Pass The Mississippi Property & Casualty Insurance Test

An HO6 is an insurance policy for condominium owners and is similar to a renter’s insurance policy. For assessments against a condo owner due to a building loss, maximum coverage provided to a H06 policyholder is typically $1,000 (e.g., a building’s roof is destroyed, which results in an assessment against all unit owners, since the condominium does not have enough money in the common charge account to cover the loss). An HO6 insurance policy only covers the condominium’s interior, including property, walls, ceilings, floors and property from the same perils covered in HO2 home insurance policies. The exterior of the condominium building is typically covered through a policy purchased by the Homeowners association or management company community manager. An HO6 policy may also provide coverage for reimbursement for additional living expenses. Additionally, HO6 policies provide personal liability protection, in the event a person is injured on the insured property and the insured is liable for the injury. The personal liability coverage pays for the cost of an attorney, court costs, medical expenses and any money awarded to the injured party.

H01 is the Basic Homeowner Policy, which covers the home’s structure and the property inside. It also covers structures located on the property due to damage caused by:

Windstorm/hail
Fire/lightning
Vandalism/criminal mischief
Vehicles/aircraft
Explosions/riots
Glass breakage
Smoke
Volcanic eruption
Personal liability

Damage from flooding and earthquakes is excluded from coverage in HO1 policies. Coverage is provided on a replacement cost basis, so the insured receives the cost of rebuilding or repairing damage to the dwelling with materials of similar quality.

HO2 Homeowners policies provides more coverage than an HO1 policy. It is also called a broad form policy. In addition to the eleven events covered under a basic policy, HO2 policies also cover:

Falling debris/objects
Freezing
Collapses due to the weight of ice, snow or sleet
Accidental discharge or overflow of water or steam
Sudden and accidental destruction, burning, cracking or burning
Accidental damage caused by surges of electrical current

HO2 policies are available with replacement cost or actual cash value coverage. Be aware that an HO2 policy does not cover water damage caused by a water backup and foundation or slow leaks. It also does not cover open perils, including earthquakes or floods. However, they may provide mechanical breakdown coverage with respect to heat and air conditioning systems or water heaters, but not for kitchen or laundry appliances, computers, televisions, sound equipment or systems.

An HO3 policy is one of the most comprehensive Homeowners policies available. It covers the dwelling’s structure from all perils unless specifically excluded. It does not cover the contents inside. The contents can be covered with a named perils policy. Some typical exceptions to HO3 dwelling coverage include:

Laws/ordinances
Earth movement
Water damage
Power failure
Animals owned by insured
Neglect
War/nuclear hazards
Intentionally caused loss
Government action
Collapse of structure
Theft of property from an under construction dwelling
Vandalism/Malicious mischief if the property is vacant for over 60 days
Mold/fungus/rot
Wear and tear or deterioration
Mechanical breakdown
Smog, rust, corrosion
Smoke caused by agricultural smudging or industrial operations
Discharge, dispersal, seepage of pollutants
Settling/shrinking/bulging/expansion
Birds/vermin/rodents/insects

If something happens to your home and it isn’t listed as an exclusion, then it is probably covered by your insurance policy. Some HO3 insurance plans have a named perils policy, which means it specifically lists what is covered. Regardless of the type of coverage, HO3 insurance typically does not include floods and earthquakes in its perils coverage, according to the NAIC.

An HO4 policy is also called the contents broad form. It is the tenant’s or renter’s form that provides named peril protection for the personal property of tenants. The coverage is meant for residents who rent and do not own a property, including single-family homes, apartment units/condominiums and mobile homes. The HO4 policy provides coverage similar to an HO-2 policy, though it covers personal property only and not any structures.

HO5 – Premier Homeowner Policy
This type of coverage includes everything that is included in an HO3 policy, but its applied to the structure and the property within your home, including your furniture, clothes, and appliances. Although an HO5 policy is the most comprehensive available, it does not include coverage for earthquakes or floods. HO5 insurance policies are available to homes that were either built within the last 30 years or renovated within 40 years, and they typically cover any damages at replacement cost.

An HO8 policy covers special risks, such as unique properties and older properties whose market values are much lower than the replacement costs. It provides peril coverage to dwellings and personal property and may provide extended coverage for certain perils. It may also cover vandalism and criminal mischief. Payouts are made on an actual cash value basis.

Coverage D provides coverage for loss of use. The insured receives a payout if the insured dwelling is rendered uninhabitable as the result of a covered loss. The two possible methods of reimbursement are: 1) additional living expense, which allows the insured to maintain their standard of living if the insured loses use of the residence dwelling; and 2) Fair rental value, which covers lost rental payments if the dwelling is rented to another person.

