1. © 2013 Pearson Education, Inc. All rights reserved.10-1 Chapter 10 Property and Liability Insurance

2. © 2013 Pearson Education, Inc. All rights reserved.10-2 Learning Objectives 1.Understand, buy, and maintain homeowner’s insurance in a cost-effective way. 2.Recover on a liability or a loss to your property. 3.Buy the automobile insurance policy that’s right for you. 4.File a claim on your automobile insurance.

3. © 2013 Pearson Education, Inc. All rights reserved.10-3 Introduction Need to prepare for unlikely, unlucky events. Property insurance allows individuals to pool the financial risks associated with property losses—a fire, burglary, or auto accident—to eliminate catastrophic losses. Deciding how much and exactly what kind of insurance to buy is a challenge.

4. © 2013 Pearson Education, Inc. All rights reserved.10-4 Protecting Your Home The first type of homeowner’s insurance, fire insurance. The first modern homeowner’s policy was sold in 1958. –Before, separate policies were needed for every peril. Peril—an event or happening, whether natural or man-made, that causes a financial loss.

5. © 2013 Pearson Education, Inc. All rights reserved.10-5 Packaged Policies: HOs HOs—Home Owners Cover more than the home, also liability insurance and renters. HO-1, HO-2, HO-3—basic policies for homeowners HO-4—renter’s insurance HO-6—condominium owners HO-8—older homes

6. © 2013 Pearson Education, Inc. All rights reserved.10-6 Packaged Policies: HOs Names perils—a type of insurance that covers a specific set of perils. Perils not named are not covered. Open perils—a type of insurance that covers all perils except those specifically noted as excluded. Section I—Property Insurance Section II—Personal liability insurance

7. © 2013 Pearson Education, Inc. All rights reserved.10-7 Table 10.1 Comparing Homeowner’s Insurance Policies

8. © 2013 Pearson Education, Inc. All rights reserved.10-8 Table 10.1 Comparing Homeowner’s Insurance Policies (cont.)

9. © 2013 Pearson Education, Inc. All rights reserved.10-9 Table 10.1 Comparing Homeowner’s Insurance Policies (cont.)

10. © 2013 Pearson Education, Inc. All rights reserved.10-10 Table 10.1 Comparing Homeowner’s Insurance Policies (cont.)

11. © 2013 Pearson Education, Inc. All rights reserved.10-11 Table 10.1 Comparing Homeowner’s Insurance Policies (cont.)

12. © 2013 Pearson Education, Inc. All rights reserved.10-12 Table 10.1 Comparing Homeowner’s Insurance Policies (cont.)

13. © 2013 Pearson Education, Inc. All rights reserved.10-13 Section I: Property Coverage Coverage A: Dwelling Coverage B: Other structures Coverage C: Personal property Coverage D: Loss of use

14. © 2013 Pearson Education, Inc. All rights reserved.10-14 Section II: Personal Liability Coverage Protects policyholder and family from financial loss if someone is injured on their property or as a result of their actions. Protects against liability suits Also covers medical expenses of anyone hurt by policyholder, their family, or pet

15. © 2013 Pearson Education, Inc. All rights reserved.10-15 Supplemental Coverage Endorsement—written attachment to an insurance policy to add or delete coverage. Personal articles floaters Earthquake coverage Flood protection

16. © 2013 Pearson Education, Inc. All rights reserved.10-16 Supplemental Coverage Inflation Guard Personal Property Replacement Cost Coverage Added Liability Insurance—personal umbrella policy

17. © 2013 Pearson Education, Inc. All rights reserved.10-17 Your Insurance Needs How much insurance do you need? Need for inflation guard coverage and need for replacement cost coverage on possessions Need enough insurance for full replacement in the event of a total loss.

18. © 2013 Pearson Education, Inc. All rights reserved.10-18 Coinsurance and the “80-Percent Rule” Coinsurance provision—requirement of homeowner’s insurance that the insured pay a portion of the claim if he or she purchased in inadequate amount of insurance (less than 80% of replacement cost). 80-percent rule—homeowner’s insurance rule that the replacement cost coverage is in effect only if the home is insured for at least 80% of its replacement cost.

19. © 2013 Pearson Education, Inc. All rights reserved.10-19 The Bottom Line How much homeowner’s insurance do you need? Needs some thought and foresight. Assets and possessions are always changing so are your insurance needs. Revisit your insurance needs from time to time.

20. © 2013 Pearson Education, Inc. All rights reserved.10-20 Keeping Your Costs Down – Insurance Credit Scoring Insurance credit score—based on the same information as your traditional credit score, used in determining what your home and auto insurance rates will be The lower your insurance credit score, the higher your rates will be. Manage your insurance credit score to keep your costs of insurance down.

