7. Other Personal Lines Policies · This PDF is made available for personal use only during your online course access time limits, subject to the 0Chance2Fail.com Terms of ... those

7. Other Personal

Lines Policies

Inland Marine Coverage

When you think of Marine insurance, what comes to mind? Insurance for

Marines, or maybe insurance for ships or boats? You may be surprised

to find out that marine insurance is not necessarily for the Marine Corps

or your boat. The name Inland Marine insurance was developed from

Ocean Marine insurance, which covers cargo, vessels and other items

while they are being transported across the ocean.

During the 1800's, cargoes that were off-loaded from ships were then being transported over in-

land waterways or on land. Hence, the term "inland marine" came into being. Today, most inland

marine policies offer a broad array of coverages for property on land.

Many inland marine coverage forms provide coverage that moves with the property to protect it

at different locations. Because the coverage moves with the property, inland marine coverages

are sometimes referred to as "floater" policies.

Personal Articles Floaters

The name "Floater" is used for certain types of Inland Marine policies that are used to insure certain

types of movable property whether or not the property is actually in transit. For the purpose of this

course, we will discuss using a Personal Property Floater in conjunction with a homeowners

policy.

Your homeowners policy only provides limited coverage for such items as jewelry, silverware, furs,

and firearms. A Personal Articles Floater supplements your homeowners coverage for possessions

of higher monetary value. While most homeowners policies have limits on the dollar amount and

type of loss that can be recovered, a Personal Articles Floater will provide all-risk protection for

your most valuable possessions in the event of loss through theft, accident or natural disaster.

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Other Personal Lines Policies

What's Covered?

Many different types of personal property are eligible for coverage under

a Personal Articles Floater. Typical items covered are:

» Jewelry - wedding rings, pendants, bracelets, watches, precious

and semi-precious stones

» Furs - real fur garments and garments trimmed with real fur

» Cameras - digital, still, movie, video and equipment

» Musical instruments: professional and non-professional

» Silverware - includes silverware, silver-platedware, goldware, gold-

platedware and pewterware

» Golf equipment - matched sets of golf clubs, clothing and equipment

» Fine arts - paintings, etchings, vases and sculptures

» Stamp or coins collections

» Manuscripts and books: antique silver, bronzes and antique furniture

» Sports equipment including fishing gear, archery and hunting gear

» Firearms and

» Personal computers

How Will Claims Be Paid?

Since items of this nature vary so widely, losses are settled differently depending on the type of

property insured. For example, in the case of a total loss to a scheduled, appraised item, such as

jewelry, you will be reimbursed for the agreed value shown on your policy.

For other classes of property on the policy (such as furs, silverware, cameras, and personal

computers) the value is not already agreed upon; therefore, the value of your property will be

determined at the time of the loss. You will then be reimbursed for either the:

» Actual cash value of your property or

» Cost to reasonably repair your property to its previous condition or

» Cost to replace your property with a substantially identical item or

» The applicable amount of insurance, whichever of these is less

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Nationwide Marine Definition

The Nationwide Marine Insurance Definition was adopted by the NAIC (National Association of

Insurance Commissioners) in 1953, and then revised it in 1976. This definition helps to identify the

kinds of risks that are eligible for either Ocean or Inland Marine insurance.

The six categories of eligible Marine risks are:

1. Imports - Ocean Marine

2. Exports - Ocean Marine

3. Domestic shipments - Inland Marine

4. Instrumentalities of transportation or communication - Inland Marine

5. Personal property floater risks - Inland Marine

6. Commercial property floater risks - Inland Marine

You may notice that ships or boats are not listed within the definition; however, they are eligible

for coverage.

NATIONAL FLOOD INSURANCE PROGRAM (NFIP)

Standard homeowners insurance does not cover flooding; therefore, it’s important to have

protection from the floods associated with hurricanes, tropical storms, heavy rains and other

conditions that may impact your property. If your home is built on a flood plain, you may be

required to purchase flood insurance if you have a mortgage. If you believe you have a risk for

flooding, you can purchase flood insurance. The National Flood Insurance Program (NFIP) offers

flood coverage in many areas. You can purchase NFIP policies from most local agents.

