Home and Automobile Insurance Chapter 14

How Insurance Works Insurance – risk-management tool that limits financial loss due to illness, injury, or damage in exchange for a premium Premium – regular payment required to purchase insurance Policy – insurance contract Claim – formal request made to an insurance company for payment for a loss

Risk Management Shared risk – insurance principle of using premiums from many policyholders to reimburse the losses of few, so that no one suffers a financially devastating loss Insurable interest – something of value that, if lost, would cause you financial harm (YOUR’s) Appraisal – an expert’s determination of the value of a piece of property Rider (or Endorsement)– addition to an insurance policy covers a specific loss not covered in the standard policy

Types of Insurance Property Insurance – insurance that protects you from financial loss when something you own is stolen, damaged, or destroyed Liability Insurance – insurance that protects you from losses that you cause to others Personal Insurance – insurance that protects you, your spouse, and your children against financial loss due to illness, disability, or death

Homeowner’s Insurance Home Insurance Needs Property coverage Personal property – property that can be moved, such as furniture, appliances, clothing, and jewelry Real property – structures such as the physical house (dwelling) or garage (other structures) Liability coverage – financial protection against losses caused to others

Basic Forms of Homeowner’s Insurance Broad form Comprehensive Form Special form * Most common* Renter’s form (HO-4) Condominium form (HO-6) Renter’s Insurance – provides about the same property and liability coverage as a homeowner’s policy except the structure itself Video

Additional considerations.. Amount of Coverage Replacement Cost versus Cash Value 80 percent rule – you must buy coverage for at least 80% of your home’s actual replacement cost at the time of your loss Determined through an appraisal Additional Coverages – not included Flood Insurance (Non-Endorsement) National Flood Insurance Program - FEMA Earthquake Insurance

Family Liability Coverage Personal Liability Coverage Lawsuits Physical Damage Coverage Medical Payments Coverage You, your family, and guests Umbrella Policy Provides additional liability protection beyond that included in an automobile or homeowner’s policy

Home Inventory Detailed list (form) of personal belongings and their value Written, photographs, or video

Home Insurance Rates Deductibles Local firefighting capability $250, $500, $1,000, 1% Local firefighting capability Construction materials Preventive measures Home security systems (example: ADT)

RENTING - terms Lessor (or Landlord) – an owner of a rental property Lessee (or Tenant) – person who rents property Lease – a legal contract for renting a home (apartment) that specifies the rights and responsibilities of the tenant and landlord

RENTING - terms cont. Security Deposit – a sum of money that the landlord holds until the tenant moves out, to potentially cover the cost of any damages caused by the tenant Sublet (or Sublease) – to have another tenant take over a rental unit and pay the rent Evict – to legally force a tenant to vacate a rental unit before the lease has expired

Renting vs. Owning – Venn Diagram Renting a Home Owning a Home - Control - Financial Advantages - Conveniences - Changes / Improvements to home - Equity - Tax Advantages - Sense of Security - Limited Responsibility - Predictable Costs - Greater Flexibility - Less Maintenance - No unplanned expenses - Location - Cost (Mortgage or Rent) - Needs - Appeal

Auto Insurance

Reasons for Auto Insurance Losses from Auto Accidents 623 car accidents occur in U.S. every 10 minutes $104 Billion Each Year Each Year 1 in 50 cars is stolen Financial Responsibility Laws laws which require the owner of a car to show proof of insurance

This was a Porsche 911

Types of Coverage – included in “Full Coverage” Bodily Injury Liability Insurance that applies when your car injures or kills pedestrians, persons riding in other cars, or passengers in your car Property Damage Liability Insurance that applies when your car damages the property of others 100/300/100 (in thousands of $’s) Mandatory Insurance Info. – Sec. of State

Types of Coverage – included in “Full Coverage” (continued) Medical Payments Insurance that pays hospital and treatment costs for the policyholder for injuries that are suffered in an accident Personal Injury Protection Covers additional medical expenses for the policyholder and other passengers in the policyholder’s vehicle In some states it includes: lost wages, rehab, and home nursing

Types of Coverage – included in “Full Coverage” (continued) Uninsured / Underinsured Motorist - (Bodily Injury) Insurance that protects you and your family against uninsured and hit-and-run drivers Uninsured / Underinsured Motorist - (Property Damage) *Not included in Full Coverage* Insurance that protects your property against uninsured and hit-and-run drivers

Types of Coverage – included in “Full Coverage” (continued) Collision Pays for the repair or replacement of your car after an accident that is your fault Comprehensive Physical Damage Protects your car-and your car only- against fire, theft, glass breakage, flood, falling objects, missiles, explosions, earthquake, windstorm, hail, water, vandalism or malicious mischief, riot, and collision with a bird or animal

Deductible The amount you pay for a loss before your insurance company pays anything for a claim Typically paid on claims for YOUR OWN losses Collision, Comprehensive Example: Collision Claim, $500 deductible Total damage to your car: $1,500 You pay $500, Insurance pays $1,000

Other Types of Coverage – not part of “Full Coverage” Emergency Road Service Towing and Labor Motorcycle Insurance Assigned-Risk (Pool) – a group of drivers within a state who are unable to obtain auto insurance on their own State Auto Insurance Plans 25 to 50 Percent above standard rates

Auto Insurance Rates Factors Affecting All Drivers 6. Policy Limits 1. Place of residence 2. Driving record 3. Vehicle Use 4. Value of Vehicle Depreciation – the loss of value over time 5. Mileage 6. Policy Limits 7. Other Drivers 8. Amount of Deductible 9. Good-Student Discount 10. Multiple-Car Discount 11. Other Antitheft devices Nonsmokers Loyalty discount

Filing a Claim Exchange information with others involved in an accident – through police report or on your own Name, Phone Number, Insurance information Call the appropriate insurance company – Claims Representative / Claims Adjustor Seek appropriate medical care – documentation of injuries Choose your own repair facility for damages Get legal help if necessary

Pop Quiz 100/300/100 Which liability coverage do the first two numbers (100/300) represent? Which liability coverage does the third number (/100) represent? What is the most amount of money that this coverage will pay out per person injured in an accident? Under what specific circumstance would a claim need to be filed under either of these coverages by a policyholder?