1. Property and Motor Vehicle Insurance
Chapter 10
Property and Motor Vehicle Insurance

2. Chapter 10 Learning Objectives
LO10-1 Develop a risk management plan using insurance. LO10-2 Discuss the importance of property and liability insurance. LO10-3 Explain the insurance coverage and policy types available to homeowners and renters. LO10-4 Analyze factors that influence the amount of coverage and the cost of home insurance. LO10-5 Identify the important types of automobile insurance coverage. LO10-6 Evaluate factors that affect the cost of auto insurance.
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3. Insurance and Risk Management: An Introduction
LO10-1:
Develop a risk management plan using insurance.
WHAT IS INSURANCE?
Insurance is protection against possible financial loss; it 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. The firm assumes the risk for a fee called the premium, which the insured policyholder pays periodically
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4. Types of Risk TYPES OF RISKS
Risk is uncertainty or lack of predictability, such as the loss that a person or property covered by insurance faces
Peril is the cause of a possible loss, such as fire, windstorms, explosions, robbery, accidents, and premature death
Hazard increases the likelihood of a loss, such as defective house wiring
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5. Types of Risk (continued)
Pure Risk
The most common risks are classified as personal risks, property risks, and liability risks
Insurable risk; chance of loss not gain
Accidental and unintentional risks
Nature and financial cost of the loss can be predicted
Speculative Risk
Chance of either loss or gain, such as starting a small business or gambling
Uninsurable risk
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6. Risk Management Methods
Risk management is an organized strategy for protecting assets and people
Risk Management Techniques
Risk Avoidance
Risk Reduction
Wear seat belt, install smoke alarms, eat a balanced diet and exercise
Risk Assumption
Self-insurance
Risk Shifting
Transfer risk to insurance company

