Chapter 8 - Auto/Home Insurance Flashcards
Anyone want Life Insurance?
What is the definition of risk in the context of insurance?
Risk is the exposure to events that could cause a financial loss.
Insurance protects against potential financial ______ and/or ______.
Loss and liability
The primary purpose of insurance is to maintain ________.
Maintain your existing level of wealth.
What type(s) of automobile insurance is(are) mandatory in Canada? Liability, Collision, and/or Comprehensive?
Liability is mandatory in Canada.
If your car crashes into a tree, what type of auto insurance would cover the damage to your car?
Collision.
What does collision auto insurance cover?
Collision insurance insures against costs of damage to your car resulting from an accident in which the driver of your car is at fault.
Note: Collision coverage is normally limited to the car itself and not to items that were damaged while in the car.
What does Comprehensive Auto Insurance Cover?
Comprehensive coverage insures you against damage to your car that results from something other than a collision, such as floods, theft ,fire, hail, etc
What is a deductible in the context of insurance?
The deductible is a set dollar amount that you are responsible for paying before any coverage is provided by your insurer. For example, a deductible of $500 means that you must pay the first $500 in damages due to an accident.
If a tree falls onto your (parked) car, what type of auto insurance would cover the damage to your car?
Comprehensive. (“Coverage for everything else possible that can happen to your car. Theft, vandalism, natural damage (i.e tree), fire).
What is the minimum required amount of liability insurance in Canada? What is the recommended amount?
Minimum is $200,000.
Recommended is $1M to $2M.
What is the difference between Direct Compensation Property Damage (DCPD) and Collision insurance for automobiles?
DCPD is a mandatory part of Liability insurance, and covers damage to your car if it is damaged by somebody else and you aren’t at fault.
Collision is an optional part of auto insurance, and covers damage to your car regardless of whether you are at fault or not.
What are 8 factors that can affect your auto insurance premium?
- Sex
- Age
- Amount of liability coverage
- Driver training
- Driving record (i.e speeding tickets)
- Usage of vehicle (# of km per year, etc)
- Value of the car
- Location (city versus rural)
Under normal circumstances (i.e no special policies), what is the amount that will be paid in the following scenario?
You purchase a car with an automobile loan of $50,000, and 1 year later get into an accident and your car is non-repairable.
How much will the insurance company pay you?
A: The purchase price of the vehicle.
B: The outstanding car loan amount.
C: The depreciated cost of the car.
Usually C.
Some special insurance policies state that they will cover the outstanding car loan amount if an accident occurs within 1 to 2 years of being purchased.
What factor should someone consider when purchasing collision and/or comprehensive insurance?
Can I afford to pay for a new car out-of-pocket? Can I afford (from a financial standpoint) to take on the risk myself?
What are the 4 components of financial risk management discussed in class?
A____
R____
A____
T____
Avoid risk
Reduce risk
Accept risk
Transfer risk
Using snow tires on your vehicle is an example of which component of financial risk management? (A___, R___, A____, T____)
Reduce risk.
What are exmaples of a ‘peril’ in regards to home ownership? What is the difference between a “named peril” policy and an “all peril” policy.
A peril is an event causing damage of liability (i.e a fire, flood, etc).
A named peril policy protects you only against the perils which you specify (i.e fire, flood, etc).
An all peril policy protects you against all perils (except those specifically excluded by the homeowner’s policy).
What is the difference between a “cash value policy” and a “replacement cost policy”?
A cash-value policy pays you the depreciated value of your assets.
A replacement policy pays you for the cost of replacing the asset with a similar brand/quality.
True or false: A homeowner’s policy also covers the contents of the property, including furnitue, computers, and/or clothing.
True. Standard policies typically include coverage of personal property within the house (up to a maximum amount).
Why is homeowner liability insurance important?
Very important incase you are sued due to an event occuring on your property.
What are 5 factors in home insurance cost?
- Value of insured home
- Deductible amount
- Location (specifically for natural disasters)
- Degree of protection (i.e which perils are covered)
- Discounts (i.e combined home and auto with one company. Having a security system, etc)
Where should you keep important documents regarding your homeowner’s insurance policy?
In a bank safety deposit box. (Or perhaps nowadays online).
For people who rent, what is the name of the insurance protecting your personal assets?
Tenant’s insurance
Does tenant insurance provide liability coverage for people injured on your property?
Yes.
What type of assets do umbrella liability cover? When is umbrella liability insurance applied in regards to other types of liability insurance?
Umbrella liability insurance covers additional personal assets beyond just a car or home (i.e a jet ski).
