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Protecting Your Property

#10

Property Insurance Basics

Property insurance

• protects real and personal property from losses from various perils

Liability insurance• protects against

financial consequences from insured's responsibility to others

Types of Exposure

• Inventory property• Identify potential perils

Property loss - economic loss due to property that is damaged, destroyed, or stolen

Types of liability protection:• Homeowner’s policy• Automobile policy• Umbrella policy

Liability - damage you cause others, either through your actions or negligence.

Types of Exposure

Principle of Indemnity

• Insured may not be compensated by insurance company an amount exceeding economic loss

Most property and liability insurance contracts are based on this principle

Concepts Related to Indemnity

Actual cash value

• value assigned to insured property – Replacement

cost less depreciation

Right of Subrogation• Insurer’s right to

request reimbursement from person who caused the loss or that person’s insurer

Insurance companies do not want you to profit from a loss

Other insurance clause - When multiple companies insure a property, together they will not pay more than the economic loss

Concepts Related to Indemnity

Coinsurance

• Provision requiring policyholder to buy insurance in an amount equal to a certain percentage of replacement value of property

• Or, insurance company will not fully repay the loss

– You bear part of the loss as “co-insurer”

Homeowner's Insurance

• HO-1— Basic Form• HO-2— Broad Form• HO-3— Special Form• HO-8— Modified Form

• HO-4— Renter's Form• HO-6— Condominium

Form

Homeowners Renters

• Policy states conditions (perils) under which it will pay

• Stipulate property covered and extent of coverage

Peril—a cause of loss such as fire, lightning, windstorm

Homeowner's Insurance

• Type of structure– Construction materials, style, age

• Location of home– Crime rates, weather, proximity

to fire hydrant

• Other factors– Pool, trampoline, large dog

Factors Affecting Home Insurance Costs

Section I –

• Loss to property, conditions under which it will be covered, extent of coverage– Perils rarely covered:

flood, earthquake, acts of war

Section II – • liability which

may arise in connection to property, either through your actions or negligence

Property Covered

Provides blanket or scheduled coverage of expensive personal property not adequately covered by standardized homeowner’s policy

Personal Property Floater

Renter’s Insurance

• Personal furnishings and belongings are not covered although the building may be fully insured

• Purchase a special type of homeowners policy

Types of Losses Covered by Homeowner’s Policies

• Direct loss of property

• Indirect loss occurring as a result of loss of use of damaged property

• Additional expenses resulting from direct and indirect losses

• Policy states who is covered Coverage for guests and students at

college may be limited

• Most homeowner’s policies offer coverage worldwide Second home may be an exception

Persons and Locations Covered

Limitations on Payments

Policy limits• placed on

covered property and depend on amount of home coverage

Replacement cost• amount necessary

to repair, replace, or rebuild an insured asset at today’s prices

• Actual Cash Value - what property is worth today (its depreciated value)

• Replacement Cost – amount to repair, rebuild or replace at today’s price

• Inflation Protection Rider - automatically adjusts for inflation

• Internal Limits - apply to specific items such as jewelry, watercraft, or securities

Limitations on Payments

Deductibles keep insurance costs down by eliminating frequent small loss claims that are proportionately more expensive to administer

Deductible - amount paid out of pocket on covered losses

Deductibles

Homeowner Premiums

• Differ from company to company• Depend on structure type, property

location, or property hazards • Discounts offered

– non-smokers– security systems

Types of Automobile Insurance Coverage

• Part A – Liability coverage• Part B – Medical Payments coverage• Part C – Uninsured motorists coverage• Part D – Coverage for damage to your

vehicle

Part A: Liability Coverage

• Required in most states• Pays injury and property damages to others

when you are responsible for the loss• Covers costs of settling or defending claims

for damages

Part A: Policy Limits

• Insurance company may limit total damages paid for any one accident– Typical limits are $50,000, $100,000,

$300,000 and $500,000

• Some insurers split the limits of liability coverage available

Four Parts of a PAP

Part A: Persons Insured

Insured Person• the named insured• family members• any person using

covered auto• any person or

organization responsible for insured’s actions

Covered Auto• listed on declaration

page • acquired during

policy period • any vehicle

temporarily used while auto is being repaired

• Reimbursement for medical expenses resulting from an accident

• Covers insured, family members, and passengers in covered autos

• Covers injuries sustained as a pedestrian or while riding a bicycle

Part B: Medical Payments

• Pays when other driver has no insurance or if hit-and-run

• Usually pays for bodily injuries, not property damage

• Additional coverage available to protect against underinsured motorists

Must meet criteria:• Another driver at

fault• Other motorist

uninsured• Damages were

incurred

Part C: Uninsured Motorists

Part D: Physical Damage to a Vehicle

Collision • Pays the actual cash value of the damage

minus deductibles• Pays no matter who is at fault• Required for financed cars to

protect the investment

• Protects against loss to insured auto caused by perils other than collision– hail, fire, theft, falling objects

Comprehensive

Part D: Physical Damage to a Vehicle

• Reimburses parties involved in an accident without regard to negligence

• Each party compensated by their own insurance company

• Restricts remedies and payments for pain and suffering

• State laws vary regarding amount of no-fault benefits and restrictions for legal actions

No-Fault Automobile Insurance

Factors Affecting Premiums

• Rating territory • Use of automobile• Driver’s personal characteristics• Type of automobile• Driving record

Financial Responsibility Laws

Require motorists to buy a minimum amount of auto liability insurance

• Compulsory auto insurance laws require proof of insurance when acquiring license plates

• Others require proof of coverage after an accident

Supplemental Property Insurance Coverage

• Earthquake & flood - not included in standard homeowner's policies

• Other forms of transportation - mobile homes, RVs, boats, etc.

Personal liability umbrella - additional liability coverage for homeowner and auto insurance

Property and Liability Insurance Agents

Captive agent Represents one insurance company

Independent agent Represents multiple insurance companies

Before selecting• Review total property

and liability exposures • Inventory property and

identify exposures• Determine appropriate

covered perils, limits, deductibles, and floater policies

Buying Insurance and Settling Claims

names, addresses, phone numbers

driver's license, auto license, insurance policy numbers

vehicle description for all involved

get names, addresses, phone numbers of witnesses

contact police and insurance agent

After an accident be sure to get:

Remember to --

Do not leave the scene of the accident

1. Notice to insurance company

2. Investigation

3. Proof of loss

Claims adjustor will:1. Evaluate claim

2. Recommend settlement of amount

requested settlement of a lesser

amount denial of claim

Steps in Claim Settlement