Coverage B is other structures coverage that insures other buildings that are separate from the main dwelling, but located on the same property (e.g. a detached residential garage). Exemptions from Coverage B are business use structures and properties that are rented to people, when the renter is not a tenant of the main dwelling.

Coverage A insures the main dwelling and:
-any structures attached to it
-any fixtures or materials on the same premises as the dwelling that are necessary to maintain the dwelling

Coverage C is personal property coverage. It covers the personal property when an event occurs. If off-premises coverage is provided, the property does not need to be located at the insured premises to obtain coverage. If the insured is moving to a new principal residence, full coverage for the property is provided for up to 30 days. Additionally, full coverage is available when the insured residence is uninhabitable or is under repair or construction and the covered property is stored at the insured’s temporary residence. It does not cover property of a boarder/roomer or the insured’s property located within an apartment rented out by the insured or property being stored away from the insured residence. It also does not cover animals or fish, motorized vehicles, aircraft, water/steam or credit cards.

A coinsurance provision requires the policyholder to maintain a specific amount of insurance in order to obtain full payment for a loss. This has a different meaning than coinsurance for health insurance.

A hired auto is an automobile that is borrowed, leased or hired by the insured from a non-family member or certain other individuals. Vehicles that do not constitute a hired auto are automobiles borrowed, leased or rented from a family member, business partner or employee.

Countersigning refers to the insurance agent’s authentication of an insurance contract. An agent is required to review and sign new insurance policies. Subrogation is the insurance principle referring to an insurer stepping into the shoes of the insured to recover money or damages paid out to or on behalf of the insured from another party

A dwelling policy does not cover a mobile home situated on a temporary foundation (e.g. cinder blocks). It covers mobile homes that are on permanent foundations. Dwelling insurance is a personal lines policy that covers property only. It is meant for people who rent out a property, want to insure a vacation home or are not eligible for other types of coverage, such as someone who is too much of a risk for a Homeowners policy. A dwelling policy also covers:

-Dwellings with four families or less
-Apartments with five people or less
-Vacant dwellings
-Personal property located in covered dwellings

Employee dishonesty coverage protects a business against an employee’s theft of money, property or securities.

Subrogation is the insurance principle referring to an insurer stepping into the shoes of the insured to recover money or damages paid out to or on behalf of the insured from another party. Waiver of subrogation is the insurance principle referring to an insurer giving up that right. The person from whom the insurer seeks recovery usually caused the loss requiring the payout. It is also called “transfer of rights of recovery”. For example, if a plumber causes a flood in the home of an insured, which results in the insurance company paying the insured for the loss, the insurance company can seek recovery (subrogate) of the amount paid from the plumber. A waiver of subrogation clause prevents the insurance company from pursuing the plumber. The insurance company is considered the subrogee, while the insured is the subrogor.

Robbery is the theft of property accompanied by the use or threat of physical force.

Burglary is the theft of property by forced entry into a premises with visible evidence of the forced entry.

There are various types of damages that a party found liable may be required to pay:

Punitive damages are intended to punish improper conduct. For example, when an oil company recklessly causes a spill, punitive damages could be awarded to punish the company and to deter future similar conduct.

Compensatory (a/k/a/ Actual) damages reimburse a party for a loss sustained in order to make the party whole, such as paying for a party’s automobile damage sustained in an accident with a negligent party. Other types of compensatory damages include:

1) Special damages are compensatory in nature, since they cover the injured party’s expenses, such as medical bills.

2) General damages compensate an injured party for non-economic expenses. For example, a party may recover damages due to pain and suffering resulting from an accident.

In the event that an insurance company orders an investigative consumer report, it is required to send the applicant an initial written notice within three days of the order. The applicant can then request additional information, which must be provided by the insurance company within five days. The applicant also has the right to challenge any of the information contained in the report. Moreover, if the insurance company raises rates or denies coverage based upon information in the credit report, the carrier has to specify the specific information from the report that led to the decision.

Credit reports are considered consumer or investigative consumer reports. The consumer report is a standard credit report. Credit reports cannot include any bankruptcy information that is older than ten years or legal actions that are older than seven years. According to the Federal Fair Credit Reporting Act (FCRA), the term “investigative consumer report” means a consumer report or portion thereof in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information.

The FCRA also requires that insurance companies notify applicants in writing, in the event that the carrier takes any adverse action against the applicant, based upon the information obtained from an applicant’s credit report. For example, the insurance company may analyze the credit history to determine if the applicant can afford the insurance premiums and ascertain that the applicant has a low credit score. If the insurance company determines that the applicant is a credit risk and decides to issue the policy, but with a premium surcharge because of the poor credit, that adverse action must be disclosed to the applicant in writing. Additionally, if the insurance company locates a prior adverse action taken against the applicant, the carrier must provide the FCRA notice to the applicant for that as well, even though the prior action was taken by a different insurance company. Rejecting and returning an application to an applicant to provide missing information is not an adverse credit decision, nor is it an outright denial of the application, since the information could be provided and the application can be processed again.

