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AOF Insurance

Lesson 8Personal Property and Liability

Insurance

Student Resources

Resource Description

Student Resource 8.1 Anticipation Guide: Personal Property and Liability Insurance

Student Resource 8.2 Reading: Overview of Personal Property Insurance

Student Resource 8.3 Reading: The Role of Insurance in Protecting Against Liability

Student Resource 8.4 Instructions: Auto Insurance Debate

Student Resource 8.5 Guide: Opening Argument

Student Resource 8.6 Guide: VIP Property and Liability Insurance Recommendations

Student Resource 8.7 Memo: VIP Property and Liability Insurance Presentation

Student Resource 8.8 Guide: VIP Property and Liability Insurance Presentation

Copyright © 20092014 NAF. All rights reserved.

AOF InsuranceLesson 8 Personal Property and Liability Insurance

Student Resource 8.1

Anticipation Guide: Personal Property and Liability Insurance

Student Name:_______________________________________________________ Date:___________

Directions: For each of the statements below, circle whether you agree or disagree, and write one reason to explain your guess. Then take notes on what you learn about this topic in the presentation and assigned reading.

A good way to reduce car accident–related lawsuits is to require insurance companies to always pay the claims for their own insured vehicles, regardless of who was at fault.

My guess: I agree I disagree

My reason:

I learned:

Auto insurance premiums are generally higher for teenagers than for individuals older than 30.


My reason:

I learned:



Because many people live in flood zones or areas prone to earthquakes, insurance coverage for those perils is relatively inexpensive.


My reason:

I learned:

Comprehensive property insurance policies cover arson or other intentional damage.


My reason:

I learned:




Reading: Overview of Personal Property Insurance

In this presentation and reading, you will learn about personal property insurance, including:

• The purpose of this category of insurance

• The main types of property insurance

• Common elements in a property insurance policy



Many of us invest in valuable personal property. Usually, our two biggest purchases are our homes and our cars, but many of us also have computers, televisions, and other valuable possessions. Our property can help us to have comfortable, productive lives. These items are expensive, and if they are lost or seriously damaged due to fire, earthquake, flood, theft, or other causes, the financial hardships we face can be severe.

Insurance companies have created insurance policies to help protect people against the risk of losing their most valuable possessions. This category of insurance is called personal property insurance, and it includes homeowners insurance, renters insurance, auto insurance, and insurance for other vehicles such as motorcycles and boats.

Because we often borrow money from banks or other financial institutions to make large purchases like homes or cars, the lenders often require purchasers to buy property insurance to protect their own stake in the property.



There are 250 million cars in America, and almost all of them have insurance. Also, 68% of Americans live in their own house, and most of these have homeowners insurance (in fact, most mortgage lenders require this insurance!).

Auto and homeowners insurance are the most common types of property insurance. The loss of a car or house can be financially devastating.



There are two main types of property insurance policies: open policies, which are also known as broad form policies, which cover the property against all perils except those listed as exclusions; and closed, or specified-peril, policies, which cover only the perils specifically listed in the policy. Neither type of policy would cover arson or other intentional damage committed by the policyholder against his or her own insured property.

Think about the difference such minor rephrasing can make in a person’s life. A person with an open policy who lost everything in Hurricane Katrina was covered for everything not listed in his or her policy as excluded. A person with a closed policy who lost everything in Hurricane Katrina was only covered for the perils specifically mentioned in his or her policy as covered. Which person will probably get a larger settlement? Which policy is likely to have a higher premium?

Many policies exclude perils that have the potential to cause catastrophic damage to a large group of property holders. These perils include earthquakes, floods, and wind damage. In areas where these perils are likely, insurance to cover them is often either not available or very expensive. Some states have required insurance companies to provide such coverage. Some states may even offer the insurance themselves.



Even though property insurance policies may cover different things, they usually have similar components.

Vehicle policies always state which vehicles are covered and for how much. Both property and auto insurance policies usually also contain liability coverage, which protects against the risk of lawsuits brought on by third parties.



Auto insurance policies can protect not only the policyholder’s vehicle but also the property of others. This is because vehicles are a type of property that can also cause damage to others, through accidents.

Almost all policies provide coverage to damage caused to other vehicles or property (such as buildings, lawns, or whatever a driver might hit with a vehicle). In fact, almost all states (except New Hampshire and Wisconsin) require drivers to either have auto liability insurance or prove their financial responsibility, usually by posting a bond for a set dollar amount.

