Slide 1Insurance and Risk ManagementTypes of RiskCoverage and Type of RiskSlide 5Planning an Insurance ProgramProperty and Liability InsuranceSlide 8Homeowner’s Insurance CoveragesSlide 10Items Covered by Renter’s InsuranceHome Insurance Policy FormsHome Insurance Cost FactorsPolicy ProvisionsFactors That Affect Home Insurance CostsAutomobile Insurance CoveragesMotor Vehicle Liability CoveragesMotor Vehicle Insurance CoveragesSlide 19Auto Insurance CoveragesNo-Fault InsuranceCollision CoverageComprehensive Physical DamageAmount of CoverageAuto Insurance Premium FactorsReducing Automobile Insurance PremiumsClass ActivityChapter 10Home and Automobile InsuranceHome and Automobile InsuranceMcGraw-Hill/IrwinCopyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.Insurance and Risk Management•Insurance is protection against possible financial loss; it gives you peace of mind.•An insurance company, or insurer, is a risk-sharing firm that assumes financial responsibility for losses from an insured risk.•People purchase a policy and the firm assumes a risk for a fee called the premium, which the insured policyholder pays periodically.10-2Types of Risk•Risk: Uncertainty or lack of predictability, such as to loss that a person or property, covered by insurance, faces.•Peril is the cause of a possible loss, such as fire, windstorm, robbery, disease, or death.•Hazard increases the likelihood of a loss, such as driving drunk, or defective house wiring.•Risk management: Organized, planned strategy to protect your assets and family.10-3Coverage and Type of Risk•Pure Risk.Personal risks, property risks, and liability risks are types of pure risk. Insurable, chance of loss, not gain.Accidental, unintentional.Nature and financial loss of the risk can be predicted.•Speculative Risk.Chance of loss or gain, such as starting a business.Uninsurable.10-4RiskAvoidanceRiskShiftingRiskAssumptionRiskReductionWays toManageRisk10-5Planning an Insurance ProgramTo put your risk management plan to work ask yourself…What should be insured?For how much?What kind of insurance?From whom? Set your insurance goals and prioritize them.Develop a plan to reach your goals.Put plan into action.Review results.10-6Property and Liability Insurance•In recent years there have been major losses from things such as fires in the west, floods and tornadoes in the midwest, and hurricanes in Florida and Hawaii.•Potential physical damage and loss of use.Home, automobiles, furniture, clothing, and personal belongings.10-7Property and Liability Insurance•Liability: legal responsibility for cost of another person’s losses or injuries.•Liability due to negligence.Failure to take ordinary, reasonable care, such as failure to supervise children in a pool.•Vicarious Liability. When you are held responsible for the actions of another person, such as your child throwing a ball through a neighbor’s window.10-8(continued)Homeowner’s Insurance Coverages•Homeowners insurance is coverage for a place of residence & associated financial risks.Damage to or destruction of your house and other structures, plus trees, shrubs and plants, Additional living expenses.Personal property in or away from home.Personal property floater - high value items.Household inventory with documentation.Endorsements add coverage for things such as earthquake damage, or damage from floods.10-9Homeowner’s Insurance Coverages•Medical coverage payments for minor injuries caused by you, your family members, or pets, occurring on your property or away from home. •Personal liability- $100,000 or more. Umbrella policy - also called a personal catastrophe policy-supplements basic personal liability coverage.$1,000,000 or more in liability coverage.10-10(continued)Items Covered by Renter’s Insurance•Personal property loss or damage.•Additional livingexpenses. •Personal liability.•A building owner’s insurance usually won’t cover renter’s personal property.•Many renters do not have insurance.10-11Home Insurance Policy Forms•Basic form (HO-1)•Broad form (HO-2)•Special form (HO-3), All-risk•Tenant’s form (HO-4)•Condominium owner (HO-6)•Modified coverage form (HO-8), Older homes.•Other items covered: Credit card fraud, check forgery, temporary repairs and fire department charges in areas with such fees.10-12Home Insurance Cost Factors•Two-thirds of homes in the United States are either not insured or are underinsured.•Billions of dollars of damage occur each year from fire, theft, wind and other risks.•Determine the amount of coverage you need by considering…Replacement value of your home.Value of your home’s contents.Protection for specific items like jewelry.Liability coverage you need.10-13Policy Provisions•Look for a policy with full coverage rather than a coinsurance clause, where you have to pay for part of a loss.•Which type of claim settlement method is used?Actual cash value - cost less depreciation.Replacement cost - cost to repair or replace the damaged or lost item, without considering depreciation of the item. May limit replacement cost to 400% of actual cash value of item. Costs 10-20% more than actual cash value coverage.10-14Factors That Affect Home Insurance Costs•Location of residence.•Type and age of the structure.•Amount of coverage, policy type, and deductibles.•Discounts - alarm system, smoke detector, if you insure your car with the same company.•Company differences.Compare costs and coverages at sites such as www.insuremarket.comCustomer satisfaction index information is available at www.ConsumerReports.org10-15Automobile Insurance Coverages•Financial responsibility law.State legislation. Forty-five states have compulsory automobile liability insurance laws as of 2003.see Exhibit 10-8 to see the minimum limits for financial responsibility (liability) in your state.•Requires drivers to prove their ability to cover the cost of damage or injury caused by them in an automobile accident.10-16Motor Vehicle Liability Coverages$ 1 0 0 , 0 0 0 l i m i t t h a tw i l l b e p a i d t o o n ep e r s o n i n a n a c c i d e n t$ 3 0 0 , 0 0 0 l i m i t t h a tw i l l b e p a i d t o a l lp e r s o n s i n a n a c c i d e n t$ 5 0 , 0 0 0 l i m i t f o rp a y m e n t f o r d a m a g et o p r o p e r