#10
Protecting Your
Property
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Goals
Discuss the importance of and basic principles of property
insurance, including exposure, indemnity, and co-insurance
Identify types of coverage provided by homeowner’s insurance
Select the right homeowner’s insurance for your needs
Analyze the coverage in a personal automobile policy and
choose the most cost-effective policy
Describe the other types of property and liability insurance
Choose a property and liability insurance agent and company,
and settle claims
© 2012 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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Types of Exposure
• Property loss
– Economic loss
due to property
that is damaged,
destroyed or
stolen
• Inventory property
• Identified potential
perils
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Types of Exposure
Liability - damage you cause others,
either through actions or negligence
Types of liability protection:
Homeowner’s policy
Automobile policy
Umbrella policy
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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”
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 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 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 either property,
either through your
actions or
negligence
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Personal Property Floater
Provides blanket or
scheduled coverage of
expensive personal
property not adequately
covered by standardized
homeowner’s policy
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Renter’s Insurance
Personal furnishings and
belongings are not covered
although the building may be
fully insured
Purchase a special
type of homeowners policy
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Calculating Replacement Cost
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Homeowner Premiums
Differ from company to company
Depend on structure type, property
location, or property hazards
Discounts offered:
non-smokers
security systems
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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 no-fault
benefits and restrictions for legal actions
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Factors Affecting Premiums
Rating territory
Use of automobile
Driver’s personal
characteristics
Type of automobile
Driving record
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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
© 2012 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 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
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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 number of
witnesses
– Contact police and
insurance agent
– Do NOT leave the
scene of the accident
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Steps in Claim Settlement
• Notice to
insurance
company
• Investigation
• Proof of loss
• Claims adjuster
will:
– Evaluate claim
– Recommend
• Settlement of
amount requested
• Settlement of a
lesser amount
• Denial of claim
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.