Finance 8 Personal Finance - Ch 8 Home and Automobile Insurance - Focus on Personal Finance - McGraw Hill 5 edition

Actual Cash Value (ACV):

A claim settlement method in which the insured receives payment based on the current replacement cost of a damaged or lost item, less depreciation.

Replacement value

A claim settlement method in which the insured receives the full cost of replacing or repairing a damaged or lost item.

Hazard

A factor that increases the likelihood of loss through some peril.

Renter's insurance

A form of property insurance that provides coverage for a policy holder's belongings and liability within a rental property. The policy protects against losses to the tenant's personal property within the rented property and protects against losses resulting from liability claims, such as injuries occurring on the premises that are not due to a structural problem with the property

Household inventory

A list or other documentation of personal belongings, with purchase dates and cost information.

Insured

A person covered by an insurance policy

Policyholder

A person who owns an insurance policy

Claim

A request for payment to cover financial losses.

Speculative risk

A risk that carries a chance of either loss or gain and are NOT insurable i.e starting a small business

Insurance company

A risk-sharing firm that assumes financial responsibility for losses that may result from an insured risk.

Policy

A written contract for insurance.

Personal property floater

Additional property insurance to cover the damage or loss of a specific item of high value.

Endorsement

An addition of coverage to a standard insurance policy.

PQ8-3-3. What is no-fault insurance? What is its purpose?

An automobile insurance program in which drivers involved in accident collect medical expenses, lost wages, and related injury costs from their own insurance companies.

No-fault system

An automobile insurance program in which drivers involved in accidents collect medical expenses, lost wages, and related injury costs from their own insurance company.

Insurer

An insurance company

Risk management

An organized plan for protecting yourself, your family, and your property. Helps reduce financial losses caused by destructive events A long-range planning process Needs will change at various points in your life

Uninsured motorist protection

Automobile insurance coverage for the cost of injuries to a person and members of his or her family caused by a driver with inadequate insurance or by a hit-and-run driver.

Property damage liability

Automobile insurance coverage that protects a person against financial loss when that person damages the property of others.

Medical payments coverage

Automobile insurance that covers medical expenses for people injured in one's car.

Collision

Automobile insurance that pays for damage to the insured's car when it is involved in an accident.

Risk avoidance

Avoid the risk i.e. Avoid the risk of a traffic accident by not driving to work.

Risk

Chance or uncertainty of loss; also used to mean the insured.

Assigned risk pool

Consists of people who are unable to obtain automobile insurance due to poor driveing or accident recods and must obtain coverage at high rates through a state program that requires insurance companies to accept some of them

Homeowner's insurance

Coverage for a place of residence and its associated financial risks.

Bodily injury liability

Coverage for the risk of financial loss due to legal expenses, medical costs, lost wages, and other expenses associated with injuries caused by an automobile accident for which the insured was responsible.

The special form of home insurance (HO-3)

Covers all basic- and broad- form risks, plus any other risks except those specifically excluded from the policy. Personal property IS covered for the risks listed in the policy i.e. common exclusions flood, earthquake, war, and nuclear accidents.

The broad form of home insurance (HO-2)

Covers an even wider range of perils, including falling objects, and damage from ice, snow, or sleet.

Broad form insurance

Covers your personal property against perils specified in the policy i.e. fires, thefts

Risk reduction

Decrease the likelihood that risk will cause harm. i.e. Reduce the risk of injury in an automobile accident by wearing a seatbelt.

The comprehensive form of home insurance (HO-5)

Expands the coverage of the HO-3, includes endorsements for items i.e. replacement cost coverage on contents and guaranteed replacement cost coverage on bldgs.

Negligence

Failure to take ordinary or reasonable care in a situation.

PQ8-4-4 Rental reimbursement coverage

For a rental car if vehicle is stolen or being repaired

Liability

Legal responsibility for the financial cost of another person's losses or injuries.

Persona risk

Los of income or life due to illness, disability, old age, or unemployment.

Liability risk

Losses caused by negligence that leads to injury or property damage

Property risk

Losses to property caused by perils, i.e. fire, theft, hazards.

PQ8-4-4 Wage loss insurance

Pays for any salary or income that might be lost because of being injured in a vehicle accident. Required in some states with a no-fault insurance system.

PQ8-4-4 Towing and emergency road service coverage

Pays for mechanical assistance in the event that the vehicle breaks down. Once the vehicle arrives at the repair shop you are responsible for paying the bill.

Insurance

Protection against possible financial loss

The basic form of home insurance (HO-1)

Protects against perils i.e. fire, lightning, windstorms, hail, volcanic eruptions, explosions, smoke, theft, vandalism, glass breakage, and riots.

The condominium owner's insurance (HO-6)

Protects personal property and any additions or improvements made to the living unit. i.e. bookshelves, electrical fixtures, wallpaper, or carpeting.

