Chapter 24 Property Insurance.pdf

Chapter 24 Property Insurance  Homeowners Insurance Property insurance: insurance to cover losses from property damage or a person being injured on property Property damage: fire insurance is foundation of property damage policies Modern fire coverage – In 1886, New Yor...

Chapter 24 Property Insurance  Homeowners Insurance Property insurance: insurance to cover losses from property damage or a person being injured on property Property damage: fire insurance is foundation of property damage policies Modern fire coverage – In 1886, New York legislature standardized fire policy. – revised in 1918 and 1943 – Coverage includes: loss by fire; loss by lightning; and losses sustained while removing property from an endangered premises.  Homeowners Insurance (continued) Endorsements – Besides fire, a property owner is exposed to other perils (also called hazards or risks). – Coverage for each peril can be purchased with a separate policy or added to the fire form as an endorsement (also called a rider or attachment). Public liability (personal liability) – the financial responsibility one has toward others as a result of one’s actions or failure to take action – You are liable when there exists a legal duty to exercise reasonable care and you fail to do so, thereby causing injury to an innocent party. Homeowner policies – Packaged policies are less confusing than buying insurance piecemeal. – The most widely used is the homeowner policy. It contains coverages deemed by insurance experts to be most useful to persons who own the home. It costs less than purchasing separate policies with the same total coverage.  Homeowners Insurance (continued) Policy formats – seven standardized home insurance policy forms used in the United States five designed for owners of single-family dwellings one for tenants one for condominium owners – Each contains two sections. Section I deals with loss of or damage to the insured’s property. Section II deals with liability of the insured and the insured’s family. Properties covered – covers house, garage, and other structures on your lot – provides additional living expenses if forced to live elsewhere – covers personal property, including household contents – does not cover: structures on property for business, rent, or lease loss or damage to automobiles, business property, or pets certain valuables such as jewels, furs, and stamp and coin collections  Homeowners Insurance (continued) Perils covered – see Table 24.1 – HO-8: for older homes – HO-3: special form provides: HO-5 coverage on dwelling and private structures; and HO-2 coverage on personal property.  Homeowners Insurance (continued) Tenant’s policy (HO-4): broad form coverage for personal property and loss of use of rental property up to 20% Condominium policy (HO-6): covers personal property and any additions or alterations to the unit Real property loss: variations in homeowner’s coverage (see Table 24.2)  Homeowners Insurance (continued) Liability coverage – Section II in all seven home insurance forms is a liability policy. – designed to protect from a financially crippling claim or lawsuit Medical payments: coverage found in home insurance policies to pay cost of treating minor injuries – provides payment regardless of who is at fault – covers only relatively minor injuries; major injuries would come under the liability coverage Endorsements: inflation guard, worker’s compensation, etc. A new for old policy pays replacement cost. – substitute the term replacement cost for actual cash value – must agree to carry coverage amounting to at least 80% of current replacement cost  Additional Concepts Lender requirements: The borrower must carry fire and extended coverage on the mortgaged structures. Guaranteed replacement cost: Lenders require either a replacement cost policy or coverage for the full loan amount. Flood insurance: All federal mortgages require either a certificate that the mortgaged property is not in a flood zone or a policy of flood insurance. Landlord policies: Such policies can be obtained by endorsement to an existing homeowner policy or by purchasing a landlord package policy that combines property damage, liability, medical expenses, and loss of rents. Policy cancellation: – A policy can be canceled at any time by the insured; the insured is entitled to a refund for unused coverage. – The insurer also has the right to cancel a policy; a fire form requires the insurer to give the policyholder a five-day notice.  Additional Concepts (continued) Policy suspension – automatically occurs if the insured allows the hazard exposure to the insurer to increase beyond normal risks – Concealment or misrepresentation by the insured of any material fact, before or after a loss, will void the policy. Policy takeovers: buyer will ask to assume the seller’s existing policy – buyer avoids having to pay full year’s premium in advance – seller avoids short-rate cancellation charge – insurer must accept buyer as new policyholder; done via endorsement  Additional Concepts (continued) Homebuyer’s insurance – Builders are held responsible for repairs for one year. – Additional protection is available from builders associated with private warranty companies. – In many cities, the buyer, seller, or owner of a used house can purchase a home warranty policy for one to three years.