Chapter 34: Vehicle and Property Insurance

Vehicle Insurance

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Insuring Your Vehicle

• There are several ways drivers can reduce the risk of financial losses that result from accidents.
  • One way is to buy insurance, paid protection against losses due to injury or property damage.
• To get insurance, the driver purchases a policy from an insurance company.
• The company that issues the policy is the insurer, and the buyer of the policy is the policyholder
• Vehicle insurance offers seven types of protection:
  • bodily injury liability coverage
  • property damage liability coverage
  • collision insurance coverage
  • medical payments coverage
  • comprehensive coverage
  • uninsured/underinsured motorists protection
  • miscellaneous coverage
• The most basic type of coverage (required by most states) is liability insurance.
  • Liability insurance protects vehicle owners from claims of injury or property damage to others in case they are held responsible for an accident
• Bodily injury liability insurance covers injuries to someone else.
• Property damage liability insurance covers damage to another person’s vehicle or other property caused by the insured.
• Collision insurance covers damage to the policyholder’s vehicle.
  • The maximum amount covered is based on the actual cash value of the policyholder’s vehicle, which is the value of the automobile when it was new minus depreciation.
  • Depreciation is the decline in value of an asset, such as a house, equipment, or a vehicle, because of use.
• Medical payments coverage is also called personal injury protection.
• Comprehensive coverage covers damage to a policyholder’s vehicle caused by things other than an auto accident.
• Uninsured/underinsured motorist protection protects drivers from people who cause accidents but cannot pay for the damages.
• Drivers can add other types of protection to their policies, such as coverage for a rental car.

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Laws on Vehicle Insurance

• A financial responsibility law requires drivers to pay for any damages or injuries they cause in an accident.
• A compulsory insurance law requires drivers to have a minimum amount of car insurance.
• With no-fault insurance, drivers involved in accidents collect damages from their own insurer no matter who is at fault.

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The Costs of Insurance

• A claim is a request for payment from an insurer for any damages covered by a policy.
• The premium an insurance company charges a policyholder covers the policyholder for a limited period of time.
  • The amount of a premium depends on characteristics of the driver and the vehicle, different policy provisions, and other factors.
• Most collision insurance has a deductible.
  • A deductible is an amount in damages a policyholder must pay before the insurance company pays a claim.

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Property Insurance

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Insuring Your Property

• The two kinds of property you can insure are real property and personal property.
  • Real property is property attached to land, such as a house, business, garage, or other building.
  • Personal property consists of possessions that can be moved, such as furniture, jewelry, and electronic equipment.
• Apartment renters can buy renters insurance, which covers loss or damage to a renter’s personal possessions.
• Many people buy a standard fire policy to insure against damage due to fire or lightning.
• A policyholder can add other types of protection to this basic policy with extended coverage.
• Liability insurance protects property owners from the costs of injuries to others on their property.
• Additional living expenses insurance provides coverage for the cost of renting another place to live if a home is damaged.
• Business owners can get insurance to cover the costs of damage to or loss of property.

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Homeowners Policies

• Many insurance companies offer a combination policy with essential protection called a homeowners policy.
  • A homeowners policy covers damage to property and personal property, additional living expenses if a home is destroyed, and liability protection.
  • Homeowners policies do not cover loss from floods, earthquakes, landslides, acts of war, or nuclear hazards.
• However, riders can be added for them.
  • A rider is an addition to a policy that covers specific property or damages.
• Insurance companies usually recommend that homeowners insure their home for 80 percent of its market value
• You can also insure property for either its actual cash value or its replacement value.
  • The actual cash value is the value of the property new minus devaluation from use
  • The replacement value is the full cost of repairing or replacing the property, regardless of the depreciation value
• Property insurance has many of the same costs as vehicle insurance.

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