1. Chapter 8 Home and Automobile Insurance McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Home and Automobile Insurance Chapter Objectives
Identify types of risks and risk management methods and develop a risk management plan
Assess the insurance coverage and policy types available to homeowners and renters
Analyze the factors that influence the amount of coverage and cost of home insurance
Identify the important types of automobile insurance coverage
Evaluate factors that affect the cost of automobile insurance
8-2

3. Objective 1 Identify Types of Risks and Risk Management Methods and Develop a Risk Management Plan
Insurance
Insurance company (insurer)
Procedure
8-3

4. Types of Risk
Risk
Peril
Hazard
8-4

5. Most Common Types of Risk
Personal risks
Property risks
Liability risks
8-5

6. Types of Risk
Pure Risk = Insurable
Speculative Risk = Uninsurable
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7. Types of Risk Pure Risk = Insurable Personal risks = Property risks =
Liability risks =
Negligence =
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8. Risk Avoidance Risk Shifting Risk Reduction Risk Assumption
Don’t stop at a convenience store in a bad part of town after midnight
Risk Shifting
Risk Reduction
Ways to Manage Risk
Buy Insurance
Self Insurance
Wear seatbelts
Install an alarm system
Risk Assumption
8-8

9. Planning an Insurance Program
Exhibit 8-2 in the book
8-9

10. Planning an Insurance Program
Set insurance goals to reduce possible loss of:
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11. Planning an Insurance Program
1. Develop a plan to reach your goals
2. Put your plan into action
3. Check your results
8-11

12. Property and Liability Insurance
Recent major losses:
Historic severe weather in South - CBS News Video
2005: Hurricanes Katrina, Rita and Wilma =
1993: Midwest floods
1992: Hurricane Andrew =
Potential property losses
8-12

13. Property and Liability Insurance
Liability due to negligence
Vicarious Liability
8-13

14. Homeowner’s Insurance Coverages
Objective 2 Assess the Insurance Coverage and Policy Types Available to Homeowners and Renters
Homeowner’s Insurance Coverages
Damage or destruction of the building in which you live, and other structures on the property
Garage, tool shed, trees and shrubs
Additional living expenses
May be limited to 20-30% of property value
May be limited to 6-9 months
8-14

15. Homeowner’s Insurance Coverages
Personal property
Personal liability and related coverage
Specialized coverage
8-15

16. Homeowner’s Insurance Coverages
Personal Liability and Related Coverage
Medical Payment Coverage
Personal liability
Umbrella policy -
8-16

17. Homeowner’s Insurance Coverages
Specialized Coverage
8-17

18. Renter’s Insurance Broad form Comprehensive form
Renter’s insurance is relatively inexpensive
Many renters do not have insurance
8-18

19. Home Insurance Policy Forms
Basic form (HO-1)
Broad form (HO-2)
Special form (HO-3)
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20. Home Insurance Policy Forms
Tenant’s form (HO-4)
Comprehensive form (HO-5)
Condominium owner (HO-6)
8-20

21. Objective 3 Analyze the Factors that Influence the Amount of Coverage and Cost of Home Insurance
Determine amount of coverage needed:
Replacement value of your home ?
Value of your home’s contents ?
Protection for specific items ?
Jewelry and furs
Art and collectibles
Computer equipment
Liability coverage ?
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22. Policy Provisions Look for a policy with full coverage
Claim settlement methods
Actual cash value (ACV)
Replacement cost
8-22

23. Factors That Affect Home Insurance Costs
Location of home
Type of structure
Coverage Amount and Policy type
Home Insurance Discounts
Company differences
8-23

24. Objective 4 Identify the Important Types of Automobile Insurance Coverage
Financial responsibility law
State legislation requiring proof of financial ability to cover the cost of damage or injury caused in an automobile accident
45 states have compulsory automobile liability insurance laws
8-24

25. Motor Vehicle Bodily Injury Coverage
Bodily Injury Liability
Expressed as 3 numbers: 100/300/50
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26. Motor Vehicle Bodily Injury Coverage
Medical Payment Coverage
8-26

27. Motor Vehicle Bodily Injury Coverage
Uninsured Motorist’s Protection
Underinsured Motorist’s Coverage
8-27

28. Motor Vehicle Property Damage Coverage
Property damage liability  
8-28

29. Collision Coverage
Pays for damage to your automobile, regardless of who is at fault. 
8-29

30. Comprehensive Physical Damage
Covers damage to your vehicle not caused by a collision, such as:
8-30

31. No-Fault Insurance
Each driver collects from his or her own insurance company for medical expenses, lost wages, and related injury costs
30 states have some variation of the system
Intended to provide fast, smooth method of paying for damages without determining fault
Problems may arise due to variations among states
8-31

32. Other Coverages
8-32

33. Automobile Insurance Costs
Objective 5 Evaluate Factors that Affect the Cost of Automobile Insurance
Automobile Insurance Costs
Legal concerns
Have enough coverage if you are sued
Recommendations:
$100,000/$300,000 bodily injury liability
Additional $1,000,000+ umbrella liability policy
Property values
$50,000-$100,000 suggested for property damage liability
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34. Motor Vehicle Insurance Premium Factors
Vehicle type
Rating territory
Driver classification
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35. Reducing Automobile Insurance Premiums
Compare companies
Premium discounts
8-35