amount Carried / Amount Required) * Loss.
• If adequately insured, pays full loss up to policy limit.

Memory trick: CARRIED over REQUIRED times LOSS.

Commercial General Liability (CGL) policies can have multiple aggregate limits, such as a General Aggregate and a separate Products-Completed Operations Aggregate, which both cap the total payout for specific types of claims within a policy period.

• Per-occurrence limits apply to each incident.
• Specific aggregate limits (e.g., Products-Completed Operations) apply to certain claim types.
• The General Aggregate is an overarching limit for most other claims.
• Payouts reduce both the specific aggregate (if applicable) and the General Aggregate.

Memory trick: Each claim has a cap; then the 'product' bucket and 'general' bucket each have their own bigger caps.

Underinsured Motorist (UIM) coverage pays for the insured's bodily injuries when the at-fault driver has some liability insurance, but not enough to cover the full extent of the damages, up to the insured's UIM limit.

• Applies when at-fault driver has insufficient insurance.
• Typically pays damages minus the at-fault driver's payout.
• Subject to the insured's UIM policy limits.
• Does not pay if the at-fault driver's limits exceed the UIM limits.

Memory trick: My damages minus their payout, then check my UIM limit.

Bodily Injury Liability coverage in an auto policy pays for damages for which the insured is legally responsible due to causing bodily injury to others in an accident.

• Covers third-party injuries.
• Includes medical expenses, lost wages, pain and suffering, and funeral expenses.
• Subject to per-person and per-accident limits.
• Pays only when the insured is at fault.

Memory trick: BI = Blame + Injuries. It pays others when YOU are at fault.

A single dollar limit in an auto insurance policy that applies to the total amount of damages for bodily injury and property damage liability arising from one accident, without separate limits per person or per type of damage.

• One limit covers all bodily injury and property damage.
• No separate 'per person' or 'per accident' BI limits.
• No separate property damage limit.

Memory trick: CSL is like a 'universal budget' for an accident, covering all damage types under one big umbrella.

A temporary removal of a producer's authority to transact insurance business, often used for serious violations or pending further investigation.

• Temporary measure
• Often for serious misconduct
• Can precede permanent revocation

Memory trick: Serious misconduct merits immediate license halt.

When Medical Payments (Med Pay) coverage in an auto policy is designated as primary, it pays for covered medical expenses first, up to its limit, before any other health insurance policies contribute.

• Pays first, regardless of other insurance.
• Covers reasonable medical and funeral expenses.
• Subject to a stated policy limit.

Memory trick: Primary Med Pay acts like a 'first responder' for your medical bills, paying its full share before anyone else.

Calculating the total payout for an auto accident involves applying per-person and per-accident bodily injury limits, then separately applying the property damage limit, and summing these amounts.

• Per-person BI limit applies to each individual.
• Per-accident BI limit caps total BI for all injured parties.
• Property Damage has its own separate limit.
• All payouts are summed to get the total paid by the policy.

Memory trick: People's injuries, then total injuries, then property damage.

An insurance adjuster's core duty is to investigate claims, determine coverage and loss, and negotiate fair settlements in accordance with the policy contract.

• Investigate claims thoroughly.
• Interpret policy language accurately.
• Negotiate fair settlements.
• Adhere to ethical standards.

Memory trick: An adjuster's scales must balance policy truth with fair settlement fruit.

A legal doctrine stating that if a loss is caused by two or more perils acting concurrently, and at least one of those perils is covered, the entire loss is covered, even if another peril is excluded. Many modern policies include 'anti-concurrent causation' language to counter this.

• Relevant when multiple perils contribute to a single loss.
• Can lead to full coverage if one cause is covered and policy is silent.
• Anti-concurrent causation clauses are designed to exclude losses if ANY excluded peril contributes.

Memory trick: When two causes 'link', the policy must 'think' about what to pay!

Additional payments provided by a Personal Auto Policy (PAP) that cover certain expenses related to a liability claim, separate from and in addition to the policy's stated liability limits.

• Paid in addition to the liability limits.
• Includes defense costs, bail bonds, appeal bonds, interest on judgments, loss of earnings.
• Does NOT increase the primary liability coverage amount for damages.

Memory trick: Supplementary Payments are the 'extra helpers' for legal costs, not for boosting the main liability payout.

The ethical duty of an insurance adjuster to investigate claims without bias, reporting all facts objectively to the insurer, regardless of external influence.

• Report all facts accurately
• No bias towards insured or insurer
• Integrity in investigation

Memory trick: Truthful reports are the adjuster's unwavering compass.

Client Needs Analysis is a crucial step in the insurance sales process where a producer gathers comprehensive information about a client's financial situation, assets, risks, and existing coverage to recommend suitable insurance solutions.

• Involves detailed client interview.
• Identifies current and future risks.
• Assesses existing coverage adequacy.
• Guides appropriate policy recommendations.

Memory trick: Analyze the need, then plant the policy seed.

Split limits for bodily injury liability apply a maximum payment per individual injured and a separate maximum for all bodily injuries combined in a single accident. Both limits must be considered when determining the total payout.

• Per-person limit caps individual payouts.
• Per-accident limit caps the total payout for all individuals combined.
• The per-person limit is applied first to each individual's damages.
• The sum of individual payouts is then compared to the per-accident limit.

Memory trick: Think 'individual cap' first, then 'total event cap'.

18 U.S.C. § 1033 requires individuals convicted of felonies involving dishonesty or breach of trust to obtain written consent from the U.S. Attorney General or an authorized federal official to work in insurance.

