PFIN 10 Protecting Your Property 5 BILLINGSLEY/ GITMAN/ JOEHNK/ Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OUTCOMES Discuss the importance and basic principles of property insurance, including types of exposure, indemnity, and co-insurance Identify types of coverage provided by home owner’s insurance Select the right home owner’s insurance policy for your needs Analyze the coverage in a personal automobile policy (PAP) and choose the most cost-effective policy PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Describe the other types of property and liability insurance LEARNING OUTCOMES (continued) Describe the other types of property and liability insurance Choose a property and liability insurance agent and company, and settle claims PFIN5| CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Basic Principles of Property Insurance Protects real and personal property from losses caused by various perils Liability insurance Protects against financial consequences from the insured’s responsibility for property loss PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Exposure to property loss Types of Exposure Exposure to property loss Property insurance contracts define: Property covered Perils: Cause of loss Property inventory Identifying perils Liability Negligence: Failing to act in a reasonable manner PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Principle of Indemnity States that an insured may not be compensated with an amount exceeding the insured’s economic laws Actual cash value: Value assigned to an insured property determined by subtracting the amount of physical depreciation from its replacement cost Right of Subrogation: Insurer’s right to request reimbursement from person who caused the loss or that person’s insurer PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Principle of Indemnity Other insurance clause States that if a person has more than one insurance policy on a property, each company is liable for only a prorated amount of the loss PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Exhibit 10.2 A Guide to Home Owner’s Policies PFIN5| CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Property and Liability Insurance Policies Covers all perils unless they are specifically excluded Comprehensive policy Individually names the perils covered Named peril policy PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Perils Covered Section I Section II Perils against which the home and its contents are insured Section II Includes a coverage called comprehensive personal liability Offers protection against personal liability resulting from negligence Provides limited amount of medical coverage PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Factors Affecting Home Insurance Costs Type of structure Location of home Credit score Other factors PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Home owner’s policy offers property protection under Section I for: Property Covered Home owner’s policy offers property protection under Section I for: Dwelling unit Accompanying structures Personal property of home owners and their families PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Personal Property Floater (PPF) Provides blanket or scheduled coverage of expensive personal property not adequately covered in a home owner’s policy PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Renter’s Insurance Form HO-4 Form HO-6 Covers contents of a house but not the structure itself Form HO-6 Required by the owners of condominium units Includes a minimum of $1000 in protection for any building alterations paid for by the policy holder PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Types of losses covered Coverage Types of losses covered Direct loss of property Indirect loss occurring due to loss of damaged property Additional expenses resulting from direct and indirect losses Section I Damage of the house by an insured peril leads to the insurer paying reasonable living expenses PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Coverage Section II Home owner’s policy covers: Cost of defending the insured Reasonable expenses incurred by an insured in helping the insurance company’s defense Payment of court costs PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Coverage Persons covered Locations covered Persons named in the policy and members of their families residing in the house Guests of the insured with limited coverage Locations covered Extended worldwide when off premises temporarily PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Factors Influencing Insurance Payment Amount for a Loss Replacement cost Amount necessary to repair, rebuild or replace an asset at current prices Policy limits Deductibles PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Personal Automobile Policy (PAP) Designed to be easily understood by the typical insurance purchaser Liability coverage Bodily injury liability losses: Protects the insured against claims made for bodily injury Property damage liability losses: Protects the insured against claims made for damage to property Medical payments coverage PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Personal Automobile Policy (PAP) Uninsured motorists coverage: Serves the victims of accidents injured by uninsured, underinsured, or hit-and-run motorists Underinsured motorists coverage: Covers damages in accidents involving liable underinsured motorist PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Personal Automobile Policy (PAP) Coverage for damage to the vehicle Collision insurance: Pays for collision damage to an insured automobile Comprehensive automobile insurance: Protects against loss to an insured automobile caused by any peril other than collision PFIN5| CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Factors Affecting Automobile Insurance Premiums Rating territory Amount of use the automobile receives Personal characteristics of the driver Type of automobile Insured’s driving record PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Financial Responsibility Laws Require motorists to: Buy a specified minimum amount of automobile liability insurance Provide other proof of comparable financial responsibility PFIN4 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Other Property and Liability Insurance Supplemental property insurance coverage Earthquake insurance Flood insurance Other forms of transportation insurance Personal liability umbrella policy Provides excess liability coverage and additional coverage for home owner’s and automobile insurance PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Property and Liability Insurance Agents Captive agent: Represents a single insurance company and is its employee Independent agent: Places coverage with any company with which he or she has an agency relationship Selecting an agent involves questions to be asked about the company’s: Financial soundness Claims-settlement practices Geographic range of operations PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

First Steps Following an Accident Record contact details of all witnesses, drivers, occupants, and injured parties Record license numbers of the automobile involved Notify law enforcement officers and insurance agent PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Steps in Claim Settlement Notice to insurance company Investigation Proof of loss PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Insurance company will assign a claims adjustor if the loss is complex Claims Adjustment Insurance company will assign a claims adjustor if the loss is complex Claims adjustor: Insurance specialist who works for the insurance company or for an adjustment bureau PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

KEY TERMS Personal property floater (PPF) Property insurance Liability insurance Peril Negligence Principle of indemnity Actual cash value Right of subrogation Co-insurance Comprehensive policy Named peril policy Personal property floater (PPF) Replacement cost Personal automobile policy (PAP) Bodily injury liability losses Property damage liability losses Uninsured motorists coverage PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

KEY TERMS Independent agent Underinsured motorists coverage Collision insurance Comprehensive automobile insurance No-fault automobile insurance Financial responsibility laws Personal liability umbrella policy Captive agent Independent agent Claims adjustor PFIN5| CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Types of automobile insurance SUMMARY Property insurance covers against losses of real and personal property caused by calamities Comprehensive policies cover all perils but only individual perils are covered in named peril policies Home owners can choose HO-1, HO- 2, HO-3, HO-5, or HO-8 to suit their needs Types of automobile insurance Personal automobile policy, collision insurance, and comprehensive automobile insurance PFIN5| CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Other property and liability insurance SUMMARY Other property and liability insurance Supplemental property insurance coverage Personal liability umbrella policy Steps to claim settlement Provide notice to the insurance company Investigation by company personnel Provide proof of loss PFIN5 | CH10 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.