Chapter 8
Home and Automobile
Insurance
Kapoor
 2004 McGraw-Hill Ryerson Ltd.
Dlabay
Hughes
Ahmad
Prepared by Cyndi Hornby, Fanshawe College
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Learning Objectives - Chapter 8
1. Develop a risk management plan using
insurance.
2. Discuss the importance of property and liability
insurance.
3. Explain the insurance coverage and policy types
available to homeowners and tenants.
4. Analyze factors that influence the amount of
coverage and cost of home insurance.
5. Identify the important types of automobile
insurance coverage.
6. Evaluate factors that affect the cost of
automobile insurance.
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Learning Objective # 1
Develop a risk management
plan using insurance.
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Insurance and Risk Management
Insurance is protection against possible
financial loss.
An insurance company, or insurer, is a risksharing firm that assumes financial
responsibility for losses from an insured risk.
People purchase a policy and the firm assumes
a risk for a fee called the premium
which the insured policyholder pays
periodically.
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Types of Risk
Risk is change or uncertainty of loss.
Peril is the causes of a possible loss, such as
fire, windstorms, robbery, disease or death.
Hazard is something that increases the
likelihood of a loss, such as driving drunk,
smoking in bed, or defective house wiring.
Most common risks are classified as personal
risks (loss of income, premature death),
property risks (direct damage to assets), and
liability risks (loss due to injury or harm to
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others)
 2004 McGraw-Hill Ryerson Ltd.
Risk Management Methods
Risk management is a long range, organized,
planned strategy to protect your assets and
family
Can reduce financial loss and improve your
chances for economic, social, physical and
emotional well being
Pure Risk is insurable, accidental,
unintentional; nature of risk can be predicted
Speculative Risk is the chance of loss or
gain and is uninsurable, such as starting a
small business or gambling
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Risk
Avoidance
Risk
Shifting
Ways to
Manage
Risk
Risk
Reduction
Risk
Assumption
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Planning an Insurance Program
Set your insurance goals and prioritize them.
Develop a plan to reach your goals.
Put your plan into action.
Review your results.
To put your risk management plan
to work ask yourself…
What should be insured?
For how much?
What kind of insurance?
From whom?
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Learning Objective # 2
Discuss the importance of
property and liability
insurance.
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Potential Property Losses
Homes, automobiles and other personal
belonging represent a substantial
financial commitment
Risk of physical damage caused by
perils such as fire, wind, water or
smoke
Risk of loss of use of your property
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Liability Protection
Liability is legal responsibility for the financial
cost of another person’s losses or injury
Negligence is the failure to do what a
reasonable and prudent person would do in a
given situation
Vicarious liability is when you are held
responsible for the actions of another person.
Strict liability is present when a person is
held responsible for intentional or
unintentional actions
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Learning Objective # 3
Explain the insurance
coverage and policy types
available to homeowners and
tenants.
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Homeowner’s Insurance
Coverage
Homeowners insurance is coverage for a place of
residence and its associated financial risks.
Includes physical damage to property and the loss of
use of the property
Buildings and other structures
Additional living expenses.
Personal property.
• Personal property floater.
• Household inventory.
Endorsement for specialized coverages.
Personal liability.
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Homeowner’s Insurance Coverage
Replacement value of your home
limit of insurance purchased should reflect
the cost to rebuild your home, not its current
market value
appraisal, inspection by company
Homeowner’s Liability coverage
protects you and your family from financial
losses resulting from legal actions against you
due to damage to others and their property
includes the cost of legal defense
Voluntary Medical Payments
Voluntary Property Damage
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Umbrella Policy
Also called a
personal
catastrophe policy.
Supplements basic
personal liability
coverage.
$1,000,000 or more
in liability coverage.
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Tenant’s Insurance
Personal property loss or damage.
Personal liability.
Additional living
expenses.
Landlord’s insurance usually won’t
cover personal belongings.
