Deductibles on HO & auto insurance. 4. Implement. Insuranc

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Risk Management Homeowners Insurance

• Jean Lown
• Erin Pratt
• Beth Butterworth

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What is RISK?

• Uncertainty of any outcome
• Speculative Risk (stock market)
• Pure Risk (driving a car, owning a home)

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Financial Risk

• Must have a dollar amount attached to it

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What type of risk will insurance cover?

• Answer Pure Risk

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Risk Management is the process of identifying and
evaluating situations involving pure risk to
determine and implement the appropriate means for
its management
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How do you do this?

• 1. Identify exposures and perils that can lead
  to potential financial loss.
• Exposure possessions and activities that can
  lead to loss (owning a house)
• Peril an actual event that causes the loss
  (house burns down)

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2. Evaluate potential losses

• What could cause a loss?

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3. Choose a method of dealing with loss

• Severity and Frequency chart
• (Garman/Forgue Personal Finance, 7th edition)

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Risk avoidance

• Dont do it or own it

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Risk retention

• Can you retain the risk or do you need insurance?
  
• Can you pay for the risk?
• If your appliance breaks will it cause
  bankruptcy?
• Refrigerator vs. house

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Loss reduction

• Try to prevent a loss or reduce the loss
• Smoke alarms
• dead bolts

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Transferring risk

• You give someone else the responsibility to pay
  for the loss
• Insurance (homeowner insurance)

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Risk Reduction

• Cover part of the loss, transfer part of the
  loss
• Deductibles on HO auto insurance

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4. Implement

• Insurance is necessary-
• high loss (could lead to bankruptcy
• Insurance is important-
• medium loss (would have to borrow)
• Insurance is optional-
• low loss (you could pay for loss)

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5. Evaluate and adjust

• When would you adjust homeowner insurance?
• Answer home is paid off, add on, value increases

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Insurance QA

• What is its purpose?
• Peace of mind, to protect your assets
• Why are insurance companies willing to cover you?
• Law of large numbers
• Who can get insurance?
• Insurable interest

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Factors affecting cost

• Deductible-
• Portion of loss you pay
• The higher the deductible, the lower the premiums

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• Hazard reduction
• take action to reduce probability of loss (ex
  nonsmokers, dead bolts)
• Loss reduction
• reduces severity when there is a loss. (Ex
  smoke alarms, fire extinguishers)

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• Coverage how much is covered?
• New Mercedes vs. old Ford
• New house vs. old house

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Shop around!

• Every insurance company has different offers, so
  shop around, but find one that is reputable.
• Homeowner insurance policies are standard, but
  premiums may vary.

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Liability

• Covers injuries or damage caused by you, a member
  of your family, or a pet.
• Trampolines
• Broken windows
• Icy driveways during the winter

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Extra tips

• Coverage-have enough to rebuild home, find out
  cost per square foot, dont worry about land.
• Named peril policy-covers ONLY perils named
• All-risk-covers everything EXCEPT what is listed

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Questions?
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Are you a gambler?

• Do you invest in risky investments?
• Is Las Vegas your favorite vacation spot?
• Are you a sky diver?
• Do you have earthquake insurance on your most
  valuable asset?
• Do you need flood insurance?

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Do you have adequate insurance?

• 3 out of 4 homes are underinsured by 35
• CV residents need earthquake coverage
• Some CV homeowners need flood insurance

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Hurricanes Tornadoes

• How did Katrina affect you?
• We are in the same insurance pool
• Mounting insurance claims as more Americans live
  near coasts
• Past decade costly to property insurers
• HO insurance not profitable
• Rates are going UP!

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Major Points

• Understand apply risk management principles to
  HO insurance
• Evaluate update your HO coverage
• Document your home possessions with a home
  inventory
• Increase deductible liability coverage
• Purchase earthquake coverage

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Homeowners Insurance

• Liability
• Property
• Dwelling
• Other structures on property
• Personal property
• Loss of use (additional living expenses)

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Buying HO Insurance

• How much coverage to REPLACE dwelling?
• How much coverage on personal property?
• How much liability coverage?

