Property and Casualty Insurance Practice Exam

What are first-party losses?

1. Losses involving multiple parties

2. Property losses where the only party is the insured

3. Losses sustained by third parties only

4. Liability losses from accidents

The correct answer is: Property losses where the only party is the insured

First-party losses refer specifically to incidents where the insured party experiences a loss and is the only party affected. In this context, the term "first-party" underscores that the individual or entity suffering the loss is the insured, thereby having a direct claim against their own insurance policy for recovery. For instance, if a homeowner's property is damaged by a fire, that damage constitutes a first-party loss as it directly impacts the homeowner, who holds the insurance policy. The homeowner would file a claim with their insurance company for the damages incurred, relying on their policy's coverage to address the loss. This definition distinguishes first-party losses from losses involving third parties or multiple parties, as well as liability losses, which typically involve claims filed by third parties against the insured. Understanding this distinction is key in property and casualty insurance, where the type of loss directly impacts the nature of the insurance coverage and claims process.