Home and Motor Vehicle Insurance

1. Home and Motor Vehicle Insurance Chapter 13

2. Insurance and Risk Management Section 13.1

3. What is Insurance? • Protection against possible financial loss • An insurance company agrees to pay for losses that may happen to someone it insures • A person must join a risk-sharing group by purchasing a contract and becomes a policyholder • Policyholder must pay a premium or fee

4. Important Insurance Terms • Risk – Chance of loss or injury • Peril – Anything that may cause a loss • Hazard – Anything that increases the likelihood of loss through peril for instance defective wiring • Negligence – Failure to take ordinary or reasonable care to prevent accidents for instance failure to clear ice from a side walk

5. Types of Risks • Personal – loss of income due to illness, disability, old age, or unemployment • Property – losses to property caused by perils such as fire or theft, and hazards (defective electrical wiring) • Liability – losses caused by negligence that leads to injury or property damage

6. What is Risk Management? • Long range, organized plan for protecting yourself • Risk management needs will change at various points in your life

7. Risk Management Methods • Risk Avoidance • Avoid risks, but may have serious trade-offs • Can avoid traffic accident by not driving, but may not be able to get to work • Risk Reduction • Decrease the likelihood of harm or risk • Can reduce accident injury by wearing a seatbelt

8. Risk Management Methods • Risk Assumption • Taking responsibility for negative results of a risk • Makes sense to assume risk when the possible loss is small like not fully insuring an old car • Self-insurance is another option; set up a savings acct. to cover loss • Risk Shifting • Use an insurance company • May have a deductible, a combination of risk assumption and shifting, which is a set amount the policyholder must pay on a loss

9. Risks and Management Of • Disability • What are the risks? • Loss of income • Increased expenses • What can you do to manage your risks? • Save and invest • Get disability insurance

10. Death • What are the risks? • Loss of income • Increased expenses • What can you do to manage your risks? • Life insurance • Estate planning

11. Property Loss • What are the risks? • Storm damage • Repair or replacement • Theft • What can you do to manage your risks? • Property repair and upkeep • Motor vehicle insurance • Homeowners insurance • Flood or earthquake insurance

12. Liability • What are the risks? • Claims and settlement costs • Lawsuits and legal expenses • Loss of personal assets and income • What can you do to manage your risks? • Maintain property • Homeowners insurance • Auto insurance

13. Planning an Insurance Program • Step 1 – Set insurance goals • Minimize personal, property, and liability risks • Factors to consider: income, age, family size, lifestyle, experience, and responsibilities • Goals to achieve • Reduce loss of income caused by premature death, illness, or unemployment • Reduce loss of property caused by fire, theft, or hazards • Reduce possible loss of income, savings, and property caused by personal negligence

14. Planning an Insurance Program • Step 2 – Develop a plan • What do they need to insure? • For how much should they insure it? • What kind of insurance should they buy? • Which insurance company should they choose?

15. Planning an Insurance Program • Step 3 – Put your plan into action • Must be flexible enough to allow plan to respond to changing life situations • Step 4 – Review your results • Should review every two to three years or when family circumstances change

16. Property and Liability Insurance • Natural disasters as well as injuries and property damage cost billions of dollars a year • Two types of risk related to home and car • 1) Risk of damage to or loss of property • 2) Risk of responsibility for injuries to other people or damage to their property

17. Property and Liability Insurance • Property Damage or Loss • Two basic types of risks for property owners • Physical damage such as wind, fire, flooding • Loss or damage caused by criminal behavior such as robbery, burglary, vandalism, and arson • Liability • Legal responsibility for the financial cost of another person’s losses or injuries, even is it is not your fault • Usually found responsible because of negligence on your part helped cause the mishap

18. Home and Property Insurance Section 13.2

19. Homeowners Insurance Coverage • Coverage that provides personal property protection and injuries to others at your residence • Home, building, other structures • Additional living expenses • Personal property • Personal liability and related coverages • Specialized coverages

20. Buildings and Other Structures • Home itself • Garage, tool shed • Landscaping

21. Additional Living Expenses • Pays for you to stay somewhere else while home is being rebuilt or repaired • May limit coverage to 10 to 20% of home’s total coverage • May limit to payment period to 6 to 9 months

22. Personal Property • Household items • Usually 55%, 70%, or 75% of value of house • Limits on theft ($1000 on jewelry) • Covers items you take on vacation or use at school • Extends to property that you rent

23. Household Inventories • Documentation of personal belongings with purchase dates and cost information • Should keep receipts, serial numbers, brand names, proof of value • Video of home including closets and storage areas • Photographs with dates and values on back • Keep in fireproof box or safety deposit box and update regularly

24. Personal Property Floaters • Extra coverage for valuable items • Computers • Musical instruments • Expensive art • Stamp collections

25. Personal Liability and Related Coverages • Amounts of coverages • Most policies cover liability up to $100,000 • Supplement with an umbrella policy to add protection for all kinds of personal injury claims – if someone sues you for slander (writing or saying something untrue) • More expensive policies are available for the wealthy • Medical payments coverage pays cost of minor accidental injuries to visitors on your property • Supplemental coverage could cover damage you do to other people’s property

