Chapter 22 – Protecting Assets

Protecting your possessions refers to the risk management techniques involved in protect you against losses through the damage or loss of your physical possessions. In this chapter, we will discuss homeowner’s insurance, automobile insurance, liability insurance, umbrella insurance, and flood and earthquake insurance.

Homeowner’s insurance

Homeowner’s insurance protects the insured against losses that occur as a result of their ownership of a home. Homeowners insurance provides two kinds of protection. The property insurance provides protection against damage to the dwelling or other structures on the property, as well as damage to the contents of the dwelling. It can also provide coverage for additional expenses incurred as a result of the loss of use of the home. An example of this would be the hotel costs you might incur while you wait for your home to be repaired.

The other kind of protection offered by a homeowners policy is called liability insurance. Liability insurance policies protect you in case someone sues you because of injuries or damages that occur while they are on your property. There are three types of property liability insurance. General liability coverage protects the homeowner from the legal costs incurred if a visitor is injured while on the property. No-fault medical insurance covers the medical costs of an injury to visitors regardless of who is at fault. Finally, no-fault property damage covers the homeowner against damage done to visitor’s property regardless of who is at fault. Remember, liability protects you against lawsuits from your visitors, so you can control this loss by keeping your stairs in good condition, your trees well trimmed, snow shoveled off your walks, etc. Anything to prevent accidental injury or property damage to your guests is good risk management.

Coverage

Homeowner’s insurance policies can cover up to eighteen specifically named perils to the home. These named perils relate to the eight different general types of homeowner’s insurance policies.

The 18 Named Perils of Homeowner Insurance

1. Fire/Lightning

2. Windstorm/Hail

3. Explosion

4. Riots

5. Damage by aircraft

6. Damage by vehicles

7. Damage from smoke

8. Vandalism

9. Theft

10. Glass breakage

11. Volcanic eruption

12. Falling objects

13. Weight of ice/snow

14. Collapse of building

15. Leakage from plumbing/HVAC

16. Hot water heater

17. Freezing of plumbing/HVAC

18. Electrical damage from short circuitry

Types of Homeowner's Insurance

HO-1 is called basic form insurance. It covers the first 11 named perils, plus all three types of liability insurance.

HO-2 is called broad form insurance and it covers all 18 of the named perils plus the liability coverage.

HO-3 is special form insurance. It provides open peril coverage and liability coverage. Open perils protection means that HO-3 insurance will cover the insured against damage from any peril that the policy does not specifically exclude. This insurance provides by far the broadest protection.

HO-4 insurance is a special type of insurance for renters and protects the contents of the apartment only. This coverage is the only type of homeowners insurance that is valuable to people who do not own their own property.

HO- 6 insurance is specifically for condominiums.

HO-8 is specifically for covering older homes that may have special issues and needs.

Choosing Homeowner's Insurance

You should ask yourself four questions about your homeowners insurance.

1. How much coverage to you need to replace the house? Remember that you do not need to insure the home for its full market value. You just need to cover the cost to rebuild the home if it is completely destroyed. Most policies have a replacement cost requirement of at least 80% of the home’s market value.

2. Consider how much coverage you need for contents and personal property. Take the time to create an inventory list of the possessions in each room of the house. Get as much documentation about the value of the items you are insuring to make sure that any claims you make are as easy as possible.

3. Consider special items such as jewelry, guns, and antiques. Be sure to get a good appraisal for such items and keep the appraisal in a safe place.

4. Lastly, consider your liability coverage needs. $100,000 personal liability, $1,000 medical liability, and $500 in property liability insurance is considered standard in the industry. If you feel like you would like more liability protection than this You should consider using an umbrella policy to increase your coverage if you feel that these coverage levels are insufficient for your situation.

Flood and earthquake insurance may also be necessary to protect your home. Flood and earthquake are not included in standard homeowner policies and must be purchased separately.

Automobile Insurance

Automobile insurance has four different types of coverage.

1. Coverage A is liability coverage. This coverage protects bodily injury and property damage in case the insured driver is at fault. This coverage protects all members of the household, no matter who owns the vehicle being driven.

