Property and Liability Insurance
1. Chapter 10PART 3:
PROTECTING YOURSELF WITH INSURANCE
Property and Liability
2. Learning ObjectivesUnderstand, buy, and maintain homeowner’s
insurance in a cost-effective way.
Recover on a liability or a loss to your
Buy the automobile insurance policy that is
right for you.
File a claim on your automobile insurance.
3. Protecting Your HomeThe first type of homeowner’s insurance, fire
insurance, was offered in 1735.
The first modern homeowner’s policy was
sold in 1958.
Until then, separate policies were needed for
4. Packaged Policies: HO’s6 basic homeowner’s policies:
HO-1: Basic form homeowner’s insurance – very
narrow coverage, not available in most states.
HO-2: Broad form homeowner’s insurance –
covers a set of perils such as fire, lightning, etc.
HO-3: Special form homeowner’s insurance –
most comprehensive because it covers all direct
physical losses to your home.
5. Packaged Policies: HO’s–
HO-4: Renter’s or tenant’s insurance - same as
the HO-2 but aimed at renters.
HO-6: Condominium owner’s insurance – covers
the personal property of a co-op or condo owner.
HO-8: Modified coverage – older homes
homeowner’s insurance – insures older homes for
the repair costs or actual cash value rather than
6. Section I: Property CoverageWithin Section I of all HO policies (except
HO-4) there are 4 basic coverages:
Coverage A: Dwelling – protects house and
attachments, such as attached garage.
Coverage B: Other structures – protects
unattached structures on the property, such as
detached garage or landscaping.
7. Section I: Property Coverage4 basic coverages in Section I of all HO policies (except
Coverage A: Dwelling – protects house and attachments, such as
Coverage B: Other structures – protects unattached structures,
such as detached garage or landscaping.
Coverage C: Personal property – protects personal property used
by policyholder regardless of location.
Coverage D: Loss of use – provides benefits if your house can’t
be used due to an insured loss.
8. Section II: Personal Liability CoverageProtects policyholder and family from
financial loss if someone is injured on their
property or as a result of their actions.
Covers the medical expenses of anyone injured
by the policyholder, their family, or by their animal.
Like a small medical insurance policy, covering up
to $1000 for medical expenses to non-family
members who are injured in your home.
9. Supplemental CoverageCoverage C of Section I provides protection
for your personal property.
Additional coverage can be added through
Written attachment to an insurance policy to add
or delete coverage.
10. Supplemental CoveragePersonal Articles Floaters – extended coverage for
all personal property regardless of location (except
kids at school).
Earthquake Coverage – specifically excluded from
coverage in standardized HO policies, supplemental
earthquake insurance is an important addition in high
Flood Protection – includes coverage from flood and
water damage from storms.
11. Supplemental CoverageInflation Guard – updates coverage based on
an index of replacement costs that
continually updates the cost of the home.
Personal Property Replacement Cost
Coverage – pay actual cash value of the
Added Liability Insurance – raise above
Personal umbrella policy protects against lawsuits
and judgments up to $10 million.
12. Coinsurance and the “80-Percent Rule”Coinsurance provision requires you pay a portion
of your losses if you don’t have adequate
Companies use the 80% rule, requiring you carry
80% of the home’s replacement cost.
This relates to losses on the dwelling only, not on
13. The Bottom LineHow much homeowner’s insurance do you need?
Cover the replacement of your home if complete loss
Protection against inflation eroding coverage
Special disaster coverage in flood or earthquake areas
Home office coverage
Adequate personal property coverage
Possessions needing special coverage (coins, jewelry)
Additional liability coverage if assets are greater than
14. Keeping Your Costs Down – Insurance Credit ScoringThere appears to be a link between your
credit score and your insurance loss ratio.
Insurance loss ratio measures claim frequency
and cost for homeowner’s and auto insurance.
The lower your insurance credit score, the
higher your homeowner’s rate will be.
To manage your insurance score, improve your
15. Keeping Your Costs Down – Insurance Credit ScoringUsing your credit score when setting insurance
rates is legal.
The Fair Credit Reporting Act allows insurance
companies to obtain credit reports and use them to set
Fair Isaac provides information on how it
calculates your insurance credit score.
