UNDERSTANDING

HOME & AUTO

INSURANCE

PUBLISHER’S NOTE

Important Notice

Every care has been taken to ensure that the information in this course material is as accurate as possible at the time of publication. Please be advised that applicable laws and procedures are subject to change and interpretation. Neither the authors nor the publisher accept any responsibility for any loss, injury, or inconvenience sustained by anyone using this guide. This information is intended to provided general information and background and is distributed on the basis that the authors are not engaged in rendering legal, accounting, or any other professional service or advice. This guide was designed to provide you with an overview of the information presented and is not a substitute for professional consultation.

Copyright © 2003, 2006

AHI Insurance Services 09/02, 07/04, 8/06

Copyright © 2003 AHI Insurance Services

All rights reserved. Printed in the United States of America. No part of this publication may be used or reproduced in any form or by any means, transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of AHI Insurance Services, Inc. Making copies of this book for any purpose other than your own personal use is a violation of the United States copyright laws.

TABLE OF CONTENTS

CHAPTER I: RANKINGS FROM A++ TO s

INSURANCE RATINGS

It’s obvious that offering a policy from a company with an A++ rating, regardless of the insurance ranking service, is a smarter move than offering your client insurance from a company ranked C-, but did you know the difference between a Best’s rating of B+ and B is the difference between A.M. Best considering a company secure versus vulnerable?

To clear things up, we’ve compiled information about A.M. Best’s ratings systems, including criteria and rating definitions to help you better determine your provider’s strength.

A private insurance rating service, A.M. Best evaluates an insurer’s financial strength and ability to meet ongoing obligations to policyholders. Best assigns two types of ratings: a Best’s rating or a Financial Performance Rating (FPI). The Best’s rating runs from A++ to F and is based on a quantitative and fqualitative analysis of a company’s financial strength, operating performance and market profile. The FPR rating runs from 9 to 1 and is based on a quantitative evaluation of a company’s financial strength and operating performance for companies that do not meet A.M. Best’s minimum size or operating experience requirements.

A.M. Best provides free company ratings and insurer profiles on its corporate Web site, www.ambest.com.

Best’s Ratings

A++ and A+ (Superior)

Superior financial strength, operating performance and market profile. These companies have a very strong ability to meet their ongoing obligations to policyholders.

A and A- (Excellent)

Excellent financial strength, operating performance and market profile. These companies have a strong ability to meet their ongoing obligations to policyholders.

B++ and B+ (Very Good)

Very good financial strength, operating performance and market profile. These companies have a good ability to meet their ongoing obligations to policyholders.

Best considers companies rated A++ to B+ “secure”

B and B- (Fair)

Fair financial strength, operating performance and market profile. These companies have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

C++ and C+ (Marginal)

Marginal financial strength, operating performance and market profile. These companies have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

Best considers companies rated B to C+ “vulnerable”

C and C+ (Weak)

Weak financial strength, operating performance and market profile. These companies have an ability to meet their current obligations to policyholders, but their financial strength is very vulnerable to adverse changes in underwriting and economic conditions.

D (Poor)

Poor financial strength, operating performance and market profile. These companies do not have an ability to meet their current obligations to policyholders and their financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions.

E (Under Regulatory Supervision)

Companies which have been placed under supervision by an insurance regulatory agency, such as conservatorship or rehabilitation, but does not include liquidation.

F (In Liquidation)

Assigned to companies which have been placed under an order of liquidation by a court of law or whose owners have voluntarily agreed to liquidate the company.

S (Rating Suspended)

Assigned to rated companies that have experienced sudden and significant events affecting their financial position or operating performance whose rating implications cannot be evaluated due to a lace of timely or adequate information.

Financial Performance Ratings

FPR 9

Very strong financial strength, operating performance and market profile. These companies have a strong ability to meet their ongoing obligations to policyholders.

FPR 8 and 7

Strong financial strength, operating performance and market profile. These companies have a strong ability to meet their ongoing obligations to policyholders.

FPR 6 and 5

Good financial strength, operating performance and market profile. These companies have an adequate ability to meet their ongoing obligations to policyholders. FPR 9 through 5 are considered “secured” by A.M. Best

FPR 4

Fair financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies have an ability to meet their current obligating to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

FPR 3

Marginal financial strength, operating performance and market profile when compared to the standards established by the A.M. Best Company. These companies have an ability to meet their current obligating to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.

FPR 2

Weak financial strength, operating performance and market profile. These companies have an ability to meet their current obligating to policyholders, but their financial strength is very vulnerable to adverse changes in underwriting and economic conditions.

FPR 1

Poor financial strength, operating performance and market profile. These companies may not have an ability to meet their current obligating to policyholders and their financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions.

FPR 4 through 1 are considered “vulnerable” by A.M. Best

CHAPTER II: P & C BASICS

BASICS OF INSURANCE

TRANSFERING THE RISK

Insurance transfers the risk of an uncertainty of a loss from an individual to an insurer.

Loss is factor of everyday life and most people handle small everyday losses on their own, but when there is a potential of an unmanageable loss, individual and businesses look for other sources to be protected from financial ruin.

The insurance company fulfills this role and charges a fee or “premium” based on the risk of the loss.

The factors that come into play in insuring the risk are:

1. The certainty of the loss.

2. The management of the risk.

3. The reduction of the risk

An example of certainty might be: is a home sitting on a mountainside where landslides are an everyday occurrence, or is the home sitting in a subdivision of leveled land where there is no potential of landslide?

Another example might be: a home situated in a flood plain versus one that is not.

Loss frequency, loss reduction, and loss prevention are terms that will be heard over and over again in dealing with property and casualty insurance.

Proper training of an employee using a blowtorch or other high-risk machinery would curtail loss frequency.

Risk control techniques that diminish the loss frequency come under on the heading of loss reduction.

Installing a sprinkler system in a home, office, or factory would curtail the severity of the damage and thus serve as a risk reduction.

An insurance contract transfers the risk from an individual, a business, or a group of individuals to an insurance company in exchange for a premium.

The premiums of many individuals are ‘pooled” by the insurance company to create the funds necessary to pay the insured that suffer the losses.

This method of transferring risk to the insurer is based on statistics showing how many potential losses can occur within a numerical quantity of people..

The higher the quantity of people used in establishing the statistics the more accurate the prediction will be.

These predictions are then used by the insurer in establishing premiums to be “pooled” in covering the losses.

Before an individual or an entity can be insured it must have insurable interest.

Insurable interest is defined as any actual, lawful and substantial economic interest

In the safety or preservation of the subject of the insurance from loss or destruction or financial damage or impairment.

In addition to insurability, other criteria is also used in determining if insurance is can be used as a vehicle for the transference of the risk.

These other considerations include:

1. The risk of loss must be definite and difficult to fake.

2. The risk must be unexpected.

3. The risk must create a financial hardship.

4. The loss must be able to be assigned a financial value.

5. The cost must be affordable or fractional of the value.

6. The loss must be predictable by virtue of a high enough quantity of people to require the same coverage.

7. The presence of the “ spread of risk” must be available

8. The risk must pure not speculative.

Spread of risk is defined as the insurer’s ability to spread their insured risks over a large geographical area.

Pure risk is defined as a risk in which there is no chance of gain only loss; whereas, a speculative risk is defined as a risk that can either result in a loss or gain,

In discussing property and casualty insurance the terms peril and hazard need be defined. Peril is defined as the cause of the loss and Hazard is defined as anything that increases the potential of the loss.

There are three different types of hazards

1. A physical hazard arises from the condition, occupancy or use of the property itself.

2. A morale hazard arises through carelessness or irresponsible actions.

3. A moral hazard arises when an individual creates a loss for the purpose of collecting the insurance.

THE INSURANCE CONTRACT

The relationship between the owner of an insurance policy and the insurance company is a contractual relationship.

A contract is a legal agreement between two competent parties that promises certain performances in exchange for a certain consideration. When an insurance company agrees to pay the insured certain losses in exchange for a premium, both parties have entered into a contract.

Although a contract can be oral, insurance contracts are usually written in a format called an insurance policy. In order for a contract to be valid it must have certain elements and an insurance contract is no exception.

The elements of o contract include the following:

1. Competent parties to the transaction

2. A legal purpose

3. Agreement by the parties

4. Offer and acceptance

5. Consideration

In order for an individual to be judged competent, that individual must be of legal age, not considered insane, not under the influence of alcohol or drugs.

A contract must have a legal purpose, therefore, any contract entered into for illegal purpose is not valid.

The parties must come to a mutual agreement beneficial to both parties.

Offer and acceptance are another critical aspect of a contract. In the case of insurance, when an individual or an entity makes an application, this is considered an offer. Acceptance occurs when the insurer accepts a premium.

Consideration by the insured is exchanged when the insured pays the premium. Consideration on the part of the insurer occurs when the insurer promises to pay certain losses under certain conditions.

A special characteristic of an insurance contract is a feature called indemnification. Indemnification is a guarantee by the insurer that when a loss occurs, the insured will be restored to the approximate financial condition he or she was in before the loss.

Insurance contracts are contracts of a specific nature, and are described as:

1. Personal contracts

2. Aleatory contract

3. Adhesion contracts

4. Unilateral contracts

5. Good Faith contracts

6. Conditional contracts

The contracts are personal contracts because they insurance individuals against a loss and property. In other words an individual is guaranteed the cost of the property covered in the insurance contract.

An insurance contract is aleatory because it depends on a loss occurring before the insured receives monetary compensation.

Insurance contracts are contracts of adhesion because one party draws up the contract (the insurer) and the other party (the insured) agrees to the terms and conditions.

Because of this, if a dispute arises, the courts apply a doctrine of reasonable expectations and generally rule on behalf of the insured. If a policy does not contain coverage that an average person would reasonably expect it to include, the court rules as if that coverage were there, regardless of what the policy actually provides.

An insurance contract is unilateral because one side must perform (the insurer) while the other side has the option of performing (insured).

An insurance company must pay a claim as long as the premium is paid, with the exception of, if the insured fails to comply with the conditions and duties specified in the contract, in which case the insurer can deny the claim.

On the other hand an insured can pay a premium for as long as he or she wants and the contract does not create a legal liability for the insured should the insured stop making the premium payments.

An insurance contract is a contract of good faith because both parties rely on the truthfulness and the integrity of their representations in order to perform on the contract.

An insurance contract is conditional because it relies on certain stipulations outlined in the contract that each party must perform in order to comply with the terms of the contract. Most insurance policies outline the duties, obligations, and definition of terms and roles in five separate segments.

These segments are:

1. The Declarations

2. The Insuring Agreements

3. The Conditions

4. The Exclusions

5. The Definitions

• The Declarations page includes the name of the insured, the address, the amount of coverage, a description of the property, and the cost of the policy.

• The Insuring Agreement outlines what is covered by the policy,

• The Conditions section outlines the responsibilities and obligations of both parties.

• The Exclusions section describes what losses are not covered by the policy.

• The Definitions sections spells out what different words will mean in relation to this particular policy.

Last but not least Endorsements are also part of every insurance policy.

Endorsements change and modify the original policy in some way.

TYPES OF INSURANCE COMPANIES

There are eight types of insurance organizations;

1. Stock Companies

2. Mutual Companies

3. Reciprocal

4. Lloyd’s Association

5. Fraternal Benefit Societies

6. Risk Retention Groups

7. Private Companies

8. Government

• Stock Companies are originally structured by the sale of stock to individuals who become stockholders in the company. The goal of the company is to make a profit and return dividends to its’ stockholders. Stockholders can be either insured parties or simply investors in the venture.

• Mutual insurance companies are owned by all the insureds and profits are returned either in the form of dividends or reduction in future premiums.

• A Reciprocal is made up of members who agree to share the insurance responsibilities with all the other members of the unincorporated group. All members insure each other and share in the losses. A reciprocal is managed by an attorney-in-fact who handles all the business of the reciprocal.

• Lloyd’s Association is structured as a voluntary association of individuals, or groups of individuals, who agree to share in insurance contracts. Each “syndicate” or individual is individually responsible for the amounts of insurance they write.

• Fraternal Benefit Societies are structured as incorporated societies or orders, without capital stock. They operate on a lodge system and business is conducted solely for the benefit of its members and their beneficiaries. They operate on a non-for-profit basis. Fraternal organizations offer insurance that is available only to their members.

• Risk Retention Groups are exempt from most state laws that apply to insurance companies. A Risk Retention group is an insurance company formed by several organizations to cover those organizations’ liability loss exposure.

• Privately Owned Companies can also be formed to insure losses.

• Government Insurance Programs are often available to provide insurance for coverage that is not normally available through private insurance companies. Both state and federal government often take a role in this are of what is known as “residual market insurance.” Examples of this are flood insurance and Worker’s Compensation insurance.

TYPES OF PROPERTY AND CASUALTY COVERAGES

Property insurance generally comes in the following format:

1. Dwelling Insurance

2. Homeowners Insurance

3. Commercial Property Insurance

4. Inland Marine Insurance

5. Ocean Marine Insurance

Casualty insurance normally covers the liability risk that we all face as a result of our actions towards others. Included in this category are the following:

1. Aviation Insurance

2. Auto Insurance

3. Crime Insurance

4. Workers Compensation Insurance

5. Surety Bond Insurance

REGULATING THE PROPERTY/CASUALTY FIELD

REGULATING THE INDUSTRY

The insurance industry as a whole is either influenced or regulated by various entities.

These entities are either governmental in nature or organizations with guidelines for their members The agencies or organizations that have the most influence on the Property/Casualty industry include:

1. State Departments of Insurance

2. Federal regulatory bodies

3. National Association of Insurance Commissioners (NAIC)

4. A.M. Best Company

5. Standard and Poor

• Each state has an insurance department that is charged with regulating the insurance industry within that particular state. The administrators of their departments are called Directors, Superintendents or Commissioners of Insurance.

These administrators, on a voluntary basis, become members of a national organization called the National Association of Insurance Commissioners (NAIC). This organization meets at established intervals to exchange information. Through their recommendations and decisions the nation’s insurance laws reach a certain level of uniformity. Although not binding on any state, their recommendations most often become law and are employed in individual states.

• Federal regulations of the insurance industry come in the area of Security products and Anti-trust laws.

• A.M. Best Company each year publishes ratings of insurance companies evaluating the financial position of these companies. The ratings are available to the public and rating range is from A+ to C. “A+” being the strongest financial positioning and “C” being fair.

• Standard and Poor also publishes ratings of insurance companies financial status.

REGULATING THE COMPANIES

When a state reviews the ability of a company to do business in its state, a company is authorized either as an admitted insurer or a non-admitted insurer.

An admitted insurer is fully authorized to conduct business in that state; whereas, a non non-admitted or non-authorized insurer is only permitted to do business under certain special circumstances.

Each individual state plays a vital role in the areas of:

1. Licensing of agents

2. Ratification of Forms

3. Ratification of Rates

REGULATING THE AGENT

Much of the time of state insurance departments is spent on the licensing of agents. With minor exceptions, states require that insurance agents be licensed and regulated by the state. It is illegal for an individual to sell insurance without being licensed,

Agents must complete an established amount of pre-licensing education before they can be administered an exam for their initial licensing. The successful completion of this exam and proper processing of their application will permit an agent to become licensed to sell insurance in their state.

In addition to initial licensing, most states have enacted laws that require an agent to complete a prescribed amount of continuing education hours of study in order to renew their licenses at each renewal interval.

RATIFICATION OF FORMS

Policy forms and endorsement forms used by insurers in most states must be approved by the states. Several methods are used to achieve this goal. These methods include:

1. Prior Approval

2. File and Use

3. Use and File

4. Mandatory Forms

5. Open Competition

• Prior approval states require that all forms must be submitted to the state for approval prior to the use of the forms.

• File and Use states permit a company to start using the forms as soon as they have been filed with the state, eventually they are approved or disapproved by the state.

• Use and File states permit an insurance company to use the forms and file them with the state within a specified period of initial usage.

• Mandatory states require that insurance companies use state prepared form.

• In open competition states the law allows companies to use forms that are competitive to the market place, as long as, they adequate and non-discriminatory.

RAFTIICATION OF RATES

Much like the use of forms, rates in most cases have certain controls imposed upon them before they can become official. Most common procedures are:

1. Prior Approval

2. File and Use

3. Use and File

4. Open Competition

5. Mandatory Rates

6. Insurance Service Office (ISO)

In Prior Approval states all rates must be approved by the states before an insurance company can begin using them.

In File and Use states insurance companies may begin using rates as soon as they are filed and eventually the state can either approve or disapprove the rates.

In Use and File states insurers may begin to use rates and most file those rates with the state within a specified period of time.

In Open Competition states insurance companies are free to set rates in accordance with the market place as long as they meet the requirements of adequacy and nondiscrimination.

In establishing rates by this method an insurance company must calculate rates that will be adequate to cover:

1. The cost of losses that will have to be paid

2. The cost of conducting business

3. A margin of profit

In Mandatory states the rates are set by the state and the insurance company must adhere to them.

The Insurance Service Office (ISO) is a bureau that gathers data on losses and standardizes forms for its members so that both may be filed on behalf of its member companies.

ENFORCEMENT OF INSURANCE REGULATIONS

Failure to comply with state regulations can result in:

1. Fines

2. License suspension

3. License revocation

4. Suspension of a company’s authority to do business

5. Revocation of a company’s authority to do business

Revocation normally requires a minimum of one year waiting period before re-application will be considered.

THE APPLICATION FOR INSURANCE

THE APPLICATION FORM

The insured’s offer of insurance is made through the application form. The accuracy of the information is critical to the acceptance of the insured. Both the agent and applicant must be totally truthful and thorough in providing the information requested.

The information provided in the application will help the underwriter determine whether to accept the risk or not accept the risk, as well as, the rate.

THE BINDER

Once the application form has been completed the agent may have the authority to issue a binder. A binder is a statement, usually in writing, that the insured has immediate protection for a specified period of time.

A binder is not a guarantee that a policy will be issued but is merely a temporary coverage until the application has been investigated and reviewed.

EVALUATING AND INVESTIGATING THE APPLICATION

The evaluating and investigating of the facts of an application are done by an underwriter.

In addition to the application, underwriters turn to other sources for information. Included in these sources are:

1. The company’s own claim files

2. Previous insurers of the applicant

3. Inspection services

4. Financial information services such as A. M. Best

5. Insurance industry bureaus, Government bureaus

6. Any other source available to the underwriter

Should an applicant be denied as a result of information provided by an outside credit reporting firm, the applicant, by requirement of the Federal Credit Reporting Act, must be notified in writing and must be given the opportunity to receive a copy of the derogatory information from the reporting agency,

An underwriter has an obligation to protect the insurer against adverse selection.

Adverse selection is defined as the tendency of insureds with a greater than average risk of loss to purchase insurance.

RATING THE POLICY

There are three basic ways of rating a policy:

1. Judgment rating

2. Manual rating

3. Merit rating

The judgment method of rating is the method of rating that establishes premiums based on a careful evaluation of each individual risk, without the use of manuals or tables.

The manual rating method is a method of premium determination that uses rates based on collected statistics. The rates, which apply per unit of insurance, are published in manuals.

The merit rating method determines premiums where a manual rate is modified to reflect the risk’s unique characteristics.

PROOF OF INSURANCE

Once a policy has been accepted, a method of proving that the policy exists is a document called a Certificate of Insurance. The certificate carries a general summary of the coverage of the policy.

CANCELATION OF THE POLICY

Once a policy has been issued a company can cancel a policy only under the specified conditions of the policy. Three of these conditions are:

1. Misrepresentation

2. Concealment

3. Fraud

Misrepresentation is a written or verbal misstatement of a material fact involved in the contract on which the insurer has relied in order to issue the specified coverage.

Misrepresentation can be either intentional or unintentional.

Concealment is the withholding of a material fact involved in the contract on which the insurer relies.

Fraud is a deliberate misrepresentation that causes harm. Fraud must contain the following elements to be considered fraud:

1. Deliberate misrepresentation

2. The intent of the misrepresentation is for the purpose of someone else relying on the Misrepresentation

3. Another person relies on that misrepresentation

4. Another person suffers harm as a result of relying on that misrepresentation.

VOIDING THE POLICY

Insurance policies contain warranties, which are agreed by the parties. The failure to perform on these warranties permits the insurer to void the policy.