If you recall in a previous lesson, one of the characteristics of an insurable risk was that the insurer

must have a limited risk of catastrophically large losses. Insurable losses are ideally independent

and non-catastrophic, meaning that the losses do not happen all at once and individual losses are

not severe enough to bankrupt the insurer. Insurers could not stay in business long if they were

insuring an unlimited amount of catastrophic risks. As with flood insurance or insurance on dam-

age from a hurricane or other large-scale disasters, insurance companies must be careful when

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writing this type of insurance, be-

cause a flood large enough to destroy

one home will probably destroy

dozens of homes in the same area.

Even so, homeowners in certain

areas are exposed to flooding and

need some type of coverage in place

for this peril.

To fill this need, Congress created the

National Flood Insurance Program

in 1968 to help provide a means for

property owners to financially protect

themselves against the high cost of

flood damage. The NFIP offers flood

insurance to homeowners, renters,

and business owners if their

community participates in the NFIP.

Participating communities agree to

adopt and enforce ordinances that

meet or exceed FEMA requirements

to reduce the risk of flooding.

And, do not expect federal disaster assistance to pay for any damages due to flooding. Most Federal

disaster assistance typically comes in the form of a low interest loan to help cover flood damage -

not pay for your losses. Even then, those loans are only available if the President formally declares a

disaster and must be repaid along with any existing mortgage. Not the best solution.

Flood insurance may be a better solution if you live in a community that participates in the NFIP.

You can locate information about your community's eligibility at:

http://www.fema.gov/fema/csb.shtm. If your community qualifies, the National Flood Insurance

Program has an arrangement with private insurance companies to sell and service flood insurance

policies.

http://www.fema.gov/fema/csb.shtm

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Two Programs

Two types of flood insurance programs are available:

1. Emergency

2. Regular

The Emergency Phase of the NFIP is the initial phase of a community's participation in the NFIP

and goes into effect when the community applies to the NFIP. The emergency program stays in

effect until the government finalizes the flood insurance rates for that community. Under the

emergency program, insureds can purchase limited amounts of flood insurance for buildings and

contents at subsidized rates. When the regular program goes into effect, additional coverage can

be purchased.

Table 5.1. Maximum Limits for Flood Insurance Coverage

Emergency Program Regular Program

Building $35,000 $250,000

Contents (Personal Property) $10,000 $100,000

What is Considered Flood? Simply put, flood is an excess of water on land that is normally dry. The official definition used by

the National Flood Insurance Program for flood is, “A general and temporary condition of partial or

complete inundation of two or more acres of normally dry land area or of two or more properties

(at least one of which is your property) from:

» Overflow of inland or tidal waters

» Unusual and rapid accumulation or runoff of surface waters from any source

» Mudflow* or

» Collapse or subsidence of land along the shore of a lake or

similar body of water as a result of erosion or undermining caused

by waves or currents of water exceeding anticipated cyclical

levels that result in a flood as defined above

*Mudflow is defined as “A river of liquid and flowing mud on the

surfaces of normally dry land areas, as when earth is carried by a

current of water…”

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What's Covered and What's Not

The Standard Flood Insurance Policy Dwelling form is used to insure one to four family

residential buildings and single family dwelling units in a condominium building against direct

physical damage caused by a flood. For example, damages caused by a sewer backup are

covered if the backup is a direct result of flooding. However, if the backup is caused by some

other problem, the damages are not covered.

There are also two other policy forms available:

1. The General Property Form is used to insure five or more family residential buildings and

non-residential buildings and

2. The Residential Condominium Building Association Policy Form is used to insure

residential condominium association buildings

While the three forms are similar in many ways, there are differences as well. For example, the

General Property form does not provide coverage for contents in any building other than the

insured building, and the Residential Condominium Building Association Policy Form contains a

coinsurance clause, which provides a coinsurance penalty on claims payments if the building is not

insured to 80 percent of its replacement value. You can find a copy of each policy form at:

http://www.fema.gov/business/nfip/sfip.shtm.

