1. PART 3: PROTECTING YOURSELF WITH INSURANCE Chapter 10 Property and Liability Insurance

2. 10-2 Protecting Your Home The first type of homeowner’s insurance, fire insurance, was offered in 1735. The first type of homeowner’s insurance, fire insurance, was offered in 1735. The first modern homeowner’s policy was sold in 1958. The first modern homeowner’s policy was sold in 1958. Until then, separate policies were needed for every peril. Until then, separate policies were needed for every peril.

3. 10-3 Packaged Policies: HO’s 6 basic homeowner’s policies: 6 basic homeowner’s policies: HO-1: Basic form homeowner’s insurance – very narrow coverage, not available in most states. HO-1: Basic form homeowner’s insurance – very narrow coverage, not available in most states. HO-2: Broad form homeowner’s insurance – covers a set of perils such as fire, lightning, etc. HO-2: Broad form homeowner’s insurance – covers a set of perils such as fire, lightning, etc. HO-3: Special form homeowner’s insurance – most comprehensive because it covers all direct physical losses to your home (except those specifically excluded). HO-3: Special form homeowner’s insurance – most comprehensive because it covers all direct physical losses to your home (except those specifically excluded).

4. 10-4 Packaged Policies: HO’s HO-4: Renter’s or tenant’s insurance - same as the HO-2 but aimed at renters. HO-4: Renter’s or tenant’s insurance - same as the HO-2 but aimed at renters. HO-6: Condominium owner’s insurance – covers the personal property of a co-op or condo owner. HO-6: Condominium owner’s insurance – covers the personal property of a co-op or condo owner. HO-8: Modified coverage – older homes homeowner’s insurance – insures older homes for the repair costs or actual cash value rather than replacement cost. HO-8: Modified coverage – older homes homeowner’s insurance – insures older homes for the repair costs or actual cash value rather than replacement cost.

5. 10-5 Section I: Property Coverage 4 basic coverages in Section I of all HO policies (except HO-4): 4 basic coverages in Section I of all HO policies (except HO-4): Coverage A: Dwelling – protects house and attachments, such as attached garage. Coverage A: Dwelling – protects house and attachments, such as attached garage. Coverage B: Other structures – protects unattached structures, such as detached garage or landscaping. Coverage B: Other structures – protects unattached structures, such as detached garage or landscaping. Coverage C: Personal property – protects personal property used by policyholder regardless of location. Coverage C: Personal property – protects personal property used by policyholder regardless of location. Coverage D: Loss of use – provides benefits if your house can’t be used due to an insured loss. Coverage D: Loss of use – provides benefits if your house can’t be used due to an insured loss.

6. 10-6 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 policyholder and family from financial loss if someone is injured on their property or as a result of their actions. Covers the medical expenses of anyone injured by the policyholder, their family, or by their animal. Covers the medical expenses of anyone injured by the policyholder, their family, or by their animal. Like a small medical insurance policy, covering up to $1000 for medical expenses to non-family members who are injured in your home. Like a small medical insurance policy, covering up to $1000 for medical expenses to non-family members who are injured in your home.

7. 10-7 Supplemental Coverage Coverage C of Section I provides protection for your personal property. Coverage C of Section I provides protection for your personal property. Additional coverage can be added through an endorsement. Additional coverage can be added through an endorsement. Written attachment to an insurance policy to add or delete coverage. Written attachment to an insurance policy to add or delete coverage.

8. 10-8 Supplemental Coverage Personal Articles Floaters – extended coverage for all personal property regardless of location (doesn’t cover children away at school). Personal Articles Floaters – extended coverage for all personal property regardless of location (doesn’t cover children away at school). Earthquake Coverage – specifically excluded from coverage in standardized HO policies, supplemental earthquake insurance is an important addition in high risk areas. Earthquake Coverage – specifically excluded from coverage in standardized HO policies, supplemental earthquake insurance is an important addition in high risk areas. Required to be offered as an add-on in CA. Required to be offered as an add-on in CA. Flood Protection – includes coverage from flood and water damage from hurricanes, mudslides, and unusual erosion. Flood Protection – includes coverage from flood and water damage from hurricanes, mudslides, and unusual erosion.

9. 10-9 Supplemental Coverage Inflation Guard – updates coverage based on an index of replacement costs that continually updates the cost of the home. Inflation Guard – updates coverage based on an index of replacement costs that continually updates the cost of the home. Personal Property Replacement Cost Coverage – set up to pay actual cash value of the loss (replacement cost less estimated depreciation). Personal Property Replacement Cost Coverage – set up to pay actual cash value of the loss (replacement cost less estimated depreciation). Optional replacement cost coverage. Optional replacement cost coverage. Added Liability Insurance – raise above $100,000. Added Liability Insurance – raise above $100,000. Personal umbrella policy protects against lawsuits and judgments up to $10 million; is broad in coverage. Personal umbrella policy protects against lawsuits and judgments up to $10 million; is broad in coverage.