OTHER IMPORTANT TERMS

1. Waiver

2. Estoppel

3. Policy Period

4. Unearned premium

5. Short rate basis

6. Pro rata basis

7. Flat Cancellation basis

8. Waiver is the intentional relinquishment of a known right.

Estoppel is the principle that states that if one intentionally or unintentionally creates the impression that a certain fact exists, and an innocent party relies on that impression and is injured as a result, the guilty party may be legally prohibited from asserting that the fact does not exist.

The Policy Period is the date and time specified in the Declarations for when coverage begins and ends.

Unearned premium is any premium not yet “used up” and is returned should the policy be canceled.

Short rate basis is a method of calculating a premium refund for unused premium wherein the company not only keeps the premium for insurance already used, but also keeps an allowance for expenses, such as issuing the policy.

Pro-rated basis is a way of computing a premium refund when the insurance company cancels the policy that returns all unused premiums without deduction for any costs.

Flat cancellation refers to a policy being canceled by either party on its’ effective date.

FOCUS POINTS

• Insurance transfers the risk of loss from an individual to an insurer

• The factors that come into play in insuring the risk are the certainty of the loss, the management of the risk, and the reduction of the risk.

• A premium is the compensation an insurer receives in return for assuming the risk.

• Before an entity or an individual can be insured it may have an insurable interest.

• In order for a risk to be insured it must be definite and difficult to fake.

• An insurable risk must be pure and not speculative.

• An insurable risk must be able to be assigned a financial value.

• Spread o risk is the insurer’s ability to spread risk over a large geographical area.

• Pure risk is defined as a risk in which there is no potential of gain, only loss.

• Peril is the cause of the loss.

• Hazard is anything that that increases the potential of the loss.

• There are three different types of hazards physical, morale, and moral.

• An insurer and insured have a contractual agreement through the insurance policy.

• In order for a contract to be valid it must have five basic elements.

• All contracts must have legal purpose.

• A contract must have mutual agreement on terms beneficial to both parties.

• Offer and acceptance are a critical part of a contract.

• An application for insurance is considered the offer.

• Accepting of a premium is considered an acceptance of contract.

• Consideration by the insured is exchanged upon payment of premium.

• Consideration by the insurer is upon the promise to pay certain losses.

• Indemnification is a special feature of an insurance contract.

• An insurance contract is unilateral because one side must perform while the other side has an option of performing.

• An insurance contract is a contract of good faith.

• An insurance contract is conditional

• The insuring agreement outlines the responsibilities and obligations of both parties.

• Endorsements change and modify the original policy in some way.

• A mutual insurance company is owned by the insureds.

• Risk retention Groups are exempt from most state laws that apply to insurance companies.

• Casualty insurance normally covers the liability we face as a result of our actions towards others.

• Regulation of the insurance industry is by both the state and federal government.

• A company may be authorized to do business in a state either as an authorized or non-authorized company.

• It is illegal in most states to sell insurance without a license.

• Most states require continuing education as part of the license renewal process.

• States play a significant role in ratifying both insurance forms and rates in their individual states.

• In establishing rates insurance companies must take three factors into account.

• The Insurance Service Office is a bureau that gathers data on losses and standardizes forms for its members.

• Failure to comply with state regulations can result in punitive actions.

• After revocation of a license there is normally a one year waiting period prior to re-application.

• The application form helps the underwriter determine acceptability and risk.

• A Binder does not guarantee that a policy will be issued.

• In addition to the application underwriters turn to other sources for information.

• The Federal Credit Reporting Act requires that an applicant who is denied .

• The insurance must be furnished with a copy of the reason for denial and the name outside source providing the information.

• An underwriter has an obligation to protect the insurer against adverse selection.

• There are three basic ways of rating a policy.

• A Certificate of Insurance is a way of proving that insurance coverage exists.

• An insurer may cancel an insurance policy for misrepresentation, concealment or fraud.

• In order for a misrepresentation to be considered a fraud it must have four basic elements.

• Failing to perform on warranties permits the insurer to void the policy.

• A Waiver is the intentional relinquishment of a known right.

CHAPTER III: PROPERTY INSURANCE

THE HISTORY OF PROPERTY INSURANCE

The first fire insurance company in the United States was established in 1734 and was called the Friendly Society for the Mutual Insurance of Houses Against Fire. By 1740 this firm was out of business as a result of a fire in Charles Town, South Carolina that wiped out most of the town.

Originally insurance policies were written to cover a single peril.

After the disastrous fire of 1740 several other fire companies were formed. These insurers used a risk classification method basing rates on the construction materials used in the building of the dwelling. Thus a building constructed of brick would have a more favorable risk rating than one made of wood.

The early fire policies differed from company to company and from state to state. They were full of conditions and exclusions and often difficult for the average person to understand. The definition of terms varied from company to company and in general lacked uniformity.

If an insured needed additional coverage such as for wind damage or other peril, it was written as a separate policy. Often times these additional perils were not even covered by the same company.

Many consumer complaints and court decisions eventually led to the first uniform policy in this area called the 165 line New York Standard fire Policy of 1943.

This was the only insurance policy first standardized by law.. This policy became the basis for all property insurance coverage and is still used as a basic form in some states.

Because the standard fire policy covers only the perils of fire, lightning, and removal of covered property from endangered premises, it is never used alone and endorsements are added to cover additional perils.

This extended coverage (EC) includes:

• Windstorm

• Hail

• Explosion

• Riot

• Air craft

• Vehicle Damage

• Smoke

When these endorsements are added a vandalism and malicious mischief endorsement may also be added.

Although the standard fire policy offered basic protection, many insurers argued that having a policy offer broader coverage would be to the benefit of both the insured and the insurer. A policy that covered both property and liability in one policy would much more serve the need of all.

Insurance companies felt that they would benefit in at least three ways:

1. Decreased adverse selection against the company.

2. Reduction in overall administrative and underwriting costs.

3. Increased policy retention.

In the late 1940’s insurers were permitted by insurance regulators to combine property and casualty perils into one policy. Many formats and combinations of coverage sprung out from this deregulation

In 1976 the Insurance Service Office (ISO) developed a homeowners program that incorporated the pertinent provisions of the 165-line policy as part of what become known as the “Homeowners 76”.

The “Homeowner 76” simplified the language of the fire contract. Made it easier to read and created a homeowner’s policy with five sections:

1. Definitions

2. Coverage

3. Perils Insured Against

4. Exclusions

5. Conditions

This original policy was revised in 1982, 1984, and 1991 to arrive at the present format of the policy. Some states have approved a variation of the 1991 format, which was introduced in 1994.

Under the 1991 Homeowners Program the basic policy covers:

1. A dwelling that is owner occupied.

2. A dwelling where no more than two families and not more than two roomers or boarders per family occupy the dwelling.

3. The owner-occupant has purchased the full homeowners package.

4. The dwelling is used only for residential purposes.

5. A homeowners policy cannot be written on a property to which farm forms or rates apply.

6. The policy cannot be written on a mobile home.

7. The Insurance Services Office has developed a number of homeowners policies designated as HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8.

FOCUS POINTS

• The first insurance company in the United States was founded in 1734.

• Originally insurance policies were written to cover a single peril.

• The original risk classification method was by construction materials.

• In early policies definition of terms varied from company to company.

• Often times additional perils were covered by different companies.

• The first uniform policy was called the 165 line New York Standard Fire Policy of 1943.

• In the late 1940’s insurer were permitted by law to combine property and casualty perils into one policy.

• In 1976 the ISO developed “Homeowners 76” to replace the 165 line policy.

• The “Homeowners 76” was revised in 1982, 1984, and 1991 and in some states a 1994 version is in use

CHAPTER IV: LIABILITY INSURANCE

NEGLIGENCE

Liability losses are losses incurred by individuals as a result of their actions toward other people or their property.

When an individual is required to make financial restitution to another person for loss to them or their property a liability loss has occurred.

In the civil legal system, when an individual violates the rights of another that individual has committed what is known as a tort.

A tort can either be intentional or unintentional. Liability insurance provides coverage for unintentional torts.

Negligence is a key factor in determining liability. In order for a person to be liable to another, that individual must have been negligent.

Negligence is defined as the lack of reasonable care that is required to protect others from the unreasonable chance of harm.

In order to establish negligence four factors must be present:

1. There must be legal duty owed.

2. A breach of legal duty owed must occur.

3. There must be proximate Cause

4. There must be Damages,

Legal duty owed is that obligation that we all have toward another to reasonably protect their rights and property.

Within that duty there are several levels of accountability depending on the relationship and conditions.

A person invited to our home is owed the highest degree of care. An individual performing a service in our home is owed a lower degree of care. And a trespasser is owed the lowest degree of care.

Breach of legal duty occurs when it is established that standard care was not taken, and that lack of precaution caused harm to another individual or their property.

The proximate cause is the action that occurred that resulted in the harm or damage.

The action must be continuous and unbroken. If the action is broken by an intervening action, than this new action becomes the proximate cause.

The last element in establishing negligence is damage. If no harm came to an individual or their property then there was no negligence and therefore no claim.

When an individual either contributes or assumes some of the potential for harm, the ability to collect damages either is decreased or removed entirely.

Assumption of risk is a factor that enters the picture when an individual attends a concert or a sporting event and is injured. By that individuals presence at that event, that individual has assumed some of the risk involved in attending such an event.

When both parties contribute to the negligence, this is known as Contributory negligence or Comparative negligence. The degree of which each contributed is taken into account in arriving at a payment, or perhaps a non-payment, of damages.

The last factor that comes into play is a statue of limitations. A statute of limitation requires that a suit must be filed within a specified period of time in order to be valid under the law.

THE LANGUAGE OF LIABILITY INSURANCE

• Absolute Liability is a liability imposed by law on those participating in activities that are considered hazardous. Negligence is not a requirement for payment of damages.

• Damages are a monetary compensation awarded by a court to an injured party.

• Declarations are that section of an insurance contract that shows who is insured, what property or risk is covered, when and where the coverage is effective and how much coverage applies.

• Deductible is the dollar amount the insured must pay on each loss to which the deductible applies.

• Defense Costs are the legal expenses that must be paid by the insurer to defend suits brought against the insured.

• Degree of Care is the extent of legal duty owed by one person to another.

• Indemnity is the principle of insurance that provides that when al loss occurs, the insured should be restored to the proximate financial condition he or she occupied before the loss occurred.

• Occurrence is a loss that occurs over a specific time and place or over a period of time.

• Post-judgment interest is interest accruing on a judgment after an award has been made, but before payment is made by the insurance company.

• Pre-judgment interest is interest awarded to compensate a third party for interest he or she might have earned if compensation had been received at the time of injury or damage, rather than at the time of judgment.

• Proximate Cause is an action that, in a natural and continues sequence, produces a loss.

• Punitive Damages are damages intended to punish the defendant in an effort to discourage others from behaving in the same manner.

• Service Bureau is an organization that gathers, pools, and analyses statistics from its member insurance companies to establish loss costs used in determining insurance rates.

• Supplementary Payments Coverage is a coverage that provides extra coverage over and above the insured’s limit of liability. Commonly included are defense costs, first aid expenses, bond premiums, and post-judgment interest.

• Third Party is the individual receiving the award in a liability case.

• Tort is a civil wrong for which monetary damages are paid.

• Vicarious Liability is liability that a person or business incurs because of the actions of others for whom they are responsible. Example would be family members and employees.

FOCUS POINTS

• Liability losses are losses incurred by individuals as a result of their actions toward others.

• A tort is a civil violation of another person’s rights.

• Negligence is a key factor in determining liability.

• Negligence is defined as the lack of reasonable care required to protect others.

• Breach of legal duty occurs when it is established that standard care was not taken and harm was caused to another.

• One factor in establishing negligence is that harm must occur.

• Assumption of risk or contributory negligence are factors used in determining damages.

• Damages are a monetary compensation awarded by a court to an injured third party.

• Degree of care is the extent of duty owed by one person to another.

• Vicarious liability is liability that a person or business incurs because of the actions of others for whom they are responsible.

CHAPTER V: Home insurance basicS

HOME INSURANCE OVERVIEW

When shopping for home insurance, there’s much more for the consumer to consider than how much the coverage will cost.

They need to buy the right type of policy. They need the proper level of protection, plus special provisions for valuables such as jewelry, computer equipment and other possessions. They might also need additional coverage for such things as earthquakes or flooding.

Lending institutions usually require mortgage customers to purchase homeowners insurance. Consumers should not rely on the coverage levels mandated by their bank or mortgage company. Those levels are designed to protect the house itself, but not necessarily their possessions. That’s why it’s important to do a needs analysis with the prospective insured to make sure they have adequate coverage.

In brief review there are several basic types of home insurance policies:

HO-1

Basic homeowners policy
Covers the house and possessions against 11 different perils.

HO-2

Broad homeowners policy
Covers house and contents against 17 perils, with premiums running about 5 percent to 10 percent more than an HO-1 policy.

HO-3

Special homeowners policy
Covers all perils except those specifically excluded by the policy. Costs 10 percent to 15 percent more than an HO-1 policy.

HO-4

Renters Policy
Covers 17 named perils and includes liability coverage. It does not insure the dwelling itself.

HO-5

Extensive homeowners policy

Covers damage from practically everything except earthquakes, wars and floods.

HO-6

For owners of co-ops or condominiums
Provides personal property coverage, liability coverage and specific coverage of improvements to the owner’s unit. Insurance provided by the owner’s association normally covers most of the actual structure.

HO-8

Policy for older homes
Covers the same perils as HO-1 but pays only for repair costs or actual cash value, since replacement cost could make the policy costly.

These policies are standard except in Texas, where the state insurance board specifies three types of policies listed below.

HO-A

Covers the home and possessions against named perils only, for actual cash value.

HO-B

Covers the dwelling for all perils unless excluded against all risks and contents against named perils. The house is covered for replacement cost up to policy limits, while contents are covered for actual cash value unless you buy additional replacement cost coverage.

HO-C

Covers house and contents against all risks not specifically excluded by the policy. Again, the house is insured for replacement cost up to policy limits, while contents are covered for actual cash value unless the insured buys additional coverage.

There are variations on these policies as well. For example, landlords can buy coverage that insures only their buildings and not the personal property (which is what a renters policy would cover). Consumers can get special policies to cover mobile homes (a.k.a. manufactured housing).

Beginning the Process

When an individual applies for homeowners insurance, a great deal of information will be required to properly screen the applicant. The insurance company will ask about current occupation and employment history, marital status, previous addresses, date of birth and Social Security number. The insurer will check the criminal, credit, and insurance history to see if the applicant is a "good risk."

The insurance company also will look at the "loss history" to see what kinds of home insurance claims have been made in the past.

Then, the applicant will have to decide what type of homeowners policy they want, the deductible, and how they’ll pay for the coverage. The agent or insurance company will determine how much it would cost to replace the home and many of the items inside. For more expensive property, such as jewelry and computer equipment, a special coverage in addition to the basic policy might be needed.

Analyzing the Home

Many factors go into determining the premiums for a homeowners policy. The age of the home, the materials used to build it, where it’s located, the square footage, and the number of rooms all play a role.

How the home is heated? What’s the overall condition of the house? How many people live in the home? How close is the home to the nearest fire station and fire hydrant? The answers to these questions also help determine how much the applicant will pay for homeowners policy.

Factors Adding to Premium Savings

If the home is equipped with an alarm system, smoke detectors and deadbolt locks, these factors could save money. Those items help make the home safer and more secure. If the home has an in-ground pool or a trampoline, this might cause the payment of higher premiums.

The applicant can also expect to pay more if they are located in a higher risk area, such as a coastline. The insurance company will also want to know if there are plans to use the home for any business purposes, of if there are plans to rent all or part of the house, both of which can increase liability.

Based on all this information, insurance companies can determine how much to charge for insurance, sometimes in a matter of minutes.

Policy´s Dollar limits

If the home is insured for $200,000, that is the most the insured will get if it is destroyed, even if it would cost $300,000 or more to replace it. The Declarations Page on the front of the policy shows how much coverage is insured. Talk with your potential insured to make sure that they have the limits they need and desire.

Do not wait until you have a claim to learn that the consumer did not understand the policy´s limit.

Replacement Cost For Personal Property

Before buying homeowner’s insurance, the applicant needs to understand the difference between ‘replacement cost’ and ‘actual cash value, Most homeowner policies contain replacement cost coverage on the home and actual cash value coverage on personal property.

Homeowners policies automatically cover household contents - furniture, clothes, appliances, etc. - up to 40 percent of the amount for which the house is insured. This means if a home was insure for $200,000, its contents are insured for up to $80,000. A prospective insured can get more coverage by paying a higher premium. This automatic coverage pays only the actual cash value of damaged, stolen, or destroyed household goods. Actual cash value is an items replacement cost, minus depreciation.

Replacement cost policies give you more protection than actual cash value coverage. For example, if a burglar steals a three-year-old television set. With actual cash value coverage, the insured gets only what would be expect for a three-year-old television set. With replacement cost coverage, the insurance company pays to replace the TV with a new set similar to the stolen one.

Insurance companies generally want proof the item was replaced before paying the claim in full. An insurer might offer to replace the items instead of paying cash, but the choice is insured’s.

Be Sure Inventory is Taken

Many people learn after a fire or storm they did not have enough personal property coverage. Taking inventory will help them decide how much insurance they need. It also will simplify claims.

The inventory should list each item, its value, and serial number. Photographs or videotapes of each room, including closets, open drawers, storage buildings, and the garage should be maintained. All of this and receipts for major items should be kept in a fireproof place.

Other Protections Provided

Homeowners policies regularly provide other types of coverage, including off-premises theft protection and unauthorized use of credit cards. Make sure your client understands which provisions are included in the standard coverage elected and which might require supplemental premiums.

Supplemental coverage

Homeowners policies cover specific risks. Depending on what the prospect owns and where they live, they might need to supplement the policy with special coverage.

Homeowners policies do not cover flood damage. The National Flood Insurance Program (NFIP) offers flood coverage in many areas.

If a mortgage lender determines a home is in a special flood hazard area, the borrower might be required to purchase flood insurance.

Earthquake insurance

If the prospect is concerned about earthquakes, they can get coverage with a separate policy.

Endorsements

An individual might want more coverage for certain items than the policy provides. For an extra premium, they might be able to buy endorsements that expand or increase the coverage on these items. Some of the most common endorsements cover jewelry, fine arts, camera equipment, coin or stamp collections, computer equipment, and radio and television satellite dishes and antennas.

Personal Umbrella Liability insurance

If the client wants more liability coverage than a homeowners policy provides, they can buy a separate umbrella policy. Because policies vary, make sure the to fully explains the coverage.

Deductibles and Premium Relationships

Deductibles allow individuals to cut the cost of the insurance, by assuming some of the risk. If there is a $500 deductible on the homeowners policy, the insured agrees to pay $550 to cover any losses, before the insurance company pays the rest of the claim. By increasing that deductible to $1,000, the insured might save 20 to 30 percent on their premiums. Each individual must decide whether lower deductibles or lower premium is right for them.

The Price of Bad Credit

Some insurance companies might charge higher premiums, if the applicant has problems with their credit history. Insurers say past experience has shown people with financial problems pose a greater risk.

It is important to differentiate between a credit score and an insurance score. An insurance score is different from a credit score because in insurance scoring, an insurance company uses credit information, together with applicant insurance history, to predict whether they are more or less likely to file a homeowners claim. Insurance scoring allows insurance companies to provide insurance to more people and to offer it at a lower cost to those who qualify.

The basics of renters insurance

If an individual rents an apartment or owns a condominium, they need insurance to protect their belongings. While the landlord or condo association might have insurance, it only protects the building. The occupants belongings are not covered under those policies.

Standard Policies Coverage

There are several types of residential insurance policies. The HO-4 policy is designed for renters, while the HO-6 policy is for condo owners. Both HO-4 and HO-6 cover losses to personal property from 17 types of perils:

• Fire or lightning

• Windstorm or hail

• Explosion

• Riot or civil commotion

• Aircraft

• Vehicles

• Smoke

• Vandalism or malicious mischief

• Theft

• Damage by glass or safety-glazing material that is part of a building

• Volcanic eruption

• Falling objects

• Weight of ice, snow, or sleet

• Water-related damage from home utilities

• Electrical surge damage.

