Download Homeowner`s Insurance Slideshow

Money Management II – Mr. Woodington
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The Concept of Risk Management
Planning an Insurance Program
General Insurance Terms
Homeowners Insurance
 What’s covered?
 Different policy forms
 How much coverage do you need?
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Factors that affect cost
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Risk Management: An organized plan for
protecting yourself, your family and your
property.
▪ Reduces financial losses caused by destructive events
▪ Long-range planning process
▪ Needs will change at various points in your life
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Risk Avoidance – I’m not going to do it
 Ex: Not driving as to avoid traffic accidents
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Risk Reduction – I’ll do/won’t do this to
lower my risk
 Ex: Not smoking to reduce chances of
cancer
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Risk Assumption – I understand there’s a
risk, but I got this
 Ex: Not using comprehensive coverage on
an old car.
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Risk Shifting – Take/Share my risk!
 Ex: Insurance
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Step 1: Set Insurance Goals
 What’s important to me?
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Step 2: Develop a Plan
 Four Questions to ask in this stage
▪ What do I need to insure?
▪ For how much?
▪ What kind of insurance do I need to buy?
▪ Which insurance company should I choose?
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Step 3: Put Your Plan into Action
 Just do it!
 Best risk management plans will be flexible, able
to grow or shrink as needed
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Step 4: Review the Results
 Check every 2-3 years or whenever family
circumstances change
 Is it working? Is it meeting my goals and
protecting my plan?
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Peril: Anything that may possibly cause a loss
 Ex: Fire, windstorms, robbery
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Hazard: Anything that increases the
likelihood of loss through peril.
 Ex: Defective electrical wiring in house (fire)
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Negligence: Failure to take ordinary or
reasonable care to prevent accidents from
happening
 Ex: Not clearing ice from front steps
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Absolutely necessary (not legally) to protect
your investment!
Required by lenders when taking out a mortgage
The 5 basic areas of coverage offered by
homeowners insurance are:
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Building & Other Structures
Additional Living Expenses
Personal Property
Liability
Specialized Events
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Building & Other Structures
 House
 Garage/Shed
 Landscaping
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Additional Living Expenses
 Place to stay if home is uninhabitable insurance
can pay for a place to stay!
 Time/Money typically limited
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Personal Property
 Portion of the homeowner’s policy to cover loss of
personal property.
 Typically a percentage of the insured value of the
home itself
 Usually will limit coverage in the event of theft of
particular items, i.e. $1,000 limit on jewelry
▪ Example: Devin’s home is insured for $125,000. His personal
property coverage is 60% of the value of his home. How
much personal property loss is he insured for?
 Personal Property = 60% of $125,000
 $125,000 X .60 = $75,000
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Household Inventories
 List or other documentation of personal
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belongings. Include purchase dates/cost
Paper forms are available from Insurance Agents
Video/Photos work as well
Keep inventory list in a secure location!
Don’t forget, there’s an app for that!
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Have extra valuable items? Need extra
coverage?
Get a personal property floater!
 Covers damage or loss of a specific item of high
value
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Item will need to get appraised from time to
time to ensure value has not changed.
DOCUMENTATION!
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Protection against the possible financial loss
due to injuries to other people that occurs on
your property
 Ex: Neighbor falls out of your tree, breaks arm
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Coverage includes the cost of legal defense
Most basic coverages start at $100,000
Extra coverage can be purchased. This is an
referred to as an umbrella policy.
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Medical Payments Coverage: Pays the cost of
minor accidental injuries to visitors on your
property.
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Settlements do not require determining who
was at fault
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Typically limits payment up to $5,000
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Not all natural disasters are covered by
regular homeowners insurance
 Ex: Floods and Earthquakes
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You may need to purchase additional
coverage. This additional coverage is known
as an endorsement
Government may be able to provide coverage
or emergency relief (FEMA)
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There is a common misconception that renters
are covered under their landlord’s policy. They
are not!
Renter’s Insurance includes the following
coverages:
 Personal Property
 Additional Living Expenses
 Liability
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Most important coverage for renters is personal
property
Inexpensive and provides protection similar to
homeowners insurance
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Home insurance policies are available in
several forms
Each form provides a different combination
of coverage
HO-1 = “Bare Bones” coverage
HO-2 = Basic coverage
HO-3 = Most widely used, protects from all
perils except those specifically indicated
HO-4 = Renter’s Insurance
HO-6 = Condo & Co-Op Owners
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When insurance companies pay approved
claims they use two methods:
 Actual Cash Value
 Replacement Value
Actual Cash Value: The payment you receive is
based on the replacement cost of an item
minus deprecation.
Payment = Replacement Cost - Depreciation
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Deprecation: The loss of value of an item as it
gets older. (Ex: You would receive less for a
five-year-old bicycle than you originally paid
for it)
Replacement Value: Payment you receive is
the full cost of repairing or replacing the item
▪ Depreciation not factored in
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Replacement Value coverage is typically 10%
more expensive than Actual Cash Value
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Knowing that insurance is based on shifting
risk and statistic probability loss will occur, it
is not a surprise there are identifiable factors
that will affect how much your home
insurance costs
There are factors that increase the cost of
your insurance premium
There are factors that decrease the cost of
your insurance premium
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Location of Home
 Ex: Close to water supply or fire hydrant?
▪ CHEAPER PREMIUM!
 Ex: Severe weather common in your area?
▪ HIGHER PREMIUM!
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Type of Structure
 Ex: Brick houses vs. Wood houses
 Brick is typically cheaper premium, yet wood houses are more
likely to survive an earthquake. This makes wood houses
cheaper to insure in these areas
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The financials of the house & policy
 Considerations in this factor include
▪ Cost of house
▪ More it cost, more insurance cost
▪ Type of policy
▪ i.e. HO-1 vs. HO-3
▪ Amount of coverage selected
▪ More insurance = More $$$
▪ Amount of deductible
▪ Higher Deductible = Less $$$
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Home insurance discounts: Homeowner
takes action to reduce risks at home
 Ex: Smoke Detectors, Dead-Bolt Locks
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Company Differences
 Save money by shopping around!
 Do not select a provider based on price alone
 Consider service and coverage
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An organized plan for protecting yourself,
your family and your property is:
 Risk Management
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The 4 Steps in planning an insurance program
1. Set Goals
2. Develop a Plan
3. Put Plan into Action!
4. Review Results
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Homeowners Insurance covers 5 basic areas:
 Building & Other Structures
 Additional Living Expenses
 Personal Property
 Liability
 Specialized Events
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There are factors that can cause your premium
to increase in price as well as those that can
cause your premium to decrease in price.