Chapter 10: Property and Motor Vehicle Insurance

10.0 Introduction

Damages to your property could be devastating without personal property coverage. Consider obtaining insurance coverage via an insurance agent by preparing a household inventory to value your goods.

10.1 Insurance and Risk Management: An Introduction

Insurance is offered for a variety of cases, from lycanthropy to wedding disasters. While some policies are less necessary than others, the main insurance types are home, vehicle, and personal property insurance to protect your property and those you care about to plan for the future.

Types of Insurance

Insurance, or protection against financial loss, gives people the peace of mind knowing that money will be available to meet survivor, medical, and property needs. It’s based on the principle of pooling risks, where thousands of holders pay small sums of money to meet expenses of those who suffer a loss.

Life insurance: Replaces income lost if the policyholder died.
Health insurance: Helps meet expenses when the policyholder becomes ill.
Automobile insurance: Covers property and personal damage caused by cars.
Home insurance: Covers places of residence and associated risks.

Insurance companies (insurers) assume financial responsibility for losses from risks. Policies (contracts) are how people join the group, as fees (premiums) are paid by the person (insured or policyholders).

Risk, Peril, and Hazard

Risk is inherent to life, such as when crossing the street or owning valuable property. Insurance offers a protection against this for your monthly premiums.

Risk: Uncertainty or lack of predictability in loss. The insured person is the risk for insurance companies.
- Pure risks (insurable risks): Risks with a chance of loss if they occurred with accidental or unintentional costs.
  - Personal risks: Surrounding loss of income or life.
  - Property risks: Uncertainties of loss of property to peril.
  - Liability risks: Losses to negligence resulting in injury or damage.
- Speculative risks: Risks of loss or gain, such as gambling, starting a small business, or investing. These are usually uninsurable.
Peril: The cause of possible losses that may cause someone to take out insurance, like fires, accidents, death, or terrorist attacks.
Hazard: Increases to the likelihood of loss through peril. Defective house wiring increases the likelihood of the peril of fire.

Risk Management

Risk management, which reduces financial losses caused by events, is a planning process which can help provide better protection. Understand how to obtain this protection — while insurance is common, other techniques are used:

Risk avoidance: Avoiding risks that may occur, like not smoking or locking merchandise in vaults.
Risk reduction: Reducing risks one has to face, like wearing seatbelts in cars to reduce injuries.
Risk assumption: Taking responsibility for risk when the potential loss is small or has been reduced. Best for when insurance is expensive and there is no other way to gain protection.
1. Self-insurance: Establishing a fund to cover the cost of a loss, providing means to cover the losses. Many people do this by not obtaining insurance.
Risk shifting: Transferring risk to another party, like a company, for a fee.
1. They may come with deductibles, or amounts paid per loss on an insurance policy before a company covers the rest.

Meeting Insurance Goals

Insurance needs change over time, Plan your programs accordingly as your life changes.

Set insurance goals: Generally, these include minimizing insurable risks to cover any risks present in your life situation to cover costs. Basic risk management plans include covering loss of income due to incapacitation, unemployment, personal liability, or loss of property due to hazards.
Develop a plan: Find information to gain a clear picture of all available insurance while analyzing reliability and costs.
Take action: Obtain resources and budgets to reach your goals. Evaluate your coverage to your satisfaction while fitting it into your financial plans. Flexibility through cash is also helpful — find a program that changes with your needs.
Review results: Periodically review your results every few years or as your circumstances change. Risks vary greatly throughout life, so provide for risk management to take care of your responsibilities.

10.2 Property and Liability Insurance

Insurance is commonly used to protect from losses to high-value assets. Thus, it can be seen as an investment in financial protection against these losses from a wide variety of situations. The main risks related to home and automobiles include:

Property damage or loss: Commonly done for items with significant commitments, they include physical damage for destruction or temporary losses of use (such as a windshield being broken), and loss of use due to robbery, burglary, vandalism, or arson.
Responsibilities for others’ injuries or damage (liabilities): Many circumstances involve your liability, or the financial cost of another person’s losses or injuries. Negligence, or the failure to take reasonable care, determines your legal responsibility. Liability may still arise despite taking great care as well:
1. Strict liability: When a person is held responsible for intentional or unintentional actions.
2. Vicarious liability: When a person is held responsible for the actions of another person (such as through a child causing harm to others).