Actual cash value vs. replacement cost

One thing to review with the client is whether the insurance company will offer "actual cash value" (ACV) or "replacement cost coverage" for their belongings. As the name implies, ACV coverage will pay only for what the property was worth at the time it was damaged or stolen.

Replacement cost coverage, on the other hand, will pay what it actually costs to replace the items lost.

Be sure you inquire about any particularly valuable items they might have. Jewelry, antiques, and electronics might be covered up to a certain amount. If they have some items that are unusually expensive, such as a diamond ring, they will probably want to purchase a separate rider.

Like in the homeowners policy, take inventory is very important to ensure that the insured is compensated for any belongings they lose from a fire, storm or other catastrophe. All personal belongings, should be inventoried in order to be sure to be properly compensated. Many people learn after a fire or storm that they did not have enough personal property coverage. Making an inventory will help an applicant decide how much insurance they need. It also will simplify claims.

If the apartment or condominium becomes uninhabitable due to a fire, burst pipes, or any other reason covered by the policy, the policy will cover the additional living expenses. Generally, that means paying for the insured to live somewhere else.

Liability protection is also standard with most renters policies. This coverage has a limit of about 30 to 40 percent of the total value of the policy. So, if the individual is insured for $150,000, the "additional living expenses" limit will be $45,000 or $60,000, depending on the policy terms. The insurance company will continue to pay while the home is being repaired or rebuilt, or until the insured is permanently relocated. Sometimes 12 months is the longest an insurance company will continue paying. With some policies, the insured is limited to what the insurance company considers a "reasonable length of time."

Additional benefits

Renters and condo owners insurance policies have additional benefits. For example, a waterbed liability provision is standard in most renters and condo owners policies. If the waterbed bursts and the water ends up in the apartment below, the insurance would cover the damage.

Liability protection is also standard with most renters and condo policies. This means if someone in the unit slips and falls, the insured is covered for any costs, up to the liability limit. If the person sues the insured, the insured is covered for what they win in a court judgment as well as all legal expenses, up to the policy's limit.

Just like any other type of homeowners insurance policy, the premium depends on a number of factors: where the insured lives, the deductible, the insurance company, and whether any additional coverage is needed.

Homeowners insurance can be costly, but necessary. The premiums charged for homeowners insurance vary widely from company to company

There are ways to reduce a renters or condo owners insurance bill.

Increasing the deductible is one strategy. The insured should make sure that they can afford whatever deductible they choose.

If there thinking about getting a dog, they might want to think twice. Some insurance companies are reluctant to write policies for owners of certain breeds.

Most insurers offer a discount for "protective devices," including smoke and fire detectors, burglar alarms, and fire extinguishers.

Some insurers might offer discounts to policyholders who are over age 55 and retired.

The basics of condo and co-op insurance

Some individuals think insurance for their condominium is covered by their association fees. Typically, the monthly condo fees are used to fund a building insurance policy. If the unit is robbed or damaged, the building insurance will not provide any coverage for personal possessions, nor will it offer any protection from personal liability.

To protect their belongings and themselves, Individuals need to purchase a personal home insurance policy (type HO-6), which is designed for condos and co-op apartments.

Insuring the building

Condo and co-op owners need first review their association's master insurance policy to find out what that policy covers, and what it doesn't. In most cases, that building insurance policy should cover common areas such as the hallways, roof, basement, elevator, boiler, and common walkways, for both liability and physical damage. Co-ops and condominium associations can also obtain coverage for sewer backups, seepage, floods, earthquakes, employee dishonesty, and changes in municipal rules and regulations. For older buildings, another option is liability coverage for claims resulting from exposure to lead-based paint.

In some cases, the building association's insurance policy also covers the standard fixtures in each unit. The condo owner might only be responsible for personal property inside the unit and for any additions or alterations made to the original structure, such as new carpeting. In other situations, the building policy covers only the bare walls, leaving condo owners responsible for insuring anything inside a unit such as cabinets, carpeting, and bathroom fixtures.

Insuring The Condo and Belongings

Under the general terms of HO-6 condominium owner coverage, the policy should cover the personal property from 17 perils:

• fire or lightning

• windstorm or hail

• explosion

• riot or civil commotion

• aircraft

• vehicles

• smoke

• vandalism or malicious mischief

• theft

• damage by glass or safety glazing material that is part of a building

• volcanic eruption

• falling objects

• weight of ice, snow, or sleet

• three categories of water-related damage from home utilities or appliances

• electrical-surge damage

A basic condo/co-op policy should also provide liability protection for incidents such as someone tripping and falling while in the unit. In addition, if a covered peril should make the condo or co-op uninhabitable, the policy should include a provision to cover the additional living expenses incurred when insureds have to temporarily live somewhere else.

When discussing the policy with the insured, make sure they have enough liability coverage. Unlike the other areas of coverage, personal liability has no set amounts. The insured determines how much coverage they want.

Options to Discuss

Cash or replacement value: personal possessions can be insured for either the cash value or their replacement cost. With cash value coverage, the insured receives the value of the item minus depreciation, while replacement value pays the current cost to replace the item.

Deductible amount: What level of deductible can the insured afford? A higher deductible can mean lower insurance premiums, but if something happens, they must be prepared to pay out that high amount.

Unit or loss assessment: If the co-op or condo building is damaged by an insured disaster or its members are sued, and the cost of that damage is not fully covered by the association's policy, this type of coverage would pay for the insureds share of an assessment charged to all unit owners.

Flood or earthquake: Most standard homeowners policies do not include coverage for either floods or earthquakes. If an individual lives in an area where either might occur, consider adding coverage.

Many homeowners, condo owners and apartment dwellers opt out of such protection. In California, where earthquake fears are a daily fact of life, only 17 percent of homeowners, and 20 to 25 percent of people in all types of housing, have earthquake insurance.

Floaters: Most policies set limits for items like jewelry, collectibles, and computers. If the prospect owns expensive items, they can pay extra premiums to have those items fully insured under what is called a floater. Without a floater, a policy will cover such items only under general categories and offer reimbursement up to a maximum of only a few thousand dollars (limits vary).

Discounts: Insurance companies offer an array of discounts. Factors that could reduce premiums include smoke detectors, alarm systems, deadbolt locks, closed-circuit television, a secured-entry system or a doorman.

Building location and amenities also play a role in setting rates. Typically, the better quality and newer the dwelling, the lower the premiums will be.

Water damage in THE home

Water damage is one of the most common reasons people make claims on their home insurance. Burst pipes, leaky appliances, and flooded basements are just a few of the ways some people discover exactly what is and is not covered by their home insurance policy.

Generally, the damage caused by water will be covered, but whatever causes the damage — say, a leaking dishwasher hose — ma not be. So, although the insurer might pay to replace a carpet damaged by the dishwasher leak, the insured must pay to replace or repair the hose.

If a sudden, unforeseen problem such as a frozen pipe or hose leads to water damage, the homeowners insurance covers both repairs to the broken pipe and to the home and furnishings.

Here are several common water-damage examples and their insurance consequences.

No. 1: The temperature drops to below zero, causing the water pipes to freeze and burst. The floor is now covered in10 inches of water.

Is the insured covered? Yes, the insured is covered for water damage from burst pipes, but most policies won't cover the insured if they have left the house unoccupied and without heat. If that's the case, the claim could be denied because they have failed to perform the necessary maintenance that would prevent the accident.

No. 2: Water leaks from the backyard pool, ruining the lawn and flooding the basement.

Is the Insured covered? The damages to the basement is covered, but only for the building itself and not for its contents. That means the wallpaper, paint, or carpeting will be replaced, but not that sofa or table that was there.

The lawn is a different story. Coverage for lawns is on a "named perils" basis, which means there is only coverage for damages that arise from certain events. Swimming pool leakage is not one of them.

Swimming pools are not covered by standard homeowners policies, so the insured must make repairs to the pool out of their own pocket.

No. 3: The washing machine overflows, flooding the basement.

Is the Insured covered? Yes, but again, the extent to which the insured is covered depends on the insurer's view of the problem: Did the insured fail to maintain the washer properly, or did sudden, unforeseen damage cause the flood?

"Most of the time, if an appliance breaks and water goes all over, insurance covers it. In the case of a washing machine, it might be necessary to purchase replacement parts out of the insureds own pocket because they were not maintained correctly, but the damage to the basement would be covered covered.

No. 4: A sewer backs up, flooding ther basement.

Is the Insured covered? Probably not. Some home insurance policies automatically include coverage for sewer and drain backups, but most do not. Special endorsements are available, at added cost, for sewers and drains.

Scenario No. 5: Water seeps from the ground into the basement, damaging the foundation and interior.

Is the Insured covered? No. Seepage is considered a maintenance problem, not "sudden and accidental" damage, and is excluded from homeowners insurance coverage.

No. 6: During a heavy rainstorm, water leaks through the roof. The roof is damaged, as is furniture.

Is the Insured covered? Somewhat. While there might not be reimbursed for roof repairs, because that’s a house-maintenance issue, the water damage to the home is covered. The damage to the furniture is not covered, because rainwater leakage is not one of the "named perils" for which the contents of the house are covered.

If something more drastic leads to the roof leak (the neighbor's tree falls on the roof, for example), the damage to the roof, home and belongings is covered. (In the tree example, the policy reimburses the insured up to a certain amount, usually around $500, for the cost of removing the tree.

Scenario No. 7: The bathtub overflows.

Is the Insured covered? Yes. The insured is even covered, if the bathtub overflowed because they forgot to turn off the faucet.

Scenario No. 8: A nearby lake or river overflows its banks, causing a flash flood In the insured’s living room.

Is the Insured covered? No. Flood damage is not covered by homeowners insurance. An individual must purchase flood insurance from the federal government. An individual can purchase flood insurance, as long as your community participates in the National Flood Insurance Program.

Common Questions About Homeowner Insurance

Can someone own a home without homeowners insurance?

An individual can legally own a home without homeowners insurance. But, if they have bought their home and financed the purchase with a mortgage, the lender will most likely require them to get homeowners insurance coverage. Lenders feel they have a need to protect their investment in the home in case the house burns down or is badly damaged by a storm, tornado or other disaster.

If individuals live in an area likely to flood, the bank will also require them to purchase flood insurance. Some financial institutions may also require earthquake coverage if the home is in a region vulnerable to earthquakes. If an individual buys a co-op or condominium, the board will probably require them to buy homeowners insurance.

After a mortgage is paid off, no one can force an individual to buy homeowners

insurance. But it doesn’t make sense for most individuals to cancel their policy and risk losing what they have invested in the home.

How much homeowners insurance does an individual need?

An individual needs enough insurance to cover the:

• The structure of the home.

• Their personal possessions.

• The cost of additional living expenses if the home is damaged and they have to live elsewhere during repairs.

• Their liability to others.

How often should someone review their policy?

There are four events that should trigger a review of the policy:

1. When the policy comes up for renewal

Take the time to review the coverage with your client. Review the following issues:

• Has the company made any changes in coverage since last year?

• Does the policy now include a separate deductible for risks like hurricane or hail?

• Should the insured raise the deductible to save money?

• Is the client taking advantage of all available discounts?

• Does the insured need to raise the amount of coverage for liability, personal possessions or the structure?

• Does the individual need flood, earthquake or an umbrella policy?

2. When major purchases or alterations/improvements are made to the home

If they have made any major purchases, make sure that they have the proper coverage. Remind them about gifts that they might have received, such as a diamond engagement ring or expensive artwork or a computer, talk to the client about either increasing the amount of insurance they have for their personal possessions or purchasing a floater/endorsement for these items. A floater will give them higher and broader coverage for these items than they have under their homeowners policy.

If they have made major improvements to their home, such as adding a new room, enclosing a porch or expanding a kitchen or bathroom, they risk being underinsured if they don't report the increase in square footage to the insurance company. Be sure not to forget about new structures outside of their home. If they a new shed for your tools or installed a pool or hot tub, they need to possibly adjust their coverage.

3. If the insured has made their home safer

If they have installed a state-of-the art fire/burglar alarm system or upgraded their heating, plumbing or electrical system, they may qualify for an additional discount.

4. Major lifestyle changes
   
   
   

Marriage, divorce, or adult children who move back into the family home, can all affect the homeowners insurance. When people move in or move out, they take their belongings with them. And they may need additional coverage if there is a sizable increase in the value of the belongings in the home.

Starting a home-based business can also trigger changes in the coverage. They will need to get additional coverage for business liability and equipment. If the business is their primary source of income, they may need a Businessowners Package Policy (BOP). They may also need professional liability coverage, which is excluded under in-home business and businessowners policies.

Taking a Home Inventory and Why

Would an individual be able to remember all the possessions that they have accumulated over the years if their home was destroyed by a fire? Having an up to date home inventory is critical to help resolving the claim.

Individuals should be advised to make a list of their possessions, describing each item and noting where they bought it, its make and model. They should clip to their list any sales receipts, purchase contracts, and appraisals they might have.

For clothing count the items they own and classify them by category such as pants, coats, shoes, etc.

For major appliances and electronic equipment, they should record the serial numbers that are usually found on the back or the bottom of the appliance.

• Encourage the insured not to put off making their list!
  If they are just setting up a household, starting an inventory list can be relatively simple. If they have been living in the same house for many years, however, the task of creating a list can be challenging. It’s better to have an incomplete inventory than nothing at all.

• Big ticket items
  Valuable items like jewelry, art work and collectibles may have increased in value since they received them. They may need to be insured separately.

• Take a picture
  Besides the list, the insured should be encouraged to take pictures of rooms and important individual items. On the back of the photos, note what is shown and where they bought it or the make. They should not forget things that are in closets or drawers.

• Videotape the items
  Encourage hem to walk through their house or apartment videotaping and describing the contents. Or do the same thing using a tape recorder.

• Use a personal computer
  Encourage them to use their PC to make their inventory list. Personal finance software packages often include a homeowners room-by-room inventory program.

Storing the list, photos and tapes

Regardless of how they do it (written list, floppy disk, photos, videotape or audio tape), the inventory list must be kept, along with receipts, in their safe deposit box or at a friend's or relative's home. That way they will be sure to have something to give their insurance representative if their home is damaged. When they make a significant purchase, they should add the information to their inventory while the details are fresh in their mind.

Summarizing Home Insurance

A homeowners' insurance policy covers both property and liability. It is a total financial plan that protects the home, personal property, and personal liability. It is designed to pay for damages to the home and its contents. It can also protect the insured from financial liability if someone is injured on the property. A homeowners' insurance policy also protects the insured and their possessions when they are away from home. Basically, it extends to all the insureds possessions no matter where they are.

Although most homeowners' insurance policies are standardized throughout the United States, there are different policies sold through hundreds of insurance companies. Most policies cover damage to both the structure of your home, as well as personal property, caused by many natural disasters, including fire, lightening, hail, explosions, smoke, theft, and falling objects. Since most everything is covered in homeowners' insurance, it is more important to understand what is not covered. The only standard catastrophes that are not covered in a homeowners' insurance policy are floods and earthquake damage. Check individual policies for other specifics that are not covered.

To determine how much loss has occurred, the insurance company may use one of the following two most common methods -- actual cash value and replacement coverage. Actual cash value is the cost of replacing damaged or destroyed property with comparable new property, minus depreciation.

Replacement coverage is the cost of replacing an item with one of the same kind and quality, equivalent to the actual cash value, minus physical depreciation. The objective is to place the insured in the same financial position after a loss as prior to it. If their policy does not already include replacement coverage, they can add this to their policy for an increase in premium payments.

Homeowners' insurance only covers the structure of the home, not the land on which it stands. Therefore, the policy should be for the value of your home.

A homeowners insurance policy is basically a contract the insured makes with an insurance company. In exchange for the premium, the insurance company will pay for financial losses related to the home or the property during the period of the contract.

The insurance company also agrees to pay for damages resulting from injuries or damage to other people for which the insured is held legally responsible. When searching for homeowners insurance, an individual will want to shop for the type of policy that will fit their needs best, with adequate protection for their valuable possessions and supplemental coverage to protect against natural disasters that are not covered in the basic policy. For most people, the owner of the mortgage of the home will require homeowners insurance.

Here’s what a standard homeowner’s policy covers:

Structural damage to the home. Pays to repair or rebuild the home if damaged by any of the disasters listed in the policy (which won’t include earthquake and flood unless purchased separately). Don’t base rebuilding costs on the price that was paid for the home, nor include the price of the land when estimating coverage. The insured will need an insurance amount sufficient to rebuild at the going rate of construction in your area. This amount can be estimated by multiplying the home’s total square footage by the square foot cost of local construction-- numbers that can be gathered from building associations, realtors and insurance agents.

Loss of personal items. This includes up to 70% compensation for furniture, clothes and keepsakes that have been stolen or lost due to disaster. An inventory of possessions (on video if possible) should be stored in safely off-premises.

Liability. Financial protection against third party bodily injury or property damage the insured might cause. Court costs and damage awards are usually covered up to the policy limit. This coverage typically begins at about $100,000, but most experts recommend carrying at least three times that amount. Check into umbrella policies. These provide broader liability coverage and higher compensation limits.

Additional living expenses. This coverage picks up hotel bills, restaurant tabs and other miscellaneous expenses should the insured be forced to live elsewhere while their home is rebuilt or repaired.

Homeowner policy costs are determined by many factors, such as square footage of the house, neighborhood crime rate and how prone the neighborhood is to natural disasters. The level of coverage also makes an impact.

Texas Homeowner Insurance Differences

Buying homeowners insurance in Texas used to be simple; 96 percent of homeowners bought the standard HO-B policy. Consumers could comparison shop based on price and insurers’ service records.

Now consumers have to compare three components: price, service and the policy forms.

A variety of insurance products are being sold to homeowners now that have differing amounts of coverage.

The old standard HO-B is not as easily available as it once was, and when it is available, it is often much more expensive. Because mold claims reached proportions unacceptable to insurers, several companies stopped selling comprehensive HO-B homeowners policies to new customers. Some companies refused to write new homeowners policies on homes with a water damage insurance claim in the preceding three years.

In response, the insurance commissioner modified the HO-B policy in

The modified HO-B limits mold coverage to a sudden and accidental loss from an insured peril. It eliminates coverage for high-priced procedures, such as testing, treating, containing or disposing of mold beyond that necessary to repair or replace property that is physically damaged by water.

Policyholders have the option to purchase additional coverage -- in increments of 25 percent, 50 percent and 100 percent of policy limits -- for these procedures.

Insurers selling HO-B offer applicants all levels of coverage in addition to the coverage in the basic policy. The modified HO-B requires homeowners to report loss from water damage to their insurer within 30 days from the time it is discovered or should have been discovered if the water leak is hidden or concealed.

The state’s three largest insurers, State Farm, Allstate and Farmers, were not satisfied with the modified version of the HO-B and sought alternatives.

Allstate got approval to sell a new HO-A Plus policy, which offers more coverage than the bare bones HO-A policy but less than the HO-B policy.

The company discontinued its HO-B policy. Allstate's HO-A Plus policy excludes water leaks unless they are sudden and accidental, but it does provide up to $5,000 for mold remediation.

Farmers Insurance received approval to offer a product similar to Allstate's, called the Farmer's HO-A Choice Policy. Farmers no longer writes or renews the HO-B policy.

In February 2003, State Farm Insurance Co., the largest insurer in Texas, began selling the modified HO-B policy to renewing policyholders who had no mold remediation. Starting September 2003, State Farm started selling Texas customers an HO-W policy, which is substantially the same homeowners policy that the company markets in other states.

This policy allows customers to opt out of certain types of coverage, such as mold and slow water leaks. State Farm agreed to reduce its rates to reflect coverage differences between its new policy and the Texas standard HO-B homeowners policy it has sold in the past.

In 1991, a rate regulation system was adopted for homeowners insurance that required companies to set rates within a range 30 percent above or below a benchmark rate or else obtain prior approval from the Texas Department of Insurance. However, a loophole exempted certain types of companies.

Today nearly 95 percent of homeowners policies are sold through companies exempt from rate regulation.

Companies can sell several types of policies, each with a different level of coverage.

HO-A policies provide extremely limited actual cash value coverage of the home and its contents. Only the types of damage specifically listed in the policy are covered.

HO-A Amended policies provide more extensive coverage than the base HO-A policy, but less coverage than the HO-B. For instance, HO-A Amended policies may include replacement cost coverage of the structure and contents and coverage of damage from "sudden and accidental" water discharges. These are not covered by the base HO-A policy.