Even in states where liability insurance is mandatory, collision and comprehensive coverage are optional. Some people choose not to purchase collision or comprehensive insurance for their own car, either to keep premiums down or because their own car is not very valuable, and it makes better financial sense for them to pay for auto repairs or replacement on their own. However, if you plan on taking a car loan, your lender will require you to carry collision and comprehensive until your car is paid off.

Liability insurance is listed as a series of three numbers. The first is the maximum amount an insurance company will pay for bodily injury to a person who is injured by the policyholder. The second number is the maximum an insurance company will pay for bodily injury to more than one person. The last number is the maximum they will pay for property damage. For example, $100,000/$300,000/$25,000 means that the insurance company will pay up to $100,000 for the injuries of one injured person for a maximum of $300,000 total paid for all injuries, and $25,000 for damage to the other party’s car.



Insurance companies set rates based in large part on how much risk each category of drivers poses. Actuaries have detailed actuarial tables that contain data on accident rates grouped by age, gender, occupation, location, type of car, and amount driven each year.

Unfortunately for teens, some of the highest accident rates, and thus premiums, are for young drivers, especially males who drive sports cars. Luckily, statistics show that teens with good grades and who are employed have fewer accidents, so those who meet these criteria may be eligible for lower rates.



Some states have adopted an insurance model called no-fault. Its purpose is to simplify and make more affordable the process of paying out auto insurance claims, while reducing the number of court cases related to traffic accidents.

In states with no-fault insurance, each policyholder’s insurance company is required to pay for damages caused to his or her covered vehicle, regardless of who was at fault. In states without no-fault insurance, the insurance company of the policyholder who was at fault usually has to pay for the damages caused to the other vehicle or property. This means that sometimes there must be an investigation or even a trial to find out who was at fault. The investigations and trials can be expensive, and the people who have suffered losses might not be compensated for years. In states with no-fault insurance, there is often no need for an investigation or trial.

The following states have either mandatory or optional no-fault insurance: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.



It is important to protect our homes, and the valuables inside them, from loss. For people who own their own homes, protecting the building itself is very important. Standard homeowners insurance protects people from financial impact of loss or damage to their home due to a variety of perils, such as fires, falling trees, accidents, and so forth. Not all perils are covered on a standard policy. Often earthquake and flood insurance require separate policies or expensive endorsements. This is because a major earthquake or flood can cause widespread damage and be very expensive for an insurance company to pay out. Setting high premiums for these perils is one way that insurance companies protect themselves from losses that might put them out of business.

Since renters don’t own the building they live in, it is not their responsibility to protect against the loss of the building itself. However, they are responsible for protecting against the loss of the things they own, such as clothes, jewelry, electronic equipment, and computers. Also, if the building is damaged or destroyed, the renter will have to find another place to live. Renters insurance covers items inside the home and helps cover the costs of relocating to a new dwelling. Renters insurance usually also provides some liability coverage if a visitor to the home is unintentionally hurt due to the fault of the renter.



Umbrella insurance is an additional liability insurance policy that goes beyond the limits of an insured person’s regular home, auto, or watercraft insurance. It provides an additional layer of security to those who are at risk of being sued for damages to other people’s property or injuries caused to others in an accident. An umbrella insurance policy kicks in when the insured is sued and the dollar limit of the original policy has been exhausted. The added coverage provided by umbrella insurance is most useful to individuals who have a lot of assets and are at significant risk of being sued, because it typically provides an additional $1 million in coverage.

When a third party makes a claim against a policyholder, often legal costs are higher than the actual damages. Most liability coverage will pay legal costs in addition to the limits of liability of the policy. Most states require legal fees to be covered in addition to the insured’s policy limits.



In the next 10 years it is likely that you will have a chance to buy some form of property insurance—auto insurance, renters insurance, or homeowners insurance.

Because insurance companies continue to create new products and states pass new laws regulating insurance, you will likely have new types of policies to choose from.




Reading: The Role of Insurance in Protecting Against Liability

Directions: Read the following cases showing how various people have been affected by lawsuits caused by accidents or injuries in their homes or while driving. Some people were protected by liability insurance, others were not. As you read, underline any facts you notice that help to explain how liability insurance works.