10.3 Home and Property Insurance

Ensure you obtain property insurance regardless of your ownership status in your home. Homeowner’s insurance is coverage for your place of residence and associated risks, such as damage to property and injuries to others.

Homeowners’ Insurance Areas

The house and other structures: Damage to these due to damage or destruction (this can include other structures detached from the home or surrounding greenery)
Additional living expenses: Costs while living in a temporary location while your home is repaired (such as paying for a hotel), these are usually limited to 10-20% of the home’s coverage for 6-9 months
Personal property: Damage or loss up to a portion of the insured value of the home for property within the home. They usually provide coverage for loss up to a limit outside of the home, and require household inventories (lists of personal belongings with purchase dates and cost of information) to prove ownership and value. Keep this information safe.
1. This may not include high value items, which require personal property floaters with appraisals to verify value regardless of location. Floaters to protect electronics are recommended.
Personal liability and related coverages: Risks to others or damage to property for which you are responsible, such as a guest falling on your property for disability. They cover losses from legal action or claims against you.
1. Note that you may require other types of insurance for additional coverage. Employees working on your property may require workers’ compensation coverage, and professionals working jobs may require errors and omissions coverage if a client holds them responsible for failing to perform as promised.
2. Umbrella policies supplement this coverage for other claims, such as libel, slander, defamation, and property invasion. They also increase bodily injury and property claims. Extended policies are available in amounts of $1 million or more for those with high net worths.
3. Medical payments coverage for homeowners pay costs of minor accidental injuries to others (not residents) on your property or those caused by you or those residing on your property. They are usually made without determining fault for small settlements up to $5,000; more severe claims are covered by personal liability portions.
4. Supplementary coverage covers damage to another person’s property, limited to $500 or $1,000. These are made regardless of fault.
Specialized coverage: In places with high natural disaster risks, like flood zones and earthquake areas, extra coverage may be needed. They may be obtained as an endorsement (addition) to the homeowner’s policy.

Anti-Concurrent Causation Clauses

Note that damage by several factors at a time may conflict with your insurance. Anti-concurrent causation clauses allow rejection if your home is damaged by several factors, such as wind and rain — be sure to resolve and recognize this, opting out or paying increased premiums for full coverage.

Renter’s Insurance

Renter’s insurance is less common, but can be beneficial for personal property, additional living expenses, personal liability, and related coverages. It serves as an extension of the building owner’s property insurance if they cannot be proven liable. Students on college housing may be covered to a certain amount under their parents’ home insurance policies, but off-campus housing necessitates a separate policy which can be relatively inexpensive to cover many of the same risks.

Mobile Homes

Mobile homes usually qualify for coverage with conventional policies, but may need special arrangements and rates due to fire and wind damages. They are usually affected by location and ground attachment.

Other Categories

Lastly, home insurance policies include coverage for other categories outside of property and liability, such as bank fraud, damaged property removal, emergency property removal, temporary repairs after a loss, and fire department charges.

10.4 Home Insurance Cost Factors

Get the best value out of your insurance by selecting the appropriate coverage amount and being aware of cost factors.

Base your protection in the amount needed to rebuild or repair your house; if construction costs or inflation increases, increase your amount of coverage.

Insurance Requirements

Homeowners’ policies used to require coverage for 80% of the replacement value in a coinsurance clause, where homeowners would have to pay for part of the losses — this has since been replaced by a requirement for full coverage.

Lending institutions may also require property insurance on their investments. Note that the amount of insurance determines the coverage on the contents; belongings are covered from 55-75% of the amount on the dwelling.

Claim Settlement Methods

The actual cash value method, based on the current replacement cost of an item less depreciation
The replacement value method, based on the replacement cost regardless of deprecation (usually limited to 400% of the actual cash value at a 10-20% higher cost)

Home Insurance Cost Factors

Home insurance cost is mainly affected by three factors:

Location of the home: More claims in an area can cause higher costs.
Type of structure: Materials and house type can affect cost. For example, brick houses may cost less to insure than wood houses in non-earthquake prone areas, and the age and style of the house can create risks and increase costs.
Coverage amount and policy types: These affect the premium paid. Higher deductibles decrease premiums as the company pays out less in claims; most common amounts are $500 to $1,000 or higher to reduce premiums by 15% or more.