HO-B policies provide replacement cost coverage for most types of damage, except those specifically excluded in the policy.

HO-C policies provide the most extensive coverage, but are more expensive than other types of policies.

Other approved policies are policies of national insurance organizations or large national companies that the Commissioner of Insurance has approved for sale in Texas. Coverage provided by these policies may differ considerably from one another and from the coverage provided in standard Texas homeowners policies.

FOCUS POINTS

• Lending institutions usually require mortgage customers to purchase homeowners insurance.

• Consumers should not rely on the coverage levels mandated by their bank or mortgage company. Those levels are designed to protect the house itself, but not necessarily their possessions.

• In brief review there are several basic types of home insurance policies:

• HO-1Basic homeowners policy. Covers the house and possessions against 11 different perils.

• HO-2 Broad homeowners policy. Covers house and contents against 17 perils, with premiums running about 5 percent to 10 percent more than an HO-1 policy.

• HO-3 Special homeowners policy. Covers all perils except those specifically excluded by the policy. Costs 10 percent to 15 percent more than an HO-1 policy.

• HO-4 Renters Policy. Covers 17 named perils and includes liability coverage. It does not insure the dwelling itself.

• HO-5 Extensive homeowners policy. Covers damage from practically everything except earthquakes, wars and floods.

• HO-6 For owners of co-ops or condominiums. Provides personal property coverage, liability coverage and specific coverage of improvements to the owner’s unit. Insurance provided by the owner’s association normally covers most of the actual structure.

• HO-8 Policy for older homes. Covers the same perils as HO-1 but pays only for repair costs or actual cash value, since replacement cost could make the policy costly.

• In Texas the state insurance board specifies only three types of policies HO-A, HO-B, HO-C.

• When an individual applies for homeowners insurance, The insurer will ask about current occupation and employment history, marital status, previous addresses, date of birth, Social Security number and will check the criminal, credit, and insurance history to see if the applicant is a "good risk."

• The insurance company will look at the "loss history" to see what kinds of home insurance claims have been made in the past.

• Factors that go into determining the premiums for a homeowners policy include the age of the home, the materials used to build it, where it’s located, the square footage, and the number of rooms, how the home is heated, the overall condition of the house, how many occupants and how close the home is to the nearest fire station and fire hydrant.

• If the home is equipped with an alarm system, smoke detectors and deadbolt locks, these factors could save money.

• Homeowners policies automatically cover household contents - furniture, clothes, appliances, etc. - up to 40 percent of the amount for which the house is insured.

• Actual cash value is an items replacement cost, minus depreciation.

• Replacement cost coverage, the insurance company pays to replace the item with a new similar one to the one destroyed or stolen.

• An inventory list should itemize each item, its value, and serial number. Photographs or videotapes of each room, including closets, open drawers, storage buildings, and the garage should be maintained. All of this and receipts for major items should be kept in a fireproof place.

• Homeowners policies cover specific risks. Depending on what the prospect owns and where they live, they might need to supplement the policy with special coverage.

• Homeowners policies do not cover flood damage. The National Flood Insurance Program (NFIP) offers flood coverage in many areas.

• If a mortgage lender determines a home is in a special flood hazard area, the borrower might be required to purchase flood insurance.

• An individual might want more coverage for certain items than the policy provides. For an extra premium, they might be able to buy endorsements that expand or increase the coverage on these items.

• If the client wants more liability coverage than a homeowners policy provides, they can buy a separate umbrella policy.

• Deductibles allow individuals to cut the cost of the insurance, by assuming some of the risk.

• Some insurance companies might charge higher premiums, if the applicant has problems with their credit history.

• An insurance score is different from a credit score because in insurance scoring, an insurance company uses credit information, together with applicant insurance history, to predict whether they are more or less likely to file a homeowners claim.

• Insurance scoring allows insurance companies to provide insurance to more people and to offer it at a lower cost to those who qualify.

• If an individual rents an apartment or owns a condominium, they need insurance to protect their belongings.

• Condo association insurance, only protects the building, the occupants belongings are not covered.

• There are several types of residential insurance policies. The HO-4 policy is designed for renters, while the HO-6 policy is for condo owners. Both HO-4 and HO-6 cover losses to personal property from 17 types of perils:

• Liability protection is also standard with most renters and condo policies. This means if someone in the unit slips and falls, the insured is covered for any costs, up to the liability limit.

• Flood or earthquake: Most standard homeowners policies do not include coverage for either floods or earthquakes. If an individual lives in an area where either might occur, consider adding coverage.

• Floaters: Most policies set limits for items like jewelry, collectibles, and computers. If the prospect owns expensive items, they can pay extra premiums to have those items fully insured under what is called a floater. Without a floater, a policy will cover such items only under general categories and offer reimbursement up to a maximum of only a few thousand dollars (limits vary).

• Discounts: Insurance companies offer an array of discounts. Factors that could reduce premiums include smoke detectors, alarm systems, deadbolt locks, closed-circuit television, a secured-entry system or a doorman.

• Water damage is one of the most common reasons people make claims on their home insurance.

• Generally damage caused by water will be covered, but whatever causes the damage — say, a leaking dishwasher hose — may not be.

• If a sudden, unforeseen problem such as a frozen pipe or hose leads to water damage, the homeowners insurance covers both repairs to the broken pipe and to the home and furnishings.

• A homeowners' insurance policy covers both property and liability. It is a total financial plan that protects the home, personal property, and personal liability.

• Homeowners’ insurance is designed to pay for damages to the home and its contents.

• Homeowners’ insurance protects the insured from financial liability if someone is injured on the property.

• A homeowners' insurance policy protects the insured and their possessions when they are away from home. Basically, it extends to all the insureds possessions no matter where they are.

• 
  A homeowners insurance policy is basically a contract the insured makes with an insurance company. In exchange for the premium, the insurance company will pay for financial losses related to the home or the property during the period of the contract.

PART VI: HOMEOWNERS INS. POLICY

SECTION I: COVERAGE & LIMITS OF LIABILITY

The front page or the "Declaration Page" of the homeowners policy shows exactly what is covered and for how much. The front page contains the following information:

1. Name of the Insurance Company & their address.

2. Name & address of the insured & address of the insured property.

3. The agent's & agency name & address.

4. Policy number.

5. Policy period showing the effective & expiration date & time.

6. The coverage & premium breakdown.

PROPERTY COVERAGE-SECTION I

1. Dwelling Limits

2. Detached Structures. Limits

3. Personal Property Limits

4. Loss of Use Limits

1. Section I Deductible. Amount

LIABILITY COVERAGE-SECTION II

e. Personal Liability, Each occurrence Limits

f. Medical Payments to others, each person Limits

POLICY FORMS & ENDORSEMENTS AND CHARGES

1. Rating information.

2. Mortgagee's name & address.

3. Signature of Insurance Company Officer.

SECTION 2: TYPES OF HOMEOWNERS POLICY FORMS AND THEIR COVERAGES

There are standard policies available and they contain a standardized numbering system throughout the United States except for Texas.

They are as follows:

HO-1: Basic Form for Homeowners.

HO-2: Basic Form for Homeowners with similar coverage available for mobile home owners.

HO-3: Special Form for homeowners.

HO-4: Renters or Tenants Insurance.

HO-5: Comprehensive Form for Homeowners.

HO-6: Condominium Unit owners insurance.

(There is no HO-7 Form)

HO-8: Market Value or Older Home Form for Homeowners.

The "HO" stands for Homeowners and the number following that designates the different policy packages.

HO-1 AND HO-2 POLICY

These two forms are referred to as "Named Peril Policies" and in these two forms the same perils are applied to the dwelling and the personal property coverage. HO-1 includes coverage from the following losses:

• Fire and Lightning.

• Removing damaged property.

• Explosion.

• Hail or Windstorm.

• Smoke Damage.

• Riots/Civil Commotion.

• Damage to dwelling caused by vehicles or aircraft.

• Theft.

• Breakage of Glass.

• Malicious mischief or vandalism.

HO-1 is becoming less and less popular due to the fact that each of the above losses is usually followed by a paragraph of numerous exclusions. Although the cost of HO-1 is low, the old adage still applies, "You get what you pay for".

The HO-1 Policy contains the following exclusions:

• Flood.

• Surface water.

• Waves and tidal waves from other bodies of water.

• Back up water and sewage or drains.

• Water below the surface of the ground that flows, seeps or leaks through side walls, driveways, basements, walls, foundations, through doors, windows or floors.

• Earth movement, volcanic eruption, earthquake, landslide, mud flow, earth sinking, shifting or rising.

• Damage to air conditioning, heating and plumbing systems caused by leaking or as a result of freezing.

• Wear and tear.

• Deterioration.

• Marring or scratching.

• Mechanical breakdown, inherent vice or latent defect.

• Rust.

• Wet or dry rot.

• Mold.

• Act of war.

• Smog.

• Contamination.

• Acts of Government.

• Nuclear reactions.

• Smoke from industrial operations or agricultural smudging.

• Shrinkage, cracking, settling, bolting, expansions of walls, floors, roofs, ceilings, foundations, patios, pavement.

• Domestic animals, insects, rodents, vermin, and birds.

• Continuous leakage from within a plumbing system or seepage.

• Theft to a dwelling under construction including materials and supplies, vandalism and glass breakage.

• Wind, ice, hail, snow or sleet damage to outdoor television antennas or outdoor radio antennas including towers, masts and wiring.

• Power interruption that takes place of the residence premises

• An insured’s failure to save or preserve a property after loss.

• Losses caused by the insured or at the insured’s direction.

HO-2 includes coverage from the following losses:

• Fire and lightning.

• Removing damaged property.

• Explosion.

• Hail and windstorm.

• Riot/civil commotion.

• Damage to dwelling caused by vehicles or aircraft.

• Damage from smoke that is sudden or accidental.

• Falling objects.

Additional over the HO-1 Coverage are the following:

• Weight of ice, sleet or snow.

• Theft.

• Breakage of glass.

• Collapse of building.

• Accidental ruptures of hot water heater or steam heater.

• Accidental overflow of water from a plumbing appliance.

• Freezing of heating, air conditioning or plumbing appliances.

• Accidental injury from electrical currents artificially generated.

The HO-2 policy expands the vehicle peril to loss of a fence,, driveway or walk that is damaged by a vehicle driven by an individual that lives in a household.

The smoke peril portion of the policy expands to include loss caused by fireplace smoke

The HO-2 form gives a more "Broad form" of coverage than HO-1.

The HO-2 Policy contains the following exclusions:

• Flood.

• Surface water.

• Waves and tidal waves from other bodies of water.

• Back up water and sewage or drains.

• Water below the surface of the ground that flows, seeps or leaks through side walls, driveways, basements, walls, foundations, through doors, windows or floors.

• Earth movement, volcanic eruption, earthquake, landslide, mudflow, earth sinking, shifting or rising.

• Damage to air conditioning, heating and plumbing systems caused by leaking or as a result of freezing.

• Wear and tear.

• Deterioration.

• Marring or scratching.

• Mechanical breakdown, inherent vice or latent defect.

• Rust.

• Wet or dry rot.

• Mold.

• Act of war.

• Smog.

• Contamination.

• Acts of Government.

• Nuclear reactions.

• Smoke from industrial operations or agricultural smudging.

• Shrinkage, cracking, settling, bolting, expansions of walls, floors, roofs, ceilings, foundations, patios, pavement.

• Domestic animals, insects, rodents, vermin, and birds.

• Continuous leakage from within a plumbing system or seepage.

• Theft to a dwelling under construction including materials and supplies, vandalism and glass breakage.

• Wind, ice, hail, snow or sleet damage to outdoor television antennas or outdoor radio antennas including towers, masts and wiring.

• Power interruption that takes place of the residence premises

• An insured’s failure to save or preserve a property after loss.

• Losses caused by the insured or at the insured’s direction..

HO-3 POLICY

The HO-3 policy is an “open peril” policy and covers anything except what is excluded.

HO-3 policies exclude coverage from the following losses:

• Flood.

• Surface water.

• Waves and tidal waves from other bodies of water.

• Back up water and sewage or drains.

• Water below the surface of the ground that flows, seeps or leaks through side walls, driveways, basements, walls, foundations, through doors, windows or floors.

• Earth movement, volcanic eruption, earthquake, landslide, mud flow, earth sinking, shifting or rising.

• Damage to air conditioning, heating and plumbing systems caused by leaking or as a result of freezing.

• Wear and tear.

• Deterioration.

• Marring or scratching.

• Mechanical breakdown, inherent vice or latent defect.

• Rust.

• Wet or dry rot.

• Mold.

• Act of war.

• Smog.

• Contamination.

• Acts of Government.

• Nuclear reactions.

• Smoke from industrial operations or agricultural smudging.

• Shrinkage, cracking, settling, bolting, expansions of walls, floors, roofs, ceilings, foundations, patios, pavement.

• Domestic animals, insects, rodents, vermin, and birds.

• Continuous leakage from within a plumbing system or seepage.

• Theft to a dwelling under construction including materials and supplies, vandalism and glass breakage.

• Wind, ice, hail, snow or sleet damage to outdoor television antennas or outdoor radio antennas including towers, masts and wiring.

• Power interruption that takes place of the residence premises

• An insured’s failure to save or preserve a property after loss.

• Losses caused by the insured or at the insured’s direction..

The HO-3 policy is the one most commonly used by homeowners. This form offers all risk coverage to the dwelling. This is a particularly valuable facet of this policy and is what really sets the HO-3 policy apart from the HO-1 and HO-2.

HO-4

The HO-4 is a tenant policy designed for people who rent houses or apartments and it also applies to owners of cooperative apartments. The policy covers this tenant’s policy personal property and improvements to the residence made by the policy owner. Improvements can be cosmetic such as additions, paneling or shelves. The HO-4 affords coverage of up to 10% of the policy amount for improvements. Therefore if your personal property is insured for $50,000 dollars, $5,000 would cover improvements.

The 10% limit may be increased for an additional premium and by attaching the building additions and alterations increased limit endorsement.

A tenant’s personal property is covered for the same broad form named perils listed in a HO-2 policy, which are:

• Fire and lightning.

• Removing damaged property.

• Explosion.

• Hail and windstorm.

• Riot/civil commotion.

• Damage to dwelling caused by vehicles or aircraft.

• Damage from smoke that is sudden or accidental.

• Falling objects.

• Weight of ice, sleet or snow.

• Theft.

• Breakage of glass.

• Collapse of building.

• Accidental rupture of hot water heater or steam heater.

• Accidental overflow of water from a plumbing appliance.

• Freezing of heating, air conditioning or plumbing appliances.

• Accidental injury from electrical currents artificially generated.

HO-5 POLICY

The HO-5 is very similar to the HO-3 policy in that again, the dwelling is covered on an all risk basis. Personal property, however, is covered under the all risk condition also in the HO-5 policy. This constitutes the major difference between the HO-3 and the HO-5. The HO-5 policy is the most comprehensive standard homeowners policy available. However, the coverage in this policy is quite expensive. This policy is rarely used today because agents prefer to attach endorsements to the HO-3 policy.

HO-6 POLICIES

The HO-6 is a condominium owner’s policy. It covers personal property and improvements to the residence made by the policy owner. Improvements can be cosmetic such as additions, paneling or shelves.

The condominium policy permits the addition of various endorsements unique to a condominium. For examples endorsements may be added that change the form to a special or open peril form. The coverage may be changed to cover the insured’s share of loss to condominium common areas or other additional coverage.

Coverage could be provided for unit owners who rent to others. For unit owners other structures such as on premises, garages or sheds. Loss Assessment Coverage for any assessment fees that might be charged in the event the losses of replacement of common elements are not covered by the Association master policy.

A HO-6 policy excludes coverage from the following losses:

• Fire and lightning.

• Removal.

• Windstorm or hail.

• Explosion.

• Riot or civil commotion.

• Aircraft.

• Vehicle.

• Smoke.

• Vandalism or malicious mischief.

• Theft.

• Falling objects.

• Weight of ice, snow, or sleet.

• Collapse of building.

• Damage from hot water heating systems.

• Damage from appliances or plumbing.

• Damage from freezing of plumbing appliances.

• Damage from electrical currents artificially generated.

Payment under both HO-4 and HO-6 is based on the actual cash value and not the replacement cost.

HO-8 POLICY

A HO-8 policy is a modified Coverage Form and is similar to a HO-1 but modifies settlement to actual cash value or repair cost. This policy is designed for older homes where replacement cost exceeds the market value.

MOBILE HOMES

A mobile home is basically a trailer used as a permanent dwelling. Mobile homes are typically placed on a permanent foundation and are usually sold on one site rather than being moved from location to location. Once they are placed on a permanent

foundation, mobile homes are similar to other houses from the standpoint of exposure, except that mobile homes are more susceptible to windstorm and fire damage.

A HO-2 and HO-3 policy may be used and modified by adding a mobile home endorsement.

The endorsement makes the following modifications:

• Coverage A is modified by including permanently installed floor coverings, appliances, dressers and cabinets to be included as part of the residence. All carports or building additions are covered as part of the dwelling. The endorsement provides for replacement cost settlement.

• Transportation coverage is covered if the home is being moved to protect it from loss by a covered peril. An MHO403 endorsement can be added for an additional premium to cover the normal moving of the home from one location to another

• Condition of exterior replacement provision permits the insurer to choose to pay the reasonable cost of providing a similar or acceptable decorative effect to damaged exterior panels in lieu of matching damaged panels.

Under mortgage coverage in addition to protection for their interest in the property when it is damaged or destroyed by a covered peril, lien holder are covered for loss by the perils of collision, conversion (altering the home, and embezzlement or secretion (hiding the mobile home).

FOCUS POINTS

• The Declaration page shows exactly what is covered is covered in the policy.

• There are seven standardized form homeowners’ policies.

• HO-1 and HO-2 policies are known as “Named Peril Policies.”

• In the HO-1 and HO-2 policies the same perils are applied to the dwelling and the personal coverage.

• The HO-1 policy represents the lowest cost basic homeowner’s policy because of its numerous exclusions.

• The HO-2 policy is known as a Broad Form policy because it expands coverage over the HO-1 policy.

• The HO-3 policy is an “Open Peril “ policy and covers anything except what is excluded.

• The HO-3 policy is the most commonly used homeowners policy.

• The HO-4 policy is a tenant policy designed for people who rent houses or apartments.

• The HO-5 policy is the most comprehensive of all the policies and covers both dwelling and personal property on an all risk basis.

• The HO-6 policy is a condominium owners policy.

• Payment under both an HO-4 and HO-6 is based on the actual cash value and not the replacement cost

• A HO-8 policy is designed for older homes where replacement cost exceeds the market value.

• Mobile homes can be insured under a HO-2 or HO-3 policy by adding a mobile home endorsement.

• Under a mobile home endorsement lien holders are protected for perils unique to mobile homes.

• FOOD FOR THOUGHT

• Name the seven standard homeowner forms.

• Name the two named perils forms.

• Name 8 additional coverages in the HO-2 form that are not in the HO-1 form.

• What form is known as the “Broad Form”.

• Name the most prominent “Open Peril” form.

• State the elements of a HO-4 Form that makes it different then the HO-3 form.

• State the elements that make the HO-6 form different then the HO-1 form.

• State the difference between a HO-3 form and a HO-5 Form.

• State the difference between a HO-1 form and a HO-8 form.

• How can a HO-2 or a HO-3 form be changed to cover a mobile home.

SECTION 3: PROPERTY COVERAGE-SECTION I

The Property Coverage section of the Homeowners policy covers five basic areas. They are:

1. The dwelling.

2. Detached structures located on the property.

3. Your personal property.

4. Loss of the use of your structure.

5. Additional Coverage.

THE DWELLING

This consists of the home itself or the actual living structure and includes attached structures, which is most commonly the garage. In the policy declaration page this coverage will be shown as: Section I, Coverage A.

The major portion of your coverage in a homeowners policy is designed to pay the cost of rebuilding the structure. A common misunderstanding in this area of coverage is that you do not insure your structure for what it is worth on the open market. This is because the land the house is built on has a value and the value of the land is not to be included in the coverage you select, only the cost of the structure.

