CIC PROPERTY SECTION 4 TIME
ELEMENT COVERAGES &
ENDORSEMENTS EXAM QUESTIONS
WITH CORRECT ANSWERS
Describe the Loss Conditions of the Coverage Form as they apply to the insured's loss
payment as well as the endorsements used to alter the Loss Condition - Loss
Determination. - Answer-1. Appraisal
2. Duties In The Event Of Loss
3. Loss Determination (This policy provision is important to understand in order to fully
comprehend the impact of Coinsurance!)
4. Loss Payment
Explain the Coinsurance formula, including the factors that should be used to determine
the appropriate Limit Of Insurance, Coinsurance percentage, and methods used to
avoid Coinsurance. - Answer-(Amount Carried/Amount Required) x Loss = Recovery
-Amount Required: (Net Income + Operating Expenses) x Coinsurance Percentage)
-Amount Carried: Limit Of Insurance
..a. Limit of Insurance
.....1. Expected "period of restoration"
.....2. Business Income loss during "period of restoration"
.....3. Time to restore operations to income that would have existed
.....without loss.
.....4. Operating expenses specifically excluded or limited; i.e. payroll
.....5. Add estimated Extra Expenses
..b. Basis for Coinsurance- Net Income plus Operating Expenses for 12-month period.
..c. Divide step a by step b.
Methods to avoid Coinsurance penalties:
a. Activate one of the Optional Coverages- Maximum Period Of Indemnity, Monthly
Limit Of Indemnity, Business Income Agreed Value.
b. Attach Endorsement- Business Income Premium Adjustment - CP15200695
Determine how claims are settled under the Optional Coverages: Maximum Period Of
Indemnity, Monthly Limit Of Indemnity, Business Income Agreed Value, and Extended
Period Of Indemnity. - Answer-Maximum Period Of Indemnity: Limits payments to 120
days or limit is exhausted. Coinsurance does not apply.
Monthly Limit Of Indemnity: Limits payment in any 30-day period to 1/3, 1/4, or 1/6 as
shown in Declaration. Coinsurance doesn't apply.
, Business Income Agreed Value: Suspends Coinsurance. Worksheet (CP-1515) is
required.
Extended Period Of Indemnity: Used to extend the Business income time period beyond
60 days after operations have resumed. Does NOT increase limits.
Describe the manner in which extra expenses are paid under the Business Income
(Without Extra Expense) Coverage Form. - Answer-1. Only to the extent that they
reduce the Business Income loss.
2. No reference to Extra Expense under Additional Coverages - Civil Authority.
3. No reference to Extra Expense under Loss Conditions - Loss Determination.
Apply the Limits On Loss Payments provision of the Extra Expense Coverage Form. -
Answer-Maximum recovery for Extra Expense depends on how long the "period of
restoration" is.
a. 30 days or less = 1st %
b. 31-60 days = 2nd %
c. 61 + days = 3rd %
-Take the percentage and multiply it by the Limit of Insurance.
Identify and describe the coverages provided by the Leasehold Interest Coverage Form.
- Answer-a. Tenants' Lease Interest: difference between Rent you pay at described
premises and Rental value of described premises that you lease.
- Additional rent the insured must pay to lease comparable premises.
b. Bonus Payments: Unamortized value of any Bonus Payments to secure the premises
that are not refundable like Rent or Security.
c. Improvements and Betterments: Unamortized portion of payments made by you for
improvements and betterments. Fixtures, alterations, installations or additions:
- Made a part of the building you occupy, but don't own;
- You acquired or made at your expense, but cannot legally remove.
d. Prepaid Rent: Unamortized value of any Prepaid Rent that is not refundable. Does
NOT include any other rental period or rent due at the beginning of each month.
