RMI3011 EXAM 2 Monday March 23rd Section 2 Notes Insurance Policies Homeowners Policy and Automotive Policy Parts of the Policy declarations insuring agreement exclusions conditions Declarations page Insuring agreement Exclusions Page that is personal to you Provide you with basic information about what you have purchased the policy itself might have 10 different coverages but you might ve only purchased 3 Tells you what you purchased the price the risk of what s being insured generally has some company information Section 1 coverages first party coverages payment goes to you Section 2 coverages liability you causing damage injury to someone or their property that payment is going to someone else Portion of the policy that tells you what the insurance company is promising HO Policy if claim is made or suit is brought bc of bodily injury or property damage we will pay up to our limit of liability for the damages for which the insured is legally liable will provide a defense at their expense by attorney of their choice All Risk Coverage cover all direct physical loss except what is physically excluded Named Peril Coverage peril cause of loss Covers fire and theft then that means that s the only 2 perils you have protection for If anything else occurs you don t have coverage for Specific causes of loss can be excluded natural disasters earth quakes Specific property items can be excluded even though HO policy is designed to provide protection for your property it can specifically say certain items are not covered Ie animals Specific situations can be excluded automobile example common loss is vandalism wife keys car after husband cheats insurance company won t pay that loss Intentionally damage your property no coverage If mistress causes the vandalism then it would be covered because its not intentional damage by the insured Business related exclusions Situations in which the potential for moral hazard is high coverage for cash within the policy EX Fire in home policy says will cover up to 200 in cash because no real way of insurance company knowing how much cash you had Not a very common risk if you need additional coverage you can purchase it Purpose is to tell you what is not covered can have excluded perils property items conditional coverage or limitations on coverage Specific conditions requirements that you as the insured has to meet to be bound Tells you what your responsibilities are as the insured to make sure you have coverage and to make sure the insurance company upholds their end of the bargain What types of things are typically required Required to protect your property following a loss Required to promptly notice insurance company of a loss In the case of theft policy might say you are required to notify the police Definitions have to be specific with what they mean so in beginning of the policy there will be a definitions section clear as to what is covered and what is not Additions to the policy endorsements policy will be standardize risk that happens to more homeowners if you need additional coverage you can do that through endorsements Home business endorsements photography can do shoots anywhere so don t have to have a physical store since they have a business and several pieces of expensive equipment they want protection Peril earthquake excluded from HO policy if you want that coverage you can have it but will pay an additional premium by purchasing that endorsement Other parts of the policy Conditions Determination of Payment Actual cash value v replacement cost Policy will tell you which one applies Replacement cost what it would take to replace the item today with one of like kind in quality EX 3 year old 46 Smart TV 1500 someone breaks in and steals it you go price a new one and it costs 1700 so the replacement cost is 1700 Actual Cash Value ACV replacement cost depreciation EX For the 3 years you had TV you had the use of it so used TV diminishes in value if selling it you wouldn t be able to get the 1500 Say it s 20 depreciated you d take 20 of replacement cost 1700x 20 340 so you would receive 1700 340 1460 One of those things you can control Greater the deductible the lower your premiums holding everything else constant With deductible HO and Auto it is a straight deductible each time you have a loss that deductible will Deductibles apply EX 1000 car deductible will apply every time you get into car accident Straight deductibles apply to each and every loss that occurs have to pay that first before insurance company will pay Aggregate deductible you pay until you reach that deductible and then insurance pays EX 50K 6 month policy every time you have a loss they look at the cost value of the loss relative to your chosen deductible First loss is 10K so 40K left of aggregate deductible 2nd loss is 30K so 10K left and you have a 3rd loss of 60K leaving you with nothing left of your deductible So the first loss you pay in entirety the 2nd loss you pay your remaining 10K then losses after that the insurance company pays the rest Underinsured clause Time limitations Home worth 200 000 common causes of loss for homeowners is fire maximum possible loss would be 200K but not so likely that will be the loss you occur if you were to have a fire Maximum probable loss is much lower so instead of insuring home to value could just buy 100 000 of coverage If purchase less coverage will pay lower premiums and know your losses are less likely to reach full amount If your property is underinsured you face a penalty because they don t want you to intentionally underinsure your property Time limitations on both sides Restrictions on insurance company side If you did have a fire you report it to insurance company someone comes out to evaluates says it ll cost 70K to repair insurance company can investigate to agree on the 70K However if portion of your home is unlivable it s a time sensitive situation Insurance company has a certain amount of time to take care of this to protect the insured Other insurance provisions Where other insurance implies could also be a warranty of some type If purchase a home typically get a home warranty with it maybe for a year If 2 policies apply the easiest approach is Equal Shares Approach If the loss is 70 000 and you have policy A and B each policy pays half Pro Rata Basis Policy A limit 100 000 1 4 Policy B limit 300 000 3 4 Total limits 400 000 If you have that same 70K loss policy A would pay of the 70K and policy B would pay of the
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