Chapter 12 Property and Liability Insurance The Concept of Liability Liability is the financial responsibility one person has to another in a situation

Chapter 12Property and Liability Insurance

• The Concept of LiabilityLiability is the financial responsibility one

person has to another in a situation.

It usually results from some type of negligence


• Reasonable Care– An important aspect of liability– Defined as the action any responsible person

would take in a similar situation


• Strict LiabilityA person is held responsible for actions even if

they are not directly at fault – A dog owner may be responsible for actions

of his dog regardless of whether or not the dog is normally kept on a leash


• Vicarious LiabilityExtends the responsibility for avoiding

negligence to the actions of other people

– Example: parents may be held liable for damage done by their child


• Two Major Forms of Liability Insurance1. Liability portions of homeowners and

automobile insurance

2. Umbrella liability coverage


• What Does a Homeowners Policy Cover?1. Damage to the housePays to provide protection against peril

(something that can damage or destroy your home)

Example: fire

• Based on the replacement cost of the house, not on purchase price


• What Does a Homeowners Policy Cover?– Usually covers other structures standing on

your property such as a detached garage, storage shed, and even the mailbox.

Coverage for up to 10% of the amount of coverage on your home


• What Does a Homeowners Policy Cover?3. Damage to trees and shrubs– Plants, trees, lawn and other greenery which

surround the insured house may be covered up to a certain percentage of the coverage on the house


• What Does a Homeowners Policy Cover?4. Personal property losses– Loss of personal property from theft or

damage usually covered for about 50% of the coverage on the house


• What Does a Homeowners Policy Cover?5. Additional living expenses

Often the house becomes unlivable as a result of damages

Policy pays up to 20% of the coverage of the house for

temporary quarters while house is being repaired


• What Does a Homeowners Policy Cover?6. Liability– Protects against financial disaster if a guest

is injured in the home– Most policies offer at least $50,000 with

more available at an added cost


• What Does a Homeowners Policy Cover?7. No-fault medical payments and damages– Offers protection if someone has an accident

that has nothing to do with the homeowners personal negligence • Example: a visitor trips over a tree trunk

– Will cover bills up to $1,000


• How Much Coverage Should You Have?–Homeowners policies require that your

insurance be equal to at least 80% of the replacement value of the house

–Otherwise, you may receive less than full reimbursement for losses

–You actually become a co-insurer for rest of the amount


• Replacement Cost vs. Actual Cash ValueRecommended that you buy full replacement

cost coverage

• Pays the entire cost to repair or replace the structure regardless of original cost


• Replacement CostExample: If a garage door which cost $800 ten

years ago needs to be replaced, the policy will reimburse the owner what it currently costs to purchase a garage door, not $800.


• Actual Cash Value– Only pays amount equal only to replacement

cost minus depreciation

Example: If a garage door which cost you $1,500 and typically lasts 10 years needs to be replaced in year five, you will only receive only $750 to replace it


• The DeductibleThe insured pays for a specified amount of

damage before coverage begins– Standard deductible is $250– One way of holding down insurance costs is

to opt for a higher deductible


• Supplements to Homeowners Policies1. Endorsements

Amendments to standard policy to customize policy to your needs

• Inflation-protection endorsement -- automatically raises insurance protection to reflect increasing costs• Replacement-cost endorsement -- provides

replacement cost coverage for personal property, NOT actual cash value


• Supplements to Homeowners Policies2. Floaters

Designed to protect specific valuable property against almost all risks

• Provides coverage beyond low maximum set by standard personal property coverage

• Property is scheduled

• Value set by appraisal or bill of sale


• Automobile InsuranceAmericans pay five times more in auto-

insurance premiums each year than they do in homeowners insurance premiums

Single largest form of property and liability insurance


• Types of Coverage1. Bodily injury and property damage liability

2. Medical payment coverage

3. Uninsured/underinsured motorist coverage

4. Collision coverage

5. Comprehensive physical damage coverage


• Bodily Injury and Property Damage Liability– Covers the insured if car kills or injures• a pedestrian • someone in the insured’s car• someone in another car


• Bodily Injury and Property Damage Liability

Coverage quotations in following format:

50/100/10


• 50/100/10– First number refers to the maximum amount

in thousands of dollars that the company will pay for death or injuries to ONE PERSON IN AN ACCIDENT:

The company will pay up to $50,000 per person based on the above quote


• 50/100/10– The second number is the maximum amount

of coverage in thousands of dollars for death or injuries TO TWO OR MORE PEOPLE:

The company will pay up to $100,000 total for all the death or injuries resulting from a single accident


• 50/100/10– The third number is the limit in thousands of

dollars FOR PROPERTY DAMAGE

The company will pay no more than $10,000 for property damage based on this quote


• Medical Payment Insurance– You are covered for auto accident-related

medical expenses for yourself, your family, and any passengers in the car

– All family members are covered while riding in someone else’s car

– All family members are covered if struck while walking


• Uninsured/Underinsured Motorist InsuranceCovers injuries to insured and family caused

by uninsured motorist and hit-and-run drivers

Also covers you and your family in someone else’s car or as pedestrians


• Collision InsuranceIf YOU ARE AT FAULT in an accident, collision

insurance will– Pay to repair your car– Total your car if the damage is too extensive

to repairCollision insurance is NOT REQUIRED– A good idea if your car is new or a few years

old, but not if car is older


• Comprehensive Physical Damage Insurance Protects against financial loss if car is stolen

– Protects against loss is car is damaged by something other than another automobile, for example:• earthquake or windstorm• break-in or vandalism• fire or explosion


• No-Fault InsuranceReduces the need to assign blame

Each driver files claims with own insurance company

Nearly half of states have some form of no-fault insurance


• Factors Determining Premium Costs Amount and type of coverage

Place of residence

Personal characteristics

Automobile usage

Driving record

Type of car driven

Eligibility for certain premiums


• Personal Characteristics– Age• The older the driver, the lower the percentage of

accidents

– Sex• Women generally have fewer accidents than men

– Marital status • Young, married people have fewer accidents

than young, single people


• Driving Record– Safer driver (with no accidents in recent

years) given better rates

– People with poor driving records may have to buy insurance through assigned risk pools

Coverage is limitedPremiums are higher than normal


• Steps in Filing ClaimsCall the police; get a copy of the reportTry to protect your car from further damageMake detailed notes about accidentNotify insurance company promptlyKeep accurate records of related expensesKeep all paperwork related to claim or the

accident

Documents

Chapter 12 Property and Liability Insurance The Concept of Liability Liability is the financial responsibility one person has to another in a situation