26. Medical Payments Coverage • Pays cost of accidental injuries to others on your property • Covers for injuries caused by you, family, or pets • Does not cover injury to you or your family

27. Specialized Coverages • Homeowners coverage does not cover everything • For areas that have frequent floods or earthquakes you need to purchase special insurance

28. Attractive Nuisances • Something on your property both inviting and dangerous means a legal responsibility to try to prevent injuries to children who may wander onto the property. Rule based on: • Children are not fully expected to fully realize the dangers they may encounter • A property owner who should realize that children are likely to come onto the property has a heightened responsibility to prevent harm • An owner who fails to take responsible precautions to prevent injury is usually liable for a child’s injuries

29. What is an Attractive Nuisance • Unenclosed swimming pool, goldfish pool, idling lawnmower, paint sprayer, table saw, construction sites, and equipment • Most natural conditions are not considered attractive nuisances • To be liable for injury, an owner must create or maintain the harmful object • Attractive nuisance doctrine arises when the child doesn’t realize the extent of the danger

30. Who is Protected • Example 1 – 12 year old child climbed onto the roof of building and fell 3 stories to the ground. • Owner was liable because • 1. Children were known to play in area • 2. Roof had an area that was sloped and slippery – something a child might not notice • 3. Owner could’ve locked door to the rook

31. Who is Protected • Example 2 – A 10 year old fell 3 stories from a roof after climbing up and playing on it. • Owner was not liable because • 1. This owner had no reason to know that children would play on the roof • 2. No hidden danger on the roof itself caused the all

32. Who Is Protected • Example 3: During construction of a house, a contractor left sheetrock propped against a wall and unattended. An 11 year old girl investigating the building site was injured when the sheetrock tumbled down on her. • Owner was liable because: • 1. Children were likely to come onto the building site • 2. The sheetrock was left unattended for days • 3. It could have easily been stacked in a safer manner

33. Typical Local Laws • Pools – fences and locks • Discard Refrigerators – removal of doors • Fences – barbed wire below a certain height • Old Cars and Other Junk – must be fenced in • Chemicals – discard of pesticides, paints, etc. • Dangerous Dogs

34. What Isn’t Covered • Jewelry, furs, boats, electronics • Animals and fish • Motorized vehicles not licensed for road use, except those used for home maintenance • Sound devices in motor vehicles • Aircraft parts • Property belonging to tenants • Property in rentals • Business property

35. Other Coverages • Credit card fraud, check forgery, counterfeit money • Removal of damaged property • Emergency removal of property to protect it from damage • Temporary repairs after a loss to prevents further damage • Fire department user fees

36. How much coverage do you need? • 80% to full coverage for homes • Must have coverage if borrowing money from bank • Coverage for personal belongings is usually 55 to 75% of insurance you have on your home • Claim settlements • Actual cash value – receive replacement cost minus depreciation • Replacement value – receive full cost of repairing or replacing item

37. Home Insurance Cost Factors • Location – water supply, fire hydrant, crime, weather • Type of Structure – wood, brick • Price, Coverage Amount, Policy Type – higher deductible means lower premiums • Home Insurance Discounts – smoke detectors, fire extinguisher, dead bolts • Company Differences – compare companies

38. Location • Those close to water supply or hydrant get discount • Those near high crime, severe weather pay more

39. Lower Deductibles • Decreases cost because insurance company pays less out because you are assuming more financial reasonability

40. Discounts • Smoke detectors • Fire extinguisher • Deadbolts • Alarm system

41. Selecting Insurance Companies • Consider prices, but also service and coverage • Not all settle claims in the same way

42. Motor VehicleInsurance Section 13.3

43. Motor Vehicle Insurance • In 2003, 45 states required people to carry motor vehicle insurance • When injuries and property damage occur, drivers are required to report it • Two categories: • Protection for bodily injury • Protection for property damage

44. Motor Vehicle Insurance

45. Bodily Injury Liability • Covers injuries caused by an accident you caused • Covers pedestrians, people in your and other vehicles • Expressed in three numbers 100/300/50 • $100,000 maximum amnt. paid to one person • $300,000 maximum amnt. paid to all people • $50,000 maximum amnt. for damage to property

46. Medical Payments Coverage • Covers you and those in your vehicle • Covers you and your family members riding in another person’s vehicle • Covers if you or other passenger if your car is hit by another car

47. Uninsured Motorist’s Protection • Covers injury to you and family when you are in an accident with someone without insurance or in a hit-and-run accident • Does not cover damage to vehicle itself

48. Motor Vehicle Insurance

49. Property Damage Liability • Covers when you damage others property • Covers when you drive another vehicle with permission • Covers buildings, equipment, signs, and poles

50. Collision • Covers damage to your car • Doesn’t matter who is at fault • Amount limited to current value of your car