Louisiana Pre-Licensing for Property
and Casualty Insurance Chapter 2
Property and Casualty Insurance Basics
Notes exam questions with complete
solutions
Depreciation - Answer-reduction in value, particularly due to wear and tear
Earned premium - Answer-the portion of premium paid in advance that now belongs to
the insurer because it applies to the elapsed part of the policy
Exposure units - Answer-used as a measure of the rating units or the premium base of
a risk (exposure units multiplied by the rate results in the premium)
Homogeneity - Answer-the degree to which items are similar
Implied warranty - Answer-a legal term meaning that a product is suitable for its
intended purpose and that it fits an ordinary buyer's expectations
Inception - Answer-the date at which the insurance policy goes into effect
Negligence - Answer-the failure to use the care that a reasonable prudent person would
under the same or similar circumstances
Most people behave in a manner that is reasonable and prudent- with exceptions for
minors and incompetent individuals. Failure to behave in this manner constitutes this,
and if it leads to injury to another or damage to property belonging to another, the
negligent party may be held legally liable for the damage.
Normally, the burden of proof is on the injured party to prove that the other party was
negligent. However, there are also certain doctrines that impose liability by statute or
that shift the burden of proof from the injured party to the defendant
Obsolescence - Answer-depreciation in value of a property due to becoming outdated
Statute - Answer-a written law passed by a legislative body
Insurable interest - Answer-The insured must have this in the person or property
covered by an insurance policy
,In property insurance, the insured would incur a financial loss if the insured property
was damaged. As a result, this may be created by the ownership, custody or control of
a property
For example: mortgagees and leaseholders may have this in their respective properties
In property and casualty insurance, this must exist at the time of the loss
3 Elements of insurable risk - Answer-Financial (a monetary interest)
Blood (a relative); and
Business (a business partner)
Different types of insureds - Answer-Named insured
First named insured; and
Additional insureds
Insured - Answer-In property and casualty insurance, this is anyone who is covered
under the policy, whether named or not.
Example of this: an unnamed spouse or any resident relative that is a member of the
named insured's household
Named insured - Answer-the individual(s) whose name appears on the policy's
declaration
First named insured - Answer-individual whose name appears first on the policy's
declaration
In commercial insurance policies, they have control of the policy and is the only insured
who may cancel the policy or request changes to the policy, and also is the one
responsible for paying premiums and reporting losses
Additional insureds - Answer-Individuals or businesses that are not named as insureds
on the declaration page, but are protected by the policy, usually in regard to a specific
interest
They are usually added to the policy by an endorsement
Accident - Answer-sudden, unplanned and unexpected event, not under the control of
the insured resulting in injury or damage that is neither expected nor intended
Occurrence - Answer-Broader definition of loss than accident.
, It includes those losses caused by continuous or repeated exposure to conditions
resulting in injury to persons or damage to property that is neither intended nor
expected
Peril - Answer-a specific cause of loss.
perils insured against in standard property policies include - Answer-fire, wind, hail, and
explosions
Named Peril - Answer-A term used in property insurance to describe the breadth of
coverage provided under an insurance policy form that lists specific covered peril.
No coverage is provided for unlisted perils
Open Peril - Answer-A term used in property insurance to describe the breadth of
coverage provided under an insurance policy form that insures against any risk of loss
that is not specifically excluded (This term replaced the use of the term "all risks.")
Two types of property losses that an individual or business are exposed to are -
Answer-Direct Loss and Indirect Loss
Property insurance only covers - Answer-Direct losses
Direct losses - Answer-direct, physical damage to building and/or personal property
also includes other damage where the insured peril was the proximate cause of loss
Indirect losses - Answer-are related to the direct loss, and insurance coverage to protect
against these indirect losses often is added to property insurance policies
They are also known as consequential losses
They are losses that are considered a result of direct loss. Such losses usually result
from the time it takes to repair or replace damaged property.
The most prevalent type of this for individual homeowners is the extra living expense
that may be incurred by the insured while the home is being repaired.
