What Is Property Insurance?

Property insurance is a broad term for a series of policies that provide either property protection coverage
or liability coverage for property owners. Property insurance provides financial reimbursement to the owner or
renter of a structure and its contents in case there is damage or theft—and to a person other than the owner or
renter if that person is injured on the property.

Property insurance can include a number of policies, such as homeowners insurance, renters insurance, flood
insurance, and earthquake insurance. Personal property is usually covered by a homeowners or renters policy.
The exception is personal property that is very high value and expensive—this is usually covered by purchasing
an addition to the policy called a "rider." If there's a claim, the property insurance policy will either reimburse
the policyholder for the actual value of the damage or the replacement cost to fix the problem.

KEY TAKEAWAYS

 Property insurance refers to a series of policies that offer either property protection or liability
coverage.
 Property insurance can include homeowners insurance, renters insurance, flood insurance, and
earthquake insurance, among other policies.
 The three types of property insurance coverage include replacement cost, actual cash value, and
extended replacement costs.

How Property Insurance Works

Perils covered by property insurance typically include select weather-related afflictions, including damage
caused by fire, smoke, wind, hail, the impact of snow and ice, lightning, and more. Property insurance also
protects against vandalism and theft, covering the structure and its contents. Property insurance also provides
liability coverage in case someone other than the property owner or renter is injured while on the property and
decides to sue.

Property insurance policies normally exclude damage that results from a variety of events, including tsunamis,
floods, drain and sewer backups, seeping groundwater, standing water, and a number of other sources of
water. Mold is usually not covered, nor is the damage from an earthquake. In addition, most policies will not
cover extreme circumstances, such as nuclear events, acts of war or terrorism.

Property insurance includes homeowners insurance, renters insurance, flood insurance, and earthquake
insurance.

Understanding Property Insurance

There are three types of property insurance coverage: replacement cost, actual cash value, and extended
replacement costs.

 Replacement cost covers the cost of repairing or replacing property at the same or equal value. The
coverage is based on replacement cost values rather than the cash value of items.
 Actual cash value coverage pays the owner or renter the replacement cost minus depreciation. If the
destroyed item is 10 years old, you get the value of a 10-year-old item, not a new one.
 Extended replacement costs will pay more than the coverage limit if the costs for construction have
gone up; however, this usually won't exceed 25% of the limit. When you buy insurance, the limit is the
maximum amount of benefit the insurance company will pay for a given situation or occurrence.

Special Considerations

Most homeowners purchase a hybrid policy that compensates for physical loss or damage caused by 16 perils,
including fire, vandalism, and theft. The coverage, known as an HO3 policy, has certain conditions and
exclusions. There is a predetermined limit on the coverage of certain valuables and collectibles, including
gold, wedding rings and other jewelry, furs, cash, firearms, and other items. No coverage is usually provided in
an HO3 for accidental breakage/damage and mysterious disappearance (lost, misplaced) of valuables, including
fine art and antiques.

HO5 homeowners coverage includes everything in an HO3 policy, but is geared toward the structure itself and
the property within the home, including furniture, appliances, clothing, and other personal items. An HO5
doesn't cover for earthquakes or floods. HO5 insurance policies are available to homes that were either built in
the last 30 years or renovated in the last 40 years, and they typically cover any damages at replacement cost.

HO4 property insurance is usually known as renter's insurance—it covers tenants from loss of personal property
and liability coverage. It does not cover the actual house or apartment being rented, which should be covered
by the landlord’s insurance policy.

Note that none of these coverage levels reimburses the homeowner for property that breaks down or is damaged
in more normal wear-and-tear situations, such as a roof that begins to leak without damage from wind and hail.
That's where home warranties—another way to protect your property—can be helpful.

CREDIT LIFE INSURANCE

If you have a mortgage, personal loan or auto loan, you might have been offered credit life insurance from the

lender. Not to be confused with traditional life insurance, credit life insurance promises to repay all or a portion

of a debt balance in the event you pass away.

