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The following are content additions to supplement your existing text unless otherwise indicated:

New Exam Breakdowns for Life, Health, and Life and Health:

Washington Life Insurance

100 Questions

Time Limit: 2 hours, 30 minutes

Pass Score: 70%

Washington Disability Insurance Examination
100 Questions
Time Limit: 2 hours, 30 minutes
Passing Score: 70%

Washington Life and Disability Insurance Examination
150 Questions
Time Limit: 3 hours, 15 minutes
Passing Score: 70%

LIFE

Types of Life Policies

G. Credit Life – topic deleted from outline

Federal Tax Considerations for Life Insurance

A. Taxation of Life Insurance and Annuities – title change; added “and Annuities”

1. Amounts Available to Policyowners

Withdrawals and Partial Surrenders

Universal life policies allow the partial withdrawal (partial surrender) of the policy cash value. However, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation, depending upon the plan. The death benefit will be reduced by the amount of any partial surrender. Note, however, that a partial surrender from a universal life policy is not the same as a policy loan.

Taxation of Nonqualified Annuities – new topic

A portion of each annuity benefit payment is taxable, and a portion is not. The portion that is nontaxable is the anticipated return of the principal paid in. This is known as the cost base. The portion that is taxable is the interest earned on the principal. This is known as the tax base.

Accumulation Phase Withdrawal

When money is withdrawn from the annuity during the accumulation phase, the amounts are taxed on a Last-In, First-Out basis (LIFO). Therefore, all withdrawals will be taxable until the owner's cost basis is reached. After all of the interest is received and taxed, the principal will be received with no additional tax consequences.

First-In, First-Out (FIFO) method applies to Life insurance only. The policyowner will receive their investment in the contract first before receiving any gains in the policy (or being taxed on those gains).

Insurance Regulations (LIFE AND HEALTH)

E. Federal Regulations

National Do Not Call List

In 2003, the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) worked together to create the National Do Not Call Registry, allowing consumers to include their telephone numbers on the list to which solicitation calls cannot be made by telemarketers. Insurance companies need to comply with this regulation when making solicitation phone calls.

To comply with the telemarketing sales rules, telemarketers must not do any of the following:

To keep in compliance with the Do Not Call rules, organizations must consult the registry every 31 days. Any phone numbers on the registry must be dropped from the organization's call lists.

HEALTH

Accident and Health Insurance Basics

D. Producer Responsibilities

3. Policy Delivery

Premium Collection – addition to existing text

Premiums can be paid physically (by check or cash) or electronically. Payments submitted electronically are considered electronic funds transfers (EFTs) and are made through the Automated Clearing House (ACH).

Disability Income and Related Insurance

A. Qualifying for Disability Benefits

Permanent Disability

A permanent disability is a mental or physical illness or a condition that affects a major life function long term. The phrase is used mainly regarding workers compensation and describes any impairment that remains after a worker has received medical treatment and has had time for optimum recovery (reached maximum medical improvement).

Permanent total disability refers to an individual's total inability to work ever again.

Medical Plan

F. Affordable Care Act

Essential Health Benefits

As mandated by the Affordable Care Act, all private health insurance plans offered in the Marketplace must provide the same set of essential health benefits. All health care plans must include at least the following 10 essential benefits:

Specialized Health Insurance for Qualified Individuals

Long-Term Care Policies – new section

Long-term care policies, which can be marketed in the form of individual policies, group policies, or as riders to life insurance policies, provide coverage for individuals who are no longer able to live an independent lifestyle and require living assistance at home or in a nursing home facility. Long-term care policies can vary in the number of days of confinement covered, the number of home health visits covered, the amount paid for nursing home care, and other contract provisions. They also must provide coverage for at least 12 consecutive months in a setting other than an acute care unit of a hospital.

Eligibility for Benefits

Normally to be eligible for benefits from a long-term care policy, the insured must be unable to perform some of the activities of daily living (ADLs). Activities of daily living include bathing, dressing, toileting, transferring positions (also called mobility), continence, and eating.

Benefit/Elimination Periods

Long-term care policies usually include an elimination (waiting) period similar to those found in disability income policies. Long-term care elimination periods may range from 0 to 365 days (make sure to check your state-specific requirement in the regulations section). The longer the waiting period, the lower the premium. Insurers usually give insureds an option to select the elimination period that best suits their needs. LTC policies also define the benefit period for how long coverage applies, after the elimination period. The benefit period is usually 2 to 5 years, with a few policies offering lifetime coverage. The longer the benefit period, the higher the premium will be.