Cost Reduction

Companies may offer incentives that reduce costs, such as lowering premiums for smoke detectors or fire extinguishers or burglar deterrent systems like locks and alarm systems. Being a nonsmoker or “claim-free” for a number of years may also help you obtain discounts.

Comparing companies can help save substantial amounts of money; contract agents who work for one and several companies to compare rates. While price may be attractive, also consider service, coverage, and claim settlement processes (such as complete vs. partial coverage of damaged siding replacement). Also find information online about each insurance companies’ reputation — for example, unreasonable or unjustified denial of claims may necessitate switching companies or other actions.

10.5 Automobile Insurance Coverages

While automobile insurance cannot eliminate the true emotional costs of automobile accidents, they can reduce the financial impact.

Financial responsibility laws require drivers to prove their ability to cover the cost of damage or injury in an accident to protect the public from harm and property loss by drivers. In the event of an accident, drivers have to file reports to show responsibility. Most people buy insurance to fulfill these requirements (if insurance is not already required), but can also be satisfied with cash deposits.

Coverage Categories

There are three main coverages provided by automobile insurance in a split limit notation, such as 100/300/50:

Body injury coverages: Costs for injury lawsuits, medical expenses, and legal costs.
1. Bodily injury liability: Covers the risk of loss due to expenses associated with injuries caused by an accident for which you were responsible. The first two numbers in split limit notation represent this coverage; for the example above, there would be a limit of $100,000 for claims paid to one person in an accident, and $300,000 for all bodily injury claims from a single accident. This is primarily for those outside of your vehicle.
2. Medical payments coverage: Covers the cost of injuries to persons inside your vehicle, including yourself. It also provides benefits if you or a member or your family is struck while riding in another person’s vehicle.
3. Uninsured or underinsured motorist protection: Covers the cost of injuries to your and your family if in an accident caused by a person without insurance. It also provides protection due to injuries caused by a hit-and-run driver or a driver without sufficient coverage for your injuries.
4. No-fault insurance: The collection of medical expenses, lost wages, and related injury costs from their own insurance companies to provide faster payments without determining fault. Though usually intended to reduce their time and cost, limits on expenses, lost wages, and other settlements may exist, and lawsuits for extreme conditions may be allowed.
Motor vehicle property damage: Costs for the damage to property of others and to your vehicle.
1. Property damage liability: Protects against financial loss when damaging the property of others (usually vehicles or street signs). It also protects you and others covered by your policy when driving another person’s automobile with permission, and is notated as the third number in split limit coverage (in the example above, it denotes $50,000 coverage).
2. Collision: Pays for damage to the automobile regardless of fault. If you are not at fault, however, your insurance company may attempt (and has the right) to recover costs through the other driver’s property damage liability. This right is called subrogation.
  1. Usually, the amount collected is limited to the actual cash value at the time of the accident. Obtain a documented statement of your vehicle’s condition and value before an accident occurs to determine an accurate valuation for claims.
3. Comprehensive physical damage: Pays for damage outside of collisions, such as for fire, theft, glass breakage, vandalism, or natural causes. It may exclude certain articles like audio equipment, which may be protected by your personal property coverage from your home insurance. This is also for your own car and fault-free, commonly sold with a deductible (like collision insurance) to reduce costs.
Other automobile insurance coverage: Coverage in addition to bodily injury and property damage claims.
1. Wage loss insurance: Reimbursements for any salary or income lost due to injury in an accident, usually required in states with a no-fault system but optional in others.
2. Towing and emergency road service coverage: Pays for the cost of breakdowns and mechanical assistance, most beneficial on long trips or inclement weather.
  1. Towing and road service coverage pays for the cost of getting the vehicle to a service station when on the highway, not the cost of repairs. It may be included in an automobile club membership. Avoid paying for this if it is included in your automobile insurance as a waste of money.
  2. Rental reimbursement coverage pays for a rental car if your vehicle is stolen or in the shop for repairs from an accident or other damages.