Neighbor vs. ChihuahuaOne autumn day in 2006, Mark Wallenberg’s Chihuahua nipped his neighbor Lucinda in the ankle. At first, Mark and Lucinda laughed off the incident, but after a week, the bite had become so badly infected that Lucinda was in danger of losing her foot. It was almost six months before she could return to work. Lucinda decided to sue Mark for lost wages and for a portion of her medical bills. Luckily, Mark had liability coverage up to $1 million as part of his homeowners policy. The policy covered any legal action by third parties who are injured on the covered property. The insurance helped to provide a legal defense for Mark, and they ended up settling out of court, with Mark’s insurance paying for the deductible portion of Lucinda’s medical expenses (the rest of the medical expenses were covered by her own health insurance policy), as well as paying for three months of her lost wages. When the whole ordeal was over, Mark gave a big sigh of relief. Without the liability coverage, Mark would have been out more than $125,000, almost his entire savings, to pay for legal fees and Lucinda’s claims.

Rainy Day AccidentKim Lee was driving his Honda Accord to work one rainy Saturday morning when his car skidded past a stop sign, running right into a car driven by a pregnant woman, injuring her and badly damaging the woman’s Cadillac Escalade. An ambulance came to take the woman to the emergency room, and a very shaken Kim stayed to talk to the police. They examined the Honda’s brakes and found that they were functioning properly. It seems that Kim was driving too fast for the rainy weather.

The accident not only broke the woman’s arm but also apparently caused the premature birth of her baby, who was born the morning after the accident, one and a half months early. Luckily the baby was okay, and the woman recovered from her broken arm. Nevertheless, the woman decided to sue for $1 million dollars, for the emotional damage caused by the accident and the extra costs that her family had to pay due to the premature birth.

In Kim’s state of California, like almost all other states, automobile insurance that contains liability coverage is required of all drivers. Kim’s insurance company provided a legal defense for him in the case and unsuccessfully tried to settle out of court for the policy’s maximum claim limit of $500,000. At the trial, the jury found against Kim and awarded the woman $600,000 in damages. Kim’s insurance company ended up paying the legal fees and the maximum claim of $500,000. Unfortunately, the company also dropped Kim’s coverage. It has been very difficult for Kim to find affordable auto insurance, and he now pays almost four times as much for his policy with a new company. Kim is also responsible for paying the remaining $100,000 in damages.

The FightDavid Chester was having a loud and rowdy Super Bowl party with about a dozen friends at his house in the suburbs of Dallas. The loud party disturbed David’s next-door neighbor Monte. David and Monte often argued about noise, the broken fence between their houses, and dozens of other minor things. Suffice it to say, the two did not get along. That Sunday, Monte had had enough and trudged up David’s front



stairs, knocked on the door, and proceeded to yell and insult David in front of all his friends. David ordered Monte to leave the porch and, when Monte refused, began to push him down the stairs. Monte fell, tumbling down the stairs, breaking a rib, and puncturing a lung. Monte ended up suing David to pay for all of his medical expenses, totaling nearly $100,000. Though David had property insurance with liability coverage, David’s policy, like most liability coverage, excluded damages caused by intentional actions. By pushing Monte down the stairs, the company decided that the damage was intentional and therefore not covered. David ended up having to sell his home and move into an apartment. Monte still lives in his house and is very happy with his new neighbors, a quiet elderly couple who love to garden.




Instructions: Auto Insurance Debate In this activity you and your class take sides to debate the following resolution:

“Insurance underwriters should take age and gender into account when assessing risk and setting premiums.”

Prepare Write down all the facts you already know about insurance underwriting. Then think about what

you still need to know in order to best support or refute the resolution, and write down those items as well.

Use the Internet or the library to research those facts you still need to know in order to be prepared for the debate.

At home, complete Student Resource 8.5, Guide: Opening Argument, and use it to help you write a 100-word opening argument, either for or against the resolution.

On the day of the debate, work with your team to decide on a five-minute opening argument, selecting one opening argument or using parts of several. Choose a team member to present the opening argument.

Debate You and your team have five minutes to present your opening argument.

After both teams have presented their opening arguments, each team has five minutes to prepare a two-minute rebuttal, arguing against the points the other team made in its opening statement. Your team will choose a new person to present your rebuttals.

Your team then presents its two-minute rebuttal.

After both teams have presented, your team gets five minutes to prepare its two-minute closing statement. The statement should sum up your main arguments or your most effective rebuttals. Each team chooses a new person to present the closing statement.




