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Chapter 10

Property and Liability Insurance

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Homeowner’s Insurance Policies

Cover multiple perils (e.g., fire, theft, storms, faulty household systems or appliances, riot, volcanoes, vehicles, aircraft)

Sold in six basic versions

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Six Basic Packaged Homeowner's Policies

HO-1: Basic form homeowner’s insurance HO-2: Broad form homeowner’s insurance HO-3: Special form homeowner’s insurance HO-4: Renter’s or tenant’s insurance HO-6: Condominium owner’s insurance HO-8: Modified coverage – older homes

homeowner’s insurance

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HO-1: Basic Form Homeowner’s Insurance

Provides the most limited coverageNot available in most states

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HO-2: Broad Form Homeowner’s Insurance

Covers only named perils

Costs about 5% to 10% more than

HO-1 coverage

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HO-3: Special Form Homeowner’s Insurance

Covers all direct physical losses to your home – open perils protection

Exceptions include floods, wars, earthquakes, and nuclear accidents

Cost approximately 10% to 15% more than HO-1 coverage

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HO-4: Renter’s or Tenant’s Insurance

Coverage is equivalent to HO-2 perils for personal property

Available only to renters and tenantsCovers personal property rather than

the dwellingProvides liability coverage in case an

accident, causing damage to the structure, is your fault

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HO-6: Condominium Owner’s Insurance

Similar to HO-4 coverage, same perils for personal property as HO-2

Available to co-op and condo ownersAlso covers improvements you’ve made

to the dwelling unit

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HO-8: Older Homes Homeowner’s Insurance

Similar to HO-1 insurance, or named perils

Insures the dwelling for the repair cost or market value, instead of the replacement value

Designed specifically for older homes

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Policy Coverage Sections

Section I: Property coverage

Section II: Personal liability coverage

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Section I: Property Coverage

Coverage A: DwellingCoverage B: Other structuresCoverage C: Personal propertyCoverage D: Loss of use

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Coverage A: Dwelling

Protects the dwelling and any attachments

Does not cover any damage to the land

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Coverage B: Other Structures

Protects other, unattached, dwellings on the property

Covers landscaping as well as buildings, but not the land

Limited to 10% of the home’s coverageDoes not cover other structures used

for business purposes

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Coverage C: Personal Property

Covers all personal property owned or used by the policyholder

Covers personal property regardless of location

Covers property of guests in your home

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Coverage C: Personal Property Limits

Limited to 50% of the home’s coverage$200 limit on cash, gold, and silver$1,000 limit on securities, tickets, and

stamps$2,500 limit on silverwareAnimals, birds, and fish are excluded.

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Coverage D: Loss of UseCovers losses incurred as a result of

your home being uninhabitableLimited to 20% of the amount of

coverage on the homeThree benefits of coverage

– additional living expenses– fair rental value– prohibited use

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Section II: Personal Liability Coverage

Protects the policyholder in case someone is injured on their property

Minimum level of coverage is $100,000Medical payments to others covers

small medical expenses up to $1,000 per person

Does not cover business or professional liability or negligence

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Supplemental Coverage (Endorsements)

Personal article floatersEarthquake coverageFlood protection Inflation guardPersonal property replacement cost

coverage

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Umbrella Policies

Cover liability costs after the underlying homeowner’s or auto policies have been exhausted

Up to $10 million Exclusions for business,

aircraft, and watercraft activities.

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Insurance Needs

Co-insurance and the “80% rule”– Coverage restrictions

Assessing your unique insurance needsKeeping insurance costs down

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Coinsurance and the “80% Rule”

Dwelling must be insured to within 80% of the replacement cost

Coinsurance requires you to pay for a portion of the loss if you don’t carry adequate insurance

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If Not 80%, You Pay….

In the event of the loss, you will receive the greater of:

Actual cash value of the portion of the home lost

Insurance Coverage x Value of Loss

80% of Replacement Cost

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Coverage RestrictionsThe amount paid by the insurance

policy will not exceed the limit of your policy.

You must rebuild on the same location. If you don’t rebuild the insurance

company will only pay for the actual cash-value loss rather than the replacement value.

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Consider Your Unique Insurance Needs

Cover the full replacement value of your home in case of a complete loss.

Protect yourself from inflation.Determine if other structures or

landscaping on the property have adequate coverage.

Purchase additional insurance if part of your home is used as an office.

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Consider Your Unique Insurance Needs (cont’d)

Purchase extra coverage for special situations like floods or earthquakes, if applicable.

Cover the replacement value, not actual cash value, of your personal property.

If renting, have adequate personal property coverage.

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Consider Your Unique Insurance Needs (cont’d)

Consider extra coverage, or a floater policy, for valuable property such as paintings, jewelry, or collections.

If assets exceed liability coverage, purchase more.

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Keeping Your Homeowner's Insurance Costs Down

Three basic factors determine policy cost.

Select a financially sound insurer with low comparative costs.

Consider other potential discounts and savings method.

