1. ©2015, College for Financial Planning, all rights reserved. Session 14 Homeowners Insurance CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Financial Planning Process & Insurance

2. Session Details Module9 Chapter(s)2, 3 & 4 LOs9-3 9-6 9-7 9-8 Compare the characteristics of various forms in the homeowners insurance series. Explain the characteristics of umbrella liability insurance. Explain the purpose of title insurance. Explain the characteristics and uses of inland marine coverage. 14-2

3. The Planner’s Role Learn your state laws Identify potential uncovered or under-covered risks Make appropriate referrals Monitor Your clients own a home with a barn in addition to a couple of sheds. They have horses, three dogs, a swimming pool, and a gun range on their 40 acre property. They own a couple of snowmobiles and an old fishing boat, which aren’t insured because these aren’t worth much. Your clients are active outdoors people and volunteer in the community for lots of events; they also sit on a board for their homeowner’s association. They own a tractor that they allow neighbors to borrow to mow their grass. What risks do they face that might not be covered by traditional policies? 14-3

4. Homeowners Insurance Forms: Perils Insured Against Basic Fire and lightning, windstorm and hail, explosion, riot and civil commotion, vehicles, aircraft, smoke, vandalism and malicious mischief, theft, volcanic eruption Broad Adds: falling objects; weight of ice, snow, or sleet; collapse of buildings; accidental discharge or overflow of water or steam; explosion of steam or hot water system; freezing of plumbing, etc.; damage from artificially generated electrical currents Open peril (all risks) Any peril not specifically excluded is covered Flood and earth movement excluded HO 00 15 rider When added to HO 00 03 form, provides open peril coverage for personal property This rider eliminates the earth movement exclusion from personal property that is located away from the premises and involved in earth movement 14-4

5. Homeowners Coverages: Sections I & II Section I Coverage A- Dwelling Coverage B- Other Structures Coverage C- Personal Property Coverage D- Loss of Use HO-2Broad 20% of A HO-3Open peril Broad20% of A HO-4 --- Broad20% of C HO-5Open peril 30% of A HO-6 Minimal Coverage Included in ABroad40% of C HO-8Basic 10% of A HO-15--- Open peril--- Section II Homeowners Coverage E - Comprehensive Liability Coverage F - Med pay & property damage to others, expenses, claims Look for limits on personal property and exclusions, such as snowmobiles. 14-5

6. Coinsurance for Property Coverage (coinsurance penalty) Coinsurance requirement* usually 80% of replacement cost. This is primarily a concern in the event of a partial loss. Coinsurance requirement* usually 80% of replacement cost. This is primarily a concern in the event of a partial loss. *Insurance required is generally 80% of current replacement cost, but can vary on a company-specific basis from 70% to 90%. 14-6

7. Replacement Cost or Actual Cash Value Replacement Cost Cost of replacement covered up to specified preset limits Usually coupled with an inflation guard endorsement Actual Cash Value (ACV) Essentially, replacement cost minus depreciation If given a choice, replacement cost is the better option 14-7

8. Personal Liability Coverage General (attached as part of HO) Personal liability o non-business o non-automobile Medical payments to others Additional Claim expense First aid expense Damage to property of others Loss assessment coverage 14-8

9. Comprehensive Personal Liability (CPL) & Umbrella Liability Coverages Broad coverage for nonbusiness, nonautomobile personal liability exposures Covers individual or family unit Liability from premises and personal activities Comprehensive Personal Liability Catastrophic coverage for potential high jury awards Takes over after base coverage from auto or homeowners policy is used up Must have underlying base coverage—e.g., homeowners and/or auto/boat/ etc. Relatively low rate for large coverage amount Umbrella Liability Policy States and companies vary in the coverage, so it’s critical to read! For example, uninsured motorists coverage, watercraft with small motors, snowmobiles, etc. may or may NOT be covered based on the state even with the same company! 14-9

10. Title Insurance Protects against defective title to land and improvements Defects discovered by title insurance company are listed and excluded—suits from undiscovered defects will be defended o Policy term indefinite— terminates when property is sold by insured o Attorney’s abstract (opinion) not a good substitute The Torrens System: an alternative to title insurance, only used in a few states 14-10

11. Inland Marine Insurance (Personal Property) Personal Property Floater Provides open perils-level coverage Broad coverage for: Articles that may be moved or are in transit o Examples: jewelry, furs, silverware, art o Purpose: to cover articles excluded or limited on homeowners policies Not used for installed property (e.g., wall-to-wall carpet) May be purchased as a separate policy or by endorsement on homeowners policy as Scheduled Endorsement o Also known as: Personal Articles Floater 14-11

12. Question 1 Which one of the following is not one of the eight general exclusions that apply to all standard ISO homeowners policies? a.vandalism b.earth movement c.war d.neglect 14-12

13. Question 2 Which HO policy form, or combination of forms, provides the highest level of building and personal property coverage? I. HO 00 02 II. HO 00 03 III. HO 00 15 IV. HO 00 05 a.I only b.III only c.II and IV only d.II, III, and IV only 14-13

14. Question 3 Teresa’s residence was insured four years ago for $430,000 with a replacement value policy. Today the market value is $450,000 and replacement costs are $470,000. If her home burned entirely down, what would she receive? a.$430,000 b.$450,000 c.$470,000 d.$376,000 14-14

15. Question 4 Comprehensive personal liability coverage (CPL) can be acquired in all of the following ways except as a.an individual CPL policy. b.part of a homeowners policy. c.an endorsement to a monoline dwelling form. d.an endorsement to a personal auto policy (PAP). 14-15

16. Question 5 Which one of the following is not generally excluded from coverage in Comprehensive Personal Liability (CPL) policies? a.the use of automobiles b.renting a room in a house to a single tenant c.liabilities incurred by physicians d.the use of boats (with some exceptions) 14-16

17. Question 6 Personal property floater (inland marine) policies are available for which of the following items? I.silverware II.musical instruments III.golfing equipment IV.installed carpeting a.I and II only b.II and III only c.I, II, and III only d.I, II, III, and IV 14-17

18. ©2015, College for Financial Planning, all rights reserved. Session 14 End of Slides CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAM Financial Planning Process & Insurance