1. Property and Liability Insurance Professor Payne, Finance 4100
Chapter 10
Property and Liability Insurance
Professor Payne, Finance 4100

2. Learning Objectives
Understand, buy, and maintain homeowner’s insurance in a cost-effective way.
Recover on a liability or a loss to your property.
Buy the automobile insurance policy that’s right for you.
File a claim on your automobile insurance.

3. Introduction Need to prepare for unlikely, unlucky events.
Property insurance allows individuals to pool the financial risks associated with property losses—a fire, burglary, or auto accident—to eliminate catastrophic losses.
Deciding how much and exactly what kind of insurance to buy is a challenge.

4. Protecting Your Home
The first type of homeowner’s insurance, fire insurance.
The first modern homeowner’s policy was sold in 1958.
Before, separate policies were needed for every peril.
Peril—an event or happening, whether natural or man-made, that causes a financial loss.

5. Packaged Policies: HO’s
HO’s—Home Owners
Cover more than the home, also liability insurance and renters
HO-1, HO-2, HO-3—basic policies for homeowners
HO-4—renter’s insurance
HO-6—condominium owners
HO-8—older homes

6. Packaged Policies: HO’s
Names perils—a type of insurance that covers a specific set of perils. Perils not named are not covered.
Open perils—a type of insurance that covers all perils except those specifically noted as excluded.
Section I—Property Insurance
Section II—Personal liability insurance

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

10. Section II: Personal Liability Coverage
Protects policyholder and family from financial loss if someone is injured on their property or as a result of their actions
Protects against liability suits
Also covers medical expenses of anyone hurt by policyholder, their family, or pet

11. Supplemental Coverage
Endorsement—written attachment to an insurance policy to add or delete coverage
Personal articles floaters
Earthquake coverage
Flood protection

12. Supplemental Coverage
Inflation Guard
Personal Property Replacement Cost Coverage
Added Liability Insurance—personal umbrella policy

13. Your Insurance Needs How much insurance do you need?
Need for inflation guard coverage and need for replacement cost coverage on possessions
Need enough insurance for full replacement in the event of a total loss

14. Coinsurance and the “80-Percent Rule”
Coinsurance provision—requirement of homeowner’s insurance that the insured pay a portion of the claim if he or she purchased an inadequate amount of insurance (less than 80% of replacement cost).
80-percent rule—homeowner’s insurance rule that the replacement cost coverage is in effect only if the home is insured for at least 80% of its replacement cost.

15. The Bottom Line How much homeowner’s insurance do you need?
Needs some thought and foresight
Assets and possessions are always changing and so are your insurance needs
Revisit your insurance needs from time to time

17. Keeping Your Costs Down – Insurance Credit Scoring
Insurance credit score—based on the same information as your traditional credit score, used in determining what your home and auto insurance rates will be.
The lower your insurance credit score, the higher your rates will be.
Manage your insurance credit score to keep your costs of insurance down.

19. Keeping Your Costs Down – Discounts and Savings
Location of your home
Type of structure
Level of coverage and policy type
Keep costs down by selecting a financially sound insurer with low comparative rates

20. Keeping Your Costs Down – Discounts and Savings
High deductible discounts
Security system/smoke detector discounts
Multiple policy discounts
Pay your insurance premiums annually
Other discounts
Consider a direct writer
Shop around
Double-check your policy

23. Making Your Coverage Work
Establish proof of ownership and value assets in detailed inventory or videotape.
Insurance companies have inventory worksheets.
Include date of purchase, cost, model, brand, and serial number for each item.
Follow basic steps to collect on a loss.

25. Automobile Insurance
Personal Automobile Policy (PAP)—standardized policy for an individual or family
Part A: Liability Coverage
Part B: Medical Expenses Coverage
Part C: Uninsured Motorist’s Protection Coverage
Part D: Damage to Your Automobile Coverage

27. Personal Automobile Policy (PAP)
PAP Part A: Liability Coverage
Combined single limit
Split-limit coverage
PAP Part B: Medical Expenses Coverage
PAP Part C: Uninsured Motorist’s Protection Coverage
PAP Part D: Damage to Your Automobile Coverage
Collision loss
Other than collision loss or comprehensive physical damage coverage

29. Personal Automobile Policy (PAP)
Standard exclusions—not covered:
intentional injury or damage
using a vehicle without owner’s consent
using vehicle with fewer than four wheels
using another person’s vehicle regularly
using own vehicle but not listed on policy
carrying passengers for a fee
driving in a race or speed contest

31. No-Fault Insurance
Type of auto insurance in which your insurance company protects you in the case of an accident regardless of who is at fault.
Over half the states have no-fault system.
Imposes limits on medical expenses and other claims which may not be enough to cover all medical expenses.

32. Determinants of the Cost of Automobile Insurance
Type of automobile
Use of automobile
Driver’s personal characteristics
Driver’s driving record
Where you live
Discounts that you qualify for
Insurance credit score

35. Keeping Your Costs Down
Shop comparatively
Consider only high quality insurers
Take advantage of discounts
Buy a car that is relatively inexpensive to insure
Improve your driving record
Raise your deductibles
Keep adequate liability insurance

36. Filing a Claim Get help for the injured. Move car to a safe place.
Get identification of witnesses.
Cooperate with police.
Take a test for alcohol if you believe the other driver is under the influence.
Write down your recollection of accident.

37. Filing a Claim Don’t sign anything or admit guilt.
Get a copy of the police report and make sure it is accurate.
Call your insurance agent as soon as possible.
Cooperate with your insurer.
Keep records of all expenditures associated with the accident.
If a serious accident, then meet with a lawyer to know your rights.

38. Summary
There are six standardized HO’s with different types and level of insurance for homeowners and renters
HO’s have property insurance (Section I) and liability coverage (Section II)
Have enough homeowner’s insurance for full replacement in complete loss

39. Summary
Have an detailed asset inventory to provide effective protection
With an automobile insurance policy, there’s protection against bodily injury and against property damage all divided up in four parts
Age, sex, driving record, and the insurance credit score affect the cost of automobile insurance as do deductibles and discounts

40. End of Chapter 10 Slides