10. 10-10 Coinsurance and the “80-Percent Rule” Coinsurance provision requires you pay a portion of your losses if you don’t have adequate insurance. Coinsurance provision requires you pay a portion of your losses if you don’t have adequate insurance. Companies use the 80% rule, requiring you carry 80% of the home’s replacement cost. Companies use the 80% rule, requiring you carry 80% of the home’s replacement cost. This relates to losses on the dwelling only, not on personal property. This relates to losses on the dwelling only, not on personal property.

11. 10-11 The Bottom Line How much homeowner’s insurance do you need? How much homeowner’s insurance do you need? Cover the replacement of your home if complete loss Cover the replacement of your home if complete loss Protection against inflation eroding coverage Protection against inflation eroding coverage Special disaster coverage in flood or earthquake areas Special disaster coverage in flood or earthquake areas Home office coverage Home office coverage Adequate personal property coverage Adequate personal property coverage Possessions needing special coverage (coins, jewelry) Possessions needing special coverage (coins, jewelry) Additional liability coverage if assets are greater than liability limits Additional liability coverage if assets are greater than liability limits

12. 10-12 Keeping Your Costs Down – Insurance Credit Scoring There appears to be a link between your credit score and your insurance loss ratio. There appears to be a link between your credit score and your insurance loss ratio. Insurance loss ratio measures claim frequency and cost for homeowner’s and auto insurance. Insurance loss ratio measures claim frequency and cost for homeowner’s and auto insurance. The lower your insurance credit score, the higher your homeowner’s rate will be. The lower your insurance credit score, the higher your homeowner’s rate will be. To manage your insurance score, improve your credit score. To manage your insurance score, improve your credit score.

13. 10-13 Keeping Your Costs Down – Insurance Credit Scoring Using your credit score when setting insurance rates is legal. Using your credit score when setting insurance rates is legal. The Fair Credit Reporting Act allows insurance companies to obtain credit reports and use them to set insurance rates. The Fair Credit Reporting Act allows insurance companies to obtain credit reports and use them to set insurance rates. Fair Isaac provides information on how it calculates your insurance credit score. Fair Isaac provides information on how it calculates your insurance credit score.

14. 10-14 Keeping Your Costs Down – Discounts and Savings 3 factors determine the cost of your homeowner’s policy: 3 factors determine the cost of your homeowner’s policy: Location of your home Location of your home Type of structure Type of structure Level of coverage and policy type Level of coverage and policy type Keep costs down by selecting a financially sound insurer with low comparative rates. Keep costs down by selecting a financially sound insurer with low comparative rates.

15. 10-15 Keeping Your Costs Down – Discounts and Savings High deductible discounts – pay less for larger deductibles. High deductible discounts – pay less for larger deductibles. Security system/smoke detector discounts – save 2-5%. Security system/smoke detector discounts – save 2-5%. Multiple policy discounts – discount for more than one policy with insurer. Multiple policy discounts – discount for more than one policy with insurer. Pay your insurance premiums annually. Pay your insurance premiums annually.

16. 10-16 Keeping Your Costs Down – Discounts and Savings Other discounts – fire-resistant homes, age over 55, long-time policyholder. Other discounts – fire-resistant homes, age over 55, long-time policyholder. Consider a direct writer – no agents, so no salaries or commissions. Consider a direct writer – no agents, so no salaries or commissions. Shop around – premiums vary by 25%. Shop around – premiums vary by 25%. Double-check your policy – don’t want errors once you file a claim. Double-check your policy – don’t want errors once you file a claim.

17. 10-17 What To Do in the Case of a Loss Checklist 10.2 Report your loss immediately. Report your loss immediately. Make temporary repairs to protect your property. Make temporary repairs to protect your property. Make a detailed list of everything lost or damaged. Make a detailed list of everything lost or damaged. Videotape your property. Videotape your property. Maintain records of the insurance settlement process. Maintain records of the insurance settlement process. Confirm the adjuster’s estimate. Confirm the adjuster’s estimate.

18. 10-18 Personal Automobile Policy Personal automobile policy (PAP) contains liability and property damage coverage: Personal automobile policy (PAP) contains liability and property damage coverage: Part A: Liability Coverage Part A: Liability Coverage Part B: Medical Expense Coverage Part B: Medical Expense Coverage Part C: Uninsured Motorist’s Protection Coverage Part C: Uninsured Motorist’s Protection Coverage Part D: Damage to Your Automobile Coverage Part D: Damage to Your Automobile Coverage

19. 10-19 Personal Automobile Policy Part A: Liability coverage – protection if you’re legally liable for bodily injury and property damage caused by your vehicle. Part A: Liability coverage – protection if you’re legally liable for bodily injury and property damage caused by your vehicle. Combined single limit – applies to both bodily injury and property damage liability. Combined single limit – applies to both bodily injury and property damage liability. Split-limit coverage – separate coverage for bodily injury and property damage. Split-limit coverage – separate coverage for bodily injury and property damage.