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Three Basic Factors Determine Policy Cost

LocationType of structureLevel of coverage

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Potential Discounts and Savings Methods

High deductibles Security

systems/smoke detectors

Multiple policy discounts

Pay premiums annually

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Potential Discounts and Savings Methods (cont’d)

Shop around Ask for any other

discounts Consider a direct

writer Double check your

policy

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Making Your Coverage Work

Keep an inventory establishing proof of ownership (preferably on videotape).

Videotape the exterior of the home to value landscaping or condition.

Keep records concerning the value of your assets.

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Recovering on a Liability or Property Loss

Report your loss immediatelyMake temporary repairs to protect your

property.Make a detailed list of everything lost or

damaged. Use your inventory.Maintain records of the insurance

settlement process.Confirm the adjuster’s estimate.

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The Personal Automobile Policy (PAP)

30 million accidents in the U.S. annually, or about 1 accident for every 5 licensed drivers. When will it be your turn?

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The Personal Automobile Policy (PAP)

PAP Part A: Liability Coverage PAP Part B: Medical Expense Coverage PAP Part C: Uninsured Motorist’s Protection

Coverage PAP Part D: Coverage for Damage to Your

Car Standard exclusions No-fault insurance

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PAP Part A: Liability Coverage

Covers bodily injury losses Covers property damage losses Can be a combined single limit or a split-limit

coverage Most states require a minimum coverage Covers losses due to a lawsuit Covers defense cost in civil trials in addition

to your policy limits

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Auto Liability Split-Coverage Insurance Limits

100/300/50

$100,000 of bodily injury liability coverage per person

$300,000 of bodily injury liability coverage for each accident

$50,000 of property damage liability coverage

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Auto Liability Combined Single Limit Insurance

$100,000

Total liability insurance – both bodily injury liability losses and property damage liability losses – in an accident, regardless of the number of people involved.

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PAP Part B: Medical Expenses Coverage

Covers all reasonable medical costs and funeral expenses incurred, by the insured or the insured’s family members within 3 years of an accident.

Recommended coverage of $50,000. Does not cover medical expenses if injured

by a vehicle not designed for public streets, but does provide coverage when walking.

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PAP Part C: Uninsured Motorist’s Protection

Provides coverage if injured by an uninsured motorist or a hit-and-run driver.

The other driver must be at fault to collect on this coverage.

Also covers costs in excess of the other driver’s liability coverage, if inadequate to pay for your losses.

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PAP Part D: Comprehensive Physical Damage Coverage

Covers– Collision loss– Other than collision, or comprehensive physical

damage Collision covers regardless of fault. If the

other driver was at fault and has liability you should be able to recover losses without collision coverage.

Recommended limit is the vehicle’s cash-value; deductibles apply.

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Personal Auto Insurance Coverage

B od ily In ju ry L iab ility(P art A )

M ed ica l E xp en ses(P art B )

U n in su red M otoris t 's(P art C )

B od ily In su ran ce C overag e

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Personal Auto Insurance Coverage (cont’d)

P rop erty D am ag e L iab ility(P art A )

C o llis ion(P art D )

C om p reh en s ive P h ys ica lD am ag e(P art D )

P rop erty D am ag e C overag e

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Standard Exclusions

Intentional injury or damage Use without permission Vehicle has less than four wheels Someone else’s vehicle provided on a

regular basis Own automobile, but not listed on your policy Carrying passengers for a fee Driving in a race or speed contest

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No-Fault InsuranceOnly available in “no-fault” states.Your insurance pays for your losses

and their insurance pays for their losses – no legal battles.

Limits on claims, particularly medical, may not be adequate.

You can still sue their insurance for “pain and suffering”.

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Buying Automobile Insurance

Determinants of the cost of automobile insurance

Keeping your costs for automobile insurance down

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Determinants of the Cost of Automobile Insurance

Type of automobileUse of automobileYour personal characteristicsYour driving recordWhere you liveDiscounts you qualify for

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Keeping Your Costs for Automobile Insurance Down

Shop comparatively Consider only high-quality insurers Use discounts Buy vehicles that are relatively inexpensive to

insure Improve your driving record Raise your deductibles Keep adequate liability insurance

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Filing a Claim Using Your Automobile Policy

Get help for the injuredMove vehicle or put up flaresGet the names of any witnessesCooperate with the police Insist all drivers take an alcohol testRecord your recollection of the accidentDon’t sign anything or admit guilt

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Filing a Claim Using Your Automobile Policy (cont’d)

Obtain a copy of the police reportCall your insurance company as soon

as possibleCooperate with your insurerKeep records of all accident expensesMeet with a lawyer if the accident was

serious

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SummarySix basic packaged homeowner's

policiesTwo sections of the homeowner’s policy

-- property and liabilityAdd supplemental coverage to better

meet your needsCover the replacement value of your

home and it’s contents

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Summary (cont’d)

Consider the “80% rule” and your unique insurance needs

Consider strategies to reduce insurance costs

Document what you own, otherwise how will you verify your loss?

Know the steps to follow in the event of a loss

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Summary (cont’d)

The four parts of an auto insurance policy

Know and avoid common exclusionsUnderstand “no fault” coverageUnderstand the four major determinants

of the cost of auto insurance and ways to reduce auto insurance costs

Filing an auto claim