For commercial risks, the primary type of this is the loss of profits a business may suffer
because of having to close down until the business is repaired
Example of direct loss and proximate cause of loss - Answer-An insured building
catches fire. When the fire department applies water to put out the fire, the wall and
floor coverings suffer water damage. Although water damage is not an insured peril, the
damage is paid under the peril of fire because fire was the proximate cause
and Casualty Insurance Chapter 2
Property and Casualty Insurance Basics
Notes exam questions with complete
solutions
Depreciation - Answer-reduction in value, particularly due to wear and tear
Earned premium - Answer-the portion of premium paid in advance that now belongs to
the insurer because it applies to the elapsed part of the policy
Exposure units - Answer-used as a measure of the rating units or the premium base of
a risk (exposure units multiplied by the rate results in the premium)
Homogeneity - Answer-the degree to which items are similar
Implied warranty - Answer-a legal term meaning that a product is suitable for its
intended purpose and that it fits an ordinary buyer's expectations
Inception - Answer-the date at which the insurance policy goes into effect
Negligence - Answer-the failure to use the care that a reasonable prudent person would
under the same or similar circumstances
Most people behave in a manner that is reasonable and prudent- with exceptions for
minors and incompetent individuals. Failure to behave in this manner constitutes this,
and if it leads to injury to another or damage to property belonging to another, the
negligent party may be held legally liable for the damage.
Normally, the burden of proof is on the injured party to prove that the other party was
negligent. However, there are also certain doctrines that impose liability by statute or
that shift the burden of proof from the injured party to the defendant
Obsolescence - Answer-depreciation in value of a property due to becoming outdated
Statute - Answer-a written law passed by a legislative body
Insurable interest - Answer-The insured must have this in the person or property
covered by an insurance policy
,In property insurance, the insured would incur a financial loss if the insured property
was damaged. As a result, this may be created by the ownership, custody or control of
a property
For example: mortgagees and leaseholders may have this in their respective properties
In property and casualty insurance, this must exist at the time of the loss
3 Elements of insurable risk - Answer-Financial (a monetary interest)
Blood (a relative); and
Business (a business partner)
Different types of insureds - Answer-Named insured
First named insured; and
Additional insureds
Insured - Answer-In property and casualty insurance, this is anyone who is covered
under the policy, whether named or not.
Example of this: an unnamed spouse or any resident relative that is a member of the
named insured's household
Named insured - Answer-the individual(s) whose name appears on the policy's
declaration
First named insured - Answer-individual whose name appears first on the policy's
declaration
In commercial insurance policies, they have control of the policy and is the only insured
who may cancel the policy or request changes to the policy, and also is the one
responsible for paying premiums and reporting losses
Additional insureds - Answer-Individuals or businesses that are not named as insureds
on the declaration page, but are protected by the policy, usually in regard to a specific
interest
They are usually added to the policy by an endorsement
Accident - Answer-sudden, unplanned and unexpected event, not under the control of
the insured resulting in injury or damage that is neither expected nor intended
Occurrence - Answer-Broader definition of loss than accident.
, It includes those losses caused by continuous or repeated exposure to conditions
resulting in injury to persons or damage to property that is neither intended nor
expected
Peril - Answer-a specific cause of loss.
perils insured against in standard property policies include - Answer-fire, wind, hail, and
explosions
Named Peril - Answer-A term used in property insurance to describe the breadth of
coverage provided under an insurance policy form that lists specific covered peril.
No coverage is provided for unlisted perils
Open Peril - Answer-A term used in property insurance to describe the breadth of
coverage provided under an insurance policy form that insures against any risk of loss
that is not specifically excluded (This term replaced the use of the term "all risks.")
Two types of property losses that an individual or business are exposed to are -
Answer-Direct Loss and Indirect Loss
Property insurance only covers - Answer-Direct losses
Direct losses - Answer-direct, physical damage to building and/or personal property
also includes other damage where the insured peril was the proximate cause of loss
Indirect losses - Answer-are related to the direct loss, and insurance coverage to protect
against these indirect losses often is added to property insurance policies
They are also known as consequential losses
They are losses that are considered a result of direct loss. Such losses usually result
from the time it takes to repair or replace damaged property.
The most prevalent type of this for individual homeowners is the extra living expense
that may be incurred by the insured while the home is being repaired.
For commercial risks, the primary type of this is the loss of profits a business may suffer
because of having to close down until the business is repaired
Example of direct loss and proximate cause of loss - Answer-An insured building
catches fire. When the fire department applies water to put out the fire, the wall and
floor coverings suffer water damage. Although water damage is not an insured peril, the
damage is paid under the peril of fire because fire was the proximate cause
