If the limit you purchase exceeds the amount required by the coinsurance clause, you will have wasted money on unused insurance. Here's how your insurer calculates your loss payment: You must pay the remaining $21,875 yourself. 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. Another option is to avoid coinsurance altogether by purchasing business income coverage on an agreed value basis. You can make your projection by adjusting your 12-month historical figures to reflect any changes you expect over the coming year. A condition that presents the possibility of loss caused by a reduction in net income. We hope the you have a better understanding of the meaning of Net Income Loss Exposure. Business Income Loss (Time Element or Business Interruption) A. The most your insurer will pay for a loss is the business income limit of insurance. Exposure Bases, Methods of Aggregating Exposures, and In-Force Exposures: Practice Questions and Solutions, Risk, Loss Exposures, and Hazards in Insurance: Practice Questions and Solutions, Characteristics of Ideally Insurable Loss Exposures: Practice Questions and Solutions, Practice Questions and Solutions on Basic Insurance Concepts: Exposures, Premium, Losses and Claims, Practice Questions and Solutions on Basic Insurance Concepts: Loss Reserves and Loss Adjustment Expenses, Practice Questions and Solutions on Basic Insurance Concepts: Average Premium, Loss Ratio, Loss Adjustment…, 5 Fun Winter Ideas in New Brunswick, New Jersey by Rutger’s Campus ». (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. Write. The following answers are correct: Choice (a) is incorrect; of the three loss exposures, health loss exposures are least likely to be definite and measurable. This question is based on the discussion in Nyce 2006, pp. If the worksheet seems too confusing, ask your accountant to complete it for you. This includes payroll. Here's how your insurer calculates your loss payment: Maximum loss payment = loss amount X (limit purchased/ the limit required) Amount paid by your insurer pays = $175,000 X (700,000 / 800,000) or $153,125 You must pay the remaining $21,875 yourself. 8.25-8.26). Which one of the six characteristics might these loss exposures sometimes not exhibit? Problem S5-24-1. tony_charles. The amount that one risks.For example, if one spends $100,000 buying stock, one has a loss exposure of $100,000 because there exists the theoretical possibility that the value of that stock could go to zero. The following answers are correct: (b) Individuals may face liability loss exposures arising out of their behavior toward others. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. SeraMelisa. Terms in this set (4) Describe the asset exposed to loss in a net income loss exposure. Next, you'll need an architect to design a new building and a contractor to do the construction. This amount represents the coinsurance penalty. Your policy includes a coinsurance requirement of 80%. Spell. For example, suppose you own a building in which you operate a warehouse. Original Problems and Solutions from The Actuary’s Free Study Guide. Three months into your policy period a fire breaks out in your warehouse. Once you've considered all the steps involved in rebuilding, you can estimate how much time they will take. Some business owners may find a business income worksheet bewildering. What Are Tenants Improvements and Betterments? Match. Health loss exposures may not be fortuitous in cases where individuals either deliberately damage their health (moral hazard) or expose themselves to greater risk through negligent, indifferent, or careless behavior (morale hazard) in order to collect insurance benefits. These issues are usually associated with business insurance policies and are often a matter of dispute. This would greatly impair the company’s ability to generate revenue in the future. The percentage may be anywhere from 50% to 125%. It is not possible to objectively determine when the effect of such reputational damage has stopped being in operation. You have under-insured your business income exposure by $100,000. Direct vs. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. 82 terms. Business Income Loss Exposure (Lecture 6) Overview of Lecture 6 (chapter 7 CPCU 3) I. Information on Estimated Taxes for All Business Types, The Balance Small Business is part of the. (c) Some homeowners’ insurers refuse to sell policies to individuals who own a certain kind of pet. The first step is to determine how much income your business generated in the previous twelve-month period. Next, you estimate your income for the future twelve months. (e) One way to reduce one’s health loss exposure is to refrain from unhealthy practices, such as smoking and excessive eating. 27 terms. Your insurer will compare the limit you purchased to your required limit based on your actual values. By contrast, restoration of damaged property provides a definite end time to net income losses due to property loss exposures. (b) Health insurance is typically not subject to the problem of adverse selection. Chapter 8, pp. Buy Agreed Value Coverage. American Institute for Chartered Property Casualty Underwriters. Read on to discover the definition of the term Net Income Loss Exposure - to help you better understand the language used in insurance policies. 40 terms. Gregory Boop wrote about business insurance for The Balance SMB. As noted above, it is important to purchase enough business income coverage to avoid a coinsurance penalty. California Property and Casualty Insurance Exam. You have under-insured your business income exposure by $100,000. This is Section 24 of the Study Guide. If the limit you purchased exceeds the required limit, your insurer will return the excess premium. (d) Premises liability for individuals meets all six characteristics of an ideally insurable loss exposure. The Premium Adjustment Endorsement provides a solution to this problem.

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