1. Chapter 12 Property and Liability Insurance The Concept of Liability Liability is the financial responsibility one person has to another in a situation. It usually results from some type of negligence

2. Chapter 12 Property and Liability Insurance Reasonable Care –An important aspect of liability –Defined as the action any responsible person would take in a similar situation

3. Chapter 12 Property and Liability Insurance Strict Liability A person is held responsible for actions even if they are not directly at fault –A dog owner may be responsible for actions of his dog regardless of whether or not the dog is normally kept on a leash

4. Chapter 12 Property and Liability Insurance Vicarious Liability Extends the responsibility for avoiding negligence to the actions of other people –Example: parents may be held liable for damage done by their child

5. Chapter 12 Property and Liability Insurance Two Major Forms of Liability Insurance 1. Liability portions of homeowners and automobile insurance 2. Umbrella liability coverage

6. Chapter 12 Property and Liability Insurance What Does a Homeowners Policy Cover? 1. Damage to the house Pays to provide protection against peril (something that can damage or destroy your home) Example: fire Based on the replacement cost of the house, not on purchase price

7. Chapter 12 Property and Liability Insurance What Does a Homeowners Policy Cover? –Usually covers other structures standing on your property such as a detached garage, storage shed, and even the mailbox. Coverage for up to 10% of the amount of coverage on your home

8. Chapter 12 Property and Liability Insurance What Does a Homeowners Policy Cover? 3. Damage to trees and shrubs –Plants, trees, lawn and other greenery which surround the insured house may be covered up to a certain percentage of the coverage on the house

9. Chapter 12 Property and Liability Insurance What Does a Homeowners Policy Cover? 4. Personal property losses –Loss of personal property from theft or damage usually covered for about 50% of the coverage on the house

10. Chapter 12 Property and Liability Insurance What Does a Homeowners Policy Cover? 5. Additional living expenses Often the house becomes unlivable as a result of damages Policy pays up to 20% of the coverage of the house for temporary quarters while house is being repaired

11. Chapter 12 Property and Liability Insurance What Does a Homeowners Policy Cover? 6. Liability –Protects against financial disaster if a guest is injured in the home –Most policies offer at least $50,000 with more available at an added cost

12. Chapter 12 Property and Liability Insurance What Does a Homeowners Policy Cover? 7. No-fault medical payments and damages –Offers protection if someone has an accident that has nothing to do with the homeowners personal negligence Example: a visitor trips over a tree trunk –Will cover bills up to $1,000

13. Chapter 12 Property and Liability Insurance How Much Coverage Should You Have? – Homeowners policies require that your insurance be equal to at least 80% of the replacement value of the house – Otherwise, you may receive less than full reimbursement for losses – You actually become a co-insurer for rest of the amount

14. Chapter 12 Property and Liability Insurance Replacement Cost vs. Actual Cash Value Recommended that you buy full replacement cost coverage Pays the entire cost to repair or replace the structure regardless of original cost

15. Chapter 12 Property and Liability Insurance Replacement Cost Example: If a garage door which cost $800 ten years ago needs to be replaced, the policy will reimburse the owner what it currently costs to purchase a garage door, not $800.

16. Chapter 12 Property and Liability Insurance Actual Cash Value –Only pays amount equal only to replacement cost minus depreciation Example: If a garage door which cost you $1,500 and typically lasts 10 years needs to be replaced in year five, you will only receive only $750 to replace it

17. Chapter 12 Property and Liability Insurance The Deductible The insured pays for a specified amount of damage before coverage begins –Standard deductible is $250 –One way of holding down insurance costs is to opt for a higher deductible

18. Chapter 12 Property and Liability Insurance Supplements to Homeowners Policies 1. Endorsements Amendments to standard policy to customize policy to your needs Inflation-protection endorsement -- automatically raises insurance protection to reflect increasing costs Replacement-cost endorsement -- provides replacement cost coverage for personal property, NOT actual cash value

19. Chapter 12 Property and Liability Insurance Supplements to Homeowners Policies 2. Floaters Designed to protect specific valuable property against almost all risks Provides coverage beyond low maximum set by standard personal property coverage Property is scheduled Value set by appraisal or bill of sale

20. Chapter 12 Property and Liability Insurance Automobile Insurance Americans pay five times more in auto- insurance premiums each year than they do in homeowners insurance premiums Single largest form of property and liability insurance

21. Chapter 12 Property and Liability Insurance Types of Coverage 1. Bodily injury and property damage liability 2. Medical payment coverage 3. Uninsured/underinsured motorist coverage 4. Collision coverage 5. Comprehensive physical damage coverage

22. Chapter 12 Property and Liability Insurance Bodily Injury and Property Damage Liability –Covers the insured if car kills or injures a pedestrian someone in the insured’s car someone in another car

23. Chapter 12 Property and Liability Insurance Bodily Injury and Property Damage Liability Coverage quotations in following format: 50/100/10

24. Chapter 12 Property and Liability Insurance 50/100/10 –First number refers to the maximum amount in thousands of dollars that the company will pay for death or injuries to ONE PERSON IN AN ACCIDENT: The company will pay up to $50,000 per person based on the above quote

25. Chapter 12 Property and Liability Insurance 50/100/10 –The second number is the maximum amount of coverage in thousands of dollars for death or injuries TO TWO OR MORE PEOPLE: The company will pay up to $100,000 total for all the death or injuries resulting from a single accident

26. Chapter 12 Property and Liability Insurance 50/100/10 –The third number is the limit in thousands of dollars FOR PROPERTY DAMAGE The company will pay no more than $10,000 for property damage based on this quote

27. Chapter 12 Property and Liability Insurance Medical Payment Insurance –You are covered for auto accident-related medical expenses for yourself, your family, and any passengers in the car –All family members are covered while riding in someone else’s car –All family members are covered if struck while walking

28. Chapter 12 Property and Liability Insurance Uninsured/Underinsured Motorist Insurance  Covers injuries to insured and family caused by uninsured motorist and hit-and-run drivers Also covers you and your family in someone else’s car or as pedestrians

29. Chapter 12 Property and Liability Insurance Collision Insurance If YOU ARE AT FAULT in an accident, collision insurance will –Pay to repair your car –Total your car if the damage is too extensive to repair Collision insurance is NOT REQUIRED –A good idea if your car is new or a few years old, but not if car is older

30. Chapter 12 Property and Liability Insurance Comprehensive Physical Damage Insurance Protects against financial loss if car is stolen –Protects against loss is car is damaged by something other than another automobile, for example: earthquake or windstorm break-in or vandalism fire or explosion

31. Chapter 12 Property and Liability Insurance No-Fault Insurance  Reduces the need to assign blame  Each driver files claims with own insurance company  Nearly half of states have some form of no- fault insurance

32. Chapter 12 Property and Liability Insurance Factors Determining Premium Costs  Amount and type of coverage  Place of residence  Personal characteristics  Automobile usage  Driving record  Type of car driven  Eligibility for certain premiums

33. Chapter 12 Property and Liability Insurance Personal Characteristics –Age The older the driver, the lower the percentage of accidents –Sex Women generally have fewer accidents than men –Marital status Young, married people have fewer accidents than young, single people

34. Chapter 12 Property and Liability Insurance Driving Record –Safer driver (with no accidents in recent years) given better rates –People with poor driving records may have to buy insurance through assigned risk pools 6Coverage is limited 6Premiums are higher than normal

35. Chapter 12 Property and Liability Insurance Steps in Filing Claims Call the police; get a copy of the report Try to protect your car from further damage Make detailed notes about accident Notify insurance company promptly Keep accurate records of related expenses Keep all paperwork related to claim or the accident