Levels of Care

Generally, long-term care policies will cover 3 levels of care: skilled nursing care, intermediate care, and custodial care. In addition to these levels of care, the long-term care policy may provide coverage for home health care, adult day care, hospice care or respite care, all of which can be received at home.

Skilled Care – Skilled care is daily nursing and rehabilitative care that can only be provided by medical personnel, under the direction of a physician. Skilled care is almost always provided in an institutional setting. Examples of skilled care include changing sterile dressing and physical therapy given in a skilled nursing care facility. Care that can be given by nonprofessional staff is not considered skilled care.

Intermediate Care – Intermediate care is occasional nursing or rehabilitative care provided for stable conditions that require daily medical assistance on a less frequent basis than skilled nursing care. It is ordered by a physician, and skilled medical personnel would deliver or monitor this type of care. Intermediate care could be as simple as giving medication to a group in physical therapy once a day or changing a bandage. It may be carried out in a nursing home, an intermediate-care unit or in the patient’s home.

Custodial Care – Custodial care is care for meeting personal needs such as assistance in eating, dressing, or bathing, which can be provided by nonmedical personnel, such as relatives or home health care workers. Custodial care can be provided in an institutional setting or in the patient’s home. In other words, it involves caring for a person's activities of daily living, and not hospital or surgical needs.

Federal Tax Considerations for Health Insurance

Personally Owned Health Insurance

Taxation of insurance benefits is often determined by whether or not the premiums were taxed.

Disability Income Insurance

Premium payments on personally owned disability income policies are nondeductible by the individual. However, disability income benefits are received income tax free by the individual.

Medical Expense and Long-Term Care Insurance

In medical expense insurance policies, unreimbursed medical expenses paid for the insured, the insured's spouse and dependents may be claimed as deductions if the expenses exceed a certain percentage of the insured's adjusted gross income. The law permits deductions for unreimbursed expenses in excess of 7.5% of the adjusted gross income (AGI).

This provision only applies if the insured itemizes these deductions on his/her tax return.

Insurance Regulations (HEALTH)

CAN-SPAM

CAN-SPAM legislation was established to set the rules for commercial e-mail, and to give recipients the right to reject commercial messages. CAN-SPAM covers all commercial electronic messages, including business-to-business messages, the purpose of which is the commercial advertisement or promotion of a product or service.

CAN-SPAM requires that any commercial email must contain an opt-out mechanism; all opt-out requests must be honored within 10 business days. To be in compliance with this legislation, the entity that sends out e-mails must do the following:

Each violation of the above provisions is subject to fines of up to $16,000. On top of that is a penalty of $250 per each noncompliant e-mail, with a cap of $2 million dollars.

Privacy Protection (Gramm-Leach-Bliley)

The Gramm-Leach-Bliley Act stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons:

• The insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party;
• The consumer is given the opportunity, before the time that information is initially disclosed, to direct that information not be disclosed to the third party; or
• The consumer is given an explanation of how the consumer can exercise a nondisclosure option.

The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):

1. When the customer relationship is established (i.e. a policy is purchased); and
2. Before disclosing protected information.

The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not to have their private information shared with other parties.

The following are content additions to supplement your existing text unless otherwise indicated:

New Exam Breakdowns for Property, Casualty, and Property and Casualty:

Washington Property Insurance

100 Questions

Time Limit: 2 hours, 30 minutes

Pass Score: 70%

Washington Casualty Insurance
100 Questions
Time Limit: 2 hours, 30 minutes
Passing Score: 70%

Washington Property and Casualty Insurance
150 Questions
Time Limit: 3 hours, 15 minutes
Passing Score: 70%

PROPERTY

Dwelling Policy Concepts

Conditions

All dwelling policy forms include the following conditions:

• Policy period;
• Insurable interest and limit of insurance;
• Concealment or fraud;
• Duties after a loss;
• Loss settlement;
• Pair or sets;
• Appraisal;
• Other insurance;
• Subrogation;
• Suit against the insurer;
• Insurer's option to repair or replace;
• Loss payment;
• Abandonment;
• Mortgage holders;
• No benefit to bailee;
• Cancellation and nonrenewal;
• Liberalization;
• Assignment;
• Death;
• Nuclear hazard;
• Recovered property;
• Volcanic eruption; and
• Loss payable clause.

Because some of these conditions are described elsewhere in the course, the following only details parts of any condition specific to the dwelling property forms.

Policy period — The policy only applies to losses that occur during the effective dates of the policy.

Insurable interest and limit of insurance — If more than one person has an insurable interest in the property, the insurer will not be liable for more than the insured's interest under the policy at the time of loss or for more than the applicable limit of liability.