16. Keeping Your Costs Down – Discounts and Savings3 factors determine the cost of your
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.
17. Keeping Your Costs Down – Discounts and SavingsHigh deductible discounts – pay less for
Security system/smoke detector discounts –
Multiple policy discounts – discount for more
than one policy with insurer.
Pay your insurance premiums annually.
18. Keeping Your Costs Down – Discounts and SavingsOther discounts – fire-resistant homes, age
over 55, long-time policyholder.
Consider a direct writer – no agents, so no
salaries or commissions.
Shop around – premiums vary by 25%.
Double-check your policy – don’t want errors
once you file a claim.
19. What To Do in the Case of a LossChecklist 10.2
Report your loss immediately.
Make temporary repairs to protect your property.
Make a detailed list of everything lost or damaged.
Maintain records of the insurance settlement process.
Confirm the adjuster’s estimate.
20. Personal Automobile PolicyPersonal automobile policy (PAP) contains
liability and property damage coverage:
Part A: Liability Coverage
Part B: Medical Expense Coverage
Part C: Uninsured Motorist’s Protection Coverage
Part D: Damage to Your Automobile Coverage
21. Personal Automobile PolicyPart A: Liability coverage – protection if
you’re legally liable for bodily injury and
property damage caused by your vehicle.
Combined single limit – applies to both bodily
injury and property damage liability.
Split-limit coverage – separate coverage for bodily
injury and property damage.
22. Personal Automobile PolicyPart B: Medical expense coverage – pays
medical bills and funeral expenses within 3
years by those injured in an accident
involving your vehicle.
Policy limits range from $1000 - $10,000 per
person, with no limit on the number of individuals
covered in an accident.
23. Personal Automobile PolicyPart C: Uninsured motorist’s protection
coverage – protects you against an
uninsured driver, a negligent driver with
insolvent insurance, or a hit-and-run driver.
It is important to have uninsured motorist driver’s
protection because 15% of all drivers don’t have
24. Personal Automobile PolicyPart D: Damage to your automobile coverage
including both collision loss and
The collision loss portion provides benefits to
cover damages resulting from an accident with
another vehicle or object.
Comprehensive physical damage coverage
covers damage from fire, theft, larceny, etc.
25. ExclusionsThe PAP provides broad coverage, but there
are exceptions. You’re not covered if:
There is intentional injury or damage.
You’re using a vehicle without owner’s consent.
You’re driving another’s car on a regular basis.
You own the car but it is uninsured.
You are carrying fee-paying passengers.
You are driving in a speed contest or race.
26. No-Fault InsuranceBased on the idea that your insurance
company should pay for your losses,
regardless of who is at fault.
Over half the states have no-fault insurance.
Imposes limits on medical expenses and
27. Determinants of the Cost of Automobile InsuranceType of automobile: the sportier car, the
higher the insurance cost.
Use of automobile: the less you use your car,
the lower the cost of insurance.
Driver’s personal characteristics: unmarried
males pay the highest rates - age, sex, and
marital status affect rates.
28. Determinants of the Cost of Automobile InsuranceDriver’s driving record: if you have received
tickets or had accidents, you’ll pay a higher
Where you live: urban areas with more
accidents and theft will have higher
29. Determinants of the Cost of Automobile InsuranceDiscounts that you qualify for: cars with
safety features and drivers that have been
identified as safe drivers will receive
Insurance credit score: if you have a lower
credit score, you’ll pay a higher rate.
30. Keeping Your Costs DownShop 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 deductible
Keep adequate liability insurance
31. Filing a ClaimYour “to-do” list if involved in a car accident:
Get help for the injured.
Move car to a safe place.
Get identification of witnesses.
Cooperate with police.
Take a test for alcohol if you believe the other driver is
under the influence.
32. Filing a Claim–
Write down recollection.
Don’t sign anything or admit guilt.
Get a copy of the police report and make sure it is
Call your insurance agent as soon as possible.
Cooperate with your insurer.
Record all expenditures associated with the accident.
If in a serious accident, then meet with a lawyer to
know your rights.