When In An Accident

When in an accident, first move your car out of the way safely if possible and call 911 if there are any injuries. If you think you are not at fault:

After the accident:
1. Exchange information, asking for the driver’s:
  1. Name, address, and phone number
  2. Driver’s license number and license plate number
  3. Auto insurance company name and policy number (with the exact company name)
2. Obtain witness information and contacts with a police report if needed, taking photos of damage to the vehicles.
3. If the other driver isn’t insured or left the scene, you may be able to file a claim on your own policy, depending on your coverage.
After you get home:
1. Contact your agent or insurance company to notify them of the accident, and contact the other driver’s insurance company to make sure the accident was reported to them. Their company should pay:
  1. To repair or replace your car
  2. For a rental car during repairs
  3. Medical and hospital bills for you and your passengers
  4. For wages lost due to an injury
2. You may be asked for an estimate for the cost of the repair, or send out their own adjuster for mechanical and medical claims.
If you have problems with your claim:
1. You may be able to file on your own policy for the difference if the other driver is underinsured. Or, you may be judged to be equally at fault. If the other driver’s policy:
  1. Won’t cover all your medical bills, file a claim with your health insurance or auto policy depending on your coverage.
  2. Won’t cover all your mechanical bills, file on your own policy if you have collision or uninsured/underinsured coverage. While you’ll have to pay your deductible, you may be able to recover that from the other insurance company or driver.
  3. Has treated you unfairly, file a complaint with the Department of Insurance.

10.6 Automobile Insurance Costs

Automobile insurance costs are directly related to coverage amounts and your vehicle, place of residence, and driving record.

Insurance Recommendations

Legal concerns are one factor in insurance costs where most drivers buy liability insurance. While 10/20 was once considered adequate, multi-million dollar cases have been made, thus raising recommendations to 100/300. Umbrella policies can cover policies for $1 million or more.

Vehicle costs have also increased. A $10,000 limit is usually appropriate with a $50,000 or $100,000 limit being suggested.

Insurance Cost Factors

Automobile type: The year, make, and model of a vehicle can influence costs — expensive repairs and certain makes can be stolen more often or more complex to repair.
Rating territory: Your place of residence used to determine premiums by geographic location. Due to the fewer accidents and less vandalism occuring in rural areas, premiums are lower there than in large cities.
Driver classification: Your age, sex, marital status, driving record, and habits can also determine your accident rates and thus premium costs. Poor driving records increase your costs, and habits like how often you drive can reduce costs. Credit history, while sometimes limited, can also be used to determine auto insurance costs. Finally, the number of claims you make with expensive damage or settlements may increase rates, with poor records even causing policy cancellation and coverage difficulty.
- If you are in this group, you will be put into an assigned risk pool of people unable to obtain insurance, who pay several times the normal rates with normal amounts of coverage. Upon reestablishing a good record, the driver can reapply with lower premiums.

Premium Reduction

Company comparison: Premiums can wildly vary in the same area and by company. Compare rates online and consider the service provided by your local insurance agent to answer questions, change coverages, and handle claims. Check online for any complaints or reviews to help save money; some states provide information on rates online for easy comparison.
Premium discounts: While the best way to maintain lower rates is through safe driving and accident avoidance, discounts are also offered. Programs for drivers under 25, like completing a training program or maintaining good grades, allow younger drivers to obtain discounts. In addition, security device installation, nonsmoker status, carpooling, deductible increases, and same-company insurance can also qualify you for more discounts. Finally, notify the insurance company of any changes in driving habits or marital status for potentially extra premium savings, look into any employer group automobile insurance for workers, and choose vehicles based on insurance cost accordingly for greater financial benefits.

“Pay As You Go” Insurance

“Pay as you go” insurance, or coverage based on your driving habits, is taking root in the automotive insurance industry. They usually offer initial discounts with data sent back to insurers about your driving habits. Understand that discount amounts may not be guaranteed and may vary or increase multiple times, data can be sold with dubious privacy policies, and GPS data may be sent to your company, requiring protection.