The NFIP's Dwelling Form offers coverage for:

1. Building Property, up to $250,000, which includes: The insured building and its foundation;

a. The electrical and plumbing system

b. Central air conditioning equipment, furnaces, and water heaters

c. Refrigerators, cooking stoves, and built-in appliances such as dishwashers

d. Permanently installed carpeting over unfinished flooring

2. Personal Property (Contents), up to $100,000, which includes:

a. Clothing, furniture, and electronic equipment

b. Curtains

c. Portable and window air conditioners

d. Portable microwaves and dishwashers

e. Carpeting that is not already included

in property coverage

f. Clothing washers and dryers

http://www.fema.gov/business/nfip/sfip.shtm

http://www.fema.gov/business/nfip/sfip.shtm

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Typically, there's a 30-day waiting period from the date of purchase before your policy goes into

effect.

The following items are excluded from coverage:

» Accounts, bills, currency, deeds, evidences of debt, money, securities, bullion, and

manuscripts

» Lawns, trees, shrubs, plants, growing crops, and livestock

» Aircraft, self-propelled vehicles, and motor vehicles

» Fences, retaining walls, outdoor swimming pools, bulkheads, wharves, piers, bridges, docks,

and other open structures on or over water

» Underground structures and equipment, such as wells and septic tanks

» Newly constructed buildings that are in, on, or over water

» Structures that are primarily containers, such as gas or liquid storage tanks (does not apply

to silos, grain storage buildings, or their contents)

Will I Have a Deductible?

The standard deductible for both building and contents coverage is $1,000 under the emergency

program and $500 under the regular program. Higher deductibles are available. The deductible

applies separately to each building and content loss on a per occurrence basis.

How Will Claims be Paid?

The two most common reimbursement methods for flood claims are Replacement Cost Value

(RCV) and Actual Cash Value (ACV). The RCV is the cost to replace damaged property. It is

reimbursable to owners of single-family, primary residences insured to within 80% of the

building’s replacement cost. All other buildings and personal property (i.e. contents) are valued at

ACV. The ACV is the RCV at the time of loss minus depreciation. Personal property is always valued

using the ACV.

Keep in mind that the NFIP policy is not a valued policy which will pay you the full limit of liability

in the event of a total loss. Let's take a look at what we mean by that.

Let's say that your home is totally destroyed by a fire and it will cost $100,000 to rebuild. If your

homeowners insurance policy is a valued policy with a $150,000 limit of liability for Coverage A,

you would receive $150,000. On the other hand, Flood insurance will only pay the replacement cost

or ACV of actual damages, up to the policy limit.

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EARTHQUAKE

Most dwelling and homeowners policies exclude

the peril of earthquake. However, many insurance

companies offer this coverage as an endorsement

to their dwelling or homeowners policy, or as a

separate policy. Earthquake insurance generally

covers direct physical loss to a structure, its

contents, or both caused by an earthquake. This

includes land shock waves or tremors before,

during, or after a volcanic eruption, explosion, or

effusion. One or more earthquake shocks that

occur within a 168- hour period constitute a single

occurrence. Note: Some carriers offer seventy-two

(72) hour occurrence.

MOBILE HOMES

Most homeowners policies specifically exclude mobile

homes. However, many insurance companies have

developed a separate Mobile Home package policy. Also, a

separate Mobile Homeowners endorsement can be

attached to an HO-2 or HO-3 to modify coverage for mobile

homes that are over 10 feet in width or 400 square feet in area.

The home itself must be designed for year-round living, not

just recreational or travel use. Coverage is provided for:

1. Coverage A: Dwelling - The value of the mobile home

2. Coverage B: Other Structures - 10% of Coverage A (minimum $2000)

3. Coverage C: Personal Property - 40% of Coverage A and

4. Coverage D: Loss of Use - 30% of Coverage A

Liability coverage is similar to the homeowners policy. Personal Property is covered on an ACV

basis, while the mobile home itself is written on a Replacement Cost basis with the usual 80%

insure to value requirement.

