P&C Property Insurance Policies 3

Question 1

What is the difference between 'replacement cost' and 'functional replacement cost' in commercial property insurance?

Accepted Answer

Functional replacement cost pays for a modern, less expensive replacement with equal functionality rather than an exact duplicate, often used for older or unique buildings

Answer

Functional replacement cost covers rebuilding with a modern equivalent that performs the same function at lower cost — appropriate for obsolete construction types — rather than replacing with an exact duplicate.

Question 2

Which of the following best describes 'business income' (business interruption) coverage in a commercial property policy?

Accepted Answer

It reimburses the insured for lost net income and continuing expenses when business operations are interrupted by a covered property loss

Answer

Business income coverage (also called business interruption) replaces the net income the business would have earned and pays continuing necessary expenses (like rent and salaries) during the period of restoration after a covered property loss forces a shutdown.

Question 3

Under a commercial property policy, 'extra expense' coverage pays for:

Accepted Answer

Additional costs incurred to continue operations or reduce the period of shutdown after a covered loss, above normal operating expenses

Answer

Extra expense coverage pays for costs above normal — such as renting temporary space, expediting repairs, or purchasing emergency equipment — that allow the business to continue operating or reduce its period of closure after a covered loss.

Question 4

What is an 'Installation Floater' in inland marine insurance?

Accepted Answer

Coverage for materials and equipment during transit to a job site and while being installed, until acceptance by the owner

Answer

An installation floater covers a contractor's materials and equipment while in transit to and at the job site during installation, protecting against physical damage until the owner accepts the completed work.

Question 5

In commercial property insurance, 'ordinance or law' coverage pays for:

Accepted Answer

The increased cost to rebuild to current building codes after a covered loss, when the existing structure was built to older codes

Answer

Ordinance or law coverage pays the additional cost to rebuild or repair a structure to current building code requirements after a covered loss, which standard property policies typically exclude.

Property & Casualty Insurance License Test Practice Test

Property & Casualty Insurance License Test Practice Test

P&C Property Insurance Policies 3