Property and Casualty Insurance Basics
What this domain tests
The structure and operation of property and casualty policies: what is covered, what is excluded, and how limits and conditions determine payment.
Core concepts
- Policy anatomy: declarations, insuring agreement, conditions, exclusions, definitions, and endorsements. Endorsements can broaden or restrict coverage.
- Property coverage: named perils versus open peril; dwelling, contents, loss of use, and other structures. Valuation may be ACV or replacement cost.
- Liability coverage: pays sums the insured is legally obligated to pay because of bodily injury or property damage. The duty to defend is broader than the duty to indemnify.
- Occurrence versus claims-made: occurrence policies respond to injury during the policy period; claims-made policies respond when a claim is made, often subject to a retroactive date.
- Conditions: duties after loss, notice, proof of loss, cooperation, and suit-limitation clauses.
- Other insurance, subrogation, salvage: prevent double recovery and allocate loss.
- Exclusions: intentional acts, expected injury, wear and tear, faulty workmanship, and pollution are common; read the exact wording.
Worked example
A commercial building with replacement cost coverage has a partial roof loss. The estimator calculates $80,000 replacement cost and $60,000 ACV; the deductible is $5,000. If the insured has met the policy’s repair-or-replace condition, the payment is $80,000 − $5,000 = $75,000, subject to limits. If the insured instead settles on ACV, the initial payment is $60,000 − $5,000 = $55,000, with possible recoverable depreciation later. The adjuster must document which valuation method applies.
Traps that cost marks
Confusing “occurrence” with “claims-made”; treating the duty to defend as identical to the duty to pay; missing an endorsement that changes the limit; and applying replacement cost before the policy condition is satisfied.