Ch 11 - Prop Home Auto Insur Flashcards
Home insurance description
Covers risk of damage or destruction of the home and related buildings.
Covers contents of home.
Liability to third parties for injuries occurring on prop
Policies differ in what risks are covered.
Why need property insurance?
Owning and using property exposes you to pure risk.
Damage or destruction, bodily injury.
Insures against catastrophic expenses, not small ones.
Premium is paid with certainty to avoid large uncertain loss.
How much home insurance needed?
Two approaches:
- List and value each item.
- Estimate value or the contents as percentage of home value.
Depreciated value coverage (basis for home insurance)
Replaces or repairs house back to condition it was lost or damaged in. Value is reduced by depreciation.
Replacement value (basis)
Use cost valuation approach to determine replacement cost of home.
Value of land and foundation not included.
Home has to be at least 80% insured to received full loss of partial damage.
Changes over time, policy must be updated.
Policies protected by CPI adjustments for inflation.
Deductible determination
The higher the deductible the lower the premium.
Incentive to avoid damage, insurer shares part of loss, admin costs of small claims is avoided.
Selecting optimal deductible
Rule thumb - set deductible at 3% of net worth.
Liability insurance
Covers injuries suffered of insured property
Non household activities
Swimming pool
Pets
Types of home insurance
Comprehensive home insurance: structure, contents, liability Fire Tenants insurance (for condos and apartments)
Auto insurance
Risk of injury or death to owner and passengers
Risk of damage and theft
Third party liability
Type of auto insurance
Bodily injury coverage: coverage for the owner and persons using car with permissions.
Property damage: damage by your car in the event accident was your fault.
Collision coverage: damage to your car from and accident you cause.
Comprehensive: damage from theft, fire.
Medical payment coverage
Uninsurable motorist coverage
No-fault insurance
Deductibles for auto insurance go up When….
More coverage is added-uninsured motorist, liability, comprehensive, etc.
Rental car insurance
Rental fee includes liability
Your insurance can be extended to rental cars
Sometimes provided by premium credit cards
