Property Insurance Basics Types of Exposure: 1. Property loss—economic loss because your property is damaged, destroyed, or stolen. You should: • Inventory your property. • Identify perils to be insured against.
Types of liability protection: Homeowner’s policy Automobile policy Umbrella policy Professional policy, such as malpractice or errors and omissions 2.Liability—damage you cause others, either through your actions or negligence.
Principle of Indemnity: • The insured is entitled to payment from the insurance company only if a loss covered by the policy has been suffered. • The amount of payment should not be greater than the economic value of the loss.
Concepts Related to Indemnity: • Actual cash value vs. replacement cost—You can collect, at most, the depreciated value of your property unless you have replacement cost coverage. • Subrogation—You give your right to collect damages from the person who harmed you to the insurance company once the company has paid you.
Insurance companies do not want you to be able to profit from a loss; they wish to prevent the moral hazard that the insured would be tempted to destroy property in order to gain. • Other insurance—If multiple companies insure the property, the companies together will not pay you more than your economic loss.
Coinsurance: • You must buy insurance in an amount equal to at least a certain percentage of the replacement value of your property, usually 80%. • Otherwise, the insurance company will not fully repay you for your loss. You have become the "coinsurer" and must bear part of the loss.
Types of Policies: • HO-2—broad form; provides limited coverage. • HO-3—special form; the most frequently used, it provides more extensive coverage. • HO-4—renter's insurance. • HO-6—condo owner's insurance. • HO-8—older home where replacement cost far exceeds the market value.
Policy Features: • Policies state the conditions (perils) under which the policy will pay and also stipulate the property that's covered and the extent to which it's covered. • Peril—defined as a cause of loss. Ex: fire, lightning, windstorm.
Perils & Property Covered: This part is divided into 2 sections. Section I deals with loss to your property, under what conditions it will be covered, and the extent of coverage. Section II deals with liability which may arise in connection to this property, either through your actions or negligence.
Perils which are rarely covered are flood, earthquake, and acts of war. Your policy may also exclude other perils. • Home businesses or offices may need separate coverage in addition to homeowner’s policy. • Personal Property Floater (PPF)needed for items whose value exceeds policy limits.
Renters and Condo Owners: • Contents of apartments and condos are not covered by the insurance on the structure. • Cost of renter’s or condo owner’s insurance usually very reasonable. • Policies include coverage on contents as well as liability coverage; protect you at home and away. • Replacement cost coverage also available.
Types of Losses Covered: • 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.
Persons Covered: States who is covered under the policy, such as the homeowner and residents of the household. Coverage for guests and students away at college may be limited. • Locations Covered: Most policies cover your personal property worldwide unless it's at a second home.
Limitations on payments: • Limits are placed on the property covered and depend on the amount of coverage on the home. Ex: Your home is covered for $100,000. • Its contents are covered also, up to 50% of policy amount, or $50,000. • Other structures are covered, up to 10% of policy amount, or $10,000. • Coverage for loss of use, liability, and medical payments to others also limited.
Actual Cash Value is what the property is worth today (depreciated value). • Replacement Cost is the amount necessary to restore your property at today's prices. This coverage for both the home and its contents is much more desirable and usually does not add much to the cost. • Inflation Protection Rider—also very desirable. Automatically adjusts coverage in keeping with inflation.
Internal Limits also apply to specific items. For example: Money $ 200 Securities $1,000 Watercraft $1,000 Jewelry $1,000 Firearms $2,000 Silverware $2,500
Deductible is the amount you must pay out of pocket on covered losses. Deductibles help hold down insurance costs because they eliminate frequent small loss claims which are proportionately more expensive to administer.
Differ from company to company. Premiums • Differ depending on type of structure, location of property, and hazards on property (ex: swimming pool, large dog). • Differ on discounts offered, such as for nonsmokers or for security systems.
Adding an inflation rider so that your coverage will keep pace with inflation. Replacement cost coverage rather than actual cash value so that you will have enough to replace your property. Increasing liability and medical payments limits, as standard coverage in these areas is usually quite low. Increase your deductible. Better to bear small costs out of pocket and insure adequately against the catastrophic. Consider . . .
Automobile Insurance:Types of Coverage Part A: Liability • Required in most states. • Pays injury and property damages to otherswhen you are responsible for the loss. • Covers costs of settling or defending claims for damages.
Policy Limits: • Insurance company will likely limit the total damages paid for any one accident. • Typical single dollar limits are $50,000, $100,000, $300,000 and $500,000. • Some insurers split the limits of liability coverage available.
Example: Minimum Liability Requirements for Texas 20/40/15 • $20,000 bodily injury per person. • $40,000 bodily injury per accident. • $15,000 property damage per accident. • Who pays if the costs exceed these limits? If you only have the minimum, your insurer will cover at most:
Part B: Medical Payments • Reimburses for medical expenses resulting from an accident. • Covers the insured, family members, and passengers in covered autos. • Covers injuries sustained as a pedestrian or while riding a bicycle.
Part C: Uninsured Motorists • Pays when other driver has no insurance or in the case of hit-and-run. • Must meet these criteria: 1. Other driver was at fault. 2. Other driver had no insurance. 3. Damages were incurred. • Usually pays only for bodily injuries, not property damage. • Additional coverage available for protection against underinsured motorists.
Collision: • Pays the actual cash value of the damage (loss), minus any deductibles. Part D: Damage to Your Car • Pays no matter who is at fault. • Usually required for financed cars (lender wants to protect the investment).
Comprehensive: • Protects against loss to insured auto caused by perils other than collision. • Examples: hail, fire, theft, falling objects.
Factors That Affect Premiums • Where the car will be driven. • Amount vehicle will be driven. • Personal characteristics of the driver. • Type of automobile. • Driving record of the insured.
Holding Premiums to a Minimum • Comparison shop. • Take driver's education. • Take defensive driving. • Be a good student. • Have airbags and a security system. • Raise your deductibles.
Other Property & Liability Insurance • Earthquake & flood—not included in standard homeowner's policies. • Other forms of transportation—mobile homes, RVs, boats, etc. • Personal liability umbrella—additional liability coverage.
Settling Claims • After an accident, get names, addresses, phone numbers, driver's license numbers, insurance policy numbers, and description of vehicle of all parties involved. • Take pictures or sketch the accident. • Get names, addresses, and phone numbers of any witnesses. • Contact the police immediately. • Contact your insurance agent immediately.
Your Company Will: • Require timely notice of accident. • Investigate the claim. • Require you to prove your loss. The Claims Adjustor Will: • Evaluate the claim. • Recommend settlement of the amount requested or a lesser amount, or recommend denial of the claim.