Property Insurance Quiz

What is an example of a building type with high fire resistance?

• Frame

• Joisted masonry

• Noncombustible

• Fire resistive

Answer explanation

Fire resistive buildings are specifically designed to withstand fire, using materials that can resist high temperatures and prevent fire spread. This makes them a prime example of high fire resistance compared to other building types.

Which type of construction is considered to have the lowest fire premium?

• Frame

• Joisted masonry

• Noncombustible

• Masonry noncombustible

Answer explanation

Noncombustible construction is made from materials that do not burn, resulting in the lowest fire premium. In contrast, frame and joisted masonry structures are more susceptible to fire, leading to higher premiums.

How is Actual Cash Value (ACV) calculated?

• Market value minus depreciation

• Replacement cost plus depreciation

• Replacement cost minus depreciation

• Agreed value minus depreciation

Answer explanation

Actual Cash Value (ACV) is calculated as the replacement cost of an item minus depreciation. This reflects the item's current value considering wear and tear, making 'Replacement cost minus depreciation' the correct choice.

What does Replacement Cost (RC) cover?

• Market value

• Full cost to replace with like kind

• Agreed value

• Depreciated value

Answer explanation

Replacement Cost (RC) covers the full cost to replace an asset with a similar one, without considering depreciation. This ensures that the insured can restore their property to its original condition.

In a coinsurance clause, what happens if the insured carries less than the required percentage of value?

• They receive full coverage

• They face a penalty on partial losses

• Their premiums are reduced

• They are not covered at all

Answer explanation

In a coinsurance clause, if the insured carries less than the required percentage of value, they face a penalty on partial losses. This means they will not receive full compensation for claims, reflecting their underinsurance.

Which type of loss is described as a secondary financial loss resulting from direct damage?

• Direct Loss

• Consequential Loss

• Primary Loss

• Physical Loss

Answer explanation

Consequential Loss refers to secondary financial losses that occur as a result of direct damage, distinguishing it from Direct Loss, which is the immediate damage itself.

What is an example of a direct loss?

• Increased insurance premiums

• Loss of market value

• Repair cost for hail-damaged skylights

• Lost sales due to a factory fire

Answer explanation

A direct loss refers to an immediate financial impact from damage. The repair cost for hail-damaged skylights is a clear example, as it directly results from the damage incurred, unlike increased premiums or lost sales.

Which valuation method pays the price a willing buyer would pay a willing seller?

• Actual Cash Value

• Agreed Value

• Replacement Cost

• Market Value

Answer explanation

Market Value reflects the price a willing buyer would pay a willing seller in an open market, making it the correct choice. Other methods like Actual Cash Value and Replacement Cost do not directly represent this buyer-seller dynamic.

What does Guaranteed Replacement Cost cover?

• Full rebuild cost, even over limits

• Depreciated value

• Market value

• Only up to policy limits

Answer explanation

Guaranteed Replacement Cost covers the full rebuild cost of your home, even if it exceeds the policy limits. This ensures you can fully restore your property without financial shortfall.

Which loss valuation method uses cheaper equivalent materials to restore function?

• Actual Cash Value

• Replacement Cost

• Functional Replacement Cost

• Guaranteed Replacement Cost

Answer explanation

Functional Replacement Cost uses cheaper equivalent materials to restore the function of the damaged property, making it the correct choice for this question.