2004 McGraw-Hill Ryerson Ltd. Kapoor Dlabay Hughes Ahmad Prepared by Cyndi Hornby, Fanshawe College Chapter 8 Home and Automobile Insurance 8-1

2004 McGraw-Hill Ryerson Ltd. Learning Objectives - Chapter 8 1.Develop a risk management plan using insurance. 2.Discuss the importance of property and liability insurance. 3.Explain the insurance coverage and policy types available to homeowners and tenants. 4.Analyze factors that influence the amount of coverage and cost of home insurance. 5.Identify the important types of automobile insurance coverage. 6.Evaluate factors that affect the cost of automobile insurance. 8-3

2004 McGraw-Hill Ryerson Ltd. Learning Objective # 1 Develop a risk management plan using insurance. 8-3

2004 McGraw-Hill Ryerson Ltd. Insurance and Risk Management Insurance is protection against possible financial loss. An insurance company, or insurer, is a risk- sharing firm that assumes financial responsibility for losses from an insured risk. People purchase a policy and the firm assumes a risk for a fee called the premium which the insured policyholder pays periodically. 8-4

2004 McGraw-Hill Ryerson Ltd. Types of Risk Risk is change or uncertainty of loss. Peril is the causes of a possible loss, such as fire, windstorms, robbery, disease or death. Hazard is something that increases the likelihood of a loss, such as driving drunk, smoking in bed, or defective house wiring. Most common risks are classified as personal risks (loss of income, premature death), property risks (direct damage to assets), and liability risks (loss due to injury or harm to others) 8-5

2004 McGraw-Hill Ryerson Ltd. Risk Management Methods Risk management is a long range, organized, planned strategy to protect your assets and family Can reduce financial loss and improve your chances for economic, social, physical and emotional well being Pure Risk is insurable, accidental, unintentional; nature of risk can be predicted Speculative Risk is the chance of loss or gain and is uninsurable, such as starting a small business or gambling 8-6

2004 McGraw-Hill Ryerson Ltd. Risk Avoidance Risk Shifting Risk Assumption Risk Reduction Ways to Manage Risk 8-7

2004 McGraw-Hill Ryerson Ltd. Planning an Insurance Program Set your insurance goals and prioritize them. Develop a plan to reach your goals. Put your plan into action. Review your results. To put your risk management plan to work ask yourself… What should be insured? For how much? What kind of insurance? From whom? 8-8

2004 McGraw-Hill Ryerson Ltd. Learning Objective # 2 Discuss the importance of property and liability insurance. 8-9

2004 McGraw-Hill Ryerson Ltd. Potential Property Losses Homes, automobiles and other personal belonging represent a substantial financial commitment Risk of physical damage caused by perils such as fire, wind, water or smoke Risk of loss of use of your property 8-10

2004 McGraw-Hill Ryerson Ltd. Liability Protection Liability is legal responsibility for the financial cost of another persons losses or injury Negligence is the failure to do what a reasonable and prudent person would do in a given situation Vicarious liability is when you are held responsible for the actions of another person. Strict liability is present when a person is held responsible for intentional or unintentional actions 8-11

2004 McGraw-Hill Ryerson Ltd. Learning Objective # 3 Explain the insurance coverage and policy types available to homeowners and tenants. 8-12

2004 McGraw-Hill Ryerson Ltd. Homeowners Insurance Coverage Homeowners insurance is coverage for a place of residence and its associated financial risks. Includes physical damage to property and the loss of use of the property Buildings and other structures Additional living expenses. Personal property. Personal property floater. Household inventory. Endorsement for specialized coverages. Personal liability. 8-13

2004 McGraw-Hill Ryerson Ltd. Homeowners Insurance Coverage Replacement value of your home limit of insurance purchased should reflect the cost to rebuild your home, not its current market value appraisal, inspection by company Homeowners Liability coverage protects you and your family from financial losses resulting from legal actions against you due to damage to others and their property includes the cost of legal defense Voluntary Medical Payments Voluntary Property Damage 8-14

2004 McGraw-Hill Ryerson Ltd. Umbrella Policy Also called a personal catastrophe policy. Supplements basic personal liability coverage. $1,000,000 or more in liability coverage. 8-15

