Chapter 8 Home and Automobile Insurance Mc Graw-Hill Irwin

Home and Automobile Insurance Chapter Objectives 1. Identify types of risks and risk management 2. 3. 4. 5. methods and develop a risk management plan Assess the insurance coverage and policy types available to homeowners and renters Analyze the factors that influence the amount of coverage and cost of home insurance Identify the important types of automobile insurance coverage Evaluate factors that affect the cost of automobile insurance 8 -2

Objective 1 Identify Types of Risks and Risk Management Methods and Develop a Risk Management Plan • Insurance – – • Insurance company (insurer) – • Procedure – 8 -3

Types of Risk • Risk – – • Peril – – • Hazard – – 8 -4

Most Common Types of Risk • Personal risks – – • Property risks – – • Liability risks – – 8 -5

Types of Risk • Pure Risk = Insurable – – • Speculative Risk = Uninsurable – – 8 -6

Types of Risk • Pure Risk = Insurable – Personal risks = – Property risks = – Liability risks = • Negligence = 8 -7

Risk Avoidance Risk Shifting Buy Insurance Self Insurance Ways to Manage Risk Assumption Don’t stop at a convenience store in a bad part of town after midnight Risk Reduction Wear seatbelts Install an alarm system 8 -8

Planning an Insurance Program 8 -9

Planning an Insurance Program 1. Set insurance goals to reduce possible loss of: • 8 -10

Planning an Insurance Program 1. Develop a plan to reach your goals • • 2. Put your plan into action 3. Check your results • 8 -11

Property and Liability Insurance • Recent major losses: – Historic severe weather in South - CBS News Video – 2005: Hurricanes Katrina, Rita and Wilma = – 1993: Midwest floods – 1992: Hurricane Andrew = • Potential property losses 8 -12

Property and Liability Insurance • Liability = • Liability due to negligence – • Vicarious Liability – 8 -13

Objective 2 Assess the Insurance Coverage and Policy Types Available to Homeowners and Renters Homeowner’s Insurance Coverages – Damage or destruction of the building in which you live, and other structures on the property • Garage, tool shed, trees and shrubs – Additional living expenses • May be limited to 20 -30% of property value • May be limited to 6 -9 months 8 -14

Homeowner’s Insurance Coverages – Personal property • • – Personal liability and related coverage • – Specialized coverage • 8 -15

Homeowner’s Insurance Coverages Personal Liability and Related Coverage • Medical Payment Coverage – • Personal liability – Umbrella policy - 8 -16

Homeowner’s Insurance Coverages • Specialized Coverage – 8 -17

Renter’s Insurance • Broad form – • Comprehensive form – • Renter’s insurance is relatively inexpensive – – – • Many renters do not have insurance 8 -18

Home Insurance Policy Forms • Basic form (HO-1) – • Broad form (HO-2) – • Special form (HO-3) – 8 -19

Home Insurance Policy Forms • Tenant’s form (HO-4) – • Comprehensive form (HO-5) – • Condominium owner (HO-6) 8 -20

Objective 3 Analyze the Factors that Influence the Amount of Coverage and Cost of Home Insurance • Determine amount of coverage needed: – Replacement value of your home ? – Value of your home’s contents ? – Protection for specific items ? • Jewelry and furs • Art and collectibles • Computer equipment – Liability coverage ? 8 -21

Policy Provisions • Look for a policy with full coverage – • Claim settlement methods – Actual cash value (ACV) • – Replacement cost • 8 -22

Factors That Affect Home Insurance Costs • • Location of home Type of structure Coverage Amount and Policy type Home Insurance Discounts – – – • Company differences – 8 -23

Objective 4 Identify the Important Types of Automobile Insurance Coverage • Financial responsibility law – State legislation requiring proof of financial ability to cover the cost of damage or injury caused in an automobile accident – 45 states have compulsory automobile liability insurance laws 8 -24

Motor Vehicle Bodily Injury Coverage • Bodily Injury Liability – – Expressed as 3 numbers: 100/300/50 • 8 -25

Motor Vehicle Bodily Injury Coverage • Medical Payment Coverage – 8 -26

Motor Vehicle Bodily Injury Coverage • Uninsured Motorist’s Protection – • Underinsured Motorist’s Coverage – 8 -27

Motor Vehicle Property Damage Coverage • Property damage liability – 8 -28

Collision Coverage • Pays for damage to your automobile, regardless of who is at fault. – 8 -29

Comprehensive Physical Damage • Covers damage to your vehicle not caused by a collision, such as: – 8 -30

No-Fault Insurance • Each driver collects from his or her own insurance company for medical expenses, lost wages, and related injury costs • 30 states have some variation of the system • Intended to provide fast, smooth method of paying for damages without determining fault • Problems may arise due to variations among states 8 -31

Other Coverages • 8 -32

Objective 5 Evaluate Factors that Affect the Cost of Automobile Insurance Costs • Legal concerns – Have enough coverage if you are sued – Recommendations: • $100, 000/$300, 000 bodily injury liability • Additional $1, 000+ umbrella liability policy • Property values – $50, 000 -$100, 000 suggested for property damage liability 8 -33

Motor Vehicle Insurance Premium Factors • Vehicle type – • Rating territory – • Driver classification – 8 -34

Reducing Automobile Insurance Premiums • Compare companies • Premium discounts – 8 -35