Understanding Home and Motor Vehicle Insurance

1. Chapter 13 Page 411 Home and Motor Vehicle Insurance

2. Why Have Insurance? • Insurance is protection against possible financial loss. • Protection against future mishaps (when something happens to you or your property)

3. Insurer • Or the insurance company- is a risk sharing business that agrees to pay for losses that may happen to someone it insures.

4. Policy • A contract joining the person who buys insurance to a risk-sharing group • Policyholder - the person who buys the policy (pays for protection also known as the insured) • Under the policy the insurance company agrees to take on the risk of the policy holder

5. Premium • Fee for which the policyholder pays the company

6. Coverage • Protection provided by the terms of an insurance policy

7. Types of Risk • Risk – the chance of loss or injury to a person or property • Peril – anything that may be possibly cause a loss (fire, wind, robbery, car accidents) • Hazard – is anything that increases the likelihood of loss through peril (bad wiring causing a fire) • Negligence – the failure to take ordinary or reasonable care to prevent accidents from happening (example a homeowner doesn’t fix a big crack in their steps)

8. Pure Risk • Are accidental and unintentional where the insurance will pay if some event actually happens • Tornado

9. Speculative Risk • Risk that carries a chance of either loss or gain • Example starting a business that might fail • Speculative risk is not insurable

10. Risk Management • Risk Avoidance • Risk Reduction • Risk Assumption • Risk Shifting

11. Risk Avoidance • Avoiding dangers • Taking precautions (installing a car security system)

12. Risk Reduction • Because not all risk can be eliminated you can take precautions to reduce harm • Wear a seatbelt • Not smoking • Buying fire extinguishers

13. Risk Assumption • Taking on responsibility for the negative results of risk: • Not paying for comprehensive car insurance on an older car (because the car isn’t worth that much you’ll assume the risk if you do hit a deer) • Self- Insurance – not buying insurance and just putting money into savings for when/if something bad does happen

14. Risk Shifting • Transfer the risk to an insurance company • In exchange for a fee the insurance company agrees to pay for your loses • Deductible – the set amount that the policyholder must pay per loss on an insurance policy • $500 collision insurance: you wreck, you pay for the first $500 worth of damage and the insurance company pays for the rest

15. Insurance Planning • Set Insurance Goals: how much insurance do you need to have to cover all your costs if something happens (depends on age, income, family size) • Develop Plan: know types of insurance and measure risks taking • Action: purchase coverage • Review: look at your costs, deductibles, and coverage by policies

16. Importance of Property Insurance • In 2004 hurricane Charley caused $6.8 billion dollars worth of insurance claims (not including losses of those who weren’t insured) • Each year in the US there are more than 3 million burglaries, 500,000 fires, and 200,000 cases of damage from other perils • Insurance plans help protect you from financial loss • Insurance Claim – requests for payment to cover financial losses

17. Property Damage/Loss • Property owners face 2 types of loss • Physical damage by perils • Fire, wind, flood • Loss or Damage by criminal behavior • Robbery, burglary, vandalism, arson • Insurance can help protect yourself from loss of or damage to your property

18. Liability Insurance • Liability is the legal responsibility for the financial cost of another person’s losses or injuries (even if you do nothing wrong) • Someone gets hurt while on your property • You help someone move and you damage their property • You can be found liable (legally responsible) if your negligence caused the mishap • Negligence: failure to show care/do as a reasonable person would do in the same situation

19. Assignment Page 418 1-4 & 6

20. Home and Property Insurance 13.2 Page 419

21. Homeowners Insurance • Is coverage that provides protection for your residence and its associated financial risks, such as damage to personal property and injuries to others • Homeowners covers: • Home, buildings, and other structures • Additional living expenses • Personal property • Personal liability • Specialized coverage

22. Buildings and Other Structures • Homeowners protects you against financial loss in case your home is damaged or destroyed along with other structures on your property (even trees landscaping!)

23. Additional Living Expenses • Covers you if you have to pay to stay somewhere else because your home is damaged • Limited to 10-20% of the home’s total coverage • Limit the payment period to a max of 6-9 months

24. Personal Property • Household belongings (furniture, appliances, and clothing) are covered by the personal property portion of homeowners • Personal Property coverage typically includes limits for the theft of certain items ($1,000 for jewelry) • Can include optional coverage (for additional cost) to cover computer or tv due to power surge or spilled drink.

25. Household Inventories • If something happens to your personal property • You must be able to prove how much it was worth and that it belonged to you. • Household Inventory is a list or other documentation of personal belongs, with purchase dates and cost info. • Videos and photos recommended • Also inventory, serial numbers, and receipts would be ideal

26. Additional Property Insurance • Personal Property Floater: is additional property insurance that covers the damage or loss of a specific item of high value • Example: wedding ring, golf clubs, computers

27. Personal Liability • Guest falls down on your steps • Your BBQ ash causes a fire damaging neighbors roof • Son breaks a neighbor’s antique lamp • Personal liability portion of your homeowners policy protects you and members of your family if others, sue you for injuries they suffer or for damages to their property

28. Amounts of Coverage • Typical homeowners policies provide basic personal liability coverage of $100,000 • Umbrella policy – called personal catastrophe policy allows you to cover all kinds of personal injury claims • Medical Payments Coverage – pays the cost of minor accidental injuries to visitors on your property (do not cover people who live in the home)

29. Specialized Coverage • Floods and earthquakes not covered in homeowners • If you live in an area where they are frequent you’ll need to purchase special coverage for them.

