business.fullerton.edu

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Chapter 10 – Property and Casualty Insurance

• Allows pooling of financial risks of property loss– Through diversification, everyone shares in

everyone's loss by paying an average rate

• Purpose: guard against financial catastrophe

• Know insurer’s credit rating (A. M. Best)

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Homeowner's Insurance

• Six standard policies. Know #2, 3 and 4• HO-2 – Broad form covering named perils

– Fire, lightening, windstorm, hail and explosions

– Not named = not covered• HO-3 - Special form. Covers perils not

excluded; flood and earthquake are excluded• HO-4 – Renter's insurance covers possessions

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Two Sections of Homeowner's

• Section 1 – protects property and possessions

• Section 2 – provides personal liability insurance if you are sued for something you did or failed to do.

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Property Coverage

• Dwelling – house and attachments– Other - detached garage, landscaping– Personal property – wherever located– Loss of use

• Liability – protects if someone injured on property and sues or sues for other reasons.

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Coverage Amounts

• Replacement cost = actual cost to replace• Actual Cash Value = depreciated value• Coinsurance requires insured to pay part

of claim if have inadequate coverage 80% rule – replacement cost paid only if

amount insured is 80% of replacement value; otherwise, ACV

• Very serious mistake to underinsure

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Supplemental Coverage

• Rider – adds or subtracts coverage

• Personal articles floater

• Earthquake and flood

• Inflation guard

• Personal umbrella

• Replacement cost of personal property.

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Indemnity Considerations

• Replacement cost and code changes• Inflation• Flood or earthquake area?• Special protection – jewelry, stamps,

coins• If your assets are more than liability

limit, may need more coverage• Need insurance even if rent

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What Determines Cost?

• Location – California is high risk area– Also Texas, Florida along Mississippi

• Type of structure– Older structures – more expensive to insure

• Level of coverage and policy type

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Ways to Reduce Premiums

• Higher deductible

• Security system/smoke detector

• Multiple policy discounts (include car)

• Pay premium annually in advance

• Other discounts – over 55

• Consider direct writers; shop around

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If You Have a Loss….

• Report immediately to insurer

• Make temporary repairs

• Detailed list of everything lost/damaged

• File claim

• Maintain record of settlement process

• Confirm adjuster's estimate

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Automobile Insurance

Two broad parts with subparts:

• Bodily injury including– Bodily injury liability (Part A), medical

expenses (B) and uninsured motorists (C)

• Property damage– Liability coverage (A), Collision (D),

comprehensive physical damage (D)

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Split Limits

• Example: $200,000/600,000/100,000– $200,000 for bodily injury to each person– 600,000 limit for each accident– 100,000 property damage liability

• Recommendation: at least 100/300/100

• Or combined with single limit for injury and property, usually $500,000.

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Who’s Covered?

• Damage and liability –generally anyone operating with permission.

Children – included if declared

• Medical – policyholder and passengers

• Loss from uninsured motorists –

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Medical Coverage

• Reasonable medical/funeral expenses

• Uninsured motorist – covers injuries caused by uninsured motorists– To collect, other driver must not have

insurance but must be at fault– 15% of motorists estimated to be uninsured

so important

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Damage to Your Vehicle

• Collision loss – damage from colliding with another vehicle or object

• Comprehensive – other losses such as fire, theft, windstorm, falling objects, earthquake

• Amount - actual cash value (depreciated value) less deductible

• Premiums decline sharply as deductible increases

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Cost Determinants

• Your driving record

• Deductible

• Personal characteristics– Age, sex and marital status

• Type of vehicle and how used

• Discounts

• Where you live

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Keeping Costs Down

• Improve driving record – three year limit

• Increase the deductible

• Shop competitively– Multiple policy discounts

• Buy car that is inexpensive to insure

• But keep adequate liability insurance