A helpful way to determine the cost of the structure is to contact a Builder's Association to find out what the cost per square foot is in your area. If you'll take the total square footage of your house and multiply it by the local per square foot building cost, you can get a pretty good idea of what it would take to replace the structure. A standard rule of thumb is to insure the structure for at least 80% of the actual cost to rebuild the structure.

DETACHED STRUCTURES LOCATED ON THE PROPERTY

These consist of structures that are on the same parcel of land, but are not attached directly to the home itself. This could be a shed for your tools, a greenhouse in the yard, or some other structure that would be defined as a non-attached covered structure. Protection for these unattached structures is provided under Section I, Coverage B.

PERSONAL PROPERTY

A very important coverage under any residential insurance policy is personal property. The contents of a home such as furniture, stereos, televisions, appliances, clothing, and the like are considered personal property. These items are covered under Section I, Coverage C. Personal property will be covered as long as it owned and used by the insured, ANYWHERE IN THE WORLD. The loss of the personal property does not have to occur at the covered dwelling. Personal property belonging to others staying or visiting the covered property is also protected.

Personal property owned by the tenant in a rented house would not be covered by the homeowners policy, but personal property brought by a guest visiting the policy owner would be covered. It is important to understand that personal property coverage IS NOT unlimited. The truth of the matter is, unless endorsements are purchased for specific coverage, the protection can be rather limited.

There is a limit of coverage for loss of personal property. This amount is 50% of the total amount that the home is insured for under Coverage A. For example, if your home is insured for $100,000, the loss for personal property limits would be $50,000.

LIMITS OF LIABILITY FOR PERSONAL PROPERTY

There are limits of liability that apply to the following items:

• Money, bank notes, bullion, gold other than gold wear, silver other than silver wear, platinum, coins, and medals. All of these have a specific maximum liability. Additional dollar coverage will cost you extra.

Securities, Accounts, Deeds, evidence of debt, letters of credit, notes other than bank notes, manuscripts, passports, tickets, and stamps. All have a specified maximum liability. Additional dollar coverage will cost you extra.

• Watercraft, their trailers, furnishings, equipment and outboard motors have a specified maximum liability,. Since coverage is so low in this area, you may wish to purchase boat insurance.

Trailers not used with watercraft have a specified maximum liability

Grave markers have a specified maximum liability. Not too many of us know this one.

Theft of jewelry, watches, furs, precious and semi-precious stones have a specified maximum liability. Many people get caught short with this coverage and need to buy endorsements to protect items worth more than $1,000.00.

Loss of firearms by theft carry a specified maximum liability that is usually twice the amount of the specified amount for jewelry.. It seems odd that insurance companies will pay more for firearms than jewelry.

Theft of silverware, silver-plated ware, gold ware, gold-plated ware, and pewter ware have a specified maximum liability. Included here are flatware, hollowware, tea sets and trays, and trophies made of these metals.

Property on the residence premises used for business purposes has a specified maximum liability. Should you have an office in your home or work out of your home and have computers, desks, and other equipment. You really need to purchase additional protection here.

• Personal property away from the residence used for business purposes carries a specified maximum liability.

EXCLUSIONS FOR PERSONAL PROPERTY

• Articles separately described and insured by endorsement. Should you have personal articles separately described and specifically insured in your policy, they will come under exclusions. If you decide to specifically cover these items by endorsement, the coverage will be determined by the language of that endorsement and will not be protected by Coverage C.

• Animals, birds, or fish. Although they may be invaluable to you, nothing will be paid for their loss under your homeowners policy.

• Motor Vehicles and all other motorized land conveyances. Normally these items are protected under an automobile insurance policy. However, there are two exceptions to this exclusion.

• The vehicle is not subject to motor vehicle registration and is used to service an insured's residence, or, the vehicle is designed to assist the handicapped.

• Aircraft and their parts. You will need to purchase aircraft insurance.

• Property of Roomers, Boarders, and other tenants except property of Roomers related to the insured. These items are covered under Renter's insurance.

• Property in an apartment regularly rented or held for rental to others by an insured. Again, these items are covered under Renter's insurance.

• Property rented or held for rental to others off the residential premises. You need Renter's insurance.

• Books of account and drawings. Included here are records of bookkeeping that are on paper, electronic data, computer software, and other paper containing business data.

• Credit cards. The basic homeowner's policy does not protect you against the loss of credit cards or credit fraud. However, coverage can be had under the additional coverage section of a policy.

The following thefts are excluded under Coverage C:

• Anything stolen by the insured;

• Anything stolen from a part of the residence rented to another person.

• Theft to a building that is under construction.

• Items stolen from a secondary residence unless the insured is living there when the theft occurs.

• Theft of water craft, outboard motors, trailers, or campers that occurs away from the residence premises.

LOSS OF THE USE OF THE STRUCTURE

A homeowners policy provides funds to compensate for the loss of the use of the property should it be damaged by a peril covered under the policy. This coverage is provided under Section I, Coverage D. One can elect to receive compensation for loss of use one of two ways:

• Payment for additional living expenses.

• Payment for the fair retail value of the uninhabitable property.

• Additional living expense

Additional living expenses usually require a higher monthly outlay than one would normally pay at home. If a home is destroyed by fire, it would be necessary to rent another residence while the home is being rebuilt. The policy will pay additional living expenses that are incurred in order to allow the household to "Maintain its normal standard of living".

• Fair retail value

An individual may receive a benefit that will pay the fair retail value for a residence less any expenses that do not continue while the home is not fit to live in.

Whichever way an individual chooses to go, it must be for the shortest time required to replace or repair the damages to the property, or if one permanently relocate, the shortest time within which one can do so. There is an exception under the ability to choose how one wishes to be compensated in the event of the loss of use. This is if the property that became uninhabitable WAS NOT the principal place of residence. In this case, one would only be compensated for additional living expenses.

ADDITIONAL COVERAGES

The following additional coverages can be had under HO-3 homeowners' policy, which is the one, most people purchase:

• Property removed.

for example, a wind destroys your walls and you want to have this property removed, the cost to do so can be paid for under additional coverage. There is a 30 day limit for this coverage to apply.

• Service charges of the fire department.

The policy will pay up to a specified amount for the liability for any fire department charges incurred because the fire department was called upon to save or protect the property. In most cases, the city provides this service without charge, and no payment is made by the homeowner's policy.

• Reasonable repairs.

The policy covers reasonable costs incurred to make necessary repairs to prevent the property from further damage.

• Debris removal.

If it is necessary to remove debris that is created by a covered loss, the homeowners policy will pay for it. The amount available for debris removal is included in the total limit of liability. Should the removal expense exceed that amount, an additional 5% is available to complete the job. Fallen trees, as an example, come under this portion of the policy and have a specified limit total for any one claim.

• Trees, shrubs, and plants.

Should a covered loss damage or destroy trees, shrubs, or plants, except of course, for windstorm, the policy will pay up to 5% of the limit of liability that applies to the dwelling with a maximum of $500.00 for any one tree, shrub, or plant. Commercial growing is not covered.

• Forgery, counterfeit money, credit card and fund transfer card.

The HO-3 policy will pay up to a specified amount for the following:

1. Forgery or alteration of a check that causes a loss.

2. Unauthorized use or theft of an ATM card that results in a loss.

3. Unauthorized use of credit cards issued in your name.

4. Should you in good faith accept counterfeit US or Canadian paper currency.

• Collapse.¹

Any collapse of a building or collapse of part of a building that causes you a direct physical loss by one or more of the following will be covered:

1. Hidden insect damage.

2. The weight of the building's equipment, contents, people or animals.

3. Rain that collects on the roof and the weight causes damage or collapse.

4. Hidden decay.

5. Defective material used in construction, renovation or remodeling providing the collapse occurs during the course of such work.

FOCUS POINTS

• The property coverage section of a Homeowner policy covers the dwelling, detached structures located on the property, the personal property, loss of use of the structure, and additional coverage.

• The dwelling consists of the actual living structure and attached structures.

• The major portion of a homeowners policy is designed to pay the cost of rebuilding the structure.

• The land value should not be computed in the cost of replacing the structure.

• A standard rule of thumb is to insure the structure for at least 80% of the actual cost to rebuild.

• Personal property is covered as long as it is used by the insured, and is covered while being used anywhere in the world.

• Personal property owned by a tenant in a rented house would not be covered by the homeowner policy.

• Personal property coverage is very limited and endorsements should be added in order to extend the coverage.

• In the homeowner policy The loss of personal property is limited to 50% of the limits in Coverage A.

• There are specific maximum dollar limits of liability that apply to various categories of personal property.

• Articles covered by endorsements are not protected under Coverage C.

• Animals are exclusions under a homeowners policy.

• Properties of Roomers that are not related to the insured are exclusions under a homeowners policy.

• The basic homeowners policy does not protect against the loss of credit cards or credit fraud.

• Under Coverage C theft to a building that is under construction is excluded from coverage.

• Under Coverage C items stolen from a secondary residence are excluded unless the insured is living there when the theft occurs.

• Theft of watercraft, outboard motors, trailers, or campers that occurs away from the residence is excluded under Coverage C.

• The homeowners policy provides funds to compensate for the loss of the use of the property should it be damaged by a peril covered under the policy.

• Compensation for loss of use can be in the form of payment for additional living expenses or by payment for the fair retail value of the uninhabitable property.

• Under additional living expense coverage a policy will pay an amount that allows for a household to “Maintain its normal standard of living.”

• Under a HO-3 policy there is included a property removed coverage.

• Under a HO-3 policy there is limited coverage for fire department service charges.

SECTION 4: LIABILITY COVERAGE-SECTION II

Coverage for liability will be found under Section II, Coverage E, PERSONAL LIABILITY. The policy states the coverage as follows:

"If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence" to which the coverage applies, your insurance company will:

1. Pay up to the limit of liability if the insured is legally liable.

2. Provide defense by counsel even if the suit is groundless, false or fraudulent.

Section II, Coverage F covers MEDICAL PAYMENTS for those who are injured while at the insured location and providing they are there with the permission of the insured. Medical expenses will be paid off of the insured location if the bodily injury:

3. Arises out of a condition on the insured location or the ways immediately adjoining. For example, a tree that is rooted in your yard has a branch that hangs in your neighbors yard and that branch falls and hits your neighbor, he will probably collect from your insurance company for medical costs.

4. Should the bodily injury be caused as a result of activities by the insured. Should you be riding a horse and injure someone or hit a golf ball and hit someone, your homeowner's policy will pay medical bills.

5. Should bodily injury be caused by a residence employee in the course of the employee's work. Maids, butlers and domestic help would come under this category.

6. Bodily injury caused by an animal owned or in the care of the insured. Dog bites are covered here.

PERSONAL LIABILITY EXCLUSIONS

The following will not be covered by the liability portion of your homeowners policy:

7. Bodily injury to the insured. If you get hurt at home due to your own negligence, the policy will not pay.

8. Damages caused by failure to render professional services or by rendering professional services. If you are a carpenter and your work is defective, and your faulty work causes damages, the policy will not pay.

9. Damages caused by motor vehicles.

10. Damages caused by operation of an aircraft. Injuries caused by model hobby planes will be covered.

11. Communicable diseases. If you give someone a disease, your policy does not cover you.

12. War. Any damage that a war causes your property directly or indirectly is excluded.

13. Workers' Compensation injuries. Should someone covered by their employer under Workers' Compensation be injured while working at your home, your homeowners policy will not pay.

14. Damages caused by watercraft. If while using the craft, damages result, they will not be paid by your homeowners policy.

15. Non-insured locations. If you own other property that is not listed on your policy, and injuries occur there, you are not covered.

16. Intentional acts of the insured. If by malice you intend to harm someone, you will not be paid.

17. Business activities. Should there be any damage as a result of business pursuits by the insured, protection for the same will not come from your homeowners policy.

FOCUS POINTS

• Liability coverage in an insurance policy is found under Section II,

Coverage E.

• Liability coverage pays up to the limit stated if the insured is legally liable.

• Liability coverage provides defense by counsel even if the suit is groundless, false or fraudulent.

• Medical payments are covered under Section II, Coverage F.

• Medical payments are covered only for individuals on the premises with permission of the owner.

• Payments are made if a situation arises out of a condition on the insured location or the ways immediately adjoining. (A tree limb hanging over unto a neighbor’s yard)

• Medical payments are made to the injured should the injury occur as a result of activities by the insured.

• Medical payments are made to an injured should bodily injury be caused by a residence employee of the insured.

• Medical payments are made to an injured as a result of injury caused by an animal of the insured.

• Exclusions include bodily injury to the insured as a result of his or her own negligence.

• No payment is made as a result of damages caused by faulty professional work or non-performance of the work.

• Damages caused by motor vehicles, watercraft, or by the insured.

• A communicable diseases transmitted by the insured is not covered.

• Not covered are intentional acts of the insured, business activities, coverage under Workers’ Compensation, or war.

• Injury at a non-insured location is not covered.

SECTION 5: THE CLAIM

There are four factors necessary in order for a loss to be covered by insurance. They are:

1. Losses must be accidental.

2. Losses must be caused by extraneous factor.

3. Losses were not caused by deliberate actions on the part of the policy owner.

4. Losses must involve covered, legal property.

LOSSES MUST BE ACCIDENTAL

The reason for this is that insurance policies insure you against "Risks". Therefore, losses must be accidental. If a loss is certain to occur, there is no risk involved. Losses resulting from deterioration are sometimes thought to be the result of a certainty, after all, everything wears out sooner or later. For this reason, should a loss be caused by deterioration, it would not be covered by your insurance.

LOSSES CAUSED BY EXTRANEOUS FACTOR

This means an external cause of damage such as wind damaging the patio furnishings. Should a loss be caused by an inherent physical condition, the loss would not be covered.

LOSSES CAUSED BY DELIBERATE ACTION ON THE PART OF THE POLICY OWNER

Any action on your part that causes a loss to any insured property is not covered. You cannot deliberately destroy property that is insured and expect the carrier to pay for it.

LOSSES MUST INVOLVE COVERED, LEGAL PROPERTY

Illegal items and contraband are not covered by insurance. If you had an illegal whiskey still in your home and it was damaged by a covered peril, that loss would not be covered. It should be noted that one of the elements of a valid claim is that you must actually sustain a loss. It's not enough to have property by insurance and to have that property damaged or destroyed by a covered peril. It is also necessary that you have a financial and insurable interest in the damaged property in order for a loss to be sustained. The insured must have some degree of ownership in the property in order to have an insurable interest in it.

When you have a claim to file, you need to keep the following in mind:

• As a policyholder, you normally have a strong and favorable position where claims are concerned.

• As a rule, the courts usually resolve questions on claims in your favor.

• The overall effect of court decisions has been to broaden the coverage of homeowners policies.

• Although companies differ in their approach to claims, most work to give good service to their customer.

• Some companies engage in questionable practices, and it is prudent to watch out for activities that might not be proper.

• Consequential losses are not covered by homeowners policies.

• Negotiation is not necessarily a win/lose proposition. Both parties can come out feeling like winners.

FOCUS POINTS

• The four factors that are necessary for a loss to be covered are: it must be accidental, the loss must be caused by extraneous factors, cause must not be intentional by property owner, and must involve the covered legal property.

• Losses must be accidental because insurance policies insure risk.

• Losses must be caused by outside factors and not be an inherent condition or a condition of deterioration.

• Illegal items and contraband or not covered by insurance.

• The insured must have some degree of ownership in the property in order to have an insurable interest in it.

• Consequential losses are not covered by homeowners policies.

SECTION 6: REPLACEMENT COSTS COVERAGE

In approximately 80% of all claims, less than 10% of the property insured is affected by loss. Therefore, it could be said that you are buying insurance to only cover 10% of the property in question and coverage will be adequate 80% of the time.

All homeowners policies contain a replacement cost provision that requires one to purchase an amount equal to 80% of the replacement cost of the dwelling. The purpose of this requirement is to make the determination of insurance rates simple and allowing premiums to be based on a fixed cost per $100.00 worth of insurance.

Calculating replacement cost for the purpose of buying insurance is somewhat different than estimating the cost of buying a new home. There are two reasons why determining the replacement cost of a home must be determined accurately. First, one need to be certain that coverage is adequate and that it complies with the replacement cost requirement. Second, the client must be secure in the fact that they are not being sold an excessive amount of insurance and the higher premiums that go along with it.

It must be realized that when a company considers attaching a penalty to a claim due to insufficient coverage, the homeowners policy stipulates that payment is to be based on replacement cost less the appropriate penalty or the actual cash value of the repairs, whichever is greater. Because of the method used to calculate, the actual cash value of the repairs and the negotiable nature of this issue, it may be best to submit the claim based on the actual cash value of the repairs involved.

When claims are paid under the replacement cost coverage, the company is able to figure it's obligation three ways and choose the one that works best for them. These three choices are as follows:

1. On policy limits. The most the company ever will pay is the amount of insurance that applies to the property covered.

2. On the cost of replacement. This would be based on the cost of an equivalent building at the same location.

3. On the actual amount spent in completing repairs.

Replacement cost can be defined as the cost to replace damaged property with:

1. Like kind and quality.

2. Similar in basic style.

3. Similar in basic quality.

4. Similar in basic function.

Remember, the policy provides coverage for replacement costs, not reproduction costs. Reproduction costs is defined as the cost for replacing property exactly as it was, down to the last detail. There is one interesting loophole in replacement cost coverage: The repair work done to the building NEED NOT BE based on replacing identical property at the same location. Believe it or not, in some states, reconstructing property at any location, including a different city or state, will qualify as a replacement cost claim.

Therefore, when studying the replacement cost coverage, keep the following in mind:

• Replacement cost coverage applies only to buildings and not all property covered under the policy.

• You need to be aware of what property is not covered under replacement cost coverage.

• Of all provisions of a homeowner policy, replacement cost is the most important.

• Take an active role in determining what is to be the replacement cost of a home.

• Be certain you know how this provision works and how penalties are attached to claims.

• The claim payment based on actual cash value is usually better than a claim payment that involves a penalty when the property involved is not properly insured.

• Since there are alternatives for the payment of replacement cost claims, be sure your clients know the difference and make a decision that works for them.

• "What constitutes replacement" can be very critical in filing a replacement cost claim.

• Understanding the meaning of "Betterment" is important to the process of filing a claim and this can be used to your benefit.

FOCUS POINTS

• In approximately 80% of all claims, less than 10% of the property insured is affected by loss.

• All homeowners policies contain a replacement cost provision that requires you to purchase an amount equal to 80% of the replacement cost of the dwelling.

• When claims are paid under the replacement cost coverage, the company is able to figure it's obligation three ways and choose the one that works best for them.

• Replacement cost can be computed on policy limits, replacement cost or actual amount of repairs.

• Policies provide coverage for replacement costs, not reproduction costs.

• Reproduction costs is defined as the cost for replacing property exactly as it was, down to the last detail.

• Replacement cost coverage applies only to buildings and not all property covered under the policy.

• Of all provisions of a homeowner policy, replacement cost is the most important.

• The claim payment based on actual cash value is usually better than a claim payment that involves a penalty when the property involved is not properly insured.

SECTION 7: CLAIMS ON DWELLING

When one has a claim for a damaged dwelling or other structures one must realize that it can be an involved and complicated process. There are four important steps to filing a claim on a dwelling. They are:

5. Determining coverages.

6. Determining the scope of repairs.

7. Determining the cost to repair.

8. Determining the amount of the claim.

DETERMINING COVERAGES

It must first be determine what is and is not covered by the policy. If there is a difference between the cost to repair and the amount of the claim, it could mean out of pocket expenses for the insured. In other words, should coverage be lacking in certain areas, it may be necessary to take measures throughout the adjustment process for the insured to cover shortages by having money available to pay for items that are not covered.

Most claims representatives do not identify the parts of a loss that are not covered in the areas where betterment applies.

DETERMINING THE SCOPE OF REPAIRS

This is the insurance company's description of work that will be included in repair estimates. It can also be referred to as:

1. Scope of damage.

2. Description of work.

3. Job description.

Most scope of repairs are prepared by the claims representative. Often, there are questionable aspects in the scope of repairs. Say for example, the company representative feels the bedroom was not damaged enough by smoke to warrant painting it or the soiled carpet can be cleaned rather than replaced. The adjuster works for the insurance company and may try to get the insured to accept alterations that will lower the cost of the repair.

