1.
The ABC’s and 123’s of Property and
Casualty Insurance – Part 2
Welcome to the ABC’s and 123’s of Property and Casualty insurance - Part 2. Were you
confused beyond confuzzlement in your pre-license training course with all of the different
ABC’s and 123’s thrown at you to remember for each section? We thought so and that is why
we have created this section for your review. We have straightened out your ABC’s &123’s and
housed them in one place. You will need to keep them straight and know the terms coming up
like the back of your hand on exam day. Just read and re-read the information below until it
sticks. Be sure to take breaks and repeat this process, throughout the week leading up to your
exam day.
Don’t worry if you are having trouble memorizing the facts, definitions and coverages below in
pure definition form at first. All of this content has been strategically woven into test question
format for your review in the Ultimate Study Guide and Study Lounge Sessions portion of this
course. You will be learning while reviewing designed tests in addition to this outline.
Just like a musician warms up before a concert by practicing, you too should warm up during
each study session by reviewing this document along with part 1, in order to adequately prepare
for your exam. Please read this section over and over again. You’ll be really glad you did come
exam day.
There will be a short quiz to take following your review of this document.
The Ten Types of Insurance Policies and
their Product Lines:
1. “ DP” = DWELLING PROPERTY * Policy Coverages:

2.
A –​ Dwelling/Structure coverage (100% of dwellings must be covered)
B –​ Other /Appurtenant Structure coverage (minimum coverage = 10% of A)
C –​ Personal Property (50% is covered within the U.S.; 10% is covered outside the U.S.)
D –​ Rental Loss coverage
​E –​ Add’l Living Expense coverage
L –​ Personal Liability coverage
​M –​ Medical Payment to Others coverage
DP1​ – Basic Form policy (Named Perils Only)
DP2​ – Broad Form policy (Falling Objects, Collapse)
DP3​ – Special Form policy (All Risk except exclusions)
* Dwelling Policies are for up to four units and can (but does not need to) be owner occupied.
2. “ SFP” = STANDARD FIRE Policy Types:
• Very Basic Policy for Named Perils Only
• Covers: Fire, Lightning, and Removal
• Extended coverage can be added with endorsements…
List of ​SFP ​Endorsements:

3.
W ​– ​W​indstorm endorsement
H​ – ​H​ail endorsement
A​ – ​A​ircraft endorsement
R ​– ​R​iot & Civil Commotion endorsement
V​ – ​V​ehicle endorsement
E​ – ​E​xplosion endorsement
S​ – ​S​moke endorsement
VMM ​ – Vandalism and Malicious Mischief endorsement
​VMM ​– May be added only when a home is occupied, or for a maximum of 30 days if the
home is vacant or unoccupied.
• ​Vacant ​= Empty of Persons and Furniture.
• ​Unoccupied ​= Contains Some Furniture, but No Persons.
3. “ HO” = HOMEOWNER'S Policy Types:
HO1​ – Basic policy (No longer available in California)
HO2​ – Broad policy (Covers Named Perils only)
HO3​ – Special policy (“All Risk”, except listed exclusions)
HO4​ – Renters / Tenants policy (Think: HO4 = “4 Rent”)

4.
HO5​* – Comprehensive policy
HO6​ – Condo policy
HO8​ – Victorian policy (for older homes)
* An HO5 policy equals an HO3 with an HO15 endorsement.
(The HO15 Endorsement is a Special Personal Property Coverage Form, and changes
coverage C from Broad Form to Open Perils)
​3a. All “ HO” HOMEOWNER'S policies include two
sections:
Section 1​ (​Property Coverage​):
A – Dwelling​ / Structure coverage
B – Appurtenant​ / Separate Structures coverage
(B coverage = 10% of “A” coverage)
C – Personal Property​ coverage
(C = 50% of “A”, or 100% of “A” when outside the U.S.)
D – Loss of Use coverage
Automatically included within all HO policies:

5.
• Ordinance or Law Endorsement: This endorsement adds 10% of coverage “A” for
additional costs required to comply with current building codes after a covered loss.
Section 2​ (​Liability Coverage​):
E​ – Personal Liability coverage
F​ – Medical Payment to Others liability coverage
​3b. How to Remember coverages for HO Sections 1
and 2:
Section 1​ (​Property Coverage​):
A​ ​– Dwelling​ / Structure coverage
• (Remember “A” for “A-frame cabin”)
B – Appurtenant / Separate​ Structures coverage
• (Remember “B” for “detached Barn”)
C – Personal Property​ coverage
• (Remember “C” for “Contents”: Couch or Credenza)
D​ –​ Loss of Use coverage
• (Remember: “D” for Doubletree Inn, where an Insured stays during repairs)

