Chapter 8 Home and Automobile Insurance

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Chapter 8Home and Automobile Insurance
8-1
Kapoor Dlabay Hughes Ahmad
Prepared by Cyndi Hornby, Fanshawe College
? 2009 McGraw-Hill Ryerson Ltd.
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Learning Objectives - Chapter 8
8-2

1. Develop a risk management plan using insurance.
2. Discuss the importance of property and liability
   insurance.
3. Explain the insurance coverage and policy types
   available to homeowners and renters.
4. Analyze factors that influence the amount of
   coverage and cost of home insurance.
5. Identify the important types of automobile
   insurance coverage.
6. Evaluate factors that affect the cost of
   automobile insurance.

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Learning Objective 1Develop a risk management
plan using insurance.
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Insurance and Risk Management
8-4

• 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.

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Types of Risk
8-5

• 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)

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Risk Management Methods
8-6

• 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 Risk is 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

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Risk Management Methods
8-8

• 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 Shifting means to transfer the cost of the
  loss to an insurance company

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Planning an Insurance Program
8-9

• 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.

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Planning an Insurance Program
8-10

• 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

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Learning Objective 2Discuss the importance of
property and liability insurance.
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Potential Property Losses
8-12

• 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

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Liability Protection
8-13

• Liability is legal responsibility for the
  financial cost of another persons 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

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Learning Objective 3Explain the insurance
coverage and policy types available to homeowners
and renters.
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Homeowners Insurance Coverage
8-15

• 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.

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Homeowners Insurance Coverage
8-16

• 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

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Homeowners Insurance Coverage
8-17

• Homeowners 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

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Homeowners Insurance Coverage
8-18

• Umbrella Policy
• Also called a personal catastrophe policy.
• Supplements basic personal liability coverage.
• 1,000,000 or more in liability coverage.

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Tenants Insurance
8-19

• Personal property loss or damage.
• Personal liability.
• Additional living expenses
• Landlords insurance usually wont cover personal
  belongings.
• Tenants Legal Liability covers loss or damage to
  property in your care or control caused by fire,
  smoke, explosion or water damage.

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Home Insurance Policy Forms
8-20

• 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

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Learning Objective 4Analyze factors that
influence the amount of coverage and cost of home
insurance.
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Deductibles
8-22

• 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

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How Much Coverage Do You Need?
8-23

• 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

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How Much Coverage Do You Need?
8-24

• 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

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Factors That Affect Home Insurance Costs
8-25

• 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

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Learning Objective 5Identify the important
types of automobile insurance coverage.
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Automobile Insurance Coverage
8-27

• 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

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Automobile Insurance Coverage
8-28

• 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.

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Automobile Insurance Coverage
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• 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

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No-Fault Insurance
8-30

• 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

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Automobile Insurance Coverage
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• 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

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Automobile Insurance Coverage
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• 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.

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Learning Objective 6Evaluate factors that
affect the cost of automobile insurance.
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Auto Insurance Premium Factors
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• 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

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Auto Insurance Premium Factors
8-35

• 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

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Reducing Automobile Insurance Premiums
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• 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.

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Summary of Learning Objectives
8-37

• 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

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Summary of Learning Objectives
8-38

• 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

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Summary of Learning Objectives
8-39

• Explain the insurance coverage and policy types
  available to homeowners and renters
• Homeowners insurance includes protection for
• The building and other structures
• Additional living expenses
• Personal property
• Personal liability
• Tenants insurance includes the same but excludes
  coverage for the building and structures

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Summary of Learning Objectives
8-40

• 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

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Summary of Learning Objectives
8-41

• 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

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Summary of Learning Objectives
8-42

• 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

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Summary of Learning Objectives
8-43

• 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