DETERMINING THE COST TO REPAIR

Now we need to convert the scope of repairs into an "Agreed cost of repairs. The adjuster and the insured much reach a mutually beneficial agreement in accordance with policy terms.

1. Most companies use an estimate to establish a cost to repair. The company representative could obtain a bid from a familiar contact and get a low estimate.

2. The company always retains the right to repair the property. If the insurer uses this option, the insured will have very little say so in the matter.

DETERMINING THE AMOUNT OF CLAIM

This part is relatively easy. The appropriate deductibles are subtracted from the cost to repair. Since the deductible will always apply, it must be considered. Parts of the loss that are not covered will be subtracted from the cost to repair. When all the figures are agreed upon, which include the cost to repair, the actual cash value amount of claim, and the pending replacement cost claim, The insured will sign the papers, collect the payment in full and concentrate on repairing the damage. Finally, keep the following in mind when compiling a claim on a dwelling:

1. Always consider variations on reconstruction.

2. Profit and overhead allowances are part of the cost to repair and should be part of the claim payment.

3. Although building code requirements are a factor, a creative approach can keep them from being a problem.

4. Assertiveness on your part in dealing with contractors is usually the key to a positive outcome.

5. The construction contract must include all the work outlined in the estimate.

6. Favorable financial terms can be arranged with a contractor for payment assignments.

7. Most contractors resist using them, but penalty clauses can help avoid delays in construction.

FOCUS POINTS

• The four important steps to filing a claim on a dwelling are determining coverage, scope of repairs, cost to repair, and the amount of the claim.

• It must first be determine what is and is not covered by the policy.

• If there is a difference between the cost to repair and the amount of the claim, it could mean out of pocket expenses for the insured.

• Scope of repair is the insurance company's description of work that will be included in repair estimates.

• Most scope of repair reports are prepared by the claims representative.

• The adjuster works for the insurance company and may try to get the insured to accept alterations that will lower the cost of the repair.

• Most companies use an estimate to establish a cost to repair.

• When code requirements are a factor, a creative approach can keep them from being a problem.

• Assertiveness with contractors is usually the key to a positive outcome.

• Penalty clauses with contractors can help avoid delays in construction.

SECTION 8: CLAIMS ON PERSONAL PROPERTY

A personal property claim is very similar to a dwelling claim. First, follow the same four steps described in section seven, which are:

1. Determine coverages.

2. Determine the scope of loss.

3. Determine the replacement cost.

4. Determine the amount of the claim.

You need to determine what personal property is covered. Review the exclusions in the policy that specifically refer to personal property.

Next, establish the scope of the loss. That is, what property is going to be included in the claim? The insured should maintain an inventory on their own of the personal property covered. Often, it may be difficult to determine if damaged items can be cleaned rather than replaced. As a rule, if the company agrees to clean it and this is unsuccessful, the property will be replaced.

Next, establish the replacement cost of the property. The claims adjuster will check out the prices submitted by the insured and dispute any that may appear inconsistent with the estimated value as determined by his sources.

The final step is the actual cash value of the claim. This is necessary in most cases as the replacement cost coverage on personal property usually requires replacement of the property involved before the difference between the actual cash value and the replacement cost is collectable. This means that the insured will probably have to purchase that new chair before the company has paid the full amount of that chair.

When filing a claim for personal property, keep the following in mind:

• Compiling a personal property claim is similar to compiling a building claim.

• Depreciation is highly relevant to personal property claims, and is based on the ratio between the life expectancy and the age of the item.

• A well-prepared claim will make for a quick settlement. A good format in presenting your claim is important.

• Another important aspect is documentation. You have both rights and obligations in this area.

• Loss by mysterious disappearance and conversion are not covered under many homeowner' policies.

• An inventory of personal property by the insured will enable him or her to file a complete claim in the event of a severe loss. Photographs or videos can be helpful.

FOCUS POINTS

• Filing a personal property claim is very similar to a dwelling claim.

• Determine what personal property is covered and what is excluded.

• As a rule if the insurer agrees to clean damaged goods and the cleaning is unsuccessful, the property will be replaced.

• Depreciation is highly relevant in a personal property claim. And is based on the ratio between the life expectancy and the age of the item.

• A well-prepared claim will make for a quick settlement.

• Good documentation will expedite the settlement process.

• Mysterious disappearance and conversion are not covered by most homeowner policies.

• Maintaining of an inventory of personal property by the insured aids in the claim process.

SECTION 9: THINGS YOU NEED TO KNOW

SUBROGATION

Subrogation is the substitution of one party in place of another party in respect to a claim or a lawful right. When one’s property is damaged by a party due to neglect, the individual has a right to recover for the damage. When the insurance company pays for the loss, they take over the rights of recovery that previously belonged to the individual.

Subrogation evolved in order to prevent injured parties from collecting from the insurance company and the responsible party.

If an individual has a loss, the insurance company must pay the claim on a timely basis. It cannot tell the individual to seek recovery from the responsible party. Often, a company will stand aside and allow a third party to compensate a policyholder, but this can only rightfully be done with the consent of the policyholder. After the claim is paid, The insurance company will try and obtain restitution for the damages from whomever caused them.

STATEMENTS

Insured individuals have certain rights regarding claim statements. There are two kinds of statements that they may be asked to give in regards to a claim. They are:

1. An informal statement taken by the company representative when they inspect the loss.

This kind of statement is either handwritten or recorded on tape. They are taken to record facts, and the policyholder's story. The existence of a statement lessens the probability of a policyholder changing their story over time.

2. A formal statement under oath.

If requested by the company, a formal statement can be required under a homeowner policy. It is usually taken by an attorney and is, in effect, sworn testimony. If the individual lies, the individual is guilty of perjury. If the individual refuses, the claim could be rendered void. Formal statements usually indicate something is suspicious about the claim.

SALVAGE

The insurance company has the right to salvage property such as fixtures, appliances and any other part of a building as long as the policyholder has been paid for a total loss. Sometimes, the salvage goods will be sold back to the policyholder, however, they are under no obligation to accept this offer. For the most part, insurance companies will seek the services of a salvage company and do not care to directly involve themselves. After the salvage company subtracts expenses and a percentage for profit, the balance goes to the insurance company as a return on the salvage operation.

NON-WAIVER AGREEMENT

By merely investigating the facts of a case, the insurance company can sometimes lose its rights to deny a claim. There is a term known as "Estoppel" which means that in the event a company leads a policy holder to believe that a claim will be paid or implies that it will be paid in some manner, then estoppel prohibits them from denying the claim.

If the investigation uncovers facts that clearly indicate that the claim is not covered, this can still hold true. To avoid this possibility, many companies that investigate questionable claims have the insured sign a non-waiver agreement that states that the insured understands that the company is not committed to paying the claim just because the facts are being explored.

CANCELLATION

A homeowners policy may be canceled by the company or the policyholder. If the company cancels, you are entitled to the full amount of unused premiums on a

pro-rated basis. If you cancel, you will receive slightly less than the remaining unused premium. In order for a policyholder to cancel, they only need to notify the company in writing to do so. If the company cancels, they must give five days notice.

In closing, the most important thing to keep in mind about homeowners insurance is that it does not have to be complicated, foreign or difficult. Another thing is that technical knowledge is not necessary. If you have an inquisitive attitude, use some common sense, and are willing to address questions that come up in the area of homeowners insurance, you will find these to be more important than facts or information.

POLICY TERMonology

Like all insurance policies homeowner insurance has its own definition of terms. Because of consumer complaints and court decisions terms are defined in each policy to reflect their definition within that policy. The following are representative of terms used in homeowners policies or otherwise relate to homeowners policies.

Additional insured refers to an individual or company in addition to the insured, who is listed on the Declaration page. An example of this is a lien holder, most often an insurance company.

Aggregate Limit is a term that refers to the maximum liability limit covered in total for all losses occurring within the policy period.

Appurtenant structure refers to a building of lesser value that is situated on the same land as the main building that is insured by the policy

Bodily injury means any physical injury that results in bodily harm, sickness or diseases, including the pain and suffering that may result. Also included in this definition is any resulting care, loss of services or death caused by the bodily injury.

Broad theft endorsement is a dwelling endorsement that covers theft, attempted theft, vandalism and malicious mischief resulting from the theft. Property is covered while it is on or off the premises.

Burglary is defined as the taking of property by a person, unlawfully entering or leaving the premises, as evidenced by visible signs and physical damage.

Business is a term that includes any trade, profession or occupation. It applies to any type of usual or ongoing business pursuit, from a professional office in the home to weekly garage sales.

Business Pursuits Endorsement refers to a homeowners policy endorsement that provides Liability coverage for a business conducted away from the residence.

Earthquake Endorsement is available as an add on endorsement to the Dwelling or Homeowner policy.

First Named Insured is the first named individual in the Declaration page. The first named insured may have higher degree of rights, responsibilities and duties under the policy.

Insured means the person named on the Declaration page, spouse, any relatives and persons under the age of 21 and in the care of any of the persons previously named, if they live in the insured residence. Under Section II of the policy, the definition also means persons who, with permission, are responsible for watercraft or animals owned by the insured. Coverage of the watercraft and animals are excluded if used for business purposes. The definition also applies to the insured’s employees and other persons while they are operating vehicles covered under the policy on an insured location, as long as they have permission of the insured.

Insured Location includes the residence premises, any other residential premises listed in the Declaration page, any residence premises acquired after the inception date of the policy. Also included are any premises the insured does not own but where he or she temporarily reside (such as a motel or hotel).

Also included is vacant land owned (excluding farmland) or rented by the insured, land on which a one or two-family residence is being built for the insured, individual or family cemetery plots or burial vaults owned by an insured. Additionally, any premises the insured occasionally rents, such as a banquet hall, as long as the reason is not for business purposes.

CHAPTER VII: TYPES OF LIABILITY INS.

A BRIEF REVIEW

Property Insurance

Property insurance protects an owner’s buildings and equipment, stock, furniture and fixtures. Some policies include equipment breakdown and business income coverage. Basic property insurance will generally cover a business for losses in the event of a fire or lightning strike and will pay the cost of removing property to protect it from further loss. Additionally, a standard small business insurance policy will usually cover losses from windstorm, hail, explosion, riot and civil commotion and damage caused by aircraft, automobiles or vandalism.

How much property insurance does a small business need?

Property insurance can be purchased on the basis of the property's actual value (the replacement cost minus depreciation); its replacement value (the cost of replacing the item without deducting for depreciation); or an agreed-upon amount.

Liability Insurance

How does liability insurance coverage protect a small business?

There are many different types of third-party liabilities to be covered for a business. Business liability insurance may protect from claims arising from someone's bodily or personal injuries. Other items that could be covered are damage to the property of others, products-completed operations, advertising, premises operations, fire, legal liability and related legal defense costs. For instance, liability insurance will not only pay the cost of covered damages but also the attorney fees and other costs associated with your defense.

What exactly does the term "bodily injury" in a liability insurance policy mean?

"Bodily injury" refers to the injury, sickness, disease, or even death, of any person that occurs during the policy period.

What does "personal and advertising injury" mean in general liability insurance coverage?

Personal and advertising injury means being responsible for libel, slander or any defamatory or disparaging material, or a publication or utterance in violation of an individual's right of privacy; wrongful entry or eviction, or other invasion of the right of private occupancy; false arrest, wrongful detention, false imprisonment, or malicious prosecution; which occurs during the policy period.

What's the difference between claims-made coverage and prior acts coverage?

While claims-made coverage applies to a claim which is made during the policy period, priors acts coverage offers protection for wrongful acts that happened before the inception date of an insurance policy...but have yet to become known. For example, a buyer of E&O insurance may want to extend coverage for a period of time prior to when the coverage becomes effective...just in case.

Umbrella Policy

How does an umbrella insurance policy work?

A policy designed to provide protection against catastrophic losses, the umbrella insurance policy is generally written over various primary liability policies, such as a general liability insurance policy, business auto policy and employers' liability coverage. Once the underlying limits of these primary policies are exhausted, the umbrella liability policy would provide further coverage beyond the limits of those policies.

What is a personal umbrella liability policy?

This is an insurance contract designed to accomplish two goals. First, it increases liability protection beyond what individuals have in their homeowners and automobile insurance policies. Second, it aims to fill in gaps in the liability coverage since some things are simply not covered by automobile and homeowners policies - for example, libel and slander. Together with homeowners and automobile insurance policies, a personal umbrella policy gives the highest level of protection.

How does someone know if I they need a personal umbrella liability policy?

In the past, the people who purchased personal umbrella liability policies were wealthy individuals, with sizable amounts of personal assets that would be at risk in a lawsuit. However, our society has become more litigious, and many people desire more liability insurance than what is provided under their homeowners and automobile insurance policies. How much protection an individual wants against potential lawsuits is a choice they should make based on their personal circumstances and what they need to feel comfortably protected.

What coverage is provided in the typical personal umbrella liability insurance policy?

Before we discuss the contents of the typical personal umbrella liability (PUL) policy, it should be noted that these contracts often vary substantially from one insurance company to another. Therefore, when comparison shopping, one should look closely at the extent of the liability protection provided under each policy to be considered. There are several common characteristics in most umbrella insurance policies. First, umbrella policies only pay liability claims when the policy limits on the underlying insurance policy are exhausted. For example, suppose an individual is found negligent in an automobile accident and the court requires them to pay damages of $500,000. The umbrella insurance policy will only pay that portion of the $500,000 that exceeds the policy limit in the private passenger automobile insurance policy. Second, an umbrella insurance policy is going to provide broad coverage

Wrokers' Compensation Insurance

What does workers' compensation insurance do?

Workers' compensation pays for the rehabilitation, recovery and medical bills of employees work-related injuries, as well as lost time when they are unable to work because of a work-related injury. Workers' compensation is not a substitute for health or medical insurance, since employees are only covered for on-the-job injuries.

When does an employer need to buy workers' compensation insurance?

In most states, workers' compensation is required when there are one or more employees. There are a few states that do not require employers to carry workers' compensation coverage.

Who provides workers' compensation ?

Almost all states are "open market", which means the coverage is underwritten by private insurers; and some states are "closed" or "monopolistic" - the coverage is underwritten by a state-sponsored fund (ND, OH, WA, WV, WY). In states that are open, rates can vary between insurance carriers depending on the type of business the carrier is attempting to attract. In an open market, the rates for workers' compensation are competitive.

How much does workers' compensation insurance cost?

Workers' compensation pricing is based upon employee payroll, the number and job classification of the employees, classification of the business and past loss experience. The employer pays for the cost of the workers' compensation.

Commercial Auto Insurance

Why should someone purchase commercial auto insurance?

Many personal auto insurance policies exclude coverage if a vehicle is used mainly for business. A commercial auto policy provides coverage for autos owned by a business if these vehicles are in an accident. The insurance pays to repair or replace the vehicle and the vehicle of the third party damaged by the employee. It also pays for the medical expenses of those injured in an accident.

Are employees' personal covered under a commercial auto policy if they are using their cars for business?

Most commercial auto insurance policies cover the liability for a business if employees use their own cars for business, provided that the business owner has purchased coverage for non-owned liability. Separate non-owned physical damage coverage is available to cover actual damage to the auto. However, the employees' personal auto policy would be the primary coverage for damage to their automobiles.

Errors & Omissions Insurance

What is errors & omissions insurance?

Errors & omissions insurance provides coverage for people who give advice, make educated recommendations, design solutions or represent the needs of others. "E&O" is also referred to as professional liability or malpractice insurance. This type of liability insurance would covers the owner and the employees in the event someone claims incorrectly performed or failing to perform the agreed upon professional duties.

Business Owners' Policy

What is a business owners' policy or a "BOP"?

A BOP is a customized policy for small businesses that combines property insurance and liability insurance in one policy, and generally includes additional coverages at little or no additional premium. So it allows one to have broad coverage at affordable premiums. Most insurance carriers have customized BOPs for particular industries and services.

Even if a business owner has a BOP, most small business owners should consider adding coverage for conditions that might not otherwise be covered. Additional coverages tailored to their industry are often available, such as temperature changes, equipment breakdown, or computer equipment failure.

Business Income Insurance

What is business income insurance?

This insurance reimburses for the net income that would have been earned if, for example, a fire or other covered causes of loss had not occurred. Losses due to down time or extra expenses needed to restore operations (such as additional property rental) also may be covered.

Employment Practice Insurance

What is employment practices liability insurance?

Employment practices liability insurance (EPLI)is designed to protect employers against claims of employee sexual harassment, discrimination, wrongful termination and other employment-related litigation. Many insurance companies offer employment practices liability insurance as part of their business owners' policy or as a stand-alone policy.

Inland Marine Insurance

What is inland marine insurance? Why does someone need it for their business?

Despite its misleading name, inland marine is a broad type of insurance which covers articles that may be transported from place to place as well as via bridges and tunnels. Specifically, this type of insurance protects a wide range of high risk, mobile items, including: specialized contractor's tools and equipment, electronic data processing systems, from mainframe computers to laptops, fine art objects and jewelry.

Watercraft and Boat Insurance

If an individual is an avid watercraft enthusiast with some nice toys in their garage, they might want to check into watercraft insurance. Some consumers assume that their craft is covered under homeowners insurance, and in most cases, they aren't. The first thing a consumer must do is ,know their watercraft! Fully understanding all operational aspects and characteristics before heading out onto the open water is a critical element to safety. The personal watercraft is considered a powerboat, so all the rules governed for powerboats by the Coast Guard and other marine authorities must be obeyed. Local waterways sometimes have their own guidelines for use, so a consumer must get to know and understand them as well in order to promote public safety.

Who and What Is Covered?

It comes down to the policy specifics, but in most cases, the policy will cover the insured, the spouse, or any other household members that have permission to ride the craft. The policy will pay for bodily injury or other property damages caused by the craft. Various available coverage includes medical payments, physical damage, uninsured boater, and personal effects.

Medical Payments:
This extra coverage will pay for the cost of necessary medical treatment that results from an accident involving the watercraft.

Physical Damage:
This will cover the cost of repair to the watercraft if there is a collision with another craft or other object. In most cases, there will also be coverage in cases of theft, vandalism, or fire.

Uninsured Boater:
This coverage pays for medical treatment that results from an accident with another boater who does not have insurance.

Personal Effects:
This optional coverage will cover some of the various common contents kept within a watercraft. These may include cameras, binoculars, clothing, or assorted accessories.

Lowering the Premium:

Looking into taking a watercraft safety course not only will make the insured a more proficient rider, but will help him receive a premium discount from most providers. It can range anywhere from 10-15% off.

Personal Property

If an unfortunate occurrence such as a fire or theft should happen, it is best to have an accurate and detailed inventory of personal property.

Having an inventory list not only helps the insurance company give a more accurate replacement value for personal property, but the insured will be assured that they remembered everything they owned, which when it is all gone, may sometimes be hard to do.

The first step is to encourage the insured to take a few minutes to list everything they own. It may be easier to start the list in categories such as furniture, clothing, personal items, jewelry, etc.

Next, there should be a notation as to the estimate of what it would cost to replace the items on the list. In making the estimate it must be kept in mind that some things appreciate in value while others depreciate. Clothing is a good example of something depreciating, and a jukebox is something that would typically appreciate.

The personal property inventory list, along with photos and/or inventory videos, should be kept in a safe place away from home such as a bank lock box.

The most used method by insurance companies to calculate the value of personal property that has depreciated is to subtract the estimated depreciation (dollar amount the property has decreased) from the current cost.

Here are a few more tips when taking an inventory of personal property:

• Keep sales receipts and attach to the personal property inventory list.

• Keep a video inventory or photographs of the personal property in addition to the inventory list.

• List any serial #’s that may be on the personal property

• A serial number should be engraved into items that are of value

Focus Points

• Property insurance protects an owner’s buildings and equipment, stock, furniture and fixtures. Some policies include equipment breakdown and business income coverage.

• Basic property insurance will generally cover a business for losses in the event of a fire or lightning strike and will pay the cost of removing property to protect it from further loss.

• Business liability insurance may protect from claims arising from someone's bodily or personal injuries. Other items that could be covered are damage to the property of others, products-completed operations, advertising, premises operations, fire, legal liability and related legal defense costs. For instance, liability insurance will not only pay the cost of covered damages but also the attorney fees and other costs associated with your defense.

• "Bodily injury" refers to the injury, sickness, disease, or even death, of any person that occurs during the policy period.