The tenant's form of home insurance (HO-4)

Protects the personal property of renters against the risks listed in the policy. Does NOT include coverage on the bldg or structures.

Comprehensive form insurance

Protects your personal property against all perils not specifically excluded in the policy

Self-Insurance

Setting up a special fund to cover the cost of a loss. Does NOT eliminate risks Provides a way of covering losses as an alternative to an insurance policy

Financial Responsibility Law

State legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident.

Personal catastrophe policy

Supplementary personal liability coverage. Also called UMBRELLA POLICY

Umbrella policy

Supplementary personal liability coverage; Also called PERSONAL CATASTROPHE POLICY

Risk assumption

Taking on responsibility for the negative results of risk. i.e. Might decide not to purchase collision insurance on an older car; if accident happens, the car may be wrecked, but it wasn't worth much anyway

Premium

The amount of money a policyholder is charged for an insurance policy.

How is the automobile insurance liability coverage expressed by?

The automobile insurance liability coverage is expressed by three numbers i.e. 100/300/50 The amounts represent thousands of dollars of coverage The first two numbers 100/300 refer to

Peril

The cause of a possible loss.

PQ8-3-3. List the five factors that affect home insurance costs.

The five factors that affect home insurance costs are: 1. Location of home 2. Type of structure 3. Coverage amount and policy type 4. Home insurance discounts 5. Company differences

PQ8-5-2. List the five factors that determine driver classification.

The five factors that determine driver classification are: 1. Age 2. Sex 3. Marital status 4. Driving record 5. Driving habits

PQ8-1-2 List the four methods of managing risks? Give an example.

The four methods of managing risks are: 1. Risk avoidance - Not driving to work 2. Risk Reduction - Wearing a seat belt to avoid injury in a car accident 3. Risk Assumption - Not purchasing collision insurance on an older car if accident happens car may be wrecked but it wasn't worth much anyway . 4. Risk Shifting - Deductible i.e. falling tree damages a car, the deductible pays toward the repairs

PQ8-2-4 List at least four personal property items that are not covered by a homeowner's insurance policy.

The four personal property items that are not covered by a homeowner's insurance policy are: 1. Items insured separately, i.e. jewelry, furs, boats, or expensive electronic equipment 2. Animals, birds, or fish 3. Motorized vehicles not licensed for road use, except those used for home maintenance 4. Property belonging to tenants

PQ8-1-3 List four steps in planning for your insurance program.

The four steps in planning for an insurance program are: 1. Set insurance goals 2. Develop a plan to reach your goals 3. Put your plan into action 4. Check your results

What does homeowner's insurance policy cover?

The homeowner insurance policy covers 1. The building in which you live and any other structures on the property 2. Additional living expenses 3. Personal property 4. Personal liability and related coverage 5. Specialized coverage

Risk shifting

The most common method of dealing with risk Transfer risk to an insurance company In exchange for a fee, the insurance company agrees to pay for your losses.

Coverage

The protection provided by an insurance policy

Deductible

The set amount that the policyholder must pay per loss of an insurance policy

What are the six home insurance policies forms

The six home insurance policies forms are: 1. The basic form of home insurance (HO-1) 2. The broad form of home insurance (HO-2) 3. The special form of home insurance (HO-3) 4. The tenant's form of home insurance (HO-4) 5. The comprehensive form of home insurance (HO-5) 6. The condominium owner's insurance (HO-6)

PQ8-4-1. List three main types of bodily injury coverage.

The three main types of bodily injury coverage are: 1. Body injury liability 2. Medical payments 3. Uninsured motorist protection

PQ1-1 What are the three types of risk? Give an example for each.

The three types of risk are: 1. Personal risk - Loss of income or life due to illness, disability, old age, or unemployment 2. Property risk - Losses to property caused by perils, i.e. fire, theft, hazards 3. Liability risk - Losses caused by negligence that leads to injury or property damage They are pure or insurable risk

What are the two categories that motor vehicle insurance coverage provide?

The two categories that motor vehicle insurance coverage provides are: 1. Protection for bodily injury 2. Protection for property damage

PQ8-3-2. What are the two methods insurance companies use in settling claims?

The two methods insurance companies use in settling claims are: 1. Actual cash value - the payment received is based on the replacement cost of an item minus depreciation 2. Replacement value - receive the full cost of repairing or replacing an item

What are the two standard renter's insurance policies?

The two standard renter's insurance policies are: 1. Broad form insurance - Covers your personal property against perils specified in the policy, i.e. fires, thefts 2. Comprehensive form insurance - Protects your personal property against all perils not specifically excluded in the policy

PQ8-5-3. What are the two ways by which you can reduce your vehicle insurance costs?

The two ways by which you can reduce your vehicle insurance costs are: 1. Comparing companies 2. Taking advantage of discounts

PQ8-3-3 What is the purpose of no-fault insurance

To reduce the time and cost of settling vehicle injury cases