The loss settlement condition will vary depending on which dwelling policy form is being used.

Under the basic form, property losses are settled on an actual cash value (ACV) basis, subject to the limit of insurance, and the cost to repair or replace the damaged property.

Under the broad and special forms, the following loss settlement conditions apply:

Personal property, structures that are not buildings, awnings, carpeting, household appliances and outdoor equipment are all covered on an ACV basis at the time of the loss.

Dwelling and other structures insured to at least 80% of the replacement cost at the time of the loss are covered on a replacement cost basis with the insured receiving no more than the limit of insurance, cost to repair or replace with like kind and quality, or the amount actually spent. If the structure is rebuilt at a new premises, the cost to rebuild will be no more than what it would have cost to rebuild at the location described in the policy. Note that claims covered under Coverage A (dwelling) or Coverage B (other structures) are settled at replacement cost without deduction for depreciation if, at the time of the loss, the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, but not more than the limit of liability that applies to the building.

If the property is insured for less than 80% of replacement cost at the time of the loss, the policy will pay the greater of the ACV or the amount calculated according to the coinsurance formula.

Replacement cost losses are first paid on an actual cash value basis. When the insured demonstrates that repairs have been made, the insurer pays the balance to the insured. However, small claims (both less than 5% of the insurance and less than $2,500) will be settled whether or not actual repair or replacement is complete. The 80% coinsurance requirement still applies.

The policy does describe what items are not included in determining the 80% value noted above.

The insured may disregard the replacement cost provisions and make a claim for only the actual cash value of the buildings. This election needs to be made within 180 days of the loss.

The insurer may elect how to cover losses to property that was part of a pair or set. The insurer can elect to repair or replace the missing piece to restore the set to the value prior to the loss. The second option is to compare the actual cash value of the pair or set prior to the loss to the value after the loss, and pay the difference.

Other insurance and service agreement — If other fire insurance applies to the same loss, the insurer is liable only for the proportion of the loss that the limit of insurance bears to the total of all insurance.

Suit against the insurer — No suit may be brought against the insurer unless the insured has fully complied with all policy conditions and the action is started within 2 years (24 months) of the date of the loss.

Insurer's option to repair or replace — The insurer has the option to repair or replace any part of damaged property with like property by providing written notice to the insured within 30 days from receiving a signed, sworn proof of loss.

Loss payment — Losses will be paid within 60 days of receiving proof of loss and coming to an agreement with the insured as to the amount payable.

Cancellation and nonrenewal — 10 days' advance notice is required if the policy is canceled for nonpayment of premium or for any other reason if within the first 60 days of coverage. After 60 days, or if the insurer plans to nonrenew coverage, at least 30 days' notice of cancellation is required. The insurer can cancel the policy midterm only because of misrepresentation of a material fact or if the risk has changed substantially from when it was first insured.

Liberalization — If the insurer makes any change that broadens coverage in the policy edition during the policy period or within 60 days before the effective date, these changes will automatically apply, without needing to be endorsed to the policy. There are restrictions to this condition in the event of general program changes from a form change or amendatory endorsement.

Death — In the event of an insured's death, the legal representatives of the deceased insured will be considered an insured but only with respect to the property covered at the time of death.

Nuclear hazard — any nuclear reaction, radiation or radioactive contamination however caused. Losses caused by nuclear hazard will not be considered caused by fire, explosion, or smoke. This condition also states that direct or indirect losses are not covered if related to a nuclear hazard unless a fire ensues, in which case the fire damage will be covered.

Recovered property — If any property is recovered in which there has already been a loss payment made, the insured has the option of taking the property and returning the amount paid, or giving the property to the insurance company.

Volcanic eruptions — All volcanic eruptions occurring within 72 hours of the initial eruption will be considered one occurrence. This means there will only be one deductible.

Exclusions

Unlike the homeowners policy, the dwelling policy does not include any coverage for personal liability. The personal liability supplement can be added to the dwelling policy or written as a separate policy. Endorsements can be added for comprehensive personal liability (on- or off-premises liability), or premises-only liability if the dwelling is rented to others. The coverage form includes 3 coverages:

Personal Liability Supplement

Unlike the homeowners policy, the dwelling policy does not include any coverage for personal liability. The personal liability supplement can be added to the dwelling policy or written as a separate policy. Endorsements can be added for comprehensive personal liability (on- or off-premises liability), or premises-only liability if the dwelling is rented to others. The coverage form includes 3 coverages:

1. Coverage L - Personal Liability;
2. Coverage M - Medical Payments to Others; and
3. Additional Coverages.

The additional coverages include

• Claims expenses;
• First aid to others; and
• Damage to property of others.

