Property & Casualty Insurance Exam (National Portion) flashcards

Coverage that protects an insured when an at-fault driver has liability insurance, but their limits are insufficient to cover the full amount of the insured's bodily injury damages.

• Pays the difference between the at-fault driver's liability payout and the insured's damages.
• Subject to the insured's UIM policy limits.
• Designed to supplement, not replace, the at-fault driver's insurance.
• Different from Uninsured Motorist (UM) coverage.

Memory trick: UIM: Underfunded Injuries, Insured Makes up the Missing.

The process by which an insurance producer gathers information about a client's financial situation, assets, liabilities, and risk exposures to determine appropriate insurance coverage.

• Fundamental ethical step.
• Identifies client's specific risks.
• Ensures suitable policy recommendations.

Memory trick: First, understand; then, advise.

The maximum amount a Commercial General Liability (CGL) policy will pay for all damages arising out of a single incident or occurrence, regardless of the number of claimants or the total extent of damages.

• Applies to each distinct event causing injury or damage.
• Cannot be exceeded for one occurrence.
• Separate from aggregate limits, which cap total payouts over a policy period.

Memory trick: CGL limits are like a budget: each event has its 'per occurrence' spending cap, and overall there's an 'aggregate' total.

A type of liability limit structure in auto insurance where different maximum amounts are specified for bodily injury per person, bodily injury per accident, and property damage per accident.

• Three separate numbers: BI per person / BI per accident / PD per accident.
• Common in Personal Auto Policies (PAP).
• Each component has its own cap.

Memory trick: Split for specifics, Combined for simplicity.

The illegal practice of offering something of value not specified in the insurance policy to induce a client to purchase insurance.

• Illegal in most states.
• Can include financial incentives, gifts, or services.
• Aims to prevent unfair competition and protect consumers.

Memory trick: Rebating is like a 'Rebate' that's not allowed, a 'Bait' for business.

Specific dollar limits placed on certain categories of personal property in homeowners policies, particularly for losses due to theft, or for certain types of property regardless of the peril. These limits are much lower than the overall Coverage C limit.

• Apply to specific types of personal property (e.g., jewelry, furs, cash, firearms).
• Often apply only to theft losses for certain items.
• Are sub-limits within the broader Coverage C limit.
• Require scheduling or endorsements for higher coverage.

Memory trick: General is BIG, Special is SMALL.

A section of a homeowner's policy that provides coverage for bodily injury and property damage to others for which the insured is found legally responsible, occurring on or off the insured's property.

• Covers bodily injury and property damage to others.
• Applies when the insured is legally liable.
• Coverage extends on and off premises.
• Includes defense costs.

Memory trick: Your house, your rules, your responsibility.

Uninsured Motorist (UM) Bodily Injury coverage pays for medical expenses, lost wages, and pain and suffering for the insured and their passengers when injured by an at-fault uninsured driver, up to the policy's split limits.

• Protects insured and passengers from uninsured drivers.
• Covers bodily injury damages.
• Subject to per-person and per-accident limits.
• Pays what the uninsured driver's liability insurance *would have* paid.

Memory trick: UM acts like the 'ghost' insurance of the at-fault driver, using *your* limits.

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.

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

• Applies to bodily injury only.
• Protects insureds from financially irresponsible drivers.
• Separate per-person and per-accident limits apply.

Memory trick: UM coverage acts like a 'phantom' liability policy, but each injured person has their own 'wallet limit'.

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.

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 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.

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.

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.

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.

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.

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.

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.

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!

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.

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.

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'.

The ethical obligation of an insurance producer to possess and maintain the necessary knowledge, skills, and experience to properly advise clients and handle insurance transactions.

• Requires adequate knowledge
• Seek help when outside expertise
• Ensures client receives proper advice

Memory trick: When facing a knowledge gap, seek a wise guide.

Split limits apply separate maximums for bodily injury per person, bodily injury per accident, and property damage per accident, and all limits must be considered when calculating the total payout for a single event.

• Individual bodily injury claims are subject to the per-person limit.
• The sum of all bodily injury claims is subject to the per-accident limit.
• Property damage is a separate limit, applied after bodily injury calculations.

Memory trick: First, cap each person, then cap the crowd, then cap the car's damage.

The illegal practice of treating individuals differently in terms of rates, coverage, or benefits based on characteristics like race, religion, or national origin, without actuarial justification.

• Different treatment without justification
• Same class/risk group
• Illegal in underwriting and rating

Memory trick: Discriminatory rates are an unfair, unapproved divide.

The total amount an auto insurance policy with split limits will pay for both bodily injury and property damage from a single accident, after applying per-person, per-accident, and property damage limits.

