PFIN7 Chapter 10

Chapter Overview

• Focus on property insurance concepts like indemnity, subrogation, and co-insurance.

• Discuss common property and liability risk exposures and available insurance coverage.

• Explore characteristics of homeowner’s and automobile insurance and how to select appropriate policies.

• Include supplemental insurances (floods, earthquakes) and personal liability umbrella policies.

• Provide practical tips for selecting insurance agents and settling claims.

Learning Objectives

10-1: Importance of Property Insurance

• Understand basic principles: exposure types, indemnity, co-insurance.

• Explore the role of property insurance in financial protection.

10-2: Homeowner’s Insurance Coverage

• Identify coverage types provided by homeowner’s insurance.

• Understand key exclusions and what is typically covered.

10-3: Selecting Homeowner’s Policy

• Choose suitable homeowner’s insurance policy based on individual needs.

• Assess the coverage details and costs associated with policies.

10-4: Auto Insurance Analysis

• Analyze personal automobile policy (PAP) and assess cost-effectiveness.

10-5: Other Property and Liability Insurance Types

• Describe additional property and liability insurance protections.

• Discuss specialized coverages like renter’s and umbrella policies.

10-6: Insurance Agents & Claims Settlement

• Choose property and liability insurance agents.

• Understand the process of settling claims efficiently.

Basic Principles of Property Insurance

• Property Insurance: Protects real and personal property from losses due to perils (fire, theft, etc.).

• Liability Insurance: Covers financial losses resulting from negligence leading to personal injuries or property loss.

• Key Principles: Exposure types, indemnity (policy limits), co-insurance (requirement to carry specific percentages of insurance).

Types of Exposure

Property Loss

• Economic losses from damaged, destroyed, or stolen property.

• Obligations of Property Owners:

  • Create a complete property inventory.

  • Identify perils for which insurance is desired; some perils like floods and earthquakes are uninsurable.

Liability Exposures

• Arise from negligence - failure to protect others from harm.

• Liability insurance covers the cost of legal fees and damages caused by such negligence.

Principle of Indemnity

• Limits insured compensation to economic loss only; insured cannot profit from losses.

• Related concepts include:

  • Actual Cash Value: Replacement cost minus depreciation.

  • Subrogation: Insurance company seeks reimbursement after paying a claim.

  • Other Insurance Clause: Prevents double insurance claims from multiple policies.

Co-Insurance

• Co-insurance requires policyholders to buy insurance equal to a percentage of property value (commonly 80%).

• Underinsuring results in sharing claimed losses proportionally.

Homeowner’s Insurance Forms

• Identification of five homeowner’s insurance forms (HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-8) explaining covered perils and liability provisions.

Factors Affecting Home Insurance Costs

• Consider factors such as:

  • Type of structure

  • Credit score

  • Home location

  • Specific homeowner circumstances.

Property Covered Under Insurance

Section I

• Coverage includes dwelling, structures, and personal property.

• Exclusions: business inventory, motorized vehicles, certain personal items over limits.

Renter’s Insurance

• Form HO-4 designed for renters; it protects personal property, not the building itself.

Types of Automobile Insurance Coverage

Coverage Types

• Part A: Liability (pays for bodily injury/property damage to others).

• Part B: Medical payments for injuries.

• Part C: Uninsured motorists coverage.

• Part D: Coverage for vehicle damage.

Policy Deductibles and Limits

• Deductibles: Reduce premiums by eliminating small losses.

• Limits: Enforced caps on specific item categories (jewelry, money, etc.).

Claims Process

• Important documentation after an accident:

  • Driver information

  • Insurance details

  • Vehicle descriptions

  • Witness statements.

Selecting Insurance Agents

• Two types of agents:

  • Captive Agent: Works for one insurance company.

  • Independent Agent: Represents multiple insurers.

• Review exposures, inventory, and ensure appropriate coverage and limits are considered.

Steps in Claim Settlement

• Process includes:

  • Notice to the insurance company.

  • Conducting an investigation.

  • Submitting proof of loss.

• Claims adjuster reviews and recommends settlements.