21. © 2013 Pearson Education, Inc. All rights reserved.10-21 Figure 10.1 The Relationship Between Your Credit Score and the Cost of Your Homeowner’s Insurance Policy to Your Insurance Company

22. © 2013 Pearson Education, Inc. All rights reserved.10-22 Keeping Your Costs Down – Discounts and Savings Location of your home Type of structure Level of coverage and policy type Keep costs down by selecting a financially sound insurer with low comparative rates.

23. © 2013 Pearson Education, Inc. All rights reserved.10-23 Keeping Your Costs Down – Discounts and Savings High deductible discounts Security system/smoke detector discounts Multiple policy discounts Pay your insurance premiums annually. Other discounts Consider a direct writer Shop around Double-check your policy

24. © 2013 Pearson Education, Inc. All rights reserved.10-24 Making Your Coverage Work Establish proof of ownership and value assets in detailed inventory or videotape. Insurance companies have inventory worksheets. Include date of purchase, cost, model, brand, and serial number for each item Follow basic steps to collect on a loss.

25. © 2013 Pearson Education, Inc. All rights reserved.10-25 Automobile Insurance Personal Automobile Policy (PAP)— standardized for an individual or family Part A: Liability Coverage Part B: Medical Expense Coverage Part C: Uninsured Motorist’s Protection Coverage Part D: Damage to Your Automobile Coverage

26. © 2013 Pearson Education, Inc. All rights reserved.10-26 Personal Automobile Policy (PAP) PAP Part A: Liability Coverage –Combined single limit –Split-limit coverageSplit-limit PAP Part B: Medical Expenses Coverage PAP Part C: Uninsured Motorist’s Protection Coverage PAP Part D: Coverage for Damage to Your Automobile –Collision loss, other collision loss or comprehensive physical damage coverage

27. © 2013 Pearson Education, Inc. All rights reserved.10-27 Figure 10.4 Reading Automobile Liability Split-Coverage Insurance Limits Quoted as Split Coverage or a Combined Single Limit

28. © 2013 Pearson Education, Inc. All rights reserved.10-28 Personal Automobile Policy (PAP) Standard exclusions—not covered: intentional injury or damage using a vehicle without owner’s consent using vehicle with fewer than 4 wheels using another person’s vehicle regularly using own vehicle but it is not listed on policy carrying passengers for a fee driving in a race or speed contest

29. © 2013 Pearson Education, Inc. All rights reserved.10-29 No-Fault Insurance Type of auto insurance in which your insurance company protects you in the case of an accident regardless of who is at fault. Over half the states have no-fault system.no-fault Imposes limits on medical expenses and other claims which may not be enough to cover all medical expenses.

30. © 2013 Pearson Education, Inc. All rights reserved.10-30 Determinants of the Cost of Automobile Insurance Type of automobile Use of automobile Driver’s personal characteristics Driver’s driving record Where you live Discounts that you qualify for Insurance credit score

31. © 2013 Pearson Education, Inc. All rights reserved.10-31 Table 10.3 Common Automobile Insurance Discounts

32. © 2013 Pearson Education, Inc. All rights reserved.10-32 Figure 10.5 Estimated Average Amount Paid Out on Claims, Relative to Highest Score Decile (lowest score = 1; high score = 10)

33. © 2013 Pearson Education, Inc. All rights reserved.10-33 Keeping Your Costs Down Shop comparatively Consider only high quality insurers Take advantage of discounts Buy a car that is relatively inexpensive to insure Improve your driving record Raise your deductibles Keep adequate liability insurance

34. © 2013 Pearson Education, Inc. All rights reserved.10-34 Filing a Claim “To-do” list if involved in a car accident: 1.Get help for the injured. 2.Move car to a safe place. 3.Get identification of witnesses. 4.Cooperate with police. 5.Take a test for alcohol if you believe the other driver is under the influence. 6.Write down your recollection of accident.

35. © 2013 Pearson Education, Inc. All rights reserved.10-35 Filing a Claim 7.Don’t sign anything or admit guilt. 8.Get a copy of the police report and make sure it is accurate. 9.Call your insurance agent as soon as possible. 10.Cooperate with your insurer. 11.Keep records of all expenditures associated with the accident. 12.If a serious accident, then meet with a lawyer to know your rights.

36. © 2013 Pearson Education, Inc. All rights reserved.10-36 Summary Six standardized HOs with different types and level of insurance for homeowners and renters. HOs have property insurance (Section I) and liability coverage (Section II). Have enough homeowner’s insurance full replacement in complete loss.

37. © 2013 Pearson Education, Inc. All rights reserved.10-37 Summary Have an detailed asset inventory to provide effective protection. With an automobile insurance policy, there’s protection against bodily injury and against property damage all divided up in four parts. Age, sex, driving record, and the insurance credit score affect the cost of automobile insurance so do deductibles, and discounts.

38. © 2013 Pearson Education, Inc. All rights reserved.10-38 Figure 10.2 Improving Your Credit Score