Liability insurance does not include a list of perils for Coverage L or Coverage M. Instead, coverage is subject to the definitions, exclusions and conditions present in the policy.

A basic limit of $100,000 per occurrence is applicable to the personal liability coverage, and $1,000 per person limit for medical payments to others. These limits may be increased for an additional premium.

Personal liability provides coverage for bodily injury or property damage to third parties that is caused by the insured's negligence or a condition of the insured's premises. Medical payments coverage pays for necessary medical expenses incurred by persons other than an insured, who are injured on the insured's premises or due to an insured's activities off premises.

Homeowners Policy Concepts

Earthquake Insurance

An earthquake is defined as a trembling or shaking of the earth that is volcanic or seismic in origin, often resulting in severe damage. It is a peril excluded by most standard property forms. Coverage for the peril of earthquake may be added by endorsement to most property policies, or coverage may be written in a Difference in Conditions Policy.

Difference in conditions (DIC) is a property insurance policy written to supplement a named perils property policy. There is no standard DIC policy, and the policies are usually manuscripted and tailored to the specific needs of the insured. Not only do DIC policies differ from company to company, but the policies offered by individual insurers often differ from one insured to another.

Some common characteristics of a DIC policy are the following:

• Provides all-risk coverage;
• Excludes the named perils provided by the policy it supplements;
• Contains no coinsurance clause or pro rata sharing provision; and
• Is written with a high deductible ($10,000 or more).
• These policies are often written to provide flood and earthquake coverage.

Commercial Property Policies

Commercial Crime

CASUALTY

Other Types of Casualty Insurance

C. Workers Compensation – content addition to the existing text

An employee is defined as a person hired to perform a service or task in exchange for a wage or salary that is under the control of the employer. The person hired performs a job that is usual and customary to the business operation. Independent contractors do not fall within the definition of an employee unless the classification is only for tax purposes.

For the purposes of Workers Compensation and Employers Liability insurance, an employee includes full-time, part-time seasonal and temporary workers. The definition may also extend to include leased employees, borrowed employees and unpaid volunteers. To determine if a worker meets the definition, the following factors are considered:

• If the employer exercises control over the person performing the task;
• If the character of the work being performed is consistent with the nature of the business;
• If the person is paid a wage or some method of compensation by the employer;
• If the business has the right to hire or fire the person; or
• If the business furnishes the materials necessary for the person to perform their task.

An employer is the business that controls or directs (either express or implied) a worker and in exchange, compensates that person for work performed. Employers are bound by state laws to carry Workers Compensation and Employers Liability insurance.

In most states, the occupations of farm workers and domestic servants are exempt from Workers Compensation insurance.

1. General Section

All Workers Compensation and Employers Liability policies are based on the National Council on Compensation Insurance's (NCCI) standard policy although they may contain slight variations by different insurers.

The general section is split into 5 different subsections as follows.

1. The Policy: This section summarizes all the components of the policy. The information page, which is a substitute for the Declarations page in other types of liability insurance, all endorsements, and any schedules constitute the policy. Terms may not be changed unless amended by endorsement. The contract is between the employer stated in the information page and the insurer.

2. Who is Insured: The employer named on the information page is the insured, and in case of a partnership, a partner is insured but only in the capacity as an employer of the partnership's employees.

3. Workers Compensation Law: This is an important section because the policy language refers back to the workers compensation laws in effect for states listed on the information page (3A). "3A states" are states in which the employer has employees.

The workers compensation policy is very different from other policies discussed in this course because there are no coverage amounts listed in the policy or on the information page for statutory benefits. The policy will pay whatever is in place in the applicable state where a covered injury occurs. It is important that employers have each state in which they have employees listed in 3A.

4. State: This section defines a state, which is any state in the United States of America, and the District of Columbia.

5. Locations: Coverage applies to all locations listed in the information page and in 3A unless states listed in 3A have other insurance or self-insurance in place.

In all states, medical payments are unlimited. There are no dollar limits or time limits set out to pay for necessary medical and surgical expenses, except possibly for certain types of care.

Benefits provide disability income payments for an injured employee's loss of wages. Benefits begin after an initial waiting period, but benefits will be paid retroactive to the beginning of the disability if the disability lasts for more than the period of time defined in the policy. Benefits are usually expressed as a certain percentage of the injured worker's wages, subject to certain weekly maximums and minimums for temporary total disability and permanent total disability. Total disability refers to an individual's total inability to work.

For temporary partial disabilities, which refers to a person's ability to do some work or the need to do alternative work, benefits are expressed as a percentage of lost wages equal to the difference between the wages earned before and after the injury. Some states also provide a schedule of benefits for specific permanent partial disabilities, such as the loss of a limb, hearing, or eyesight. These benefits are usually in addition to any other benefits paid.

