Analysis and Evaluation of Risk Exposure - Property Risk and Insurance

PROPERTY
Property signifies dominion or right of use, control, and disposition which one may lawfully exercise over things, objects, or land. The purpose of property insurance is to protect against the theft and destruction of personal property. In the case of catastrophes like fire, explosion, theft, or vandalism, property insurance helps cover your costs - whether it's to repair damaged property or replace what you've lost. For insurance purposes, when you think of property it comes in three forms- real, personal, and auto.

Real
One of the basic dividing lines between property is that between real property and personal property. Generally, the term real property refers to land. Land, in its general usage, includes not only the face of the earth but everything of a permanent nature over or under it. This includes natural structures and minerals located on or beneath the land structure. Besides obtaining an umbrella liability policy, raw land is typically uninsurable. Homeowner's can and should look into purchasing a flood or erosion insurance policy if their home is located in a county deemed flood zone or a state that may experience heavy rains or hurricanes.

Personal
The two most common types of personal property insurance policies are homeowner's and renter's insurance policies. Named-peril policies list only the kinds of risk that are covered; the problem here is that policyholders may not realize what's missing until then try to file a claim. They may discover, for example, that they are insured for theft but not for damage due to vandalism. A property insurance policy is not a maintenance contract, it is meant to cover sudden and accidental losses, not loss associated with the lack of proper maintenance of a property.

There are three methods of settling a loss, they include:

Guaranteed Replacement Cost- These policies are the best and most expensive to own. They generally pay whatever it costs to rebuild or replace your home or property exactly as it was before the fire or other catastrophe.
Replacement Cost- These are policies that will pay to repair or replace property with materials of similar quality. If a storm tears off your 5-year-old roof, a replacement cost policy will pay for a new roof.
Cash Value Policies- These policies will pay only the cash value of the property at the time of the claim, which can be considerably less than the cost of having it fixed. For example- If your 10-year old television is stolen, the insurance company will take into consideration the depreciation on the television for the last ten years and only pay cash for the current market value of the old TV.

Practice Question:
Which of the following statements is incorrect regarding homeowners policies?

A. The insurance company must provide notice if the policy is not going to be renewed
B. The insurance company can elect to repair or replace property instead of paying cash
C. The policy covers the insured's interest in the property
D. The insured can assign the policy without written consent from the insurance company

Answer: D
Because homeowner policies are considered personal contracts, the insured does not have the right to assign the policy to another without the written consent of the insurance company.

Personal Vehicle Insurance and Risks
Related Articles
  1. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  2. Products and Investments

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  3. Professionals

    A Day In The Life Of A Public Accountant

    Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
  4. Professionals

    A Day in the Life of a Public Accountant

    There’s no typical day in the life of a public accountant, but one accountant’s experience may shed some light on what the career entails.
  5. Saving and Spending

    A Key Tip for Making Your Nest Egg Last Longer

    Retirees who don't want to deplete their nest eggs during a bear market should make sure to do the following.
  6. Mutual Funds & ETFs

    Fidelity Target Risk Funds Overview

    Get a brief overview of Fidelity's seven target risk funds, with a description of each fund's asset allocation and expense ratio.
  7. Investing News

    Is it the Right Time to Raise Interest Rates?

    Warning signs have started to emerge that point to a potentially dismal 2016 for the U.S. economy.
  8. Markets

    Four Big Risks of Algorithmic High-Frequency Trading

    Algorithmic HFT has a number of risks, and it also can amplify systemic risk because of its propensity to intensify market volatility.
  9. Mutual Funds & ETFs

    The Top 3 Invesco Funds for Retirement Diversification in 2016

    Explore analyses of the top three Invesco mutual funds for retirement diversification in 2016, and learn about the characteristics of these target-date funds.
  10. Investing Basics

    Hedging Risk for Beginners: How and When to Do It

    Hedging risk is always a good idea. Here is how sophisticated investors go about it.
RELATED TERMS
  1. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  2. Equity Risk Premium

    The excess return that investing in the stock market provides ...
  3. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  4. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  5. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  6. Gross Exposure

    The absolute level of a fund's investments.
RELATED FAQS
  1. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Full Answer >>
  2. Are secured personal loans better than unsecured loans?

    Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest ... Read Full Answer >>
  3. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  4. Why are mutual funds subject to market risk?

    Like all securities, mutual funds are subject to market, or systematic, risk. This is because there is no way to predict ... Read Full Answer >>
  5. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  6. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center