Tenant’s Legal Liability covers loss
or damage to property in your care or
control caused by fire, smoke,
explosion or water damage.
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Home Insurance Policy Forms
Named Perils
only those perils specifically listed in the
policy are covered if a loss occurs
All Risk
any event that causes loss or damage is
covered unless it is specifically excluded
Different coverage types are combined in
package form
Extensions of coverage are available for
other losses
 2004 McGraw-Hill Ryerson Ltd.
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Learning Objective # 4
Analyze factors that influence
the amount of coverage and
cost of home insurance.
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Deductibles
Deductible is your share of any claim
Is a fixed amount indicated on your policy
The higher your deductible the lower
your premium since insurance company
is responsible for less of your loss
People are generally more careful if the
cost of being careless if higher
Fewer small claims means less
administrative costs for insurer
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How Much Coverage Do You Need?
Determine what it would it cost to replace or
rebuild your home and purchase an limit of
insurance equal to this amount
Have sufficient liability coverage.
Include protection for specific items such as
collections, cameras, and jewelry.
Determine the value of the contents of your
home.
Actual cash value - cost less depreciation.
Replacement cost - repair or replace with
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new item.
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Factors That Affect
Home Insurance Costs
Location of residence.
Type and age of the structure.
Amount of coverage and deductibles.
Discounts - alarm system, smoke detector,
if you insure your car with the same
company.
Company differences.
Compare costs and coverage
Customer satisfaction is important
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Learning Objective # 5
Identify the important types
of automobile insurance
coverage.
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Automobile Insurance Coverages
All provinces and territories require
mandatory automobile insurance
Covers risks associated with owing,
operating or using a vehicle
Liability to others for injury, death or
property damage
Injury, death to yourself or your
passengers
damage to your vehicle
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Automobile Insurance Coverage
Bodily Injury coverages
Third Party Liability covers the risk
of financial loss due to legal expenses,
medical expenses, lost wages and
other expenses associated with
injuries, as well as property damage,
caused by an accident for which you
were responsible.
Accident Benefits covers the cost
of health care for persons injured
in your automobile, including yourself.
 2004 McGraw-Hill Ryerson Ltd.
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Automobile Insurance Coverage
(
Uninsured Motorist Protection
Pays for the cost of injuries if your
vehicle is hit by an unidentified
(unknown) or uninsured person
Covers damage to your vehicle if the
other driver is identified but uninsured
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No-Fault Insurance
Fault is determined in every incident for the
purpose of premium calculation
Each driver collects from their own insurance
company.
Medical expenses, lost wages and related
injury costs
Damage to your vehicle to extent you were
not at fault
Intended to provide faster settlement of claims
and reduce costs
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Systems vary from province to province
 2004 McGraw-Hill Ryerson Ltd.
Collision Coverage
When your car is in an accident, collision
insurance pays for damage to your automobile
Amount collected is limited to the actual cash
value of the car at the time of the loss
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Comprehensive Physical Damage
Covers damage to your vehicle that is not
caused by a collision, such as...
Fire.
Theft.
Vandalism.
Glass breakage.
Hail, or wind storm.
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Learning Objective # 6
Evaluate factors that affect
the cost of automobile
insurance.
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Auto Insurance Premium Factors
Automobile type.
Cost to repair or replace, safety record
Use of Vehicle
Pleasure, business or farming
Rating territory.
Accident, theft, and vandalism rates in the
area where you live.
Driver classification.
Age, gender, marital status, driving record,
and driving habits.
Assigned risk pool for people who are
considered high risk drivers
 2004 McGraw-Hill Ryerson Ltd.
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Reducing Automobile Insurance
Premiums
Find out how much it will cost to insure a car
before you buy it.
Compare companies
Increase your deductibles.
Look for discounts.
Establish and maintain a good driving record.
Install security devices such as a car alarm.
If you have more than one vehicle insure them
both with the same company.
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