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Insurance for Consumer Protection

Insurance for Consumer Protection. What Every Agent Should Know. Insurance Basics for Real Estate Licensees. Risk Management Impact on Real Estate Transactions Insurance Contracts Flood Insurance Business Property Issues Impact of Insurance Industry Changes Insurance Fraud. Chapter 1.

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Insurance for Consumer Protection

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  1. Insurance for Consumer Protection What Every Agent Should Know

  2. Insurance Basicsfor Real Estate Licensees • Risk Management • Impact on Real Estate Transactions • Insurance Contracts • Flood Insurance • Business Property Issues • Impact of Insurance Industry Changes • Insurance Fraud

  3. Chapter 1 Insurance Company Background

  4. Learning Objectives • Name Situations That Cause Financial Problems for Property Owners • Identify Duties of State Insurance Departments • List Ways to Control Risk • Learn How to Transfer Risk by Buying Insurance • Explain Why to Purchase Insurance Before a Catastrophe

  5. Risk Management • Decision-Making Process • Accept Exposure • Reduce Vulnerabilities • Mitigate Risk • Avoid Risk • Transfer Risk • Typical Questions

  6. Coverage Needed • Damage to Real Property • Damage for Personal Property • Liability for Injury

  7. Risk Management • Insurance Specialties • Personal Lines • Commercial Lines • Excess and Surplus (E&S) • Real Estate Licensees • Transaction Gatekeepers • Provide Guidance • Allow Consumers to Make Decisions

  8. Risk Control Techniques • Avoidance • Separate Exposures • Combine Exposure Units • Personal Lines • Commercial Lines • Sell the Property (Noninsurance Transfer)

  9. Risk Control Techniques • Retain the Risk • Self Insure • Higher Deductibles • Transfer the Risk • Buy Insurance • Premiums Create Pool of Money

  10. Insurance Companies • State Insurance Regulators • Review Financial Records • Review Available Reserves • Determine Stability of Insurance Companies • Admitted • Nonadmitted

  11. Insurance History • Early Fire Insurance • Influenced by Benjamin Franklin • Firemarks • Municipal Fire Companies

  12. Regulating Insurance Industry • McCarran-Ferguson Act • Insurance Service Office (ISO) • State Insurance Commissions • Set Rates • Interpret Policy Language • Determine Reserves • Police Sales Activities of Company Representatives

  13. Regulators Association • National Association of Insurance Commissioners (NAIC) • Provides Forum for State Regulators • Protect Public Interest • Promote Competitive Markets • Facilitate Fair and Equitable Treatment of Insurance Consumers • Promote Reliability, Solvency, and Financial Solidity of Insurance Institutions

  14. Insurance Basics • Policy Considerations • Coverage Required • Advance Purchase Required • Cancellation • Deductibles • Full Replacement versus Actual Cash Value • Filing a Claim • Services to Expect

  15. Chapter 2 Understanding Insurance Contracts

  16. Learning Objectives • Compare Aleatory Contract to Contract of Adhesion • Explain Insurable Interest and Insured Value • Discuss Purpose of Coinsurance Clauses • Define Redlining • Name Components of an Insurance Policy

  17. Understanding Insurance Contracts • Contract Essentials • Insured Is Property Owner • Insurer Is Insurance Company • Both Parties Must Comply • Generally May Not Be Assigned • Definite Beginning and Ending Dates

  18. Unique Issues • Aleatory Contracts • Performance Depends on Future Event • Contingency May Not Occur • Contract of Adhesion • Insurance Company Writes Contract • No Negotiation Kick Me

  19. Issues Unique to Insurance Contracts • Strict Construction • Any Ambiguity Construed Against Party Drawing Up Contract • Insurer Is Responsible

  20. Issues Unique to Insurance Contracts • Contract of Indemnity • Compensated Only for Loss Sustained • Provides Reimbursement, Not Financial Gain • Insurable Interest • Insured Person Must Have Legitimate Financial Interest • Must Be Present at Time of Loss

  21. Issues Unique to Insurance Contracts • Insured Value • Land May Not Be Insured • Insured Value Is Total Value of Claim • Deductibles • Initial Portion of Claim Paid by Insured • Discourages Frivolous Filings

  22. Issues Unique to Insurance Contracts • Coinsurance Clause • Prevents Underinsurance • Amount Paid Based on Percentage of Insurance to Value • Penalties for Underinsurance • Contract in the Public Interest • Insurance Necessary Today • Prohibits Redlining

  23. Issues Unique to Insurance Contracts • Guaranteed Replacement • Replace as It Had Been • Percentage Caps Today • Special Form • Covers Everything Unless Excluded • A Few Exceptions • Named Peril • Coverage for Perils Named in Policy • Flood Insurance Always Named Peril

  24. Basic Policies • Endorsements • Available Coverages Vary • Cost • Form of Ownership • Occupancy • Real Estate Licensees • Know Differences • Provide Names

  25. Overview of an Insurance Policy • Agreement to Insure • Declarations Page • Definitions • Property Coverage Terms • Perils Insured Against • Exclusions • Conditions • Endorsements

  26. Overview of an Insurance Policy • Liability Provisions • Injury to Others • Insurer Will Defend for Covered Events • Legal Actions by Third Party • Bodily Injury • Damage to Others’ Property • Defend or Pay • Insured Has No Say in Matter

