Property and Liability Insurance Chapter 10 Property and Liability Insurance

Homeowner’s Insurance Policies Cover multiple perils (e.g., fire, theft, storms, faulty household systems or appliances, riot, volcanoes, vehicles, aircraft) Sold in six basic versions

Six Basic Packaged Homeowner's Policies HO-1: Basic form homeowner’s insurance HO-2: Broad form homeowner’s insurance HO-3: Special form homeowner’s insurance HO-4: Renter’s or tenant’s insurance HO-6: Condominium owner’s insurance HO-8: Modified coverage – older homes homeowner’s insurance

HO-1: Basic Form Homeowner’s Insurance Provides the most limited coverage Not available in most states

HO-2: Broad Form Homeowner’s Insurance Covers only named perils Costs about 5% to 10% more than HO-1 coverage

HO-3: Special Form Homeowner’s Insurance Covers all direct physical losses to your home – open perils protection Exceptions include floods, wars, earthquakes, and nuclear accidents Cost approximately 10% to 15% more than HO-1 coverage

HO-4: Renter’s or Tenant’s Insurance Coverage is equivalent to HO-2 perils for personal property Available only to renters and tenants Covers personal property rather than the dwelling Provides liability coverage in case an accident, causing damage to the structure, is your fault

HO-6: Condominium Owner’s Insurance Similar to HO-4 coverage, same perils for personal property as HO-2 Available to co-op and condo owners Also covers improvements you’ve made to the dwelling unit

HO-8: Older Homes Homeowner’s Insurance Similar to HO-1 insurance, or named perils Insures the dwelling for the repair cost or market value, instead of the replacement value Designed specifically for older homes

Policy Coverage Sections Section I: Property coverage Section II: Personal liability coverage

Section I: Property Coverage Coverage A: Dwelling Coverage B: Other structures Coverage C: Personal property Coverage D: Loss of use

Coverage A: Dwelling Protects the dwelling and any attachments Does not cover any damage to the land

Coverage B: Other Structures Protects other, unattached, dwellings on the property Covers landscaping as well as buildings, but not the land Limited to 10% of the home’s coverage Does not cover other structures used for business purposes

Coverage C: Personal Property Covers all personal property owned or used by the policyholder Covers personal property regardless of location Covers property of guests in your home

Coverage C: Personal Property Limits Limited to 50% of the home’s coverage $200 limit on cash, gold, and silver $1,000 limit on securities, tickets, and stamps $2,500 limit on silverware Animals, birds, and fish are excluded.

Coverage D: Loss of Use Covers losses incurred as a result of your home being uninhabitable Limited to 20% of the amount of coverage on the home Three benefits of coverage additional living expenses fair rental value prohibited use

Section II: Personal Liability Coverage Protects the policyholder in case someone is injured on their property Minimum level of coverage is $100,000 Medical payments to others covers small medical expenses up to $1,000 per person Does not cover business or professional liability or negligence

Supplemental Coverage (Endorsements) Personal article floaters Earthquake coverage Flood protection Inflation guard Personal property replacement cost coverage

Umbrella Policies Cover liability costs after the underlying homeowner’s or auto policies have been exhausted Up to $10 million Exclusions for business, aircraft, and watercraft activities.

Insurance Needs Co-insurance and the “80% rule” Coverage restrictions Assessing your unique insurance needs Keeping insurance costs down

Coinsurance and the “80% Rule” Dwelling must be insured to within 80% of the replacement cost Coinsurance requires you to pay for a portion of the loss if you don’t carry adequate insurance

If Not 80%, You Pay…. In the event of the loss, you will receive the greater of: Actual cash value of the portion of the home lost Insurance Coverage x Value of Loss 80% of Replacement Cost

Coverage Restrictions The amount paid by the insurance policy will not exceed the limit of your policy. You must rebuild on the same location. If you don’t rebuild the insurance company will only pay for the actual cash-value loss rather than the replacement value.

Consider Your Unique Insurance Needs Cover the full replacement value of your home in case of a complete loss. Protect yourself from inflation. Determine if other structures or landscaping on the property have adequate coverage. Purchase additional insurance if part of your home is used as an office.

Consider Your Unique Insurance Needs (cont’d) Purchase extra coverage for special situations like floods or earthquakes, if applicable. Cover the replacement value, not actual cash value, of your personal property. If renting, have adequate personal property coverage.

Consider Your Unique Insurance Needs (cont’d) Consider extra coverage, or a floater policy, for valuable property such as paintings, jewelry, or collections. If assets exceed liability coverage, purchase more.

Keeping Your Homeowner's Insurance Costs Down Three basic factors determine policy cost. Select a financially sound insurer with low comparative costs. Consider other potential discounts and savings method.