• Separate limits for bodily injury (per person/per accident) and property damage.
• Each component is capped by its specific limit.
• Total payout is the sum of the capped bodily injury and property damage amounts.

Memory trick: Split Limits are like separate 'buckets' for BI and PD; you fill each bucket up to its cap, then add them together for the total payout.

Coverage that pays for an insured's bodily injury damages caused by an at-fault driver who does not have liability insurance.

• Covers medical expenses, lost wages, and pain and suffering.
• Applies when the other driver is uninsured.
• Subject to per-person and per-accident limits.
• Does not cover property damage unless specifically added as UM Property Damage.

Memory trick: Uninsured Maximums Protect Injured Persons.

Coverage within a homeowner's policy (often by endorsement) that protects the insured against claims arising from specific non-bodily injury offenses such as libel, slander, false arrest, invasion of privacy, and wrongful eviction.

• Differs from bodily injury and property damage.
• Covers specific offenses like libel and slander.
• Often added as an endorsement.

Memory trick: Beyond physical harm, there's personal injury too.

Uninsured Motorist Property Damage (UMPD) coverage pays for damage to the insured's vehicle by an uninsured driver, typically after applying a deductible and up to the policy limit.

• Covers property damage caused by an uninsured driver.
• Requires the uninsured driver to be identifiable in some states.
• Subject to a policy deductible.
• Limited by the policy's UMPD limit.

Memory trick: Damage minus deductible, then check the limit.

Perils or causes of loss that are specifically excluded from coverage in standard commercial property policies, often requiring separate policies or endorsements for protection.

• Common exclusions: Earth movement (earthquake, landslide), flood, war, nuclear hazard.
• These are typically catastrophic losses.
• Insureds must purchase specialized policies or endorsements for coverage.

Memory trick: Major exclusions are the 'big four horsemen' of disaster that your standard policy won't ride.

Medical Payments (Med Pay) in an auto policy provides coverage for reasonable and necessary medical and funeral expenses incurred by an insured due to an auto accident. When primary, it pays up to its limit before other insurance, such as health insurance.

• Covers medical and funeral expenses for the insured and passengers.
• Paid regardless of fault.
• If primary, it pays first up to its limit.
• Subject to a per-person limit.

Memory trick: PRIMARY Med Pay is the FIRST to pay, like a lead runner in a race.

The amount of money the insured must pay out-of-pocket before an insurance company will pay a claim for a covered loss.

• Reduces claim payouts by the insurer.
• Typically applies per occurrence.
• Higher deductibles usually mean lower premiums.

Memory trick: Deductibles are like the 'first bite' of the loss the insured 'eats' before the insurer 'serves' the rest.

A type of commercial property insurance that covers direct physical damage to various types of equipment (e.g., boilers, machinery, electrical systems) caused by internal failures like mechanical breakdown, electrical arcing, or power surges, which are typically excluded from standard property policies.

• Covers internal breakdown of equipment.
• Includes damage from electrical surges.
• Often purchased as a separate policy or endorsement.
• Broadens coverage beyond standard property perils.

Memory trick: BROAD policies DON'T cover BREAKDOWN.

The portion of a homeowner's policy that protects the insured against legal responsibility for property damage they accidentally cause to others.

• Covers damage to property of others.
• Applies anywhere in the world.
• Subject to a single liability limit for both bodily injury and property damage to others.

Memory trick: My homeowner's liability is my 'oops, I broke your stuff' fund for my neighbor.

An extension in commercial property policies that covers loss of business income and extra expenses when a civil authority prohibits access to the insured's premises due to damage from a covered peril to a neighboring property.

• Requires a covered peril to a neighboring property.
• Access to insured's premises must be prohibited by civil authority.
• Typically includes a waiting period before coverage begins.
• Covers business income loss and extra expenses.

Memory trick: WAIT for the Cop to Pay You.

A provision in property insurance policies that requires the insured to carry insurance equal to a specified percentage of the property's value. If the insured carries less than this amount, they will be penalized at the time of loss.

• Encourages insureds to insure property to its full value.
• Penalty applied when 'Did / Should Have' ratio is less than 1.
• Does not apply to total losses if the policy limit is exhausted.

Memory trick: Did you carry enough? If not, you'll share the cost of the fire!

Common form of auto liability limits expressed as three separate numbers: per person for bodily injury, per accident for bodily injury, and per accident for property damage.

• The first number is the maximum for one person's bodily injury.
• The second number is the maximum for all bodily injuries in one accident.
• The third number is the maximum for all property damage in one accident.
• Both per-person and per-accident limits apply, with the lower of the two (or the total of individual caps) being the payout.