  27. Chapter 3 Types of Insurance Policies and Coverage

  28. Learning Objectives • Identify Insurance Problems With Vacant or Rented Homes • Name Perils Covered by Special Form Policy • Differentiate Among HO-1, HO-2, HO-3, HO-4, and HO-6 • List Scheduled Personal Property Items • Explain Why Three Policies Are Necessary for Condo Rentals

  29. Special Form Policies • Special Form Policies • Not “All Risks” • Physical Damage Not Excluded • Vary From Company to Company, State to state • Individual Property Issues • How Property Used • Who Owns What • What Needs to Be Insured

  30. Special Real Estate Situations • Vacant Homes • Sellers Must Confirm Coverage with Agent • Coverage Reduced within Time Frame • Rental While Home Is On Market • Nightmares! • Owner/Occupant Advantages Disappear • Dual Use Dwellings • Days Occupied • Be Honest

  31. Owner Occupant Policies • HO-1 (Basic Fire Policy) • HO-2 (Nonrental Secondary Residence Policy) • HO-3 (Homeowners’ Policy) • HO-6 (Condominium Policy) • Flood Insurance ALWAYS a Separate Policy

  32. Policy for Owner-Occupants • HO-1 (Basic Fire) • Bare Bones • Named Peril (Fire and Lightning Damage) • Some Limited Endorsements Available

  33. Policy for Owner-Occupants • HO-2 (Nonrental Secondary Residence) • Hunting Lodge, Beach Home • Stepped-Up HO-1 • Named Peril • Purchase Additional Endorsements

  34. Policy for Owner-Occupants • HO-3 • Homeowners’ Policy • Special Form • ONLY for Owner-Occupants • Covers Personal Liability • Most For the Money

  35. Policy for Owner-Occupants • HO-6 (Condo Policy) • Tailored to Meet Association By-Laws • Owner Owns Interior • Shared Ownership for Common Areas • Different Insurance Needs

  36. Basic HO-3 Coverages • Coverage A: Dwelling • Coverage B: Other Structures • Coverage C: Personal Property • Actual Cash Value (ACV) or Depreciated Amount • Replacement Cost Coverage • Scheduled Personal Property (SPP)

  37. Basic HO-3 Coverages • Coverage D, Loss of Use • Partial Loss • Total Loss • Coverage E, Personal Liability • Personal Umbrella Policy • Exclusions for Business Use • Special Situations (e.g., Golf Cart Use)

  38. Basic HO-3 Coverages • Coverage F, Medical Payments • No-Fault Medial Coverage • Invited or Noninvited Guests • Exclusions • Housekeepers • Tree Trimmers • Lawn Care Personnel

  39. Types of Property Insured • Town House • Own Land Above, Below, and Behind • HO-3 • Cooperative • Leaseholder Is Stockholder • Coop Association Owns Building • Ownership of Fixtures Vary

  40. Types of Property Insured • True Condominium • Single Entity • Bare Walls In • Condominium Master Policy • Unit Assessment Insurance

  41. HO-6 (Condominium Policy) • Building Alterations and Additions • Original Coverage • Additional Endorsement • Valuable Additions to Standard Coverage • Water and Sewer Backup • Earthquake Insurance • Personal Articles Floater or Scheduled Personal Property

  42. HO-6 (Condominium Policy) • Separate Policies • Umbrella Liability • Flood Insurance • Loss Assessment Coverage • Assessments Not Covered • Improvements • Damages Above the Limits • Debris Cleanup

  43. HO-6 (Condominium Policy) • Separate Policies Needed for Association • Coverage for Investors and Their Tenants • Master Policy • Renters’ Policy • HO-6 Policy Purchased by Owner

  44. Policies Available for Rental Properties • HO-4 (Renters’ Policy) • Excludes Dwelling • Limits Coverage to Renters’ Personal Property and Liability Exposures • Rental Home or Landlord’s Policy • Little Personal Property Coverage • Written in Personal Lines • Business Properties • Other Structures

  45. Personal Property Used for Business • Two Exclusions • Excludes Anything Used At All for Business • Limits Coverage to $250 • Correct These Limits • Adaptable Electronic Apparatus Coverage • Increased Limits on Business Property • Personal Liability for the Home Office • No Coverage for Business from Home • Commercial Insurance Required

  46. Chapter 4 Floods and Other HO Exclusions

  47. Learning Objectives • Define Flooding • Name Causes of Flooding • Explain Circumstances When Lender Must Require Flood Insurance • Discuss Assistance Provided by Some States • Identify Areas Prone to Earthquakes and Volcanic Action

  48. Property Damage • Fires • Floods • Earthquakes • Others Requiring Special Insurance • Tornadoes • Volcanoes • Terrorism

  49. Floods • Flooding Definitions • Overflow of Inland or Tidal Waters • Accumulation or Runoff of Surface Waters • Mudflows Caused by Flooding • Everyone Lives in a Flood Zone • Every State • Some Floods Are Multistate

  50. Special Flood Hazard Areas(SFHAs) • Determined by Flood History and Location • Used to Determine Flood Insurance Premiums • Zones A Inland Areas • Zones V Coastal Areas

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