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Permission to Move: This option provides coverage if the mobile home is being transported.

Coverage is provided for loss due to upset, collision or sinking. If the mobile home is being

moved to protect it from impending danger such as a hurricane, the insurance company will

offer $500 to offset the cost of moving the mobile home inland.

WATERCRAFT

Boatowners Policy

The most common type of watercraft policy for individuals

and families is the boatowners policy. Boatowners policies are

typically used to cover smaller watercraft (usually less than

26 feet and with a speed capability of less than 55 miles per

hour). This policy combines property, liability, medical

payments, and uninsured boatowners coverage. It fills the

coverage gap found in most homeowners policies,

particularly with regard to property coverage. For example,

if your boat is accidentally damaged or destroyed by a covered peril such as collision, fire, theft,

windstorm, lightning or vandalism, the boatowners policy would pay. This coverage is broad, and

provides coverage for the boat, including its machinery and auxiliary equipment, outboard motors,

boat trailer and personal property.

What's Covered - What's Not The boatowners policy provides a combination of coverages. Most policies will provide coverage

for liability, physical damage, and medical payments. Additional coverages often include

emergency service, life salvage coverage, repairs after a loss, coverage for emergency first aid,

and uninsured boaters coverage. Essentially, a boatowners policy is similar to a personal auto

insurance policy. A typical policy will include:

1. Physical damage coverage for the boat and its equipment (on either a replacement cost

or actual cash value basis)... an insurer may offer an "Agreed Value" policy that pays for

replacement or repair without depreciation based upon the agreed-to value of the boat.

2. Liability coverage for bodily injury or property damage to others.

3. Medical payments coverage for occupants of the boat.

4. Uninsured boater coverage to cover injuries that may be caused by an uninsured or hit-

and-run boater.

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Covered Causes of Loss (Perils)

» Collision

» Impact with an animal

» Explosion or earthquake

» Fire

» Malicious mischief or vandalism

Section I Property

Coverage A-Insured Property

» Missiles or falling objects

» Riot or civil commotion

» Theft or larceny

» Windstorm, hail, water, or flood

» Glass breakage

Section II Casualty

Coverage B- Watercraft Liability (BI & PD)

Coverage C- Medical Expense and

Coverage D- Uninsured Boaters

Most policies also provide coverage for newly acquired watercraft, as long as you notify the

insurance company within the prescribed time period (usually 15 days) and as long as the new

boat doesn’t exceed a maximum value (what you paid for it or $50,000, whichever is less).

Exclusions

Typical property damage exclusions prevent the policy from covering loss or damage resulting

from any of the following:

» Wear and tear, gradual deterioration, weathering, insects, mold, animal or marine life

» Marring, scratching or denting (picture a boat moored at dockside, bumping up against the

dock all day long)

» Osmosis, blistering or electrolysis (these are chemical and electrical actions that take place

in fresh or salt water, which gradually affect his or her boat; only sudden and accidental

damage is intended to be covered by the policy)

» Manufacturer's defects or defects in design (boat policies vary on this point, and some do

provide coverage for defects in hull or machinery—as always, ask before the insured buy)

and

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» The cost of repairing or replacing any item having a “latent defect” however, if such a flaw in

material causes other damage—for example, if a defective steering mechanism

malfunctions and causes a collision—the policy will cover the resulting damage.

How Will Losses be Paid?

Most boatowners policies are written on an all-risk basis. Under all-risk, the insurer agrees to pay

for any direct physical loss or damage to the covered property. All losses would be covered except

those specifically excluded.

Usually, the amount the insurer will pay for loss or damage will not exceed the lowest of the

following:

» The difference between the pre-loss ACV and the post-loss ACV

» The actual repair cost

» The pre-loss ACV

» The actual replacement cost or

» The declared value of watercraft

The insured also may want to buy commercial towing and assistance coverage, which is the boat

version of the towing and labor coverage found in a Personal Auto Policy. In an emergency, the

policy will reimburse the insured up to $300 for the reasonable costs for towing to the nearest

place where repairs can be made; for the delivery of gas, oil or parts; or for emergency labor, while

the insured is away from a safe harbor. No deductible applies to this coverage.