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Home Replacement Value

• Cost to rebuild same home on your lot?
• Not same as market value!
• Get builder estimate
• Cost may exceed new home prices due to
• lack of economies of scale for new developments
• Higher cost of partial rebuilding
• Guaranteed replacement cost coverage?
• Annual inflation adjustment?

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Contents Coverage

• Actual cash value
• Yard sale/ thrift store prices
• Contents replacement cost
• full replacement value
• Read policy limits!!

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Personal Liability

• You could be sued
• Even if innocent you need to defend against
  lawsuits
• Standard coverage Inadequate
• 100,000 personal liability
• 1,000 no-fault medical
• 250 no-fault property damage
• Higher limits are cheap

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Actions

• Cost to replace home?
• Assess contents
• Raise deductible
• Raise Liability
• Buy earthquake coverage
• Consider flood insurance
• DO NOT file small claims!
• Adequate emergency fund?

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Questions on Basics?
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HO Insurance Industry

• Lots of losses nationwide
• 2001 Paid out 1.16 for each premium 1
• Premiums going up
• 2002 13 average hike
• 57 in TX FL,LA?
• Insurers dropping customers
• Mold losses increasing
• Repair costs increasing

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Before you buy a house

• Get CLUE report (Comprehensive Loss Underwriting
  Exchange)
• Claim history on house
• Previous claims (water damage)?
• May affect your HO insurance cost availability
• Available to owner (ask seller to provide)

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Actions

• File small claims youll lose insurance
• Raise deductible
• Cover small losses yourself
• Check your credit report
• Free reports
• www.annualcreditreport.com

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Shop Around?

• Compare rates reputation!
• Consumer Reports
• Utah Department of Insurance
• http//www.insurance.utah.gov/consumers.html
• Auto Homeowner Insurance Comparison Tables
  (2004)

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Changing insurer can backfire

• New customers
• More likely to file claim
• More likely to be dropped if they file a claim
• Insurer can cancel for any reason in 1st 60 days

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Filing Claims

• Dont file for lt 1,000
• Raise deductible to 1,000
• Large loss
• Consider hiring a public adjuster

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When Disaster Strikes

• Do not let a crisis become a financial burden

Prepared for Financial Planning for Women by Beth
Butterworth USU Family Finance student
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Are you Covered?

• Earthquake and Flood damage are NOT covered by
  standard homeowners policies
• You must purchase separate insurance coverage for
  these risks

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What about Floods?

• Recent flooding in Cache Valley
• Nibley
• Richmond
• Near Blacksmith Fork River in S. Logan
• Early-mid 1980s
• Logan River Thrushwood-Sumac neighborhood

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Flood Insurance

• Floods happen in all 50 states.
• Everyone lives in a flood zone. (FEMA)
• Only one inch of water can cost over 1,000 to
  repair damage.
• New land development can increase the flood risk

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Do you need it?What areas flooded last spring?

• Recent flooding in Cache Valley
• Nibley
• Richmond
• Near Blacksmith Fork River in S. Logan
• Early-mid 1980s
• Logan River Thrushwood-Sumac neighborhood

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Whats your flood risk?

• http//www.floodsmart.gov/floodsmart/pages/riskass
  esment/findpropertyform.jsp
• Enter your address
• Flood Plain Maps
• www.fema.gov/fhm.shtm 2
• How to read a flood plain map
• FloodSmart.gov

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But I live in a low risk area

• Almost 25 of all flood insurance claims come
  from low risk areas

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Flood Insurance

• Does your community participate?
• www.fema.gov/fema/cxb.shtm
• Logan, N. Logan, Richmond, Wellsville
• What to do to participate?
• A letter must be sent to the local NEIP
  coordinator
• www.floods.org/statepocs

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Special Flood Hazard Area

• If you live in a Special Flood Hazard Area (SFHA)
  or high risk area, your mortgage lender requires
  you to have flood insurance.