Memory trick: Split Limits: Person, Then Accident, Then Total.

A producer's fiduciary duty requires them to act in a position of trust and confidence, especially when handling client funds (like premiums), ensuring they are promptly forwarded to the insurer and not commingled or misused.

• Highest standard of care.
• Involves handling client/insurer funds.
• Requires honesty, good faith, and trust.
• Prohibits commingling of funds.

Memory trick: Fiduciary funds: handle with care, or face a legal snare.

The maximum amount a Commercial General Liability (CGL) policy will pay for all damages arising from a single 'occurrence' (accident), regardless of the number of claimants or the total cost of damages from that event.

• Applies to each individual accident.
• Cannot be exceeded for a single event.
• Payments reduce the General Aggregate Limit.

Memory trick: The Per-Occurrence Limit is the 'single event' maximum – one accident, one big cap.

An endorsement added to commercial property policies that covers the additional costs incurred to comply with updated building codes or ordinances when rebuilding or repairing damaged property. Standard property policies typically exclude these increased costs.

• Covers increased costs due to building code compliance.
• Addresses requirements for demolition, debris removal, or upgrades.
• Crucial for older buildings to meet modern standards.
• Often has separate limits for different aspects of coverage.

Memory trick: RCV PLUS Law equals NEW and LEGAL.

A named perils form that covers all the perils in the Basic form plus additional perils, offering more comprehensive coverage than Basic.

• Adds perils like falling objects, weight of ice/snow/sleet, water damage from plumbing discharge, collapse, etc.
• Still a 'named perils' policy (only listed perils are covered).
• Intermediate level of coverage between Basic and Special forms.

Memory trick: Broad perils 'broaden' coverage by adding common issues like 'wet and heavy stuff falling'.

A component of commercial property insurance that covers the insured's contents, such as inventory, furniture, fixtures, machinery, and equipment located at the business premises.

• Crucial for tenants who don't own the building.
• Covers items directly related to business operations.
• Often includes coverage for property of others in the insured's care, custody, or control.

Memory trick: Commercial property is like 'layers of protection' – building first, then what's inside.

Part of a homeowner's policy that covers the insured's legal responsibility for damage to property belonging to others.

• Covers damage to others' real and personal property.
• Applies when the insured is legally liable.
• Subject to the policy's overall liability limits.
• Includes damage caused by covered perils originating on the insured's property.

Memory trick: Homeowner's Damage: Protects Others' Possessions.

The ethical and legal duty of insurance producers to fully and truthfully cooperate with state insurance departments during investigations, including providing requested information and not obstructing the process.

• Legal obligation
• Provide truthful information
• Do not obstruct investigations

Memory trick: Regulatory requests demand full truth, no hiding.

A named perils form that covers a limited list of perils for commercial property, offering the most restrictive coverage.

• Covers specific named perils only.
• Least expensive and most restrictive form.
• Includes fire, lightning, explosion, windstorm, hail, smoke, aircraft/vehicles, riot/civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action.

Memory trick: Basic perils are like the 'ABC's of disaster' - the most common and fundamental risks.

An additional coverage in homeowners policies that pays for the reasonable costs of removing trees, shrubs, or plants from the residence premises if they are damaged by a covered peril and fall onto a covered structure, block a driveway, or fall onto a disabled person's ramp.

• Applies when damage is caused by a covered peril.
• Covers removal from covered structures or driveways/ramps.
• Subject to specific sub-limits per tree and overall.

Memory trick: Main A B C D, Plus Additions.

The General Aggregate Limit in a CGL policy is the maximum amount the insurer will pay for all covered losses during the policy period, typically reduced by payments made under Coverage A (Bodily Injury & Property Damage) and Coverage B (Personal & Advertising Injury), including Products-Completed Operations claims.

• General Aggregate is overall maximum.
• Products-Completed Operations Aggregate is a sub-limit within the General Aggregate.
• Per-occurrence limits apply to individual events but do not reduce the aggregate until paid.

Memory trick: The General Aggregate is the 'big piggy bank' for the year, and both regular claims and product claims take money from it.

Mandatory training hours producers must complete during each licensing period to maintain their license, often including specific topics like ethics.

• Required for license renewal
• Specific total hours
• Specific ethics or special topic hours

Memory trick: CE hours are the key that unlocks renewal, especially ethics.

Insurance policies designed for dwellings that are not eligible for homeowners insurance, such as rental properties, vacation homes, or vacant properties, offering varying levels of peril coverage.

• DP-1 (Basic): Named perils only, ACV settlement.
• DP-2 (Broad): Named perils, broader than DP-1, RC for dwelling/structures.
• DP-3 (Special): Open perils for dwelling/structures, named perils for personal property, RC for dwelling/structures.

