#10
Protecting Your
Property
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted
to a publicly accessible website, in whole or in part.
Property Insurance Basics
Property insurance
• protects real and
personal property
from losses from
various perils
Liability insurance
• protects against
financial
consequences from
insured's
responsibility to
others
Types of Exposure
Property loss economic loss
due to property
that is damaged,
destroyed, or
stolen
• Inventory
property
• Identify
potential
perils
Types of Exposure
Liability - damage you cause others, either
through your actions or negligence.
Types of liability protection:
• Homeowner’s policy
• Automobile policy
• Umbrella policy
Principle of Indemnity
• Insured may not be compensated by
insurance company an amount
exceeding economic loss
Most property and liability insurance
contracts are based on this principle
Concepts Related to Indemnity
Actual cash value
• value assigned
to insured
property
– Replacement
cost less
depreciation
Right of Subrogation
• Insurer’s right to
request
reimbursement from
person who caused
the loss or that
person’s insurer
Concepts Related to Indemnity
Other insurance clause - When
multiple companies insure a property,
together they will not pay more than
the economic loss
Insurance companies do not
want you to profit from a loss
Coinsurance
• Provision requiring policyholder to buy
insurance in an amount equal to a
certain percentage of replacement value
of property
• Or, insurance company will not fully
repay the loss
– You bear part of the loss as “co-insurer”
Homeowner's Insurance
Homeowners
•
•
•
•
HO-1— Basic Form
HO-2— Broad Form
HO-3— Special Form
HO-8— Modified Form
Renters
• HO-4— Renter's Form
• HO-6— Condominium
Form
Homeowner's Insurance
• Policy states conditions
(perils) under which it
will pay
• Stipulate property covered
and extent of coverage
Peril—a cause of loss
such as fire, lightning, windstorm
Factors Affecting Home
Insurance Costs
• Type of structure
– Construction materials, style, age
• Location of home
– Crime rates, weather, proximity
to fire hydrant
• Other factors
– Pool, trampoline, large dog
Property Covered
Section I –
• Loss to property,
conditions under which
it will be covered,
extent of coverage
– Perils rarely covered:
flood, earthquake, acts
of war
Section II –
• liability which
may arise in
connection to
property, either
through your
actions or
negligence
Personal Property Floater
Provides blanket or scheduled
coverage of expensive personal
property not adequately
covered by standardized
homeowner’s policy
Renter’s Insurance
• Personal furnishings and belongings are
not covered although the building may
be fully insured
• Purchase a special
type of homeowners
policy
Types of Losses Covered by
Homeowner’s Policies
• Direct loss of property
• Indirect loss occurring as a result of
loss of use of damaged property
• Additional expenses resulting from
direct and indirect losses
Persons and Locations Covered
• Policy states who is covered
 Coverage for guests and students at
college may be limited
• Most homeowner’s policies offer
coverage worldwide
 Second home may be an exception
Limitations on Payments
Replacement cost
• amount necessary
to repair, replace,
or rebuild an
insured asset at
today’s prices
Policy limits
• placed on
covered
property and
depend on
amount of home
coverage
Limitations on Payments
• Actual Cash Value - what property is worth today
(its depreciated value)
• Replacement Cost – amount to repair, rebuild or
replace at today’s price
• Inflation Protection Rider - automatically adjusts
for inflation
• Internal Limits - apply to specific items such as
jewelry, watercraft, or securities
Deductibles
Deductible - amount paid out of pocket
on covered losses
Deductibles keep insurance
costs down by eliminating
frequent small loss claims that
are proportionately more
expensive to administer
Homeowner Premiums
• Differ from company to company
• Depend on structure type, property
location, or property hazards
• Discounts offered
– non-smokers
– security systems
Types of Automobile
Insurance Coverage
•
•
•
•
Part A – Liability coverage
Part B – Medical Payments coverage
Part C – Uninsured motorists coverage
Part D – Coverage for damage to your
vehicle
Part A: Liability Coverage
• Required in most states
• Pays injury and property damages to others
when you are responsible for the loss
• Covers costs of settling or defending claims
for damages
Part A: Policy Limits
• Insurance company may limit total
damages paid for any one accident
– Typical limits are $50,000, $100,000,
$300,000 and $500,000
• Some insurers split the limits of
liability coverage available
Four Parts of a PAP
Part A: Persons Insured
Insured Person
• the named insured
• family members
• any person using
covered auto
• any person or
organization
responsible for
insured’s actions
Covered Auto
• listed on declaration
page
• acquired during
policy period
• any vehicle
temporarily used
while auto is being
repaired
Part B: Medical Payments
• Reimbursement for medical expenses
resulting from an accident
• Covers insured, family members, and
passengers in covered autos
• Covers injuries sustained
as a pedestrian or while
riding a bicycle
Part C: Uninsured Motorists
• Pays when other driver
has no insurance or if
hit-and-run
• Usually pays for bodily
injuries, not property
damage
• Additional coverage
available to protect
against underinsured
motorists
Must meet criteria:
• Another driver at
fault
• Other motorist
uninsured
• Damages were
incurred
Part D: Physical Damage to
a Vehicle
Collision
• Pays the actual cash value of the damage
minus deductibles
• Pays no matter who is at fault
• Required for financed cars to
protect the investment
Part D: Physical Damage to
a Vehicle
Comprehensive
• Protects against loss to
insured auto caused by perils
other than collision
– hail, fire, theft, falling objects
No-Fault Automobile Insurance
• Reimburses parties involved in an
accident without regard to negligence
• Each party compensated by their own
insurance company
• Restricts remedies and payments for pain
and suffering
• State laws vary regarding amount of nofault benefits and restrictions for legal
actions
Factors Affecting Premiums
•
•
•
•
•
Rating territory
Use of automobile
Driver’s personal characteristics
Type of automobile
Driving record
Financial Responsibility Laws
Require motorists to buy a minimum
amount of auto liability insurance
• Compulsory auto insurance laws require
proof of insurance when acquiring license
plates
• Others require proof of coverage after an
accident
Supplemental Property
Insurance Coverage
• Earthquake & flood - not included in
standard homeowner's policies
• Other forms of transportation - mobile
homes, RVs, boats, etc.
Personal liability umbrella additional liability coverage for
homeowner and auto insurance
Property and Liability Insurance
Agents
 Captive agent
Represents one
insurance
company
 Independent
agent Represents
multiple insurance
companies
Before selecting
• Review total property
and liability exposures
• Inventory property and
identify exposures
• Determine appropriate
covered perils, limits,
deductibles, and floater
policies
Buying Insurance and
Settling Claims
After an accident be
sure to get:
 names, addresses,
phone numbers
 driver's license, auto
license, insurance
policy numbers
 vehicle description
for all involved
Remember to - get names, addresses,
phone numbers of
witnesses
 contact police and
insurance agent
Steps in Claim Settlement
1. Notice to
insurance
company
2. Investigation
3. Proof of loss
Claims adjustor will:
1. Evaluate claim
2. Recommend
 settlement of amount
requested
 settlement of a lesser
amount
 denial of claim