Umbrella liability insurance is applied after home and auto insurance.
Which homeowner policy is generally considered better to protect against financial risk: Cash-value or replacement?
Replacement is better, because this minimizes out-of-pocket expenses.
Cash-value will factor in depreciation. For example, 20 year old kitchen cabinets will not have a sufficient cash-value to purchase new kitchen cabinets of the same quality.
What is the role of an insurance underwriter?
An underwriter calculates the risk of specific insurance policies and decide what policies to offer and what premiums to charge. They work for the insurance company
What is the role of an insurance agent?
An insurance agent represents one or more insurance companies and recommends insurance policies that fit customers’ needs
They Sell insurance policies to customers. Whil an underwriter evaluates risk and approves or denies applications.
What is the difference between a Captive (or exclusive) insurance agent versus an independent insurance agent (also called an insurance broker)?
Captive (or exclusive) insurance agents work for one particular insurance company, whereas independent insurance agents (also called insurance brokers) represent many different insurance companies. These independent agents are linked to various insurance companies online and therefore can quickly obtain quotations for different policies from different vendors.
Who is the organization Facility Association? What’s their purpose?
Facility Association is a not-for-profit organization made up of all auto insurance providers operating every province and territory (there are some exceptions)
Facility Association ensures that drivers unable to obtain insurance with an individual company are able to obtain the coverage they need to operate their vehicles legally
What is No-Fault Auto Insurance?
The benefits provided under the accident benefits section of an auto insurance policy are provided under what is known as a “no-fault” system. No- fault auto insurance does not mean that nobody is at fault when an accident occurs.
To ensure that all insured individuals receive immediate medical treatment for their injuries, no-fault auto insurance allows policy owners in all provinces to receive immediate medical payments through their own insurance policy, regardless of who is at fault for the accident
Can you elect to have coverage of expenses not included in the standard auto insurance policy?
Yes you can!
There are a number of these optional coverages, referred to as insurance endorsements. For example, a policy can cover the cost of a rental car
What should you do if you are in an Auto Accident?
- Contact the police
- Request information from other drivers in the accident (make sure to validate)
- Record the damage you see, make a sketch of the scene
- File a claim with your insurance company immediately
A standard homeowner’s insurance policy provides coverage based on the ______ ______ _____ of the building and its contents
actual, cash, value
What is the minimum percentage of your house your homeowner’s insurance should cover?
Many insurers require that your homeowner’s insurance policy cover at least 80 percent of the full replacement cost.
Does a homeowner’s policy specify coverage if you are sued because of something that occurs in your home or on your property?
Yes it does. This is covered by the liability coverage
True or False, homeowners insurance does not extend to events that occur away from your home.
FALSE, In most cases, liability coverage purchased through your homeowner’s insurance policy also extends to events that occur away from your home. For example, if you are skiing at Mont Tremblant and you run over someone on the slopes and cause injury, your homeowner’s insurance liability coverage will protect you.
Medical Payments and voluntary property damage is not covered by the the liability portion of homeowner’s insurance. T/F
ANS: False
Medical payments and voluntary property damage are also covered under the liability portion of homeowner’s insurance. The medical payments provision covers the costs of medical care if someone is accidentally injured on your property. The voluntary damage provision provides coverage to you in the event that you accidentally damage the property of others (for example, if your child inadvertently throws a ball through your neighbour’s window while playing catch).
What are factors that affect Homeowners Insurance Premiums?
- Value of Insured Home. Insurance premiums reflect the value of the insured home and therefore are higher for more expensive homes.
- Deductible. A higher deductible reduces the amount of coverage provided by the homeowner’s insurance and therefore results in a lower insurance premium.
- Location. The potential for damage is greater in some areas, and therefore the premiums are higher. For example, homes in Atlantic Canada are more likely to be damaged by severe weather than homes in Saskatchewan. Home insurance rates are therefore much higher along the coast. Similarly, premiums will be higher for homes in locations prone to tornadoes, floods, or earthquakes.
- Degree of Protection. If you want protection against an earthquake on a home in Vancouver, you must pay a higher premium. If you want protection against a flood, you may need to buy an additional insurance policy.
- Discounts. You may obtain discounts on your insurance by maintaining an alarm system or a household fire extinguisher in your home
What is Tenant’s Insurance?
Tenant’s insurance protects your possessions within a house, condominium, or apartment that you are renting. It does not insure the structure itself because the insurance is for the tenant only, not for the owner of the property.
It can cover living expenses while the rental property is being repaired. It also covers liability in the event that a friend or neighbour is injured while on the rental property.
