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Chapter 10 – Property and Casualty Insurance
• Allows pooling of financial risks of property loss– Through diversification, everyone shares in
everyone's loss by paying an average rate
• Purpose: guard against financial catastrophe
• Know insurer’s credit rating (A. M. Best)
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Homeowner's Insurance
• Six standard policies. Know #2, 3 and 4• HO-2 – Broad form covering named perils
– Fire, lightening, windstorm, hail and explosions
– Not named = not covered• HO-3 - Special form. Covers perils not
excluded; flood and earthquake are excluded• HO-4 – Renter's insurance covers possessions
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Two Sections of Homeowner's
• Section 1 – protects property and possessions
• Section 2 – provides personal liability insurance if you are sued for something you did or failed to do.
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Property Coverage
• Dwelling – house and attachments– Other - detached garage, landscaping– Personal property – wherever located– Loss of use
• Liability – protects if someone injured on property and sues or sues for other reasons.
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Coverage Amounts
• Replacement cost = actual cost to replace• Actual Cash Value = depreciated value• Coinsurance requires insured to pay part
of claim if have inadequate coverage 80% rule – replacement cost paid only if
amount insured is 80% of replacement value; otherwise, ACV
• Very serious mistake to underinsure
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Supplemental Coverage
• Rider – adds or subtracts coverage
• Personal articles floater
• Earthquake and flood
• Inflation guard
• Personal umbrella
• Replacement cost of personal property.
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Indemnity Considerations
• Replacement cost and code changes• Inflation• Flood or earthquake area?• Special protection – jewelry, stamps,
coins• If your assets are more than liability
limit, may need more coverage• Need insurance even if rent
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What Determines Cost?
• Location – California is high risk area– Also Texas, Florida along Mississippi
• Type of structure– Older structures – more expensive to insure
• Level of coverage and policy type
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Ways to Reduce Premiums
• Higher deductible
• Security system/smoke detector
• Multiple policy discounts (include car)
• Pay premium annually in advance
• Other discounts – over 55
• Consider direct writers; shop around
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If You Have a Loss….
• Report immediately to insurer
• Make temporary repairs
• Detailed list of everything lost/damaged
• File claim
• Maintain record of settlement process
• Confirm adjuster's estimate
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Automobile Insurance
Two broad parts with subparts:
• Bodily injury including– Bodily injury liability (Part A), medical
expenses (B) and uninsured motorists (C)
• Property damage– Liability coverage (A), Collision (D),
comprehensive physical damage (D)
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Split Limits
• Example: $200,000/600,000/100,000– $200,000 for bodily injury to each person– 600,000 limit for each accident– 100,000 property damage liability
• Recommendation: at least 100/300/100
• Or combined with single limit for injury and property, usually $500,000.
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Who’s Covered?
• Damage and liability –generally anyone operating with permission.
Children – included if declared
• Medical – policyholder and passengers
• Loss from uninsured motorists –
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Medical Coverage
• Reasonable medical/funeral expenses
• Uninsured motorist – covers injuries caused by uninsured motorists– To collect, other driver must not have
insurance but must be at fault– 15% of motorists estimated to be uninsured
so important
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Damage to Your Vehicle
• Collision loss – damage from colliding with another vehicle or object
• Comprehensive – other losses such as fire, theft, windstorm, falling objects, earthquake
• Amount - actual cash value (depreciated value) less deductible
• Premiums decline sharply as deductible increases
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Cost Determinants
• Your driving record
• Deductible
• Personal characteristics– Age, sex and marital status
• Type of vehicle and how used
• Discounts
• Where you live
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Keeping Costs Down
• Improve driving record – three year limit
• Increase the deductible
• Shop competitively– Multiple policy discounts
• Buy car that is inexpensive to insure
• But keep adequate liability insurance