• Federal law (Violent Crime Control and Law Enforcement Act).
• Applies to felonies involving dishonesty/breach of trust.
• Consent from U.S. Attorney General or authorized federal official.
• Failure to obtain consent is a federal crime.

Memory trick: 1033: Dishonesty's dark cloud needs a federal sunbeam to shine again.

Commercial General Liability (CGL) Coverage C provides for reasonable medical expenses for bodily injury caused by an accident on the insured's premises or due to the insured's operations, regardless of legal liability, up to the policy limit.

• No fault required for payment.
• Covers medical expenses, ambulance, first aid.
• Payouts are subject to a specified policy limit.

Memory trick: CGL's Med Pay is a 'no-fault first aid kit' for guests, capped at its limit.

An endorsement that adds coverage to a property insurance policy for increased costs of repair or reconstruction due to the enforcement of building ordinances or laws after a covered loss.

• Standard policies exclude losses due to ordinance or law.
• Covers costs for demolition, increased cost of construction, and undamaged portions.
• Crucial for older buildings that may not meet current codes.

Memory trick: Old laws, new rules: This endorsement rebuilds your wallet, not just your walls!

The illegal act of offering or giving any valuable consideration or inducement, not specified in the insurance policy, to a prospective client to persuade them to purchase insurance.

• Anything of value outside the policy
• Illegal in most states
• Aims to gain competitive advantage unfairly

Memory trick: Freebies not in the policy are rebating's sneaky call.

The maximum amount an Uninsured Motorist (UM) Bodily Injury policy will pay for bodily injuries sustained by any one person in an accident caused by an uninsured driver.

• Applies to each individual injured person.
• Cannot be exceeded for a single person's injuries.
• Part of UM split limits (per person/per accident).

Memory trick: UM limits are like a 'ghost driver' protection plan: each person has their own cap, and the accident has a total cap.

When covered damages exceed a liability policy's stated limit, the policy pays its maximum limit, and the insured is personally responsible for the remaining amount.

• Policy limits are maximum payouts.
• Insured remains legally liable for full damages.
• Insured is responsible for amounts exceeding policy limits.

Memory trick: Limit is a ceiling; you pay the rest.

A provision in commercial property insurance policies that modifies or excludes coverage for certain perils if the insured building has been vacant for a specified period (typically 60 consecutive days).

• Triggers after a specific period of vacancy (e.g., 60 days).
• For some perils (e.g., vandalism, sprinkler leakage), coverage may be entirely excluded.
• For other perils (e.g., fire, lightning), the loss payment is often reduced by a percentage (e.g., 15%).

Memory trick: Modifiers alter what's covered, like a clause in a contract.

The permanent termination of an insurance producer's license by the state insurance department, prohibiting them from transacting insurance business.

• Most severe disciplinary action.
• Often results from serious violations or repeated offenses.
• May include a waiting period before reapplication is possible.

Memory trick: Revocation is the 'End of the Road' for a producer's license.

Optional auto insurance coverage that pays for reasonable and necessary medical and funeral expenses for the insured and their passengers, regardless of fault.

• No-fault coverage.
• Applies to the insured and any passengers.
• Covers medical, surgical, dental, x-ray, and funeral services.
• Limits typically apply per person, per accident.

Memory trick: Med Pay Puts People First.

CGL Coverage B protects the insured against claims for specific non-bodily injury and non-property damage offenses such as libel, slander, false arrest, and copyright infringement in advertising.

• Covers 'personal injury' offenses (e.g., defamation, false imprisonment).
• Covers 'advertising injury' offenses (e.g., copyright infringement in ads).
• Includes defense costs and damages.
• Distinct from Bodily Injury/Property Damage coverage.

Memory trick: Words and ads, not bodies or stuff.

The maximum amount an auto liability policy will pay for bodily injury sustained by any one person in a single accident.

• Applies to each individual injured party.
• Is a component of split limits.
• Cannot be exceeded, regardless of the actual damages incurred by that person.

Memory trick: Each person gets their own 'wallet' from the policy, and it has a fixed limit.

The illegal practice of offering a prospective client an inducement, such as a portion of the producer's commission or other valuable consideration not specified in the policy, to purchase insurance.

• Offering unapproved inducements
• Usually a portion of commission
• Illegal in most states

Memory trick: Rebating is like a secret 'kickback' to lure clients.

Misrepresentation is an illegal practice where a producer makes false statements or conceals material facts about an insurance policy or insurer to induce a sale.

• Involves false statements or concealment.
• Aims to induce a policy purchase.
• Is an unfair trade practice.
• Can lead to license suspension/revocation.

Memory trick: Unfair practices are like bad apples, spoiling trust and breaking rules.

The maximum amount an auto insurance policy will pay for bodily injury to any one person in a single accident, regardless of the total damages or the per-accident limit.

• It is the first number in a split-limit liability policy (e.g., 100/300/50).
• This limit applies individually to each injured person.
• If damages exceed this limit, the insured is responsible for the difference.
• It is always the first constraint applied when calculating bodily injury payouts.

Memory trick: Each Person's Payout Has a Strict Limit.

UMPD coverage pays for direct and accidental damage to the insured's vehicle caused by an uninsured motorist. Some policies extend this to include damage caused by an underinsured motorist, meaning a driver whose property damage liability limits are insufficient to cover the insured's damages.

• Covers damage to insured's vehicle.
• Applies when at-fault driver is uninsured OR underinsured (in some policies/states).
• Subject to a deductible.
• Has its own limit.

Memory trick: When the other guy's money runs out, UMPD fills the gap, minus your part.