1. Copyright © 2008 Pearson Education Canada 4-1 Chapter 4 General Insurance

2. Copyright © 2008 Pearson Education Canada 4-2 Risks of Ownership Property damage or loss Liability for damages

3. Copyright © 2008 Pearson Education Canada 4-3 Property Damage/loss Owners of Home, automobile, snowmobile Damage or loss due to Fire, theft, vandalism

4. Copyright © 2008 Pearson Education Canada 4-4 Liability for Damages Personal risk liability Negligence Carelessness Ownership Automobile Building Dog Renters/lessors

5. Copyright © 2008 Pearson Education Canada 4-5 The Insurance Principle Pooling/sharing risk Large number of people Pay regular fee Protection against a hazard

6. Copyright © 2008 Pearson Education Canada 4-6 Cost of Insurance Two components 1. Pure cost of insurance 2. Loading charges

7. Copyright © 2008 Pearson Education Canada 4-7 1.Pure Cost of Insurance Probability of an event occurring Predicted by actuaries Cost of compensation Value of property Number sharing risk Lower cost for larger number

8. Copyright © 2008 Pearson Education Canada 4-8 Probability of Event Occurring Fire, for example Proximity of hazards Flammability of property Proximity of fire-fighting facilities

9. Copyright © 2008 Pearson Education Canada 4-9 2.Loading Charges Cover insurance company’s costs Collecting/managing insurance funds Settling claims Dividends to shareholders Variable from company to company

10. Copyright © 2008 Pearson Education Canada 4-10 Risk Management Insurable interest Insurable risk Handling risk

11. Copyright © 2008 Pearson Education Canada 4-11 Insurable Interest Buyer must suffer financial loss If the insured event occurs Prerequisite to buying insurance Applies to all types of insurance

12. Copyright © 2008 Pearson Education Canada 4-12 Insurable Risk Loss must result from chance events E.G. Accidental death Not caused by deliberate action E.G. Death by suicide

13. Copyright © 2008 Pearson Education Canada 4-13 Handling Risk Eliminate risk Reduce risk Handle risk yourself Share risk E.G. Buy insurance

14. Copyright © 2008 Pearson Education Canada 4-14 Insurance Policy Insurance contract Declaration sheet Insuring agreement Conditions Endorsements/riders Cancellations

15. Copyright © 2008 Pearson Education Canada 4-15 Insurance Contract Legal contract between Insured person Insurance company Mutual of Omaha Insurance Company

16. Copyright © 2008 Pearson Education Canada 4-16 Declaration Sheet Completed when insurance is bought Includes such information as Names Dates Premium Coverage

17. Copyright © 2008 Pearson Education Canada 4-17 Insuring Agreement Pre-printed part of the policy showing Kinds of property covered Perils insured against Exclusions How settlements are made Actual cash value Replacement value

18. Copyright © 2008 Pearson Education Canada 4-18 Policy Conditions Responsibilities of Insurer Insured Termination of policy

19. Copyright © 2008 Pearson Education Canada 4-19 Endorsements Riders Changes Ownership Risk situation Coverage addition/deletion

20. Copyright © 2008 Pearson Education Canada 4-20 Cancellation of Policy Cancel at any time Pay more than prorated premium

21. Copyright © 2008 Pearson Education Canada 4-21 Claims Process Adjusters Actual cash value insurance Replacement value insurance Insurer’s liability Subrogation procedure

22. Copyright © 2008 Pearson Education Canada 4-22 Adjusters Appraisal specialists May be insurance company employees May be independent Estimate the extent of damages Report to claims department

23. Copyright © 2008 Pearson Education Canada 4-23 Actual Cash Value Insurance Follows the indemnification principle Return to previous financial condition Replacement value (usually) Minus accumulated depreciation Standard depreciation tables Betterments charged to insured person When repairs improve property Salvage value belongs to insurance company

24. Copyright © 2008 Pearson Education Canada 4-24 Replacement Value Insurance Doesn’t follow indemnification principle Insured may be better off Replace with new Depreciation not considered Higher premium Very popular

25. Copyright © 2008 Pearson Education Canada 4-25 Insurance Company’s Liability Can’t exceed Policy limits Actual cash value of loss Cost of repairs Minus the deductible

26. Copyright © 2008 Pearson Education Canada 4-26 Subrogation Procedure Insurer indemnifies claimant for loss Insurer attempts to recover damages From person responsible for loss

27. Copyright © 2008 Pearson Education Canada 4-27 Property Insurance

28. Copyright © 2008 Pearson Education Canada 4-28 Risks Accidental Fire, smoke, water Wind, falling objects Criminal actions Vandalism Theft

29. Copyright © 2008 Pearson Education Canada 4-29 Coverage Named-peril All-risk Scheduled property rider

30. Copyright © 2008 Pearson Education Canada 4-30 Named-peril Coverage Protection from specific perils Listed in contract Typical for household contents