Explain the uses of and coverage provided by Business Income-Landlord As Additional
Insured (Rental value) CP15030607 available to modify time element coverage forms. -
Answer-- Used when the tenant is required to provide Loss of Rental Income for the
benefit of the landlord. Adds the individual or entity listed as additional insured for
"Rental Value"
Rental Value = Rental Income + operating expenses
ELEMENT COVERAGES &
ENDORSEMENTS EXAM QUESTIONS
WITH CORRECT ANSWERS
Describe the Loss Conditions of the Coverage Form as they apply to the insured's loss
payment as well as the endorsements used to alter the Loss Condition - Loss
Determination. - Answer-1. Appraisal
2. Duties In The Event Of Loss
3. Loss Determination (This policy provision is important to understand in order to fully
comprehend the impact of Coinsurance!)
4. Loss Payment
Explain the Coinsurance formula, including the factors that should be used to determine
the appropriate Limit Of Insurance, Coinsurance percentage, and methods used to
avoid Coinsurance. - Answer-(Amount Carried/Amount Required) x Loss = Recovery
-Amount Required: (Net Income + Operating Expenses) x Coinsurance Percentage)
-Amount Carried: Limit Of Insurance
..a. Limit of Insurance
.....1. Expected "period of restoration"
.....2. Business Income loss during "period of restoration"
.....3. Time to restore operations to income that would have existed
.....without loss.
.....4. Operating expenses specifically excluded or limited; i.e. payroll
.....5. Add estimated Extra Expenses
..b. Basis for Coinsurance- Net Income plus Operating Expenses for 12-month period.
..c. Divide step a by step b.
Methods to avoid Coinsurance penalties:
a. Activate one of the Optional Coverages- Maximum Period Of Indemnity, Monthly
Limit Of Indemnity, Business Income Agreed Value.
b. Attach Endorsement- Business Income Premium Adjustment - CP15200695
Determine how claims are settled under the Optional Coverages: Maximum Period Of
Indemnity, Monthly Limit Of Indemnity, Business Income Agreed Value, and Extended
Period Of Indemnity. - Answer-Maximum Period Of Indemnity: Limits payments to 120
days or limit is exhausted. Coinsurance does not apply.
Monthly Limit Of Indemnity: Limits payment in any 30-day period to 1/3, 1/4, or 1/6 as
shown in Declaration. Coinsurance doesn't apply.
, Business Income Agreed Value: Suspends Coinsurance. Worksheet (CP-1515) is
required.
Extended Period Of Indemnity: Used to extend the Business income time period beyond
60 days after operations have resumed. Does NOT increase limits.
Describe the manner in which extra expenses are paid under the Business Income
(Without Extra Expense) Coverage Form. - Answer-1. Only to the extent that they
reduce the Business Income loss.
2. No reference to Extra Expense under Additional Coverages - Civil Authority.
3. No reference to Extra Expense under Loss Conditions - Loss Determination.
Apply the Limits On Loss Payments provision of the Extra Expense Coverage Form. -
Answer-Maximum recovery for Extra Expense depends on how long the "period of
restoration" is.
a. 30 days or less = 1st %
b. 31-60 days = 2nd %
c. 61 + days = 3rd %
-Take the percentage and multiply it by the Limit of Insurance.
Identify and describe the coverages provided by the Leasehold Interest Coverage Form.
- Answer-a. Tenants' Lease Interest: difference between Rent you pay at described
premises and Rental value of described premises that you lease.
- Additional rent the insured must pay to lease comparable premises.
b. Bonus Payments: Unamortized value of any Bonus Payments to secure the premises
that are not refundable like Rent or Security.
c. Improvements and Betterments: Unamortized portion of payments made by you for
improvements and betterments. Fixtures, alterations, installations or additions:
- Made a part of the building you occupy, but don't own;
- You acquired or made at your expense, but cannot legally remove.
d. Prepaid Rent: Unamortized value of any Prepaid Rent that is not refundable. Does
NOT include any other rental period or rent due at the beginning of each month.
Explain the uses of and coverage provided by Business Income-Landlord As Additional
Insured (Rental value) CP15030607 available to modify time element coverage forms. -
Answer-- Used when the tenant is required to provide Loss of Rental Income for the
benefit of the landlord. Adds the individual or entity listed as additional insured for
"Rental Value"
Rental Value = Rental Income + operating expenses
