1. Lesson 21FIN 403 Property, Home and Auto Insurance Smokers pay much higher premiums for: HOME insurance LIFE insurance AUTO insurance Principle Insure Large Losses and pay for small expenses yourself

2. Lesson 21FIN 403 Property, Home and Auto Insurance Submit Weekly Assignment before class begins. New Assignment Bring your automobile insurance policy to class. Pair off with another student and compare your policies. Discuss the similarities and differences of your policies.

3. Home Insurance Canadian Humour

4. Types of Risk  Risk is the uncertainty or lack of predictability which we protect ourselves from. Examples include the loss of our ability to maintain our lifestyle in the event of property damage to a home or a car.  Peril is the cause of a possible loss, such as fire, windstorm, robbery, disease, or death.  Hazard increases the likelihood of a loss, such as driving drunk, or defective house wiring.  Risk management is the organized, planned strategy to protect your assets and family.

5. Coverage and Type of Risk  Pure Risk are…  Personal risks, property risks, and liability risks.  Insurable with a chance of a loss, not a gain.  Accidental, unintentional.  The nature and financial loss of the risk can be predicted.  Speculative Risk are...  A chance of loss or gain, such as starting a business.  Uninsurable.

6. Coverage and Type of Risk (continued)  Comprehensive Home Insurance  The home (structure)  Contents (personal items)  Third Party Liability (injury to others)  Other Common Insurances include  Fire insurance  Tenant’s insurance (when you rent vs. when you own)

7. Planning an Insurance Program for your Home and Car To put your risk management plan to work ask yourself…  What should be insured?  For how much?  What kind of insurance?  From whom? Review  Set your insurance goals and prioritize them.  Develop a plan to reach your goals.  Put plan into action.  Review results.

8. Property and Liability Insurance  In recent years we have heard more about major losses from things such as forest fires, floods, tornadoes, earthquakes and hurricanes.  Major losses have the potential to cause physical damage and loss of use to...  Home, automobiles, furniture, clothing, personal belongings and human capital.

9. Property and Liability Insurance  Liability is your legal responsibility for the cost of another person’s losses or injuries.  Liability due to negligence.  Failure to take ordinary, reasonable care. Examples include failure to supervise children in a pool or clean the ice from the sidewalk in front of your home.  Examples from my ten years managing social housing stock in Canada…  Vicarious Liability.  When you are held responsible for the actions of another person, such as your child kicking a football through a neighbor’s window.

10. Homeowner’s Insurance Coverages  Homeowners insurance is coverage for a place of residence and the associated financial risks.  Damage to or destruction of your house and other structures, plus trees, shrubs and plants.  Fire caused by lightening  Falling objects  Riots  Windstorms, hail (damaged / dented cars – broken windows)  Explosion  Vandalism  Theft and break-in  Glass breakage, window breakage  Freezing pipes (turn off outside water sources before winter)

11. Homeowner’s Insurance Coverages (Continued)  Water, flood  Weight of ice, snow, sleet on the roof of your home  Collapse of building (farm example – outbuilding)  Smoke damage from neighbouring fire or your own fire place  Aircraft or other vehicles (example of run away trailer)  Additional living expenses while your home is repaired  Personal property in or away from home  Personal property Rider / Floater for high value items  Household inventory with documentation is recommended  Endorsements add coverage for things such as earthquake damage, or damage from floods

12. Homeowner’s Insurance Coverages can include…  Medical coverage payments to people who receive minor injuries caused by your negligence (members of your family or pets) occurring on your property or away from home.  Slip or trip and fall, dog bites.  Personal liability.  Umbrella policy - also called a personal catastrophe policy will supplement basic personal liability coverage.  $1,000,000 or more in liability coverage is recommended.

13. Contents Insurance How do you determine the dollar amount of insurance for your contents? 1. Estimate the value based on a percentage, usually 20% of the structure 2. Create an itemized list and assign a value to everything on the list (Video or still pictures is one method)  The depreciated value of an item is the value of replacement or repair for the item to the condition it was in when lost or damaged. Standard insurance policies pay the depreciated value.  Replacement value of a damaged or lost item is the cost of buying a new item of the same quality.

14. Replacement Cost Policy  The lost of destroyed items must be replaced with new ones of comparable quality. If the insured chooses not to replace the item, the claim will be settled at the depreciated value only.  In the case of damaged items, repairs must be made to return the items back to the best possible condition.  Garage Example – upgraded windows expense were paid out of my own pocket.

15. Replacement (continued)  In the example of your home, replacement cost is the structure only. If the property / land requires some clean up, that will be paid. Fair market value is a value that includes a) The land b) The value / worth to another person  Replacement cost is the cost to rebuild and restore to its original condition.

16. Be aware that some insurance companies will set the value of your home insurance to the amount of the outstanding mortgage. Question. How does this help you, the home owner? Answer. It does not help you Question. Who does it help? Answer. Nobody. It does protect the mortgagee but does not help you to become a customer again!

17. Contents / Renter’s Insurance  Renters need insurance too.  Many renters do not have insurance.  Contents insurance may cover the insured for the loss of personal property.  Additional living expenses.  Personal liability.  A building owner (Landlord) is not responsible to reimburse you for the loss of your possessions.