2004 McGraw-Hill Ryerson Ltd. Tenants Insurance Personal property loss or damage. Personal liability. Additional living expenses. Landlords insurance usually wont cover personal belongings. Tenants Legal Liability covers loss or damage to property in your care or control caused by fire, smoke, explosion or water damage. 8-16

2004 McGraw-Hill Ryerson Ltd. Home Insurance Policy Forms Named Perils only those perils specifically listed in the policy are covered if a loss occurs All Risk any event that causes loss or damage is covered unless it is specifically excluded Different coverage types are combined in package form Extensions of coverage are available for other losses 8-17

2004 McGraw-Hill Ryerson Ltd. Learning Objective # 4 Analyze factors that influence the amount of coverage and cost of home insurance. 8-18

2004 McGraw-Hill Ryerson Ltd. Deductibles Deductible is your share of any claim Is a fixed amount indicated on your policy The higher your deductible the lower your premium since insurance company is responsible for less of your loss People are generally more careful if the cost of being careless if higher Fewer small claims means less administrative costs for insurer 8-19

2004 McGraw-Hill Ryerson Ltd. How Much Coverage Do You Need? Determine what it would it cost to replace or rebuild your home and purchase an limit of insurance equal to this amount Have sufficient liability coverage. Include protection for specific items such as collections, cameras, and jewelry. Determine the value of the contents of your home. Actual cash value - cost less depreciation. Replacement cost - repair or replace with new item. 8-20

2004 McGraw-Hill Ryerson Ltd. Factors That Affect Home Insurance Costs Location of residence. Type and age of the structure. Amount of coverage and deductibles. Discounts - alarm system, smoke detector, if you insure your car with the same company. Company differences. Compare costs and coverage Customer satisfaction is important 8-21

2004 McGraw-Hill Ryerson Ltd. Learning Objective # 5 Identify the important types of automobile insurance coverage. 8-22

2004 McGraw-Hill Ryerson Ltd. Automobile Insurance Coverages All provinces and territories require mandatory automobile insurance Covers risks associated with owing, operating or using a vehicle Liability to others for injury, death or property damage Injury, death to yourself or your passengers damage to your vehicle 8-23

2004 McGraw-Hill Ryerson Ltd. Automobile Insurance Coverage Bodily Injury coverages Third Party Liability covers the risk of financial loss due to legal expenses, medical expenses, lost wages and other expenses associated with injuries, as well as property damage, caused by an accident for which you were responsible. Accident Benefits covers the cost of health care for persons injured in your automobile, including yourself. 8-24

2004 McGraw-Hill Ryerson Ltd. Automobile Insurance Coverage Uninsured Motorist Protection Pays for the cost of injuries if your vehicle is hit by an unidentified (unknown) or uninsured person Covers damage to your vehicle if the other driver is identified but uninsured ( 8-25

2004 McGraw-Hill Ryerson Ltd. No-Fault Insurance Fault is determined in every incident for the purpose of premium calculation Each driver collects from their own insurance company. Medical expenses, lost wages and related injury costs Damage to your vehicle to extent you were not at fault Intended to provide faster settlement of claims and reduce costs Systems vary from province to province 8-26

2004 McGraw-Hill Ryerson Ltd. Collision Coverage When your car is in an accident, collision insurance pays for damage to your automobile Amount collected is limited to the actual cash value of the car at the time of the loss 8-27

2004 McGraw-Hill Ryerson Ltd. Comprehensive Physical Damage Covers damage to your vehicle that is not caused by a collision, such as... Fire. Theft. Vandalism. Glass breakage. Hail, or wind storm. 8-28

2004 McGraw-Hill Ryerson Ltd. Learning Objective # 6 Evaluate factors that affect the cost of automobile insurance. 8-29

2004 McGraw-Hill Ryerson Ltd. Auto Insurance Premium Factors Automobile type. Cost to repair or replace, safety record Use of Vehicle Pleasure, business or farming Rating territory. Accident, theft, and vandalism rates in the area where you live. Driver classification. Age, gender, marital status, driving record, and driving habits. Assigned risk pool for people who are considered high risk drivers 8-30

2004 McGraw-Hill Ryerson Ltd. Reducing Automobile Insurance Premiums Find out how much it will cost to insure a car before you buy it. Compare companies Increase your deductibles. Look for discounts. Establish and maintain a good driving record. Install security devices such as a car alarm. If you have more than one vehicle insure them both with the same company. 8-31