CHAPTER 11 property, home and automobile insurance.docx

43 views2 pages
21 Apr 2012
CHAPTER 11 property, home and automobile insurance
Property insurance: insures your physical properties home, clothing, furniture, appliances, jewellery,
and so on against damage or destruction
Home insurance: protects the family against the risk of loss, damage, or destruction of the home, its
related outbuildings, its contents, and covers liability to third parties for injuries suffered on the property
o Typical risks covered by home insurance: fire, lighting, falling objects, riots, windstorm, explosion,
theft, water, smoke, etc
Two ways to estimate the amount of coverage required:
1. Estimate the value of contents as some percent (usually 20%)
2. Estimate the insurance coverage for the contents by listing and value every item
Two forms of home insurance you can buy:
1. Depreciated value: value of replacement or repair for the item to the condition it was in
when lost or damaged
Subtracting the price of a new item an allowance for depreciation based on the
age of the item
2. Replacement value: damaged or lost item is the cost of buying a new item of the same
quality; higher premium
The lost or destroyed item must be replaced with ones of comparable quality
Cost approach of valuation: method used to evaluate the cost to replace the home’s structure
(everything except the land and foundation) if the home were destroyed
o Gives a professional estimate of both the depreciated value and the replacement value of the
home’s structure
o 80% rule: insurance companies will not pay the full loss on partial damage unless the insured has
bought insurance to cover at least 80% of home’s replacement value
Inflation protection provision: automatically increases the coverage amount each year in accordance
with the increase in some inflation index such as the Customer Price Index (CPI)
Deductible: part of a claim that you must pay first before the insurance company will pay anything
o High deductible policies (low premiums) make more economic sense than low deductible policies
because there is a higher incentive to protect against losses
o Rule of thumb choosing a deductible equal to 3% of total net worth
Liabilities to third parties: protects you from the liability to other people for injuries suffered on your
property or by anything attached or related to your party
o Some factors to consider when purchasing liability insurance: nature of non-household activities
carried out in your home; domestic servants; swimming pool; pets; anything that can increase
risk exposure to third party liability
Three types of home insurance:
1. Comprehensive home policy: covers the three major sources of risk (home structure, its
contents, and third party liability)
Additional provisions: damaged property removal, removal of debris,
earthquake, expensive jewellery, fire department surcharges
2. Fire insurance: covers the most basic protection: fire, lighting, smoke damage
3. Tenant’s (or renter’s insurance): covers contents in the home, excluding home structure
Automobile insurance: covers a number of risks, the damages from which are potentially large
o Risk of injury or death of the owner and his or her passengers
Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Get access

$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
1 Booster Class