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Chapter 10. Property and Liability Insurance. Learning Objectives. Understand, buy, and maintain homeowner’s insurance in a cost-effective way Recover on a liability or a loss to your property Buy the automobile insurance policy that’s right for you

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Chapter 10

Property and Liability Insurance

learning objectives
Learning Objectives
  • Understand, buy, and maintain homeowner’s insurance in a cost-effective way
  • Recover on a liability or a loss to your property
  • Buy the automobile insurance policy that’s right for you
  • File a claim on your automobile insurance
  • You need to prepare for unlikely, unlucky events
  • Property insurance allows individuals to pool the financial risks associated with property losses—a fire, burglary, or auto accident—to eliminate catastrophic losses
  • Deciding how much and exactly what kind of insurance to buy is a challenge
protecting your home
Protecting Your Home
  • The first type of homeowner’s insurance, fire insurance, started in 1735
  • The first modern homeowner’s policy was sold in 1958
    • Before, separate policies were needed for every peril.
  • Peril - an event or happening, whether natural or man-made, that causes a financial loss
packaged policies hos
Packaged Policies: HOs
  • HOs - Home Owners
  • Cover more than the home itself; also liability insurance and renters insurance
  • HO-1, HO-2, HO-3—basic policies for homeowners
  • HO-4 - renter’s insurance
  • HO-6 - condominium owners
  • HO-8 - older homes
packaged policies hos1
Packaged Policies: HOs
  • Named perils - a type of insurance that covers a specific set of perils. Perils not named are not covered
  • Open perils - a type of insurance that covers all perils except those specifically noted as excluded
  • Section I – covers property insurance
  • Section II – covers personal liability insurance
section i property coverage
Section I: Property Coverage
  • Within Section I, there are four basic coverages:
    • Coverage A: Dwelling – house and any attachments
    • Coverage B: Other structures – garage, landscaping, etc.
    • Coverage C: Personal property – losses are covered wherever you are
    • Coverage D: Loss of use - if your home can’t be used
section ii personal liability coverage
Section II: Personal Liability Coverage
  • Protects policyholder and family from financial loss if someone is injured on their property or as a result of their actions
  • Protects against liability lawsuits
  • Also covers medical expenses of anyone hurt by policyholder, their family, or pet
supplemental coverage insurance extras
Supplemental Coverage – Insurance Extras
  • Endorsement - written attachment to an insurance policy to add or delete coverage
  • Personal articles floaters – provide extended coverage for all personal property regardless of location
  • Earthquake coverage – must be purchased separately
  • Flood protection – your community must comply with HUD requirements
supplemental coverage
Supplemental Coverage
  • Inflation Guard – automatically updates your coverage for increased costs of replacement because of inflation
  • Personal Property Replacement Cost Coverage – provides for actual replacement cost instead of cash value. Cash value can be much less than replacement value
  • Added Liability Insurance—personal umbrella policy – provides excess liability coverage
your insurance needs
Your Insurance Needs
  • How much insurance do you need?
  • Need for inflation guard coverage and need for replacement cost coverage on possessions
  • Need enough insurance for full replacement in the event of a total loss.
coinsurance and the 80 percent rule
Coinsurance and the“80-Percent Rule”
  • Coinsurance provision - requirement of homeowner’s insurance that the insured pay a portion of the claim if he or she purchased aninadequate amount of insurance (less than 80% of replacement cost)
  • 80 percent rule - homeowner’s insurance rule that the replacement cost coverage is in effect only if the home is insured for at least 80% of its replacement cost.
the bottom line
The Bottom Line
  • How much homeowner’s insurance do you need?
  • Needs some thought and foresight
  • Assets and possessions are always changing so are your insurance needs
  • Revisit your insurance needs from time to time
keeping your costs down insurance credit scoring
Keeping Your Costs Down –Insurance Credit Scoring
  • Insurance credit score - based on the same information as your traditional credit score, used in determining what your home and auto insurance rates will be
  • The lower your insurance credit score, the higher your rates will be
  • Manage your insurance credit score to keep your costs of insurance down
Figure 10.1 The Relationship Between Your Credit Score and the Cost of Your Homeowner’s Insurance Policy to Your Insurance Company
keeping your costs down discounts and savings
Keeping Your Costs Down – Discounts and Savings
  • What determines the cost of your homeowner’s policy?
    • Location of your home
    • Type of structure
    • Level of coverage and policy type
    • Keep costs down by selecting a financially sound insurer with low comparative rates
keeping your costs down discounts and savings1
Keeping Your Costs Down – Discounts and Savings
  • High deductible discounts
  • Security system/smoke detector discounts
  • Multiple policy discounts
  • Pay your insurance premiums annually
  • Other discounts
  • Consider a direct writer
  • Shop around
  • Double-check your policy
making your coverage work
Making Your Coverage Work
  • Establish proof of ownership and record assets in detailed inventory or videotape
  • Insurance companies have inventory worksheets that will help you
  • Include date of purchase, cost, model, brand, and serial number for each item
  • Follow basic steps to collect on a loss
automobile insurance
Automobile Insurance

