Chapter 8 Home and Automobile Insurance

1. 8-1 Chapter 8Home and Automobile Insurance Kapoor Dlabay Hughes Ahmad  2009 McGraw-Hill Ryerson Ltd. Prepared by Cyndi Hornby, Fanshawe College

2. 8-2 Learning Objectives - Chapter 8 • Develop a risk management plan using insurance. • Discuss the importance of property and liability insurance. • Explain the insurance coverage and policy types available to homeowners and renters. • Analyze 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.

3. 8-3 Learning Objective # 1Develop a risk management plan using insurance.

4. 8-4 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 (a written contract of insurance) and the firm assumes a risk for a fee called the premium (the amount of money a policy holder is charged for an insurance policy) • Insured is a person covered by an insurance policy • A person who owns an insurance policy is the policyholder.

5. 8-5 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)

6. 8-6 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 Riskis a risk in which there is only a chance of loss • It 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

7. 8-7 RiskAvoidance RiskReduction RiskShifting Ways toManageRisk RiskAssumption

8. 8-8 Risk Management Methods • Risk Avoidance means to avoid the chance of loss altogether • Avoid a car accident by not driving to work • Risk Reduction means to reduce the chances of a loss occurring, or reducing the adverse effects of losses that do occur • Installing smoke alarms or fire extinguishers • Wearing a seatbelt to avoid serious injuries if you are in an accident • Risk Assumption means taking on the responsibility for the loss or injury • To self insure is the process of establishing a monetary fund to cover the cost of a loss • Risk Shiftingmeans to transfer the cost of the loss to an insurance company

9. 8-9 Planning an Insurance Program • Set your insurance goals and prioritize them • Set a plan in motion to reduce the impact of the following events; • Loss of income due to death, illness, accident or unemployment • Loss of income and extra expenses arising from illness, disability or death of a spouse • Additional expenses due to injury, illness or death of family member • Loss of real or personal property due to fire, theft or other hazards • Potential loss of income, savings and property due to personal liability • Develop a plan to reach your goals.

10. 8-10 Planning an Insurance Program • 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? • Remember that your needs change throughout your life cycles

11. 8-11 Learning Objective # 2Discuss the importance of property and liability insurance.

12. 8-12 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

13. 8-13 Liability Protection • Liability is legal responsibility for the financial cost of another person’s 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

14. 8-14 Learning Objective # 3Explain the insurance coverage and policy types available to homeowners and renters.

15. 8-15 Homeowner’s 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 endorsement • Household inventory. • Endorsement for specialized coverages. • Personal liability.

16. 8-16 Homeowner’s 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 • Depreciated Value • A reduction in the value of an object based upon its age and the percent it has decreased each year

17. 8-17 Homeowner’s Insurance Coverage • Homeowner’s 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

18. 8-18 Homeowner’s Insurance Coverage • Umbrella Policy • Also called a personal catastrophe policy. • Supplements basic personal liability coverage. • $1,000,000 or more in liability coverage.

19. 8-19 Tenant’s Insurance • Personal property loss or damage. • Personal liability. • Additional living expenses • Landlord’s insurance usually won’t cover personal belongings. • Tenant’s Legal Liability covers loss or damage to property in your care or control caused by fire, smoke, explosion or water damage.

20. 8-20 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 – standard, broad or comprehensive forms • Extensions of coverage are available for other losses

21. 8-21 Learning Objective # 4Analyze factors that influence the amount of coverage and cost of home insurance.

22. 8-22 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 is higher • Fewer small claims means less administrative costs for insurer

23. 8-23 How Much Coverage Do You Need? • Determine what it would 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

24. 8-24 How Much Coverage Do You Need? • Determine the value of the contents of your home. • Actual cash value - cost less depreciation. • Replacement Value - repair or replace with new item • Co-Insurance Clause • A policy provision that requires a homeowner to pay for part of the loss if the property is not insured for a specified percentage of the replacement value

25. 8-25 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

26. 8-26 Learning Objective # 5Identify the important types of automobile insurance coverage.

27. 8-27 Automobile Insurance Coverage • 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

28. 8-28 Automobile Insurance Coverage • 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.

29. 8-29 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

30. 8-30 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

31. 8-31 Automobile Insurance Coverage • Collision or Upset 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

32. 8-32 Automobile Insurance Coverage • Comprehensive Coverage • Covers damage to your vehicle that is not caused by a collision, such as... • Fire. • Theft. • Vandalism. • Glass breakage. • Hail, or wind storm.

33. 8-33 Learning Objective # 6Evaluate factors that affect the cost of automobile insurance.

34. 8-34 Auto Insurance Premium Factors • Factors that affect the amount of premium you pay includes; • The automobile itself • 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

35. 8-35 Auto Insurance Premium Factors • Factors that affect the amount of premium you pay includes; • Driver classification. • Age, gender, marital status, driving record, and driving habits. • Assigned risk pool for people who are considered high risk drivers

36. 8-36 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.

37. 8-37 Summary of Learning Objectives • Develop a risk management plan using insurance • Four general risk management techniques are • Risk avoidance • Risk reduction • Risk assumption • Risk shifting • Set your goals, make a plan to achieve your goals, put your plan into action and review your results

38. 8-38 Summary of Learning Objectives • Discuss the importance of property and liability insurance • Face the risks of • Property damage or loss • Legal actions by others for the cost of injuries or property damage caused by you • Insurance offers protection from financial losses that may arise from a variety of situations faced by owners of homes and users of automobiles

39. 8-39 Summary of Learning Objectives • Explain the insurance coverage and policy types available to homeowners and renters • Homeowner’s insurance includes protection for • The building and other structures • Additional living expenses • Personal property • Personal liability • Tenant’s insurance includes the same but excludes coverage for the building and structures

40. 8-40 Summary of Learning Objectives • Explain the insurance coverage and policy types available to homeowners and renters • Main types of policies include • Standard, broad, comprehensive, condominium owners, country home, and modified coverage forms • Policy differ in the risks and property they cover

41. 8-41 Summary of Learning Objectives • Analyze the factors that influence the amount of coverage and cost of home insurance • Amount or limit of insurance needed is determined by the replacement cost of your dwelling and personal property • Cost of insurance is influenced by; • The location of the home • The type of structure • Coverage amount • Policy type • Discounts • Insurance company differences

42. 8-42 Summary of Learning Objectives • Identify the important types of automobile insurance coverage • Used to meet provincial minimum insurance laws and, • To protect drivers against financial loss associated with bodily injury and property damage • Coverage includes • Third Party Liability • Accident Benefits • Uninsured Motorist coverage • Physical Damage

43. 8-43 Summary of Learning Objectives • Evaluate factors that affect the cost of automobile insurance • The limits of coverage • Automobile type • Use of the vehicle • Rating territory • Driver classification • Difference among companies • Premium discounts