6.
Section 2​ (​Liability Coverage​):
E – Personal Liability​ coverage
• (Remember “E” for “Everything for which an Insured is liable.”)
F – Medical Payment ​to Others liability coverage
• (Remember “F” for “a Female Friend Fainted”)
4. “ PAP” = PERSONAL AUTO POLICY Types:
A - Liability​ (Mandatory CA minimum: 15/30/5)
B - Medical Payment​ (Per person limit – covers all in car)
C - Uninsured Motorist​ (Insured must sign to decline)
​D -Physical Damage​ (to Insured’s own car)
(Coverage D) Comp​ “​Other than Collision​” (rocks, animals, earth movement)
(Coverage D) Collision​ (​Impact with another object​ or rollover “upset”)
• ​Remember​: ​A​, ​B​ & ​C​ are included unless declined in unendorsed auto
policies. Coverage ​D​ is only for endorsed auto contracts.
CAARP High Risk Auto coverage​ (Multiple tickets or accidents; DUI)

7.
• Minimum coverage is 15/30/5 and $1000 med pay
LCAP ​“​Low Cost Auto Program​”
• This is a government subsidized insurance program to help furnish auto
insurance to low income individuals who qualify. The liability limits are 10/20/3
• Liability coverage only
5. The Seven Lines of Commercial Insurance:
​ Memorize:​ “​BACFLIP​” ​(without the “K”)…
B​ Commercial ​Boiler and Machinery ​Policy
A​ Commercial ​Auto ​Policy
C ​Commercial ​Crime ​Policy
F​ Commercial ​Farm ​Policy (Blend of residential and commercial on one plan - covers
farm equipment
L​ Commercial ​Liability ​Policy
I ​Commercial ​ Inland Marine ​Policy
P​ Commercial ​Property​ Policy
Boiler and Machinery aka Equipment Breakdown
Coverage:

8.
• Usually all-risk, excludes wear and tear and inherent defect
• Replacement cost
• Majority of the premium goes towards inspections to prevent loss
6. “ CPP” – COMMERCIAL PACKAGE POLICY
coverages:
A – Building coverage
B ​– ​Business Personal Property ​coverage
C ​– ​Personal Property of Others​ coverage (3 C’s)
7. “ CGL” – COMMERCIAL GENERAL LIABILITY
POLICY coverages:
Section 1 types of coverage​:
A ​– ​Bodily Injury & Property Damage ​coverage
B​ – ​Personal & Advertising Injury ​coverage
C​ – ​Medical ​Payment ​to Others​ (slip & fall accident) coverage
Has 2 sub-lines with separate aggregate limits:
Premises and operations​ (losses at the location of the business)

9.
Products and completed operations​ (losses that occur away from the business)
​…plus these Section 2 liability coverage types​:
Garage Liability​ (No 3 C’s) Work on your car for oil service.
Garage Keepers Liability ​(Care, Custody, Control) (Coverage for parking lot owners)
Writing Liability Coverage and limitations of
liability:
2 ways of writing liability
• Occurrence made
• Claims made
Liability does not cover the following:
• Aircraft
• Alcohol business
• Professional liability, such as
• Malpractice
• Errors and Omissions
• Directors and officers

10.
• Employer Practices Liability
8. “ Crime Coverages” – COMMERCIAL CRIME POLICY
symbols:
A​ – ​Employee Theft​ coverage
B​ – ​Forgery ​& ​Alteration ​of ​Outgoing Checks​ coverage
C​ – ​Theft of Money​ & ​Securities ​coverage
D​ – ​Robbery ​& ​Burglary of the Safe​ coverage
2 ways to write,commercial crime policies:
• Loss Sustained
• Discovery form Type
​9. “ CAP” – COMMERCIAL AUTO POLICY coverage
symbols:
Of the nine section 1 symbols, you only need to memorize these four​:
1​ – ​Any Autos​ (owned, hired, non-owned)
4​ – ​Owned Autos​ (other than personal autos)

11.
7​ – ​Specific Autos
9​ – ​Non-owned autos
10a. “ BOP” = BUSINESS OWNER’S POLICY:
• Remember “BOP” for “Mom & Pop” shops! (under $3M in business)
• Coverages all come standard in one package.
• $500 deductible
• Extra Expense Coverage can be added (moving expenses)
• Extended Period of Indemnity can be added (one extra month max.)
• ​Important Formula for Business Income:
​Business Income​ = (Revenue minus (All expenses, including payroll))
10b. “ BOP” = BUSINESS OWNER’S POLICY:
Section 1​ – ​(Property):
A ​– ​Building
B​ – ​Business Personal Property

12.
• (B includes “TIB” = TENANT’S IMPROVEMENTS & BETTERMENTS)
​Section 2​ – ​(Liability):
Business Liability
Medical Payments to Others
Commercial Property:
4 cause of loss forms
Basic
Broad
Special
Earthquake
Coverage A Building
Coverage B Business personal property
Coverage C Personal property of others
Bond Types - Facts and Definitions:
PRINCIPAL
• ​A Principal is an ​Employee​ << This is tricky, so remember it!

