Bman 341 - Ch10 Managing Property and Liability Risk

Property Insurance

protects you from financial losses resulting from damage to or destruction of your property or possessions

Liability Insurance

Protects you from financial losses suffered when you are held labile for others losses.

Umbrella Liability Insurance Policy

an insurance policy that may cover your liabilities that other insurance policies do not cover. Ex. someone slips in your home

Speculative Risk

involves situations where there is the potential for gain as well as loss

Pure Risk

involves situations when there is only the possibility of loss

Risk

different that “odds”, the uncertainty about the outcome of a situation or event

Principle of Indemnity

Limits insurance payouts; insurance will pay no more than the actual financial loss suffered. Does NOT guarantee insured losses will be totally reimbursed.

Policy Limits

The maximum amount an insurance policy will pay for a peril.

Factors that Reduce the Cost of Insurance

Deductibles, Coinsurance, Hazard reduction, Loss reduction

Insurance

Mechanism for reducing pure risk by having a larger number of individuals share in the financial losses suffered by all members.

Three types of Hazards

Physical, Moral, Morale

Why is the principle of indemnity important to insurance sellers?

Ensures the insurer only pays enough to restore the insured to their financial position before the loss, rather than paying to much.

How deductibles lower the cost if insurance?

because the policyholder pays part of the loss, reducing the insurer’s risk and claim costs

How coinsurance lowers the cost if insurance?

Requires the insured to pay part of a covered loss, so the insurer pays less. This reduces the insurer’s risk and allows for lower premiums.

How hazard reduction lowers the cost if insurance?

Lowers the chance or severity of a loss, reducing the insurer’s risk and claim costs. This can lead to lower insurance premiums.

How loss reduction lowers the cost if insurance?

Loss reduction reduces the amount of damage after a loss occurs, lowering the insurer’s claim costs and potentially reducing premiums

How do companies select among insurance applicants?

Insurance companies use underwriting to evaluate applicants based on their risk of loss and decide whether to insure them and what premium to charge

Independent agents

Represents several insurance companies.

Exclusive agents

Represents one company.

Homeowners Insurance

Provides both property and liability protection in one policy

Perils

Any event that can cause a financial loss

Named-perils policies

Cover only losses caused by perils that the policy specifically mentions

All-risk (open-perils) Policies

Cover losses caused by all perils other than those that the policy specifically excludes

Homeowners General Liability Protection

Applies when you are legally liable for another persons losses, other than those that arise out of use of vehicles or your professional duties

Homeowners no-fault medical payments protection

Will pay for bodily injury losses suffered by visitors regardless of who was at fault

Homeowners no-fault property damage protection

Will pay for property losses suffered by visitors in your home

Four types of losses covered under the property insurance portion of a homeowner’s policy

Dwelling Damage, Appurtenant structure damage (other structures), personal property/ dwelling contents, living expenses after losses

Three examples of liability protection under homeowners insurance policies

Someone injured on your property, you accidently injure someone, you accidentally damage someone else’s property

Six types of homeowners insurance for most residencies (HO-3, HO-4, AND HO-6)

HO-1 Basic Form

HO-2 Broad form

HO-3 = Homeowners (special form)

HO-4 = Renters/ Tenants

HO-5 Comprehensive form

HO-6 = Condo Owners

Four types of personal property with a specific limited covered dollar amount under standard homeowners insurance policies.

Money,

What is the meaning of these three numbers, 100/200/75

Take documentation/ inventory of home

Automobile Insurance: Coverage A (Liability Insurance)

Covers - Bodily Injury Liability, Property Damage Liability

Automobile Insurance: Coverage B (Medical Payments insurance)

Covers- Automobile medical payments, personal injury protection (PIP), and Subrogation rights

Automobile Insurance: Coverage C (uninsured/ underinsured)

Covers - Uninsured motorist’s, underinsured and hit and runs

Automobile Insurance: Coverage D (physical damage)

Covers - damage for insured vehicle, collisions, and comprehensive damages (trees, flood)

What is the meaning of these three numbers, 100/200/75

100k bodily injury per person, 200k bodily injury per accident, 75k property damage per accident (person/ accident/property)

Who is protected by medical payments coverage?

You and your passengers regardless of fault

Difference between collision and comprehensive insurance?

Collision is from damage from another vehicle, comprehensive is from non-collision events

Why is policy with high deductible and high liability limit be better than the opposite?

You are better protected with high deductibles and limits because of the higher amount that the policy will increase compared to lower deductibles and limits.

Flood Insurance

Provided through the National Flood Insurance Program

Earthquake Insurance

Purchased separately or as an endorsement to homeowners insurance

Professional Liability Insurance

Coverage for professionals who are exposed to liability for losses suffered by their clients or patients. (ex. doctor, lawyer, accountant)

Floaters Insurance

Policies that provide protection for movable assets with limits above and beyond what homeowners insurance may cover. (ex. jewelry).

Claims adjuster

Assesses loss and makes an estimate of the amount the insurance company will pay.

Release

Form signed when insured is satisfied that the full magnitude of loss has become eident.

Loss Frequency

Likely number of times a loss might occur over a period of time.

Loss Severity

Describes the potential magnitude of a loss.

Risk Avoidance

Avoiding risk exposures altogether

Risk Retention

To retain or accept a risk of loss, like using a deductible clause to retain an initial portion of a loss

Loss Control

To reduce loss frequency and severity, like installing locks or fire alarms

Risk Transfer

To reduce the risk of loss by transferring it to an insurance company.

Risk Reduction

To reduce the risk of loss to acceptable levels, like having air bags in your car or using insurance policies to cover their personal level of risk.

Large-Loss Principle

Insure the losses that you cannot afford, and pay the small losses out of your own pocket,

Premium

Fee paid for insurance protection

Insurable losses

Fortuitous Losses, Financial Losses

Hazard

Any condition that increases the probability that a peril will occur.

Deductibles

An initial portion of any loss that must be paid before the insurance company will provide coverage.

Coinsurance

Policy feature that requires the insured and insurer to share proportionately in the payment for a loss.

Hazard Reduction

Action taken by insured to reduce the probability of a loss occurring.

Loss Reduction

Action taken by insured to lessen the severity of loss if a peril occurs.

Law of Large Numbers

Larger the number of people in a group the more accurate the prediction of losses suffered by the group (essence of insurance in sharing the losses through)

Replacement-cost Requirement

Specifies that you insure the dwelling for either 80% or 100% of its replacement value or only a portion of even small losses will be covered

Actual Cash Value

Represents the purchase price of the property less depreciation.

Contents replacement-cost protection

Morale Hazard

When a person is indifferent to peril, like becoming careless to lock doors because of owned insurance policies

Moral Hazard

Possibility that the insured person will want or cause a peril to occur to collect reimbursement from insurance money.