Three Basic Factors Determine Policy Cost Location Type of structure Level of coverage

Potential Discounts and Savings Methods High deductibles Security systems/smoke detectors Multiple policy discounts Pay premiums annually

Potential Discounts and Savings Methods (cont’d) Shop around Ask for any other discounts Consider a direct writer Double check your policy

Making Your Coverage Work Keep an inventory establishing proof of ownership (preferably on videotape). Videotape the exterior of the home to value landscaping or condition. Keep records concerning the value of your assets.

Recovering on a Liability or Property Loss Report your loss immediately Make temporary repairs to protect your property. Make a detailed list of everything lost or damaged. Use your inventory. Maintain records of the insurance settlement process. Confirm the adjuster’s estimate.

The Personal Automobile Policy (PAP) 30 million accidents in the U.S. annually, or about 1 accident for every 5 licensed drivers. When will it be your turn?

The Personal Automobile Policy (PAP) PAP Part A: Liability Coverage PAP Part B: Medical Expense Coverage PAP Part C: Uninsured Motorist’s Protection Coverage PAP Part D: Coverage for Damage to Your Car Standard exclusions No-fault insurance

PAP Part A: Liability Coverage Covers bodily injury losses Covers property damage losses Can be a combined single limit or a split-limit coverage Most states require a minimum coverage Covers losses due to a lawsuit Covers defense cost in civil trials in addition to your policy limits

Auto Liability Split-Coverage Insurance Limits 100/300/50 $100,000 of bodily injury liability coverage per person $300,000 of bodily injury liability coverage for each accident $50,000 of property damage liability coverage

Auto Liability Combined Single Limit Insurance $100,000 Total liability insurance – both bodily injury liability losses and property damage liability losses – in an accident, regardless of the number of people involved.

PAP Part B: Medical Expenses Coverage Covers all reasonable medical costs and funeral expenses incurred, by the insured or the insured’s family members within 3 years of an accident. Recommended coverage of $50,000. Does not cover medical expenses if injured by a vehicle not designed for public streets, but does provide coverage when walking.

PAP Part C: Uninsured Motorist’s Protection Provides coverage if injured by an uninsured motorist or a hit-and-run driver. The other driver must be at fault to collect on this coverage. Also covers costs in excess of the other driver’s liability coverage, if inadequate to pay for your losses.

PAP Part D: Comprehensive Physical Damage Coverage Covers Collision loss Other than collision, or comprehensive physical damage Collision covers regardless of fault. If the other driver was at fault and has liability you should be able to recover losses without collision coverage. Recommended limit is the vehicle’s cash-value; deductibles apply.

Personal Auto Insurance Coverage

Personal Auto Insurance Coverage (cont’d)

Standard Exclusions Intentional injury or damage Use without permission Vehicle has less than four wheels Someone else’s vehicle provided on a regular basis Own automobile, but not listed on your policy Carrying passengers for a fee Driving in a race or speed contest

No-Fault Insurance Only available in “no-fault” states. Your insurance pays for your losses and their insurance pays for their losses – no legal battles. Limits on claims, particularly medical, may not be adequate. You can still sue their insurance for “pain and suffering”.

Buying Automobile Insurance Determinants of the cost of automobile insurance Keeping your costs for automobile insurance down

Determinants of the Cost of Automobile Insurance Type of automobile Use of automobile Your personal characteristics Your driving record Where you live Discounts you qualify for

Keeping Your Costs for Automobile Insurance Down Shop comparatively Consider only high-quality insurers Use discounts Buy vehicles that are relatively inexpensive to insure Improve your driving record Raise your deductibles Keep adequate liability insurance

Filing a Claim Using Your Automobile Policy Get help for the injured Move vehicle or put up flares Get the names of any witnesses Cooperate with the police Insist all drivers take an alcohol test Record your recollection of the accident Don’t sign anything or admit guilt

Filing a Claim Using Your Automobile Policy (cont’d) Obtain a copy of the police report Call your insurance company as soon as possible Cooperate with your insurer Keep records of all accident expenses Meet with a lawyer if the accident was serious

Summary Six basic packaged homeowner's policies Two sections of the homeowner’s policy -- property and liability Add supplemental coverage to better meet your needs Cover the replacement value of your home and it’s contents

Summary (cont’d) Consider the “80% rule” and your unique insurance needs Consider strategies to reduce insurance costs Document what you own, otherwise how will you verify your loss? Know the steps to follow in the event of a loss

Summary (cont’d) The four parts of an auto insurance policy Know and avoid common exclusions Understand “no fault” coverage Understand the four major determinants of the cost of auto insurance and ways to reduce auto insurance costs Filing an auto claim