Chapter 8

Auto and
Homeowner’s
Insurance
Purpose of Insurance

1.Maintain current level of wealth by

compensating for financial loss:
1. Damage or destruction of property
2. Disability, illness or death
3. Negligence

2.Peace of mind
Property and Casualty Insurance

Repair or replacement of:

•Automobiles
•Homes and other real property
•Personal property
Third party liability claims
•Liability – responsibility for a loss
Health Insurance

• Health benefits not covered by provincial

medical services insurance
• Dental and Orthodontic services
• Travel medical services
Disability Insurance

• Replaces income lost if unable to work

due to illness or injury
Critical Illness Insurance

• Lump sum benefit on diagnosis of:

•Heart Attack, Stroke, Cancer
•Alzheimer’s Disease, Aortic Surgery, Blindness
•Coma, Deafness, Kidney Failure, Loss of Limbs
•Loss of Speech, Major Organ Transplant
•Motor Neuron Disease, Multiple Sclerosis,
Paralysis
•Parkinson’s Disease, Severe Burns
•Loss of Independent Existence
Long-Term Care Insurance

• Monthly benefits for home or facility care

are paid if the insured suffers a loss of
independence
Life Insurance

• Lump sum benefit paid to beneficiaries if

the insured dies
Managing Risk

Peril – What?
Consequence – How much ($$$$$$$)
Probability - When
Managing Risk
Managing Risk

Risk Management Alternatives:

• Avoid
• Reduce
• Accept (Retain)
• Share (Transfer)
• Decision to buy insurance
• Premium: cost of obtaining insurance
• Insurance protects against financial loss
• Insurance will not protect against all risks
Managing Risk
Managing Risk 229
Managing Risk

Role of Insurance Companies

• Many different types of insurance policies
• Most popular insurance:
• Property and Casualty (P & C)
• Life
• Health
• Disability
• Critical Illness
Managing Risk

Insurance Company Operations

• Numerous insurance policies grouped by:
• Type
• Demographics / Habits of the insureds
• Most policy owners will not file a claim
Claims versus Premiums

Premiums are related to:

1. Probability of a loss occurring (claim)

2. Dollar amount of compensation

3. Insurance company expenses

4. Insurance company investment earnings

5. Insurance company desired profits

Managing Risk

Insurance Company Professionals

• Actuaries:
• Calculate premiums and reserves for insurance
policies covering various risks by analyzing
probabilities
• Establish premiums to align with anticipated
claims
• Reserves are provisions for future liabilities and
indicate how much money should be set aside
now to reasonably provide for future payouts
Managing Risk

Insurance Company Professionals

• Underwriters:
• Evaluate the risk and exposure to perils of
potential insureds.
• Determine whether the insurer should accept the
risk and how much coverage the insured should
receive.
• Protect the insurance company's book of
business from risks which may cause a loss.
• Issue policies with premiums appropriate with the
risk exposure.
Managing Risk

Insurance Agents and Brokers

• Insurance agent:
• represents one or more insurance companies

• Captive (Career) agent:

• represents one insurance company

• Independent agent (broker):

• represents many insurance companies
Auto Insurance

Insures:
• Causing death or injury to others

• Medical care for:

• the insured
• their passengers
• persons not in the vehicle

• Damage to automobile(s)
Auto Insurance 231
Automobile Insurance

Automobile Insurance Policy Provisions

• Insurance policy:
• Contract between the insurer and policy holder
• Automobile insurance policy:
• Specifies coverage for a specific individual and
vehicle
• Three sections:
• Third party liability coverage
• Accident benefits
• Loss or damage to the insured automobile
Section A: Third Party Liability Coverage

Third party liability:

• Legal term describing the person(s)
experiencing a loss because of the insured
1. Injury or death
2. Property damage
Section A: Third Party Liability Coverage

Bodily Injury liability coverage:

• Injuries to others caused by the policy holder
(or others listed on the policy) while driving
their own vehicle
• Injuries to others caused by the policy holder
while driving another’s vehicle with their
permission
• Includes medical bills, pain, suffering and
economic loss
Section A: Third Party Liability Coverage

Property damage liability coverage:

• Damage to others’ property caused by the
policy holder’s automobile. Examples:
• Automobile
• Fence
• Lamppost
• Building
• Landscaping
• Does not cover the policy holder’s
automobile or property
Section B: Accident Benefits

Accident benefits coverage:

• Medical care for the policy holder and
other passengers in their automobile
• Medical payments, funeral benefits, loss of
income as a result of death or total disability
• Mandatory in all province except
Newfoundland and Labrador
• Medical coverage applies only to the driver
and passengers of the policy holder’s
automobile
Section B: Accident Benefits

Uninsured motorist coverage:

• Injuries of the policy holder caused by an
uninsured or underinsured driver
• Hit-and-run
• Insurance company bankruptcy
Section C: Vehicle Damage/Loss

Collision:
• Damage to the policy holder’s vehicle
caused by the driver of their vehicle
Comprehensive:
• Damage to the policy holder’s vehicle from
an event other than a collision.
• Theft, fire, hail, explosion, riot, vandalism
• Does not cover personal items in the
automobile
Deductible:
• Amount paid by the policy holder.
Remainder of costs paid by the insurer
Automobile Insurance

No-Fault Benefits:
•All provinces and territories
•Insurance Act - “Part-7 Benefits”
• Medical
• Rehabilitation
• Disability – wage loss and homemaker
• Death
Automobile Insurance 233
Automobile Insurance

Other Provisions
•Loss of vehicle use (cost of a rental car)
•Towing
•Damage to rented vehicles
•Underinsured motorist coverage
•Exclusions
Auto Insurance 236
Automobile Insurance

Factors affecting premiums

• Probability of a claim
• Cost of claims
• Amount of liability coverage
• Amount of deductible
• Vehicle use (pleasure, to work, for work)
• Value of vehicle
• Residence location (urban versus rural)
• Driver Education
• Driving Record
• Age
• Gender
Homeowner’s Insurance

Covers:
• Property damage
• Theft
• Personal liability
• Third party
Perils Covered by Insurance

All perils coverage:

• All structures on the property against all
events except those excluded by the policy
Named perils coverage:
• All structures on the property against events
named in the policy
Policy Provisions

Actual Cash-value policy:

• Accounts for depreciation
Replacement-cost policy:
• Replace with new
Contents (Personal Property)
• Personal assets to a specified maximum
• Sometimes a percentage of house value
• Home Inventory – detailed information
Personal Property Floater (Rider):
• Supplementary insurance
• Replacement cost
Policy Provisions

Liability
• Damage to property
• Injury to others
• Includes events occurring off the property
• Coverage not fixed to the property value
• Negligence
Homeowner’s Insurance

Premiums affected by:

• Value of insured property
• Deductible
• Location
• Degree of protection
• Discounts
• Volume
• Alarm system
• Annual premium
• Claims free period
Homeowner’s Insurance

Premium reduction strategies:

• Increase deductible
• Install safety equipment and systems
• Fire extinguisher
• Fire / Burglar system

• Use One Insurer for All Types of Insurance

• Shop Around
Tenant’s Insurance

Protects possessions in a rented dwelling

• Does not insure the structure itself
• Covers personal assets
• May cover living expenses
Tenant’s Insurance

Policy Provisions
• Specifies maximum amount of coverage
• Includes liability coverage
Umbrella Personal Liability Policy

• Provides additional liability insurance

• Additional auto and home coverage
• Swimming pool
• Hot Tub / Spa
• Trampoline
• Dirt bike and ATV
• Boat
• Other recreational equipment

• Need proof of existing liability coverage