30. Renters Insurance • Protection for personal property • Your belongings are not covered under the landlord’s policy, unless the landlord is liable for the damage. • Bad wiring causes a fire = landlords fault • Leaving the oven on = not covered unless renters insurance

31. Home Owner Forms • HO-1: basic: • protects against perils (fire, wind, hail) • HO-2: broad: • wider range of perils (falling objects, ice, snow damage) • HO-3: special: • covers all basics + all types of perils (except flood, earthquake, war, nuclear accidents) • HO-4: tenants: • personal property of renters not building/structures • HO-5: comprehensive: • replacement costs • HO-6: condos: • protects property and improvements made to condo

32. Actual Cash Value: • The payment you receive to settle the claim is based on the replacement cost of an item minus depreciation • Loss of value when it gets older

33. Replacement Value: • Method for settling claims, you receive full cost of repairing or replacing an item • This type of coverage will obviously have a higher premium because it’s worth more! • Example: Your 1990 tube TV get’s zapped by lightning • Actual Cash Value: maybe $10.00 • Replacement Value: $600.00

34. Home Insurance Cost Factors • Location • (proximity to hazards or fire departments) • Type of structure • (brick is cheaper because safer) • Coverage Amount • (the more coverage the more expensive) • Discounts • (locks, security systems, smoke detector) • Company differences • (price around!)

35. Assignment Page 429 1-6

36. Motor Vehicle Insurance Page 430 The average household spends more than $1,000 for motor vehicle insurance yearly

37. Motor Vehicle Accidents • Cost more than $150 billion in lost wages and medical bills every year • Every state in the US requires the driver to prove he or she can pay for damage or injury caused by an automobile accident if she or he was at fault (liability insurance)

38. Bodily Injury Liability • Insurance that covers physical injury caused by a vehicle accident for which you are responsible • Pedestrians, passengers, people in other vehicles • Liability coverage is usually expressed by 3 numbers (100/300/50) is the max amounts insurance company will pay to injured parties • First number: max paid for injury of 1 person (100,000 is recommended) • Second number: max paid for injuries of all parties (more than 1 involved) (300,000 is recommended) • Third number: max paid for property damaged (cars, fences)

39. Medical Payments coverage • Coverage if you (and family) were hurt while driving or if while in another person’s vehicle

40. Uninsured Motorist’s Protection • Everyone who is driving is legally supposed to have liability insurance but if they don’t… • Fine and suspension of license if caught driving without • Uninsured motorist’s protection is insurance that covers you and your family members if you are involved in an accident with an uninsured or hit-and-run driver.

41. Property Damage Liability • Applies when you damage the property of others (cars, buildings, poles, signs) • Also if you are driving another person’s vehicle with the owner’s permission

42. Collision Insurance • Insurance is insurance that covers damage to your vehicle when it is involved in an accident and you are at fault. • Amount is limited to the cash value of your vehicle at the time of accident. • if someone else caused the wreck your property damages are paid for out of their liability insurance • if you cause the wreck your liability protection pays for their car/injuries but your collision insurance pays for your car damage • Many older cars won’t carry collision insurance because the value of the car isn’t worth it • Example : you have a car worth $1500..why pay $800 a year to protect it?

43. Comprehensive Insurance (Physical Damage) • Protects you if your vehicle is damaged in an non-accident • Deer, fire, theft, falling objects, vandalism, hail, floods, tornadoes…

44. No-Fault Insurance • Is an arrangement whereby drivers who are involved in accidents collect money from their own insurance companies • Speeds up cost and time of settling

45. Other Coverage • Rental Reimbursement: pays for rental car while you shop for new or yours is getting fixed • Emergency Road Side Service: mechanical assistance if you break down

46. Motor Vehicle Insurance Cost Factors • Claims: Premium (cost of insurance) increases with the number of claims you make (wrecks, deer, theft) • Vehicle Type: year, make, model (higher priced and sporty will cost you more to cover) • Rating Territory: high risk areas may cost more (city has higher theft and more accident rates) • Driver Classification: age, sex, marital status, driving record and driving habits. • Assigned risk pool: group of people who cannot get motor vehicle insurance who are assigned to each insurance company operating in the state

47. Reducing Insurance Premiums • Compare companies: price shop! • Just have liability (no collision or comprehensive) • If you have collision or comprehensive then increase your deductable (you pay more if you have a claim) • Discounts: good driving record , good grades, drivers ed

48. Assignment Page 437 1-6 Glencoe Online Test Chapter 13 Worksheet Packet