Advertising injury liability (e.g., defamation) under Coverage B provides coverage for the insured’s expenses, such as legal defense costs, as well as damages if the insured is found liable for libel or slander. Advertising injury includes oral or written statements that libel (written) or slander (verbal) a person or an organization or their products or services. Also covered are copyright or trademark infringement, oral and written statements infringing upon a person’s right to privacy and advertising someone else’s misappropriated ideas or business methods.

A business liability policy covers business conduct. While advertising coverage is part of a business policy, advertising coverage is the more specific and best answer.

A professional liability insurance policy (also known as errors and omissions insurance) provides coverage for liabilities related to a profession where professional advice or services are provided. The coverage protects against damages caused by an error or omission in the service or product sold by the policyholder. For example, a doctor or attorney requires malpractice insurance, which is a type of professional liability insurance.

A class is a group of businesses who have similar exposures, so they get grouped together for rating purposes. Classification is the creation of general categories of businesses for rating purposes.

Supplementary costs are the insured’s costs that are covered by liability insurance, aside from costs paid for any injuries or damages (those are covered under the primary coverage). Supplementary costs are paid to the insured in addition to the policy’s liability limits. Examples of supplemental costs are:

-Costs for a legal defense (e.g., an attorney)
-First aid provided during and immediately after an accident
-Claim investigation costs
-Premium payments for bonds, such as bail bonds or bond required in the event of an appeal from a court decision
-Lost earnings as the result of missed work related to the claim (e.g., lost time from work due to appearing in court)
-Pre and post judgment interest, in the event that it is not a standard damage as defined in the policy

An indirect loss (a/k/a consequential loss) is a financial loss sustained due to a direct loss (e.g. car rental cost if the insured’s vehicle is out of service due to an accident).

An aleatory contract is a contract where an uncertain event determines the parties’ rights and obligations. In an aleatory contract, the exchange of value between the two parties may not be equal. Insurance contracts are aleatory contracts, since a payout only occurs if an uncertain event occurs. The insured does not receive a payout if the event does not occur, so the insured may never receive anything in exchange for their premium payments. On the other hand, when the event does occur, the payout by the insurance company may be more than the amount received in premiums.

A class is a group of businesses who have similar exposures, so they get grouped together for rating purposes. Classification is the creation of general categories of businesses for rating purposes.

A countersignature is the signature of a licensed agent on an insurance policy that is required to validate the policy.

The insuring agreement states the insurance company will make payment if a covered loss occurs, subject to any conditions or exclusions contained in the policy.

This declarations page states the policy owner’s name and also who is responsible for making premium payments and entitled to the return of any premiums for a cancelled policy.

Exclusions exclude coverage for losses resulting from certain events.

Compensatory (a/k/a/ Actual) damages reimburse a party for a loss sustained in order to make the party whole, such as paying for a party’s automobile damage sustained in an accident with a negligent party.

The conditions section of an insurance policy explains the rights and obligations of the insured and the insurance company.

Risk is the likelihood or chance of injury, damage or loss to a person or thing. A peril is the specific event that causes a loss (e.g., weather-related disaster, fire, accident, theft).

Hazards are things that increase the chance of loss. The tree types of hazards are:
-Physical hazard – Relates to the actual use or occupancy of property (e.g. Improper electrical wiring)
-Moral hazard – Concerns someone’s chance of engaging in dishonest, immoral or illegal conduct (e.g. A person burns their own property in an attempt to claim a loss and obtain money from an insurance company)
-Morale hazard – Involves losses caused by someone’s negligent or careless conduct

The notice of claim provision in an insurance policy requires the insured to inform the insurance company about any claim that the insured seeks to file. It is the first step in filing a claim and is often accomplished by telephone or an online claims submission. It is an important aspect of a policy, since failure to provide timely notice could result in delays or the complete denial of a claim.

An insured must provide the insurance company with a proof of loss statement in order for a claims investigation to commence. The investigation is required to determine if the insurance company will approve or deny a claim.

There are various types of damages that a party found liable may be required to pay:

Punitive damages are intended to punish improper conduct. For example, when an oil company recklessly causes a spill, punitive damages could be awarded to punish the company and to deter future similar conduct.

Compensatory (a/k/a/ Actual) damages reimburse a party for a loss sustained in order to make the party whole, such as paying for a party’s automobile damage sustained in an accident with a negligent party. Other types of compensatory damages include:

1) Special damages are compensatory in nature, since they cover the injured party’s expenses, such as medical bills.

2) General damages compensate an injured party for non-economic expenses. For example, a party may recover damages due to pain and suffering resulting from an accident.