Chapter 13

Page 411Home and Motor Vehicle Insurance Chapter 13Why Have Insurance?Insurance is protection against possible financial loss.

Protection against future mishaps (when something happens to you or your property)InsurerOr the insurance company- is a risk sharing business that agrees to pay for losses that may happen to someone it insures.PolicyA contract joining the person who buys insurance to a risk-sharing group

Policyholder - the person who buys the policy (pays for protection also known as the insured)

Under the policy the insurance company agrees to take on the risk of the policy holderPremiumFee for which the policyholder pays the companyCoverageProtection provided by the terms of an insurance policyTypes of RiskRisk the chance of loss or injury to a person or propertyPeril anything that may be possibly cause a loss (fire, wind, robbery, car accidents)Hazard is anything that increases the likelihood of loss through peril (bad wiring causing a fire)Negligence the failure to take ordinary or reasonable care to prevent accidents from happening (example a homeowner doesnt fix a big crack in their steps)Pure RiskAre accidental and unintentional where the insurance will pay if some event actually happensTornado Speculative RiskRisk that carries a chance of either loss or gainExample starting a business that might failSpeculative risk is not insurable Risk Management Risk AvoidanceRisk ReductionRisk AssumptionRisk ShiftingRisk AvoidanceAvoiding dangers Taking precautions (installing a car security system)Risk ReductionBecause not all risk can be eliminated you can take precautions to reduce harmWear a seatbeltNot smokingBuying fire extinguishers Risk AssumptionTaking on responsibility for the negative results of risk:Not paying for comprehensive car insurance on an older car (because the car isnt worth that much youll assume the risk if you do hit a deer)

Self- Insurance not buying insurance and just putting money into savings for when/if something bad does happenRisk ShiftingTransfer the risk to an insurance company

In exchange for a fee the insurance company agrees to pay for your loses

Deductible the set amount that the policyholder must pay per loss on an insurance policy$500 collision insurance: you wreck, you pay for the first $500 worth of damage and the insurance company pays for the restInsurance PlanningSet Insurance Goals: how much insurance do you need to have to cover all your costs if something happens (depends on age, income, family size)Develop Plan: know types of insurance and measure risks takingAction: purchase coverageReview: look at your costs, deductibles, and coverage by policies Importance of Property InsuranceIn 2004 hurricane Charley caused $6.8 billion dollars worth of insurance claims (not including losses of those who werent insured)

Each year in the US there are more than 3 million burglaries, 500,000 fires, and 200,000 cases of damage from other perils

Insurance plans help protect you from financial loss

Insurance Claim requests for payment to cover financial lossesProperty Damage/LossProperty owners face 2 types of lossPhysical damage by perilsFire, wind, floodLoss or Damage by criminal behaviorRobbery, burglary, vandalism, arson

Insurance can help protect yourself from loss of or damage to your propertyLiability InsuranceLiability is the legal responsibility for the financial cost of another persons losses or injuries (even if you do nothing wrong)Someone gets hurt while on your propertyYou help someone move and you damage their property

You can be found liable (legally responsible) if your negligence caused the mishap Negligence: failure to show care/do as a reasonable person would do in the same situationAssignmentPage 4181-4 & 613.2 Page 419Home and Property InsuranceHomeowners InsuranceIs coverage that provides protection for your residence and its associated financial risks, such as damage to personal property and injuries to othersHomeowners covers:Home, buildings, and other structures Additional living expensesPersonal propertyPersonal liability Specialized coverageBuildings and Other StructuresHomeowners protects you against financial loss in case your home is damaged or destroyed along with other structures on your property (even trees landscaping!)Additional Living ExpensesCovers you if you have to pay to stay somewhere else because your home is damaged Limited to 10-20% of the homes total coverageLimit the payment period to a max of 6-9 monthsPersonal PropertyHousehold belongings (furniture, appliances, and clothing) are covered by the personal property portion of homeowners

Personal Property coverage typically includes limits for the theft of certain items ($1,000 for jewelry)

Can include optional coverage (for additional cost) to cover computer or tv due to power surge or spilled drink. Household InventoriesIf something happens to your personal propertyYou must be able to prove how much it was worth and that it belonged to you.

