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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