Death benefits usually pay a small amount for funeral and burial expenses, and weekly income benefits to the surviving spouse and/or children. The weekly benefit usually equals a certain percentage of the deceased worker's income. Benefits may continue for the remaining life of the surviving spouse or until remarriage.

Rehabilitation expenses include vocational training and necessary medical expenses for physical and mental therapy. Benefits also include board, lodging, and travel expenses. States may impose weekly or maximum benefits, or limit benefits for certain types of rehabilitation.

All states have enacted what is called a second (or subsequent) injury fund. These funds are designed to pay for any additional benefits that may be required when an employee with a previous injury or disability (whether work-related or not) suffers a second injury that causes the disability to be more serious than if there had been no prior disability.

2. Part One – Workers Compensation Insurance

Workers compensation coverage, which applies to accidental bodily injury, death, or occupational disease, provides coverage for the statutory benefits required under the state's workers compensation laws. The actual benefits provided are not included, only a reference to the individual state's law. The policy also states that the insured is responsible for any benefits over those required by law that may be required due to the insured's willful misconduct or violation of safety or employment laws.

Supplemental payments also are included and are similar to those found in other types of insurance policies. They include the following:

• Defense costs;
• Expenses incurred at the insurer's request;
• Premiums for certain bonds;
• Litigation costs;
• Interest on judgments required by law until the insurer offers a settlement; and
• All expenses the insurer incurs.

The workers compensation section also contains the other insurance clause. It states that the insurer will pay equal shares in the event there is other insurance, including self-insurance, that can also respond to the loss.

3. Part Two – Employers Liability Insurance

Employers liability insurance coverage protects the insured from situations not covered under a state's workers compensation law. Unlike the workers compensation coverage part, which does not specifically show the statutory limits provided, employers liability limits are shown on the information page.

The basic limits provided are

• $100,000 for bodily injury per accident;
• $100,000 per employee for disease; and
• $500,000 policy limit for disease (for all disease claims within the policy term).

Most insurers allow the insured to purchase higher employers liability limits for an additional premium. In some states, these limits do not apply. Besides the basic coverage, this section also provides supplemental coverage, which is similar to that found in other policies.

Coverage is provided for the employer's liability associated with bodily injury by accident or occupational disease and includes resulting death, and is triggered if:

• Injury arises from employment by the insured;
• Occurs in a state or territory listed in 3.A. of the information page;
• Occurs during the policy period; and
• If suit is brought in the USA or its territories, possessions, or Canada.

There are several exclusions that apply to employers liability coverage:

• Liability assumed under a contract;
• Punitive or exemplary damages;
• Employees knowingly employed in violation of law;
• Injury intentionally caused by the insured;
• Injuries that occur outside the United States, its possessions, or Canada (injuries to a resident temporarily outside these areas are covered);
• Damages caused by the employment practices or policies of the insured, including defamation, harassment, humiliation, discrimination, or termination of any employee;
• Employees who are subject to federal workers compensation or employers liability laws (although coverage is usually available by endorsement);
• Fines or penalties imposed because of a violation of state or federal laws; and
• Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act or similar laws.

The other insurance clause states that losses will be paid on a contribution by equal shares basis. The limit of liability provision explains that the limits on the information page for bodily injury by accident apply per accident, and bodily injury by disease applies per person subject to the bodily injury by disease policy limit for all losses during the policy term. The final 2 provisions refer to the insurer's subrogation rights and actions against the insurer.

4. Part Three – Other States Insurance

Other states insurance coverage extends an insured's coverage for new or incidental operations in other states (excluding the monopolistic states) on an automatic and temporary basis, subject to certain conditions and time limits.

The state in which a temporary or new operation exists must be listed in the 3C part of the information page. It is common for this section to list or describe all states other than monopolistic states. This offers the insured the greatest protection for incidental or new exposures. If the state is not listed, no coverage applies.

A critical component to this coverage is when the work began. If it is after the effective date of the policy and the insured has made no other arrangements for coverage (self-insurance), then coverage applies as if the state were listed in 3A – mandatory coverage. However, if work is underway on the effective date, coverage will only apply if the insurer is notified within 30 days.

Injuries that occur in states in which the employer and employee do not reside can get complicated. It is easier to think of work performed when completed by employees who live and work in a particular state, even if the employer's headquarters is not in that state.

