Copyright © 2008 Pearson Education Canada 4-1 Chapter 4 General Insurance.
Transcript of Copyright © 2008 Pearson Education Canada 4-1 Chapter 4 General Insurance.
Copyright © 2008 Pearson Education
Canada 4-2
Risks of Ownership Property damage or loss Liability for damages
Copyright © 2008 Pearson Education
Canada 4-3
Property Damage/loss Owners of
Home, automobile, snowmobile Damage or loss due to
Fire, theft, vandalism
Copyright © 2008 Pearson Education
Canada 4-4
Liability for Damages Personal risk liability Negligence Carelessness Ownership
Automobile Building Dog
Renters/lessors
Copyright © 2008 Pearson Education
Canada 4-5
The Insurance Principle Pooling/sharing risk
Large number of people Pay regular fee Protection against a hazard
Copyright © 2008 Pearson Education
Canada 4-6
Cost of Insurance Two components
1. Pure cost of insurance2. Loading charges
Copyright © 2008 Pearson Education
Canada 4-7
1. Pure Cost of Insurance Probability of an event occurring
Predicted by actuaries Cost of compensation
Value of property Number sharing risk
Lower cost for larger number
Copyright © 2008 Pearson Education
Canada 4-8
Probability of Event Occurring
Fire, for example Proximity of hazards Flammability of property Proximity of fire-fighting facilities
Copyright © 2008 Pearson Education
Canada 4-9
2. Loading Charges Cover insurance company’s costs
Collecting/managing insurance funds Settling claims Dividends to shareholders
Variable from company to company
Copyright © 2008 Pearson Education
Canada 4-10
Risk Management Insurable interest Insurable risk Handling risk
Copyright © 2008 Pearson Education
Canada 4-11
Insurable Interest Buyer must suffer financial loss
If the insured event occurs Prerequisite to buying insurance Applies to all types of insurance
Copyright © 2008 Pearson Education
Canada 4-12
Insurable Risk Loss must result from chance
events E.G. Accidental death
Not caused by deliberate action E.G. Death by suicide
Copyright © 2008 Pearson Education
Canada 4-13
Handling Risk Eliminate risk Reduce risk Handle risk yourself Share risk
E.G. Buy insurance
Copyright © 2008 Pearson Education
Canada 4-14
Insurance Policy Insurance contract Declaration sheet Insuring agreement Conditions Endorsements/riders Cancellations
Copyright © 2008 Pearson Education
Canada 4-15
Insurance Contract Legal contract between
Insured person Insurance company
Mutual of Omaha Insurance Company
Copyright © 2008 Pearson Education
Canada 4-16
Declaration Sheet Completed when insurance is
bought Includes such information as
Names Dates Premium Coverage
Copyright © 2008 Pearson Education
Canada 4-17
Insuring Agreement Pre-printed part of the policy
showing Kinds of property covered Perils insured against Exclusions How settlements are made
Actual cash value Replacement value
Copyright © 2008 Pearson Education
Canada 4-18
Policy Conditions Responsibilities of
Insurer Insured
Termination of policy
Copyright © 2008 Pearson Education
Canada 4-19
Endorsements Riders Changes
Ownership Risk situation Coverage addition/deletion
Copyright © 2008 Pearson Education
Canada 4-20
Cancellation of Policy Cancel at any time Pay more than prorated premium
Copyright © 2008 Pearson Education
Canada 4-21
Claims Process Adjusters Actual cash value insurance Replacement value insurance Insurer’s liability Subrogation procedure
Copyright © 2008 Pearson Education
Canada 4-22
Adjusters Appraisal specialists
May be insurance company employees
May be independent Estimate the extent of damages Report to claims department
Copyright © 2008 Pearson Education
Canada 4-23
Actual Cash Value Insurance Follows the indemnification principle
Return to previous financial condition Replacement value (usually)
Minus accumulated depreciation Standard depreciation tables
Betterments charged to insured person When repairs improve property
Salvage value belongs to insurance company
Copyright © 2008 Pearson Education
Canada 4-24
Replacement Value Insurance Doesn’t follow indemnification
principle Insured may be better off Replace with new
Depreciation not considered Higher premium Very popular
Copyright © 2008 Pearson Education
Canada 4-25
Insurance Company’s Liability Can’t exceed
Policy limits Actual cash value of loss Cost of repairs
Minus the deductible
Copyright © 2008 Pearson Education
Canada 4-26
Subrogation Procedure Insurer indemnifies claimant for
loss Insurer attempts to recover
damages From person responsible for loss
Copyright © 2008 Pearson Education
Canada 4-28
Risks Accidental
Fire, smoke, water Wind, falling objects
Criminal actions Vandalism Theft
Copyright © 2008 Pearson Education
Canada 4-29
Coverage Named-peril All-risk Scheduled property rider
Copyright © 2008 Pearson Education
Canada 4-30
Named-peril Coverage Protection from specific perils
Listed in contract Typical for household contents
Copyright © 2008 Pearson Education