18. Home Insurance Policy Forms  Other items that can be covered by home insurance include:  Credit card fraud  Cheque forgery  Temporary repairs  Fire department charges in areas with such fees.

19. Home Insurance Cost Factors  Two-thirds of homes in the United States are either not insured or are underinsured.  Billions of dollars of damage occur each year from fire, theft, wind and other risks.  Determine the amount of coverage you need by considering…  Replacement value of your home.  Value of your home’s contents.  Protection for specific items like jewelry.  Liability coverage you need.

20. Policy Provisions Inflation protection automatically increases the coverge amount each year in accordance with the increase in some inflation index such as the Consumer Price Index (CPI). If you live in an area of the country where housing costs are expected to rise faster than the average rate of inflation, then even the inflation protection provision may not provide adequate coverage. Note: the cost of labour and materials to restore your home to its original condition will be affected by the supply and demand. BE PROACTIVE AND REVIEW YOUR POLICIES ANNUALLY!

21. Deductible Deductible is the amount of money that the insured person is required to pay towards the claim (reduced from the payable amount), before the insurance company releases the payout. The higher the deductible, the lower the premium. Question. Why does a higher deductible result in a lower premium? Answer. If there is a higher deductible, a person will usually try much harder to avoid or reduce the risk.

22. Question. What can you do to convince an insurance company to offer you a reduced premium and lower rates? Answer.  Quit smoking  Install smoke detectors  fire extinguishers in kitchen and garage  Certified installations for all appliances  Security system  Perform visual and safety check of electrical and gas appliances annually

23. Factors That Affect Home Insurance Costs  Location of residence.  Type and age of the structure.  Amount of coverage, policy type, and deductibles.  Discounts - alarm system, smoke detector, if you insure your car with the same company.  Company differences.  Compare costs and coverages at sites such as TD Meloche Monnex and Belair Direct. http://www.melochemonnex.com/en/home;jsessionid=A1D8DF067C3A6E886EFA7B451290D58E Or https://www.belairdirect.com/regionselect.html

24. Auto Insurance

25. Automobile Insurance Coverages  Financial responsibility law.  Provincial legislation has made auto insurance mandatory.  The risks include,  Injury and/or death of the owner and passenger  Damage, destruction or theft of the car  Potential liability to others  Liability to others is an insupportable risk to most people. It could instantly wipe out your wealth and your future if you were the cause of a severe injury or death to another person in an accident.

26. A life for a life…  If you do cause serious harm or death through careless driving, you might be found liable for a very large amount even a sum equal to the expected lifetime earnings of the person injured. If your net worth is large enough that you don’t want to lose it, it is advisable to purchase a lot more than the minimum liability insurance (which includes bodily injury liability). The common amount in Canada is 1 million dollars.

27. Bodily injury  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 accident for which you were responsible.  Medical payments cover the cost of health care for persons injured in your automobile, including yourself.

28. Collision Coverage Collision Coverage pays for damage to your car from an accident in which you are at fault (you caused it). Collision coverage pays depreciated value for the car. If the car is only worth $2,000 but the repairs are estimated at $5,000, the insurance company will “write it off” and pay you $2,000.

29. Comprehensive Coverage  Comprehensive coverage pays for the damage to your car resulting from “non-accidents”, including…  Theft  Vandalism  Fire  Only depreciated value is paid, so it is important to adjust your coverage as the vehicle gets older.

30.  Medical Payment Coverage  If you to blame (at fault) for the accident, the cost of medical care for you and your passengers will be very expensive.  Uninsured Motorists Coverage  This will pay for all costs caused by a hit and run driver that gets away.

31. No-fault Insurance  No-fault Insurance  Allows you to collect insurance payments from your own insurance company even if the accident is someone else’s fault. The idea is that if fault did not have to be proved in accidents, legal costs would be saved and car insurance premiums would be lowered. Some provinces require that the insured person give up their right to sue, thereby reducing legal fees even more and lowering insurance premiums further.

32. Rental Car Insurance  You face the same risks when you rent a car as you do when you own your own car.  You will be required to take the mandatory insurance, but you should consider the extra coverages discussed earlier.  Some credit cards provide additional coverages at no additional expense.

33. Comprehensive Physical Damage  Covers damage to your vehicle that is not caused by a collision, such as...  Fire, theft or vandalism.  Glass breakage.  Hail, sand, or wind storm.  Falling objects or hitting an animal.  Some things in your car, like some radios and stereo equipment are not covered.

34. Auto Insurance Premium Factors  Automobile type.  Year, make, model, and theft rate.  Rating territory.  Accident, auto theft, and vandalism rates in the 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.

35. Reducing Automobile Insurance Premiums  Find out how much it will cost to insure a car before you buy it.  Get competitive quotes from several companies.  Consider having larger deductibles.  Look for discounts.  Establish and maintain a good driving record.  Hands Free (Non-smoker, cell phone)  Install security devices such as a car alarm.  If you have more than one vehicle, insure them both with the same company and include your home and recreational vehicles and life insurance to get a multiple policy discount.

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