When other options are on the table, credit life insurance may not be the best pick for the problem you want to

solve.

What is Credit Life Insurance?

Credit life insurance is a type of life insurance designed to pay off the remaining balance of a person’s

outstanding debt if they pass away. When you apply for a personal loan, mortgage, auto loan or line of credit,

lenders or banks will typically try to sell this type of life insurance.

If you purchase a policy, the lender or bank is the beneficiary and gets the payout, not your family. Credit life

protects the interests of the lender.

Some of these policies are tied to the face value of the borrower’s debt balance. As you pay off your outstanding

debt balance, the face value of the policy decreases. If you pass away, the policy’s proceeds pay off the

remaining loan balance. Other policies may have a level death benefit, which means the death benefit will

remain the same over the term length of the policy. Expect higher costs for a level death benefit.

How Credit Life Insurance Works

Generally, credit life insurance is a guaranteed issue life insurance policy, which means all applicants are

approved for coverage regardless of their health conditions. Costs will depend on several factors, including the

type of credit and credit balance.

You can usually buy credit life insurance in two ways:

 Based on a “single premium” purchase, where the full premium is calculated upfront and gets added to
your loan amount. Since interest is charged on the loan balance, the credit life premium adds
incrementally to the interest charges.

 Based on “monthly outstanding balance,” where your credit life payment varies based on your loan
balance.

What Does Credit Life Insurance Cover?

Credit life insurance covers outstanding debt if you pass away before the balance is paid off.

For example, if you purchase credit life insurance for your mortgage and pass away before it’s paid off, your

credit life insurance covers the amount remaining on the mortgage at the time of your death. This keeps your

loved ones from scrambling to handle the debt after your death.

You can typically purchase credit life insurance to cover:

 Mortgages

 Auto loans

 Education loans

 Lines of credit

 Credit card debt

 Financed retail purchases

Related: The Keys To Mortgage Life Insurance

Advantages of Credit Life Insurance

A key benefit of a credit life insurance policy is that it will pay off a specific revolving debt balance (like a

credit card or line of credit) if you pass away. It’s a viable option for people who want to cover a relatively small

loan and don’t need or want a larger term life insurance policy.
The average credit life insurance policy has coverage of around $5,600, according to Hause Actuarial Solutions.

Buying credit life insurance to cover a small debt like this would be cheaper per $1,000 of coverage than buying

a small term life policy of $10,000, according to Hause’s analysis.

Credit life insurance can also streamline the estate process. Typically, the executor of an estate reviews all of

your assets and liabilities and then repays your debts with the available assets. If you purchase a credit life

insurance policy, the executor won’t have to use your financial resources to repay that specific debt balance.

Another benefit is that a credit life insurance policy can help a co-signer, joint account holder or spouse (if you

live in a community property state). If you pass away, these individuals would be financially responsible for

repaying outstanding debt. A credit life insurance policy would relieve them of this financial obligation and help

them maintain a good credit score.

You can additionally purchase a credit life insurance policy even if you’re not in good health. The best term life

insurance rates go to those with good health, but there’s no health exam required to qualify for credit life

insurance.

Disadvantages of Credit Life Insurance

While the benefits of credit life insurance may have some appeal in specific situations, there are better options

depending on your overall financial picture.

If you have debts beyond a single loan, term life insurance can provide a much larger amount of insurance

protection at a better price. And if you’re looking to cover more than debts, such as a child’s college years or the

time until you retire, term life insurance makes more sense.

Credit life insurance also lacks flexibility for the death payout. A payout goes directly to the lender. Since your

family doesn’t receive the money, they don’t have the option to use the funds for other purposes that might be

more urgent.

How Much Does Credit Life Insurance Cost?