5. Part Four – Your Duties if Injury Occurs

Part Four - Your Duties if Injury Occurs explains the insured's duties in case of an employee injury. These duties are the following:

• Notify the insurer at once;
• Provide immediate medical care required by the law;
• Provide the names and addresses of the injured worker and any witnesses;
• Promptly send any notices or other legal papers;
• Cooperate with the insurer; and
• Do not make any voluntary payments or assume any obligations.

6. Part Five – Premium

The premium section explains how premiums are determined, what the requirements are for insured record retention, and what rights the insurer has in auditing the insured's books and records.

Premiums are determined by classification. Classifications are not industry specific in most cases, but instead are for job types, such as inside sales, outside sales, clerical, executive, and many others. Each classification will have a corresponding rate associated with it. The higher the hazard, the higher the rate. These rates are determined by the insurer and often require approval by state insurance departments.

Remuneration, often just referred to as payroll, is another component in determining premiums. Remuneration includes payroll and other methods of compensation. The insured is required to keep records on all remuneration to employees so the final premium can be determined. The rate per job classification is charged per each $100 of the annual payroll of each occupational classification.

Because the insured cannot know the final payroll until the end of the policy period, the initial premium is considered a deposit and is subject to adjustment at the end of the term.

The following are content additions to supplement your existing text unless otherwise indicated:

New Exam Breakdown:

Washington Personal Lines Insurance

100 Questions

Time Limit: 2 hours, 15 minutes

Pass Score: 70%

Dwelling Policy Concepts

Conditions – addition to content

 All dwelling policy forms include the following conditions:

• Policy period;
• Insurable interest and limit of insurance;
• Concealment or fraud;
• Duties after a loss;
• Loss settlement;
• Pair or sets;
• Appraisal;
• Other insurance;
• Subrogation;
• Suit against the insurer;
• Insurer's option to repair or replace;
• Loss payment;
• Abandonment;
• Mortgage holders;
• No benefit to bailee;
• Cancellation and nonrenewal;
• Liberalization;
• Assignment;
• Death;
• Nuclear hazard;
• Recovered property;
• Volcanic eruption; and
• Loss payable clause.

Because some of these conditions are described elsewhere in the course, the following only details parts of any condition specific to the dwelling property forms.

Policy period — The policy only applies to losses that occur during the effective dates of the policy.

Insurable interest and limit of insurance — If more than one person has an insurable interest in the property, the insurer will not be liable for more than the insured's interest under the policy at the time of loss or for more than the applicable limit of liability.

The loss settlement condition will vary depending on which dwelling policy form is being used.

Under the basic form, property losses are settled on an actual cash value (ACV) basis, subject to the limit of insurance, and the cost to repair or replace the damaged property.

Under the broad and special forms, the following loss settlement conditions apply:

Personal property, structures that are not buildings, awnings, carpeting, household appliances and outdoor equipment are all covered on an ACV basis at the time of the loss.

Dwelling and other structures insured to at least 80% of the replacement cost at the time of the loss are covered on a replacement cost basis with the insured receiving no more than the limit of insurance, cost to repair or replace with like kind and quality, or the amount actually spent. If the structure is rebuilt at a new premises, the cost to rebuild will be no more than what it would have cost to rebuild at the location described in the policy. Note that claims covered under Coverage A (dwelling) or Coverage B (other structures) are settled at replacement cost without deduction for depreciation if, at the time of the loss, the amount of insurance in this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, but not more than the limit of liability that applies to the building.

If the property is insured for less than 80% of replacement cost at the time of the loss, the policy will pay the greater of the ACV or the amount calculated according to the coinsurance formula.

Replacement cost losses are first paid on an actual cash value basis. When the insured demonstrates that repairs have been made, the insurer pays the balance to the insured. However, small claims (both less than 5% of the insurance and less than $2,500) will be settled whether or not actual repair or replacement is complete. The 80% coinsurance requirement still applies.

The policy does describe what items are not included in determining the 80% value noted above.

The insured may disregard the replacement cost provisions and make a claim for only the actual cash value of the buildings. This election needs to be made within 180 days of the loss.

The insurer may elect how to cover losses to property that was part of a pair or set. The insurer can elect to repair or replace the missing piece to restore the set to the value prior to the loss. The second option is to compare the actual cash value of the pair or set prior to the loss to the value after the loss, and pay the difference.

Other insurance and service agreement — If other fire insurance applies to the same loss, the insurer is liable only for the proportion of the loss that the limit of insurance bears to the total of all insurance.

Suit against the insurer — No suit may be brought against the insurer unless the insured has fully complied with all policy conditions and the action is started within 2 years (24 months) of the date of the loss.

Insurer's option to repair or replace — The insurer has the option to repair or replace any part of damaged property with like property by providing written notice to the insured within 30 days from receiving a signed, sworn proof of loss.

