Chapter 10 – Property and

Casualty Insurance
• Allows pooling of financial risks of
property loss
– Through diversification, everyone shares in
everyone's loss by paying an average rate
• Purpose: guard against financial
catastrophe
• Know insurer’s credit rating (A. M. Best)

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 Homeowner's Insurance
• Six standard policies. Know #2, 3 and 4
• HO-2 – Broad form covering named perils
– Fire, lightening, windstorm, hail and
explosions
– Not named = not covered
• HO-3 - Special form. Covers perils not
excluded; flood and earthquake are excluded
• HO-4 – Renter's insurance covers possessions
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 Two Sections of Homeowner's
• Section 1 – protects property and
possessions

• Section 2 – provides personal liability

insurance if you are sued for something
you did or failed to do.

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 Property Coverage
• Dwelling – house and attachments
– Other - detached garage, landscaping
– Personal property – wherever located
– Loss of use
• Liability – protects if someone injured on
property and sues or sues for other
reasons.

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 Coverage Amounts
• Replacement cost = actual cost to replace
• Actual Cash Value = depreciated value
• Coinsurance requires insured to pay part
of claim if have inadequate coverage
80% rule – replacement cost paid only if
amount insured is 80% of replacement
value; otherwise, ACV
• Very serious mistake to underinsure
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 Supplemental Coverage
• Rider – adds or subtracts coverage
• Personal articles floater
• Earthquake and flood
• Inflation guard
• Personal umbrella
• Replacement cost of personal property.

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 Indemnity Considerations
• Replacement cost and code changes
• Inflation
• Flood or earthquake area?
• Special protection – jewelry, stamps,
coins
• If your assets are more than liability
limit, may need more coverage
• Need insurance even if rent
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 What Determines Cost?
• Location – California is high risk area
– Also Texas, Florida along Mississippi
• Type of structure
– Older structures – more expensive to insure
• Level of coverage and policy type

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 Ways to Reduce Premiums
• Higher deductible
• Security system/smoke detector
• Multiple policy discounts (include car)
• Pay premium annually in advance
• Other discounts – over 55
• Consider direct writers; shop around

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 If You Have a Loss….
• Report immediately to insurer
• Make temporary repairs
• Detailed list of everything lost/damaged
• File claim
• Maintain record of settlement process
• Confirm adjuster's estimate

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 Automobile Insurance
Two broad parts with subparts:
• Bodily injury including
– Bodily injury liability (Part A), medical
expenses (B) and uninsured motorists (C)
• Property damage
– Liability coverage (A), Collision (D),
comprehensive physical damage (D)

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 Split Limits
• Example: $200,000/600,000/100,000
– $200,000 for bodily injury to each person
– 600,000 limit for each accident
– 100,000 property damage liability
• Recommendation: at least 100/300/100
• Or combined with single limit for injury
and property, usually $500,000.

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 Who’s Covered?
• Damage and liability –generally anyone
operating with permission.
Children – included if declared
• Medical – policyholder and passengers
• Loss from uninsured motorists –

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 Medical Coverage
• Reasonable medical/funeral expenses
• Uninsured motorist – covers injuries
caused by uninsured motorists
– To collect, other driver must not have
insurance but must be at fault
– 15% of motorists estimated to be uninsured
so important

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 Damage to Your Vehicle
• Collision loss – damage from colliding with
another vehicle or object
• Comprehensive – other losses such as fire,
theft, windstorm, falling objects, earthquake
• Amount - actual cash value (depreciated
value) less deductible
• Premiums decline sharply as deductible
increases
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 Cost Determinants
• Your driving record
• Deductible
• Personal characteristics
– Age, sex and marital status
• Type of vehicle and how used
• Discounts
• Where you live
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 Keeping Costs Down
• Improve driving record – three year limit
• Increase the deductible
• Shop competitively
– Multiple policy discounts
• Buy car that is inexpensive to insure
• But keep adequate liability insurance

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