13.
• The term “Principal”, as it pertains to a Surety Bond: When work is performed by an
employee of a contractor, that employee may be required to be bonded with a Surety
Bond.
• The employee pays for his/her own Surety Bond. The employee is the “Principal”
listed on the contract.
• The Principal in a Fidelity Bond does not pay the premium.
OBLIGEE
• An ​Obligee ​is an ​Employer
• The Obligee in a ​Fidelity Bond​ is typically a company manager.
• The Obligee in a ​Surety Bond​ is typically a homeowner who hires contract work
– i.e. the building of a fence.
GUARANTOR
• The ​Guarantor ​is the ​Bond Company
FIDELITY BOND
• Fidelity Bonds cover the risk of loss (funds, goods, business and personal property)
due to an employee’s dishonesty (theft, fraud, embezzlement).

14.
• Fidelity Bonds are typically purchased by businesses that sell expensive luxury items
that provide a temptation to their employees.
I• A ​Fidelity Bond​ is not an Insurance Policy.
• A ​Fidelity Bond​ is instead a Financial Guarantee.
• A ​Fidelity Bond​ is a Three Party Contract (An Insurance Policy is a Two Party
Contract)
• A ​Fidelity Bond’s​ Coverage Period = One Year.
• ​Discovery Period​ = One Year After the Bond is Cancelled.
• ​“ Principal” ​ = Employee (Does NOT pay premium)
• ​“ Guarantor” ​ = Bond Company
• ​“ Obligee” ​ (The Employer) PAYS PREMIUM << ​Don’t Forget!
Reminder: ​Insurance policies ​are Two Party Contracts, whereas ​Fidelity Bonds​ are
Three Party Contracts.
SURETY BOND
• A ​Surety Bond Guarantees Certain Obligations Will be Met​.
• For instance, a Surety Bond can guarantee that Gary, a carpenter who is the
employee of a fence-building firm, completes his work on time.

15.
• ​Note: ​The Exam will ask: “Who pays the premium on a Surety Bond?”
• ​Answer:​ The PRINCIPAL (Gary the Employee) PAYS the PREMIUM.
Reminder:
• The ​Guarantor ​is the ​Bond Company
• The ​Obligee ​is the ​Homeowner
• The ​Principal (employee) ​pays the premium in a surety bond
REINSURANCE:
• Reinsurance is essentially Insurance for the Insurance Company
• Reinsurance allows insurance companies to write policies in excess of their financial
reserves (retention limits).
• Reinsurance policies protect insurance companies from shock losses caused by
widespread disasters such as the East Bay Firestorm.
• ​Reinsurance ​(and ​Coinsurance​) are both forms of ​Risk Sharing
More DEFINITIONS:
• ​SHALL ​= ​Mandatory
• ​MAY ​=​ ​Permitted, Optional

16.
• ​YOU ​=​ ​Named Insured​ (only one name, for instance, “David”)
• ​YOUR ​= ​Named Insureds​ (more than one name: “David and Victoria”)
• ​WE ​= ​Insurer ​(Insurance Company)​ (The 007 Insurance Company)
Final Reminder:
• ​PERSON ​= A​ Firm, Partnership, Organization, LLC
• ​NATURAL PERSON​ = ​Solicitor / Producer​ <<​ Important!
Parts of a Workers Compensation Policy:
Part I
• Protects against ​Statutory Claims,​ benefits include ​Medical ​with no time
limit and no dollar limit.
• Disability Income pays at 66 2/3 of a worker’s salary.
• Death benefits in California: lump sum of up to $5,000 and income to the surviving
spouse
• Rehabilitation benefits without a dollar or time limit
Part 2
• Protects against Common Law Claims
• Covers people who fall out of the workers compensation side, unlimited lawsuit
potential
• Subsequent/Second Injury Fund

17.
• Pays the increase in compensation from a previous injury and a secondary or
subsequent injury
Please stop and take a break. Come back in 20 minutes to keep it
fresh. When your mind is clear and you are ready, please review
The ABC’s and 123’s of Property and Casualty Insurance – Part 1 if
you haven't done so yet. Then once you are ready please move on
to The Ultimate Study Guide part 1.
Don’t worry if you are bored out of your mind right now we
empathize and promise this course will be more enjoyable once
you learn your ABC’s and arrive at the Ultimate Study Guide
portion of your exam preparation process. You gotta “OWN” your
ABC’s and 123’s before you can effectively learn to comprehend
what you will read ahead with the end game in mind being to
effectively master the language of insurance and passing your
exam.