Household Inventory is a list or other documentation of personal belongs, with purchase dates and cost info. Videos and photos recommendedAlso inventory, serial numbers, and receipts would be idealAdditional Property InsurancePersonal Property Floater: is additional property insurance that covers the damage or loss of a specific item of high valueExample: wedding ring, golf clubs, computersPersonal LiabilityGuest falls down on your stepsYour BBQ ash causes a fire damaging neighbors roofSon breaks a neighbors antique lamp

Personal liability portion of your homeowners policy protects you and members of your family if others, sue you for injuries they suffer or for damages to their propertyAmounts of CoverageTypical homeowners policies provide basic personal liability coverage of $100,000

Umbrella policy called personal catastrophe policy allows you to cover all kinds of personal injury claims

Medical Payments Coverage pays the cost of minor accidental injuries to visitors on your property (do not cover people who live in the home)Specialized CoverageFloods and earthquakes not covered in homeowners If you live in an area where they are frequent youll need to purchase special coverage for them.Renters InsuranceProtection for personal property

Your belongings are not covered under the landlords policy, unless the landlord is liable for the damage.Bad wiring causes a fire = landlords faultLeaving the oven on = not covered unless renters insuranceHome Owner FormsHO-1: basic: protects against perils (fire, wind, hail)HO-2: broad: wider range of perils (falling objects, ice, snow damage)HO-3: special: covers all basics + all types of perils (except flood, earthquake, war, nuclear accidents)HO-4: tenants: personal property of renters not building/structuresHO-5: comprehensive: replacement costsHO-6: condos: protects property and improvements made to condoActual Cash Value:The payment you receive to settle the claim is based on the replacement cost of an item minus depreciationLoss of value when it gets olderReplacement Value:Method for settling claims, you receive full cost of repairing or replacing an itemThis type of coverage will obviously have a higher premium because its worth more!

Example: Your 1990 tube TV gets zapped by lightningActual Cash Value: maybe $10.00Replacement Value: $600.00Home Insurance Cost FactorsLocation (proximity to hazards or fire departments)Type of structure (brick is cheaper because safer)Coverage Amount (the more coverage the more expensive)Discounts (locks, security systems, smoke detector)Company differences (price around!)AssignmentPage 4291-6Page 430The average household spends more than $1,000 for motor vehicle insurance yearlyMotor Vehicle InsuranceMotor Vehicle AccidentsCost more than $150 billion in lost wages and medical bills every yearEvery state in the US requires the driver to prove he or she can pay for damage or injury caused by an automobile accident if she or he was at fault (liability insurance)Bodily Injury LiabilityInsurance that covers physical injury caused by a vehicle accident for which you are responsiblePedestrians, passengers, people in other vehiclesLiability coverage is usually expressed by 3 numbers (100/300/50) is the max amounts insurance company will pay to injured partiesFirst number: max paid for injury of 1 person (100,000 is recommended)Second number: max paid for injuries of all parties (more than 1 involved) (300,000 is recommended)Third number: max paid for property damaged (cars, fences)Medical Payments coverageCoverage if you (and family) were hurt while driving or if while in another persons vehicle Uninsured Motorists ProtectionEveryone who is driving is legally supposed to have liability insurance but if they dontFine and suspension of license if caught driving withoutUninsured motorists protection is insurance that covers you and your family members if you are involved in an accident with an uninsured or hit-and-run driver.Property Damage LiabilityApplies when you damage the property of others (cars, buildings, poles, signs)Also if you are driving another persons vehicle with the owners permission Collision InsuranceInsurance is insurance that covers damage to your vehicle when it is involved in an accident and you are at fault.Amount is limited to the cash value of your vehicle at the time of accident.

if someone else caused the wreck your property damages are paid for out of their liability insurance if you cause the wreck your liability protection pays for their car/injuries but your collision insurance pays for your car damageMany older cars wont carry collision insurance because the value of the car isnt worth itExample : you have a car worth $1500..why pay $800 a year to protect it?Comprehensive Insurance (Physical Damage)Protects you if your vehicle is damaged in an non-accidentDeer, fire, theft, falling objects, vandalism, hail, floods, tornadoesNo-Fault InsuranceIs an arrangement whereby drivers who are involved in accidents collect money from their own insurance companiesSpeeds up cost and time of settling Other CoverageRental Reimbursement: pays for rental car while you shop for new or yours is getting fixedEmergency Road Side Service: mechanical assistance if you break downMotor Vehicle Insurance Cost FactorsClaims: Premium (cost of insurance) increases with the number of claims you make (wrecks, deer, theft)Vehicle Type: year, make, model (higher priced and sporty will cost you more to cover)Rating Territory: high risk areas may cost more (city has higher theft and more accident rates)Driver Classification: age, sex, marital status, driving record and driving habits.Assigned risk pool: group of people who cannot get motor vehicle insurance who are assigned to each insurance company operating in the state Reducing Insurance PremiumsCompare companies: price shop!Just have liability (no collision or comprehensive) If you have collision or comprehensive then increase your deductable (you pay more if you have a claim)Discounts: good driving record , good grades, drivers edPage 437 1-6Glencoe Online Test Chapter 13Worksheet PacketAssignment