Loss payment — Losses will be paid within 60 days of receiving proof of loss and coming to an agreement with the insured as to the amount payable.

Cancellation and nonrenewal — 10 days' advance notice is required if the policy is canceled for nonpayment of premium or for any other reason if within the first 60 days of coverage. After 60 days, or if the insurer plans to nonrenew coverage, at least 30 days' notice of cancellation is required. The insurer can cancel the policy midterm only because of misrepresentation of a material fact or if the risk has changed substantially from when it was first insured.

Liberalization — If the insurer makes any change that broadens coverage in the policy edition during the policy period or within 60 days before the effective date, these changes will automatically apply, without needing to be endorsed to the policy. There are restrictions to this condition in the event of general program changes from a form change or amendatory endorsement.

Death — In the event of an insured's death, the legal representatives of the deceased insured will be considered an insured but only with respect to the property covered at the time of death.

Nuclear hazard — any nuclear reaction, radiation or radioactive contamination however caused. Losses caused by nuclear hazard will not be considered caused by fire, explosion, or smoke. This condition also states that direct or indirect losses are not covered if related to a nuclear hazard unless a fire ensues, in which case the fire damage will be covered.

Recovered property — If any property is recovered in which there has already been a loss payment made, the insured has the option of taking the property and returning the amount paid, or giving the property to the insurance company.

Volcanic eruptions — All volcanic eruptions occurring within 72 hours of the initial eruption will be considered one occurrence. This means there will only be one deductible.

Exclusions

Unlike the homeowners policy, the dwelling policy does not include any coverage for personal liability. The personal liability supplement can be added to the dwelling policy or written as a separate policy. Endorsements can be added for comprehensive personal liability (on- or off-premises liability), or premises-only liability if the dwelling is rented to others. The coverage form includes 3 coverages:

Personal Liability Supplement

Unlike the homeowners policy, the dwelling policy does not include any coverage for personal liability. The personal liability supplement can be added to the dwelling policy or written as a separate policy. Endorsements can be added for comprehensive personal liability (on- or off-premises liability), or premises-only liability if the dwelling is rented to others. The coverage form includes 3 coverages:

1. Coverage L - Personal Liability;
2. Coverage M - Medical Payments to Others; and
3. Additional Coverages.

The additional coverages include

• Claims expenses;
• First aid to others; and
• Damage to property of others.

  Liability insurance does not include a list of perils for Coverage L or Coverage M. Instead, coverage is subject to the definitions, exclusions and conditions present in the policy.

  A basic limit of $100,000 per occurrence is applicable to the personal liability coverage, and $1,000 per person limit for medical payments to others. These limits may be increased for an additional premium.

  Personal liability provides coverage for bodily injury or property damage to third parties that is caused by the insured's negligence or a condition of the insured's premises. Medical payments coverage pays for necessary medical expenses incurred by persons other than an insured, who are injured on the insured's premises or due to an insured's activities off premises.

  Homeowners Policy Concepts

  Earthquake Insurance

  An earthquake is defined as a trembling or shaking of the earth that is volcanic or seismic in origin, often resulting in severe damage. It is a peril excluded by most standard property forms. Coverage for the peril of earthquake may be added by endorsement to most property policies, or coverage may be written in a Difference in Conditions Policy.

  Difference in conditions (DIC) is a property insurance policy written to supplement a named perils property policy. There is no standard DIC policy, and the policies are usually manuscripted and tailored to the specific needs of the insured. Not only do DIC policies differ from company to company, but the policies offered by individual insurers often differ from one insured to another.

  Some common characteristics of a DIC policy are the following:

• Provides all-risk coverage;
• Excludes the named perils provided by the policy it supplements;
• Contains no coinsurance clause or pro rata sharing provision; and
• Is written with a high deductible ($10,000 or more).
• These policies are often written to provide flood and earthquake coverage.

  Watercraft

  General Policy Structure

  Like many other policy forms, the Watercraft policy form starts with agreement and definitions, and is further divided into the following sections:

• Part A – Liability Coverage;
• Part B – Medical Payments Coverage;
• Part C (not currently used);
• Part D – Coverage for Damage to Your Watercraft;
• Part E – Your Duties after Accident or Loss; and
• Part F – General Provisions.

  Definitions

  Some of the terms and definitions unique to the watercraft policy are as follows:

  Personal watercraft — a recreational watercraft powered by an inboard motor, capable of carrying one or more persons in a sitting, standing, or kneeling position.

  Nonowned watercraft — any watercraft, including its motor and watercraft trailer, which is not owned or available for regular use by the insured.