20. 10-20 Personal Automobile Policy Part B: Medical expense coverage – pays medical bills and funeral expenses within 3 years by those injured in an accident involving your vehicle. Part B: Medical expense coverage – pays medical bills and funeral expenses within 3 years by those injured in an accident involving your vehicle. Policy limits range from $1000 - $10,000 per person, with no limit on the number of individuals covered in an accident. Policy limits range from $1000 - $10,000 per person, with no limit on the number of individuals covered in an accident.

21. 10-21 Personal Automobile Policy Part C: Uninsured motorist’s protection coverage – protects you against an uninsured driver, a negligent driver with insolvent insurance, or a hit-and-run driver. Part C: Uninsured motorist’s protection coverage – protects you against an uninsured driver, a negligent driver with insolvent insurance, or a hit-and-run driver. It is important to have uninsured motorist driver’s protection because 15% of all drivers don’t have any insurance. It is important to have uninsured motorist driver’s protection because 15% of all drivers don’t have any insurance.

22. 10-22 Personal Automobile Policy Part D: Damage to your automobile coverage including both collision loss and comprehensive coverage. Part D: Damage to your automobile coverage including both collision loss and comprehensive coverage. The collision loss portion provides benefits to cover damages resulting from an accident with another vehicle or object. The collision loss portion provides benefits to cover damages resulting from an accident with another vehicle or object. Comprehensive physical damage coverage covers damage from fire, theft, larceny, etc. Comprehensive physical damage coverage covers damage from fire, theft, larceny, etc.

23. 10-23 Exclusions The PAP provides broad coverage, but there are exceptions. You’re not covered if: The PAP provides broad coverage, but there are exceptions. You’re not covered if: There is intentional injury or damage. There is intentional injury or damage. You’re using a vehicle without owner’s consent. You’re using a vehicle without owner’s consent. You’re driving another’s car on a regular basis. You’re driving another’s car on a regular basis. You own the car but it is uninsured. You own the car but it is uninsured. You are carrying fee-paying passengers. You are carrying fee-paying passengers. You are driving in a speed contest or race. You are driving in a speed contest or race.

24. 10-24 No-Fault Insurance Based on the idea that your insurance company should pay for your losses, regardless of who is at fault. Based on the idea that your insurance company should pay for your losses, regardless of who is at fault. Over half the states have no-fault insurance. Over half the states have no-fault insurance. Imposes limits on medical expenses and other claims. Imposes limits on medical expenses and other claims.

25. 10-25 Determinants of the Cost of Automobile Insurance Type of automobile: the sportier car, the higher the insurance cost. Type of automobile: the sportier car, the higher the insurance cost. Use of automobile: the less you use your car, the lower the cost of insurance. Use of automobile: the less you use your car, the lower the cost of insurance. Driver’s personal characteristics: unmarried males pay the highest rates - age, sex, and marital status affect rates. Driver’s personal characteristics: unmarried males pay the highest rates - age, sex, and marital status affect rates.

26. 10-26 Determinants of the Cost of Automobile Insurance Driver’s driving record: if you have received tickets or had accidents, you’ll pay a higher price. Driver’s driving record: if you have received tickets or had accidents, you’ll pay a higher price. Where you live: urban areas with more accidents and theft will have higher insurance costs. Where you live: urban areas with more accidents and theft will have higher insurance costs.

27. 10-27 Determinants of the Cost of Automobile Insurance Discounts that you qualify for: cars with safety features and drivers that have been identified as safe drivers will receive discounts. Discounts that you qualify for: cars with safety features and drivers that have been identified as safe drivers will receive discounts. Insurance credit score: if you have a lower credit score, you’ll pay a higher rate. Insurance credit score: if you have a lower credit score, you’ll pay a higher rate.

28. 10-28 Keeping Your Costs Down Shop comparatively Shop comparatively Consider only high quality insurers Consider only high quality insurers Take advantage of discounts Take advantage of discounts Buy a car that is relatively inexpensive to insure Buy a car that is relatively inexpensive to insure Improve your driving record Improve your driving record Raise your deductible Raise your deductible Keep adequate liability insurance Keep adequate liability insurance

29. 10-29 Filing a Claim Your “to-do” list if involved in a car accident: Your “to-do” list if involved in a car accident: Get help for the injured. Get help for the injured. Move car to a safe place. Move car to a safe place. Get identification of witnesses. Get identification of witnesses. Cooperate with police. Cooperate with police.

30. 10-30 Filing a Claim Write down recollection. Write down recollection. Don’t sign anything or admit guilt. Don’t sign anything or admit guilt. Get a copy of the police report and make sure it is accurate. Get a copy of the police report and make sure it is accurate. Call your insurance agent as soon as possible. Call your insurance agent as soon as possible. Cooperate with your insurer. Cooperate with your insurer. Record all expenditures associated with the accident. Record all expenditures associated with the accident. If in a serious accident, then meet with a lawyer to know your rights. If in a serious accident, then meet with a lawyer to know your rights.