Insurance Principles and Policy Coverage (Property and Casualty)
What this domain tests
This domain tests whether you can read a policy in the right order and apply indemnity principles to real numbers: limits, deductibles, valuation methods, exclusions, and endorsements that change the base form.
Foundation principles
- Indemnity restores the insured to pre-loss financial position, no better; insurable interest must exist at the time of loss.
- Actual cash value is typically replacement cost less depreciation; replacement cost pays new-for-old but requires repair or replacement within the policy's stated period.
- Coinsurance, salvage, and subrogation all flow from the indemnity principle and can reduce or recover dollars in a commercial file.
Reading the policy in order
- Declarations: Coverage A limit, forms and endorsements in force, and each deductible.
- Insuring agreement and exclusions: named perils versus open perils, then the exclusions that cut coverage back.
- Conditions: duties after loss, proof of loss, appraisal, and suit-limitation language.
- Endorsements: they override the printed form, so read them last and control with them.
Louisiana coverage points
- Hurricane and named-storm deductibles are usually a percentage of the dwelling limit, not of the loss.
- Homeowners forms exclude flood. Rising surface water is flood, handled by NFIP write-your-own or private flood; rain entering through a wind-created roof opening is generally a covered wind loss.
- Ordinance or law, mold, earth movement, wear and tear, and neglect exclusions routinely drive disputes; matching and overhead-and-profit issues need documentation, not assertion.
Worked example
Coverage A is $400,000 with a 5% hurricane deductible, giving $20,000. A covered $60,000 roof loss with $9,000 of depreciation is paid at $31,000 actual cash value up front ($60,000 - $9,000 - $20,000). The withheld depreciation is released only after the insured completes replacement and submits the contract, invoices, and photos inside the policy deadline.
Traps
Applying a percentage deductible to the loss amount; treating overhead and profit as automatic rather than tied to job complexity; missing recoverable-depreciation deadlines; ignoring endorsements that broaden or narrow the base form.