GITMAN/ JOEHNK/ BILLINGSLEY
PFIN
4
10
Protecting
Your
Property
Copyright ©2016 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 OUTCOMES
1
Discuss the importance and basic principles
of property insurance, including types of
exposure, indemnity, and co-insurance
2
Identify types of coverage provided by home
owner’s insurance
3
Select the right home owner’s insurance
policy for your needs
4
Analyze the coverage in a personal
automobile policy (PAP) and choose the
most cost-effective policy
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PFIN4 | CH10
2
LEARNING OUTCOMES (continued)
5
Describe the other types of property and
liability insurance
6
Choose a property and liability insurance
agent and company, and settle claims
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PFIN4 | CH10
3
Basic Principles of Property Insurance
• Property insurance
• Protects real and personal property from losses
caused by various perils
• Liability insurance
• Protects against financial consequences from the
insured’s responsibility for property loss
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PFIN4 | CH10
4
Types of Exposure
• Exposure to property loss
• Property insurance contracts define:
• Property covered
• Perils: Cause of loss
• Property inventory
• Identifying perils
• Liability
• Negligence: Failing to act in a reasonable
manner
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PFIN4 | CH10
5
Principle of Indemnity
• States that an insured may not be
compensated with an amount exceeding the
insured’s economic laws
• Actual cash value: Value assigned to an insured
property determined by subtracting the amount
of physical depreciation from its replacement
cost
• Right of Subrogation: Insurer’s right to request
reimbursement from person who caused the
loss or that person’s insurer
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PFIN4 | CH10
6
Principle of Indemnity
• Other insurance clause
• States that if a person has more than one
insurance policy on a property, each company is
liable for only a prorated amount of the loss
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PFIN4 | CH10
7
Exhibit 10.2 A Guide to Home Owner’s
Policies
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MKTG4 | CH10
8
Property and Liability Insurance Policies
Comprehensive policy
• Covers all perils unless they are specifically
excluded
Named peril policy
• Individually names the perils covered
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PFIN4 | CH10
9
Perils Covered
• Section I
• Perils against which the home and its contents
are insured
• Section II
• Includes a coverage called comprehensive
personal liability
• Offers protection against personal liability
resulting from negligence
• Provides limited amount of medical coverage
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PFIN4 | CH10
10
Factors Affecting Home Insurance Costs
Type of structure
Location of home
Credit score
Other factors
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PFIN4 | CH10
11
Property Covered
• Home owner’s policy offers property
protection under Section I for:
• Dwelling unit
• Accompanying structures
• Personal property of home owners and their
families
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PFIN4 | CH10
12
Personal Property Floater (PPF)
• Provides blanket or scheduled coverage of
expensive personal property not adequately
covered in a home owner’s policy
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PFIN4 | CH10
13
Renter’s Insurance
• Form HO-4
• Covers contents of a house but not the structure
itself
• Form HO-6
• Required by the owners of condominium units
• Includes a minimum of $1000 in protection for
any building alterations paid for by the policy
holder
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PFIN4 | CH10
14
Coverage
• Types of losses covered
• Direct loss of property
• Indirect loss occurring due to loss of damaged
property
• Additional expenses resulting from direct and
indirect losses
• Section I
• Damage of the house by an insured peril leads
to the insurer paying reasonable living expenses
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PFIN4 | CH10
15
Coverage
• Section II
• Home owner’s policy covers:
• Cost of defending the insured
• Reasonable expenses incurred by an insured in
helping the insurance company’s defense
• Payment of court costs
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PFIN4 | CH10
16
Coverage
• Persons covered
• Persons named in the policy and members of
their families residing in the house
• Guests of the insured with limited coverage
• Locations covered
• Extended worldwide when off premises
temporarily
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PFIN4 | CH10
17
Factors Influencing Insurance Payment
Amount for a Loss
• Replacement cost