Memory trick: DP forms are for 'non-owner' homes: 1 is basic, 2 is broad, 3 is special (open).

Fixtures, alterations, installations, or additions made by a tenant to a rented building that become a permanent part of the building and cannot be removed without damaging the structure, insured under the tenant's policy.

• Must be made by the tenant at their expense.
• Becomes a permanent part of the building.
• Covered under the 'Your Business Personal Property' section of the BPP form.

Memory trick: Tenant's Own Stuff, Tenant's Fixed Upgrades, Others' Borrowed Belongings.

Coverage protecting professionals (e.g., consultants, doctors, lawyers) against claims alleging negligence, errors, or omissions in the performance of their professional duties.

• Also known as Errors & Omissions (E&O) insurance.
• Differs from CGL, which covers bodily injury and property damage.
• Customized for specific professions due to unique risks.

Memory trick: Bodily injury, property damage, professional errors, or employee harm? Each needs its own shield.

Part D of the Personal Auto Policy (PAP) covers physical damage to the insured's vehicle, typically split into Collision coverage and Other Than Collision (Comprehensive) coverage.

• Collision covers damage from impact with another object or vehicle, or upset.
• Other Than Collision (Comprehensive) covers damage from perils like fire, theft, vandalism, falling objects, and hitting an animal.
• Both coverages usually have a deductible.
• Does not cover wear and tear, mechanical breakdown, or custom equipment unless endorsed.

Memory trick: PAP's 'D' is for 'Damage' to 'Your Auto'.

The Building and Personal Property Coverage Form is the foundation of most commercial property insurance policies, covering buildings, the insured's business personal property, and the personal property of others.

• Covers buildings, business personal property, and personal property of others.
• Used by both building owners and tenants.
• Can be written on a named peril or open peril basis.
• Includes provisions for coverage extensions and optional coverages.

Memory trick: For your stuff in a building, choose 'Building and Personal Property'.

The primary insuring agreement of a Commercial General Liability policy, covering sums the insured is legally obligated to pay for bodily injury and property damage to third parties.

• Covers bodily injury (physical harm, sickness, disease, death).
• Covers property damage (physical injury to or destruction of tangible property).
• Must arise from an 'occurrence' and happen within the coverage territory and period.

Memory trick: A is for Accidents, B is for Bad Words, C is for Care.

An insurance policy feature where the insurer and insured agree on the value of the insured property at the time the policy is written, and this amount is paid in the event of a total loss.

• Eliminates depreciation disputes for total losses.
• Common for vintage cars, art, or unique collectibles.
• Requires appraisal or mutual agreement on value.

Memory trick: Agree on the value before the vintage car starts to roll.

Business Income (or Business Interruption) coverage protects businesses from financial losses resulting from a covered peril that interrupts their operations, replacing lost profits and covering continuing expenses.

• Covers net income (profit or loss) that would have been earned.
• Covers continuing normal operating expenses (e.g., payroll, rent).
• Triggered by direct physical loss to property from a covered peril.
• Coverage typically lasts until the business is restored to its pre-loss operational capability.

Memory trick: Business Income covers the 'Lost Money' when you stop, Extra Expense covers 'More Money' to keep going.

An excess liability policy that provides additional liability coverage above the limits of underlying policies (e.g., auto, homeowners) and may also cover some exposures not covered by those underlying policies, subject to a self-insured retention.

• Provides 'excess' coverage over underlying policies.
• Provides 'drop-down' coverage for gaps in underlying policies, subject to an SIR.
• High limits (e.g., $1M to $5M or more).

Memory trick: Umbrellas cover 'above' other policies, or 'drop down' for gaps (then SIR applies).

A type of liability insurance that provides an additional layer of coverage above the limits of an insured's primary personal liability policies (e.g., auto, homeowners, boatowners) and may also offer broader coverage.

• Provides excess liability limits.
• Offers broader coverage for some perils/situations not covered by underlying policies.
• Requires underlying policies to be in force with specified minimum limits.

Memory trick: Umbrella covers all beneath it, broadly.

A Commercial Auto Policy (CAP) is designed for vehicles used primarily for business, while a Personal Auto Policy (PAP) covers vehicles for personal, family, and household use, with limited business exceptions.

• CAP covers vehicles owned by businesses, partnerships, or corporations.
• PAP generally excludes vehicles used for public or livery conveyance (e.g., taxis, delivery).
• The 'use' of the vehicle is the primary determinant, not ownership type.

Memory trick: Is it 'personal' driving, or is the 'business' driving the main game? That decides the policy.