© 2013 Pearson Education, Inc. All rights reserved.10-1 Chapter 10 Property and Liability Insurance

© 2013 Pearson Education, Inc. All rights reserved. 10-1

Chapter 10

Property and Liability Insurance


Learning Objectives

1. Understand, buy, and maintain homeowner’s insurance in a cost-effective way.

2. Recover on a liability or a loss to your property.

3. Buy the automobile insurance policy that’s right for you.

4. File a claim on your automobile insurance.


Introduction

• 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

• The first type of homeowner’s insurance, fire insurance.

• 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

• HOs—Home Owners

• Cover more than the home, also liability insurance and renters.

• 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: HOs

• Names 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—Property Insurance• Section II—Personal liability insurance


Table 10.1 Comparing Homeowner’s Insurance Policies


Table 10.1 Comparing Homeowner’s Insurance Policies (cont.)










Section I: Property Coverage

• Coverage A: Dwelling

• Coverage B: Other structures

• Coverage C: Personal property

• Coverage D: Loss of use


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 suits

• Also covers medical expenses of anyone hurt by policyholder, their family, or pet


Supplemental Coverage

• Endorsement—written attachment to an insurance policy to add or delete coverage.

• Personal articles floaters

• Earthquake coverage

• Flood protection


Supplemental Coverage

• Inflation Guard

• Personal Property Replacement Cost Coverage

• Added Liability Insurance—personal umbrella policy


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 provision—requirement of homeowner’s insurance that the insured pay a portion of the claim if he or she purchased in inadequate 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

• 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

• 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

• 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 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

• Establish proof of ownership and value assets in detailed inventory or videotape.

• Insurance companies have inventory worksheets.

• Include date of purchase, cost, model, brand, and serial number for each item

• Follow basic steps to collect on a loss.


Automobile Insurance

Personal Automobile Policy (PAP)—standardized for an individual or family

•Part A: Liability Coverage

•Part B: Medical Expense Coverage

•Part C: Uninsured Motorist’s Protection Coverage

•Part D: Damage to Your Automobile Coverage


Personal Automobile Policy (PAP)

• PAP Part A: Liability Coverage– Combined single limit– Split-limit coverage

• PAP Part B: Medical Expenses Coverage

• PAP Part C: Uninsured Motorist’s Protection Coverage

• PAP Part D: Coverage for Damage to Your Automobile– Collision loss, other collision loss or comprehensive

physical damage coverage


Figure 10.4 Reading Automobile Liability Split-Coverage Insurance LimitsQuoted as Split Coverage or a Combined Single Limit


Personal Automobile Policy (PAP)

Standard exclusions—not covered:

• intentional injury or damage

• using a vehicle without owner’s consent

• using vehicle with fewer than 4 wheels

• using another person’s vehicle regularly

• using own vehicle but it is not listed on policy

• carrying passengers for a fee

• driving in a race or speed contest


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 not be enough to cover all medical expenses.


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


Table 10.3 Common Automobile Insurance Discounts


Figure 10.5 Estimated Average Amount Paid Out on Claims, Relative to Highest Score Decile (lowestscore = 1; high score = 10)


Keeping Your Costs Down

• Shop comparatively

• Consider only high quality insurers

• Take advantage of discounts

• Buy a car that is relatively inexpensive to insure

• Improve your driving record

• Raise your deductibles

• Keep adequate liability insurance


Filing a Claim

“To-do” list if involved in a car accident:1.Get help for the injured.

2.Move car to a safe place.

3.Get identification of witnesses.

4.Cooperate with police.

5.Take a test for alcohol if you believe the other driver is under the influence.

6.Write down your recollection of accident.


Filing a Claim

7. Don’t sign anything or admit guilt.

8. Get a copy of the police report and make sure it is accurate.

9. Call your insurance agent as soon as possible.

10. Cooperate with your insurer.

11. Keep records of all expenditures associated with the accident.

12. If a serious accident, then meet with a lawyer to know your rights.


Summary

• 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.


Summary

• 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.


Figure 10.2 Improving Your Credit Score

Documents

© 2013 Pearson Education, Inc. All rights reserved.10-1 Chapter 10 Property and Liability Insurance