Personal Automobile Policy (PAP) –standardized for all policies. They all contain:

  • Part A: Liability Coverage – provides protection if you are responsible for bodily injury or property damage
  • Part B: Medical Expense Coverage - pays medical bills and funeral expenses
automobile insurance1
Automobile Insurance
  • Part C: Uninsured Motorist’s Protection Coverage – covers bodily injury and property damage caused by drivers without liability coverage
  • Part D: Damage to Your Automobile Coverage (Collision/Comprehensive) – coverage for theft and for damage for most other perils except for collision
personal automobile policy pap
Personal Automobile Policy (PAP)
  • PAP Part A: Liability Coverage
    • Combined single limit: combines amounts for both bodily injury and property damage
    • Split-limit coverage: quoted in three parts as: maximum coverage per person/maximum coverage per accident/maximum coverage for property damage
    • For example: $100,000/$300,000/$100,000
  • PAP Part B: Medical Expenses Coverage – pays all reasonable medical and funeral expenses within three years of accident
Figure 10.4 Reading Automobile Liability Split-Coverage Insurance LimitsQuoted as Split Coverage or a Combined Single Limit
personal automobile policy pap1
Personal Automobile Policy (PAP)
  • PAP Part C: Uninsured Motorist’s Protection Coverage – covers for uninsured motorists, negligent drivers with no insurance, hit and run
  • PAP Part D: Coverage for Damage to Your Automobile
    • Collision loss, other collisions, and comprehensive physical damage coverage
personal automobile policy pap2
Personal Automobile Policy (PAP)
  • Standard exclusions – some things are not covered in an insurance policy
no fault insurance
No-Fault Insurance
  • Type of auto insurance in which your insurance company protects you in the case of an accident regardless of who is at fault
  • Over half the states have no-fault system
  • Imposes limits on medical expenses and other claims, which may result in not having enough to cover all medical expenses
determinants of the cost of automobile insurance
Determinants of the Cost of Automobile Insurance
  • Type of automobile
  • Use of automobile
  • Driver’s personal characteristics
  • Driver’s driving record
  • Where you live
  • Discounts that you qualify for
  • Insurance credit score
Figure 10.5 Estimated Average Amount Paid Out on Claims, Relative to Highest Score Decile (lowestscore = 1; high score = 10)
keeping your costs down
Keeping Your Costs Down
  • Shop comparatively – rates can vary as much as 100%. Get a minimum of three different quotes
  • Consider only high quality insurers
  • Take advantage of discounts – you can get discounts for being accident-free, low annual mileage, good student, automatic airbags and seatbelts, antitheft devices, etc.
keeping your costs down1
Keeping Your Costs Down
  • Buy a car that is relatively inexpensive to insure – factor in the cost of insurance as you are shopping for a car
  • Improve your driving record – a good driving record will lower insurance rates
  • Raise your deductibles – a higher deductible will result in lower premiums
  • Keep adequate liability insurance – damage awards have increased dramatically. Be sure you have enough coverage
filing a claim to do list
Filing a Claim “To Do” List
  • Get help for the injured
  • Move car to a safe place
  • Get identification of witnesses
  • Cooperate with police
  • If you think the other person was under the influence, insist that you both take a test
  • Write down your recollection of accident
filing a claim
Filing a Claim
  • Don’t sign anything or admit guilt
  • Get a copy of the police report and make sure it is accurate
  • Call your insurance agent as soon as possible
  • Cooperate with your insurer
  • Keep records of all expenditures associated with the accident
  • If it is a serious accident, meet with a lawyer to know your rights
  • Six standardized HOs with different types and level of insurance for homeowners and renters.
  • HOs have property insurance (Section I) and liability coverage (Section II).
  • Have enough homeowner’s insurance full replacement in complete loss.
  • Have an detailed asset inventory to provide effective protection.
  • With an automobile insurance policy, there’s protection against bodily injury and against property damage all divided up in four parts.
  • Age, sex, driving record, and the insurance credit score affect the cost of automobile insurance so do deductibles, and discounts.