8-3 Home and Automobile Insurance Chapter Objectives 1. Identify types of risks, risk management method, and develop a risk management plan. 2. Assess the insurance coverage and policy types available to homeowners and renters 3. Analyze the factors that influence the amount of coverage and cost of home insurance 4. Identify the important types of automobile insurance coverage. 5. Evaluate factors that affect the cost of automobile insurance
8-4 Objective 1: Identify types of risks, risk management methods, and develop a risk management plan Insurance and Risk Management Insurance is protection against possible financial loss, and gives you peace of mind. An insurance company, or insurer, is a risk-sharing 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.
8-5 Types of Risk Risk is uncertainty or lack of predictability, such as to loss that a person or property, covered by insurance, faces. Peril is the cause of a possible loss, such as fire, windstorm, 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. Risk management is a long range, organized, planned strategy to protect your assets and family.
8-6 Coverage and Type of Risk Pure Risk. –Personal risks, property risks, and liability risks are types of pure risk. –Insurable. –Accidental, unintentional. –Nature and financial loss of the risk can be predicted. Speculative Risk. –Chance of loss or gain. –Such as starting a small business or gambling. –Uninsurable.
8-8 Planning an Insurance Program To put your risk management plan to work ask yourself… –What should be insured? –For how much? –What kind of insurance? –From whom? Set your insurance goals and prioritize them. Develop a plan to reach your goals. Put your plan into action. Review your results.
8-9 Property and Liability Insurance In recent years there have been major losses from things such as Hurricane Hugo in 1989 caused $4.2 billion in damages. In the Midwest in 1993, floods caused more than $2 billion worth of damage. Potential property losses and loss of use. –Home, automobiles, furniture, clothing, and personal belongings.
8-10 Property and Liability Insurance Losses to an individual can come from liability losses, if you are found responsible for injury to someones person or property. Liability due to negligence. –Failure to take ordinary and reasonable care. Such as failure to remove items from a frequently used staircase. Vicarious Liability. –When you are held responsible for the actions of another person, such as your child throwing a ball through a neighbors window. continued
8-11 Homeowners Insurance Coverages Homeowners insurance is coverage for a place of residence and its associated financial risks. –Damage to or destruction of your house and other structures, plus trees, shrubs and plants, –Additional living expenses. –Personal property in or away from home. –Personal property floater - high value items. –Household inventory with documentation.
8-12 Homeowners Insurance Coverages Personal Liability and Related Coverage Medical Payment Coverage –coverage payments for minor injuries caused by you, your family members, or pets, occurring on your property or away from home. Personal liability. –Umbrella policy - also called a personal catastrophe policy. –Supplements basic personal liability coverage. –$1,000,000 or more in liability coverage. (continued)
8-13 Homeowners Insurance Coverages Specialized Coverage –Endorsements add coverage for things such as earthquake damage, or damage from floods (continued)
8-14 Renters Insurance Personal property loss or damage. Additional living expenses. Personal liability. A building owners insurance usually wont cover renters personal property. Many renters do not have insurance to cover a loss.
8-15 Home Insurance Policy Forms Basic form (HO-1) Broad form (HO-2) Special form (HO-3) Tenants form (HO-4) Comprehensive form (HO-5) Condominium owner (HO-6) In addition to the above, other items are covered such as credit card fraud, check forgery, temporary repairs and fire department charges in areas with such fees.
8-16 Objective 3: Analyze the factors that influence the amount of coverage and cost of home insurance Home Insurance Cost Factors Two-thirds of homes in the United States are either not insured or are underinsured. Billions of dollars of damage occur each year from fire, theft, wind and other risks. Determine the amount of coverage you need by considering… –Replacement value of your home. –Value of your homes contents. –Protection for specific items like jewelry. –Liability coverage you need.
8-17 Policy Provisions Look for a policy with full coverage rather than a coinsurance clause, where you have to pay for part of a loss. Which type of claim settlement method is used? – Actual cash value - cost less depreciation. – Replacement cost - full cost to repair or replace the damaged or lost item, without considering depreciation of the item. Costs 10- 20% more than actual cash value coverage.
8-18 Factors That Affect Home Insurance Costs Location of residence. Type and age of the structure. Coverage Amount and Policy type Home Insurance Discounts - alarm system, smoke detector, if you insure your car with the same company. Company differences. –Compare costs and coverages at sites such as www.independentagent.com –Customer satisfaction index information is available at www.trustedchoice.com
8-19 Objective 4: Identify the important types of automobile insurance coverage Automobile Insurance Coverages Financial responsibility law. –State legislation. Forty-five states have compulsory automobile liability insurance laws. –see Exhibit 8-7 to see the minimum limits for financial responsibility (liability) in your state. Requires drivers to prove their ability to cover the cost of damage or injury caused by them in an automobile accident.
8-20 Motor Vehicle Bodily Injury Coverage Bodily injury Liability –Bodily injury liability covers the risk of financial loss due to legal expenses, medical expenses, lost wages and other expenses associated with injuries caused by an accident for which you were responsible. Medical Payment Coverage –Medical payments covers the cost of health care for persons injured in your automobile, including yourself.
8-21 Motor Vehicle Bodily Injury Coverage Uninsured Motorists Protection –Protection against the risk of getting into an accident with someone who has no insurance Underinsured Motorists Coverage –Pays costs if your car is hit by a person who doesnt have enough insurance to cover the damage they did to you and your car. (continued)
8-22 Motor Vehicle Property Damage Coverage Property damage liability covers damage to others persons car when you are at fault. It also includes damage to such things as street signs and buildings. –For example, during a snow storm you might accidentally slide your vehicle into a neighbors mailbox. This coverage would pay for repair or replacement of the mailbox.
8-23 Collision Coverage When your car is in an accident, collision coverage pays for damage to your automobile, regardless of who is at fault. However, if you are not at fault, your insurer will try and collect from the other drivers property damage liability first. Coverage is limited to the retail value of your vehicle.
8-24 Comprehensive Physical Damage Covers damage to your vehicle that is not caused by a collision, such as... –Fire, theft or vandalism. –Glass breakage. –Hail, sand, or wind storm. –Falling objects or hitting an animal. –It also covers things like damage to your vehicle if your car rolls downhill into a light pole. –Some things in your car, like some radios and stereo equipment are not covered.
8-25 No-Fault Insurance Each driver collects from their own insurance company for medical expenses, lost wages, and related injury costs. Thirty states have some variation of the system. Intended to provide fast and smooth methods of paying for damages without taking the legal action frequently necessary to determine fault. Time and cost is not always reduced since problems arise because systems vary among states.
8-26 Objective 5: Evaluate factors that affect the cost of automobile insurance Automobile Insurance Costs Legal concerns include having enough coverage if you were sued. –$100,000/$300,000 is recommended for bodily injury liability,with an additional $1,000,000 or more umbrella liability policy recommended. Property values of vehicles have gone up. –$50,000-$100,000 is usually suggested for property damage liability.
8-27 Motor Vehicle Insurance Premium Factors Vehicle type. –Year, make, model, and theft rate. Rating territory. –Accident, auto theft, and vandalism rates in the area where you live. Driver classification. –Age, sex, marital status, credit history, driving record, and driving habits. Assigned risk pool for people who are unable to obtain insurance.
8-28 Reducing Automobile Insurance Premiums Find out how much it will cost to insure a car before you buy it. Compare companies – www.insuremarket.com.. Premium discounts. –Establish and maintain a good driving record. –Non-smoker. –Install security devices such as a car alarm. –If you have more than one vehicle, insure them both with the same company. Have larger deductibles