31. Copyright © 2008 Pearson Education Canada 4-31 All-risk Coverage More comprehensive coverage Covers all risks Except those specifically excluded Age, rust Typical for house insurance

32. Copyright © 2008 Pearson Education Canada 4-32 Scheduled Property Rider Valued Contract Endorsement All-risk insurance for certain possessions Jewelry, coin collections, antiques Lists items covered Lists value of items Appraisal Maximum liability Value when insured Optional automatic inflation adjustment

33. Copyright © 2008 Pearson Education Canada 4-33 Co-insurance Clause An inducement to purchase adequate insurance If underinsured Any settlement pro-rated

34. Copyright © 2008 Pearson Education Canada 4-34 Mortgage Lender Shares in insurance settlement If the property is not paid off Not voided by owner’s act or neglect E.G. Arson by owner Owner’s claim is void Lender entitled to compensation

35. Copyright © 2008 Pearson Education Canada 4-35 Inventory Itemized list of assets and their value Proof of loss established through Sales receipts Written appraisals Photographs Video recordings

36. Copyright © 2008 Pearson Education Canada 4-36 Inflation Many policies contain Automatic adjustment clause

37. Copyright © 2008 Pearson Education Canada 4-37 Personal Liability Insurance

38. Copyright © 2008 Pearson Education Canada 4-38 Personal Liability Insurance Coverage Damage to property Injury to other persons Liability insurance Negligence

39. Copyright © 2008 Pearson Education Canada 4-39 Automobile Insurance

40. Copyright © 2008 Pearson Education Canada 4-40 Risk of Automobile Ownership 1. Liability to others 2. Personal injury or death 3. Damage to vehicle

41. Copyright © 2008 Pearson Education Canada 4-41 Risk 1.Liability to Others Insurance coverage required Third-party public liability Compulsory Does not cover your injuries Does not cover damage to your car

42. Copyright © 2008 Pearson Education Canada 4-42 What Does Third Party Liability Cover? Covers someone else’s (a third party’s) Injury, death, or property damage Due to your negligence Your negligence must be proven Your fault must be proven E.G. Breach of highway traffic act may be used to determine negligence

43. Copyright © 2008 Pearson Education Canada 4-43 How Much Will Insurer Pay? The liability policy limits E.G. $1,000,000 If the claim is larger than this You pay the remainder

44. Copyright © 2008 Pearson Education Canada 4-44 What Is Negligence? Ordinary negligence Failing to do what is reasonable Failing not to do what is reasonable Gross negligence Reckless, wanton, willful misconduct Fails to exercise due care by a wide margin Indifference to probable consequences

45. Copyright © 2008 Pearson Education Canada 4-45 Risk 2.Personal Injury or Death Risk of personal injury/death To the car’s occupants, or To persons struck by car Insurance coverage required Medical insurance or accident benefits

46. Copyright © 2008 Pearson Education Canada 4-46 Accident Benefits Coverage No fault Payments made without reference to fault Payments made to policy-holder Coverage (variable) Disability income, medical payments Death payments, funeral expenses Not compulsory in Newfoundland and Labrador

47. Copyright © 2008 Pearson Education Canada 4-47 Risk 3.Damage to Vehicle Risk The vehicle may be stolen or damaged Physical damage coverage Vehicle’s actual cash value Subject to a deductible amount No fault Payments made without reference to fault

48. Copyright © 2008 Pearson Education Canada 4-48 Types of Physical Damage Coverage All-perils Specified perils Collision Comprehensive

49. Copyright © 2008 Pearson Education Canada 4-49 All-perils Coverage Broadest coverage Includes everything (and more) included in Specified perils Collision Comprehensive

50. Copyright © 2008 Pearson Education Canada 4-50 Specified Perils Coverage Coverage includes only named risks

51. Copyright © 2008 Pearson Education Canada 4-51 Collision Insurance Coverage When vehicle collides with another object Coverage applies Striking or being struck by another vehicle One-vehicle accidents Striking guard-rails, trees, rocks, the ground, etc.

52. Copyright © 2008 Pearson Education Canada 4-52 If the Collision Is Caused by Another Driver’s Negligence Your insurance company Pays your damage claim Regardless of fault Even pays your deductible If the insurance company is successfully reimbursed through subrogation from the at- fault driver

53. Copyright © 2008 Pearson Education Canada 4-53 Comprehensive Insurance Coverage Covers perils to your car other than collision Theft, vandalism, fire, lightning, wind, hail Perils that may be excluded under collision Subject to a deductible amount

54. Copyright © 2008 Pearson Education Canada 4-54 Insurance Rates Affected by Personal characteristics Age, gender, marital status Type of car Sport’s utility vehicle, pick-up, 4x4 Use of car Work or pleasure, distance to work Region Population, adverse driving conditions

55. Copyright © 2008 Pearson Education Canada 4-55 No-fault Insurance for Third Party Liability Claims No proof of fault No litigation costs All claims paid quickly Quebec and Manitoba

56. Copyright © 2008 Pearson Education Canada 4-56