• Amount necessary to repair, rebuild or replace
an asset at current prices
• Policy limits
• Deductibles
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PFIN4 | CH10
18
Personal Automobile Policy (PAP)
• Designed to be easily understood by the
typical insurance purchaser
• Liability coverage
• Bodily injury liability losses: Protects the
insured against claims made for bodily injury
• Property damage liability losses: Protects the
insured against claims made for damage to
property
• Medical payments coverage
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
19
Personal Automobile Policy (PAP)
• Uninsured motorists coverage: Serves the
victims of accidents injured by uninsured,
underinsured, or hit-and-run motorists
• Underinsured motorists coverage: Covers
damages in accidents involving liable
underinsured motorist
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
20
Personal Automobile Policy (PAP)
• Coverage for damage to the vehicle
• Collision insurance: Pays for collision damage
to an insured automobile
• Comprehensive automobile insurance:
Protects against loss to an insured automobile
caused by any peril other than collision
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
21
Factors Affecting Automobile Insurance
Premiums
•
•
•
•
•
Rating territory
Amount of use the automobile receives
Personal characteristics of the driver
Type of automobile
Insured’s driving record
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PFIN4 | CH10
22
Financial Responsibility Laws
• Require motorists to:
• Buy a specified minimum amount of
automobile liability insurance
• Provide other proof of comparable financial
responsibility
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PFIN4 | CH10
23
Other Property and Liability Insurance
• Supplemental property insurance coverage
• Earthquake insurance
• Flood insurance
• Other forms of transportation insurance
• Personal liability umbrella policy
• Provides excess liability coverage and
additional coverage for home owner’s and
automobile insurance
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PFIN4 | CH10
24
Property and Liability Insurance Agents
• Captive agent: Represents a single
insurance company and is its employee
• Independent agent: Places coverage with
any company with which he or she has an
agency relationship
• Selecting an agent involves questions to be
asked about the company’s:
• Financial soundness
• Claims-settlement practices
• Geographic range of operations
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PFIN4 | CH10
25
First Steps Following an Accident
Record contact details of all witnesses,
drivers, occupants, and injured parties
Record license numbers of the
automobile involved
Notify law enforcement officers and
insurance agent
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PFIN4 | CH10
26
Steps in Claim Settlement
Notice to insurance company
Investigation
Proof of loss
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PFIN4 | CH10
27
Claims Adjustment
• Insurance company will assign a claims
adjustor if the loss is complex
• Claims adjustor: Insurance specialist who
works for the insurance company or for an
adjustment bureau
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
28
KEY TERMS
•
•
•
•
•
•
•
•
•
•
Property insurance
Liability insurance
Peril
Negligence
Principle of indemnity
Actual cash value
Right of subrogation
Co-insurance
Comprehensive policy
Named peril policy
• Personal property
floater (PPF)
• Replacement cost
• Personal automobile
policy (PAP)
• Bodily injury liability
losses
• Property damage
liability losses
• Uninsured motorists
coverage
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
29
KEY TERMS
• Independent agent
• Underinsured
motorists coverage
• Claims adjustor
• Collision insurance
• Comprehensive
automobile insurance
• No-fault automobile
insurance
• Financial responsibility
laws
• Personal liability
umbrella policy
• Captive agent
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
30
SUMMARY
• Property insurance covers against losses of
real and personal property caused by
calamities
• Comprehensive policies cover all perils but
only individual perils are covered in named
peril policies
• Home owners can choose HO-1, HO- 2, HO-3,
HO-5, or HO-8 to suit their needs
• Types of automobile insurance
• Personal automobile policy, collision insurance,
and comprehensive automobile insurance
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
31
SUMMARY
• Other property and liability insurance
• Supplemental property insurance coverage
• Personal liability umbrella policy
• Steps to claim settlement
• Provide notice to the insurance company
• Investigation by company personnel
• Provide proof of loss
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly acce ssible website, in whole or in part.
PFIN4 | CH10
32