Chapter 10: Property and Motor Vehicle Insurance

What is insurance

• Insurance is protection against possible financial loss

• People purchase a policy, the firm assumes the risk for a fee called the premium, which the insured policyholder pays periodically

Insurance company

Also called insurer. A risk sharing firm that assumes financial responsibility for losses from an insured risk

Risk

uncertainty or lack of predictability

Peril

cause of a possible loss such as fire, windstorms, explosions, robbery, accidents and premature death

Hazard

increases likelihood of a loss, such as defective house wiring

pure risk

• The most common risks are classified as personal risks, property risks, and liability risks

• Insurable risk; chance of loss not gain

• Accidental and unintentional risks

• Nature and financial cost of the loss can be predicted

Speculative Risk

• Chance of either loss or gain, such as starting a small business or gambling

• Uninsurable risk

Planning an insurance Program: Step 1

Set insurance goals

• Insurance goals should define what to do to cover the basic risks present in your life

Planning an insurance Program step 2

Develop a plan to reach your goals

Planning an insurance Program Step 3

Put your plan into motion

Planning an insurance Program Step 4

• Check your results

  • Evaluate your insurance plan periodically (2-3 years)

Liability

legal responsibility for financial cost of another person’s losses or injuries

Negligence

Failure to take ordinary or reasonable care

Strict Liability

A person is held responsible for intentional or unintentional actions

Vicarious Liability

When a person is held responsible for the actions of another person

Homeowner’s insurance coverages

• Damage to house and other structures

• Additional living expenses

• Personal property

  • Personal property floater - high value items

  • Household inventory with documentation

• Most homeowner’s policies provide Basic Personal Liability coverage of 100,000 or more

Medical payment coverage

• Covers minor accidental injuries on your property and minor injuries caused by you, family members or pets

Umbrella policy or catastrophe policy..

• Supplements basic personal liability coverage

• 1,000,000 or more in liability coverage

Specialized coverage

• Homeowner’s insurance usually does not cover losses from floods and earthquakes

• National flood insurance program makes flood insurance available

• Earthquake insurance can be obtained as endorsement addition of coverage to the homeowner’s policy

Anti-concurrent causation clause

• Gives insurer the right to reject claim if your home is damaged by several factors because they are unable to determine which factor came first and caused the damage

Renter’s insurance

• Only 4 out of 10 renters have insurance

• Protection against financial loss due to damage or loss of personal property

• Additional living expenses

• Personal liability and related coverage

• A building owner’s insurance usually won’t cover renter’s personal property

Special form (all risk) (Ho-3)

• Covers all above perils except those specifically excluded from policy such as flood, earthquake, war, nuclear accidents

Tenants form (Ho-4)

Cover’s personal belongings against perils in top section

Comprehensive form

• Expands coverage of HO-3 to include endorsements for its such as replacement cost coverage on contents and guaranteed replacement cost coverage on buildings

Condominium form

• Covers personal belongings and additions to the living unit.

Country home form (HO-7)

• For nonfarm business rural residents with coverage on agricultural buildings and equipment

• The other major coverages of each policy are

  • Personal liability

  • Medical payments for guests on the property

  • Additional living expenses

Look for policy…

• With full coverage rather than coinsurance clause, where you have to pay for part of a loss

Actual cash value

Payment, you receive is based on the current replacement cost of damaged or lost item minus depreciation

Replacement value coverage

• You receive the full cost to repair or replace damaged item; depreciation is not considered

• May limit replacement cost to 400% actual cash value of item

• Costs 10%-20% more than actual value coverage

Factors that affect home insurance costs

• Location of home

• Type of Structure

• Coverage amount and policy type

Reducing home insurance costs

• Home insurance discounts

  • Alarm system, dead-bolt locks, smoke detector

• Company differences

  • Compare costs coverage and service

  • Consider how claims are settled not just on price

Financial responsibility law

• Almost all states have compulsory automobile insurance laws

• Requires drivers to prove their ability to cover the cost of damage or injury caused by them in an automobile accident

• Automobile insurance coverage falls into two categories, bodily coverage and property damage coverage

Bodily injury liability

• Covers risk of financial loss due to legal expense medical expenses lost wages and other expenses associated with injuries caused by an automobile accident for which you were responsible

Medical payments coverage

• Covers the cost of health care for persons injured in your automobile including yourself

uninsured motorist protection

• Covers cost of injuries to you and your family if your vehicle is hit by a person without insurance. Does not cover property damage.

No fault insurance

intended to provide fast, smooth methods of paying for damages without taking the legal action frequently necessary to determine fault, drivers collect from their own insurance companies

Property damage liability

Covers damage ot another' person’s car when you are at fault

includes damage to such things as street signs and buildings

collision

• When car is in accident collision coverage pays for damage to your automobile regardless of who is at fault

• If you are not at fault, insurer will try and collect form the other driver’s proeprty damage liability first, called subrogation

• Coverage is limited to the actual cash value of your vehicle

Comprehensive physical damage

Covers damage to your vehicle that is not caused by a collision.

Deductible

If a broken windshield costs 750 to replace and you have a 200 deductible on your comprehensive coverage, the insurance company will pay 550 of the damages

Wage loss insurance

reimburse you for any salary or income lost due to injury in automobile accident

Towing and emergency road service

pays for the cost of breakdowns and mechanical assistance

Rental reimbursement coverage pays for a rental car if your vehicle is stolen or in the shop

Amount of coverage

$100/$300,000 is recommended for bodily injury liability with an additional 1,00,00 or more umbrella liability policy recommended

Legal concerns

• Minimum 10/20 required for most states

• Most people cannot afford to pay a court settlement with personal assets, so drivers buy automobile liability insurance

Property values

• 50000-100000 is usually suggested for property damage liability