7. Planning an Insurance Program
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8. Property and Liability Insurance
LO10-2:
Discuss the importance of property and liability insurance.
Major disasters have caused catastrophic amounts of property loss in the United States. In recent years, hurricanes, tornadoes, and floods in various areas have caused billions of dollars of damage
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9. Potential Property Losses
Houses, automobiles, furniture, clothing, and other personal belongings
Risk: Physical damage
Caused by hazards such as fire, wind, water and smoke
Destruction of property or temporary loss of use
Risk: Loss of use
Due to robbery, burglary, vandalism, or arson
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10. Liability Protection
Liability is legal responsibility for financial cost of another person’s losses or injuries
Negligence
Failure to take ordinary or reasonable care, such as failure to supervise children in a pool
Strict Liability
A person is held responsible for intentional or unintentional actions
Vicarious Liability
When a person is held responsible for the actions of another person
Parent held responsible for child causing physical harm to another
Employer held responsible for an employee causing damage
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11. Home and Property Insurance
LO10-3:
Explain the insurance coverage and policy types available to homeowners and renters.
HOMEOWNER’S INSURANCE COVERAGES
House and Other Structures
Damage to or destruction of your house and garage, tool shed, gazebo, trees, shrubs, and plants
Additional living expenses
Personal property at home or while traveling
Personal property floater — high value items
Household inventory with documentation
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12. Personal Liability and Related Coverage
Medical payments coverage for minor accidental injuries on your property and minor injuries caused by you, family members, or pets
Most homeowner’s policies provide Basic Personal Liability coverage of $100,000 or more
Umbrella policy, also called a personal catastrophe policy, supplements basic personal liability coverage
$1,000,000 or more in liability coverage
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13. Personal Liability and Related Coverage (continued)
Specialized coverage
Homeowner’s insurance usually does not cover losses from floods and earthquakes
National Flood Insurance Program makes flood insurance available
Earthquake insurance can be obtained as an endorsement, addition of coverage to the homeowner’s policy
Anti-Concurrent Causation Clause
Gives insurer the right to reject your claim if your home is damaged by several factors at the same time, such as wind and rain, because they are unable to determine which factor came first and caused the damage
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14. Renter’s Insurance
Protection against financial loss due to damage or loss of personal property
Additional living expenses
Personal liability and related coverage
A building owner’s insurance usually won’t cover renter’s personal property
Only 4 out of 10 renters have insurance
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15. Home Insurance Policy Forms
Special form (HO-3), All-risk
Tenant’s form (HO-4)
Comprehensive form (HO-5)
Condominium form (HO-6)
Country Home form (HO-7)
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16. Home Insurance Cost Factors
LO10-4:
Analyze factors that influence the amount of coverage and the cost of home insurance.
Look for a policy with full coverage rather than a coinsurance clause, where you have to pay for part of a loss
Claim Settlement Method
Actual cash value
Payment you receive is based on the current replacement cost of the damaged or lost item less depreciation
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17. Claim Settlement Method
Replacement value
You receive the full cost to repair or replace the damaged or lost item; depreciation is not considered
May limit replacement cost to 400% of actual cash value of item
Costs 10-20% more than Actual Cash Value coverage
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18. How Much Coverage Do You Need?
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19. Factors FACTORS THAT AFFECT HOME INSURANCE COSTS Location Of Home
Type Of Structure
Brick house cost less to insure than wood house
Coverage Amount And Policy Type
Deductible affects cost of your insurance; Increase deductible to lower premium; common deductibles are $500 or $1,000
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20. Reducing Home Insurance Costs
Home Insurance Discounts
Alarm system, smoke detector, fire extinguisher, nonsmokers, if you insure your car with the same company
Company Differences
Compare costs, coverage, and service
Consider how claims are settled
Check customer satisfaction index at Consumer Reports
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21. Automobile Insurance Coverages
LO10-5:
Identify the important types of automobile insurance coverage.
Financial responsibility law
State legislation: Nearly all states have compulsory automobile insurance laws
Requires drivers to prove their ability to cover the cost of damage or injury caused by them in an automobile accident
Automobile insurance coverage falls into two categories: bodily injury coverage and property damage coverage
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22. Automobile Liability Insurance Coverage
Property Damage
Liability
Bodily Injury Liability
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23. Motor Vehicle Bodily Injury Coverages
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 automobile accident for which you were responsible
Medical Payments Coverage
Covers the cost of health care for persons injured in your automobile, including yourself; also covers if you are injured while riding in another person’s automobile or a pedestrian
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24. Motor Vehicle Bodily Injury Coverages (continued)
Uninsured Motorist Protection
Covers the cost of injuries to you and your family if your vehicle is hit by a person without insurance. However, it does not cover property damage
No-Fault Insurance
System is intended to provide fast, smooth methods of paying for damages without taking the legal action frequently necessary to determine fault; drivers collect from their own insurance companies
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25. Motor Vehicle Property Damage Coverages
Property Damage Liability
Covers damage to other person’s car when you are at fault. It also includes damage to such things as street signs and buildings
Collision
When your car is in an accident, collision coverage pays for damage to your automobile regardless of who is at fault
If you are not at fault, your insurer will try and collect from the other driver’s property damage liability first — called subrogation
Coverage is limited to the actual cash value of your vehicle from an appraisal service
(National Automobile Dealers Association)
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26. Motor Vehicle Property Damage Coverages (continued)
Comprehensive Physical Damage
Covers damage to your vehicle that is not caused by a collision, such as...
Fire, theft, or vandalism
Glass breakage
Wind, hail, flood, tornado, etc.
Falling objects or hitting an animal
Some things in your car, like some radios and stereo equipment, are not covered
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27. Deductible Example: Deductible
If a broken windshield costs $250 to replace and you have a $100 deductible on your comprehensive coverage, the insurance company will pay $150 of the damages.

28. Other Automobile Insurance Coverages
Wage Loss Insurance
Reimburse you for any salary or income lost due to injury in an automobile accident
Towing and Emergency Road Service
Pays for the cost of breakdowns and mechanical assistance
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29. Automobile Insurance Costs
LO10-6:
Evaluate factors that affect the cost of automobile insurance.
AMOUNT OF COVERAGE
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
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30. Amount of Coverage Property Values Cost of vehicles has gone up
$50,000-$100,000 is usually suggested for property damage liability
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31. Automobile Insurance Premium Factors
Automobile Type
Year, make, model, and theft rate
Rating Territory
Different costs due to number of claims made in the geographic 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
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32. Reducing Automobile Insurance Premiums
Comparing Companies
Rates may be compared online at NetQuote
Premium Discounts
Establish and maintain a safe driving record
Avoid accidents and traffic violations
Install security devices such as a car alarm
Increase deductibles
Non-smoker
Insuring two or more vehicles with the same company
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