GITMAN JOEHNK BILLINGSLEY PFIN 4 10 Protecting Your

GITMAN/ JOEHNK/ BILLINGSLEY PFIN 4 10 Protecting Your Property Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OUTCOMES 1 Discuss the importance and basic principles of property insurance, including types of exposure, indemnity, and co-insurance 2 Identify types of coverage provided by home owner’s insurance 3 Select the right home owner’s insurance policy for your needs 4 Analyze the coverage in a personal automobile policy (PAP) and choose the most cost-effective policy Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 2

LEARNING OUTCOMES (continued) 5 Describe the other types of property and liability insurance 6 Choose a property and liability insurance agent and company, and settle claims Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 3

Basic Principles of Property Insurance • Property insurance • Protects real and personal property from losses caused by various perils • Liability insurance • Protects against financial consequences from the insured’s responsibility for property loss Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 4

Types of Exposure • Exposure to property loss • Property insurance contracts define: • Property covered • Perils: Cause of loss • Property inventory • Identifying perils • Liability • Negligence: Failing to act in a reasonable manner Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 5

Principle of Indemnity • States that an insured may not be compensated with an amount exceeding the insured’s economic laws • Actual cash value: Value assigned to an insured property determined by subtracting the amount of physical depreciation from its replacement cost • Right of Subrogation: Insurer’s right to request reimbursement from person who caused the loss or that person’s insurer Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 6

Principle of Indemnity • Other insurance clause • States that if a person has more than one insurance policy on a property, each company is liable for only a prorated amount of the loss Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 7

Exhibit 10. 2 A Guide to Home Owner’s Policies Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MKTG 4 | CH 10 8

Property and Liability Insurance Policies Comprehensive policy • Covers all perils unless they are specifically excluded Named peril policy • Individually names the perils covered Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 9

Perils Covered • Section I • Perils against which the home and its contents are insured • Section II • Includes a coverage called comprehensive personal liability • Offers protection against personal liability resulting from negligence • Provides limited amount of medical coverage Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 10

Factors Affecting Home Insurance Costs Type of structure Location of home Credit score Other factors Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 11

Property Covered • Home owner’s policy offers property protection under Section I for: • Dwelling unit • Accompanying structures • Personal property of home owners and their families Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 12

Personal Property Floater (PPF) • Provides blanket or scheduled coverage of expensive personal property not adequately covered in a home owner’s policy Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 13

Renter’s Insurance • Form HO-4 • Covers contents of a house but not the structure itself • Form HO-6 • Required by the owners of condominium units • Includes a minimum of $1000 in protection for any building alterations paid for by the policy holder Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 14

Coverage • Types of losses covered • Direct loss of property • Indirect loss occurring due to loss of damaged property • Additional expenses resulting from direct and indirect losses • Section I • Damage of the house by an insured peril leads to the insurer paying reasonable living expenses Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 15

Coverage • Section II • Home owner’s policy covers: • Cost of defending the insured • Reasonable expenses incurred by an insured in helping the insurance company’s defense • Payment of court costs Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 16

Coverage • Persons covered • Persons named in the policy and members of their families residing in the house • Guests of the insured with limited coverage • Locations covered • Extended worldwide when off premises temporarily Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 17

Factors Influencing Insurance Payment Amount for a Loss • Replacement cost • Amount necessary to repair, rebuild or replace an asset at current prices • Policy limits • Deductibles Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 18

Personal Automobile Policy (PAP) • Designed to be easily understood by the typical insurance purchaser • Liability coverage • Bodily injury liability losses: Protects the insured against claims made for bodily injury • Property damage liability losses: Protects the insured against claims made for damage to property • Medical payments coverage Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 19

Personal Automobile Policy (PAP) • Uninsured motorists coverage: Serves the victims of accidents injured by uninsured, underinsured, or hit-and-run motorists • Underinsured motorists coverage: Covers damages in accidents involving liable underinsured motorist Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 20

Personal Automobile Policy (PAP) • Coverage for damage to the vehicle • Collision insurance: Pays for collision damage to an insured automobile • Comprehensive automobile insurance: Protects against loss to an insured automobile caused by any peril other than collision Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 21

Factors Affecting Automobile Insurance Premiums • • • Rating territory Amount of use the automobile receives Personal characteristics of the driver Type of automobile Insured’s driving record Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 22

Financial Responsibility Laws • Require motorists to: • Buy a specified minimum amount of automobile liability insurance • Provide other proof of comparable financial responsibility Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 23

Other Property and Liability Insurance • Supplemental property insurance coverage • Earthquake insurance • Flood insurance • Other forms of transportation insurance • Personal liability umbrella policy • Provides excess liability coverage and additional coverage for home owner’s and automobile insurance Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 24

Property and Liability Insurance Agents • Captive agent: Represents a single insurance company and is its employee • Independent agent: Places coverage with any company with which he or she has an agency relationship • Selecting an agent involves questions to be asked about the company’s: • Financial soundness • Claims-settlement practices • Geographic range of operations Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 25

First Steps Following an Accident Record contact details of all witnesses, drivers, occupants, and injured parties Record license numbers of the automobile involved Notify law enforcement officers and insurance agent Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 26

Steps in Claim Settlement Notice to insurance company Investigation Proof of loss Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 27

Claims Adjustment • Insurance company will assign a claims adjustor if the loss is complex • Claims adjustor: Insurance specialist who works for the insurance company or for an adjustment bureau Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 28

KEY TERMS • • • Property insurance Liability insurance Peril Negligence Principle of indemnity Actual cash value Right of subrogation Co-insurance Comprehensive policy Named peril policy • Personal property floater (PPF) • Replacement cost • Personal automobile policy (PAP) • Bodily injury liability losses • Property damage liability losses • Uninsured motorists coverage Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 29

KEY TERMS • Independent agent • Underinsured motorists coverage • Claims adjustor • Collision insurance • Comprehensive automobile insurance • No-fault automobile insurance • Financial responsibility laws • Personal liability umbrella policy • Captive agent Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 30

SUMMARY • Property insurance covers against losses of real and personal property caused by calamities • Comprehensive policies cover all perils but only individual perils are covered in named peril policies • Home owners can choose HO-1, HO- 2, HO-3, HO-5, or HO-8 to suit their needs • Types of automobile insurance • Personal automobile policy, collision insurance, and comprehensive automobile insurance Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 31

SUMMARY • Other property and liability insurance • Supplemental property insurance coverage • Personal liability umbrella policy • Steps to claim settlement • Provide notice to the insurance company • Investigation by company personnel • Provide proof of loss Copyright © 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PFIN 4 | CH 10 32