Liability coverage limits are expressed with three numbers, such as 100/300/50. The first number is the maximum the policy will pay for each person’s bodily injury. The second is the maximum the policy will pay for total bodily injuries for all people involved in the accident. The third number is the maximum the policy will pay to repair property damage caused by the accident. This coverage is the only coverage that is required by most state’s laws. Required coverage limits are determined by state law and can change every year, so be sure to check the up-to-date limits for whichever state you are living in.

2. Coverage B is medical payments insurance. This covers bodily injury of the insured of passengers no matter who is at fault for the accident. This coverage would pay the medical expenses of your family members if another driver is responsible for the accident. This coverage can also pay out more quickly than over coverages because there is no need to wait for blame to be assigned.

3. Coverage C is under-insured or uninsured motorist coverage. This protects the motorist and passengers in case they are involved in an accident with an underinsured driver. Coverage limits are expressed just as liability coverage limits are. A 50/100 coverage provides $50,000 of coverage per person, and a total of $100,000 total for every person. Estimates are that up to 30% of drivers do not have adequate auto-insurance. Coverage C will protect you in case one of these drivers involves you in an accident.

4. Coverage D is physical damage insurance, and protects the car itself against physical damage. It comes in two separate parts. Collision coverage protects against losses from a collision. This generally refers to collisions that do not involve another drivers, such as colliding with a telephone pole. Comprehensive insurance protects against losses due to perils other than collision. This includes fire, wind, vandalism, hail, theft, wind damage etc. Collision and comprehensive insurance both have deductibles that are similar to deductibles on health insurance policies.

Liability Insurance

Professional liability insurance is used to guard against losses suffered by a professional’s patients or clients. This insurance is often called malpractice insurance. This insurance is appropriate for those who provide professional services, such as physicians, lawyers, accountants, and others. Costs for these policies can vary widely depending on the profession being covered and the potential that profession has for causing harm to clients.

Umbrella policies are liability insurance policies that guard against having to pay a lot of money as a result of a lawsuit. Your homeowners, automobile, or malpractice insurance policies will already have some protection against liability. Umbrella policies provide very high coverage for all types of liability exposures. Purchasing umbrella policies is generally cheaper than increasing your coverage of the other types of insurance. To give you an example of the costs, an additional $150-200 per year can provide you with an additional $1 million of protection for your house, your car, your professional work, and any other liability that you may not even be aware of.

When you are looking for insurance, be sure to shop around and compare quotes. Also be sure to check out your state insurance requirements. Before purchasing a policy, be sure to read it carefully and know exactly what is covered and what is not, or you may find yourself disappointed! Last, be sure to ask questions. Learn how to make a claim and how a claim will affect your policy. Also be sure to know what your policy limits are.

Definitions:

Property insurance: coverage against damage to the dwelling or other structures on the property, as well as damage to the contents of the dwelling

General liability: protects the homeowner from the legal costs incurred if a visitor is injured while on the property.

No-fault medical payments insurance: covers the medical costs of an injury to visitors regardless of who is at fault.

No-fault property damage insurance: covers the homeowner against damage done to visitor’s property regardless of who is at fault

HO-1: basic form insurance that covers the first 11 named perils, plus all three types of liability insurance.

HO-2: is called broad form insurance and it covers all 18 of the named perils plus the liability coverage.

HO-3: is special form insurance which provides open peril coverage and liability coverage

Open perils protection: means that HO-3 insurance will cover the insured against damage from any peril that the policy does not specifically exclude.

HO-4: insurance is a special type of insurance for renters and protects the contents of the apartment only.

HO-6: is specifically for condominiums

HO-8: is specifically for covering older homes

Coverage A: liability coverage that protects bodily injury and property damage in case the insured driver is at fault

Coverage B: medical payments insurance that covers bodily injury of the insured of passengers in the event the insured is not at fault

Coverage C: insured or uninsured motorist coverage that protects the motorist and passengers in case they are involved in an accident with an underinsured driver

Coverage D: physical damage insurance, and protects the car itself against physical damage

Collision coverage: protects against losses from a collision

Comprehensive insurance: protects against losses due to perils other than collision, including fire, wind, vandalism, hail, wind damage

Professional liability insurance: is used to guard against losses suffered by a professional’s patients or clients.

Umbrella policies: liability insurance policies that guard against losing all of your wealth as a result of a single liability loss