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Chapter 4

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Ryerson University
FIN 512
Giulio Iacobelli

Chapter 4: Homeowners Insurance Levels of Coverage for Home Insurance 1. Basic AKA Standard - “named perils” policy: only perils listed are covered 2. Broad - Provides all-risks coverage on the buildings + perils coverage on the contents 3. Comprehensive - Covers buildings + contents for all-risks that are not specifically excluded - Homeowner’s policy IS A CONTRACT; contract terms on pg. 114 Losses Covered - Direct Losses: damage to or destruction of the building & personal property, or loss of property if theft is also covered - Indirect Losses: loss of rental income from a tenant, need to rent place while home is being repaired, etc. Principles of Insurance (not specific to home insurance only) 1. Indemnity: insured is returned to same financial position as before loss, without making a profit. Financial Position Valued at either: A. Actual Cash Value of the market value: compensated to replace what was there in its actual condition at time of loss. REPLACEMENT COST – DEPRECIATION = REPLACEMENT VALUE B. Replacement Cost: cost to repolace what was there without deducting depreciation. Therefore, replace it in new condition C. Guaranteed Replacement Cost: same as replacement cost, but payment is not limited to amount of insurance coverage 2. Insurance Interest: only homeowners can insure the property 3. Subrogation: insurer pays the insured (the injured party) then has the right to recover this amount from negligent third party (person who caused the loss) 4. Reasonable Expectations: insured is covered for anything that he/she can reasonably expect to be covered for & any exclusions must be specified Coinsurance: requirement that property by insured for a minimum amount if insured is to collect the full amount of a loss (ie. 80-100% of replacement cost0 - This is because people will try to underinsure house, so premiums (payments) will be less/cheaper - If coinsurance not met, insurer pays actual cash value of % of replacement cost INSURED VALUE = COST TO CLEAN UP SITE & REBUILD HOUSE - Cost to Repair or Build: insurer pays cost to repair/build & does not pay more than actual cash value if you do not repair/build. - Guaranteed Replacement Cost: pays full cost to repair / replace home & contents with similar quality materials even if it is more than policy limit as long as home was properly insure (as in 100% insured at last assessment0 - Actual Cash Value: pays cost to put home back to condition at time of loss  Limits of insurance = amount of coverage  Actual Cash Value = replacement cost – depreciation or obsolescence Calculating Coinsurance…. = (AMT OF INSURANCE / 80% * REPLACEMENT VALUE) * AMOUNT OF LOSS amount of coinsurance requirement; the amount insured for Premium: Calculated based on factors on pg. 118; credit scoring - Some insurers offer discounts for certain things (pg.118) Coverage of Personal Property (contents of your dwelling) - Contents typically valued at 60% of property value However, contents may exceed 60% depending on lifestyle - Need to document & value contents (make a list, photograph them) - Limit of Liability: maximum amount of loss - Endorsements: amendement to original policy; adds, subtracts, or alters coverage o Floater: type of endorsement for property that moves from location to location; added to items that are not adequately covered in policy Ie. Personal articles (jewelry, furs, stamp (philatelic property) & coin (numismatic property) collection, fine art, outboard motors & boats o Value Basis: insured & insurer agree on its value after it is appraised o some types of coverage are excluded Homeowners Policies - Section I: home & contents - Section II: liability coverage to others b/c of bodily injury & property damage - Section III: conditions that apply to the policy - List of isshhh on Declarations Page (pg. 120) Found on pg. 121…. - If a BROADENING OF COVERAGE occurs during the term of the policy, you will automatically benefit from the improved coverage at no addictional cost - Any loss or damage covered by another of insurer’s homeowners policy forms that is less broad than the policy form is also insured hereunder SECTION I – INSURANCE ON YOUR PROPERTY - Business: any full-time or part-time activity of any kind undertaken for financial gain (includes a trade, profession, or occupation and the storage of merchandise) - Civil Authority: any person acting under the authority of Governor-General-in-Council of Canada or Lieutenant-Gov- in-Council of a province, and/or any person acting with authority under federal, provincial, or territorial legislation with blah blah blah - Domestic Appliance: device or apparatus for personal use on the premises for containing, heating, chilling, or dispensing water - Dwelling: building described in the Declarations occupied by you as a private residence - Fungi: includes, but not limited to, any form or type of mould, yeast, mushroom, or mildew whether or not allergenic, pathogenic, or toxigenic, and any substance, vapour, or gas produced by, emitted from, or arising out of any fungi or spores or resultant mycotoxins, allergens, or pathogens - Ground Water: water in the soil beneath the surface of the ground, including but not limited to water in wells and underground streams, and percolating waters - Premises: land, buildings, and related structures contained within the lot lines on which the dwelling is situated - Residence Employee: person employed by you to perform duties in connection with the maintenance or use of the insured premise. (does not include persons while performing duties in connection with your business) - Single Limit of Insurance: max amount insurance company will pay under one or more coverages under Section 1 in respect to one accident or occurrence unless otherwise stated. - Specified Perils: list of pg. 122 - Spores: includes, but not limited to, any reproductive particle or micro
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