Chapter 10: Managing Property and Liability Risk Garman/Forgue Personal Finance Ninth Edition PPT...

Chapter 10:Managing Property and Liability Risk

Garman/Forgue

Personal FinanceNinth Edition

PPT slide program prepared by Amy Forgue and Ray Forgue.

Copyright ©Houghton Mifflin Company. All rights reserved. 10 - 2

Learning Objectives

1. Apply the risk-management process to address the risks to your property and income.

2. Explain basic insurance terms and the relationship between risk and insurance.

3. Design a homeowner’s or renter’s insurance program to meet your needs.


Learning Objectives

4. Design an automobile insurance program to meet your needs.

5. Describe other types of property and liability insurance.

6. Summarize how to make an insurance claim.


Introduction

• Property Insurance

• Liability Insurance


Risk and Risk Management

• What is the nature of risk?– Speculative risk

– Pure risk


The Risk-Management Process

• Step 1: Identify sources of risk.– Peril: Event that can cause a financial loss

• Step 2: Estimate risk and potential losses.– Loss frequency – Loss severity



• Step 3: Choose how to handle risk.– Risk Avoidance

– Risk Retention

– Loss Control

– Risk Transfer

– Risk Reduction



• Step 4: Implement the risk-management program.– Large-Loss Principle: Insure the losses

that you cannot afford, pay the small losses out of your own pocket.

• Step 5: Evaluate and adjust the program.


Understanding How Insurance Works

• Insurance

• Premium

• Insurance Policy



• Hazards make losses more likely to occur.– Hazard: Any condition that increases the

probability that a peril will occur.

• Only certain losses are insurable.– Fortuitous losses– Financial loss



• The Principle of Indemnity Limits– Principle of indemnity– Policy limits

• Factors that reduce the cost of insurance:– Deductibles– Coinsurance



• The essence of insurance– Law of large numbers

• Who sells insurance?– Insurance agent– Independent insurance agents


Homeowner’s Insurance

• Coverages

• Property insurance– Named-perils policies– All-risk (open-perils) policies


Homeowner’s Insurance

• Liability insurance– Homeowner’s general liability protection

– Homeowner’s no-fault medical payments protection

– Homeowner’s no-fault property damage protection


Types of Homeowner’s Insurance Policies

• Basic Form (HO-1)

• Broad Form (HO-2)

• Special Form (HO-3)

• Renter’s Contents Broad Form (HO-4)

• Condominium Form (HO-6)

• Older Home Form (HO-8)


Buying Homeowner’s Insurance

• How much coverage is needed on your dwelling?– Replacement-cost requirement

• How much coverage is needed on your personal property?– Actual cash value (of personal property)– Contents replacement-cost protection


Automobile Insurance – Losses Covered

• Coverage A: Liability insurance– Automobile Bodily Injury Liability

– Automobile Property Damage Liability

– Family Auto Policy (FAP)

– Personal Auto Policies (PAP)



• Coverage B: Medical payments insurance – Automobile medical payments insurance

– Personal Injury Protection (PIP)

– Subrogation rights



• Coverage C: Uninsured and underinsured motorist insurance– Uninsured motorist insurance

– Underinsured motorist insurance



• Coverage D: Physical damage insurance– Collision insurance

– Comprehensive automobile insurance



• Other protections:– Towing coverage

– Rental reimbursement coverage


Protection for Other Property and Liability Loss Exposures

• Comprehensive personal liability insurance

• Professional liability insurance– Professional liability insurance (or malpractice

insurance)

• Umbrella (or excess) liability insurance

• Floater Policies


How to Collect on Your Property and Liability Losses

• Contact your insurance agents.

• Document your loss.

• File your claim.– Claim adjuster

• Sign a release.


The Top 3 Financial Missteps In Managing Property and Liability RiskPeople slip up in when they do the following:

1. Buy only the legal minimum coverage on the liability insurance on their car.

2. Fail to keep good records that could serve to document insured property losses.

3. Pay high premiums because they select low deductibles on property insurance.


Good Money Habits in Managing Property and Liability Risk

• Always insure your home and vehicle.

• Purchase insurance policies with very high liability limits to protect against the possibility of catastrophic losses.


Good Money Habits in managing Property and Liability Risk

• Verify that your auto insurance policy covers rental car losses so you can wisely ignore sales pressure to purchase such overpriced coverage.

• Always comparison shop for insurance locally as well as online.


Good Money Habits in managing Property and Liability Risk

• Maintain a verifiable inventory of all your insured property so that you can collect what is coming to you in the event of a loss.

• Once each year, reassess what types of and how much insurance coverage you need.

Chapter 10: Managing Property and Liability Risk Garman/Forgue Personal Finance Ninth Edition PPT...

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