California Property and Casualty Insurance Exam. The time of a net income loss associated with liability is virtually impossible to determine. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s). (484) 800-1000 Menu The content on is for informational purposes only and not intended to provide any financial or legal advice. This would greatly impair the company’s ability to generate revenue in the future. 74 terms. If the limit you purchase exceeds the amount required by the coinsurance clause, you will have wasted money on unused insurance. The amount of income your company is expected to generate over the next twelve months. If the building is destroyed by a fire or a tornado, how much time will you need to get your business running again? Indirect. Then, the court hears the different stories and settles the problem for both parties. When rental value is excluded in the calculation, no coverage will be provided for a loss of rental income. This question is based on the discussion in Nyce 2006, pp. Problem S5-24-5. What Are Tenants Improvements and Betterments? (a) Of the three loss exposures, life loss exposures are least likely to be definite and measurable. This clause imposes a penalty if the limit on your policy is less than the required amount. Once you have completed your 12-month income projection, you need to estimate the period of restoration. This is Section 24 of the Study Guide. You have under-insured your business income exposure by $100,000. Buy Agreed Value Coverage. Read on to discover the definition of the term Net Income Loss Exposure - to help you better understand the language used in insurance policies. Next, you estimate your income for the future twelve months. The purpose of Insurance is not served if the loss exposure involves speculative risk and the insured gains from it. learningfiend . To avoid a penalty, you must purchase a limit of at least $800,000 (.80 X $1 million). You can use the standard ISO worksheet or one prepared by your insurer. Direct vs. Your business income limit is calculated based on your estimate of future revenue. As noted above, it is important to purchase enough business income coverage to avoid a coinsurance penalty. Coinsurance applies to your policy if a coinsurance percentage is listed in the declarations. One must be filed when your policy begins (or when the endorsement is attached). Net Income loss exposure is an indirect loss. A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z, Categories: Acord Forms | BOP | Childcare | Commercial Auto | Commercial General Liability | Commercial Property | Commercial Umbrella | Contractors | Cyber Liability | Environmental | Errors & Omissions | Flood | Insurance Knowledge Base | Management Liability | NAICS Codes | Non Profit | Product Liability | Sexual Misconduct Liability | SIC Codes | Technology | Terms & Definitions | Wholesalers & Distributors | Workers Compensation. (f) One characteristic of ideally insurable loss exposures that net income loss due to unemployment sometimes may not meet is the definite and measurable criterion. This amount represents the coinsurance penalty. The endorsement provides a refund if your business income limit exceeds the amount required by the coinsurance clause. This question is based on the discussion in Nyce 2006, pp. Problem S5-24-1. If you are a business owner who has decided to purchase business income coverage, you will likely face a dilemma. Business Income Loss (Time Element or Business Interruption) A. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. The most accurate way to project your 12-month income is to use a business income worksheet. These issues are usually associated with business insurance policies and are often a matter of dispute. A liability loss exposure is the chance of being sued because of this injury. Therefore only those loss exposures are covered by the Insurers whose losses are definite and can be calculated. If the worksheet seems too confusing, ask your accountant to complete it for you. The Premium Adjustment Endorsement provides a solution to this problem. Which of the following statements about personal loss exposures are true? (e) Automobile liability for individuals meets all six characteristics of an ideally insurable loss exposure. Gregory Boop wrote about business insurance for The Balance SMB. Both are essential for determining the right amount of coverage for your company. This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Foundations of Risk Management and Insurance, cited below. You purchase only $700,000 as a cost-saving measure. If you need a worksheet, ask your agent or broker to obtain one for you. STUDY. See other sections of The Actuary’s Free Study Guide for Exam 5. This … (If necessary, refer to Nyce 2006, pp. Original Problems and Solutions from The Actuary’s Free Study Guide. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Choice (f) is incorrect; net income loss due to unemployment is definite and measurable in virtually all cases, as the time of loss of employment, duration of employment, and salary/wages that the individual has lost due to unemployment are fairly easy to ascertain. Some of the questions here ask for short written answers based on the reading. How Much Business Income Coverage You Need, Understanding the Meaning of Business Income, Pitfalls to Avoid When Buying Business Insurance, Property Coverage for Riots, Vandalism, and Civil Commotion, Avoid Coinsurance! (g) One characteristic of ideally insurable loss exposures that net income loss due to unemployment sometimes may not meet is the fortuitous nature of losses. Business Income Loss Exposure (Lecture 6) Overview of Lecture 6 (chapter 7 CPCU 3) I. To choose an adequate the limit, you must make the following two projections: These projections aren't easy to make. From the standpoint of the individual, life loss exposures might not be fortuitous in cases where individuals commit suicide, over which they have control. The worksheet outlines a step-by-step process for calculating your business income exposure. Once you've considered all the steps involved in rebuilding, you can estimate how much time they will take. The second must be submitted within 120 days of the date your policy ends. (If necessary, refer to Nyce 2006, pp. Students are encouraged to read these pages before attempting the problems. 8.3-8.27. Solution S5-24-2. Another option is to avoid coinsurance altogether by purchasing business income coverage on an agreed value basis. Retirement loss exposures are typically fortuitous from the standpoint of the individual, as most people can choose whether and when they will retire, as well as how much they will save for retirement. Business income losses are calculated based on the amount of income your company actually loses during the time your business is shut down. He is an experienced business trial lawyer and authorized OSHA trainer. (b) Health insurance is typically not subject to the problem of adverse selection. (d) Losses due to retirement will necessarily be faced by all individuals who retire. For example, suppose you own a building in which you operate a warehouse. Nyce, C.M. (f) Life loss exposures satisfy all six of the ideally insurable loss exposure characteristics only for a small minority of individuals. Gravity. Risk Management Chapter 3. Next, you'll need an architect to design a new building and a contractor to do the construction. Net income loss exposures associated with property losses exhibit five of the six characteristics of an ideally insurable loss exposure. The amount of time you will need to repair damaged property after a physical loss. Explain how life, health, and retirement personal loss exposures might not be fortuitous. 27 terms. You suffer a $175,000 income loss due to the shutdown. American Institute for Chartered Property Casualty Underwriters. For example, suppose that you have purchased business income coverage based on an income projection of $1 million. PLAY. Ø Loss Exposure Involves Pure, Not speculative, Risk: Insurance should help the insured to restore his financial condition but not to gain from the loss he faced. Basis for Coinsurance and Maximum Probable Loss IV. Business Income Loss (Time Element or Business Interruption) II. It is sometimes difficult to determine when a health problem began and what the extent of its adverse impact on an individual’s financial condition was and will be. Test. That is, if your business is forced to shut down because property has been damaged, how much time will you need to make repairs and get your business up and running again? Choice (d) is incorrect; if an individual has substantial savings or benefits from retirement plans, there may be no financial hardship due to retirement, in which case the individual will not face losses. The most your insurer will pay for a loss is the business income limit of insurance.

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