The cost of credit life insurance depends on items, such as the amount of credit or loan balance, type of credit

and type of policy you purchase. The higher the credit balance you need covered, the more it costs to insure.
Credit life insurance usually costs more than standard term life insurance policies. Credit life insurance is a

guaranteed issue policy, meaning it covers you regardless of your health status. This makes credit life policies a

greater risk for insurance companies. Term life usually considers your health, so if your medical evaluation

finds you healthy, you receive lower rates because you pose less risk.

The Wisconsin Department of Financial Institutions approximates a $50,000 credit life insurance policy costs

$370 annually. Forbes Advisor’s analysis of average term life insurance rates for a $500,000, 30-year term is

$336 annually (for healthy 30-year-old female). Here you’d get 10 times the coverage with term life insurance

for a cheaper annual cost.

Your credit life insurance and term life insurance costs will vary from the examples due to your personal

information, such as age, health and amount of life insurance policy. To discover your costs, compare life

insurance quotes for both types of coverage.

Can I Cancel My Credit Life Insurance?

While rules may vary by the insurance provider, you should be able to cancel a credit life insurance policy at

any time. Depending on when you cancel, you might be eligible for a full or partial refund. Usually, to get a full

refund, you must cancel within 10 days (though some companies or states’ guidelines allow up to 30 days).

Generally, your refund will be calculated by the Rule of 78 or a pro-rata method.

1. Rule of 78: With the Rule of 78, lenders calculate interest for the entire term of the loan and then
assign a share of that interest to each month. If your lender uses this method and you have a 12-
month loan, they would add the numbers 1 through 12 together, which equals 78. Next, they would
assign a portion of the interest to each month in reverse order. Therefore, the first month the
borrower may pay 12/78th of the loan’s interest and so on.
2. Pro-rata: The pro-rata method is a little easier to understand. Let’s say you cancel your credit life
insurance at the beginning of the 6th month of coverage, but you have paid for the entire year. With
the pro-rata method, you may get a 50% refund on the policy.

If you pay off the debt early, you may also be entitled to a refund or credit for the unused premium payments.

Some lenders may offer a “free” introductory period for 30 to 90 days. But if you want to cancel, you will be

responsible for taking action. If you forget to cancel after the introductory period, you may not receive a full

refund for the policy.

What to Consider Before Buying Credit Life Insurance

Credit life insurance can be more costly than term life insurance with fewer benefits. You need to consider your

needs, options available and costs before buying credit life insurance.

Items to consider when deciding if credit life insurance is right for you:

 Review if you already have coverage in place, such as a term or whole life insurance policy, which
would cover the debt if you passed away.
 Compare the rates and amount of credit life insurance coverage to term life insurance. See which
makes sense for your needs. If you’re older or in bad health, credit life insurance may be easier and
cheaper for you to obtain.

 Evaluate limits or exclusions that credit life insurance policies contain, such as whether it will only pay
your minimum monthly payment on your credit card or the total card’s balance.

What Is Professional Liability Insurance? Costs and Coverage

What Is Professional Liability Insurance?
Professional liability insurance (PLI) protects professionals such as accountants, lawyers, and physicians
against negligence and other claims initiated by their clients. Professionals with expertise in a specific area
require this type of insurance because general liability insurance policies do not offer protection against claims
arising from negligence, malpractice, mistakes, or misrepresentation.

KEY TAKEAWAYS

 Professional liability insurance is used to protect businesses against claims of negligence.

 Professionals such as accountants, architects, information technology specialists, doctors, and
professionals that contract their services use this insurance.
 On average, PLI costs between $500 and $1,000 yearly, much less than a lawyer, court fees, and
related expenses.

How Professional Liability Insurance Works

Depending on the profession, professional liability insurance may have different names, such as
medical malpractice insurance for the medical profession or errors and omissions insurance for real estate
agents. Professional liability insurance is a specialty coverage not provided under homeowners' endorsements,
in-home business policies, or business owners' policies.

