UNIVERSITY OF SAINT LOUIS

Tuguegarao City

SCHOOL OF ACCOUNTANCY, BUSINESS AND HOSPITALITY

First Semester
A.Y. 2024-2025

COURSE LEARNING MODULE

FINA 1023- Personal Finance

Prepared by:

FE ROSE-ANNE B.MARAMAG, DBM

Instructor

WARNING: No part of this E-module/LMS content can be reproduced or transported

or shared to others without permission from the University. Unauthorized use of the
materials, other than personal learning use, will be penalized.
School of Accountancy, Business and Hospitality
Business Administration Department
Curriculum 2018-2019

Lesson 10:Types of Insurance

Learning
Outcomes: At the end of this module, you are expected to:

1. Explain the concepts and terms in property and liability insurance

2. Explain the concepts in home insurance coverage
3. Illustrate the factors that determine insurance premiums

LEARNING CONTENT
Introduction:

Property and Liability Insurance

Major disasters have caused catastrophic amounts of property loss in the
Philippines. Tornadoes, floods, earthquakes in various areas have caused
millions of pesos of damage.

Property insurance is ownership insurance: it ensures that the rights of ownership

conferred upon you when you purchased your property will remain intact. Typically,
property insurance covers loss of use from either damage or theft; loss of value, or
the cost of replacement; and liability for any use of the property that causes damage
to others or others’ property. For most people, insurable property risks are covered
by insuring two kinds of property: car and home.

Loss of use and value can occur from hazards, which increase the likelihood of loss
due to peril, which is the cause of possible loss. Examples of perils are fires, weather
disasters, accidents, and the results of deliberate destruction such as vandalism or
theft. One can choose named perils coverage, which provides coverage only for loss
caused by the perils one chooses. All risks coverage applies to loss from all causes
and is usually more expensive than a named perils insurance policy.

When replacement or repair is needed to restore usefulness and value, that cost is
the cost of your risk. For example, if your laptop’s hard drive crashes, you not only
have the cost of replacing or repairing it, but also the cost of being without your
laptop for however long that takes. Insuring your laptop shares that risk (and those
costs) with the insurer.
Liability is the risk that your use of your property will injure someone or something
else. Ownership implies control of, and therefore responsibility for, property use.

For example, you are liable for your dog’s attack on a pedestrian and for your fallen
tree’s damage to a neighbour’s fence. You are also liable for damage a friend causes
while driving your car with your permission, and for injury to your invited guests who
trip over your lawn ornament, fall off your deck, or leave your party drunk.

Legal responsibility can result from:

 negligence, or the failure to take necessary precautions;
 strict liability, or responsibility for intentional or unintentional events (strict
liability is when you are liable by default—that is, the onus has shifted from
the plaintiff to the defendant. For example, if you have a dangerous thing, like
a wild animal, and it escapes, it is presumed to be your fault unless you can
demonstrate some intervening cause that was not caused by your
negligence); and
 vicarious liability, or responsibility for someone else’s use of your
possessions or someone else’s activity for which you are responsible.

Home Insurance Coverage

Homeowner’s insurance insures both the structure and the personal possessions that
make the house your home. Tenant’s or renter’s insurance protects your
possessions even if you are not the owner of your dwelling. Tenant’s insurance
policies will vary depending on the customer. Riders are exemptions included in
policies that allow you to adapt your renter’s policy to fit your needs. For example, if
you work from home, you might consider an at-home business endorsement rider,
which provides additional coverage for certain business-related items such as a
computer and other electronic items that can surpass your liability limit on business
items. This rider could help to double your standard coverage at a low cost.

A homeowner’s policy covers damage to the structure itself as well as any

outbuildings on the property and, in some cases, even the landscaping or
infrastructure on the grounds, such as a driveway.

A homeowner’s policy does not cover:

 property of renters, or property kept in an apartment regularly rented;
 business property, even if the business is conducted on the residential
premises; and
 most forms of accidental death (e.g., vehicle impact).

Home insurance covers the dwelling, contents, and personal liability of the
policyholder, as well as his or her spouse or partner and children. The policy also
covers:
 dependants under the age of eighteen; and
 dependants who are students enrolled and actually attending a school,
college, or university and living in the household or temporarily living away
from the insured principal residence.
If you share your home with a friend or relative, or rent out part of your residence,
you must notify your insurance representative.

Home insurance also includes coverage for additional living expenses in the event
that you are temporarily unable to live in your home due to an insured loss in certain
circumstances.

Homeowners’ policies cover liability for injuries on the property and for injuries that
the homeowner may accidentally inflict. You may also want to add
an umbrella policy that covers personal liabilities such as slander, libel, and
defamation of character, or the invasion of property. An umbrella policy may also
extend over other assets, such as vehicles or rentals covered by other insurance
carriers. If you participate in activities where you are assuming responsibilities for
others, you may want such extended liability coverage available through your
homeowners’ policy (also available separately).

Home Insurance Coverage: The Benefit

Home insurance policies automatically cover your possessions up to a certain

percentage of the house’s insured value. You can buy more coverage if you think
your possessions are worth more. The benefits are specified as
either actual cash value or replacement cost. Actual cash value tries to estimate
the actual market value of the item at the time of loss, so it accounts for the original
cost less any depreciation that has occurred. Replacement cost is the cost of
replacing the item. For most items, the actual cash value is less.

For example, say your policy insures items at actual cash value. You are claiming the
loss of a ten-year-old washer and dryer that were ruined when a pipe burst and your
basement flooded. Your coverage could mean a benefit of P5,000 (based on the
market price of ten-year-old appliances). However, to replace your appliances with
comparable new ones could cost P50,000 or more.

The actual cash value is almost always less than the replacement value, because
prices generally rise over time and because items generally depreciate (rather than
appreciate) in value. A policy that specifies benefits as replacement costs offers more
actual coverage. Guaranteed replacement costs are the full cost of replacing your
items, while extended replacement costs are capped at a certain percentage—for
example, 125 per cent of actual cash value.

Home Insurance Coverage: The Cost

You buy home insurance by paying a premium to the insurance company. The
insurance purchase is arranged through a broker, who may represent more than one
insurance company. The broker should be knowledgeable about various policies,
coverage, and premiums offered by different insurers.

The amount of the premium is determined by the insurer’s risk—the more risk, the
higher the premium. Risk is determined by:
 the insured (the person buying the policy),
 the property insured, and
 the amount of coverage.
To gauge the risk of the insured, the insurer needs information about your personal
circumstances and history, the nature of the property, and the amount of coverage
desired for protection. This information is summarized in the table:

Factors that Determine Insurance Premiums

Insured Property Coverage

Age
Employment Size Actual cash value
Marital Status Location Replacement cost
Criminal record Proximity to fire/police Endorsements for listed
services property
Credit history
Building materials Umbrella for personal
Insurance claim
history Number of occupants liability

Heating system

Insurers may offer discounts for enhancements that lower risks, such as alarm
systems or upgraded electrical systems. You may also be offered a discount for
being a loyal customer, for example, by insuring both your car and home with the
same company. Be sure to ask your insurance broker about available discounts for
the following:
 Multiple policies (with the same insurer),
 Sprinkler systems,
 Burglar and fire alarms,
 Long-time policyholder,
 Upgrades to plumbing, heating, and electrical systems,
 Age (insurers give discounts to people as young as age forty in some cases),
and
 Credit scoring (quite new in Canada).

Premiums can vary, even for the same levels of coverage for the same items
insured. You should compare policies offered by different insurers to shop around for
the best premium for the coverage you want.

END of LESSON