Defense Costs & Other Liability Components

A boatowners policy includes coverage if the insured becomes legally liable to pay because of

bodily injury or property damage that arises out of the ownership, maintenance or use of the

boat.

Like an auto policy, a boatowners policy will have stated limits of liability. The insurance company

will pay up to that amount for all damages or losses arising out of any one accident or occurrence,

or a series of occurrences arising out of the same event. So, the insured needs to choose his or

her limits carefully.

In the event of a liability claim, a boatowners policy also will pay defense costs in addition to the

policy limit.

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Medical Payments Coverage

The Medical Payments section of the policy provides protection for reasonable medical,

ambulance and hospital costs should someone be injured while in, upon, boarding or leaving your

boat.

Like an auto policy, there is also a time limit on medical payments coverage. The insurance

company will only pay costs incurred within one year of the accident date.

This coverage also comes with exclusions. Coverage usually is not provided for:

» Injuries to employee(s) while in the course of employment, or while using, maintaining or

repairing his or her boat or its equipment, since this should be covered by workers’

compensation insurance or

» Any responsibility for payment assumed under contract or agreement, since this policy

does not cover business use

The insured can select his or her limit for medical payments coverage. This is the most the

insurance company is obligated to pay per person for each accident or event (which means that

if the limit is $5,000 per person and three people are injured in the same accident, the policy

could pay up to $15,000).

Uninsured Boater Coverage

Uninsured boaters coverage allows you to be compensated for any bodily injury damages for which

you are legally entitled, because of an accident with an uninsured boater. The term “uninsured

owner or operator” includes someone who cannot be identified, such as a hit-and-run boater.

Policies also include a number of uninsured boater exclusions, which are similar to the uninsured

motorist exclusions found on a Personal Auto Policy. Uninsured boater coverage does not apply to:

» Claims settled without the company’s written consent

» Any uninsured vessel owned by a governmental body

» Any vessel owned by or furnished for the regular use of any insured or family member

» Any insured while using a vessel without permission

» His or her boat while it is being chartered and

» Any loss where no evidence of physical contact exists between his or her watercraft and

either an uninsured or a hit-and-run craft

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Yacht Policy

Yacht policies are similar to boatowners policies in

that they both provide package coverage, including

property, liability, and uninsured boaters protection.

Boatowners programs are normally designed to cover

boats up to 26 feet in overall length. If the size of your

vessel is greater than 26 feet, it's generally considered

a "yacht", and therefore qualifies for yacht insurance.

Yachts are typically insured on an agreed value basis. This means the insurance company will pay

you the full amount for which your yacht is insured in the event of a total loss. The agreed value is

the amount that is stated on the policy.

You should become familiar with the following terms and definitions:

Hull Coverage - This is physical damage insurance covering damage sustained to an insured

vessel. This important coverage pays to repair your yacht if it's accidentally damaged or destroyed

by a covered peril (such as fire, theft, windstorm, lightning or vandalism). Hull coverage is very

broad, with a few exclusions such as wear and tear, dishonest, illegal, intentional or fraudulent

acts.

Lay-up Warranty - Most policies are written with a lay-up period where the boating season is

limited. For a lower premium, yachts must be "laid up and out of commission" for specific dates

on land or in the water, in accordance with the customs of local boat yards. Lay-up means a yacht

cannot be used for any boating activities during this period. If you violate the warranty, coverage

can be terminated. However, a lay-up warranty does not prohibit having work done provided the

vessel remains in its lay-up location.

Running Down Clause - This clause adds property damage liability coverage for damage done to

another ship or its cargo resulting from a collision with, and caused by, your insured vessel.