Professional liability insurance policies are usually claims-made, which means coverage is good only for
claims made and events occurring while the policy is active. You might also find occurrence policies, which
means you're covered if an incident occurred while you had coverage—even if you let your policy expire and a
client files a claim against you after it expired. However, occurrence policies are rare.

Typical professional liability policies will indemnify the insured against loss arising from any claim or claims
made during the policy period because of any covered error, omission, or negligent act committed in the
conduct of the insured's professional business during the policy period.

What Is Included in Professional Liability Insurance?

Coverage does not include criminal prosecution, nor all forms of legal liability under civil law, only those
listed in the policy.
Examples of liabilities not covered by PLI are:

 Employee injuries
 Employee discrimination lawsuits
 Vehicle business use
 Bodily injury
 Business property damage
 Customer injuries or damages

Cyber liability, data breaches, and other technology-based issues may not be included in core policies.
However, insurance that covers data security and other technology-based security issues is available as a
separate policy.

Examples of liabilities covered by PLI are:

 Mistakes, errors, and oversights in services provided

 Undelivered services
 Missed deadlines
 Negligence or failure to meet standards
 Breach of contract

Professional Liability Policy Wording

Professional liability policies tend to be worded differently between providers. Some might be expressed in
ways that make them easier to compare, while others might differ enough that what appears to be the same
coverage isn't.

Wording with significant legal differences can be confusingly similar to non-lawyers. For example, consider
these two phrases:

 Negligent act, error or omission

 Negligent act, negligent error, or negligent omission

Coverage for "negligent act, error or omission" indemnifies the policyholder against loss/circumstances
incurred only as a result of any professional error or omission or a negligent act. A negligent error or negligent
omission would not be covered because of the wording.

The "negligent act, negligent error, or negligent omission" clause is interpreted differently than the previous
clause. For an error or omission to be covered, it must be determined to have been negligent and not simply an
error or omission. If you wanted all five types of incidents to be covered, the clause might need to read
"negligent acts, negligent errors, negligent omissions, errors, or omissions."

Before purchasing a policy, you should talk to a lawyer familiar with professional liability insurance. You
don't want to buy coverage and not be covered because the provider's wording doesn't allow an incident to be
covered.

How Much Does Professional Liability Insurance Cost?

How much you pay for this type of insurance will depend on the area you practice in, the field you're in, and
the number of claims you've had against you. Other factors that might affect your policy's price are the number
of employees you have and how many years you've been in business.

Like other types of insurance, coverage limits and deductibles also influence how much you'll pay.

Who Needs Professional Liability Insurance?

If you work for a company that offers services, the company should have PLI, and your services should be
covered under its policy. However, if you're a small business owner providing professional services or
contracting your services to other businesses, you should consider purchasing this type of insurance. Some
examples of professionals who need this insurance are:

 Consultants
 Engineers
 Insurance agents
 Real estate agents
 Brokers
 Architects
 Accountants
 Financial advisors

Who Should Get a Professional Liability Insurance Policy?

Professionals and businesses that provide services to customers should get a professional liability policy.
These policies cover claims against you and your company for professional errors, mistakes, judgments, or
failed service delivery.

What Are the Two Basic Types of Professional Liablity Policies?

The two types of professional liability insurance are claims-made and occurrence. Claims-made means the
policy must have been active when the event and lawsuit happened, and occurrence means that the policy
covers any qualified claim resulting from an incident while the policy was active.

What Is the Difference Between Personal and Professional Liability Insurance?

Personal liability insurance covers damages or injuries to others on your personal property. Professional
liability insurance covers you if claims are filed against you for professional negligence, errors, omissions, or
other issues that can arise if you provide professional services for a living.

The Bottom Line

Professional liability insurance is coverage for small business professionals like doctors, lawyers, accountants,
or architects for protection against professional mistakes. It is essential coverage because mistakes happen
regardless of how careful or experienced a professional is.