Canada 4-31
All-risk Coverage More comprehensive coverage Covers all risks
Except those specifically excluded Age, rust
Typical for house insurance
Copyright © 2008 Pearson Education
Canada 4-32
Scheduled Property RiderValued Contract Endorsement All-risk insurance for certain
possessions Jewelry, coin collections, antiques
Lists items covered Lists value of items
Appraisal Maximum liability
Value when insured Optional automatic inflation adjustment
Copyright © 2008 Pearson Education
Canada 4-33
Co-insurance Clause An inducement to purchase
adequate insurance If underinsured
Any settlement pro-rated
Copyright © 2008 Pearson Education
Canada 4-34
Mortgage Lender Shares in insurance settlement
If the property is not paid off Not voided by owner’s act or
neglect E.G. Arson by owner
Owner’s claim is void Lender entitled to compensation
Copyright © 2008 Pearson Education
Canada 4-35
Inventory Itemized list of assets and their
value Proof of loss established through
Sales receipts Written appraisals Photographs Video recordings
Copyright © 2008 Pearson Education
Canada 4-36
Inflation Many policies contain
Automatic adjustment clause
Copyright © 2008 Pearson Education
Canada 4-38
Personal Liability Insurance Coverage
Damage to property Injury to other persons Liability insurance Negligence
Copyright © 2008 Pearson Education
Canada 4-40
Risk of Automobile Ownership
1. Liability to others2. Personal injury or death3. Damage to vehicle
Copyright © 2008 Pearson Education
Canada 4-41
Risk 1. Liability to Others Insurance coverage required
Third-party public liability Compulsory
Does not cover your injuries Does not cover damage to your
car
Copyright © 2008 Pearson Education
Canada 4-42
What Does Third Party Liability Cover? Covers someone else’s (a third
party’s) Injury, death, or property damage Due to your negligence
Your negligence must be proven Your fault must be proven E.G. Breach of highway traffic act
may be used to determine negligence
Copyright © 2008 Pearson Education
Canada 4-43
How Much Will Insurer Pay? The liability policy limits
E.G. $1,000,000 If the claim is larger than this
You pay the remainder
Copyright © 2008 Pearson Education
Canada 4-44
What Is Negligence? Ordinary negligence
Failing to do what is reasonable Failing not to do what is reasonable
Gross negligence Reckless, wanton, willful misconduct Fails to exercise due care by a wide
margin Indifference to probable consequences
Copyright © 2008 Pearson Education
Canada 4-45
Risk 2. Personal Injury or Death Risk of personal injury/death
To the car’s occupants, or To persons struck by car
Insurance coverage required Medical insurance or accident
benefits
Copyright © 2008 Pearson Education
Canada 4-46
Accident Benefits Coverage No fault
Payments made without reference to fault
Payments made to policy-holder Coverage (variable)
Disability income, medical payments Death payments, funeral expenses
Not compulsory in Newfoundland and Labrador
Copyright © 2008 Pearson Education
Canada 4-47
Risk 3. Damage to Vehicle Risk
The vehicle may be stolen or damaged Physical damage coverage
Vehicle’s actual cash value Subject to a deductible amount
No fault Payments made without reference to
fault
Copyright © 2008 Pearson Education
Canada 4-48
Types of Physical Damage Coverage All-perils Specified perils Collision Comprehensive
Copyright © 2008 Pearson Education
Canada 4-49
All-perils Coverage Broadest coverage Includes everything (and more)
included in Specified perils Collision Comprehensive
Copyright © 2008 Pearson Education
Canada 4-50
Specified Perils Coverage Coverage includes only named
risks
Copyright © 2008 Pearson Education
Canada 4-51
Collision Insurance Coverage When vehicle collides with another
object Coverage applies
Striking or being struck by another vehicle
One-vehicle accidents Striking guard-rails, trees, rocks, the
ground, etc.
Copyright © 2008 Pearson Education
Canada 4-52
If the Collision Is Caused by Another Driver’s Negligence Your insurance company
Pays your damage claim Regardless of fault
Even pays your deductible If the insurance company is successfully
reimbursed through subrogation from the at-fault driver
Copyright © 2008 Pearson Education
Canada 4-53
Comprehensive Insurance Coverage Covers perils to your car other
than collision Theft, vandalism, fire, lightning, wind,
hail Perils that may be excluded under
collision Subject to a deductible amount
Copyright © 2008 Pearson Education
Canada 4-54
Insurance Rates Affected by Personal characteristics
Age, gender, marital status Type of car
Sport’s utility vehicle, pick-up, 4x4 Use of car
Work or pleasure, distance to work Region
Population, adverse driving conditions
Copyright © 2008 Pearson Education
Canada 4-55
No-fault Insurance for Third Party Liability Claims No proof of fault No litigation costs All claims paid quickly Quebec and Manitoba