Protection and Indemnity (P&I) - This is liability coverage that is associated with the operation

of a vessel. Coverage includes:

» Bodily injury to others (including those on-board his or her vessel, such as passengers or

crew members, and people who are not onboard his or her boat)

» Damage to the property of others (this supplements the running down clause, and covers

all other types of property damage liability, such as damage to fixed objects and non-

collision damage to other vessels)

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» Property damage liability arising out of raising and/or removing (or failure to do so) the

wreck of the yacht

Jones Act Coverage - If you employ a captain or crew member, make sure your P&I includes Jones

Act coverage. This is a maritime form of worker's compensation coverage which will protect you if

one of your employed crew members is injured on your yacht.

The following additional coverages are offered as part of your basic yacht policy:

Uninsured Boat Coverage - Pays for injuries caused by an accident that you are entitled to recover

from the owner or operator of an uninsured boat. This also applies in situations involving an

unidentified "hit-and-run" boat.

Medical Payments - Covers up to $1,000 for reasonable medical, ambulance and hospital costs

should someone be injured while in or upon boarding or leaving your yacht.

Commercial Towing and Assistance - You are reimbursed for the reasonable costs incurred when

you break down at sea and need a commercial tow to port.

CROP-HAIL

Many farmers purchase private crop-hail insurance because

hail can easily devastate a farmer's crop. These policies pro-

vide coverage against loss to growing crops caused by hail.

Unlike federal crop insurance, crop-hail insurance is not

subsidized by the federal government. It is sold by licensed

insurance agents and the premiums depend, in large part, on

past loss experience. The coverage is township or county

rated; in other words, the rate is determined by the historical

hail loss experience of that particular township or county.

Depending on the crop insured, a crop-hail policy may also provide coverage for loss caused by

any of the following perils: fire, lightning, wind (when accompanied by hail or by separate

endorsement), vandalism and malicious mischief. Crops may also be insured while being

transported to a first place of storage and in the first non-commercial place of storage.

15



Crop-hail policies typically provide coverage on a "percentage of loss" basis. If a farmer

experienced hail damage equivalent to 40 percent in any one field, the policy would pay 40

percent of the amount insured per acre.

Farmers can purchase full coverage policies or coverage subject to a deductible, such as 5 percent

or 10 percent. Some policies also offer a disappearing deductible. For example, a policy may grant

a disappearing deductible if a farmer experiences at least a 25 percent payable loss; in that event,

the deductible is waived.

WINDSTORM

Although most homeowners insurance covers wind storm damage, some state insurance

companies have removed certain windstorm insurance from standard policies in high-risk areas.

Traditionally windstorm insurance protects against damage caused by tornadoes and hurricane-

strength winds. Homes in areas in which the risks from windstorms are higher than most,

homeowners are usually required or encouraged to purchase additional windstorm insurance.

Such areas are usually classified as hurricane zones and occur in coastal areas.

Windstorm insurance is a separate insurance policy from the regular homeowners insurance and

therefore requires a separate premium and deductible. Windstorm insurance requires separate

classifications of wind damage in order for the policy to cover damage. These classifications are

related to what are called “trigger” events. Such events include:

» A “hurricane watch” issued by the National Hurricane Center

» Winds sustained over 74 miles per hour as detected by the National Weather Service

» A specific geographic location (longitude/latitude) for a declared hurricane

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LESSON REVIEW

Take notes; review this lesson several times before proceeding to your lesson Driller-end of chapter open book quiz. Learn the information, don't just memorize Driller questions. To pass the state insurance exam, you will need a good understanding of the following terms:

» Inland Marine Insurance

» Nationwide Marine Definition

» Flood Definition

» Boatowners Policy

» Yacht Policy

» Layup warranty

» Windstorm Policy

» Earthquake Definition

To pass the state insurance exam, you will need to master all of the following concepts:

» Emergency and Regular Flood Insurance Program

» Inland Marine Floaters

» Personal Articles Floater

» NFIP Program

» Comprehensive coverage

» Personal Watercraft Insurance

» Yacht Policies

» Windstorm Policy

Documents

7. Other Personal Lines Policies · This PDF is made available for personal use only during your online course access time limits, subject to the 0Chance2Fail.com Terms of ... those