Guide: Opening Argument Student Name:_______________________________________________________ Date:___________

Directions: Before creating your 100-word opening argument, complete this guide. Your argument should be based on your responses below.

The Resolution:

“Insurance underwriters should take age and gender into account when assessing risk and setting premiums.”

Write down whether you are arguing for or against the resolution:

What is the positive or negative impact (depending on whether you are arguing for or against the resolution) of using age and gender as criteria in setting auto insurance premiums?

Young male drivers:

Young female drivers:

Middle-aged drivers:

Insurance companies:

What do you think would happen (either positive or negative depending on your debate position) if it were to become illegal for insurance companies to consider age or gender when setting premiums?

Explain why you think using age and gender criteria is fair and/or ethical (if your position is for the resolution) or unfair and/or unethical (if your position is against).

In a debate, it is important to anticipate what the opposing team will argue. What do you think will be the main arguments of the other team, either for or against the resolution?




Guide: VIP Property and Liability Insurance Recommendations


Directions: Answer the following questions, and use your answers to make property and liability insurance recommendations for your client.

Does your client own a house or houses, or does he or she rent?

If your client owns houses, do you know the estimated value of the house or houses?

Is your client’s primary home located in an area prone to large-scale natural disasters, such as floods, earthquakes, or hurricanes?

Does your client own and drive a car? What about other vehicles, such as motorcycles or boats?

If your client owns a car, is it valuable enough that it should have comprehensive and collision coverage in case it is damaged?

Is your client at risk for major lawsuits? (Note: Many wealthy people are at risk, because they can be sued for large amounts of money.)

Given your answers to these questions, place a check mark next to each of the types of policies you would recommend to your client, and briefly explain your decisions next to each type of insurance.

Homeowners insurance

Special rider or endorsement for earthquake, flood, or wind damage insurance

Renters insurance

Comprehensive auto insurance with liability coverage

Collision-only auto insurance with liability coverage

Boat insurance policy

Umbrella liability insurance




Memo: VIP Property and Liability Insurance Presentation

Big Tent InsuranceNew York, New York

M E M O R A N D U M

To: VIP Insurance Division

From: Maria Benavides, Director VIP Insurance Services

Re: VIP Property and Liability Insurance Presentation

In a few days, we will have a group of representatives of our VIP clients visiting our offices. I would like each of your teams to create and present a set of auto, homeowners, and liability insurance recommendations for your clients, with a clear explanation of why you chose that particular type of insurance. Included in the presentation, please explain if the relative costs of the policy (compared with other policies in the same category) are low, medium, or high.

Each team’s presentation will last about five minutes, and each of you will have about one to two minutes to explain your recommendations. The first presenter will also be responsible for giving a brief overview of the client, sharing his or her name, age, current occupation, and any other information that would help explain the insurance recommendations that will follow.

In order to prepare for the presentation, follow these steps:

1. Complete Student Resource 8.8, Guide: VIP Property and Liability Insurance Presentation, listing the most likely risks for your client in all areas of life.

2. Find a partner on your team, and share and critique your list.

3. Work with your team to select the most important risks, one for each member of the team, and the best insurance to cover that risk.

4. Working with your team, create a poster, with the name of your celebrity, and a list of the insurance types you are recommending.

5. Research facts, statistics, and real-life experiences relevant to your client to support your recommendations.

6. Write a one- to two-minute script to present your insurance recommendation and the reasoning behind it, as well as the relative cost (low, medium, or high). Be specific about coverage and the “what-ifs.” Be sure to end this presentation with a phrase or sentence that would create urgency or need.

7. Practice your presentation with your teammates.




Guide: VIP Property and Liability Insurance Presentation


Directions: In preparation for a presentation of your recommended insurance coverage for your chosen VIP, your task now is to use your learning from this unit on personal insurance to summarize your insurance recommendations for your client. Follow these steps:

Working alone, begin by writing down at least four of the most important risks your client is exposed to.

Write down the type of insurance coverage, along with any special riders, you think your client needs.

Write down your reasoning for your selection.

Write down other ways, beyond insurance, your client can reduce his or her exposure to each risk.

At the direction of your teacher, find a partner and share your responses, giving each other feedback and making corrections as necessary.

Risk Recommended Coverage Reasoning Other Ways to Manage



Risk Recommended Coverage Reasoning Other Ways to Manage


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