• Personal and advertising injury means being responsible for libel, slander or any defamatory or disparaging material, or a publication or utterance in violation of an individual's right of privacy; wrongful entry or eviction, or other invasion of the right of private occupancy; false arrest, wrongful detention, false imprisonment, or malicious prosecution; which occurs during the policy period.

• Claims-made coverage applies to a claim which is made during the policy period.

• Priors acts coverage offers protection for wrongful acts that happened before the inception date of an insurance policy...but have yet to become known.

• An umbrella policy is designed to provide protection against catastrophic losses. T

• The umbrella insurance policy is generally written over various primary liability policies, such as a general liability insurance policy, business auto policy and employers' liability coverage.

• A personal umbrella liability policy is an insurance contract designed to accomplish two goals. First, it increases liability protection beyond what individuals have in their homeowners and automobile insurance policies. Second, it aims to fill in gaps in the liability coverage since some things are simply not covered by automobile and homeowners policies - for example, libel and slander.
  
  

• Workers' compensation pays for the rehabilitation, recovery and medical bills of employees work-related injuries, as well as lost time when they are unable to work because of a work-related injury.

• In most states, workers' compensation is required when there are one or more employees. There are a few states that do not require employers to carry workers' compensation coverage.

• Almost all states are "open market", which means the coverage is underwritten by private insurers.

• Some states are "closed" or "monopolistic" - the coverage is underwritten by a state-sponsored fund (ND, OH, WA, WV, WY)

• Workers' compensation pricing is based upon employee payroll, the number and job classification of the employees, classification of the business and past loss experience.

• Many personal auto insurance policies exclude coverage if a vehicle is used mainly for business. A commercial auto policy provides coverage for autos owned by a business if these vehicles are in an accident.

• Most commercial auto insurance policies cover the liability for a business if employees use their own cars for business, provided that the business owner has purchased coverage for non-owned liability.

• Errors & omissions insurance provides coverage for people who give advice, make educated recommendations, design solutions or represent the needs of others. "E&O" is also referred to as professional liability or malpractice insurance.

• A BOP is a customized policy for small businesses that combines property insurance and liability insurance in one policy, and generally includes additional coverages at little or no additional premium.

• Business income insurance reimburses for the net income that would have been earned if, for example, a fire or other covered causes of loss had not occurred.

• Employment practices liability insurance (EPLI)is designed to protect employers against claims of employee sexual harassment, discrimination, wrongful termination and other employment-related litigation.

• Inland marine is a broad type of insurance which covers articles that may be transported from place to place as well as via bridges and tunnels. Specifically, this type of insurance protects a wide range of high risk, mobile items, including: specialized contractor's tools and equipment, electronic data processing systems, from mainframe computers to laptops, fine art objects and jewelry.

• A watercraft policy will cover the insured, the spouse, or any other household members that have permission to ride the craft. The policy will pay for bodily injury or other property damages caused by the craft. Various available coverage includes medical payments, physical damage, uninsured boater, and personal effects.
  
  

CHAPTER VIii: Auto insurance basics

An auto insurance policy is a package of different coverages. Most states require an

individual purchase a minimum amount of certain kinds of coverage. But it makes sense to buy more than what's required.

Liability insurance

Liability coverage is the core of any auto insurance policy, and is required in most states. If an individual is at fault in an accident, liability insurance will pay for the bodily injury and property damage expenses caused to others in the accident, including the legal bills.

Bodily-injury coverage pays for medical bills and lost wages. Property-damage coverage pays for the repair or replacement of things damaged other than the insured’s own car. The other party may also decide to sue the insured to collect "pain and suffering" damages.

Forty-five states require the purchase auto liability insurance (New Hampshire, South Carolina, Tennessee, Virginia, and Wisconsin don't mandate liability coverage), The insurance maximum depends on where the insured live.

Liability coverage limits (that's for the damage that is done to others) is usually presented as a series of three numbers. For example, your agent might say that your policy carries liability limits of 20/40/10. That stands for $20,000 in bodily injury coverage per person, $40,000 in bodily injury coverage per accident, and $10,000 in property-damage coverage per accident.

Minimum insurance may not cover adequately an individual in a major accident. It's a good idea to buy more than what the state requires. If an individual owns a home and other assets they should consider more liability insurance because, in most states, drivers are allowed to sue other drivers who injure them in car accidents.

Collision and comprehensive coverages

Collision coverage will pay to repair the vehicle of the insured. The insured usually can't collect any more than the actual cash value of the car, which is not the same as the car's replacement cost. Collision coverage is normally the most expensive component of auto insurance.

By choosing a higher deductible, say $500 or $1,000, the insured can keep the premium costs down. However, the insured must keep in mind that they must pay the amount of the deductible before the insurance company pays in any money after an accident.

Replacement cost vs. actual cash value

Replacement cost is the amount it would takes to replace the vehicle or repair damages with materials of similar kind and quality, without deducting for depreciation.

Depreciation is the decrease in vehicle value because of age or wear and tear.

Actual cash value (ACV) is the value of the property when it is damaged or destroyed.

Claims adjusters usually figure ACV by taking the replacement cost and subtracting depreciation.

Sometimes insurance companies often will "total" the car if the repair costs exceed a certain percentage of the car's worth. The critical damage point varies from company to company, from 55 percent to 90 percent.

Comprehensive coverage will pay for damages to the insured’s car that wasn’t caused by an auto accident: Damages from theft, fire, vandalism, natural disasters, or hitting a deer all qualify. Comprehensive coverage also comes with a deductible and the insurer will only pay as much as the car was worth when it got wrecked.

Because insurance companies normally will not pay more than your car's book value, it's helpful to have a rough idea of this amount.

If the car is worth less than the cost for the coverage, a consumer is better off not having it.

Medical Payments

MedPay will pay for the insured and the insured’s passengers' medical expenses after an accident.

These expenses can arise from accidents while the insured is driving his or her own car, someone else's car (with their permission), and injuries the insured or his or her family members incur when they are pedestrians. The coverage will pay regardless of who is at fault, but if someone else is liable, the insurer may seek to recoup the expenses from him or her.

PIP, and No-Fault coverages

Personal injury protection (PIP) and broader "no-fault" coverages are expanded forms of medical payments protection that may be required in some states. Some states have optional PIP or no-fault coverage. Expanded features include payments for lost wages and child care.

If an individual has a good health insurance plan, there might be little need to buy more than the minimum required PIP or MedPay coverages.

Uninsured/Underinsured Motorists Coverages

Uninsured motorists (UM) coverage pays for injuries if the insured is struck by a hit-and-run driver or someone who doesn't have auto insurance. It is required in many states.

Underinsured motorists (UIM) coverage will pay out if the guilty driver causes more damage than his or her liability coverage can cover. In some states, UM or UIM coverage will also pay for property damages.

An individual probably will want to have at least the minimal amount of UM/UIM because if they can't find the other driver, they will at least have some coverage for pain-and-suffering damages.

Add-on features

Several supplemental auto coverages are available, either as separate premium items or included in augmented policies.

Rental reimbursement, a common add-on, covers vehicle rentals required because the car is damaged or stolen.

Coverage for towing and labor charges in case of a road breakdown is also common.

Gap coverage for a new car will pay the difference between the actual cash value received for the car and the amount left on the car loan if your vehicle is totaled in an accident.

Minimum levels of required auto insurance

All 50 states have different requirements when it comes to auto insurance. In some states, motorists can't register a car without showing proof that they have liability insurance, while other states use an "honor system" that doesn't ask for proof of insurance until drivers have accidents or tickets on their records.

Only five states do not require motorists to carry liability coverage, but those that do demand that drivers purchase at least the state's minimum.

No-Fault Insurance?

Some states have "no-fault" laws, meaning the auto policy must pay medical bills for injuries suffered in an auto accident regardless of who caused the accident.

The laws were enacted in an attempt to reduce auto-injury fraud and keep insurance cost down.

Ways to save on auto insurance premiums

1. Higher Deductibles.
Higher deductibles mean lower premiums. For example, increasing the deductible from $200 to $500 on collision coverage could reduce your premium by as much as 30 percent — potentially saving the insured hundreds of dollars.

2. No collision and/or comprehensive coverages on older cars.
If the insured owns a car that's worth less than $1,800, they would probably pay more for the coverage than they would ever collect on a claim.

3. Buy a "low-profile" car.
Cars that are expensive to repair or that have a high theft rate generally have higher insurance costs.

4. Low-mileage discounts.
Some insurance companies offer discounts to drivers who put fewer than a predetermined number of miles on their vehicles each year.

5. Discounts for safety features.
Most policies give discounts for air bags.

6. Antilock brake discounts.
Florida and New York, require insurers to give discounts for cars equipped with antilock brakes. Some insurance companies give the discount no matter what state the insured lives in.

7. Other discounts.
Some companies offer discounts for insuring more than one car, insuring a car and home with them (multiline discount), having no accidents in three years, being a driver over age 50, taking driver training courses, and having antitheft devices. Plus, remember good-student discounts when you are insuring a student who drives.

Leased Cars & Insurance

If an individual finances or leases a car, because the lienholder still has an investment in the car, they can require an individual to have low deductibles which in turn means a higher premium.

They can also require an individual to carry collision insurance in addition to liability to make sure the car is repaired after an accident.

Finance companies and dealers don't want an individual to end up defaulting on their lease because they don’t have enough insurance to cover repairs and have to pay out of pocket, and they don't want to get a damaged vehicle returned to them at the end of the lease.

Graduated Drivers Licensing Programs 

The Insurance Institute for Highway Safety (IIHS) reports statistics show vehicular crashes killed 5,648 teenage drivers in 2000.

Drivers between the ages of 16 and 19 have the highest crash rates relative to other age groups. The risk of a crash per mile driven among teens is four times higher than for older drivers says Pete Moraga, a spokesman for the Insurance Information Network of California.

States, seeking to curb the high death rate among teenage motorists, have adopted at least one of three components of a graduated drivers licensing (GDL) system. GDL programs allow teenagers to receive full driving privileges in stages. IIHS defines the graduated drivers licensing system (GDL) as a program that phases "in young beginners to full driving privileges as they mature and develop driving skills." Versions of GDL are found throughout the United States, as well as in Canada, Australia and New Zealand.

More than 40 states have implemented GDL programs since the mid-1990s. A three-pronged system is applied in 34 states, but program guidelines vary widely from one state to the next.

Sound GDL programs have three "distinct phases" to a full graduated system. Beginners must stay in each of the first two phases for a minimum amount of time, with the restrictions lasting until the driver turns 17.

The three steps are a “supervised learner's period,” an “intermediate license” which allows the teen to drive unsupervised with certain limitations, and licensing with full privileges after completion of the first two phases.

Florida, which in 1996 became the first state to adopt GDL, has experienced a 21 percent drop in teen driver fatalities since the program got started. In South Carolina, the percentage of teenagers involved in crashes declined to 13 percent in 1999 from 14.5 percent in 1998, the year that state's GDL law took effect.

Teens and Drinking

Underage drinking remains an element in teenage highway fatalities, although not as much as before GDL programs got under way. Among drivers 16 to 20 years of age, 22 percent who died in traffic accidents had a blood alcohol level at or above .10 percent. This is a sharp decrease from 49 percent in 1980. In some states, a blood alcohol level of .10 percent is the legal limit. In other states, .10 is well above the level where drivers are considered legally drunk.

When A Car Is Totaled

What happens when a traffic accident totally devastates an insured’s auto? It's not a scenario most drivers want to think about.

When an automobile is substantially damaged, the insurance company has the right to decide that a car isn't worth fixing. The decision to total is a function of the car's worth. Minor damage to a 10-year-old Chevy might result in totaling the car, while major damage to a brand-new Mercedez might not. Auto insurance claims adjusters usually determine a car's actual cash value by using their company's proprietary database of prices.

Some companies total vehicles at 51 percent of its actual worth; some total at 80 percent. The insurance company will the car's actual cash value, minus any deductible on the coverage.

Once a car is totaled the car goes to a salvage yard, where it's auctioned off to the highest bidder and usually chopped up for parts. The insurance company keeps whatever money it got for the car in salvage.

But what if an insured doesn’t agree with the insurance company's assessment of the damages? What if the insured really loves their car and they don't want them to take it away? Do they have any recourse?

When a consumer buys an auto policy, they sign a contract with their insurance company. They cannot force the insurer to pay out more than the car is worth. That is a part of the contract.

But on the other hand, the insured was supposed to be "made whole" by the insurer, meaning they should be put back into relatively the same spot that they were before the accident.

If the car is a total loss but the insured wants to have it repaired anyway, they should be able to retain it. The insurer still has to pay the car's actual cash value, minus the deductible and minus what the company would have gotten for it at the salvage yard.

If it is the decision of the insured to keep the car, the claims adjuster should know up front that they want to keep the car. The insured then will to have to pay for the repairs themselves.

If the car is a newer model and its parts would get a lot on the auction block, the insurance company may decide to send it to salvage despite the insured’s protests.

In most states, the car is gone for good once it goes to auction. Regulations vary, but in many places the insured won't even be able to attend the auction without a special license for auto salvagers or auto dealers.

Not Satisfied with The Buyout

People who complain about their total loss settlements generally don't want their old, crashed cars back. Instead, they complain that their insurer didn't give them enough money to buy a similar car.

However, the insurance company's estimate of what a comparable car will cost may differ from the realities of the marketplace. There are many variables that determine the value of the car, such as miles driven, pre-accident condition, special equipment installed, and local market conditions for the vehicle.

If an insured disagrees with the insurance company's assessment of the vehicle, they can hire an independent appraiser at their own expense to perform an inspection of the vehicle.

If the insurance company refuses to give them more money, they have two options: arbitration and litigation.

Arbitration is a process in which they and the insurance company present the facts to a third-party arbitrator. Arbitration can be binding (which means the arbitrator decision is final) or non-binding (meaning the insured can still take the insurer to court if they are unsatisfied).

Focus Points

• An auto insurance policy is a package of different coverages.

• Most states require an individual purchase a minimum amount of certain kinds of coverage.

• Liability coverage is the core of any auto insurance policy, and is required in most states.

• Liability insurance will pay for the bodily injury and property damage expenses caused to others in the accident, including the legal bills.

• Bodily-injury coverage pays for medical bills and lost wages.

• Property-damage coverage pays for the repair or replacement of things damaged other than the insured’s own car.

• Forty-five states require the purchase auto liability insurance.

• Minimum insurance may not cover adequately an individual in a major accident.

• Collision coverage will pay to repair the vehicle of the insured.

• Collision coverage is normally the most expensive component of auto insurance.

• By choosing a higher deductible the insured can keep the premium costs down.

• Replacement cost is the amount it would takes to replace the vehicle or repair damages with materials of similar kind and quality, without deducting for depreciation.

• Depreciation is the decrease in vehicle value because of age or wear and tear.

• Actual cash value (ACV) is the value of the property when it is damaged or destroyed.

• Claims adjusters usually figure ACV by taking the replacement cost and subtracting depreciation.

• Comprehensive coverage will pay for damages to the insured’s car that wasn’t caused by an auto accident: Damages from theft, fire, vandalism, natural disasters, or hitting a deer all qualify

• MedPay will pay for the insured and the insured’s passengers' medical expenses after an accident.

• MedPay coverage will pay regardless of who is at fault, but if someone else is liable, the insurer may seek to recoup the expenses from him or her.

• Personal injury protection (PIP) and broader "no-fault" coverages are expanded forms of medical payments protection that may be required in some states.

• if an individual has a good health insurance plan, there might be little need to buy more than the minimum required PIP or MedPay coverages.

• Uninsured motorists (UM) coverage pays for injuries if the insured is struck by a hit-and-run driver or someone who doesn't have auto insurance. It is required in many states.

• Underinsured motorists (UIM) coverage will pay out if the guilty driver causes more damage than his or her liability coverage can cover.

• Gap coverage on a new car will pay the difference between the actual cash value received for the car and the amount left on the car loan if the vehicle is totaled in an accident.

• Only five states do not require motorists to carry liability coverage, but those that do demand that drivers purchase at least the state's minimum.

• Some states have "no-fault" laws, meaning the auto policy must pay medical bills for injuries suffered in an auto accident regardless of who caused the accident.

• Higher deductibles mean lower premiums.

• Cars that are expensive to repair or that have a high theft rate generally have higher insurance costs.

• Some insurance companies offer discounts to drivers who put fewer than a predetermined number of miles on their vehicles each year.

• Most policies give discounts for air bags.

• Florida and New York, require insurers to give discounts for cars equipped with antilock brakes. Some insurance companies give the discount no matter what state the insured lives in.

• If an individual finances or leases a car, because the lienholder still has an investment in the car, they can require an individual to have low deductibles which in turn means a higher premium.

• Leased car require an individual to carry collision insurance in addition to liability to make sure the car is repaired after an accident.

• 
  Drivers between the ages of 16 and 19 have the highest crash rates relative to other age groups.

• 
  More than 40 states have implemented GDL programs since the mid-1990s.

• The three GDL program steps are a “supervised learner's period,” an “intermediate license” which allows the teen to drive unsupervised with certain limitations, and licensing with full privileges after completion of the first two phases.
  
  Florida, which in 1996 became the first state to adopt GDL, has experienced a 21 percent drop in teen driver fatalities since the program got started.

• In South Carolina, the percentage of teenagers involved in crashes declined to 13 percent in 1999 from 14.5 percent in 1998, the year that state's GDL law took effect.

• When an automobile is substantially damaged, the insurance company has the right to decide that a car isn't worth fixing. The decision to total is a function of the car's worth.

• Once a car is totaled the car goes to a salvage yard, where it's auctioned off to the highest bidder and usually chopped up for parts.

• If an insured disagrees with the insurance company's assessment of the vehicle, they can hire an independent appraiser at their own expense to perform an inspection of the vehicle.

• If the insurance company refuses to give them more money, they have two options: arbitration and litigation.

CHAPTER IX: AUTO INSURANCE IN DEPTH

SECTION I: THE NEED FOR AUTO INSURANCE

Americans have always had a love affair with their automobiles. Sometimes the price it is estimated that there are between 40,0000 & 50,000 deaths each year due to automobile accidents. Then there are over 5 million additional injuries. These two statistics stem from more than 30 million auto accidents each year.

This puts auto insurance in the number one position as the largest form of Property & Casualty coverage. It is amazing that a client will spend more money insuring their automobile then they will spend to insure themselves or their retirement.

The cost of auto insurance has become an essential item in ones budget. An auto accident can cost an individual any amount from a mere inconvenience to a major financial catastrophe. All states now require that individuals carry a minimum amount of automobile liability insurance. Every state now has a law that can take away driving privileges for failure to provide proof of financial responsibility after being involved in an accident.

Other interesting laws are as follows:

1. Comparative Negligence. This limits the amount one may recover for injuries in a lawsuit to the percentage of negligence caused by the other party involved. Actually this percentage is in direct proportion too the attributed negligence.

2. Then there is the law that states that if you are injured in an accident you may recover damages only if YOUR negligence was NO GREATER that the negligence of the person that you are suing.

MOTOR VEHICLES AND CHILD SAFETY

Motor vehicle crashes are a leading cause of injury and death for children in the United States. At particular risk are infants and other children who ride unrestrained, or are too close to the instrument panel during a collision. When used correctly child restraints and safety belts, according to the American Medical Association, are 50% to 70 % effective in preventing fatalities and reducing serious injuries. Unfortunately, despite the existence of laws in all 50 states, requiring the use of child restraints, many young children still ride unrestrained in motor vehicles.

Tragic reports of children being seriously injured or killed by air bags have c raised public awareness and concern about our ability to adequately protect children who ride in motor vehicles. Air bags can seriously injure or kill occupants, especially those who are not properly restrained in the front seat.

Studies show that when combined with safety belts, air bags are effective in reducing injury and preventing death in adults. But neither safety belts nor air bags are designed to protect infants and other young children, who need protection of appropriate restraints.

Drivers have a responsibility to ensure that all passengers, including infants and children, are properly restrained in the vehicle.

All infants should be secured in a child restraint that is appropriate for their age and size.

A rear seat is the safer place for all children to be secured. If a toddler or older child must ride in the front seat, the vehicle seat should be adjusted as far back as possible. During the trip, the child’s restraint must be properly sitting up against the seat back, and not leaning forward.