  Outboard motor means any motor designed to be attached to a watercraft, including fuel tanks and electric starting equipment or controls necessary for the operation of the motor.

  Watercraft trailer means a vehicle that is designed to be pulled by a private passenger auto, pickup or van, and transport a watercraft on land.

  Boating equipment means accessories and other equipment (other than outboard motors) that are owned by the insurer, integral to the operation and maintenance of the watercraft, and are in or upon the covered watercraft.

  Covered watercraft — any watercraft, outboard motor, and watercraft trailer shown in the Declarations, and newly acquired property.

  A watercraft, outboard motor, or watercraft trailer will be deemed to be owned by a person if leased under a written agreement to that person, and for a continuous period of at least 6 months.

  Part A - Liability Coverage

  Part A – Liability Coverage will pay for damages for bodily injury or property damage for which any insured becomes legally liable because of a watercraft accident. As deemed appropriate, the insurer will settle or defend any claim or suit asking for these damages. In addition to the limit of liability shown in the Declarations, the insurer will pay all defense costs they incur.

  Liability coverage supplementary payments are as follows, and will not reduce the limit of liability:

• Up to 10% of the limit of liability for Part A;
• Up to $250 for the cost of bail bonds required because of an accident;
• Premiums on appeal bonds;
• Interest accruing after a judgment is entered in the suit;
• Up to $200 a day for loss of earnings (but not other income) because of attendance at hearings or trials at the insurer's request; and
• Other reasonable expenses.

  Exclusions

  Some of the main exclusions to liability coverage are listed below:

• Intentional bodily injury or property damage;
• Property damage to property rented to, used by, or in the care of the insured;
• Bodily injury to a person who is entitled to benefits under the Jones Act, workers compensation benefits, or Federal Longshore and Harbor Workers Compensation benefits;
• Insured's liability for a watercraft while it is being rented to others, used as a public or livery conveyance, or hired for charter;
• Losses incurred while the insured is employed or engaged in the business of selling, repairing, servicing, storing, or docking watercraft;
• Using a watercraft without a reasonable belief that the insured is entitled to do so;
• Bodily injury or property damage for an insured under a nuclear energy liability policy; and
• Watercraft that is being operated in any prearranged or organized race, stunt activity, or other speed competition.

  Part B - Medical Payments Coverage

  Part B – Medical Payments Coverage covers expenses incurred for necessary medical and funeral services sustained by an insured. The policy will only pay for services rendered within 3 years from the date of the accident.

  Part B exclusions are similar to those listed in Part A. The main distinction is that bodily injuries sustained while occupying a personal watercraft will not be covered.

  Part D - Coverage for Damage to Your Watercraft

  Part D – Coverage for Damage to Your Watercraft pays for direct and accidental loss of the covered watercraft and boating equipment minus any applicable deductible shown in the Declarations. If loss to more than one item of covered property results from the same loss, only one deductible will apply.

  The limit of liability for Part D will be the lesser of

• Amount shown in the Declarations;
• Actual cash value of the stolen or damaged property; or
• Amount necessary to repair or replace the property.

  The insurer will make an adjustment for depreciation and physical condition in determining actual cash value in the event of a total loss.

  Additional Coverages

  This policy section also provides the following additional coverages:

• Salvage expense coverage — up to 25% of the Part D limit of liability. This coverage is additional insurance without a deductible.
• Towing and assistance expense coverage — if the watercraft becomes disabled, the insurer will pay reasonable expenses for
  • Towing it to the nearest repair place;
  • Delivery of gas, oil, or repair parts at the site of disablement;
  • Watercraft trailer roadside repair; and
  • The limit of coverage is $500 for any one disablement, subject to a maximum of $1,000 for any one policy period.
• Personal effects coverage — the insurer pays for direct and accidental loss to personal effects owned by the insured or the insured's guests (at insured's request). Personal effects include cameras, cell phones, clothing, fishing equipment, water skiing and other sporting equipment. It does not include, however, animals, jewelry, money, watches, or permanently attached equipment. This coverage is limited to $500. It is additional insurance with no deductible.

  Part E - Duties after an Accident or Loss

  Duties of the insured after accident or loss under the watercraft policy form are similar to any other policy form, and can be summarized as follows:

• Promptly notify the insurer of how, when, and where the accident or loss occurred;
• Cooperate with the insurer and provide any documentation as requested;
• Take reasonable steps after loss to protect the damaged property from further loss;
• Promptly notify the police, Coast Guard, or other authorities if covered property is stolen; and
• Permit the insurer to inspect and appraise the damaged property before its repair or disposal.