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Flood Insurance

• Who offers Flood insurance?
• Local insurance agencies
• FEMA Federal Emergency Agency

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Flood Insurance

• What will it cost to buy from a local agent?
• Premiums are around 300-400 a year depending
  risk level and value of home.
• Estimate your premium at FloodSmart.gov

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Flood Insurance

• What will it cost to buy from the government?
• If your neighborhood participates in the NEIP
  National Emergency Insurance Policy and the risk
  is low, the cost can be as low as 137 for the
  entire home.

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Flood Insurance

• What is covered?
• Contents are covered only in the part of the home
  that is above the ground
• For the area below ground
• Will not cover the contents
• Will not cover unpainted sheetrock or stairs

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Flood Insurance

• What will it cost you after the flood?
• Usually a high deductible
• Can be as high as 10,000

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Earthquake Insurance

• They say were due for a BIG ONE
• We have had 2 major quakes in the last
  seventy-two years.
• The last one was over 20 years ago.

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Earthquake Insurance

• What is covered
• The basic structure
• The contents
• And for a higher price the bricks if you live in
  a brick home.

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Earthquake Insurance

• What does it cost you now?
• An additional 1.60 per 1,000
• Ex. 160 a year for a 100,000 home
• An additional 7.75 per 1,000 if it is brick.
• Ex. 775 a year for a 100,000 home
• With a brick home they will insure it at the
  lower price, but when it is rebuilt they will not
  include the bricks.

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Earthquake Insurance

• What will it cost you after the quake?
• There will be a 5-10 percent deductible that you
  will be responsible to pay.
• About 5 on the structure.
• They will pay up to 100,000
• About 10 on the contents.
• They will pay up to 75,000

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Earthquake Insurance

• Ask if there is anything that they do not cover
  or if there is anything you would need to pay
  extra to cover.

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Start the Steps to Preparedness

• Commit to 1-3 actions in coming week
• Highest priority
• Easiest

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Two Mistakes of Insurance

• 1 People over-insure themselves (too low a
  deductible) and thus spend much more on insurance
  than they should.
• 2 People underinsure themselves and are in
  financial crisis after an uncontrolled event.

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How to Avoid these Mistakes

• 1 Think ahead
• Is the risk great enough that you need insurance?
• If so, how much insurance do you really need?
• Do you have the resources to cover the
  deductibles?
• 2 Be prepared
• Have emergency savings (3-6 months of expenses)
• Keep a copy of your insurance policy somewhere
  safe (safe deposit box)

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Questions?

• What is your personal finance action plan?
• Please let us know what topics you would like FPW
  to cover in 2006

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Earthquake Potential

• Earthquakes have the potential to inflict a
  greater loss of life and property in a single
  event than all other hazards in Utah.
• Gary E. Christenson
• See photos UGS Survey Notes Sept. 05

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Cache Valley Earthquake Risk

• Overdue for a big quake
• East Cache Fault
• West Cache Fault
• Areas most at risk out in the valley

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What to do in earthquake

• Duck under table or desk
• Stand in doorway
• Dont go outside!
• Falling debris is biggest danger
• Bricks falling off buildings on Main St.

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7 Steps on the road to earthquake safety

• Identify potential hazards being to fix
• Create disaster plan
• Create disaster supply kits
• Identify building weaknesses begin to fix
• Drop, cover hold on during quake
• Check for damage injuries
• When safe, follow disaster plan

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Home Hazards

• Kitchen cabinets- need latches
• Secure TVs, stereos, computers- straps
• Pottery, vases velcro, earthquake putty
• Use closed hooks on mirrors pictures
• Secure tops of top-heavy furniture
• Secure Water heater- straps screws

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Gas Leaks

• Shut off main gas valve only if you detect a leak
• Need wrench in emergency kit
• Only a pro can turn the gas on again

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E-kits for home, work vehicle

• Medications
• First aid kit w/ gloves and handbook
• Spare glasses, contacts, solution
• Whistle to alert rescuers
• Sturdy shoes (especially by the bed)

• Phone
• Snack foods
• Flashlight batteries
• Personal hygiene
• Radio batteries
• Cash
• Water