First, Learn These Key Terms
What is a Peril?
A peril is a cause of loss - the thing that actually damages your property.
Fire
Wind
Theft
Lightning
These are all perils - they are what CAUSES the damage to happen.
Named Perils Coverage
Policy lists specific perils that are covered. If the cause of loss isn't on the list, NO coverage.
Example:
Policy lists: fire, wind, theft, lightning. Your roof is damaged by a falling tree. If "falling objects" isn't on the list = NOT covered.
All-Risk (Open Perils) Coverage
Covers ALL causes of loss EXCEPT those specifically excluded. Much broader protection!
Example:
Policy excludes: flood, earthquake, war. Anything else that damages your home IS covered, even if it's unusual or unexpected.
All-Risk = BETTER coverage (covers more) = HIGHER premium (costs more)
Start Here: 5 Things You MUST Know
D-I-C-E = The 4 parts of every policy: Declarations, Insuring Agreement, Conditions, Exclusions.
3 arbitrators settle disputes between insurer and insured when they disagree about coverage.
Pro-rata = Proportionate, NOT equal. Other insurance clauses use pro-rata sharing.
TRIA = Terrorism Risk Insurance Act applies to COMMERCIAL policies only (not personal).
Privacy notice must be given when customer relationship starts AND annually thereafter.
1. Policy Structure: D-I-C-E
Every insurance policy has four main parts. Remember them with the memory trick D-I-C-E (like rolling dice!).
D = Declarations
The "who, what, when, how much" page - basic facts about the policy.
What's on the Dec Page:
- Named insured (your name)
- Policy limits (how much coverage)
- Premium (how much you pay)
- Policy period (start & end dates)
I = Insuring Agreement
The insurer's promise - what coverages they'll provide.
Example:
"We will pay for direct physical loss to property covered under this policy..." This is the insurer saying what they'll do for you.
C = Conditions
The obligations of BOTH parties - what you and the insurer must do.
Examples:
- You must report claims promptly
- You must pay premiums on time
- Cancellation rules are here
E = Exclusions
What the policy does NOT cover - the perils and situations excluded.
Common Exclusions:
- War and nuclear hazard
- Intentional damage by insured
- Flood (usually separate policy)
Memory Trick
D - I - C - E
Like rolling dice - you're gambling that nothing bad happens!
2. Key Policy Provisions
Cancellation Provisions
Found in the CONDITIONS section of the policy.
Example Scenario:
The insurer wants to cancel your policy for non-payment. They look in the CONDITIONS section to find the cancellation rules - how much notice they must give, how to calculate your refund, etc.
Other Insurance (Pro-Rata)
Pro-rata does NOT mean equal - it means proportionate!
Example:
You have two policies: Policy A ($100K) and Policy B ($200K). $30K loss. Pro-rata share: A pays 1/3 ($10K), B pays 2/3 ($20K). NOT equal - proportionate to limits!
Claim Notification
The insured must PROMPTLY tell the insurer about a claim. Don't wait weeks or months - notify them right away. This is a condition you must follow!
Where to Find Key Information
Limits of Liability
Found on the DECLARATIONS page
What's Covered
Found in the INSURING AGREEMENT
What's NOT Covered
Found in the EXCLUSIONS
Your Duties & Rules
Found in the CONDITIONS
3. Arbitration
When Arbitration Happens
If the insurer and insured disagree whether the liability policy provides coverage, the claim goes to arbitration instead of court.
3
Arbitrators
One chosen by the insured, one by the insurer, one neutral
Real-World Scenario
The Setup: Your dog bites a neighbor. You file a liability claim. The insurer says "pet exclusion applies." You say "my dog isn't a dangerous breed, so it should be covered."
What Happens: You both disagree about whether coverage exists. Instead of expensive court, you go to arbitration.
The Result: Three arbitrators (you pick one, insurer picks one, they pick a neutral third) decide who's right.
4. Federal Regulations
Fair Credit Reporting Act (FCRA)
Protects consumers against inaccurate or obsolete personal/financial information being shared.
What it does:
Stops credit bureaus from giving wrong info to insurers. You can dispute errors and get old negative info removed.
Gramm-Leach-Bliley Act
Requires privacy notice to customers about how their info is used.
When:
Privacy notice given when customer relationship STARTS and ANNUALLY thereafter. "Here's how we use your data."
Terrorism Risk Insurance Act (TRIA)
Applies to COMMERCIAL policies ONLY - not your home or car.
Purpose:
After 9/11, government helps insurers cover terrorism losses on business policies. Personal lines NOT included.
Exam Alert: TRIA
If the question asks about terrorism coverage, remember: TRIA = COMMERCIAL ONLY. Don't pick TRIA for homeowners or auto policies!
Chapter 2 Cheat Sheet
Print for quick referenceD-I-C-E
Declarations, Insuring Agreement, Conditions, Exclusions
Declarations
Named insured, limits, premium, period
Insuring Agreement
Describes coverages provided
Conditions
Obligations of both parties
Exclusions
Perils NOT covered
3 Arbitrators
For coverage disputes
Pro-Rata
Proportionate, NOT equal
TRIA
Commercial policies ONLY
FCRA
Protects credit info accuracy
Privacy Notice
At start + annually
Claim Notice
Must notify PROMPTLY
Cancellation Rules
Found in CONDITIONS
Exam Trap Alerts
1. Pro-Rata Does NOT Mean Equal
Pro-rata = proportionate based on policy limits. If you have $100K and $200K policies, the $200K policy pays TWICE as much, not the same amount!
2. TRIA = Commercial ONLY
Terrorism Risk Insurance Act does NOT apply to homeowners, auto, or other personal lines. Only business policies!
3. Where Things Are Found
Limits = Declarations. Coverages = Insuring Agreement. Rules/Cancellation = Conditions. What's NOT covered = Exclusions. Don't mix them up!
4. Number of Arbitrators
There are exactly 3 arbitrators in insurance disputes - one from each side plus one neutral. Not 1, not 5, always 3!
5. Privacy Notice Timing
Given at START of relationship AND ANNUALLY. If a question says "only at purchase" or "only when requested" - that's wrong!