CC3152_L07_ch10+ - LECTURE 7 PROPERTY LIABILITY INSURANCE...

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CC3152 Principles of Financial Planning LECTURE 7 PROPERTY & LIABILITY INSURANCE
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5-2 (I) Property Insurance Basics [LG1] 1. Types of Exposure 1. Property loss —economic loss because your property is damaged, destroyed, or stolen. Obligations of property owner: Inventory your property. Show proof of loss A guide for selecting appropriate coverage Identify desired perils (cause of loss) to be insured against.
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5-3 Types of liability protection: ! Homeowner’s policy ! Automobile policy ! Umbrella policy 2. Liability —damage you cause others, either through your actions or negligence.
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5-4 2. Principle of Indemnity ! The insured is entitled to payment from the insurance company only if a loss covered by the policy has been suffered. ! The amount of payment should not be greater than the economic value of the loss.
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5-5 Concepts Related to Indemnity ! Actual cash value: value assigned to an insured property determined by subtracting the amount of physical depreciation from its replacement cost. (unless replacement cost provision) ! Right of Subrogation: right of an insurer who has paid an insured’s claim to request reimbursement from either the person who caused the loss or that person’s insurer. (cannot collect losses from both)
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5-6 Insurance companies do not want you to be able to profit from a loss ! Other insurance clause: If multiple companies insure the property, the companies together will not pay more than the economic loss. i.e. each insurer only pay a prorated amount of loss based on its proportion of total insurance over the property.
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5-7 3. Coinsurance ! Provision requiring insured to buy insurance in an amount equal to a certain percentage of replacement value of the property, usually 80%. ! Otherwise, the insurance company will not fully repay you for your loss, you will become the "coinsurer" and must bear part of the loss. E.g. $200,000 home, fire insurance with coinsurance 80% (min. policy=$160,000). If buy $120,000 policy, insurer pay only 75% (120,000/160,000) on any loss. $40,000 $30,000
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5-8 ! Contracts state the conditions (perils) under which the policy will pay (or will not pay)
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CC3152_L07_ch10+ - LECTURE 7 PROPERTY LIABILITY INSURANCE...

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