SAFETY PRECAUTIONS

Parents should read and follow the vehicle owner’s manual and the instructions provided with the child restraint system for proper usage. It is important that the restraint selected fits securely in the vehicle before the child is transported in it.

If necessary to use an infant car bed, be sure it is secured properly with the infant’s head resting toward the center of the vehicle.

A rear-facing infant restraint should never be placed in the front seat of a vehicle having a passenger side air bag, unless the vehicle has an air bag cutoff switch and the air bag is turned off.

A booster seat should be used until the child outgrows it, at which time the child can use an adult safety belt. Shoulder belts should never be placed behind a child’s back or under the arm.

CHILD RESTRAINT RECOMMENDATIONS

The American Medical Association recommends that the proper restraint be used in accordance with the appropriate age and size of the child.

With premature and low birth weight infants an infant car bed should be used.

With children of normal weight from birth to one year old who do not exceed 20 to 30 pounds (depending on the restraint used) a rear-facing infant restraint should be used.

With children one to four years old of 20 to 40 pounds and 26 to 40 inches tall, a forward facing child restraint should be used.

And, finally, with children four to eight years old and of 40 to 80 pounds a booster seat should be used.

SUMMARIZING CHILD SAFETY

The following points should be remembered in summarizing child safety.

All infants and young children should be secured correctly in appropriate child restraints.

A rear seat is the safer place for all children to be secured. A rear facing infant restraint should never be placed in the front seat of a vehicle having a passenger side air bag unless the air bag is turned off. If a toddler or older child must ride in the front seat. It is important that the child is restrained properly and the vehicle seat is adjusted as far back as possible.

Air bags do not replace the need for all motor vehicle occupants to be properly restrained. Unrestrained occupants of any age are at increased risk of being injured or killed in a collision. Unrestrained occupants in the front seat are especially at risk of possible injury or death from an inflating air bag.

The use of child restraints and safety belts is a learned habit. Parents getting in the habit of using an appropriate restraint device the day their baby leaves the hospital and everyday thereafter that they transport their child in a motor vehicle, are establishing reflexive habits that will last for a lifetime.

Informing your clients and customers of these safety tips when not only help them but also the companies you represent. By preventive measures both the insurer and insured will benefit from reduced claims.

FOCUS POINTS

• There are more than 30 million auto accidents each year.

• Auto insurance is the number one Property & Casualty coverage in the nation.

• Almost all States require a minimum of amount of automobile liability insurance.

• Failing to provide financial responsibility after an accident can result in the loss of driving privileges.

• Motor vehicle crashes are a leading cause of injury and death for children in the United States.

• At particular risk are infants and other children who ride unrestrained.

• Safety belts, according to the American Medical Association, are 50% to 70 % effective in preventing fatalities and reducing serious injuries.

• Children being seriously injured or killed by air bags have c raised public awareness and concern.

• Studies show safety belts combined with air bags are reduce injury and prevent death in adults.

• Neither safety belts nor air bags are designed to protect infants and other young children.

• All infants should be secured in a child restraint that is appropriate for their age and size.

• A rear seat is the safer place for all children to be secured.

• A rear-facing infant restraint should never be placed in the front seat of a vehicle having a passenger side air bag, unless the vehicle has an air bag is turn off.

• A booster seat should be used until the child outgrows it, at which time the child can use an adult safety belt.

• The proper restraint should be used in accordance with the appropriate age and size of the child.

SECTION 2: THE AUTO INSURANCE POLICY

An automobile policy is really a combination of several different coverages put into one package. Some coverages in this package protect policy owner and some protect third parties. Some coverage is mandatory and some is optional. The coverages are priced separately and added together to come up with a total premium. The basic components of an automobile insurance policy are as follows:

1. Liability

a. Bodily injury.

b. Property damage.

2. Uninsured motorist.

1. Bodily injury.

3. Medical payments.

4. Comprehensive coverage.

1. Fire.

2. Theft.

3. Malicious mischief.

5. Collision.

6. Emergency road service/towing.

7. Car rental/travel expense.

8. Discounts.

1. Multi car.

2. Multi policy.

3. Driver education.

4. Anti theft.

5. Passenger restraints.

6. Good driver.

7. Good student.

8. Standard risk.

9. Anti-lock brakes.

10. Air bags.

Each of the above have coverage limits and premiums. Typically, a declaration page may look as follows:

• Liability: Bodily injury $100,000/300,000. Property damage $50,000........$146.02

• Uninsured motorist: Bodily injury $100,000/300,000 $107.60

• Medical Pay: $5,000 $25.00

• $250 deductible Comprehensive $ 23.66

• $250 deductible Collision $ 90.30

• Emergency road service/towing $ 3.10

• Car rental/travel expense $ 13.00

• Total Six Month Premium $443.68

• Discounts already applied to the above

• a. Anti-lock brakes. $ 14.28

• b. Multi car $ 42.14

• c. Automatic seat belts $ 6.58

• d. Standard risk $126.42

Let's look at the basic components of coverage and discuss them individually.

LIABILITY COVERAGE

The most expensive and controversial of the automobile coverages is liability. Basically, liability insurance protects an individual against the cost of being sued should his or her negligence, while driving, cause injury to someone else. Negligence can be defined as driving outside the standard of care" required while operating an automobile.

In order to be held liable, there must be actual harm, often referred to as. For example, an individual could improperly pass a car on a hill or curve without incident and the individual would not be subject to liability from anyone. Liability addresses three separate aspects:

1. Bodily injury.

2. Uninsured motorist.

3. Property damage.

BODILY INJURY

Should an individual driving cause injury or death of another, that individual would be responsible for monetary damages as a result of this accident, which would include:

• Medical payments.

• Lost wages.

• Pain and suffering.

• Loss of consortium.

When individuals buy liability insurance he or she chooses the amount of protection that they wish to purchase. The insurance may be purchased in one of two ways:

• Single limit.

• Split limit.

SINGLE LIMIT

Single limit means that one limit will apply to all claims for bodily injury and property damage arising from a single accident. Single limit liability is usually offered in the following amounts:

• $30,000.

• $50,000.

• $100,000.

• $300,000.

• $500,000.

SPLIT LIMIT

Split limit means that three separate limits apply:

• One for each person injured.

• One for the claims for all persons injured in one accident.

• One for all property damage in one accident.

The choices for split limit coverages are as follows:

• $10,000, $20,000 and $10,000 which is usually expressed as 10/20/10.

• $15,000, $30,000 and $25,000.

• $25,000, $50,000 and $100,000.

• $50,000, $100,000 and $50,000.

• $100,000, $300,000 and $100,000.

• $250,000, $500,000 and $250,000.

• $500,000, $1,000,000 and $500,000.

The first two numbers are for bodily injury, the first number representing per person and the second number per accident. The third number is for property damage. For example, if your limits of liability were 100/300/50, this would mean that you are protected for $100,000 of personal injury per person, $300,000 of personal injury per accident and $50,000 total for property damage. In comparing the relative values of single and split limits, compare the following: $30,000 single limit vs. 10/20/10.

In this example, the yield would be the same for all injuries and damages in a single accident. If, however, the insured were liable only for one person's bodily injuries, the single limit form could pay $30,000, but the split limits could pay only $10,000.

In comparing the single limit of $30,000 against a higher split limit of 15/30/10, the basis of greater worth would depend upon the circumstances of the accident or claim. In this case the split limit could pay a total of $40,000 for multiple injured persons and property damage compared to the $30,000 available from a single limit. On the other hand, if the liability is for only one injured person, under the single limit the full $30,000 is available and under the split limit, only $15,000 is available for bodily injury and $10,000 for property damage.

It is important to remember that claims are covered only so long as coverage exists and providing the policy limits have not been exhausted. If under a single limit, an individual carries $50,000 of liability coverage and this entire amount was paid to one injured party, and later another person injured in that same accident made a claim, there would be no money left to provide a defense. Also note that coverage is self-reinstating for each accident.

PROPERTY DAMAGE

This portion of the automobile policy pays for damages to someone else's property caused by negligent driving. In most cases, the damage is to another vehicle but it doesn't have to be a vehicle. One could hit a guardrail, someone's picket fence, or a utility company's telephone pole and you would be responsible for the cost of repairs to these items.

Of course, the individual would transfer this responsibility to his or her auto insurance company under the property damage portion of the policy. Property damage, like coverage for personal injury, does have a maximum benefit, say $50,000. Like personal injury, coverage for property damage is based on negligence. Since the extent of risk for property damage is less than personal injury, the cost is also less.

A recent survey noted that over 50% of all insurance payouts are made for property damage and not for personal injuries. If claims or lawsuits are brought against you, property damage liability insurance provides protection in the form of legal defense and payment for damages that you are legally liable for, up to the limits of the policy.

UNINSURED MOTORIST

Far more people than one can believe are driving around without auto insurance and are causing serious injuries and even death. There are incidents of those who cause an accident and then run from the scene. These are a few reasons why uninsured motorist coverage on an automobile insurance policy is so important. This coverage not only insures against the "Uninsured motorist" but also protects policy owners against the "Under insured motorist".

Uninsured motorist coverage is optional. It is recommended that it be added ton a policy in the best interest of the client. It is important to remember that uninsured motorist protection has absolutely nothing to do with property damage. It is for losses for bodily injury only. Here are some important points about uninsured motorist:

• It is based on fault. Therefore, if an individual causes the accident, and the other driver was not insured, there are no benefits. It pays only what one would have been entitled to had the other driver been properly insured. Therefore, the other driver, the uninsured driver, must have been liable in order for one to collect.

• It pays for pain and suffering. When it comes to court measuring damages in legal proceedings, the measure is the same in uninsured motorist cases as it is under normal liability cases. Medical bills, lost wages, pain and suffering, loss of consortium are all included in determining what you may receive.

• There are three groups that can be covered under the uninsured motorist provision.

• The insured.

• Members of his or her household.

• Any other person entitled to recover damages.

This coverage also applies to injuries sustained while an individual or members of his or her household are injured as pedestrians by an insured motorist.

• It is not necessary to go to court should there be a dispute with the insurance company. Unlike other disputes that make it necessary to go to court, should an individual and the company not be able to come to terms with a fair compensation for damages caused by an underinsured motorist, an arbitrator can be engaged. In this setting there is usually one arbitrator that is chosen and the insured and the company pay mutually or there may be three arbitrators. One selected and paid for by the insured. One by the company. One by both for whom the parties pay equally.

• The declaration page will show the limits of liability. The limits for uninsured motorist coverage are shown on the front or declaration page of your policy, just as it is in the liability portion of your policy. If it says $100,000/$300,000 for uninsured motorist, this means the maximum coverage is $100,000 per individual and $300,000 per covered accident.

• Some companies can provide UNDERINSURED motorist coverage. This protection provides that if an individual is in an accident and the at fault person is underinsured to pay the total damages, that protection will pay the amount not covered by the other driver's insurance to the maximum of the individual’s policy.

MEDICAL PAYMENTS

This coverage under the liability portion of an automobile insurance policy is designed to pay some of the medical consequences that may result from an accident. While the liability portion of the auto policy has fault attached to it, medical payments has no relationship to fault, but in fact, will pay benefits to eligible beneficiaries for the cost of medical bills and/or funeral expenses to the policy limits. There are two types of people that are entitled to receive benefits under the medical pay portion of the policy.

• The insured and his or her family members living in the same household.

• Any passenger injured while riding in the covered vehicle.

Most people do not select large amounts of medical payments since they are usually covered by health insurance either at work or through private purchase and this could cause duplicate coverage.

It is important to note however, that medical payments will provide coverage in one area that health insurance will not and that is funeral expenses. Medical payment coverage is relatively inexpensive and it is always a good idea to carry at least a few thousand dollars. Medical payments do have exclusions. There is no coverage for injuries:

• While in a motorized vehicle with less than four wheels.

• While using your covered auto to carry persons or property for a fee.

• If Workers' Compensation benefits are payable.

• While occupying an auto other than your auto, which is owned by, furnished, or available for the regular use of the named insured or a family member.

• While occupying a vehicle without reasonable leave or permission.

• While occupying an auto for business purposes, other than a private passenger auto, owned pick-up or van, or trailer used with one of these.

COMPREHENSIVE AND COLLISION COVERAGE

This part of an automobile insurance policy protects the vehicle. Comprehensive coverage provides for protection against the following:

1. Fire.

2. Theft.

3. Malicious mischief

4. Windstorm.

5. Flying objects.

6. Hail.

7. Hitting an animal.

8. Broken windows.

If the damage is considered from a cause "Other than collision" it is more than likely going to be covered under the comprehensive portion of the insurance policy. Comprehensive coverage is often sold with a deductible ranging from $200 to $1000 dollars. Comprehensive coverage can be issued alone without including collision coverage, but collision coverage will not be issued unless comprehensive coverage is included.

There are exclusions under comprehensive coverage and some of the more common ones are as follows:

1. Electronic equipment not permanently installed. This may include but is not limited to radios, stereos, tape decks, and compact disc players.

2. Other electronic equipment included but not limited to CB radios, telephones, two-way mobile radios, scanning monitor receivers, television monitors, receivers, video cassette recorders, audio cassette recorders, and personal computers.

3. Tapes, records, discs, or other medial used in conjunction with the equipment described in 1 and 2 above.

4. If the covered auto or non-owned auto is destroyed or confiscated by governmental or civil authorities because you or a family member were engaged in illegal activities.

5. A camper body or trailer that is not shown on the declaration page of your policy.

6. Awnings, cabanas, or equipment designed to create additional living facilities.

7. Radar detectors.

8. Custom furnishings or equipment in a pick up or van such as special carpeting, furniture, bars, sleeping and cooking facilities, height extending roofs, custom murals, paintings, decals, or graphics.

COLLISION

The collision portion of the auto insurance policy constitutes about one third of its total cost. Collision is defined as "The upset of the auto covered or its impact with another vehicle or object". In other words, there has to be a physical contact between the auto covered and another car, truck, or object which then causes physical damage to your auto. The collision portion of your policy is subject to a deductible. The deductible is the amount the policy owner must pay before insurance benefits begin paying. Collision deductibles can range from 0 dollars to $1,000. Remember, the higher the deductible, the lower the collision premium.

Should the car be damaged or stolen the company has the right to choose which of the two following ways it will pay the claim:

1. They may give the policy owner an amount that is necessary to repair the automobile or replace the property that was lost.

2. The actual cash value of the damaged property or stolen item. Sometimes people are upset with this method, because the company can deduct for depreciation and adjust for a deteriorated physical condition of your vehicle.

Totaling" the vehicle is a term used when the insurance company decides not to repair the vehicle but to pay for its value instead. Unfortunately, when the company totals a car an individual usually receives what the vehicle is worth on the open market. Usually this amount is less than what it will cost to actually repair the car.

It should be noted that collision is not mandatory coverage. One does not have to buy this portion of the policy and those with older vehicles usually do not. If it's simply not worth the money if the company is likely to total the vehicle rather than repair it, than purchasing collision is not practical.

Should a car be financed, that institution will require that an individual carry comprehensive and collision coverage until the vehicle is paid for and that institution will want to be listed as the "Loss payee". This means the institution is the first in line to be paid in the event of a loss.

Collision coverage is not dependent on fault. Regardless of who caused the accident, the policy owner is entitled to collision benefits. Collision benefits can be paid on vehicles the insured does not own.

Should an individual be driving a car he or she does not own, and are involved in an accident, or the car is stolen while in his or her possession, benefits will be paid. If the policy owner is covered for auto theft, there may be a transportation benefit. If the individual’s car is stolen, he or she can be entitled to reimbursement for some of the transportation costs that are incurred. Benefits are usually $15.00 per day or so and there will be a maximum benefit.

EMERGENCY ROAD SERVICE

Emergency towing is intended to remove a disabled vehicle to a place of safety or repair. It is not intended to provide towing to a dealer or auto salvage.

Emergency road service is often provided by independent contractors who are part of a membership group such as AAA Motor Club or other national organization.

Service normally applies to all properly licensed four wheeled vehicles of the passenger, pleasure, or recreational-type vans, campers and motor home.

Emergency road service can include on the road repair to a vehicle that won’t start as a result of a deficient battery or simple mechanical adjustments if they can be made in a safe and effective manner where the breakdown occurs.

Roadside tire repair is also provided under this coverage. AQ flat tire will be changed if the insured has an inflated spare. If for some reason due to safety or if for any reason the inflated spare is not usable or the lug nuts cannot be removed from the flat tire on the vehicle, or if the vehicle has two flat tires and one usable spare, towing is provided in accordance with towing provisions. Towing will also be provided in lieu of a tire change if the tire cannot be safely changed.

EMERCENCY ROAD TOWING

If a vehicle cannot be made to operate safely under its own power, towing from the point of disablement will be provided. Towing provisions usually provide towing for towing to a repair facility within a prescribed distance of the disablement. If the insured wishes to have the vehicle towed outside of the prescribed area usually an additional mileage charge will apply.

For towing to a destination other than the towing company garage, the insured must first make arrangements for acceptance of the vehicle at the destination. It is recommended to ensure proper handling of the vehicle that the insured accompany their vehicle while it is being towed. If an insured cannot accompany their vehicle the insured is usually asked to sign a Vehicle Release Form. By signing the form the insured acknowledges that the towing contractor cannot guarantee the safe arrival or acceptance of the vehicle at the repair shop.

If the insured wants the vehicle towed to a closed garage, the insured must sign a disclaimer of liability for the towing company. The disclaimer releases the towing company from responsibility for the vehicle when it has reached the “closed facility.”

Local ordinances may prohibit the towing company from carrying more than one passenger to accompany the vehicle to its delivery location.

Flatbed service is available to the insured and may require an additional charge.

Towing service is sometimes delayed as a result of weather conditions, call volume, or equipment availability.

Vehicles involved in an accident will be towed provided a police release has been obtained.

EMERGENCY ROAD SERVICE ORGANIZATIONS

Emergency road service organizations such as the AAA Motor club also provide services beyond general towing of a disabled vehicle and such services are outlined below.

EXTRICATING OR WINCHING SERVICE

A service that is normally provided if the insured’s vehicle is stuck in a ditch, mud, sand, or other similar situation. The vehicle must be accessible from a normally traveled roadway and require no more than one man, one truck at the scene. Any additional manpower and equipment is usually at the insured’s expense.

FUEL DELIVERY

A limited supply of fuel is delivered to the disabled vehicle to enable the driver to reach the nearest open service station. The insured must pay for the fuel at the current pump price and the service only applies when government regulations permit it and supplies are available

LOCKOUT AND LOCKSMITH SERVICE

This service is provided when a driver loses or locks the vehicle’s keys in the passenger compartment or trunk. In some instances a maximum fee is paid by the insurance company and the balance must be paid by the insured.

EXCESSIVE USE OF SERVICES

Most “Club” type organizations have a provision that kicks in for excessive use of service. This provision normally kicks in after 5 service calls within a 12 months period and subjects the insured to the possibility of cancellation.

REIMBURSEMENT FOR INDEPENDENT SERVICE

When Club type organizations are used, should a member call other than a prescribed contractor, reimbursement is limited to the amount the Club would have paid the nearest member contract station. When service is requested and is unavailable, reimbursement is based on the prevailing commercial rate for the region where the vehicle was disabled and is subject to the benefits of the membership.

CAR RENTAL/TRAVEL EXPENSE

This provision of the auto policy entitles reimbursement for the expense of renting an automobile while the car is being repaired. It may have a daily expense maximum as well as a total per accident benefit. Some policies also pay benefits for travel expense following an accident that may include food and lodging providing the insured is more than a certain number of miles from home when the accident occurs.

FOCUS POINTS

• An automobile policy is a combination of several different coverages put into one package.

• The most expensive and controversial of the automobile coverages is liability.

• Liability insurance protects individuals against the cost of being sued, for injury to others, due to their negligence while driving.

• Negligence is defined "as driving outside the standard of care" required while operating your automobile.

• Liability addresses the aspects of bodily injury, uninsured motorist and property damage.

• Bodily injury addresses the issues medical payments, lost wages, pain and suffering, and loss of consortium.

• Single limit coverage means that one limit will apply to all claims for bodily injury and property damage arising from a single coverage.

• Split limit coverage involves separately applied limits for each person, all persons in the same accident, all property damage in the same accident.

• Property damage coverage pays claims for damages to someone else’s property.