Basic Parts of an Insurance Contract - (correct answer) -1. Declarations
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2. Definitions
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3. Insuring agreement
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4. Exclusions
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5. Conditions
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6. Miscellaneous provisions
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Declarations - (correct answer) -statements that provide information about the particular property or
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activity to be insured
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definitions - (correct answer) -statements that provide information about the particular property or
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activity to be insured
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Insuring Agreement - (correct answer) -Summary of the major promises of the insurer (what the policy
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covers)
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named perils - (correct answer) -only those perils specifically named in the policy are covered
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open perils - (correct answer) -all perils are covered except for those that are specifically excluded
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exclusions - (correct answer) -perils or property that are not covered under the policy
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ex. flood/earthquake, war, intentional loss, certain types of property
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Why are exclusions necessary? - (correct answer) --Some perils are not commercially insurable
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e.g., catastrophic losses due to war
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-Extraordinary hazards are present io io io
,e.g., using the automobile for a taxi
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-Coverage is provided by other contracts
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e.g., use of auto excluded on homeowners policy
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-Moral hazard problems
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e.g., coverage of money limited to $200 in homeowners policy
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-Attitudinal hazard problems io io
e.g., individuals are forced to bear losses that result from their own carelessness
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-Coverage not needed by typical insureds
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e.g., homeowners policy does not cover aircraft
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conditions - (correct answer) -provisions in the policy that qualify or place limitations on the insurer's
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promise to perform
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Miscellaneous Provisions - (correct answer) -- States have mandatory provisions (added by
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endorsements)
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- Notice of Cancellation
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- Notice of Nonrenewal
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- Notice of Loss
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- Mortgagee Clause
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named insured - (correct answer) -the person or persons named in the declarations section of the
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policy
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, First Named Insured - (correct answer) -has certain additional rights and responsibilities that do not
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apply to other named insureds
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other insureds - (correct answer) -persons or parties who are insured under the policy even though
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they are not specifically named
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additional insureds - (correct answer) -person or party added to the policy by an endorsement
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Endorsements and Riders - (correct answer) -provisions that add to, delete from, or modify theio io io io io io io io io io io io io io
original/main policy
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Deductible - (correct answer) -a provision by which a specified amount is subtracted from the total loss
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payment that otherwise would be payable
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Why have deductibles? - (correct answer) --eliminate small claims
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-reduce premiums io
-reduce moral and morale hazard io io io io
straight deductible - (correct answer) -the amount the insured is responsible for per loss before the
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insurer pays anything
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aggregate deductible - (correct answer) -the amount the insured is responsible for in total (over all
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losses during the policy period) before the insurer pays anything
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elimination (waiting) period - (correct answer) -a stated period of time at the beginning of a loss during
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which no insurance benefits are paid
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Coinsurance in Property Insurance - (correct answer) -encourages the insured to insure the property to
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a stated percentage of its insurable value. If coinsurance requirement is not met at the time of the
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loss, the insured must share the loss (as a coinsurer)
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Coinsurance in Health Insurance - (correct answer) -a provision that requires the insured to pay a
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specified percentage of covered medical expenses after the deductible is met
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- reduces premiums and prevents overutilization of policy benefits
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pro rata liability - (correct answer) -each insurer's share of the loss is based on the proportion that its
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insurance bears to the total amount of insurance on the property
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Contribution of Equal Shares - (correct answer) -each insurer shares equally in the loss until the share
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paid by each insurer equals the lowest limit of liability under any policy, or until the full amount of the
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loss is paid
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primary and excess insurance - (correct answer) -the primary insurer pays first, and the excess insurer
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pays only after the policy limits under the primary policy are exhausted
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