Personal Financial Planning Study Set 5
Quiz 10 :
Protecting Your Property
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An insurance policy that provides financial compensation to the owner or renter of the property and its inventories for any damage or theft. Insurance coverage that protects property from sudden disaster losses caused by variety of perils like; fire, vandalism, theft and windstorms. Liability Insurance An insurance policy that provides protection as well as financial compensation to business or an individual from the risks and liabilities forced by law and related claims for injury to others, malpractice or negligence. Property and liability insurance are important part of our personal financial plans as life and health insurance. Property and liability insurance protects the assets we have already acquired. The basic principal of property and liability insurance pertains to: 1. Exposure 2. Indemnity 3. Co-insurance.
1) The different forms of homeowner's insurance ( HO ) are as follows: Form HO-1 (Basic form): Covered perils: Fire, smoke, lighting, windstorm, hall, volcanic eruption, explosion, glass breakage, aircraft, vehicles, riot or civil commotion, theft, vandalism, or malicious mischief. Form HO-2 (Broad form): Covered perils: All basic-form risks plus weight of ice, snow, steel; freezing; accidental discharge of water or stream; falling objects; accidental tearing, cracking, damage from electrical current. From HO-3 (Special form): Covered perils: Dwelling and other structure covered against risks of direct physical loss to property except losses specifically excluding HO-2 Form HO-4 (Comprehensive form): Covers: same as HO-2 for personal property. Form HO-5 (Comprehensive form): Covered perils: same as HO-4, but covered are dwelling, other structures, and personal property covered against risks of direct physical loss except losses that are excluded specifically. Form HO-6 (Comprehensive form): Covered perils: same as Ho-2 for personal property Form HO-8 (Comprehensive form): Covered perils: same as perils of HO-1, except theft coverage applies only to losses on the residence premises upto a maximum of $1,000; certain other coverage restrictions also apply. HO-8 is for old homes. Since, Persons J and PS purchased a new home; they will not need form HO-8. Form HO-1 has the least coverage and Form HO-5 has the greatest coverage. Forms HO-3 and HO-5 are the most common forms, and are the ones they should consider. 2) The home and its contents should be insured against all basic-form risks in addition to the following perils: • The weight of ice, snow, sleet, • Freezing, • Accidental discharge of water or steam, • Falling objects, • Accidental tearing, cracking, or burning of heating/cooling/sprinkler system or appliance. • Damage from electric current. 3) The homeowner's policies under consideration protect against: • Dwelling: this covers the building itself. • Other structures: this covers related buildings such as sheds. • Personal property: this covers furniture, etc. • Loss of use: this covers loss of use of the dwelling due to perils. • Personal liability: this covers lawsuits if someone should fall down the stairs, etc. • Medical payments to others: this covers medical bills of others who are injured on the insured's property. Coverage may also apply to lawns, trees, plants and shrubs. Note that the policy does not cover structures on the property used for businesses (except incidentally). Business inventory such as goods for sale is not covered; however, business property such as computers, books, copiers, office furniture and supplies is covered 4) It can be advisable for Persons J and PS to accept Person T's suggestion and purchase an HO-5 policy. They could purchase a policy with an 80 percent coinsurance clause. Here, their new home has a $300,000 purchase; the clause would require them to purchase $240,000 worth of coverage for the dwelling to avoid paying a proportional share of any loss. Although the most common limits in liability coverage, often starts at $100,000, they may wish to obtain higher coverage as a $100,000 liability limit may not be adequate in the event of a high damage award. They could increase their deductible to lower their premiums. Selecting actual cash value instead replacement cost value could also reduce their premiums.